82 FR 9904 - Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change 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 | 9904-9916 | |
| FR Document | 2017-02553 |
[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)] [Notices] [Pages 9904-9916] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-02553] [[Page 9904]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79948; File No. SR-CHX-2017-03] Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change 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 (``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on February 1, 2017, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed with the Securities and Exchange Commission (the ``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the self- regulatory organization.\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 18, 2017 under File No. SR-CHX-2017-02, 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 CHX proposes to amend the Rules of the Exchange (``CHX Rules'') to adopt Article 23 of the Rules of the Exchange (``CHX Rules'') 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\ The text of this proposed rule change is available on the Exchange's Web site at http://www.chx.com/regulatory-operations/rule-filings/, at the principal office of the Exchange, and at the Commission's Public Reference Room. --------------------------------------------------------------------------- \4\ Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth herein or in the CAT NMS Plan. --------------------------------------------------------------------------- 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 self-regulatory organization 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 those 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 the 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, the Exchange, 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 ``Plan Participants'' \5\) filed with the Commission, pursuant to Section 11A of the Exchange Act \6\ and Rule 608 of Regulation NMS thereunder,\7\ the CAT NMS Plan.\8\ The Plan Participants filed the Plan to comply with Rule 613 of Regulation NMS under the Exchange Act. The Plan was published for comment in the Federal Register on May 17, 2016,\9\ and approved by the Commission, as modified, on November 15, 2016.\10\ --------------------------------------------------------------------------- \5\ A ``Participant'' is a ``member'' of the Exchange for purposes of the Act. See CHX Article 1, Rule 1(s). For the avoidance of confusion, the term ``Plan Participant'' will be used when referring to Participants of the Plan. \6\ 15 U.S.C. 78k-1. \7\ 17 CFR 242.608. \8\ See Letter from the Plan Participants to Brent J. Fields, Secretary, Commission, dated September 30, 2014; and Letter from Plan Participants to Brent J. Fields, Secretary, Commission, dated February 27, 2015. On December 24, 2015, the Plan Participants submitted an amendment to the CAT NMS Plan. See Letter from Plan Participants to Brent J. Fields, Secretary, Commission, dated December 23, 2015. \9\ See Securities Exchange Act Release No. 77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016). \10\ 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 Plan Participant is required to enforce compliance by its Industry Members, as applicable, with the provisions of the Plan, by adopting a Compliance Rule applicable to their Industry Members.\11\ As is described more fully below, the proposed Article 23 sets forth the Compliance Rule to require Industry Members to comply with the provisions of the CAT NMS Plan. Proposed Article 23 includes twelve proposed Rules covering the following areas: (1) Definitions; (2) clock synchronization; (3) Industry Member Data reporting; (4) Customer information reporting; (5) Industry Member information reporting; (6) time stamps; (7) clock synchronization rule violations; (8) connectivity and data transmission; (9) development and testing; (10) recordkeeping; (11) timely, accurate and complete data; and (12) compliance dates. Each of these proposed Rules are discussed in detail below. --------------------------------------------------------------------------- \11\ See SEC Rule 613(g)(1). --------------------------------------------------------------------------- (i) Definitions Proposed Rule 1 (Consolidated Audit Trail--Definitions) sets forth the definitions for the terms used in proposed Article 23. Each of the defined terms in proposed Rule 1 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 [sic] associated with orders. For example, SEC Rule 613(c)(7)(i)(A) requires an Industry Member to report the ``Customer- IDs'' for each Customer for the original receipt or origination of an order. ``Customer-ID'' is defined in SEC Rule 613(j)(5) to mean ``with respect to a customer, a code that uniquely and consistently identifies such customer for purposes of providing data to the Central Repository.'' SEC Rule 613(c)(8) requires Industry Members to use the same Customer-ID for each Customer. The SEC granted the Plan Participants exemptive relief to permit the use of an alternative approach to the requirement that an Industry Member report a Customer- ID for every Customer upon original receipt or origination.\12\ The alternative [[Page 9905]] approach is called the Customer Information Approach. --------------------------------------------------------------------------- \12\ See Securities Exchange Act Release No. 77265 (March 1, 2016), 81 FR 11856 (March 7, 2016) (``Exemption Order''). See also Letter from Participants to Brent J. Fields, Secretary, Commission, dated January 30, 2015 at 12 (``Exemptive Request Letter''); and CAT NMS Plan at Appendix C, Section A.1(a)(iii). --------------------------------------------------------------------------- Under the Customer Information Approach, the CAT NMS Plan would require each Industry Member to assign a unique Firm Designated ID to each Customer. As the Firm Designated ID, Industry Members would be permitted to use an account number or any other identifier defined by the firm, provided each identifier is unique across the firm for each business date (i.e., a single firm may not have multiple separate customers with the same identifier on any given date). Prior to their commencement of reporting to the CAT, Industry Members would submit an initial set of Customer information to the Central Repository, including the Firm Designated ID, Customer Identifying Information and Customer Account Information (which may include, as applicable, the Customer's name, address, date of birth, individual tax payer identifier number (``ITIN'')/social security number (``SSN''), individual's role in the account (e.g., primary holder, joint holder, guardian, trustee, person with power of attorney) and LEI and/or Larger [sic] Trader ID (``LTID'')). This process is referred to as the customer definition process. In accordance with the Customer Information Approach, Industry Members would be required to report only the Firm Designated ID for each new order submitted to the Central Repository, rather than the ``Customer-ID'' with individual order events. Within the Central Repository, each Customer would be uniquely identified by identifiers or a combination of identifiers such as ITIN/SSN, date of birth, and as applicable, LEI and LTID. The Plan Processor would be required to use these unique identifiers to map orders to specific Customers across all Industry Members and Plan 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 Plan 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 1 describes those limited circumstances in which an Industry Member may report an ``Account Effective Date'' rather than the account open date. The proposed definition is the same as the definition of ``Account Effective Date'' set forth in Section 1.1 of the CAT NMS Plan, provided, however, that specific dates have replaced the descriptions of those dates set forth in Section 1.1 of the Plan. Specifically, paragraph (a)(1) defines ``Account Effective Date [sic] to mean, with regard to those circumstances in which an Industry Member has established a trading relationship with an institution but has not established an account with that institution: (1) When the trading relationship was established prior to November 15, 2018 for Industry Members other than Small Industry Members, or prior to November 15, 2019 for Small Industry Members, either (a) the date the relationship identifier was established within the Industry Member; (b) the date when trading began (i.e., the date the first order was received) using the relevant relationship identifier; or (c) if both dates are available, the earlier date will be used to the extent that the dates differ; or (2) when the trading relationship was established on or after November 15, 2018 for Industry Members other than Small Industry Members, or on or after November 15, 2019 for Small Industry Members, the date the Industry Member established the relationship identifier, which would be no later than the date the first order was received. Paragraph (a)(2) of proposed Rule 1 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 1 defines an ``Active Account'' as an account that has had activity in Eligible Securities within the last six months. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (C) Allocation Report (I) Allocation Report Approach SEC Rule 613(c)(7)(vi)(A) requires each Industry Member to record and report to the Central Repository ``the account number for any subaccounts to which the execution is allocated (in whole or in part).'' The SROs requested and received from the SEC exemptive relief from SEC Rule 613 for an alternative to this approach (``Allocation Report Approach''). The Allocation [[Page 9906]] Report Approach would permit Industry Members to record and report to the Central Repository an Allocation Report that includes, among other things, the Firm Designated ID for any account(s) to which executed shares are allocated when an execution is allocated in whole or part in lieu of requiring the reporting of the account number for any subaccount to which an execution is allocated, as is required by SEC Rule 613.\13\ Under SEC Rule 613, regulators would be able to link the subaccount to which an allocation was made to a specific order. In contrast, under the Allocation Report Approach, regulators would only be able to link an allocation to the account to which it was made, and not to a specific order. --------------------------------------------------------------------------- \13\ 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 1 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 1 defines the term ``Business Clock'' as a clock used to record the date and time of any Reportable Event required to be reported under this Article 23. 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 this Article 23.'' This change is intended to recognize that the Industry Members' obligations with regard to the CAT are set forth in this Article 23. (E) CAT Paragraph (e) of proposed Rule 1 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 1 defines the term ``CAT NMS Plan'' to mean the National Market System Plan Governing the Consolidated Audit Trail, as amended from time to time. (G) CAT-Order-ID (I) Daisy Chain Approach Under the CAT NMS Plan, the Daisy Chain Approach is used to link and reconstruct the complete lifecycle of each Reportable Event in CAT. According to this Approach, Industry Members assign their own identifiers to each order event. Within the Central Repository, the Plan Processor later replaces the identifier provided by the Industry Member for each Reportable Event with a single identifier, called the CAT Order-ID, for all order events pertaining to the same order. This CAT Order-ID is used to links the Reportable Events related to the same order. (II) Definition of CAT-Order-ID To implement the Daisy Chain Approach, Paragraph (g) of proposed Rule 1 defines the term ``CAT-Order-ID.'' The term ``CAT-Order-ID'' is defined to mean a unique order identifier or series of unique order identifiers that allows the Central Repository to efficiently and accurately link all Reportable Events for an order, and all orders that result from the aggregation or disaggregation of such order. This is the same definition as set forth in SEC Rule 613(j)(1), and Section 1.1 of the CAT NMS Plan defines ``CAT-Order-ID'' by reference to SEC Rule 613(j)(1). (H) CAT Reporting Agent The CAT NMS Plan permits an Industry Member to use a third party, such as a vendor, to report the required data to the Central Repository on behalf of the Industry Member.\14\ Such a third party, referred to in this proposed Article 23 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 1 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 this Article 23. --------------------------------------------------------------------------- \14\ Appendix C, Section A.1(a) of the CAT NMS Plan. --------------------------------------------------------------------------- This definition is based on FINRA's definition of a ``Reporting Agent'' as set forth in FINRA's rule related to its Order Audit Trail System (``OATS''). Specifically, FINRA Rule 7410(n) defines a ``Reporting Agent'' as a third party that enters into any agreement with a member pursuant to which the Reporting Agent agrees to fulfill such member's obligations under Rule 7450. The Reporting Agent for OATS fulfills a similar role to the CAT Reporting Agent. (I) Central Repository Paragraph (i) of proposed Rule 1 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 1 defines the term ``Compliance Threshold'' as having the meaning set forth in proposed Rule 11(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 11(d), each Industry Member is required to meet a separate compliance threshold which will be an Industry Member- specific rate that may be used as the basis for further review or investigation into the Industry Member's performance with regard to the CAT. This Industry Member-specific rate is the ``Compliance Threshold.'' (K) Customer Industry Members are required to submit to the Central Repository certain information related to their Customers, including Customer Identifying Information and Customer Account Information, as well as data related to their Customer's Reportable Events. Accordingly, Paragraph (k) of proposed Rule 1 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 [[Page 9907]] 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 proposed Article 23. 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 1 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 1(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 1 defines the term ``Customer Identifying Information'' to mean information of sufficient detail to identify a Customer. With respect to individuals, ``Customer Identifying Information'' includes, but is not limited to: Name, address, date of birth, individual tax payer identification number (``ITIN'')/social security number (``SSN''), individual's role in the account (e.g., primary holder, joint holder, guardian, trustee, person with the power of attorney). With respect to legal entities, ``Customer Identifying Information'' includes, but is not limited to, name, address, Employer Identification Number (``EIN'')/Legal Entity Identifier (``LEI'') or other comparable common entity identifier, if applicable. The definition further notes that an Industry Member that has an LEI for a Customer must submit the Customer's LEI in addition to other information of sufficient detail to identify the Customer. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (N) Data Submitter The CAT NMS Plan uses the term ``Data Submitter'' to refer to any person that reports data to the Central Repository.