82 FR 9942 - Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change To Implement Compliance Rules 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 | 9942-9954 | |
| FR Document | 2017-02538 |
[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)] [Notices] [Pages 9942-9954] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-02538] [[Page 9942]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79933; File No. SR-NSX-2017-03] Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change To Implement Compliance Rules Regarding the National Market System Plan Governing the Consolidated Audit Trail February 2, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on January 30, 2017, National Stock Exchange, Inc. (``NSX'' or the ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') a proposed rule change, as described in Items I and II below, which Items have been substantially prepared by the Exchange.\3\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ The Exchange originally filed this proposed rule change on January 17, 2017 under File No. SR-NSX-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 the Substance of the Proposed Rule Change The Exchange filed a proposal to amend Chapter XIV of its rules to implement the compliance rule (``Compliance Rule'') regarding the National Market System Plan Governing the Consolidated Audit Trail. [sic] (the ``CAT NMS Plan'' or ``Plan'').\4\ --------------------------------------------------------------------------- \4\ Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth herein or in the CAT NMS Plan. --------------------------------------------------------------------------- The text of the proposed rule change is available at the Exchange's Web site at www.nsx.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and statutory basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Bats BZX Exchange, Inc., Bats BYX Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc. BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc. (``FINRA''), International Securities Exchange, LLC, Investors' Exchange LLC, ISE Gemini, LLC, ISE Mercury, LLC, Miami International Securities Exchange LLC, MIAX PEARL, LLC, NASDAQ BX, Inc. [sic] NASDAQ PHLX LLC) [sic], The NASDAQ Stock Market LLC, NSX, New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. (collectively, ``self-regulatory organizations'', ``SROs'' or ``Participants''), filed with the Commission a National Market System (``NMS'') Plan Governing the Consolidated Audit Trail (the ``CAT NMS Plan,'' ``CAT Plan'' or ``Plan'').\5\ The SROs filed amendments to the CAT NMS Plan on December 24, 2015, and on February 8, 2016.\6\ The Plan was published for comment in the Federal Register on May 17, 2016,\7\ and approved by the Commission, as modified, on November 15, 2016.\8\ --------------------------------------------------------------------------- \5\ See Letter from Participants to Brent J. Fields, Secretary, Commission, dated September 30, 2014 and letter from Participants to Brent J. Fields, Secretary, Commission, dated February 27, 2015. Pursuant to Rule 613, the SROs were required to file the CAT NMS Plan on or before April 28, 2013. At the SROs' request, the Commission granted exemptions to extend the deadline for filing the CAT NMS Plan to December 6, 2013, and then to September 30, 2014. See Securities Exchange Act Release Nos. 69060 (March 7, 2013), 78 FR 15771 (March 12, 2013); 71018 (December 6, 2013), 78 FR 75669 (December 12, 2013). The SROs filed the CAT NMS Plan on September 30, 2014 (the ``Initial CAT NMS Plan''). See Letter from the SROs, to Brent J. Fields, Secretary, Commission, dated September 30, 2014. The CAT NMS Plan filed on February 27, 2015, was an amendment to and replacement of the Initial CAT NMS Plan. \6\ See Letter from Participants to Brent J. Fields, Secretary, Commission, dated December 23, 2015. On February 9, 2016, the Participants filed with the Commission an identical, but unmarked, version of the February 27, 2015 CAT NMS Plan, as modified by the December 24, 2015 Amendment, as well as a copy of the request for proposal issued by the Participants to solicit Bids from parties interested in serving as the Plan Processor for the consolidated audit trail. See Letter from Participants to Brent J. Fields, Secretary, Commission, dated February 8, 2016. \7\ Securities Exchange Act Release No. 77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016). \8\ Securities Exchange Act Release No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (``Approval Order''). --------------------------------------------------------------------------- The Plan is designed to create, implement and maintain a consolidated audit trail (``CAT'') that would capture customer and order event information for orders in NMS Securities and OTC Equity Securities, across all markets, from the time of order inception through routing, cancellation, modification, or execution in a single consolidated data source. Each Participant is required to enforce compliance by its Industry Members, as applicable, with the provisions of the Plan, by adopting a Compliance Rule applicable to their Industry Members.\9\ As is described more fully below, the Exchange is proposing to amend Chapter XIV of its rules, which is currently a ``reserved'' chapter, to adopt Rules 14.1 through 14.12; these rules set forth the Compliance Rule to require Industry Members to comply with the provisions of the CAT NMS Plan. The proposed rule change 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 is discussed in detail below. --------------------------------------------------------------------------- \9\ See Rule 613(g)(1). --------------------------------------------------------------------------- (i) Definitions Proposed Rule 14.1 (Consolidated Audit Trail--Definitions) sets forth the definitions for the terms used in the Chapter XIV Rule Series. Each of the defined terms in Proposed Rule 14.1 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 Customers associated with orders. For example, 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. [[Page 9943]] ``Customer-ID'' is defined in SEC Rule 613(j)(5) to mean ``with respect to a customer, a code that uniquely and consistently identifies such customer for purposes of providing data to the Central Repository.'' SEC Rule 613(c)(8) requires Industry Members to use the same Customer- ID for each Customer. The SEC granted the Participants exemptive relief to permit the use of an alternative approach to the requirement that an Industry Member report a Customer-ID for every Customer upon original receipt or origination.\10\ The alternative approach is called the Customer Information Approach. --------------------------------------------------------------------------- \10\ See Securities Exchange Act Release No. 77265 (March 1, 2016), 81 FR 11856 (March 7, 2016) (``Exemption Order''). See also Letter from Participants to Brent J. Fields, Secretary, Commission, dated January 30, 2015 at 12 (``Exemptive Request Letter''); and CAT NMS Plan at Appendix C, Section A.1(a)(iii). --------------------------------------------------------------------------- Under the Customer Information Approach, the CAT NMS Plan would require each Industry Member to assign a unique Firm Designated ID to each Customer. As the Firm Designated ID, Industry Members would be permitted to use an account number or any other identifier defined by the firm, provided each identifier is unique across the firm for each business date (i.e., a single firm may not have multiple separate customers with the same identifier on any given date). Prior to their commencement of reporting to the CAT, Industry Members would submit an initial set of Customer information to the Central Repository, including the Firm Designated ID, Customer Identifying Information and Customer Account Information (which may include, as applicable, the Customer's name, address, date of birth, individual tax payer identifier number (``ITIN'')/social security number (``SSN''), individual's role in the account (e.g., primary holder, joint holder, guardian, trustee, person with power of attorney) and LEI and/or Larger [sic] Trader ID (``LTID'')). This process is referred to as the customer definition process. In accordance with the Customer Information Approach, Industry Members would be required to report only the Firm Designated ID for each new order submitted to the Central Repository, rather than the ``Customer-ID'' with individual order events. Within the Central Repository, each Customer would be uniquely identified by identifiers or a combination of identifiers such as ITIN/SSN, date of birth, and as applicable, LEI and LTID. The Plan Processor would be required to use these unique identifiers to map orders to specific Customers across all Industry Members and Participants. To ensure information identifying a Customer is up to date, Industry Members would be required to submit to the Central Repository daily and periodic updates for reactivated accounts, newly