82 FR 9846 - Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Adopt Rules 4.5 Through 4.16 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 | 9846-9858 | |
| FR Document | 2017-02549 |
[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)] [Notices] [Pages 9846-9858] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-02549] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79944; File No. SR-BatsBYX-2017-02] Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Adopt Rules 4.5 Through 4.16 To Implement the Compliance Rule Regarding the National Market System Plan Governing the Consolidated Audit Trail February 2, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on January 30, 2017, Bats BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II and III 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-BatsBYX-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 filed a proposal to adopt Rules 4.5 through 4.16 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 at the Exchange's Web site at www.bats.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts 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, NASDAQ BX, Inc., NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. (collectively, the ``Participants'') filed with the Commission, pursuant to Section 11A of the Exchange Act \5\ and Rule 608 of Regulation NMS thereunder,\6\ the CAT NMS Plan.\7\ 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,\8\ and approved by the Commission, as modified, on November 15, 2016.\9\ --------------------------------------------------------------------------- \5\ 15 U.S.C. 78k-1. \6\ 17 CFR 242.608. \7\ 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. \8\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016). \9\ Securities Exchange Act Rel. 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.\10\ As is described more fully below, the Proposed Rules 4.5 through 4.16 set forth the Compliance Rule to require Industry Members to comply with the provisions of the CAT NMS Plan. The Proposed Rules 4.5 through 4.16 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. --------------------------------------------------------------------------- \10\ See SEC Rule 613(g)(1). --------------------------------------------------------------------------- (i) Definitions Proposed Rule 4.5 (Consolidated Audit Trail--Definitions) sets forth the definitions for the terms used in the Proposed Rules 4.5 through 4.16. Each of the defined terms in Proposed Rule 4.5 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 Customer's associated with orders. For example, SEC Rule 613(c)(7)(i)(A) requires an Industry Member to report the ``Customer- ID'' 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. [[Page 9847]] 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.\11\ The alternative approach is called the Customer Information Approach. --------------------------------------------------------------------------- \11\ 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 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, 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 4.5 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 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 4.5 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 4.5 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 [[Page 9848]] 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.\12\ 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. --------------------------------------------------------------------------- \12\ See 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 4.5 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 4.5 defines the term ``Business Clock'' as a clock used to record the date and time of any Reportable Event required to be reported under Rules 4.5 through 4.16. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, except the Exchange proposes to replace the phrase ``under SEC Rule 613'' at the end of the definition in Section 1.1 of the Plan with the phrase ``under Rules 4.5 through 4.16.'' This change is intended to recognize that the Industry Members' obligations with regard to the CAT are set forth in Rules 4.5 through 4.16. (E) CAT Paragraph (e) of Proposed Rule 4.5 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 4.5 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 link 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 4.5 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.\13\ Such a third party, referred to in the Proposed Rules 4.5 through 4.16 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 4.5 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 Rules 4.5 through 4.16. --------------------------------------------------------------------------- \13\ 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 4.5 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 4.5 defines the term ``Compliance Threshold'' as having the meaning set forth in Proposed Rule 4.15(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 4.15(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 [[Page 9849]] Information, as well as data related to their Customer's Reportable Events. Accordingly, Paragraph (k) of Proposed Rule 4.5 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 Rules 4.5 through 4.16. 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 4.5 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 4.5(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) 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 4.5 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.\14\ 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 Rules 4.5 through 4.16, the Exchange proposes to define ``Data Submitter'' in paragraph (n) of Proposed Rule 4.5. Specifically, paragraph (n) of Proposed Rule 4.5 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. --------------------------------------------------------------------------- \14\ Appendix C, Section A.1(a) of the CAT NMS Plan. --------------------------------------------------------------------------- (O) Eligible Security The reporting requirements of the Proposed Rules 4.5 through 4.16 only apply to Reportable Events in Eligible Securities. Currently, an Eligible Security includes NMS Securities and OTC Equity Securities. Accordingly, paragraph (p) [sic] of Proposed Rule 4.5 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.\15\ The Operating Committee reviews and resets the maximum Error Rate, at least annually.\16\ 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 [[Page 9850]] CAT NMS Plan or Rule 613.\17\ As such, the Exchange or the SEC ``may [sic] take appropriate action against an Industry Member for failing to comply with its CAT reporting obligations.\18\ The CAT NMS Plan sets the initial Error Rate at 5%.\19\ 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.\20\ --------------------------------------------------------------------------- \15\ Section 6.5(d)(i) of the CAT NMS Plan. \16\ Appendix C, Section A.3(b) of the CAT NMS Plan. \17\ Appendix C, Section A.3(b) of the CAT NMS Plan; Rule 613(g)-(h). \18\ Appendix C, Section A.3(b) of the CAT NMS Plan. \19\ Section 6.5(d)(i) of the CAT NMS Plan. \20\ 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.\21\ --------------------------------------------------------------------------- \21\ 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 4.5. Paragraph (p) of Proposed Rule 4.5 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 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 4.5. Specifically, paragraph (q) of Proposed Rule 4.5 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 4.5 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 4.5 states that the term ``Industry Member Data'' has the meaning set forth in Rule 4.7(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 4.7(a)(2). (T) Initial Plan Processor Paragraph (t) of Proposed Rule 4.5 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 the Proposed Rules 4.5 through 4.16 apply to Eligible Securities, which includes NMS Securities, which, in turn, includes Listed Options. Certain requirements of the Proposed Rules 4.5 through 4.16 apply specifically to Listed Options. Accordingly, Paragraph (u) of Proposed Rule 4.5 defines the term ``Listed Option'' or ``Option.'' Specifically, paragraph (u) of Proposed Rule 4.5 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.\22\ 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 systems use 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 [[Page 9851]] 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. --------------------------------------------------------------------------- \22\ 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 4.5. Specifically, paragraph (v) of Proposed Rule 4.5 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 4.7 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 4.5. Specifically, paragraph (w) of Proposed Rule 4.5 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 define the term ``NMS Security'' in Proposed Rule 4.5. Specifically, paragraph (x) of Proposed Rule 4.5 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 4.5 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 4.5 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.