\15\ Such Data Submitters may include those entities that are required to submit data to the Central Repository (e.g., national securities exchanges, national securities associations and Industry Members), third-parties that may submit data to the CAT on behalf of CAT Reporters (i.e., CAT Reporting Agents), and outside parties that are not required to submit data to the CAT but from which the CAT may receive data (e.g., securities information processors (``SIPs'')). To include this term in proposed Article 23, the Exchange proposes to define ``Data Submitter'' in paragraph (n) of proposed Rule 1. Specifically, paragraph (n) of proposed Rule 1 defines a ``Data Submitter'' to mean any person that reports data to the Central Repository, including national securities exchanges, national securities associations, broker-dealers, the SIPs for the CQS, CTA, UTP and Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information (``OPRA'') Plans, and certain other vendors or third parties that may submit data to the Central Repository on behalf of Industry Members. --------------------------------------------------------------------------- \15\ Appendix C, Section A.1(a) of the CAT NMS Plan. --------------------------------------------------------------------------- (O) Eligible Security The reporting requirements of proposed Article 23 only apply to Reportable Events in Eligible Securities. Currently, an Eligible Security includes NMS Securities and OTC Equity Securities. Accordingly, paragraph (o) of proposed Rule 1 defines the term ``Eligible Security'' to include: (1) All NMS Securities; and (2) all OTC Equity Securities. The terms ``NMS Securities'' and ``OTC Equity Securities'' are defined, in turn, below. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (P) Error Rate (I) Maximum Error Rate Under the CAT NMS Plan, the Operating Committee sets the maximum Error Rate that the Central Repository would tolerate from an Industry Member reporting data to the Central Repository.\16\ The Operating Committee reviews and resets the maximum Error Rate, at least annually.\17\ If an Industry Member reports CAT data to the Central Repository with errors such that their error percentage exceeds the maximum Error Rate, then such Industry Member would not be in compliance with the CAT NMS Plan or Rule 613.\18\ As such, the Exchange or the SEC ``[sic] may take appropriate action against an Industry Member for failing to comply with its CAT reporting obligations.\19\ The CAT NMS Plan sets the initial Error Rate at 5%.\20\ It is anticipated that the maximum Error Rate will be reviewed and lowered by the Operating Committee once Industry Members [[Page 9908]] begin to report to the Central Repository.\21\ --------------------------------------------------------------------------- \16\ Section 6.5(d)(i) of the CAT NMS Plan. \17\ Appendix C, Section A.3(b) of the CAT NMS Plan. \18\ Appendix C, Section A.3(b) of the CAT NMS Plan; Rule 613(g)-(h). \19\ Appendix C, Section A.3(b) of the CAT NMS Plan. \20\ Section 6.5(d)(i) of the CAT NMS Plan. \21\ Appendix C, Section A.3(b) of the CAT NMS Plan. --------------------------------------------------------------------------- The CAT NMS Plan requires the Plan Processor to: (1) Measure and report errors every business day; (2) provide Industry Members daily statistics and error reports as they become available, including a description of such errors; (3) provide monthly reports to Industry Members that detail an Industry Member's performance and comparison statistics; (4) define educational and support programs for Industry Members to minimize Error Rates; and (5) identify, daily, all Industry Members exceeding the maximum allowable Error Rate. To timely correct data-submitted errors to the Central Repository, the CAT NMS Plan requires that the Central Repository receive and process error corrections at all times. Further, the CAT NMS Plan requires that Industry Members be able to submit error corrections to the Central Repository through a web-interface or via bulk uploads or file submissions, and that the Plan Processor, subject to the Operating Committee's approval, support the bulk replacement of records and the reprocessing of such records. The Plan Participants, furthermore, require that the Plan Processor identify Industry Member data submission errors based on the Plan Processor's validation processes.\22\ --------------------------------------------------------------------------- \22\ Approval Order at 84718. --------------------------------------------------------------------------- (II) Definition of Error Rate To implement the requirements of the CAT NMS Plan related to the Error Rate, the Exchange proposes to define the term ``Error Rate'' in proposed Rule 1. Paragraph (p) of proposed Rule 1 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 1. Specifically, paragraph (q) of proposed Rule 1 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 1 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 1 states that the term ``Industry Member Data'' has the meaning set forth in Rule 3(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 3(a)(2). (T) Initial Plan Processor Paragraph (t) of proposed Rule 1 defines the term ``Initial Plan Processor'' to mean the first Plan Processor selected by the Operating Committee in accordance with SEC Rule 613, Section 6.1 of the CAT NMS Plan and the National Market System Plan Governing the Process for Selecting a Plan Processor and Developing a Plan for the Consolidated Audit Trail. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, although the proposed definition uses the full name of the ``Selection Plan.'' (U) Listed Option or Option The CAT NMS Plan and this proposed Article 23 applies to Eligible Securities, which includes NMS Securities, which, in turn, includes Listed Options. Certain requirements of proposed Article 23 apply specifically to Listed Options. Accordingly, paragraph (u) of proposed Rule 1 defines the term ``Listed Option'' or ``Option.'' Specifically, paragraph (u) of proposed Rule 1 states that the term ``Listed Option'' or ``Option'' has the meaning set forth in SEC Rule 600(b)(35) of Regulation NMS. SEC Rule 600(b)(35), in turn, defines a listed option as ``any option traded on a registered national securities exchange or automated facility of a national securities association.'' The Exchange notes that the proposed definition of ``Listed Option'' is the same definition as the definition set forth in Section 1.1 of the CAT NMS Plan. (V) Manual Order Event (I) Manual Order Event Approach The CAT NMS Plan sets forth clock synchronization and timestamp requirements for Industry Members which reflect exemptions for Manual Order Events granted by the Commission.\23\ Specifically, the Plan requires Industry Members to record and report the time of each Reportable Event using timestamps reflecting current industry standards (which must be at least to the millisecond) or, if an Industry Member's order handling or execution systems uses timestamps in increments finer than milliseconds, such finer increments, when reporting to the Central Repository. For Manual Order Events, however, the Plan provides that such events must be recorded in increments up to and including one second, provided that Industry Members record and report the time the event is captured electronically in an order handling and execution system (``Electronic Capture Time'') in milliseconds. In addition, Industry Members are required to synchronize their respective Business Clocks (other than such Business Clocks used solely for Manual Order Events) at a minimum to within 50 milliseconds of the time maintained by the National Institute of Standards and Technology (``NIST''), and maintain such a synchronization. Each Industry Members [sic] is required to synchronize their Business Clocks used solely for Manual Order Events, however, at a minimum to within one second of the time maintained by the NIST. --------------------------------------------------------------------------- \23\ Exemption Order. --------------------------------------------------------------------------- [[Page 9909]] (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 1. Specifically, paragraph (v) of proposed Rule 1 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 3 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 1. Specifically, paragraph (w) of proposed Rule 1 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 1. Specifically, paragraph (x) of proposed Rule 1 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 1 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 1 defines the term ``Operating Committee'' to mean the governing body of the CAT NMS, LLC designated as such and described in Article IV of the CAT NMS Plan. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, except the Exchange proposes to use the phrase ``CAT NMS LLC'' in place of the phrase ``the Company'' for clarity. (AA) Options Market Maker (I) Options Market Maker Quote Exemption SEC Rule 613(c)(7) provides that the CAT NMS Plan must require each Industry Member to record and electronically report to the Central Repository details for each order and each reportable event, including the routing and modification or cancellation of an order. SEC Rule 613(j)(8) defines ``order'' to include ``any bid or offer.'' Therefore, under SEC Rule 613, the details for each Options Market Maker quotation must be reported to the Central Repository by both the Options Market Maker and the options exchange to which it routes its quote. The SROs, however, requested and received exemptive relief from SEC Rule 613 so that the CAT NMS Plan may permit Options Market Maker quotes to be reported to the Central Repository by the relevant options exchange in lieu of requiring that such reporting be done by both the options exchange and the Options Market Maker, as is required by SEC Rule 613.\24\ In accordance with the exemptive relief, Options Market Makers would be required to report to the options exchange the time at which a quote in a Listed Option is sent to the options exchange. Such time information also will be reported to the Central Repository by the options exchange in lieu of reporting by the Options Market Maker. --------------------------------------------------------------------------- \24\ See Exemptive Request Letter at 2, and Exemption Order. --------------------------------------------------------------------------- (II) Definition of Options Market Maker To implement the requirements related to Option Market Maker quotes, the Exchange proposes to define the term ``Options Market Maker'' in proposed Rule 1. Specifically, paragraph (aa) of proposed Rule 1 defines the term ``Options Market Maker'' to mean a broker- dealer registered with an exchange for the purpose of making markets in options contracts traded on the exchange. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (BB) Order The proposed Article 23 requires each Industry Member to record and electronically report to the Central Repository certain details for each order. Accordingly, the Exchange proposes to define the term ``Order'' in proposed Rule 1. Specifically, paragraph (bb) of proposed Rule 1 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 1. Specifically, paragraph (cc) of proposed Rule 1 defines the term ``OTC Equity Security'' to mean any equity security, other than an NMS Security, subject to prompt last sale reporting rules of a registered national securities association and reported to one of such association's equity trade reporting facilities. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (DD) Plan Participant \25\ --------------------------------------------------------------------------- \25\ See supra note 5. --------------------------------------------------------------------------- Paragraph (dd) of proposed Rule 1 defines the term ``Plan 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 1 defines the term ``Person'' to mean any [[Page 9910]] 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 1 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 1 states that the term ``Received Industry Member Data'' has the meaning set forth in Rule 3(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 3(a)(2). (HH) Recorded Industry Member Data Paragraph (hh) of proposed Rule 1 states that the term ``Recorded Industry Member Data'' has the meaning set forth in Rule 3(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 3(a)(1). (II) Reportable Event The proposed Article 23 requires each Industry Member to record and electronically report to the Central Repository certain details for each Reportable Event. To clarify these requirements, the Exchange proposes to define the term ``Reportable Event'' in proposed Rule 1. Specifically, paragraph (ii) of proposed Rule 1 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 1 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).\26\ 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. --------------------------------------------------------------------------- \26\ 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, as well as information to identify each such Industry Member, including CRD number and LEI, if the SRO has collected such LEI of the Industry Member. Additionally, each Industry Member is required to submit to the Central Repository the CRD of the Industry Member, as well as the LEI of the Industry Member (if the Industry Member has an LEI). The Plan Processor will use this information to assign a CAT-Reporter-ID to each Industry Member for internal use within the Central Repository. (II) Definition of SRO-Assigned Market Participant Identifier To implement the Existing Identifier Approach, the Exchange proposes to define the term ``SRO-Assigned Market Participant'' in proposed Rule 1. Specifically, paragraph (kk) of proposed Rule 1 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 Plan 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 proposed Article 23 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 1. Specifically, paragraph (ll) of proposed Rule 1 defines the term ``Small Industry Member'' to mean an Industry Member that qualifies as a small broker-dealer as defined in Rule 0-10(c) under the Securities Exchange Act of 1934, as amended. This is the same in substance as the definition of ``Small Industry Member'' as set forth in Section 1.1 of the CAT NMS Plan. Specifically, Section 1.1 of the CAT NMS Plan defines a ``Small Industry Member'' as ``an Industry Member that qualifies as a small broker-dealer as defined in SEC Rule 613.'' The definition of a small broker-dealer under SEC Rule 613, in turn, is a small broker-dealer as defined in SEC Rule 0-10(c). (MM) Trading Day Proposed Rule 3(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 1. Specifically, Paragraph (mm) of proposed Rule 1 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. [[Page 9911]] (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.