established accounts, and revised Firm Designated IDs or associated reportable Customer information. (II) Definition of Account Effective Date In connection with the Customer Information Approach, Industry Members would be required to report Customer Account Information to the Central Repository. ``Customer Account Information'' is defined in SEC Rule 613(j)(4) to ``include, but not be limited to, account number, account type, customer type, date account opened, and large trader identifier (if applicable).'' Therefore, when reporting Customer Account Information, an Industry Member is required to report the date an account was opened. The Participants requested and received an exemption to allow an ``Account Effective Date'' to be reported in lieu of an account open date in certain limited circumstances. The definition of ``Account Effective Date'' as set forth in Paragraph (a) of proposed Rule 14.1 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 14.1 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 14.1 defines an ``Active Account'' as an account that has had activity in Eligible Securities within the last six months. This is the same [[Page 9944]] 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 Participants requested and received from the SEC exemptive relief from SEC Rule 613 for an alternative to this approach (``Allocation Report Approach''). The Allocation Report Approach would permit Industry Members to record and report to the Central Repository an Allocation Report that includes, among other things, the Firm Designated ID for any account(s) to which executed shares are allocated when an execution is allocated in whole or part in lieu of requiring the reporting of the account number for any subaccount to which an execution is allocated, as is required by SEC Rule 613.\11\ 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. --------------------------------------------------------------------------- \11\ 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 14.1 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 14.1 defines the term ``Business Clock'' as a clock used to record the date and time of any Reportable Event required to be reported under the Rules in Chapter XIV. 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 Rule Series.'' This change is intended to recognize that the Industry Members' obligations with regard to the CAT are set forth in this [sic] Rules contained in Chapter XIV. (E) CAT Paragraph (e) of Proposed Rule 14.1 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 14.1 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 link the Reportable Events related to the same order. (II) Definition of CAT-Order-ID To implement the Daisy Chain Approach, Paragraph (g) of Proposed Rule 14.1 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.\12\ Such a third party, referred to in the Chapter XIV Rule Series 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 14.1 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 the rules set forth in Chapter XIV. --------------------------------------------------------------------------- \12\ 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 14.1 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 14.1 defines the term ``Compliance Threshold'' as having the meaning set forth in Proposed Rule 14.11(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 14.11(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.'' [[Page 9945]] (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 14.1 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 account, if different from the account holder(s). This is the same definition as set forth in SEC Rule 613(j)(3), except the Exchange proposes to replace the references to a registered broker-dealer or broker-dealer with a reference to an Industry Member for consistency of terms used in the Chapter XIV Rule Series. 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 14.1 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 14.1(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 14.1 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.\13\ Such Data Submitters may include those entities that are required to submit data to the Central Repository (e.g., national securities exchanges, national securities associations and Industry Members), third-parties that may submit data to the CAT on behalf of CAT Reporters (i.e., CAT Reporting Agents), and outside parties that are not required to submit data to the CAT but from which the CAT may receive data (e.g., securities information processors (``SIPs'')). To include this term in the Chapter XIV Rule Series, the Exchange proposes to define ``Data Submitter'' in paragraph (n) of Proposed Rule 14.1. Specifically, paragraph (n) of Proposed Rule 14.1 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. --------------------------------------------------------------------------- \13\ Appendix C, Section A.1(a) of the CAT NMS Plan. --------------------------------------------------------------------------- (O) Eligible Security The reporting requirements of the Chapter XIV Rule Series 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 14.1 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.\14\ The Operating Committee reviews and resets the maximum Error Rate, at least annually.\15\ If an Industry Member reports CAT data to the Central Repository with errors such that their error percentage exceeds the maximum [[Page 9946]] Error Rate, then such Industry Member would not be in compliance with the CAT NMS Plan or Rule 613.\16\ 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.\17\ The CAT NMS Plan sets the initial Error Rate at 5%.\18\ It is anticipated that the maximum Error Rate will be reviewed and lowered by the Operating Committee once Industry Members begin to report to the Central Repository.\19\ --------------------------------------------------------------------------- \14\ Section 6.5(d)(i) of the CAT NMS Plan. \15\ Appendix C, Section A.3(b) of the CAT NMS Plan. \16\ Appendix C, Section A.3(b) of the CAT NMS Plan; Rule 613(g)-(h). \17\ Appendix C, Section A.3(b) of the CAT NMS Plan. \18\ Section 6.5(d)(i) of the CAT NMS Plan. \19\ Appendix C, Section A.3(b) of the CAT NMS Plan. --------------------------------------------------------------------------- The CAT NMS Plan requires the Plan Processor to: (1) Measure and report errors every business day; (2) provide Industry Members daily statistics and error reports as they become available, including a description of such errors; (3) provide monthly reports to Industry Members that detail an Industry Member's performance and comparison statistics; (4) define educational and support programs for Industry Members to minimize Error Rates; and (5) identify, daily, all Industry Members exceeding the maximum allowable Error Rate. To timely correct data-submitted errors to the Central Repository, the CAT NMS Plan requires that the Central Repository receive and process error corrections at all times. Further, the CAT NMS Plan requires that Industry Members be able to submit error corrections to the Central Repository through a web-interface or via bulk uploads or file submissions, and that the Plan Processor, subject to the Operating Committee's approval, support the bulk replacement of records and the reprocessing of such records. The Participants, furthermore, require that the Plan Processor identify Industry Member data submission errors based on the Plan Processor's validation processes.\20\ --------------------------------------------------------------------------- \20\ 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 14.1. Paragraph (p) of Proposed Rule 14.1 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 14.1. Specifically, paragraph (q) of Proposed Rule 14.1 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 14.1 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 14.1 states that the term ``Industry Member Data'' has the meaning set forth in Rule 14.3(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 14.3(a)(2). (T) Initial Plan Processor Paragraph (t) of Proposed Rule 14.1 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 Chapter XIV Rule Series apply to Eligible Securities, which includes NMS Securities, which, in turn, includes Listed Options. Certain requirements of the Chapter XIV Rule Series apply specifically to Listed Options. Accordingly, Paragraph (u) of Proposed Rule 14.1 defines the term ``Listed Option'' or ``Option.'' Specifically, paragraph (u) of Proposed Rule 14.1 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.