\23\ 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 --------------------------------------------------------------------------- \23\ 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 4.5. Specifically, paragraph (aa) of Proposed Rule 4.5 defines the term ``Options Market Makers'' 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 Rules 4.5 through 4.16 require 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 4.5. Specifically, paragraph (bb) of Proposed Rule 4.5 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 4.5. Specifically, paragraph (cc) of Proposed Rule 4.5 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 [[Page 9852]] the same definition as set forth in Section 1.1 of the CAT NMS Plan. (DD) Participant Paragraph (dd) of Proposed Rule 4.5 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 4.5 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 4.5 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 4.5 states that the term ``Received Industry Member Data'' has the meaning set forth in Rule 4.7(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 4.7(a)(2). (HH) Recorded Industry Member Data Paragraph (hh) of Proposed Rule 4.5 states that the term ``Recorded Industry Member Data'' has the meaning set forth in Rule 4.7(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 below regarding Proposed Rule 4.7(a)(1). (II) Reportable Event The Proposed Rules 4.5 through 4.16 require 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 4.5. Specifically, paragraph (ii) of Proposed Rule 4.5 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 4.5 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).\24\ 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. --------------------------------------------------------------------------- \24\ See Exemptive Request Letter at 19, and Exemption Order. --------------------------------------------------------------------------- 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 or itself; and information to identify each such Industry Member, including the CRD number and LEI if such LEI has been obtained, and itself, including LEI, if such LEI has been obtained. Additionally, each Industry Member is required to submit to the Central Repository information sufficient to identify such Industry Member, including CRD number and LEI, if such LEI has been obtained. The Plan Processor will use this information to assign a CAT-Reporter-ID to each Industry Member for internal use within the Central Repository. (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 Identifier'' in Proposed Rule 4.5. Specifically, paragraph (kk) of Proposed Rule 4.5 defines the term ``SRO-Assigned Market Participant Identifier'' to mean an identifier assigned to an Industry Member by an SRO or an 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 Rules 4.5 through 4.16 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 4.5. Specifically, paragraph (ll) of Proposed Rule 4.5 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 [[Page 9853]] turn, is a small broker-dealer as defined in SEC Rule 0-10(c). (MM) Trading Day Proposed Rule 4.7(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 4.5. Specifically, Paragraph (mm) of Proposed Rule 4.5 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.\25\ To implement these provisions with regard to its Industry Members, the Exchange proposes Rule 4.6 (Consolidated Audit Trail--Clock Synchronization) to require its Industry Members to comply with the clock synchronization requirements of the Plan. --------------------------------------------------------------------------- \25\ 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 4.6 sets forth the manner in which Industry Members must synchronize their Business Clocks. Paragraph (a)(1) of Proposed Rule 4.6 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 4.6 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 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 4.6 clarifies that the tolerance described in paragraphs (a)(1) and (2) of the Proposed Rule 4.6 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 4.6 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 4.6 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 4.6 sets forth certification requirements with regard to clock synchronization. Specifically, paragraph (c) of Proposed Rule 4.6 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 4.6 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 4.6 establishes reporting requirements with regard to clock synchronization. Paragraph (d) of Proposed Rule 4.6 requires Industry Members to report to the Plan Processor and the Exchange, 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 4.7 (Consolidated Audit Trail--Industry Member Data Reporting) to require its Industry Members to comply with the Industry Member Data reporting requirements of the Plan. Proposed Rule 4.7 has six sections [sic] 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 4.7 describes the recording and reporting of Industry Member Data to the Central Repository. Paragraph (a) consists of [[Page 9854]] 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 4.7 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 4.10); 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 4.10); (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 4.10); (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 modification or cancellation is received or originated (using timestamps pursuant to Proposed Rule 4.10); (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 4.10; (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 4.7 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 4.7(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 4.8, Customer Account Information and Customer Identifying Information for the relevant Customer. Paragraph (a)(3) of Proposed Rule 4.7 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 4.7 describes the requirements related to the timing of recording and reporting of Industry Member Data. Paragraphs (b)(1)-(b)(3) of Proposed Rule 4.7 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 4.7 requires each Industry Member to record Recorded Industry Member Data contemporaneously with the applicable Reportable Event. Paragraph (b)(2) of Proposed Rule 4.7 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 4.7 describes the securities to which the recording and reporting requirements of Proposed Rule 4.7 apply. Paragraphs (c)(1) and (c)(2) of Proposed Rule 4.7 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 4.7 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 4.7 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 4.7 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 4.7 for each Eligible Security for which transaction reports are required to be submitted to FINRA. (D) Security Symbology Paragraph (d) of Proposed Rule 4.7 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 4.7 requires, for each exchange-listed Eligible Security, [[Page 9855]] 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 4.7 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 4.7, which addresses the correction of erroneous data reported to the Central Repository. Paragraph (e) of Proposed Rule 4.7 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 4.8 (Consolidated Audit Trail--Customer Information Reporting) to implement this provision of the CAT NMS Plan with regard to its Industry Members. Specifically, paragraph (a) of Proposed Rule 4.8 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 4.13. Paragraph (b) of Proposed Rule 4.8 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 4.8 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 4.8 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 4.9 (Consolidated Audit Trail--Industry Member Information Reporting) to implement this provision of the CAT NMS Plan with regard to its Industry Members. Specifically, Proposed Rule 4.9 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 4.13, 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.\26\ 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 4.10 (Consolidated Audit Trail--Time Stamps) to require its Industry Members to comply with the time stamp requirements of the Plan. --------------------------------------------------------------------------- \26\ 17 CFR 242.613(d)(3). --------------------------------------------------------------------------- Paragraph (a) of Proposed Rule 4.10 sets forth the time stamp increments to be used by Industry Members in their CAT reporting. Paragraph (a)(1) of Proposed Rule 4.10 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 4.10. 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 4.10 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 4.10 regarding Manual Order Events and Allocation Reports. Paragraph (b) of Proposed Rule 4.10 sets forth the permissible time stamp increments for Manual Order Events and Allocation Reports. Specifically, paragraph (b)(1) of Proposed Rule 4.10 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 4.10 permits each Industry Member to record and report the time of Allocation Reports in [[Page 9856]] increments up to and including one second. (vii) Clock Synchronization Rule Violations Proposed Rule 4.11 (Consolidated Audit Trail--Clock Synchronization Rule Violations) describes potential violations of the clock synchronization time period requirements set forth in the Proposed Rules 4.5 through 4.16. Proposed Rule 4.11 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 Proposed Rules 4.5 through 4.16 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 4.12 (Consolidated Audit Trail--Connectivity and Data Transmission) addresses connectivity and data transmission requirements related to the CAT. Paragraph (a) of Proposed Rule 4.12 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 4.12 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 4.12 addresses connectivity requirements related to the CAT. Paragraph (b) of Proposed Rule 4.12 requires each Industry Member to connect to the 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 4.12 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 Rules 4.5 through 4.16. 