\27\ To implement these provisions with regard to its Industry Members, the Exchange proposes Rule 2 (Consolidated Audit Trail--Clock Synchronization) to require its Industry Members to comply with the clock synchronization requirements of the Plan. --------------------------------------------------------------------------- \27\ 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 2 sets forth the manner in which Industry Members must synchronize their Business Clocks. Paragraph (a)(1) of proposed Rule 2 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 2 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 2 clarifies that the tolerance described in paragraphs (a)(1) and (2) of the proposed Rule 2 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 2 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 2 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 2 sets forth certification requirements with regard to clock synchronization. Specifically, paragraph (c) of proposed Rule 2 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 2 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 Information Memorandum. Paragraph (d) of proposed Rule 2 establishes reporting requirements with regard to clock synchronization. Paragraph (d) of proposed Rule 2 requires Industry Members to report to the Plan Processor and SRO violations of paragraph (a) of this Rule pursuant to the thresholds set by the Operating Committee pursuant to the CAT NMS Plan. This requirement is the same requirement as set forth in Section 6.8(a)(ii)(C), (iii) and (iv) of the CAT NMS Plan. The Exchange intends to announce to its Industry Members the relevant thresholds established by the Operating Committee via Information Memorandum. (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 3 (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 3 has six [sic] sections covering: (1) Recording and reporting Industry Member Data, (2) timing of the recording and reporting, (3) the applicable securities cover by the recording and reporting requirements, (4) format, [sic] (5) the security symbology to be used in the recording and reporting, and (6) error correction requirements, each of which is described below. (A) Recording and Reporting Industry Member Data Paragraph (a) of proposed Rule 3 describes the recording and reporting of Industry Member Data to the Central Repository. Paragraph (a) consists of paragraphs (a)(1)-(a)(3), which cover Recorded Industry Member Data, Received Industry Member Data and Options Market Maker data, respectively. Paragraphs (a)(1)-(a)(3) of proposed Rule 3 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 [[Page 9912]] 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 6); 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 6); (4) SRO-Assigned Market Participant Identifier of the Industry Member routing the order; (5) SRO-Assigned Market Participant Identifier of the Industry Member or Plan 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 6); (4) SRO-Assigned Market Participant Identifier of the Industry Member receiving the order; (5) SRO-Assigned Market Participant Identifier of the Industry Member or Plan 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 6); (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 6; (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 3 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 3(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, Customer Account Information and Customer Identifying Information for the relevant Customer. Paragraph (a)(3) of proposed Rule 3 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 3 describes the requirements related to the timing of recording and reporting of Industry Member Data. Paragraphs (b)(1)-(b)(3) of proposed Rule 3 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 3 requires each Industry Member to record Recorded Industry Member Data contemporaneously with the applicable Reportable Event. Paragraph (b)(2) of proposed Rule 3 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 3 describes the securities to which the recording and reporting requirements of proposed Rule 3 apply. Paragraphs (c)(1) and (c)(2) of proposed Rule 3 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 3 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 3 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 3 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 3 for each Eligible Security for which transaction reports are required to be submitted to FINRA. (D) Security Symbology Paragraph (d) of proposed Rule 3 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 3 requires, for each exchange-listed Eligible Security, each Industry Member to report Industry Member Data to the Central Repository using the symbology format of the exchange listing the security. This requirement implements the requirement set forth in Section 2 of Appendix D of the CAT NMS Plan to use the listing exchange symbology when reporting data to the Central Repository for exchange- listed Eligible Securities. For each Eligible Security that is not exchange-listed, however, there is no listing exchange to provide the symbology format. Moreover, to date, the requisite symbology format has not been determined. Therefore, paragraph (d)(2) of proposed Rule 3 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 [[Page 9913]] relevant symbology formats established by the Operating Committee via Information Memorandum. (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 3, which addresses the correction of erroneous data reported to the Central Repository. Paragraph (e) of proposed Rule 3 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 (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 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 9. Paragraph (b) of proposed Rule 4 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 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 Information Memorandum. Finally, paragraph (d) of proposed Rule 4 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 5 (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 5 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 9, 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.\28\ 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 6 (Consolidated Audit Trail--Time Stamps) to require its Industry Members to comply with the time stamp requirements of the Plan. --------------------------------------------------------------------------- \28\ 17 CFR 242.613(d)(3). --------------------------------------------------------------------------- Paragraph (a) of proposed Rule 6 sets forth the time stamp increments to be used by Industry Members in their CAT reporting. Paragraph (a)(1) of proposed Rule 6 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 6. 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 6 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 6 regarding Manual Order Events and Allocation Reports. Paragraph (b) of proposed Rule 6 sets forth the permissible time stamp increments for Manual Order Events and Allocation Reports. Specifically, paragraph (b)(1) of proposed Rule 6 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 6 permits each Industry Member to record and report the time of Allocation Reports in increments up to and including one second. (vii) Clock Synchronization Rule Violations Proposed Rule 7 (Consolidated Audit Trail--Clock Synchronization Rule Violations [sic]) describes potential violations of the clock synchronization time period requirements set forth in proposed Article 23. Proposed Rule 7 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 this Article 23 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 [[Page 9914]] circumstances may be considered a violation of SEC Rule 613 or the CAT NMS Plan. (viii) Connectivity and Data Transmission Proposed Rule 8 (Consolidated Audit Trail--Connectivity and Data Transmission) addresses connectivity and data transmission requirements related to the CAT. Paragraph (a) of proposed Rule 8 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 8 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 8 addresses connectivity requirements related to the CAT. Paragraph (b) of proposed Rule 8 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 8 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 reporting obligations of such Industry Member under proposed Article 23. 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 proposed Article 23. The Exchange notes that, currently, no standardized form agreement for CAT Reporting Agent arrangements has been adopted. Paragraph (c)(2) of proposed Rule 8 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 proposed Article 23, notwithstanding the existence of an agreement described in paragraph (c) of proposed Rule 8. (ix) Development and Testing The Exchange proposes Rule 9 (Consolidated Audit Trail--Development and Testing) to address requirements for Industry Members related to CAT development and testing. Paragraph (a) of proposed Rule 9 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 and 5, 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 and 5, 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 9 implements the requirement under the CAT NMS Plan that Industry Members participate in required industry testing with the Central Repository.\29\ Specifically, proposed Rule 9 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 Information Memorandum. --------------------------------------------------------------------------- \29\ Adopting Release [sic] at 84725. --------------------------------------------------------------------------- (x) Recordkeeping Proposed Rule 10 (Consolidated Audit Trail--Recordkeeping) sets forth the recordkeeping obligations related to the CAT for Industry Members. Proposed Rule 10 requires each Industry Member to maintain and preserve records of the information required to be recorded under proposed Article 23 for the period of time and accessibility specified in SEC Rule 17a-4(b). The records required to be maintained and preserved under proposed Article 23 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 10 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.\30\ Accordingly, proposed Rule 11 (Consolidated Audit Trail--Timely, Accurate and Complete Data) implements this requirement with regard to Industry Members. Paragraph (a) of proposed Rule 11 requires that Industry Members record and report data to the Central Repository as required by proposed Article 23 in a [[Page 9915]] manner that ensures the timeliness, accuracy, integrity and completeness of such data. --------------------------------------------------------------------------- \30\ 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 11 requires Industry Members to accurately provide the LEIs in their records as required by proposed Article 23 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.\31\ --------------------------------------------------------------------------- \31\ 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 Article 23. 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 Information Memorandum. Furthermore, paragraph (d) of proposed Rule 11 addresses Compliance Thresholds related to reporting data to the CAT. Proposed Rule 11 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.\32\ Compliance Thresholds will include compliance with the data reporting and clock synchronization requirements. Proposed Rule 11 further 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 this proposed Article 23. --------------------------------------------------------------------------- \32\ Appendix C of the CAT NMS Plan. --------------------------------------------------------------------------- (xii) Compliance Dates Proposed Rule 12 (Consolidated Audi [sic] Trail--Compliance Dates) sets forth the compliance dates for the various provisions of proposed Article 23. Paragraph (a) of proposed Rule 12 states that paragraphs (b) and (c) of this Rule set forth the additional details with respect to the compliance date of Article 23. Unless otherwise noted, Article 23 is fully effective and Industry Members must comply with their terms. Paragraph (b) of proposed Rule 12 establishes the compliance dates for the clock synchronization requirements as set forth in proposed Rule 2. Paragraph (b)(1) states that each Industry Member shall comply with Rule 2 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 2 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 Plan Participants with regard to the clock synchronization requirements related to Business Clocks that do not capture time in milliseconds.\33\ --------------------------------------------------------------------------- \33\ See Letter from the Plan Participants to Brent J. Fields, Secretary, Commission, dated January 17, 2017. Specifically, the Participants will ask the Commission to extend the clock synchronization compliance date from March 15, 2017 to February 19, 2018 for Industry Members' Business Clocks that do not capture time in milliseconds. --------------------------------------------------------------------------- Paragraph (c) of proposed Rule 12 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,\34\ which require, among other things, that CHX 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,\35\ which requires that CHX Rules not impose any burden on competition that is not necessary or appropriate. --------------------------------------------------------------------------- \34\ 15 U.S.C. 78f(b)(6) [sic]. \35\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- The Exchange believes that this proposal is consistent with the Act because it implements, interprets or clarifies the provisions of the Plan, and is designed to assist the Exchange and its Industry Members in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan ``is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.'' \36\ 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. --------------------------------------------------------------------------- \36\ 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 implementing provisions of the CAT NMS Plan will apply equally to all firms that trade NMS Securities and OTC Equity Securities. In addition, all national securities exchanges and FINRA are proposing this proposed Article 23. Therefore, this is not a competitive rule filing, and, therefore, it [[Page 9916]] 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 No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-CHX-2017-03 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CHX-2017-03. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CHX-2017-03 and should be submitted on or before March 1, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\37\ --------------------------------------------------------------------------- \37\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2017-02553 Filed 2-7-17; 8:45 am] BILLING CODE 8011-01-P
![9904 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
SECURITIES AND EXCHANGE the places specified in Item IV below. Members, as applicable, with the
COMMISSION The Exchange has prepared summaries, provisions of the Plan, by adopting a
set forth in sections A, B and C below, Compliance Rule applicable to their
[Release No. 34–79948; File No. SR–CHX–
of the most significant parts of such Industry Members.11 As is described
2017–03]
statements. more fully below, the proposed Article
Self-Regulatory Organizations; A. Self-Regulatory Organization’s 23 sets forth the Compliance Rule to
Chicago Stock Exchange, Inc.; Notice Statement of the Purpose of, and the require Industry Members to comply
of Filing of Proposed Rule Change To Statutory Basis for, the Proposed Rule with the provisions of the CAT NMS
Implement the Compliance Rule Change Plan. Proposed Article 23 includes
Regarding the National Market System twelve proposed Rules covering the
Plan Governing the Consolidated Audit 1. Purpose following areas: (1) Definitions; (2) clock
Trail Bats BYX Exchange, Inc., Bats BZX synchronization; (3) Industry Member
Exchange, Inc., Bats EDGA Exchange, Data reporting; (4) Customer
February 2, 2017. Inc., Bats EDGX Exchange, Inc., BOX information reporting; (5) Industry
Pursuant to Section 19(b)(1) of the Options Exchange LLC, C2 Options Member information reporting; (6) time
Securities Exchange Act of 1934 Exchange, Incorporated, Chicago Board stamps; (7) clock synchronization rule
(‘‘Exchange Act’’) 1 and Rule 19b–4 Options Exchange, Incorporated, the violations; (8) connectivity and data
thereunder,2 notice is hereby given that Exchange, Financial Industry Regulatory transmission; (9) development and
on February 1, 2017, the Chicago Stock Authority, Inc., International Securities testing; (10) recordkeeping; (11) timely,
Exchange, Inc. (‘‘CHX’’ or ‘‘Exchange’’) Exchange, LLC, Investors’ Exchange accurate and complete data; and (12)
filed with the Securities and Exchange LLC, ISE Gemini, LLC, ISE Mercury, compliance dates. Each of these
Commission (the ‘‘Commission’’) the LLC, Miami International Securities proposed Rules are discussed in detail
proposed rule change as described in Exchange LLC, MIAX PEARL, LLC, below.