\21\ Specifically, the Plan requires Industry Members to record and report the time of each Reportable Event using timestamps reflecting current industry standards (which must be at least to the millisecond) or, if an Industry Member's order handling or execution system uses timestamps in increments finer than milliseconds, such finer increments, when reporting to the Central Repository. For Manual Order Events, however, the Plan provides that such events must be recorded in increments up to and including one second, provided that Industry Members record and report the time the event is captured electronically in an order handling and execution [[Page 9947]] 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. Industry Members are 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. --------------------------------------------------------------------------- \21\ See Exemption Order. --------------------------------------------------------------------------- (II) Definition of Manual Order Event In order to clarify what a Manual Order Event is for clock synchronization and time stamp purposes, the Exchange proposes to define the term ``Manual Order Event'' in Proposed Rule 14.1. Specifically, paragraph (v) of Proposed Rule 14.1 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 14.3 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 14.1. Specifically, paragraph (w) of Proposed Rule 14.1 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 14.1. Specifically, paragraph (x) of proposed Rule 14.1 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 14.1 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 14.1 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 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 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 Participants, however, requested and received exemptive relief from 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.\22\ 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. --------------------------------------------------------------------------- \22\ 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 14.1. Specifically, paragraph (aa) of Proposed Rule 14.1 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 such exchange. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (BB) Order The Chapter XIV Rule Series 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 14.1. Specifically, paragraph (bb) of Proposed Rule 14.1 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 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 14.1. Specifically, paragraph (cc) of proposed Rule 14.1 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 [[Page 9948]] the same definition as set forth in Section 1.1 of the CAT NMS Plan. (DD) Participant Paragraph (dd) of Proposed Rule 14.1 defines the term ``Participant'' to mean each Person identified as such in Exhibit A of the CAT NMS Plan, as amended, in such Person's capacity as a Participant in CAT NMS, LLC. This is the same definition in substance as set forth in Section 1.1 of the CAT NMS Plan. (EE) Person Paragraph (ee) of proposed Rule 14.1 defines the term ``Person'' to mean any individual, partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative or association and any heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so permits. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (FF) Plan Processor Paragraph (ff) of proposed Rule 14.1 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 14.1 states that the term ``Received Industry Member Data'' has the meaning set forth in Rule 14.3(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 14.3(a)(2). (HH) Recorded Industry Member Data Paragraph (hh) of proposed Rule 14.1 states that the term ``Recorded Industry Member Data'' has the meaning set forth in Rule 14.3(a)(1). This definition has the same substantive meaning as the definition set forth 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 14.3(a)(1). (II) Reportable Event Proposed Rules 14.1 through 14.12 require each Industry Member to record and electronically report to the Central Repository certain details for each Reportable Event. To clarify these requirements, the Exchange proposes to define the term ``Reportable Event'' in Proposed Rule 14.1. Specifically, paragraph (ii) of Proposed Rule 14.1 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 14.1 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 Participants requested and received exemptive relief from 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).\23\ 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. --------------------------------------------------------------------------- \23\ 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 [sic], including CRD number or [sic] \24\ LEI, if the SRO has collected such LEI of the industry member [sic]. Additionally, each Industry Member is required to submit to the Central Repository the CRD number of the industry member [sic] as well as the LEI of the industry member [sic], if the industry member [sic] 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. --------------------------------------------------------------------------- \24\ The Commission notes that the SRO must submit to the Central Repository the CRD number as well as the LEI of each such Industry Member, if the SRO has collected the LEI of the Industry Member. --------------------------------------------------------------------------- (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 14.1. Specifically, paragraph (kk) of proposed Rule 14.1 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 Participant. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. For example, an Industry Member would be permitted to use any existing SRO-Assigned Market Participant Identifier (e.g., FINRA MPID, NASDAQ MPID, NYSE Mnemonic, CBOE User Acronym and CHX Acronym) when reporting order information to the Central Repository. (LL) Small Industry Member The requirements of the proposed rules 14.1 through 14.12 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 14.1. Specifically, paragraph (ll) of proposed Rule 14.1 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 [[Page 9949]] 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 14.3(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 14.1. Specifically, Paragraph (mm) of proposed Rule 14.1 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. (ii) Clock Synchronization Rule 613(d)(1) under Regulation NMS requires Industry Members to synchronize their Business Clocks to the time maintained by NIST, consistent with industry standards. To comply with this provision, Section 6.8 of the Plan sets forth the clock synchronization requirements for Industry Members.\25\ To implement these provisions with regard to its Industry Members, the Exchange proposes Rule 14.2 (Consolidated Audit Trail--Clock Synchronization) to require its Industry Members to comply with the clock synchronization requirements of the Plan. --------------------------------------------------------------------------- \25\ In addition, Section 6.7(a)(ii) of the Plan sets forth the timeline for CAT Reporters to comply with the clock synchronization requirements. --------------------------------------------------------------------------- Paragraph (a) of proposed Rule 14.2 sets forth the manner in which Industry Members must synchronize their Business Clocks. Paragraph (a)(1) of Proposed Rule 14.2 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 14.2 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 14.2 clarifies that the tolerance described in paragraphs (a)(1) and (2) of the proposed Rule 14.2 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 14.2 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 14.2 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 14.2 sets forth certification requirements with regard to clock synchronization. Specifically, paragraph (c) of proposed Rule 14.2 requires each Industry Member to periodically certify to the Exchange that its Business Clocks satisfy the synchronization requirements set forth in paragraph (a) of Proposed Rule 14.2, 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 an Information Circular. Paragraph (d) of Proposed Rule 14.2 establishes further reporting requirements with regard to clock synchronization. Paragraph (d) of Proposed Rule 14.2 requires Industry Members to report to the Plan Processor and to the Exchange violations of paragraph (a) of this Rule pursuant to the thresholds set by the Operating Committee pursuant to the CAT NMS Plan. This requirement is the same requirement as set forth in Section 6.8(a)(ii)(C), (iii) and (iv) of the CAT NMS Plan. The Exchange intends to announce to its Industry Members the relevant thresholds established by the Operating Committee via an Information Circular. (iii) Industry Member Data Reporting 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 14.3 (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 14.3 has six [sic] sections covering: (1) Recording and reporting Industry Member Data, (2) timing of the recording and reporting, (3) the applicable securities cover [sic] 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. [[Page 9950]] (A) Recording and Reporting Industry Member Data Paragraph (a) of proposed Rule 14.3 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 14.3 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 