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 Rules 4.5 through 4.16. The Exchange notes that, currently, no standardized form agreement for CAT Reporting Agent arrangements has been adopted. Paragraph (c)(2) of Proposed Rule 4.12 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 Rules 4.5 through 4.16, notwithstanding the existence of an agreement described in paragraph (c) of Proposed Rule 4.12. (ix) Development and Testing The Exchange proposes Rule 4.13 (Consolidated Audit Trail-- Development and Testing) to address requirements for Industry Members related to CAT development and testing. Paragraph (a) of Proposed Rule 4.13 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 4.8(a) and 4.9, 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 4.8(a) and 4.9, 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 4.13 implements the requirement under the CAT NMS Plan that Industry Members participate in required industry testing with the Central Repository.\27\ Specifically, Proposed Rule 4.13 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. --------------------------------------------------------------------------- \27\ Approval Order at 84725. --------------------------------------------------------------------------- (x) Recordkeeping Proposed Rule 4.14 (Consolidated Audit Trail--Recordkeeping) sets forth the recordkeeping obligations related to the CAT for Industry Members. Proposed Rule 4.14 requires each Industry Member to maintain and preserve records of the information required to be recorded in accordance with the Proposed Rules 4.5 through 4.16, for the period of time and accessibility specified in SEC Rule 17a-4(b). The records required to be maintained and preserved in accordance [[Page 9857]] with Proposed Rules 4.5 through 4.16, 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 4.14 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.\28\ Accordingly, Proposed Rule 4.15 (Consolidated Audit Trail--Timely, Accurate and Complete Data) implements this requirement with regard to Industry Members. Paragraph (a) of Proposed Rule 4.15 requires that Industry Members record and report data to the Central Repository as required by the Proposed Rules 4.5 through 4.16 in a manner that ensures the timeliness, accuracy, integrity and completeness of such data. --------------------------------------------------------------------------- \28\ 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 4.15 requires Industry Members to accurately provide the LEIs in their records as required by the Proposed Rules 4.5 through 4.16 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 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.\29\ --------------------------------------------------------------------------- \29\ 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 Rules 4.5 through 4.16. 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 4.15 addresses Compliance Thresholds related to reporting data to the CAT. Proposed Rule 4.15 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.\30\ Compliance Thresholds will include compliance with the data reporting and clock synchronization requirements. Proposed Rule 4.15 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 Rules 4.5 through 4.16. --------------------------------------------------------------------------- \30\ Appendix C of the CAT NMS Plan. --------------------------------------------------------------------------- (xii) Compliance Dates Proposed Rule 4.16 (Consolidated Audit Trail--Compliance Dates) sets forth the compliance dates for the various provisions of the Proposed Rules 4.5 through 4.16. Paragraphs (b) and (c) of this Rule set forth the additional details with respect to the compliance date of the Proposed Rules 4.5 through 4.16. Unless otherwise noted, the Proposed Rules 4.5 through 4.16 will be fully effective upon approval by the Commission and Members must comply with their terms. Paragraph (b) of Proposed Rule 4.16 establishes the compliance dates for the clock synchronization requirements as set forth in Proposed Rule 4.6. Paragraph (b)(1) states that each Industry Member shall comply with Rule 4.6 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 4.6 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.\31\ --------------------------------------------------------------------------- \31\ See Letter from Participants to Brent J. Fields, Secretary, U.S. Securities and Exchange Commission, dated January 17, 2017, requesting exemptive relief from SEC Rule 613(a)(3)(iii) and Section 6.7(a)(ii) of the CAT NMS Plan. --------------------------------------------------------------------------- Paragraph (c) of Proposed Rule 4.16 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 require, 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)(5). \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 [[Page 9858]] 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 Rules 4.5 through 4.16 implement 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 similar rules to apply the requirements of the CAT NMS Plan to their members. 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. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-BatsBYX-2017-02 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-BatsBYX-2017-02. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-BatsBYX-2017-02 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\ Robert W. Errett, Deputy Secretary. --------------------------------------------------------------------------- \35\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- [FR Doc. 2017-02549 Filed 2-7-17; 8:45 am] BILLING CODE 8011-01-P
![9846 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
For the Commission, by the Division of II. Self-Regulatory Organization’s audit trail (‘‘CAT’’) that would capture
Trading and Markets, pursuant to delegated Statement of the Purpose of, and customer and order event information
authority.35 Statutory Basis for, the Proposed Rule for orders in NMS Securities and OTC
Robert W. Errett, Change Equity Securities, across all markets,
Deputy Secretary. In its filing with the Commission, the from the time of order inception through
[FR Doc. 2017–02540 Filed 2–7–17; 8:45 am] Exchange included statements routing, cancellation, modification, or
concerning the purpose of and basis for execution in a single consolidated data
BILLING CODE 8011–01–P
the proposed rule change and discussed source. Each Participant is required to
any comments it received on the enforce compliance by its Industry
SECURITIES AND EXCHANGE proposed rule change. The text of these Members, as applicable, with the
statements may be examined at the provisions of the Plan, by adopting a
COMMISSION
places specified in Item IV below. The Compliance Rule applicable to their
Exchange has prepared summaries, set Industry Members.10 As is described
[Release No. 34–79944; File No. SR– more fully below, the Proposed Rules
BatsBYX–2017–02] forth in Sections A, B, and C below, of
the most significant parts of such 4.5 through 4.16 set forth the
statements. Compliance Rule to require Industry
Self-Regulatory Organizations; Bats Members to comply with the provisions
BYX Exchange, Inc.; Notice of Filing of (A) Self-Regulatory Organization’s of the CAT NMS Plan. The Proposed
a Proposed Rule Change To Adopt Statement of the Purpose of, and Rules 4.5 through 4.16 include twelve
Rules 4.5 Through 4.16 To Implement Statutory Basis for, the Proposed Rule Proposed Rules covering the following
the Compliance Rule Regarding the Change areas: (1) Definitions; (2) clock
National Market System Plan synchronization; (3) Industry Member
Governing the Consolidated Audit Trail 1. Purpose
Data reporting; (4) Customer
Bats BYX Exchange, Inc., Bats BZX information reporting; (5) Industry
February 2, 2017. Exchange, Inc., Bats EDGA Exchange, Member information reporting; (6) time
Pursuant to Section 19(b)(1) of the Inc., Bats EDGX Exchange, Inc., BOX stamps; (7) clock synchronization rule
Securities Exchange Act of 1934 (the Options Exchange LLC, C2 Options violations; (8) connectivity and data
‘‘Act’’),1 and Rule 19b–4 thereunder,2 Exchange, Incorporated, Chicago Board transmission; (9) development and
notice is hereby given that on January Options Exchange, Incorporated, testing; (10) recordkeeping; (11) timely,
30, 2017, Bats BYX Exchange, Inc. (the Chicago Stock Exchange, Inc., Financial accurate and complete data; and (12)
‘‘Exchange’’ or ‘‘BYX’’) filed with the Industry Regulatory Authority, Inc., compliance dates. Each of these
Securities and Exchange Commission International Securities Exchange, LLC, Proposed Rules are discussed in detail
Investors’ Exchange LLC, ISE Gemini, below.