Items I and II below, which Items have NASDAQ BX, Inc., NASDAQ PHLX (i) Definitions
been prepared by the self-regulatory LLC, The NASDAQ Stock Market LLC,
organization.3 The Commission is National Stock Exchange, Inc., New Proposed Rule 1 (Consolidated Audit
publishing this notice to solicit York Stock Exchange LLC, NYSE MKT Trail—Definitions) sets forth the
comments on the proposed rule change LLC, and NYSE Arca, Inc. (collectively, definitions for the terms used in
from interested persons. the ‘‘Plan Participants’’ 5) filed with the proposed Article 23. Each of the defined
Commission, pursuant to Section 11A of terms in proposed Rule 1 is discussed
I. Self-Regulatory Organization’s in detail in this section.
Statement of the Terms of Substance of the Exchange Act 6 and Rule 608 of
the Proposed Rule Change Regulation NMS thereunder,7 the CAT (A) Account Effective Date
NMS Plan.8 The Plan Participants filed
CHX proposes to amend the Rules of the Plan to comply with Rule 613 of (I) Customer Information Approach
the Exchange (‘‘CHX Rules’’) to adopt Regulation NMS under the Exchange SEC Rule 613 requires that numerous
Article 23 of the Rules of the Exchange Act. The Plan was published for data elements be reported to the CAT to
(‘‘CHX Rules’’) to implement the comment in the Federal Register on ensure there is sufficient information to
compliance rule (‘‘Compliance Rule’’) May 17, 2016,9 and approved by the create the lifecycle of an order, and
regarding the National Market System Commission, as modified, on November provide regulators with sufficient detail
Plan Governing the Consolidated Audit 15, 2016.10 about an order to perform their
Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’).4 The Plan is designed to create, regulatory duties. Certain required
The text of this proposed rule change is implement and maintain a consolidated elements are intended to ensure that the
available on the Exchange’s Web site at audit trail (‘‘CAT’’) that would capture regulators can identify the Customer’s
http://www.chx.com/regulatory- customer and order event information [sic] associated with orders. For
operations/rule-filings/, at the principal for orders in NMS Securities and OTC example, SEC Rule 613(c)(7)(i)(A)
office of the Exchange, and at the Equity Securities, across all markets, requires an Industry Member to report
Commission’s Public Reference Room. from the time of order inception through the ‘‘Customer-IDs’’ for each Customer
routing, cancellation, modification, or for the original receipt or origination of
II. Self-Regulatory Organization’s execution in a single consolidated data
Statement of the Purpose of, and an order. ‘‘Customer-ID’’ is defined in
source. Each Plan Participant is required SEC Rule 613(j)(5) to mean ‘‘with
Statutory Basis for, the Proposed Rule to enforce compliance by its Industry
Change respect to a customer, a code that
uniquely and consistently identifies
In its filing with the Commission, the 5 A ‘‘Participant’’ is a ‘‘member’’ of the Exchange
such customer for purposes of providing
self-regulatory organization included for purposes of the Act. See CHX Article 1, Rule
1(s). For the avoidance of confusion, the term ‘‘Plan data to the Central Repository.’’ SEC
statements concerning the purpose of, Participant’’ will be used when referring to Rule 613(c)(8) requires Industry
and basis for, the proposed rule change Participants of the Plan. Members to use the same Customer-ID
and discussed any comments it received 6 15 U.S.C. 78k–1.
for each Customer. The SEC granted the
on the proposed rule change. The text 7 17 CFR 242.608.
Plan Participants exemptive relief to
8 See Letter from the Plan Participants to Brent J.
of those statements may be examined at permit the use of an alternative
Fields, Secretary, Commission, dated September 30,
2014; and Letter from Plan Participants to Brent J. approach to the requirement that an
asabaliauskas on DSK3SPTVN1PROD with NOTICES
1 15 U.S.C. 78s(b)(1).
2 17
Fields, Secretary, Commission, dated February 27, Industry Member report a Customer-ID
CFR 240.19b–4. 2015. On December 24, 2015, the Plan Participants for every Customer upon original receipt
3 The Exchange originally filed this proposed rule submitted an amendment to the CAT NMS Plan.
change on January 18, 2017 under File No. SR– See Letter from Plan Participants to Brent J. Fields, or origination.12 The alternative
CHX–2017–02, and the Exchange subsequently Secretary, Commission, dated December 23, 2015.
withdrew that filing on January 30, 2017 and filed 9 See Securities Exchange Act Release No. 77724 11 See SEC Rule 613(g)(1).
this proposed rule change. (Apr. 27, 2016), 81 FR 30614 (May 17, 2016). 12 See Securities Exchange Act Release No. 77265
4 Unless otherwise specified, capitalized terms 10 Securities Exchange Act Rel. No. 79318 (Nov. (March 1, 2016), 81 FR 11856 (March 7, 2016)
used in this rule filing are defined as set forth 15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval (‘‘Exemption Order’’). See also Letter from
herein or in the CAT NMS Plan. Order’’). Participants to Brent J. Fields, Secretary,
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![Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 9905
approach is called the Customer 613(j)(4) to ‘‘include, but not be limited Industry Member prior to November 15,
Information Approach. to, account number, account type, 2018 for Industry Members other than
Under the Customer Information customer type, date account opened, Small Industry Members, or prior to
Approach, the CAT NMS Plan would and large trader identifier (if November 15, 2019 for Small Industry
require each Industry Member to assign applicable).’’ Therefore, when reporting Members, the date an account was
a unique Firm Designated ID to each Customer Account Information, an established at the relevant Industry
Customer. As the Firm Designated ID, Industry Member is required to report Member, either directly or via transfer.
Industry Members would be permitted the date an account was opened. The Paragraph (a)(4) states that ‘‘Account
to use an account number or any other Plan Participants requested and Effective Date’’ means, where there are
identifier defined by the firm, provided received an exemption to allow an multiple dates associated with an
each identifier is unique across the firm ‘‘Account Effective Date’’ to be reported account established prior to November
for each business date (i.e., a single firm in lieu of an account open date in 15, 2018 for Industry Members other
may not have multiple separate certain limited circumstances. The than Small Industry Members, or prior
customers with the same identifier on definition of ‘‘Account Effective Date’’ to November 15, 2019 for Small
any given date). Prior to their as set forth in Paragraph (a) of proposed Industry Members, the earliest available
commencement of reporting to the CAT, Rule 1 describes those limited date.
Industry Members would submit an circumstances in which an Industry Paragraph (a)(5) states that an
initial set of Customer information to Member may report an ‘‘Account ‘‘Account Effective Date’’ means, with
the Central Repository, including the Effective Date’’ rather than the account regard to Industry Member proprietary
Firm Designated ID, Customer open date. The proposed definition is accounts established prior to November
Identifying Information and Customer the same as the definition of ‘‘Account 15, 2018 for Industry Members other
Account Information (which may Effective Date’’ set forth in Section 1.1 than Small Industry Members, or prior
include, as applicable, the Customer’s of the CAT NMS Plan, provided, to November 15, 2019 for Small
name, address, date of birth, individual however, that specific dates have Industry Members: (1) The date
tax payer identifier number (‘‘ITIN’’)/ replaced the descriptions of those dates established for the account in the
social security number (‘‘SSN’’), set forth in Section 1.1 of the Plan. Industry Member or in a system of the
individual’s role in the account (e.g., Specifically, paragraph (a)(1) defines Industry Member or (2) the date when
primary holder, joint holder, guardian, ‘‘Account Effective Date [sic] to mean, proprietary trading began in the account
trustee, person with power of attorney) with regard to those circumstances in (i.e., the date on which the first orders
and LEI and/or Larger [sic] Trader ID which an Industry Member has were submitted from the account). With
(‘‘LTID’’)). This process is referred to as established a trading relationship with regard to paragraphs (a)(2)–(5), the
the customer definition process. an institution but has not established an Account Effective Date will be no later
In accordance with the Customer account with that institution: (1) When than the date trading occurs at the
Information Approach, Industry the trading relationship was established Industry Member or in the Industry
Members would be required to report prior to November 15, 2018 for Industry Member’s system.
only the Firm Designated ID for each Members other than Small Industry
new order submitted to the Central Members, or prior to November 15, 2019 (B) Active Account
Repository, rather than the ‘‘Customer- for Small Industry Members, either (a) Under the Customer Information
ID’’ with individual order events. the date the relationship identifier was Approach, Industry Members are
Within the Central Repository, each established within the Industry required to report Customer Identifying
Customer would be uniquely identified Member; (b) the date when trading Information and Customer Account
by identifiers or a combination of began (i.e., the date the first order was Information for only those accounts that
identifiers such as ITIN/SSN, date of received) using the relevant relationship are active. This will alleviate the need
birth, and as applicable, LEI and LTID. identifier; or (c) if both dates are for Industry Members to update such
The Plan Processor would be required to available, the earlier date will be used information for non-active accounts, but
use these unique identifiers to map to the extent that the dates differ; or (2) still ensure that the Central Repository
orders to specific Customers across all when the trading relationship was will collect audit trail data for Customer
Industry Members and Plan established on or after November 15, accounts that have any Reportable
Participants. To ensure information 2018 for Industry Members other than Events. Accordingly, paragraph (b) of
identifying a Customer is up to date, Small Industry Members, or on or after
proposed Rule 1 defines an ‘‘Active
Industry Members would be required to November 15, 2019 for Small Industry
Account’’ as an account that has had
submit to the Central Repository daily Members, the date the Industry Member
activity in Eligible Securities within the
and periodic updates for reactivated established the relationship identifier,
last six months. This is the same
accounts, newly established accounts, which would be no later than the date
definition as set forth in Section 1.1 of
and revised Firm Designated IDs or the first order was received.