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 14.6); 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 14.6); (4) SRO-Assigned Market Participant Identifier of the Industry Member routing the order; (5) SRO-Assigned Market Participant Identifier of the Industry Member or 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 14.6); (4) SRO-Assigned Market Participant Identifier of the Industry Member receiving the order; (5) SRO-Assigned Market Participant Identifier of the Industry Member or 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 14.6); (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 14.6; (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 14.3 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 14.3(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 14.4, Customer Account Information and Customer Identifying Information for the relevant Customer. Paragraph (a)(3) of proposed Rule 14.3 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 14.3 describes the requirements related to the timing of recording and reporting of Industry Member Data. Paragraphs (b)(1)-(b)(3) of proposed Rule 14.3 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 14.3 requires each Industry Member to record Recorded Industry Member Data contemporaneously with the applicable Reportable Event. Paragraph (b)(2) of Proposed Rule 14.3 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 14.3 describes the securities to which the recording and reporting requirements of proposed Rule 14.3 apply. Paragraphs (c)(1) and (c)(2) of proposed Rule 14.3 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 14.3 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 14.3 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 14.3 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 14.3 for each Eligible Security for which transaction reports are required to be submitted to FINRA. (D) Security Symbology Paragraph (d) of proposed Rule 14.3 describes the security symbology that [[Page 9951]] Industry Members are required to use when reporting Industry Member Data to the Central Repository. Paragraph (d)(1) of proposed Rule 14.3 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 14.3 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 relevant symbology formats established by the Operating Committee via an Information Circular. (E) Error Correction To ensure that the CAT contains accurate data, the CAT NMS Plan requires Industry Members to correct erroneous data submitted to the Central Repository. Therefore, the Exchange proposes to adopt paragraph (e) of proposed Rule 14.3, which addresses the correction of erroneous data reported to the Central Repository. Paragraph (e) of proposed Rule 14.3 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 14.4 (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 14.4 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 14.9. Paragraph (b) of proposed Rule 14.4 requires each Industry Member to submit to the Central Repository on a daily basis 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. Paragraph (c) of proposed Rule 14.4 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 an Information Circular. Finally, paragraph (d) of proposed Rule 14.4 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, on a daily basis [sic],\26\ 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 14.5 (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 14.5 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 14.9, and keep such information up to date as necessary. --------------------------------------------------------------------------- \26\ The Commission notes that Section 6.4(d)(vi) of the CAT NMS Plan does not specify a submission frequency. --------------------------------------------------------------------------- (vi) Time Stamps Rule 613(d)(3) under Regulation NMS sets forth requirements for time stamps used by CAT Reporters in recording and reporting data to the CAT.\27\ To comply with this provision, Section 6.8(b) of the Plan sets forth time stamp requirements for Industry Members. To implement this provision with regard to its Industry Members, the Exchange proposes new Rule 14.6 (Consolidated Audit Trail--Time Stamps) to require its Industry Members to comply with the time stamp requirements of the Plan. --------------------------------------------------------------------------- \27\ 17 CFR 242.613(d)(3). --------------------------------------------------------------------------- Paragraph (a) of proposed Rule 14.6 sets forth the time stamp increments to be used by Industry Members in their CAT reporting. Paragraph (a)(1) of proposed Rule 14.6 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 14.6. 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 14.6 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 14.6 regarding Manual Order Events and Allocation Reports. Paragraph (b) of proposed Rule 14.6 sets forth the permissible time stamp increments for Manual Order Events and Allocation Reports. Specifically, paragraph (b)(1) of proposed Rule 14.6 [[Page 9952]] 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 14.6 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 14.7 (Consolidated Audit Trail--Clock Synchronization Rule Violations [sic]) describes potential violations of the clock synchronization time period requirements set forth in the Chapter XIV Rule Series. Proposed Rule 14.7 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 Rule Series without reasonable justification or exceptional circumstances may be considered in violation of this Rule. This provision implements the requirements of Section 6.8 of the CAT NMS Plan which requires the Compliance Rule to provide that a pattern or practice of reporting events outside of the required clock synchronization time period without reasonable justification or exceptional circumstances may be considered a violation of SEC Rule 613 or the CAT NMS Plan. (viii) Connectivity and Data Transmission Proposed Rule 14.8 (Consolidated Audit Trail--Connectivity and Data Transmission) addresses connectivity and data transmission requirements related to the CAT. Paragraph (a) of Proposed Rule 14.8 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 14.8 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 14.8 addresses connectivity requirements related to the CAT. Paragraph (b) of proposed Rule 14.8 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 14.8 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 obligations of such Industry Member under the Chapter XIV Rule Series. Any such agreement must be evidenced in writing, which specifies the respective functions and responsibilities of each party to the agreement that are required to effect full compliance with the requirements of the Chapter XIV Rule Series. The Exchange notes that, currently, no standardized form agreement for CAT Reporting Agent arrangements has been adopted. Paragraph (c)(2) of proposed Rule 14.8 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 the Chapter XIV Rule Series, notwithstanding the existence of an agreement described in paragraph (c) of proposed Rule 14.8. (ix) Development and Testing The Exchange proposes Rule 14.9 (Consolidated Audit Trail-- Development and Testing) to address requirements for Industry Members related to CAT development and testing. Paragraph (a) of Proposed Rule 14.9 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 14.4(a) and 14.5, 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 14.4(a) and 14.5, 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 14.9 implements the requirement under the CAT NMS Plan that Industry Members participate in required industry testing with the Central Repository.\28\ Specifically, proposed Rule 14.9 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 an Information Circular. --------------------------------------------------------------------------- \28\ Adopting Release [sic] at 84725. --------------------------------------------------------------------------- [[Page 9953]] (x) Recordkeeping Proposed Rule 14.10 (Consolidated Audit Trail--Recordkeeping) sets forth the recordkeeping obligations related to the CAT for Industry Members. Proposed Rule 14.10 requires each Industry Member to maintain and preserve records of the information required to be recorded under the Chapter XIV Rule Series for the period of time and accessibility specified in SEC Rule 17a-4(b). The records required to be maintained and preserved under the Chapter XIV Rule Series 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 14.10 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.\29\ Accordingly, proposed Rule 14.11 (Consolidated Audit Trail--Timely, Accurate and Complete Data) implements this requirement with regard to Industry Members. Paragraph (a) of proposed Rule 14.11 requires that Industry Members record and report data to the Central Repository as required by the Chapter XIV Rule Series in a manner that ensures the timeliness, accuracy, integrity and completeness of such data. --------------------------------------------------------------------------- \29\ See 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 14.11 requires Industry Members to accurately provide the LEIs in their records as required by the Chapter XIV Rule Series 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.