(‘‘Commission’’) the proposed rule
LLC, ISE Mercury, LLC, Miami
change as described in Items I, II and III (i) Definitions
International Securities Exchange LLC,
below, which Items have been prepared MIAX PEARL, LLC, NASDAQ BX, Inc.,
by the Exchange.3 The Commission is Proposed Rule 4.5 (Consolidated
NASDAQ PHLX LLC, The NASDAQ Audit Trail—Definitions) sets forth the
publishing this notice to solicit Stock Market LLC, National Stock definitions for the terms used in the
comments on the proposed rule change Exchange, Inc., New York Stock Proposed Rules 4.5 through 4.16. Each
from interested persons. Exchange LLC, NYSE MKT LLC, and of the defined terms in Proposed Rule
I. Self-Regulatory Organization’s NYSE Arca, Inc. (collectively, the 4.5 is discussed in detail in this section.
Statement of the Terms of Substance of ‘‘Participants’’) filed with the
Commission, pursuant to Section 11A of (A) Account Effective Date
the Proposed Rule Change
the Exchange Act 5 and Rule 608 of (I) Customer Information Approach
The Exchange filed a proposal to Regulation NMS thereunder,6 the CAT
SEC Rule 613 requires that numerous
adopt Rules 4.5 through 4.16 to NMS Plan.7 The Participants filed the
data elements be reported to the CAT to
implement the compliance rule Plan to comply with Rule 613 of
ensure there is sufficient information to
(‘‘Compliance Rule’’) regarding the Regulation NMS under the Exchange
create the lifecycle of an order, and
National Market System Plan Governing Act. The Plan was published for
provide regulators with sufficient detail
the Consolidated Audit Trail (the ‘‘CAT comment in the Federal Register on
about an order to perform their
NMS Plan’’ or ‘‘Plan’’).4 May 17, 2016,8 and approved by the
regulatory duties. Certain required
Commission, as modified, on November
The text of the proposed rule change elements are intended to ensure that the
15, 2016.9
is available at the Exchange’s Web site regulators can identify the Customer’s
The Plan is designed to create,
at www.bats.com, at the principal office associated with orders. For example,
implement and maintain a consolidated
of the Exchange, and at the SEC Rule 613(c)(7)(i)(A) requires an
Commission’s Public Reference Room. 5 15 U.S.C. 78k–1.
Industry Member to report the
6 17 CFR 242.608. ‘‘Customer-ID’’ for each Customer for
7 See Letter from the Participants to Brent J. the original receipt or origination of an
35 17 CFR 200.30–3(a)(12). Fields, Secretary, Commission, dated September 30, order. ‘‘Customer-ID’’ is defined in SEC
1 15 U.S.C. 78s(b)(1). 2014; and Letter from Participants to Brent J. Fields, Rule 613(j)(5) to mean ‘‘with respect to
asabaliauskas on DSK3SPTVN1PROD with NOTICES
2 17 CFR 240.19b–4. Secretary, Commission, dated February 27, 2015.
On December 24, 2015, the Participants submitted
a customer, a code that uniquely and
3 The Exchange originally filed this proposed rule
an amendment to the CAT NMS Plan. See Letter consistently identifies such customer for
change on January 17, 2017 under File No. SR–
from Participants to Brent J. Fields, Secretary, purposes of providing data to the
BatsBYX–2017–01, and the Exchange subsequently Commission, dated December 23, 2015.
withdrew that filing on January 30, 2017 and filed
Central Repository.’’ SEC Rule 613(c)(8)
8 Securities Exchange Act Rel. No. 77724 (Apr.
this proposed rule change. requires Industry Members to use the
27, 2016), 81 FR 30614 (May 17, 2016).
4 Unless otherwise specified, capitalized terms 9 Securities Exchange Act Rel. No. 79318 (Nov. same Customer-ID for each Customer.
used in this rule filing are defined as set forth 15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval
herein or in the CAT NMS Plan. Order’’). 10 See SEC Rule 613(g)(1).