Paragraph (a)(2) of proposed Rule 1 the CAT NMS Plan.
associated reportable Customer
states that an ‘‘Account Effective Date’’ (C) Allocation Report
information.
means, where an Industry Member
(I) Allocation Report Approach
(II) Definition of Account Effective Date changes back office providers or
clearing firms prior to November 15, SEC Rule 613(c)(7)(vi)(A) requires
In connection with the Customer
2018 for Industry Members other than each Industry Member to record and
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Information Approach, Industry
Small Industry Members, or prior to report to the Central Repository ‘‘the
Members would be required to report
November 15, 2019 for Small Industry account number for any subaccounts to
Customer Account Information to the
Members, the date an account was which the execution is allocated (in
Central Repository. ‘‘Customer Account
established at the relevant Industry whole or in part).’’ The SROs requested
Information’’ is defined in SEC Rule
Member, either directly or via transfer. and received from the SEC exemptive
Commission, dated January 30, 2015 at 12
Paragraph (a)(3) states that an relief from SEC Rule 613 for an
(‘‘Exemptive Request Letter’’); and CAT NMS Plan ‘‘Account Effective Date’’ means, where alternative to this approach (‘‘Allocation
at Appendix C, Section A.1(a)(iii). an Industry Member acquires another Report Approach’’). The Allocation
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![Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 9907
account, if different from the account by the individual Industry Member; and (e.g., securities information processors
holder(s). This is the same definition as (4) where the relevant account is an (‘‘SIPs’’)). To include this term in
set forth in SEC Rule 613(j)(3), except Industry Member proprietary account. proposed Article 23, the Exchange
the Exchange proposes to replace the The proposed definition is the same as proposes to define ‘‘Data Submitter’’ in
references to a registered broker-dealer the definition of ‘‘Customer Account paragraph (n) of proposed Rule 1.
or broker-dealer with a reference to an Information’’ set forth in Section 1.1 of Specifically, paragraph (n) of proposed
Industry Member for consistency of the CAT NMS Plan, provided, however, Rule 1 defines a ‘‘Data Submitter’’ to
terms used in proposed Article 23. The that specific dates have replaced the mean any person that reports data to the
Exchange also notes that Section 1.1 of descriptions of those dates set forth in Central Repository, including national
the CAT NMS Plan defines ‘‘Customer’’ Section 1.1 of the Plan. securities exchanges, national securities
by reference to SEC Rule 613(j)(3). associations, broker-dealers, the SIPs for
(M) Customer Identifying Information
(L) Customer Account Information the CQS, CTA, UTP and Plan for
As discussed above, under the Reporting of Consolidated Options Last
As discussed above, under the Customer Information Approach, Sale Reports and Quotation Information
Customer Information Approach, Industry Members are required to report (‘‘OPRA’’) Plans, and certain other
Industry Members are required to report Customer Identifying Information to the vendors or third parties that may submit
Customer Account Information to the Central Repository as part of the data to the Central Repository on behalf
Central Repository as part of the customer definition process. of Industry Members.
customer definition process. Accordingly, the Exchange proposes to
Accordingly, the Exchange proposes to define the term ‘‘Customer Account (O) Eligible Security
define the term ‘‘Customer Account Information’’ to clarify what Customer The reporting requirements of
Information’’ to clarify what customer information would need to be reported proposed Article 23 only apply to
information would need to be reported to the Central Repository. Reportable Events in Eligible Securities.
to the Central Repository. Paragraph (m) of proposed Rule 1 Currently, an Eligible Security includes
Paragraph (l) of proposed Rule 1 defines the term ‘‘Customer Identifying NMS Securities and OTC Equity
defines the term ‘‘Customer Account Information’’ to mean information of Securities. Accordingly, paragraph (o) of
Information’’ to include, in part, sufficient detail to identify a Customer. proposed Rule 1 defines the term
account number, account type, customer With respect to individuals, ‘‘Customer ‘‘Eligible Security’’ to include: (1) All
type, date account opened, and large Identifying Information’’ includes, but is NMS Securities; and (2) all OTC Equity
trader identifier (if applicable). not limited to: Name, address, date of Securities. The terms ‘‘NMS Securities’’
Proposed Rule 1(l), however, provides birth, individual tax payer identification and ‘‘OTC Equity Securities’’ are
an alternative definition of ‘‘Customer number (‘‘ITIN’’)/social security number defined, in turn, below. This is the same
Account Information’’ in two limited (‘‘SSN’’), individual’s role in the definition as set forth in Section 1.1 of
circumstances. First, in those account (e.g., primary holder, joint the CAT NMS Plan.
circumstances in which an Industry holder, guardian, trustee, person with
Member has established a trading the power of attorney). With respect to (P) Error Rate
relationship with an institution but has legal entities, ‘‘Customer Identifying (I) Maximum Error Rate
not established an account with that Information’’ includes, but is not
institution, the Industry Member will: limited to, name, address, Employer Under the CAT NMS Plan, the
(1) Provide the Account Effective Date Identification Number (‘‘EIN’’)/Legal Operating Committee sets the maximum
in lieu of the ‘‘date account opened’’; (2) Entity Identifier (‘‘LEI’’) or other Error Rate that the Central Repository
provide the relationship identifier in comparable common entity identifier, if would tolerate from an Industry
lieu of the ‘‘account number’’; and (3) applicable. The definition further notes Member reporting data to the Central
identify the ‘‘account type’’ as a that an Industry Member that has an LEI Repository.16 The Operating Committee
‘‘relationship.’’ Second, in those for a Customer must submit the reviews and resets the maximum Error
circumstances in which the relevant Customer’s LEI in addition to other Rate, at least annually.17 If an Industry
account was established prior to information of sufficient detail to Member reports CAT data to the Central
November 15, 2018 for Industry identify the Customer. This is the same Repository with errors such that their
Members other than Small Industry definition as set forth in Section 1.1 of error percentage exceeds the maximum
Members, or prior to November 15, 2019 the CAT NMS Plan. Error Rate, then such Industry Member
for Small Industry Members, and no would not be in compliance with the
‘‘date account opened’’ is available for (N) Data Submitter CAT NMS Plan or Rule 613.18 As such,
the account, the Industry Member will The CAT NMS Plan uses the term the Exchange or the SEC ‘‘[sic] may take
provide the Account Effective Date in ‘‘Data Submitter’’ to refer to any person appropriate action against an Industry
the following circumstances: (1) Where that reports data to the Central Member for failing to comply with its
an Industry Member changes back office Repository.15 Such Data Submitters may CAT reporting obligations.19 The CAT
providers or clearing firms and the date include those entities that are required NMS Plan sets the initial Error Rate at
account opened is changed to the date to submit data to the Central Repository 5%.20 It is anticipated that the
the account was opened on the new (e.g., national securities exchanges, maximum Error Rate will be reviewed
back office/clearing firm system; (2) national securities associations and and lowered by the Operating
where an Industry Member acquires Committee once Industry Members
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Industry Members), third-parties that
another Industry Member and the date may submit data to the CAT on behalf
account opened is changed to the date of CAT Reporters (i.e., CAT Reporting 16 Section 6.5(d)(i) of the CAT NMS Plan.
the account was opened on the post- Agents), and outside parties that are not
17 Appendix C, Section A.3(b) of the CAT NMS
merger back office/clearing firm system; Plan.
required to submit data to the CAT but 18 Appendix C, Section A.3(b) of the CAT NMS
(3) where there are multiple dates from which the CAT may receive data Plan; Rule 613(g)–(h).
associated with an account in an 19 Appendix C, Section A.3(b) of the CAT NMS
Industry Member’s system, and the 15 Appendix C, Section A.1(a) of the CAT NMS Plan.
parameters of each date are determined Plan. 20 Section 6.5(d)(i) of the CAT NMS Plan.
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begin to report to the Central may not have multiple separate (U) Listed Option or Option
Repository.21 customers with the same identifier on
The CAT NMS Plan requires the Plan The CAT NMS Plan and this proposed
any given date). Industry Members
Processor to: (1) Measure and report Article 23 applies to Eligible Securities,
would be required to report only the
errors every business day; (2) provide which includes NMS Securities, which,
Firm Designated ID for each new order
Industry Members daily statistics and in turn, includes Listed Options. Certain
submitted to the Central Repository, requirements of proposed Article 23
error reports as they become available, rather than the ‘‘Customer-ID’’ with
including a description of such errors; apply specifically to Listed Options.
individual order events. Accordingly, Accordingly, paragraph (u) of proposed
(3) provide monthly reports to Industry the Exchange proposes to define the
Members that detail an Industry Rule 1 defines the term ‘‘Listed Option’’
term ‘‘Firm Designated ID’’ in proposed or ‘‘Option.’’ Specifically, paragraph (u)
Member’s performance and comparison Rule 1. Specifically, paragraph (q) of
statistics; (4) define educational and of proposed Rule 1 states that the term
proposed Rule 1 defines the term ‘‘Firm ‘‘Listed Option’’ or ‘‘Option’’ has the
support programs for Industry Members Designated ID’’ to mean a unique
to minimize Error Rates; and (5) meaning set forth in SEC Rule
identifier for each trading account 600(b)(35) of Regulation NMS. SEC Rule
identify, daily, all Industry Members
designated by Industry Members for 600(b)(35), in turn, defines a listed
exceeding the maximum allowable Error
purposes of providing data to the option as ‘‘any option traded on a
Rate. To timely correct data-submitted
errors to the Central Repository, the Central Repository, where each such registered national securities exchange
CAT NMS Plan requires that the Central identifier is unique among all identifiers or automated facility of a national
Repository receive and process error from any given Industry Member for securities association.’’ The Exchange
corrections at all times. Further, the each business date. This is the same notes that the proposed definition of
CAT NMS Plan requires that Industry definition as set forth in Section 1.1 of ‘‘Listed Option’’ is the same definition
Members be able to submit error the CAT NMS Plan. Industry Members as the definition set forth in Section 1.1
corrections to the Central Repository would be permitted to use an account of the CAT NMS Plan.
through a web-interface or via bulk number or any other identifier defined (V) Manual Order Event
uploads or file submissions, and that the by the firm, provided each identifier is
Plan Processor, subject to the Operating unique across the firm for each business (I) Manual Order Event Approach
Committee’s approval, support the bulk date (i.e., a single firm may not have The CAT NMS Plan sets forth clock
replacement of records and the multiple separate customers with the synchronization and timestamp
reprocessing of such records. The Plan same identifier on any given date). requirements for Industry Members
Participants, furthermore, require that (R) Industry Member which reflect exemptions for Manual
the Plan Processor identify Industry Order Events granted by the
Member data submission errors based Paragraph (r) of proposed Rule 1 Commission.23 Specifically, the Plan
on the Plan Processor’s validation defines the term ‘‘Industry Member’’ to requires Industry Members to record
processes.22 mean a member of a national securities and report the time of each Reportable
(II) Definition of Error Rate exchange or a member of a national Event using timestamps reflecting
securities association.’’ This is the same current industry standards (which must
To implement the requirements of the definition as set forth in Section 1.1 of be at least to the millisecond) or, if an
CAT NMS Plan related to the Error Rate, the CAT NMS Plan. Industry Member’s order handling or
the Exchange proposes to define the execution systems uses timestamps in
term ‘‘Error Rate’’ in proposed Rule 1. (S) Industry Member Data increments finer than milliseconds,
Paragraph (p) of proposed Rule 1 such finer increments, when reporting
defines the term ‘‘Error Rate’’ to mean Paragraph (s) of proposed Rule 1
states that the term ‘‘Industry Member to the Central Repository. For Manual
the percentage of Reportable Events Order Events, however, the Plan
collected by the Central Repository in Data’’ has the meaning set forth in Rule
3(a)(2). This definition has the same provides that such events must be
which the data reported does not fully recorded in increments up to and
and accurately reflect the order event substantive meaning as the definition
set forth in Section 1.1 of the CAT NMS including one second, provided that
that occurred in the market. This is the Industry Members record and report the
same definition as set forth in SEC Rule Plan. The definition of ‘‘Industry
time the event is captured electronically
613(j)(6), and Section 1.1 of the CAT Member Data’’ is discussed more fully
in an order handling and execution
NMS Plan defines ‘‘Error Rate’’ by in the discussion below regarding
system (‘‘Electronic Capture Time’’) in
reference to SEC Rule 613(j)(6). proposed Rule 3(a)(2).