\30\ --------------------------------------------------------------------------- \30\ Approval Order at 84745. --------------------------------------------------------------------------- Paragraph (c) states that, if an Industry Member reports data to the Central Repository with errors such that its error percentage exceeds the maximum Error Rate established by the Operating Committee pursuant to the CAT NMS Plan, then such Industry Member would not be in compliance with the Chapter XIV Rule Series. 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 an Information Circular. Furthermore, paragraph (d) of proposed Rule 14.11 addresses Compliance Thresholds related to reporting data to the CAT. Proposed Rule 14.11 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.\31\ Compliance Thresholds will include compliance with the data reporting and clock synchronization requirements. Proposed Rule 14.11 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 Rule Series. --------------------------------------------------------------------------- \31\ Appendix C of the CAT NMS Plan. --------------------------------------------------------------------------- (xi) Compliance Dates Proposed Rule 14.12 (Consolidated Audi [sic] Trail--Compliance Dates) sets forth the compliance dates for the various provisions of the rules contained in Chapter XIV. Proposed paragraph (a) specifies that paragraphs (b) and (c) of proposed Rule 14.12 set forth the additional details with respect to the compliance dates of the Rules in Chapter XIV. Furthermore, paragraph (a) specifies that, unless otherwise noted, the Rules set forth in Chapter XIV are fully effective and ETP Holders must comply with their terms. Paragraph (b) of Proposed Rule 14.12 establishes the compliance dates for the clock synchronization requirements as set forth in proposed Rule 14.2. Paragraph (b)(1) states that each Industry Member shall comply with Rule 14.2 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 14.2 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 Participants with regard to the clock synchronization requirements related to Business Clocks that do not capture time in milliseconds.\32\ --------------------------------------------------------------------------- \32\ See Letter from Participants to Brent J. Fields, Secretary, Commission, dated January 17, 2017 requesting exemptive relief from SEC Rule 613(a)(3)(iii) and Section 6.7(a)(ii) of the CAT NMS Plan. --------------------------------------------------------------------------- Paragraph (c) of proposed Rule 14.12 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,\33\ which require, among other things, that the rules of the Exchange 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,\34\ which requires that the Exchange's rules not impose any burden on competition that [[Page 9954]] is not necessary or appropriate in furtherance of the purposes of the Act. --------------------------------------------------------------------------- \33\ 15 U.S.C. 78f(b)(6) [sic]. \34\ 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 SRO 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.'' \35\ 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. --------------------------------------------------------------------------- \35\ 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 rule change 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 the same rules. Therefore, this rule filing does not present any competitive issues and, therefore, it does not impose a burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Market Participants or Others The Exchange has not solicited or received any comments on the proposed rule change from market participants or others. 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-NSX-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-NSX-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-NSX-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.\36\ --------------------------------------------------------------------------- \36\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2017-02538 Filed 2-7-17; 8:45 am] BILLING CODE 8011-01-P
![9942 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
SECURITIES AND EXCHANGE set forth in Sections A, B, and C below, approved by the Commission, as
COMMISSION of the most significant parts of such modified, on November 15, 2016.8
statements. The Plan is designed to create,
[Release No. 34–79933; File No. SR–NSX– implement and maintain a consolidated
2017–03] A. Self-Regulatory Organization’s audit trail (‘‘CAT’’) that would capture
Statement of the Purpose of, and customer and order event information
Self-Regulatory Organizations;
Statutory Basis for, the Proposed Rule for orders in NMS Securities and OTC
National Stock Exchange, Inc.; Notice
Change Equity Securities, across all markets,
of Filing of Proposed Rule Change To
Implement Compliance Rules from the time of order inception through
1. Purpose
Regarding the National Market System routing, cancellation, modification, or
Plan Governing the Consolidated Audit Bats BZX Exchange, Inc., Bats BYX execution in a single consolidated data
Trail Exchange, Inc., Bats EDGA Exchange, source. Each Participant is required to
Inc., Bats EDGX Exchange, Inc. BOX enforce compliance by its Industry
February 2, 2017. Options Exchange LLC, C2 Options Members, as applicable, with the
Pursuant to Section 19(b)(1) of the Exchange, Incorporated, Chicago Board provisions of the Plan, by adopting a
Securities Exchange Act of 1934 (the Compliance Rule applicable to their
Options Exchange, Incorporated,
‘‘Act’’) 1 and Rule 19b–4 thereunder,2 Industry Members.9 As is described
Chicago Stock Exchange, Inc., Financial
notice is hereby given that on January more fully below, the Exchange is
Industry Regulatory Authority, Inc. proposing to amend Chapter XIV of its
30, 2017, National Stock Exchange, Inc. (‘‘FINRA’’), International Securities
(‘‘NSX’’ or the ‘‘Exchange’’) filed with rules, which is currently a ‘‘reserved’’
Exchange, LLC, Investors’ Exchange chapter, to adopt Rules 14.1 through
the Securities and Exchange
LLC, ISE Gemini, LLC, ISE Mercury, 14.12; these rules set forth the
Commission (‘‘SEC’’ or ‘‘Commission’’)
a proposed rule change, as described in LLC, Miami International Securities Compliance Rule to require Industry
Items I and II below, which Items have Exchange LLC, MIAX PEARL, LLC, Members to comply with the provisions
been substantially prepared by the NASDAQ BX, Inc. [sic] NASDAQ PHLX of the CAT NMS Plan. The proposed
Exchange.3 The Commission is LLC) [sic], The NASDAQ Stock Market rule change includes twelve proposed
publishing this notice to solicit LLC, NSX, New York Stock Exchange rules covering the following areas: (1)
comments on the proposed rule change LLC, NYSE MKT LLC, and NYSE Arca, Definitions; (2) clock synchronization;
from interested persons. Inc. (collectively, ‘‘self-regulatory (3) Industry Member Data reporting; (4)
organizations’’, ‘‘SROs’’ or Customer information reporting; (5)
I. Self-Regulatory Organization’s ‘‘Participants’’), filed with the Industry Member information reporting;
Statement of the Terms of the Substance Commission a National Market System (6) time stamps; (7) clock
of the Proposed Rule Change synchronization rule violations; (8)
(‘‘NMS’’) Plan Governing the
The Exchange filed a proposal to Consolidated Audit Trail (the ‘‘CAT connectivity and data transmission; (9)
amend Chapter XIV of its rules to NMS Plan,’’ ‘‘CAT Plan’’ or ‘‘Plan’’).5 development and testing; (10)
implement the compliance rule The SROs filed amendments to the CAT recordkeeping; (11) timely, accurate and
(‘‘Compliance Rule’’) regarding the NMS Plan on December 24, 2015, and complete data; and (12) compliance
National Market System Plan Governing on February 8, 2016.6 The Plan was dates. Each of these proposed rules is
the Consolidated Audit Trail. [sic] (the published for comment in the Federal discussed in detail below.
‘‘CAT NMS Plan’’ or ‘‘Plan’’).4 Register on May 17, 2016,7 and (i) Definitions
The text of the proposed rule change
is available at the Exchange’s Web site Proposed Rule 14.1 (Consolidated
5 See Letter from Participants to Brent J. Fields,
at www.nsx.com, at the principal office Audit Trail—Definitions) sets forth the
Secretary, Commission, dated September 30, 2014
of the Exchange, and at the and letter from Participants to Brent J. Fields, definitions for the terms used in the
Commission’s Public Reference Room. Secretary, Commission, dated February 27, 2015. Chapter XIV Rule Series. Each of the
Pursuant to Rule 613, the SROs were required to file defined terms in Proposed Rule 14.1 is