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![Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 9849
Information, as well as data related to account opened is changed to the date Repository.14 Such Data Submitters may
their Customer’s Reportable Events. the account was opened on the new include those entities that are required
Accordingly, Paragraph (k) of Proposed back office/clearing firm system; (2) to submit data to the Central Repository
Rule 4.5 proposes to define the term where an Industry Member acquires (e.g., national securities exchanges,
‘‘Customer.’’ Specifically, the term another Industry Member and the date national securities associations and
‘‘Customer’’ would be defined to mean: account opened is changed to the date Industry Members), third-parties that
(1) The account holder(s) of the account the account was opened on the post- may submit data to the CAT on behalf
at an Industry Member originating the merger back office/clearing firm system; of CAT Reporters (i.e., CAT Reporting
order; and (2) any person from whom (3) where there are multiple dates Agents), and outside parties that are not
the Industry Member is authorized to associated with an account in an required to submit data to the CAT but
accept trading instructions for such Industry Member’s system, and the from which the CAT may receive data
account, if different from the account parameters of each date are determined (e.g., securities information processors
holder(s). This is the same definition as by the individual Industry Member; and (‘‘SIPs’’)). To include this term in the
set forth in SEC Rule 613(j)(3), except (4) where the relevant account is an Proposed Rules 4.5 through 4.16, the
the Exchange proposes to replace the Industry Member proprietary account. Exchange proposes to define ‘‘Data
references to a registered broker-dealer The proposed definition is the same as Submitter’’ in paragraph (n) of Proposed
or broker-dealer with a reference to an the definition of ‘‘Customer Account Rule 4.5. Specifically, paragraph (n) of
Industry Member for consistency of Information’’ set forth in Section 1.1 of Proposed Rule 4.5 defines a ‘‘Data
terms used in the Proposed Rules 4.5 the CAT NMS Plan, provided, however, Submitter’’ to mean any person that
through 4.16. The Exchange also notes that specific dates have replaced the reports data to the Central Repository,
that Section 1.1 of the CAT NMS Plan descriptions of those dates set forth in including national securities exchanges,
defines ‘‘Customer’’ by reference to SEC Section 1.1 of the Plan. national securities associations, broker-
Rule 613(j)(3). dealers, the SIPs for the CQS, CTA, UTP
(M) Customer Identifying Information and Plan for Reporting of Consolidated
(L) Customer Account Information
As discussed above, under the Options Last Sale Reports and
As discussed above, under the Quotation Information (‘‘OPRA’’) Plans,
Customer Information Approach, Customer Information Approach,
Industry Members are required to report and certain other vendors or third
Industry Members are required to report parties that may submit data to the
Customer Account Information to the Customer Identifying Information to the
Central Repository as part of the Central Repository on behalf of Industry
Central Repository as part of the
customer definition process. Members.
customer definition process.
Accordingly, the Exchange proposes to Accordingly, the Exchange proposes to (O) Eligible Security
define the term ‘‘Customer Account define the term ‘‘Customer Account
Information’’ to clarify what customer Information’’ to clarify what Customer The reporting requirements of the
information would need to be reported information would need to be reported Proposed Rules 4.5 through 4.16 only
to the Central Repository. to the Central Repository. apply to Reportable Events in Eligible
Paragraph (l) of Proposed Rule 4.5 Securities. Currently, an Eligible
Paragraph (m) of Proposed Rule 4.5
defines the term ‘‘Customer Account Security includes NMS Securities and
defines the term ‘‘Customer Identifying
Information’’ to include, in part, OTC Equity Securities. Accordingly,
Information’’ to mean information of
account number, account type, customer paragraph (p) [sic] of Proposed Rule 4.5
sufficient detail to identify a Customer.
type, date account opened, and large defines the term ‘‘Eligible Security’’ to
With respect to individuals, ‘‘Customer
trader identifier (if applicable). include: (1) All NMS Securities; and (2)
Identifying Information’’ includes, but is
Proposed Rule 4.5(l), however, provides all OTC Equity Securities. The terms
not limited to: Name, address, date of
an alternative definition of ‘‘Customer ‘‘NMS Securities’’ and ‘‘OTC Equity
birth, individual tax payer identification
Account Information’’ in two limited Securities’’ are defined, in turn, below.
number (‘‘ITIN’’)/social security number
circumstances. First, in those This is the same definition as set forth
(‘‘SSN’’), individual’s role in the
circumstances in which an Industry in Section 1.1 of the CAT NMS Plan.
account (e.g., primary holder, joint
Member has established a trading holder, guardian, trustee, person with (P) Error Rate
relationship with an institution but has the power of attorney). With respect to
not established an account with that (I) Maximum Error Rate
legal entities, ‘‘Customer Identifying
institution, the Industry Member will: Information’’ includes, but is not Under the CAT NMS Plan, the
(1) Provide the Account Effective Date limited to, name, address, Employer Operating Committee sets the maximum
in lieu of the ‘‘date account opened’’; (2)
Identification Number (‘‘EIN’’)/Legal Error Rate that the Central Repository
provide the relationship identifier in
Entity Identifier (‘‘LEI’’) or other would tolerate from an Industry
lieu of the ‘‘account number’’; and (3)
comparable common entity identifier, if Member reporting data to the Central
identify the ‘‘account type’’ as a
applicable. The definition further notes Repository.15 The Operating Committee
‘‘relationship.’’ Second, in those
that an Industry Member that has an LEI reviews and resets the maximum Error
circumstances in which the relevant
for a Customer must submit the Rate, at least annually.16 If an Industry
account was established prior to
Customer’s LEI in addition to other Member reports CAT data to the Central
November 15, 2018 for Industry
information of sufficient detail to Repository with errors such that their
Members other than Small Industry
asabaliauskas on DSK3SPTVN1PROD with NOTICES
identify the Customer. This is the same error percentage exceeds the maximum
Members, or prior to November 15, 2019
definition as set forth in Section 1.1 of Error Rate, then such Industry Member
for Small Industry Members, and no
the CAT NMS Plan. would not be in compliance with the
‘‘date account opened’’ is available for
the account, the Industry Member will (N) Data Submitter 14 Appendix C, Section A.1(a) of the CAT NMS
provide the Account Effective Date in Plan.
the following circumstances: (1) Where The CAT NMS Plan uses the term 15 Section 6.5(d)(i) of the CAT NMS Plan.
an Industry Member changes back office ‘‘Data Submitter’’ to refer to any person 16 Appendix C, Section A.3(b) of the CAT NMS
providers or clearing firms and the date that reports data to the Central Plan.