milliseconds. In addition, Industry
(Q) Firm Designated ID (T) Initial Plan Processor Members are required to synchronize
their respective Business Clocks (other
As discussed above, under the Paragraph (t) of proposed Rule 1 than such Business Clocks used solely
Customer Information Approach, the defines the term ‘‘Initial Plan Processor’’ for Manual Order Events) at a minimum
CAT NMS Plan would require each to mean the first Plan Processor selected to within 50 milliseconds of the time
Industry Member to assign a unique by the Operating Committee in maintained by the National Institute of
Firm Designated ID to each Customer.
accordance with SEC Rule 613, Section Standards and Technology (‘‘NIST’’),
Industry Members would be permitted
6.1 of the CAT NMS Plan and the and maintain such a synchronization.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
to use as the Firm Designated ID an
National Market System Plan Governing Each Industry Members [sic] is required
account number or any other identifier
the Process for Selecting a Plan to synchronize their Business Clocks
defined by the firm, provided each
Processor and Developing a Plan for the used solely for Manual Order Events,
identifier is unique across the firm for
Consolidated Audit Trail. This is the however, at a minimum to within one
each business date (i.e., a single firm
same definition as set forth in Section second of the time maintained by the
21 Appendix C, Section A.3(b) of the CAT NMS 1.1 of the CAT NMS Plan, although the NIST.
Plan. proposed definition uses the full name
22 Approval Order at 84718. of the ‘‘Selection Plan.’’ 23 Exemption Order.
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(ii) Clock Synchronization Events are accurate. In addition, to of paragraph (a) of this Rule pursuant to
SEC Rule 613(d)(1) under Regulation maintain clock synchronization, the thresholds set by the Operating
NMS requires Industry Members to Business Clocks must be checked Committee pursuant to the CAT NMS
synchronize their Business Clocks to the against the NIST atomic clock and re- Plan. This requirement is the same
time maintained by NIST, consistent synchronized, as necessary, throughout requirement as set forth in Section
with industry standards. To comply the day. This description of the required 6.8(a)(ii)(C), (iii) and (iv) of the CAT
with this provision, Section 6.8 of the frequency of clock synchronization is NMS Plan. The Exchange intends to
Plan sets forth the clock the same as set forth in paragraph (c) of announce to its Industry Members the
synchronization requirements for FINRA Rule 4590 (Synchronization of relevant thresholds established by the
Industry Members.27 To implement Member Business Clocks). Operating Committee via Information
these provisions with regard to its Paragraph (b) of proposed Rule 2 sets Memorandum.
Industry Members, the Exchange forth documentation requirements with
regard to clock synchronization. (iii) Industry Member Data Reporting
proposes Rule 2 (Consolidated Audit
Specifically, paragraph (b) requires SEC Rule 613(c) under Regulation
Trail—Clock Synchronization) to
Industry Members to document and NMS requires the CAT NMS Plan to set
require its Industry Members to comply
maintain their synchronization forth certain provisions requiring
with the clock synchronization
procedures for their Business Clocks. Industry Members to record and report
requirements of the Plan.
Paragraph (a) of proposed Rule 2 sets The proposed Rule requires Industry data to the CAT. To comply with this
forth the manner in which Industry Members to keep a log of the times provision, Section 6.4 of the CAT NMS
Members must synchronize their when they synchronize their Business Plan sets forth the data reporting
Business Clocks. Paragraph (a)(1) of Clocks and the results of the requirements for Industry Members. To
proposed Rule 2 requires each Industry synchronization process. This log is implement these provisions with regard
Member to synchronize its Business required to include notice of any time to its Industry Members, the Exchange
Clocks, other than such Business Clocks a Business Clock drifts more than the proposes Rule 3 (Consolidated Audit
used solely for Manual Order Events or applicable tolerance specified in Trail—Industry Member Data Reporting)
used solely for the time of allocation on paragraph (a) of the proposed Rule. to require its Industry Members to
Allocation Reports, at a minimum to Such logs must include results for a comply with the Industry Member Data
within a fifty (50) millisecond tolerance period of not less than five years ending reporting requirements of the Plan.
of the time maintained by the NIST on the then current date, or for the Proposed Rule 3 has six [sic] sections
atomic clock, and maintain such entire period for which the Industry covering: (1) Recording and reporting
synchronization. This is the same Member has been required to comply Industry Member Data, (2) timing of the
requirement as set forth in Section with this Rule if less than five years. recording and reporting, (3) the
6.8(a)(ii)(A) of the CAT NMS Plan. These documentation requirements are applicable securities cover by the
Paragraph (a)(2) of proposed Rule 2 the same as those set forth in the recording and reporting requirements,
requires each Industry Member to ‘‘Sequencing Orders and Clock (4) format, [sic] (5) the security
synchronize (1) its Business Clocks used Synchronization’’ section of Appendix symbology to be used in the recording
solely for Manual Order Events and (2) C of the CAT NMS Plan. Moreover, and reporting, and (6) error correction
its Business Clocks used solely for the these documentation requirements requirements, each of which is
time of allocation on Allocation Reports regarding clock synchronization are described below.
at a minimum to within a one second comparable to those set forth in
(A) Recording and Reporting Industry
tolerance of the time maintained by the Supplementary Material .01 of FINRA
Member Data
NIST atomic clock, and maintain such Rule 4590 (Synchronization of Member
Business Clocks). Paragraph (a) of proposed Rule 3
synchronization. This is the same
Paragraph (c) of proposed Rule 2 sets describes the recording and reporting of
requirement as set forth in Section
forth certification requirements with Industry Member Data to the Central
6.8(a)(iii) and (iv) of the CAT NMS Plan.
Paragraph (a)(3) of proposed Rule 2 regard to clock synchronization. Repository. Paragraph (a) consists of
clarifies that the tolerance described in Specifically, paragraph (c) of proposed paragraphs (a)(1)–(a)(3), which cover
paragraphs (a)(1) and (2) of the proposed Rule 2 requires each Industry Member Recorded Industry Member Data,
Rule 2 includes all of the following: (1) to certify to the Exchange that its Received Industry Member Data and
The time difference between the NIST Business Clocks satisfy the Options Market Maker data,
atomic clock and the Industry Member’s synchronization requirements set forth respectively. Paragraphs (a)(1)–(a)(3) of
Business Clock; (2) the transmission in paragraph (a) of proposed Rule 2 proposed Rule 3 set forth the recording
delay from the source; and (3) the periodically in accordance with the and reporting requirements required in
amount of drift of the Industry certification schedule established by the Section 6.4(d)(i)–(iii) of the CAT NMS
Member’s Business Clock. This Operating Committee pursuant to the Plan, respectively.
CAT NMS Plan. This requirement is the Paragraph (a)(1) requires, subject to
description of the clock synchronization
same requirement as set forth in Section paragraph (a)(3) regarding Options
tolerance is the same as set forth in
6.8(a)(ii)(B), (iii) and (iv) of the CAT Market Makers, each Industry Member
paragraph (b) of FINRA Rule 4590
NMS Plan. The Exchange intends to to record and electronically report to the
(Synchronization of Member Business
announce to its Industry Members the Central Repository the following details
Clocks).
certification schedule established by the for each order and each Reportable
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Paragraph (a)(4) of proposed Rule 2
requires Industry Members to Operating Committee via Information Event, as applicable (‘‘Recorded
synchronize their Business Clocks every Memorandum. Industry Member Data’’) in the manner
Paragraph (d) of proposed Rule 2 prescribed by the Operating Committee
business day before market open to
establishes reporting requirements with pursuant to the CAT NMS Plan:
ensure that timestamps for Reportable
regard to clock synchronization. • For original receipt or origination of
27 In addition, Section 6.7(a)(ii) of the Plan sets Paragraph (d) of proposed Rule 2 an order: (1) Firm Designated ID(s) for
forth the timeline for CAT Reporters to comply with requires Industry Members to report to each Customer; (2) CAT-Order-ID; (3)
the clock synchronization requirements. the Plan Processor and SRO violations SRO-Assigned Market Participant
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![Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 9913
relevant symbology formats established Repository has the most current to comply with the time stamp
by the Operating Committee via information identifying a Customer. The requirements of the Plan.
Information Memorandum. Exchange intends to announce to its Paragraph (a) of proposed Rule 6 sets
Industry Members when such a periodic forth the time stamp increments to be
(E) Error Correction used by Industry Members in their CAT
refresh is required by the Plan Processor
To ensure that the CAT contains and the Operating Committee via reporting. Paragraph (a)(1) of proposed
accurate data, the CAT NMS Plan Information Memorandum. Rule 6 requires each Industry Member
requires Industry Members to correct Finally, paragraph (d) of proposed to record and report Industry Member
erroneous data submitted to the Central Rule 4 addresses the correction of Data to the Central Repository with time
Repository. Therefore, the Exchange erroneous Customer data reported to the stamps in milliseconds, subject to
proposes to adopt paragraph (e) of Central Repository to ensure an accurate paragraphs (a)(2) and (b) of proposed
proposed Rule 3, which addresses the audit trail. Paragraph (d) requires, for Rule 6. To the extent that any Industry
correction of erroneous data reported to each Industry Member for which errors Member’s order handling or execution
the Central Repository. Paragraph (e) of in Firm Designated ID, Customer systems utilize time stamps in
proposed Rule 3 requires, for each Account Information and Customer increments finer than milliseconds,
Industry Member for which errors in Identifying Information for each of its paragraph (a)(2) of proposed Rule 6
Industry Member Data submitted to the Customers with an Active Account requires such Industry Member to
Central Repository have been identified submitted to the Central Repository record and report Industry Member Data
by the Plan Processor or otherwise, that have been identified by the Plan to the Central Repository with time
such Industry Member submit corrected Processor or otherwise, such Member to stamps in such finer increment, subject
Industry Member Data to the Central submit corrected data to the Central to paragraph (b) of proposed Rule 6
Repository by 8:00 a.m. Eastern Time on Repository by 5:00 p.m. Eastern Time on regarding Manual Order Events and
T+3. This requirement implements the T+3. This requirement implements the Allocation Reports.