II. Self-Regulatory Organization’s the CAT NMS Plan on or before April 28, 2013. At discussed in detail in this section.
Statement of the Purpose of, and the the SROs’ request, the Commission granted
Statutory Basis for, the Proposed Rule exemptions to extend the deadline for filing the (A) Account Effective Date
CAT NMS Plan to December 6, 2013, and then to
Change September 30, 2014. See Securities Exchange Act (I) Customer Information Approach
Release Nos. 69060 (March 7, 2013), 78 FR 15771
In its filing with the Commission, the (March 12, 2013); 71018 (December 6, 2013), 78 FR
SEC Rule 613 requires that numerous
Exchange included statements 75669 (December 12, 2013). The SROs filed the data elements be reported to the CAT to
concerning the purpose of and statutory CAT NMS Plan on September 30, 2014 (the ‘‘Initial ensure there is sufficient information to
basis for the proposed rule change and CAT NMS Plan’’). See Letter from the SROs, to create the lifecycle of an order, and
Brent J. Fields, Secretary, Commission, dated
discussed any comments it received on September 30, 2014. The CAT NMS Plan filed on
provide regulators with sufficient detail
the proposed rule change. The text of February 27, 2015, was an amendment to and about an order to perform their
these statements may be examined at replacement of the Initial CAT NMS Plan. regulatory duties. Certain required
the places specified in Item IV below. 6 See Letter from Participants to Brent J. Fields,
elements are intended to ensure that the
The Exchange has prepared summaries, Secretary, Commission, dated December 23, 2015. regulators can identify the Customers
On February 9, 2016, the Participants filed with the
Commission an identical, but unmarked, version of associated with orders. For example,
asabaliauskas on DSK3SPTVN1PROD with NOTICES
1 15 U.S.C. 78s(b)(1). the February 27, 2015 CAT NMS Plan, as modified Rule 613(c)(7)(i)(A) requires an Industry
2 17 CFR 240.19b–4. by the December 24, 2015 Amendment, as well as Member to report the ‘‘Customer-IDs’’
3 The Exchange originally filed this proposed rule a copy of the request for proposal issued by the for each Customer for the original
change on January 17, 2017 under File No. SR– Participants to solicit Bids from parties interested
NSX–2017–02, and the Exchange subsequently in serving as the Plan Processor for the consolidated receipt or origination of an order.
withdrew that filing on January 30, 2017 and filed audit trail. See Letter from Participants to Brent J.
this proposed rule change. Fields, Secretary, Commission, dated February 8, 8 Securities Exchange Act Release No. 79318
4 Unless otherwise specified, capitalized terms 2016. (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016)
used in this rule filing are defined as set forth 7 Securities Exchange Act Release No. 77724 (‘‘Approval Order’’).
herein or in the CAT NMS Plan. (Apr. 27, 2016), 81 FR 30614 (May 17, 2016). 9 See Rule 613(g)(1).
VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 PO 00000 Frm 00234 Fmt 4703 Sfmt 4703 E:\FR\FM\08FEN1.SGM 08FEN1](https://thefederalregister.org/doc/82_FR_9967/page/1.svg)
![Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 9943
‘‘Customer-ID’’ is defined in SEC Rule ensure information identifying a which would be no later than the date
613(j)(5) to mean ‘‘with respect to a Customer is up to date, Industry the first order was received.
customer, a code that uniquely and Members would be required to submit Paragraph (a)(2) of Proposed Rule 14.1
consistently identifies such customer for to the Central Repository daily and states that an ‘‘Account Effective Date’’
purposes of providing data to the periodic updates for reactivated means, where an Industry Member
Central Repository.’’ SEC Rule 613(c)(8) accounts, newly established accounts, changes back office providers or
requires Industry Members to use the and revised Firm Designated IDs or clearing firms prior to November 15,
same Customer-ID for each Customer. associated reportable Customer 2018 for Industry Members other than
The SEC granted the Participants information. Small Industry Members, or prior to
exemptive relief to permit the use of an November 15, 2019 for Small Industry
(II) Definition of Account Effective Date Members, the date an account was
alternative approach to the requirement
that an Industry Member report a In connection with the Customer established at the relevant Industry
Customer-ID for every Customer upon Information Approach, Industry Member, either directly or via transfer.
original receipt or origination.10 The Members would be required to report Paragraph (a)(3) states that an
alternative approach is called the Customer Account Information to the ‘‘Account Effective Date’’ means, where
Customer Information Approach. Central Repository. ‘‘Customer Account an Industry Member acquires another
Under the Customer Information Information’’ is defined in SEC Rule Industry Member prior to November 15,
Approach, the CAT NMS Plan would 613(j)(4) to ‘‘include, but not be limited 2018 for Industry Members other than
require each Industry Member to assign to, account number, account type, Small Industry Members, or prior to
a unique Firm Designated ID to each customer type, date account opened, November 15, 2019 for Small Industry
Customer. As the Firm Designated ID, and large trader identifier (if Members, the date an account was
Industry Members would be permitted applicable).’’ Therefore, when reporting established at the relevant Industry
to use an account number or any other Customer Account Information, an Member, either directly or via transfer.
identifier defined by the firm, provided Industry Member is required to report Paragraph (a)(4) states that ‘‘Account
each identifier is unique across the firm the date an account was opened. The Effective Date’’ means, where there are
for each business date (i.e., a single firm Participants requested and received an multiple dates associated with an
may not have multiple separate exemption to allow an ‘‘Account account established prior to November
customers with the same identifier on Effective Date’’ to be reported in lieu of 15, 2018 for Industry Members other
any given date). Prior to their an account open date in certain limited than Small Industry Members, or prior
commencement of reporting to the CAT, circumstances. The definition of to November 15, 2019 for Small
Industry Members would submit an ‘‘Account Effective Date’’ as set forth in Industry Members, the earliest available
initial set of Customer information to Paragraph (a) of proposed Rule 14.1 date.
the Central Repository, including the describes those limited circumstances in Paragraph (a)(5) states that an
Firm Designated ID, Customer which an Industry Member may report ‘‘Account Effective Date’’ means, with
Identifying Information and Customer an ‘‘Account Effective Date’’ rather than regard to Industry Member proprietary
Account Information (which may the account open date. The proposed accounts established prior to November
include, as applicable, the Customer’s definition is the same as the definition 15, 2018 for Industry Members other
name, address, date of birth, individual of ‘‘Account Effective Date’’ set forth in than Small Industry Members, or prior
tax payer identifier number (‘‘ITIN’’)/ Section 1.1 of the CAT NMS Plan, to November 15, 2019 for Small
social security number (‘‘SSN’’), provided, however, that specific dates Industry Members: (1) The date
individual’s role in the account (e.g., have replaced the descriptions of those established for the account in the
primary holder, joint holder, guardian, dates set forth in Section 1.1 of the Plan. Industry Member or in a system of the
trustee, person with power of attorney) Specifically, Paragraph (a)(1) defines Industry Member or (2) the date when
and LEI and/or Larger [sic] Trader ID ‘‘Account Effective Date [sic] to mean, proprietary trading began in the account
(‘‘LTID’’)). This process is referred to as with regard to those circumstances in (i.e., the date on which the first orders
the customer definition process. which an Industry Member has were submitted from the account). With
In accordance with the Customer established a trading relationship with regard to paragraphs (a)(2)–(5), the
Information Approach, Industry an institution but has not established an Account Effective Date will be no later
Members would be required to report account with that institution: (1) When than the date trading occurs at the
only the Firm Designated ID for each the trading relationship was established Industry Member or in the Industry
new order submitted to the Central prior to November 15, 2018 for Industry Member’s system.