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CAT NMS Plan or Rule 613.17 As such, NMS Plan defines ‘‘Error Rate’’ by to mean the first Plan Processor selected
the Exchange or the SEC ‘‘may [sic] take reference to SEC Rule 613(j)(6). by the Operating Committee in
appropriate action against an Industry accordance with SEC Rule 613, Section
(Q) Firm Designated ID
Member for failing to comply with its 6.1 of the CAT NMS Plan and the
CAT reporting obligations.18 The CAT As discussed above, under the National Market System Plan Governing
NMS Plan sets the initial Error Rate at Customer Information Approach, the the Process for Selecting a Plan
5%.19 It is anticipated that the CAT NMS Plan would require each Processor and Developing a Plan for the
maximum Error Rate will be reviewed Industry Member to assign a unique Consolidated Audit Trail. This is the
and lowered by the Operating Firm Designated ID to each Customer. same definition as set forth in Section
Committee once Industry Members Industry Members would be permitted 1.1 of the CAT NMS Plan, although the
begin to report to the Central to use as the Firm Designated ID an proposed definition uses the full name
Repository.20 account number or any other identifier of the ‘‘Selection Plan.’’
The CAT NMS Plan requires the Plan defined by the firm, provided each
identifier is unique across the firm for (U) Listed Option or Option
Processor to: (1) Measure and report
errors every business day; (2) provide each business date (i.e., a single firm The CAT NMS Plan and the Proposed
Industry Members daily statistics and may not have multiple separate Rules 4.5 through 4.16 apply to Eligible
error reports as they become available, customers with the same identifier on Securities, which includes NMS
including a description of such errors; any given date). Industry Members Securities, which, in turn, includes
(3) provide monthly reports to Industry would be required to report only the Listed Options. Certain requirements of
Members that detail an Industry Firm Designated ID for each new order the Proposed Rules 4.5 through 4.16
Member’s performance and comparison submitted to the Central Repository, apply specifically to Listed Options.
statistics; (4) define educational and rather than the ‘‘Customer-ID’’ with Accordingly, Paragraph (u) of Proposed
support programs for Industry Members individual order events. Accordingly, Rule 4.5 defines the term ‘‘Listed
to minimize Error Rates; and (5) the Exchange proposes to define the Option’’ or ‘‘Option.’’ Specifically,
identify, daily, all Industry Members term ‘‘Firm Designated ID’’ in Proposed paragraph (u) of Proposed Rule 4.5
exceeding the maximum allowable Error Rule 4.5. Specifically, paragraph (q) of states that the term ‘‘Listed Option’’ or
Rate. To timely correct data-submitted Proposed Rule 4.5 defines the term ‘‘Option’’ has the meaning set forth in
errors to the Central Repository, the ‘‘Firm Designated ID’’ to mean a unique SEC Rule 600(b)(35) of Regulation NMS.
CAT NMS Plan requires that the Central identifier for each trading account SEC Rule 600(b)(35), in turn, defines a
Repository receive and process error designated by Industry Members for listed option as ‘‘any option traded on
corrections at all times. Further, the purposes of providing data to the a registered national securities exchange
CAT NMS Plan requires that Industry Central Repository, where each such or automated facility of a national
Members be able to submit error identifier is unique among all identifiers securities association.’’ The Exchange
corrections to the Central Repository from any given Industry Member for notes that the proposed definition of
through a web-interface or via bulk each business date. This is the same ‘‘Listed Option’’ is the same definition
uploads or file submissions, and that the definition as set forth in Section 1.1 of as the definition set forth in Section 1.1
Plan Processor, subject to the Operating the CAT NMS Plan. Industry Members of the CAT NMS Plan.
Committee’s approval, support the bulk would be permitted to use an account
number or any other identifier defined (V) Manual Order Event
replacement of records and the
reprocessing of such records. The by the firm, provided each identifier is (I) Manual Order Event Approach
Participants, furthermore, require that unique across the firm for each business The CAT NMS Plan sets forth clock
the Plan Processor identify Industry date (i.e., a single firm may not have synchronization and timestamp
Member data submission errors based multiple separate customers with the requirements for Industry Members
on the Plan Processor’s validation same identifier on any given date). which reflect exemptions for Manual
processes.21 (R) Industry Member Order Events granted by the
(II) Definition of Error Rate Paragraph (r) of Proposed Rule 4.5 Commission.22 Specifically, the Plan
defines the term ‘‘Industry Member’’ to requires Industry Members to record
To implement the requirements of the and report the time of each Reportable
mean a member of a national securities
CAT NMS Plan related to the Error Rate, Event using timestamps reflecting
exchange or a member of a national
the Exchange proposes to define the current industry standards (which must
securities association.’’ This is the same
term ‘‘Error Rate’’ in Proposed Rule 4.5. be at least to the millisecond) or, if an
definition as set forth in Section 1.1 of
Paragraph (p) of Proposed Rule 4.5 Industry Member’s order handling or
the CAT NMS Plan.
defines the term ‘‘Error Rate’’ to mean execution systems use timestamps in
the percentage of Reportable Events (S) Industry Member Data increments finer than milliseconds,
collected by the Central Repository in Paragraph (s) of Proposed Rule 4.5 such finer increments, when reporting
which the data reported does not fully states that the term ‘‘Industry Member to the Central Repository. For Manual
and accurately reflect the order event Data’’ has the meaning set forth in Rule Order Events, however, the Plan
that occurred in the market. This is the 4.7(a)(2). This definition has the same provides that such events must be
same definition as set forth in SEC Rule substantive meaning as the definition recorded in increments up to and
613(j)(6), and Section 1.1 of the CAT including one second, provided that
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set forth in Section 1.1 of the CAT NMS
Plan. The definition of ‘‘Industry Industry Members record and report the
17 Appendix C, Section A.3(b) of the CAT NMS
Member Data’’ is discussed more fully time the event is captured electronically
Plan; Rule 613(g)–(h). in an order handling and execution
18 Appendix C, Section A.3(b) of the CAT NMS
in the discussion below regarding
Proposed Rule 4.7(a)(2). system (‘‘Electronic Capture Time’’) in
Plan.