error correction requirement set forth in error correction requirement set forth in Paragraph (b) of proposed Rule 6 sets
Section 6 of Appendix D of the CAT Appendix C of the CAT NMS Plan. forth the permissible time stamp
NMS Plan. increments for Manual Order Events
(v) Industry Member Information and Allocation Reports. Specifically,
(iv) Customer Information Reporting Reporting paragraph (b)(1) of proposed Rule 6
Section 6.4(d)(iv) of the CAT NMS Section 6.4(d)(vi) of the CAT NMS permits each Industry Member to record
Plan requires Industry Members to Plan requires Industry Members to and report Manual Order Events to the
submit to the Central Repository certain submit to the Central Repository Central Repository in increments up to
information related to their Customers information sufficient to identify such and including one second, provided that
in accordance with the Customer Industry Member, including CRD each Industry Member is required to
Information Approach discussed above. number and LEI, if such LEI has been record and report the time when a
The Exchange proposes Rule 4 obtained, in accordance with the Manual Order Event has been captured
(Consolidated Audit Trail—Customer Existing Identifier Approach discussed electronically in an order handling and
Information Reporting) to implement above. The Exchange proposes Rule 5 execution system of such Member
this provision of the CAT NMS Plan (Consolidated Audit Trail—Industry (‘‘Electronic Capture Time’’) in
with regard to its Industry Members. Member Information Reporting) to milliseconds. In addition, paragraph
Specifically, paragraph (a) of proposed implement this provision of the CAT (b)(2) of proposed Rule 6 permits each
Rule 4 requires each Industry Member NMS Plan with regard to its Industry Industry Member to record and report
to submit to the Central Repository the Members. Specifically, proposed Rule 5 the time of Allocation Reports in
Firm Designated ID, Customer Account requires each Industry Member to increments up to and including one
Information and Customer Identifying submit to the Central Repository second.
Information for each of its Customers information sufficient to identify such
with an Active Account prior to such (vii) Clock Synchronization Rule
Industry Member, including CRD
Industry Member’s commencement of Violations
number and LEI, if such LEI has been
reporting to the Central Repository and obtained, prior to such Industry Proposed Rule 7 (Consolidated Audit
in accordance with the deadlines set Member’s commencement of reporting Trail—Clock Synchronization Rule
forth in Rule 9. Paragraph (b) of to the Central Repository and in Violations [sic]) describes potential
proposed Rule 4 requires each Industry accordance with the deadlines set forth violations of the clock synchronization
Member to submit to the Central in Rule 9, and keep such information up time period requirements set forth in
Repository any updates, additions or to date as necessary. proposed Article 23. Proposed Rule 7
other changes to the Firm Designated ID, states that an Industry Member that
Customer Account Information and (vi) Time Stamps engages in a pattern or practice of
Customer Identifying Information for SEC Rule 613(d)(3) under Regulation reporting Reportable Events outside of
each of its Customers with an Active NMS sets forth requirements for time the required clock synchronization time
Account on a daily basis. Paragraph (c) stamps used by CAT Reporters in period as set forth in this Article 23
of proposed Rule 4 requires each recording and reporting data to the without reasonable justification or
Industry Member, on a periodic basis as CAT.28 To comply with this provision, exceptional circumstances may be
designated by the Plan Processor and Section 6.8(b) of the Plan sets forth time considered in violation of this Rule.
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approved by the Operating Committee, stamp requirements for Industry This provision implements the
to submit to the Central Repository a Members. To implement this provision requirements of Section 6.8 of the CAT
complete set of Firm Designated IDs, with regard to its Industry Members, the NMS Plan which requires the
Customer Account Information and Exchange proposes new Rule 6 Compliance Rule to provide that a
Customer Identifying Information for (Consolidated Audit Trail—Time pattern or practice of reporting events
each of its Customers with an Active Stamps) to require its Industry Members outside of the required clock
Account. This periodic refresh is synchronization time period without
intended to ensure that the Central 28 17 CFR 242.613(d)(3). reasonable justification or exceptional
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![9914 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
circumstances may be considered a remains primarily responsible for of order submission, which will begin
violation of SEC Rule 613 or the CAT compliance with the requirements of no later than August 15, 2019.
NMS Plan. proposed Article 23, notwithstanding Paragraph (a)(4) states that Industry
the existence of an agreement described Members are permitted, but not required
(viii) Connectivity and Data
in paragraph (c) of proposed Rule 8. to, submit Quote Sent Times on Options
Transmission
Market Maker quotes, beginning no later
Proposed Rule 8 (Consolidated Audit (ix) Development and Testing than October 15, 2018
Trail—Connectivity and Data The Exchange proposes Rule 9 Paragraph (b) of proposed Rule 9
Transmission) addresses connectivity (Consolidated Audit Trail— implements the requirement under the
and data transmission requirements Development and Testing) to address CAT NMS Plan that Industry Members
related to the CAT. Paragraph (a) of requirements for Industry Members participate in required industry testing
proposed Rule 8 describes the format(s) related to CAT development and testing. with the Central Repository.29
for reporting Industry Member Data to Paragraph (a) of proposed Rule 9 sets Specifically, proposed Rule 9 requires
the Central Repository, thereby forth the testing requirements and that each Industry Member participate
implementing the formatting deadlines for Industry Members to in testing related to the Central
requirements as set forth in Section develop and commence reporting to the Repository, including any industry-wide
6.4(a) of the CAT NMS Plan. Central Repository. These requirements disaster recovery testing, pursuant to the
Specifically, paragraph (a) of proposed are set forth in Appendix C to the CAT schedule established pursuant to the
Rule 8 requires each Industry Member NMS Plan. CAT NMS Plan. The Exchange intends
to transmit data as required under the Paragraph (a)(1) sets forth the to announce to its Industry Members the
CAT NMS Plan to the Central deadlines related to connectivity and schedule established pursuant to the
Repository utilizing such format(s) as acceptance testing. Industry Members CAT NMS Plan via Information
may be provided by the Plan Processor (other than Small Industry Members) are Memorandum.
and approved by the Operating
required to begin connectivity and (x) Recordkeeping
Committee.
acceptance testing with the Central
Paragraph (b) of proposed Rule 8 Proposed Rule 10 (Consolidated Audit
addresses connectivity requirements Repository no later than August 15,
2018, and Small Industry Members are Trail—Recordkeeping) sets forth the
related to the CAT. Paragraph (b) of recordkeeping obligations related to the
proposed Rule 8 requires each Industry required to begin connectivity and
acceptance testing with the Central CAT for Industry Members. Proposed
Member to connect to the Central Rule 10 requires each Industry Member
Repository using a secure method(s), Repository no later than August 15,
2019. to maintain and preserve records of the
including, but not limited to, private information required to be recorded
line(s) and virtual private network Paragraph (a)(2) sets forth the
deadlines related to reporting Customer under proposed Article 23 for the period
connection(s). This provision of time and accessibility specified in
implements the connectivity and Industry Member information.
Paragraph (a)(2)(i) requires Industry SEC Rule 17a–4(b). The records required
requirements set forth in Section 4 of to be maintained and preserved under
Appendix D to the CAT NMS Plan. Members (other than Small Industry
Members) to begin reporting Customer proposed Article 23 may be
Paragraph (c) permits Industry immediately produced or reproduced on
Members to use CAT Reporting Agents and Industry Member information, as
required by Rules 4 and 5, respectively, ‘‘micrographic media’’ as defined in
to fulfill their data reporting obligations SEC Rule 17a–4(f)(1)(i) or by means of
related to the CAT. Paragraph (c) is to the Central Repository for processing
no later than October 15, 2018. ‘‘electronic storage media’’ as defined in
based on FINRA Rule 7450(c), which SEC Rule 17a–4(f)(1)(ii) that meet the
permits OATS Reporting Members to Paragraph (a)(2)(ii) requires Small
Industry Members to begin reporting conditions set forth in SEC Rule 17a–
enter into agreements with Reporting 4(f) and be maintained and preserved
Agents to fulfill the OATS obligations of Customer and Industry Member
information, as required by Rules 4 and for the required time in that form.
the OATS Reporting Member.
5, respectively, to the Central Repository Proposed Rule 10 is based on FINRA
Specifically, Paragraph (c)(1) of
for processing no later than October 15, Rule 7440(a)(5), which sets forth the
proposed Rule 8 states that any Industry
2019. recordkeeping requirements related to
Member may enter into an agreement
OATS.
with a CAT Reporting Agent pursuant to Paragraph (a)(3) sets forth the
which the CAT Reporting Agent agrees deadlines related to the submission of (xi) Timely, Accurate and Complete
to fulfill the reporting obligations of order data. Under paragraph (a)(3)(i), Data
such Industry Member under proposed Industry Members (other than Small SEC Rule 613 and the CAT NMS Plan
Article 23. Any such agreement must be Industry Members) are permitted, but emphasize the importance of the
evidenced in writing, which specifies not required, to submit order data for timeliness, accuracy, completeness and
the respective functions and testing purposes beginning no later than integrity of the data submitted to the
responsibilities of each party to the May 15, 2018. In addition, Industry CAT.30 Accordingly, proposed Rule 11
agreement that are required to effect full Members (other than Small Industry (Consolidated Audit Trail—Timely,
compliance with the requirements of Members) are required to participate in Accurate and Complete Data)
proposed Article 23. The Exchange the coordinated and structured testing implements this requirement with
notes that, currently, no standardized of order submission, which will begin
asabaliauskas on DSK3SPTVN1PROD with NOTICES
regard to Industry Members. Paragraph
form agreement for CAT Reporting no later than August 15, 2018. Under (a) of proposed Rule 11 requires that
Agent arrangements has been adopted. paragraph (a)(3)(ii), Small Industry Industry Members record and report
Paragraph (c)(2) of proposed Rule 8 Members are permitted, but not data to the Central Repository as
requires that all written documents required, to submit order data for testing required by proposed Article 23 in a
evidencing an agreement with a CAT purposes beginning no later than May
Reporting Agent be maintained by each 15, 2019. In addition, Small Industry 29 Adopting Release [sic] at 84725.
party to the agreement. Paragraph (c)(3) Members are required to participate in 30 See SEC Rule 613(e)(4)(i)(D)(ii); and Section
states that each Industry Member the coordinated and structured testing 6.5(d) of the CAT NMS Plan.