Repository, rather than the ‘‘Customer- Members other than Small Industry
Members, or prior to November 15, 2019 (B) Active Account
ID’’ with individual order events.
Within the Central Repository, each for Small Industry Members, either (a) Under the Customer Information
Customer would be uniquely identified the date the relationship identifier was Approach, Industry Members are
by identifiers or a combination of established within the Industry required to report Customer Identifying
identifiers such as ITIN/SSN, date of Member; (b) the date when trading Information and Customer Account
birth, and as applicable, LEI and LTID. began (i.e., the date the first order was Information for only those accounts that
The Plan Processor would be required to received) using the relevant relationship are active. This will alleviate the need
use these unique identifiers to map identifier; or (c) if both dates are for Industry Members to update such
available, the earlier date will be used information for non-active accounts, but
asabaliauskas on DSK3SPTVN1PROD with NOTICES
orders to specific Customers across all
Industry Members and Participants. To to the extent that the dates differ; or (2) still ensure that the Central Repository
when the trading relationship was will collect audit trail data for Customer
10 See Securities Exchange Act Release No. 77265 established on or after November 15, accounts that have any Reportable
(March 1, 2016), 81 FR 11856 (March 7, 2016) 2018 for Industry Members other than Events. Accordingly, paragraph (b) of
(‘‘Exemption Order’’). See also Letter from Small Industry Members, or on or after Proposed Rule 14.1 defines an ‘‘Active
Participants to Brent J. Fields, Secretary,
Commission, dated January 30, 2015 at 12
November 15, 2019 for Small Industry Account’’ as an account that has had
(‘‘Exemptive Request Letter’’); and CAT NMS Plan Members, the date the Industry Member activity in Eligible Securities within the
at Appendix C, Section A.1(a)(iii). established the relationship identifier, last six months. This is the same
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definition as set forth in Section 1.1 of Accordingly, paragraph (d) of Proposed (H) CAT Reporting Agent
the CAT NMS Plan. Rule 14.1 defines the term ‘‘Business
Clock’’ as a clock used to record the date The CAT NMS Plan permits an
(C) Allocation Report Industry Member to use a third party,
and time of any Reportable Event
(I) Allocation Report Approach required to be reported under the Rules such as a vendor, to report the required
in Chapter XIV. This is the same data to the Central Repository on behalf
SEC Rule 613(c)(7)(vi)(A) requires
definition as set forth in Section 1.1 of of the Industry Member.12 Such a third
each Industry Member to record and
the CAT NMS Plan, except the party, referred to in the Chapter XIV
report to the Central Repository ‘‘the
Exchange proposes to replace the phrase Rule Series as a ‘‘CAT Reporting
account number for any subaccounts to
which the execution is allocated (in ‘‘under SEC Rule 613’’ at the end of the Agent,’’ would be one type of a Data
whole or in part).’’ The Participants definition in Section 1.1 of the Plan Submitter, that is, a party that submits
requested and received from the SEC with the phrase ‘‘under this Rule data to the Central Repository.
exemptive relief from SEC Rule 613 for Series.’’ This change is intended to Paragraph (h) of proposed Rule 14.1
an alternative to this approach recognize that the Industry Members’ defines the term ‘‘CAT Reporting
(‘‘Allocation Report Approach’’). The obligations with regard to the CAT are Agent’’ to mean a Data Submitter that is
Allocation Report Approach would set forth in this [sic] Rules contained in a third party that enters into an
permit Industry Members to record and Chapter XIV. agreement with an Industry Member
report to the Central Repository an pursuant to which the CAT Reporting
(E) CAT Agent agrees to fulfill such Industry
Allocation Report that includes, among
other things, the Firm Designated ID for Paragraph (e) of Proposed Rule 14.1 Member’s reporting obligations under
any account(s) to which executed shares defines the term ‘‘CAT’’ to mean the the rules set forth in Chapter XIV.
are allocated when an execution is consolidated audit trail contemplated by This definition is based on FINRA’s
allocated in whole or part in lieu of SEC Rule 613. This is the same definition of a ‘‘Reporting Agent’’ as set
requiring the reporting of the account definition as set forth in Section 1.1 of forth in FINRA’s rule related to its Order
number for any subaccount to which an the CAT NMS Plan. Audit Trail System (‘‘OATS’’).
execution is allocated, as is required by Specifically, FINRA Rule 7410(n)
(F) CAT NMS Plan
SEC Rule 613.11 Under SEC Rule 613, defines a ‘‘Reporting Agent’’ as a third
regulators would be able to link the Paragraph (f) of Proposed Rule 14.1 party that enters into any agreement
subaccount to which an allocation was defines the term ‘‘CAT NMS Plan’’ to with a member pursuant to which the
made to a specific order. In contrast, mean the National Market System Plan Reporting Agent agrees to fulfill such
under the Allocation Report Approach, Governing the Consolidated Audit Trail, member’s obligations under Rule 7450.
regulators would only be able to link an as amended from time to time. The Reporting Agent for OATS fulfills a
allocation to the account to which it was similar role to the CAT Reporting Agent.
(G) CAT-Order-ID
made, and not to a specific order.
(I) Daisy Chain Approach (I) Central Repository
(II) Definition of Allocation Report
Under the CAT NMS Plan, the Daisy Paragraph (i) of Proposed Rule 14.1
To assist in implementing the defines the term ‘‘Central Repository’’ to
Allocation Report Approach, paragraph Chain Approach is used to link and
reconstruct the complete lifecycle of mean the repository responsible for the
(c) of Proposed Rule 14.1 defines an
each Reportable Event in CAT. receipt, consolidation, and retention of
‘‘Allocation Report.’’ Specifically, an
According to this Approach, Industry all information reported to the CAT
‘‘Allocation Report’’ means a report
Members assign their own identifiers to pursuant to SEC Rule 613 and the CAT
made to the Central Repository by an
each order event. Within the Central NMS Plan. This is the same definition
Industry Member that identifies the
Repository, the Plan Processor later as set forth in Section 1.1 of the CAT
Firm Designated ID for any account(s),
replaces the identifier provided by the NMS Plan, except the Exchange uses the
including subaccount(s), to which
Industry Member for each Reportable phrase ‘‘CAT NMS Plan’’ in place of the
executed shares are allocated and
Event with a single identifier, called the phrase ‘‘this Agreement.’’