19 Section 6.5(d)(i) of the CAT NMS Plan. milliseconds. In addition, Industry
20 Appendix C, Section A.3(b) of the CAT NMS
(T) Initial Plan Processor Members are required to synchronize
Plan. Paragraph (t) of Proposed Rule 4.5
21 Approval Order at 84718. defines the term ‘‘Initial Plan Processor’’ 22 Exemption Order.
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![Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 9853
turn, is a small broker-dealer as defined NIST atomic clock, and maintain such with regard to clock synchronization.
in SEC Rule 0–10(c). synchronization. This is the same Specifically, paragraph (c) of Proposed
requirement as set forth in Section Rule 4.6 requires each Industry Member
(MM) Trading Day
6.8(a)(iii) and (iv) of the CAT NMS Plan. to certify to the Exchange that its
Proposed Rule 4.7(b) establishes the Paragraph (a)(3) of Proposed Rule 4.6 Business Clocks satisfy the
deadlines for reporting certain data to clarifies that the tolerance described in synchronization requirements set forth
the Central Repository using the term paragraphs (a)(1) and (2) of the Proposed in paragraph (a) of Proposed Rule 4.6
‘‘Trading Day.’’ Accordingly, the Rule 4.6 includes all of the following: periodically in accordance with the
Exchange proposes to define the term (1) The time difference between the certification schedule established by the
‘‘Trading Day’’ in Proposed Rule 4.5. NIST atomic clock and the Industry Operating Committee pursuant to the
Specifically, Paragraph (mm) of Member’s Business Clock; (2) the CAT NMS Plan. This requirement is the
Proposed Rule 4.5 states that the term transmission delay from the source; and same requirement as set forth in Section
‘‘Trading Day’’ shall have the meaning (3) the amount of drift of the Industry 6.8(a)(ii)(B), (iii) and (iv) of the CAT
as is determined by the Operating Member’s Business Clock. This NMS Plan. The Exchange intends to
Committee. For the avoidance of doubt, description of the clock synchronization announce to its Industry Members the
the Operating Committee may establish tolerance is the same as set forth in certification schedule established by the
different Trading Days for NMS Stocks paragraph (b) of FINRA Rule 4590 Operating Committee via Regulatory
(as defined in SEC Rule 600(b)(47), (Synchronization of Member Business Circular.
Listed Options, OTC Equity Securities, Clocks). Paragraph (d) of Proposed Rule 4.6
and any other securities that are Paragraph (a)(4) of Proposed Rule 4.6 establishes reporting requirements with
included as Eligible Securities from requires Industry Members to regard to clock synchronization.
time to time. synchronize their Business Clocks every Paragraph (d) of Proposed Rule 4.6
business day before market open to requires Industry Members to report to
(ii) Clock Synchronization ensure that timestamps for Reportable the Plan Processor and the Exchange,
SEC Rule 613(d)(1) under Regulation Events are accurate. In addition, to violations of paragraph (a) of this Rule
NMS requires Industry Members to maintain clock synchronization, pursuant to the thresholds set by the
synchronize their Business Clocks to the Business Clocks must be checked Operating Committee pursuant to the
time maintained by NIST, consistent against the NIST atomic clock and re- CAT NMS Plan. This requirement is the
with industry standards. To comply synchronized, as necessary, throughout same requirement as set forth in Section
with this provision, Section 6.8 of the the day. This description of the required 6.8(a)(ii)(C), (iii) and (iv) of the CAT
Plan sets forth the clock frequency of clock synchronization is NMS Plan. The Exchange intends to
synchronization requirements for the same as set forth in paragraph (c) of announce to its Industry Members the
Industry Members.25 To implement FINRA Rule 4590 (Synchronization of relevant thresholds established by the
these provisions with regard to its Member Business Clocks). Operating Committee via Regulatory
Industry Members, the Exchange Paragraph (b) of Proposed Rule 4.6 Circular.
proposes Rule 4.6 (Consolidated Audit sets forth documentation requirements
with regard to clock synchronization. (iii) Industry Member Data Reporting
Trail—Clock Synchronization) to
require its Industry Members to comply Specifically, paragraph (b) requires SEC Rule 613(c) under Regulation
with the clock synchronization Industry Members to document and NMS requires the CAT NMS Plan to set
requirements of the Plan. maintain their synchronization forth certain provisions requiring
Paragraph (a) of Proposed Rule 4.6 procedures for their Business Clocks. Industry Members to record and report
sets forth the manner in which Industry The Proposed Rule requires Industry data to the CAT. To comply with this
Members must synchronize their Members to keep a log of the times provision, Section 6.4 of the CAT NMS
Business Clocks. Paragraph (a)(1) of when they synchronize their Business Plan sets forth the data reporting
Proposed Rule 4.6 requires each Clocks and the results of the requirements for Industry Members. To
Industry Member to synchronize its synchronization process. This log is implement these provisions with regard
Business Clocks, other than such required to include notice of any time to its Industry Members, the Exchange
Business Clocks used solely for Manual a Business Clock drifts more than the proposes Rule 4.7 (Consolidated Audit
Order Events or used solely for the time applicable tolerance specified in Trail—Industry Member Data Reporting)
of allocation on Allocation Reports, at a paragraph (a) of the Proposed Rule. to require its Industry Members to
minimum to within a fifty (50) Such logs must include results for a comply with the Industry Member Data
millisecond tolerance of the time period of not less than five years ending reporting requirements of the Plan.
maintained by the NIST atomic clock, on the then current date, or for the Proposed Rule 4.7 has six sections [sic]
and maintain such synchronization. entire period for which the Industry covering: (1) Recording and reporting
This is the same requirement as set forth Member has been required to comply Industry Member Data, (2) timing of the
in Section 6.8(a)(ii)(A) of the CAT NMS with this Rule if less than five years. recording and reporting, (3) the
Plan. These documentation requirements are applicable securities covered by the
Paragraph (a)(2) of Proposed Rule 4.6 the same as those set forth in the recording and reporting requirements,
requires each Industry Member to ‘‘Sequencing Orders and Clock (4) the security symbology to be used in
synchronize (1) its Business Clocks used Synchronization’’ section of Appendix the recording and reporting, and (5)
C of the CAT NMS Plan. Moreover,
asabaliauskas on DSK3SPTVN1PROD with NOTICES
solely for Manual Order Events and (2) error correction requirements, each of
its Business Clocks used solely for the these documentation requirements which is described below.