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![Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 9915
manner that ensures the timeliness, calculated at intervals to be set by the Rule 613(a)(3)(v) and (vi), and Section
accuracy, integrity and completeness of Operating Committee.32 Compliance 6.7(a)(v) and (vi) of the CAT NMS Plan.
such data. Thresholds will include compliance
In addition, without limiting the 2. Statutory Basis
with the data reporting and clock
general requirement as set forth in synchronization requirements. Proposed The Exchange believes that the
paragraph (a), paragraph (b) of proposed Rule 11 further states that an Industry proposed rule change is consistent with
Rule 11 requires Industry Members to Member’s performance with respect to the provisions of Section 6(b)(5) of the
accurately provide the LEIs in their its Compliance Threshold will not Act,34 which require, among other
records as required by proposed Article signify, as a matter of law, that such things, that CHX Rules must be
23 and states that Industry Members Industry Member has violated this designed to prevent fraudulent and
may not knowingly submit inaccurate proposed Article 23. manipulative acts and practices, to
LEIs to the Central Repository. promote just and equitable principles of
Paragraph (b) notes, however, that this (xii) Compliance Dates
trade, and, in general, to protect
requirement does not impose any Proposed Rule 12 (Consolidated Audi investors and the public interest, and
additional due diligence obligations on [sic] Trail—Compliance Dates) sets forth Section 6(b)(8) of the Act,35 which
Industry Members with regard to LEIs the compliance dates for the various requires that CHX Rules not impose any
for CAT purposes. Accordingly, this provisions of proposed Article 23. burden on competition that is not
provision does not impose any due Paragraph (a) of proposed Rule 12 states necessary or appropriate.
diligence obligations beyond those that that paragraphs (b) and (c) of this Rule The Exchange believes that this
may exist today with respect to set forth the additional details with proposal is consistent with the Act
information associated with an LEI. respect to the compliance date of Article because it implements, interprets or
Although Industry Members will not be 23. Unless otherwise noted, Article 23 is clarifies the provisions of the Plan, and
required to perform additional due fully effective and Industry Members is designed to assist the Exchange and
diligence with regard to the LEIs for must comply with their terms. its Industry Members in meeting
CAT purposes, Industry Members will
be required to accurately provide the Paragraph (b) of proposed Rule 12 regulatory obligations pursuant to the
LEIs in their records and may not establishes the compliance dates for the Plan. In approving the Plan, the SEC
knowingly submit inaccurate LEIs to the clock synchronization requirements as noted that the Plan ‘‘is necessary and
CAT. Paragraph (b) is consistent with set forth in proposed Rule 2. Paragraph appropriate in the public interest, for
the SEC’s statements in the Approval (b)(1) states that each Industry Member the protection of investors and the
Order for the CAT NMS Plan regarding shall comply with Rule 2 with regard to maintenance of fair and orderly markets,
an Industry Member’s obligations Business Clocks that capture time in to remove impediments to, and perfect
regarding LEIs.31 milliseconds commencing on or before the mechanism of a national market
Paragraph (c) states that, if an March 15, 2017. Paragraph (b)(2) states system, or is otherwise in furtherance of
Industry Member reports data to the that each Industry Member shall comply the purposes of the Act.’’ 36 To the
Central Repository with errors such that with Rule 2 with regard to Business extent that this proposal implements,
its error percentage exceeds the Clocks that do not capture time in interprets or clarifies the Plan and
maximum Error Rate established by the milliseconds commencing on or before applies specific requirements to
Operating Committee pursuant to the February 19, 2018. The compliance date Industry Members, the Exchange
CAT NMS Plan, then such Industry set forth in paragraph (b)(1) reflects the believes that this proposal furthers the
Member would not be in compliance exemptive relief requested by the Plan objectives of the Plan, as identified by
with the Article 23. As discussed above, Participants with regard to the clock the SEC, and is therefore consistent with
the initial maximum Error Rate is 5%, synchronization requirements related to the Act.
although the Error Rate is expected to be Business Clocks that do not capture
B. Self-Regulatory Organization’s
reduced over time. The Exchange time in milliseconds.33
Statement on Burden on Competition
intends to announce to its Industry Paragraph (c) of proposed Rule 12
Members changes to the Error Rate establishes the compliance dates for the The Exchange does not believe that
established pursuant to the CAT NMS data recording and reporting the proposed rule change will result in
Plan via Information Memorandum. requirements for Industry Members. any burden on competition that is not
Furthermore, paragraph (d) of Paragraph (c)(1) requires each Industry necessary or appropriate in furtherance
proposed Rule 11 addresses Compliance Member (other than Small Industry of the purposes of the Act. The
Thresholds related to reporting data to Members) to record and report the Exchange notes that the proposed rule
the CAT. Proposed Rule 11 states that Industry Member Data to the Central change implements provisions of the
each Industry Member is required to Repository by November 15, 2018. CAT NMS Plan, and is designed to
meet a separate compliance threshold Paragraph (c)(2) requires that each assist the Exchange in meeting its
which will be an Industry Member- Industry Member that is a Small regulatory obligations pursuant to the
specific rate that may be used as the Industry Member to record and report Plan. The Exchange also notes that the
basis for further review or investigation the Industry Member Data to the Central proposed rules implementing provisions
into the Industry Member’s performance Repository by November 15, 2019. Such of the CAT NMS Plan will apply equally
with regard to the CAT (the compliance dates are consistent with to all firms that trade NMS Securities
‘‘Compliance Thresholds’’). Compliance
asabaliauskas on DSK3SPTVN1PROD with NOTICES
the compliance dates set forth in SEC and OTC Equity Securities. In addition,
Thresholds will compare an Industry all national securities exchanges and
Member’s error rate to the aggregate 32 Appendix C of the CAT NMS Plan. FINRA are proposing this proposed
Error Rate over a period of time to be 33 See Letter from the Plan Participants to Brent Article 23. Therefore, this is not a
defined by the Operating Committee. J. Fields, Secretary, Commission, dated January 17, competitive rule filing, and, therefore, it
Compliance Thresholds will be set by 2017. Specifically, the Participants will ask the
Commission to extend the clock synchronization
the Operating Committee, and will be compliance date from March 15, 2017 to February
34 15U.S.C. 78f(b)(6) [sic].
35 15U.S.C. 78f(b)(8).
19, 2018 for Industry Members’ Business Clocks
31 Approval Order at 84745. that do not capture time in milliseconds. 36 Approval Order at 84697.
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![9916 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
does not impose a burden on Commission and any person, other than I. Self-Regulatory Organization’s
competition. those that may be withheld from the Statement of the Terms of Substance of
public in accordance with the the Proposed Rule Change
C. Self-Regulatory Organization’s
provisions of 5 U.S.C. 552, will be
Statement on Comments on the The Exchange proposes to adopt
available for Web site viewing and
Proposed Rule Change Received From Chapter VI, Section F to implement the
printing in the Commission’s Public
Members, Participants or Others
Reference Room, 100 F Street NE., compliance rule (‘‘Compliance Rule’’)
No written comments were solicited Washington, DC 20549, on official regarding the National Market System
or received with respect to the proposed business days between the hours of Plan Governing the Consolidated Audit
rule change. 10:00 a.m. and 3:00 p.m. Copies of such Trail (the ‘‘CAT NMS Plan’’ or the
III. Date of Effectiveness of the filing will also be available for ‘‘Plan’’). The text of the proposed rule
Proposed Rule Change and Timing for inspection and copying at the principal change is available on the Exchange’s
Commission Action office of the Exchange. All comments Web site (http://www.cboe.com/
received will be posted without change; AboutCBOE/
Within 45 days of the date of the Commission does not edit personal CBOELegalRegulatoryHome.aspx), at
publication of this notice in the Federal identifying information from
Register or within such longer period the Exchange’s Office of the Secretary,
submissions. You should submit only and at the Commission’s Public
up to 90 days (i) as the Commission may information that you wish to make
designate if it finds such longer period Reference Room.
available publicly. All submissions
to be appropriate and publishes its should refer to File Number SR–CHX– II. Self-Regulatory Organization’s
reasons for so finding or (ii) as to which 2017–03 and should be submitted on or Statement of the Purpose of, and
the self-regulatory organization before March 1, 2017. Statutory Basis for, the Proposed Rule
consents, the Commission will: Change
For the Commission, by the Division of
(A) By order approve or disapprove
Trading and Markets, pursuant to delegated
the proposed rule change, or authority.37 In its filing with the Commission, the
(B) institute proceedings to determine Exchange included statements
Robert W. Errett,
whether the proposed rule change concerning the purpose of and basis for
should be disapproved. Deputy Secretary.
[FR Doc. 2017–02553 Filed 2–7–17; 8:45 am]
the proposed rule change and discussed
IV. Solicitation of Comments any comments it received on the
BILLING CODE 8011–01–P
proposed rule change. The text of these
Interested persons are invited to
statements may be examined at the
submit written data, views, and
SECURITIES AND EXCHANGE places specified in Item IV below. The
arguments concerning the foregoing,
including whether the proposed rule COMMISSION Exchange has prepared summaries, set
change is consistent with the Act. forth in sections A, B, and C below, of
Comments may be submitted by any of the most significant aspects of such
[Release No. 34–79950; File No. SR–CBOE–
the following methods: 2017–012] statements.
Electronic Comments A. Self-Regulatory Organization’s
Self-Regulatory Organizations;
Statement of the Purpose of, and
• Use the Commission’s Internet Chicago Board Options Exchange,
Statutory Basis for, the Proposed Rule
comment form (http://www.sec.gov/ Incorporated; Notice of Filing of a
Proposed Rule Change Relating to the Change
rules/sro.shtml); or
• Send an email to rule-comments@ Consolidated Audit Trail 1. Purpose
sec.gov. Please include File Number SR–
February 2, 2017. Bats BYX Exchange, Inc., Bats BZX
CHX–2017–03 on the subject line.
Pursuant to Section 19(b)(1) of the Exchange, Inc., Bats EDGA Exchange,
Paper Comments
Securities Exchange Act of 1934 (the Inc., Bats EDGX Exchange, Inc., BOX
• Send paper comments in triplicate ‘‘Act’’),1 and Rule 19b–4 thereunder,2 Options Exchange LLC, C2 Options
to Secretary, Securities and Exchange notice is hereby given that on January Exchange, Incorporated, CBOE, Chicago
Commission, 100 F Street NE., 30, 2017, Chicago Board Options Stock Exchange, Inc., Financial Industry
Washington, DC 20549–1090. Exchange, Incorporated (the ‘‘Exchange’’ Regulatory Authority, Inc. (‘‘FINRA’’),
All submissions should refer to File or ‘‘CBOE’’) filed with the Securities International Securities Exchange, LLC,
Number SR–CHX–2017–03. This file and Exchange Commission (the Investors’ Exchange LLC, ISE Gemini,
number should be included on the ‘‘Commission’’) the proposed rule LLC, ISE Mercury, LLC, Miami
subject line if email is used. To help the change as described in Items I, II, and International Securities Exchange LLC,
Commission process and review your III below, which Items have been MIAX PEARL, LLC, NASDAQ BX, Inc.,
comments more efficiently, please use prepared by the Exchange.3 The NASDAQ PHLX LLC, The NASDAQ
only one method. The Commission will Commission is publishing this notice to Stock Market LLC, National Stock
post all comments on the Commission’s solicit comments on the proposed rule
Exchange, Inc., New York Stock
Internet Web site (http://www.sec.gov/ change from interested persons.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Exchange LLC, NYSE MKT LLC, and
rules/sro.shtml). Copies of the
NYSE Arca, Inc. (collectively, the
submission, all subsequent 37 17 CFR 200.30–3(a)(12).
‘‘Participants’’) filed with the
amendments, all written statements 1 15 U.S.C. 78s(b)(1).
with respect to the proposed rule 2 17 CFR 240.19b–4. Commission, pursuant to Section 11A of
change that are filed with the 3 The Exchange originally filed this proposed rule the Act 4 and Rule 608 of Regulation
change on January 17, 2017 under File No. SR–
Commission, and all written CBOE–2017–006, and the Exchange subsequently
communications relating to the withdrew that filing on January 30, 2017 and filed 4 15 U.S.C. 78k–1.
proposed rule change between the this proposed rule change.
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Document Created: 2017-02-08 02:58:56
Document Modified: 2017-02-08 02:58:56
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
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