time of allocation on Allocation Reports regarding clock synchronization are
comparable to those set forth in (A) Recording and Reporting Industry
at a minimum to within a one second Member Data
tolerance of the time maintained by the Supplementary Material .01 of FINRA
Rule 4590 (Synchronization of Member Paragraph (a) of Proposed Rule 4.7
25 In addition, Section 6.7(a)(ii) of the Plan sets Business Clocks). describes the recording and reporting of
forth the timeline for CAT Reporters to comply with Paragraph (c) of Proposed Rule 4.6 Industry Member Data to the Central
the clock synchronization requirements. sets forth certification requirements Repository. Paragraph (a) consists of
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![9858 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
the purposes of the Act.’’ 34 To the Comments may be submitted by any of SECURITIES AND EXCHANGE
extent that this proposal implements, the following methods: COMMISSION
interprets or clarifies the Plan and
applies specific requirements to Electronic Comments
[Release No. 34–79940; File No. SR–IEX–
Industry Members, the Exchange • Use the Commission’s Internet 2017–03]
believes that this proposal furthers the comment form (http://www.sec.gov/
objectives of the Plan, as identified by rules/sro.shtml); or Self-Regulatory Organizations:
the SEC, and is therefore consistent with Investors Exchange LLC; Notice of
the Act. • Send an email to rule-comments@ Filing of Proposed Rule Change To
sec.gov. Please include File Number SR– Amend IEX Rule 16.135 To Adopt
(B) Self-Regulatory Organization’s BatsBYX–2017–02 on the subject line. Generic Listing Standards for Managed
Statement on Burden on Competition
Paper Comments Fund Shares
The Exchange does not believe that
February 2, 2017.
the proposed rule change will result in • Send paper comments in triplicate
any burden on competition that is not Pursuant to Section 19(b)(1) 1 of the
to Secretary, Securities and Exchange
necessary or appropriate in furtherance Securities Exchange Act of 1934 (the
Commission, 100 F Street NE.,
of the purposes of the Act. The ‘‘Act’’) 2 and Rule 19b–4 thereunder,3
Washington, DC 20549–1090.
Exchange notes that the proposed rule notice is hereby given that, on January
change implements provisions of the All submissions should refer to File 19, 2017, the Investors Exchange LLC
CAT NMS Plan, and is designed to Number SR–BatsBYX–2017–02. This (‘‘IEX’’ or the ‘‘Exchange’’) filed with the
assist the Exchange in meeting its file number should be included on the Securities and Exchange Commission
regulatory obligations pursuant to the subject line if email is used. To help the (the ‘‘Commission’’) the proposed rule
Plan. The Exchange also notes that the Commission process and review your change as described in Items I and II
Proposed Rules 4.5 through 4.16 comments more efficiently, please use below, which Items have been prepared
implement provisions of the CAT NMS only one method. The Commission will by the self-regulatory organization. The
Plan will apply equally to all firms that post all comments on the Commission’s Commission is publishing this notice to
trade NMS Securities and OTC Equity Internet Web site (http://www.sec.gov/ solicit comments on the proposed rule
Securities. In addition, all national rules/sro.shtml). Copies of the change from interested persons.
securities exchanges and FINRA are submission, all subsequent I. Self-Regulatory Organization’s
proposing similar rules to apply the amendments, all written statements Statement of the Terms of Substance of
requirements of the CAT NMS Plan to with respect to the proposed rule the Proposed Rule Change
their members. Therefore, this is not a change that are filed with the
competitive rule filing, and, therefore, it Pursuant to the provisions of Section
Commission, and all written 19(b)(1) under the Securities Exchange
does not impose a burden on communications relating to the
competition. Act of 1934 (‘‘Act’’),4 and Rule 19b–4
proposed rule change between the thereunder,5 Investors Exchange LLC
(C) Self-Regulatory Organization’s Commission and any person, other than (‘‘IEX’’ or ‘‘Exchange’’) is filing with the
Statement on Comments on the those that may be withheld from the Commission a proposed rule change to
Proposed Rule Change Received From public in accordance with the amend IEX Rule 16.135 to adopt generic
Members, Participants or Others provisions of 5 U.S.C. 552, will be listing standards for Managed Fund
available for Web site viewing and Shares.
Written comments were neither
printing in the Commission’s Public The text of the proposed rule change
solicited nor received.
Reference Room, 100 F Street NE., is available at the Exchange’s Web site
III. Date of Effectiveness of the Washington, DC 20549 on official at www.iextrading.com, at the principal
Proposed Rule Change and Timing for business days between the hours of office of the Exchange, and at the
Commission Action 10:00 a.m. and 3:00 p.m. Copies of the Commission’s Public Reference Room.
Within 45 days of the date of filing also will be available for II. Self-Regulatory Organization’s
publication of this notice in the Federal inspection and copying at the principal Statement of the Purpose of, and the
Register or within such longer period (i) office of the Exchange. All comments Statutory Basis for, the Proposed Rule
as the Commission may designate up to received will be posted without change; Change
90 days of such date if it finds such the Commission does not edit personal
identifying information from In its filing with the Commission, the
longer period to be appropriate and self-regulatory organization included
publishes its reasons for so finding or submissions. You should submit only
statements concerning the purpose of
(ii) as to which the Exchange consents, information that you wish to make
and basis for the proposed rule change
the Commission will: (a) By order available publicly. All submissions
and discussed any comments it received
approve or disapprove such proposed should refer to File Number SR– on the proposed rule change. The text
rule change, or (b) institute proceedings BatsBYX–2017–02 and should be of these statements may be examined at
to determine whether the proposed rule submitted on or before March 1, 2017. the places specified in Item IV below.
change should be disapproved. For the Commission, by the Division of The self-regulatory organization has
asabaliauskas on DSK3SPTVN1PROD with NOTICES
IV. Solicitation of Comments Trading and Markets, pursuant to delegated prepared summaries, set forth in
authority.35 Sections A, B, and C below, of the most
Interested persons are invited to significant aspects of such statements.
Robert W. Errett,
submit written data, views, and
arguments concerning the foregoing, Deputy Secretary.
1 15 U.S.C. 78s(b)(1).
including whether the proposed rule [FR Doc. 2017–02549 Filed 2–7–17; 8:45 am]
2 15 U.S.C. 78a.
change is consistent with the Act. BILLING CODE 8011–01–P 3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(1).
34 Approval Order at 84697. 35 17 CFR 200.30–3(a)(12). 5 17 CFR 240.19b–4.
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Document Created: 2017-02-08 02:59:10
Document Modified: 2017-02-08 02:59:10
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| FR Citation | 82 FR 9846 |
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