provides the security that has been
allocated, the identifier of the firm CAT Order-ID, for all order events (J) Compliance Threshold
reporting the allocation, the price per pertaining to the same order. This CAT
share of shares allocated, the side of Order-ID is used to link the Reportable Paragraph (j) of Proposed Rule 14.1
shares allocated, the number of shares Events related to the same order. defines the term ‘‘Compliance
allocated to each account, and the time (II) Definition of CAT-Order-ID Threshold’’ as having the meaning set
of the allocation; provided, for the forth in Proposed Rule 14.11(d). This
To implement the Daisy Chain definition has the same substantive
avoidance of doubt, any such Allocation
Approach, Paragraph (g) of Proposed meaning as the definition set forth in
Report shall not be required to be linked
Rule 14.1 defines the term ‘‘CAT-Order- Section 1.1 of the CAT NMS Plan. As
to particular orders or executions. This
ID.’’ The term ‘‘CAT-Order-ID’’ is discussed in detail below with regard to
is the same definition as set forth in
defined to mean a unique order Proposed Rule 14.11(d), each Industry
Section 1.1 of the CAT NMS Plan.
identifier or series of unique order Member is required to meet a separate
(D) Business Clock identifiers that allows the Central compliance threshold which will be an
Repository to efficiently and accurately
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To create the required audit trail, Industry Member-specific rate that may
Industry Members are required to record link all Reportable Events for an order, be used as the basis for further review
the date and time of various Reportable and all orders that result from the or investigation into the Industry
Events to the Central Repository. aggregation or disaggregation of such Member’s performance with regard to
Industry Members will use ‘‘Business order. This is the same definition as set the CAT. This Industry Member-specific
Clocks’’ to record such dates and times. forth in SEC Rule 613(j)(1), and Section rate is the ‘‘Compliance Threshold.’’
1.1 of the CAT NMS Plan defines ‘‘CAT-
11 See Exemptive Request Letter at 26–27; and Order-ID’’ by reference to SEC Rule 12 Appendix C, Section A.1(a) of the CAT NMS
Exemption Order. 613(j)(1). Plan.
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Error Rate, then such Industry Member in SEC Rule 613(j)(6), and Section 1.1 of (T) Initial Plan Processor
would not be in compliance with the the CAT NMS Plan defines ‘‘Error Rate’’ Paragraph (t) of Proposed Rule 14.1
CAT NMS Plan or Rule 613.16 As such, by reference to SEC Rule 613(j)(6). defines the term ‘‘Initial Plan Processor’’
the Exchange or the SEC ‘‘[sic] may take to mean the first Plan Processor selected
appropriate action against an Industry (Q) Firm Designated ID
by the Operating Committee in
Member for failing to comply with its As discussed above, under the accordance with SEC Rule 613, Section
CAT reporting obligations.17 The CAT Customer Information Approach, the 6.1 of the CAT NMS Plan and the
NMS Plan sets the initial Error Rate at CAT NMS Plan would require each National Market System Plan Governing
5%.18 It is anticipated that the Industry Member to assign a unique the Process for Selecting a Plan
maximum Error Rate will be reviewed Firm Designated ID to each Customer. Processor and Developing a Plan for the
and lowered by the Operating Industry Members would be permitted Consolidated Audit Trail. This is the
Committee once Industry Members to use as the Firm Designated ID an same definition as set forth in Section
begin to report to the Central account number or any other identifier 1.1 of the CAT NMS Plan, although the
Repository.19 defined by the firm, provided each proposed definition uses the full name
The CAT NMS Plan requires the Plan
identifier is unique across the firm for of the ‘‘Selection Plan.’’
Processor to: (1) Measure and report
each business date (i.e., a single firm (U) Listed Option or Option
errors every business day; (2) provide
may not have multiple separate
Industry Members daily statistics and The CAT NMS Plan and this Chapter
customers with the same identifier on
error reports as they become available, XIV Rule Series apply to Eligible
including a description of such errors; any given date). Industry Members
would be required to report only the Securities, which includes NMS
(3) provide monthly reports to Industry Securities, which, in turn, includes
Members that detail an Industry Firm Designated ID for each new order
submitted to the Central Repository, Listed Options. Certain requirements of
Member’s performance and comparison the Chapter XIV Rule Series apply
statistics; (4) define educational and rather than the ‘‘Customer-ID’’ with
individual order events. Accordingly, specifically to Listed Options.
support programs for Industry Members Accordingly, Paragraph (u) of Proposed
to minimize Error Rates; and (5) the Exchange proposes to define the
term ‘‘Firm Designated ID’’ in Proposed Rule 14.1 defines the term ‘‘Listed
identify, daily, all Industry Members Option’’ or ‘‘Option.’’ Specifically,
exceeding the maximum allowable Error Rule 14.1.
paragraph (u) of Proposed Rule 14.1
Rate. To timely correct data-submitted Specifically, paragraph (q) of states that the term ‘‘Listed Option’’ or
errors to the Central Repository, the Proposed Rule 14.1 defines the term ‘‘Option’’ has the meaning set forth in
CAT NMS Plan requires that the Central ‘‘Firm Designated ID’’ to mean a unique SEC Rule 600(b)(35) of Regulation NMS.
Repository receive and process error identifier for each trading account SEC Rule 600(b)(35), in turn, defines a
corrections at all times. Further, the designated by Industry Members for listed option as ‘‘any option traded on
CAT NMS Plan requires that Industry purposes of providing data to the a registered national securities exchange
Members be able to submit error Central Repository, where each such or automated facility of a national
corrections to the Central Repository identifier is unique among all identifiers securities association.’’ The Exchange
through a web-interface or via bulk from any given Industry Member for notes that the proposed definition of
uploads or file submissions, and that the each business date. This is the same ‘‘Listed Option’’ is the same definition
Plan Processor, subject to the Operating definition as set forth in Section 1.1 of as the definition set forth in Section 1.1
Committee’s approval, support the bulk the CAT NMS Plan. Industry Members of the CAT NMS Plan.
replacement of records and the would be permitted to use an account
reprocessing of such records. The number or any other identifier defined (V) Manual Order Event
Participants, furthermore, require that by the firm, provided each identifier is (I) Manual Order Event Approach
the Plan Processor identify Industry unique across the firm for each business
Member data submission errors based date (i.e., a single firm may not have The CAT NMS Plan sets forth clock
on the Plan Processor’s validation multiple separate customers with the synchronization and timestamp
processes.20 same identifier on any given date). requirements for Industry Members
which reflect exemptions for Manual
(II) Definition of Error Rate (R) Industry Member Order Events granted by the
To implement the requirements of the Commission.21 Specifically, the Plan
CAT NMS Plan related to the Error Rate, Paragraph (r) of Proposed Rule 14.1 requires Industry Members to record
the Exchange proposes to define the defines the term ‘‘Industry Member’’ to and report the time of each Reportable
term ‘‘Error Rate’’ in Proposed Rule mean a member of a national securities Event using timestamps reflecting
14.1. Paragraph (p) of Proposed Rule exchange or a member of a national current industry standards (which must
14.1 defines the term ‘‘Error Rate’’ to securities association.’’ This is the same be at least to the millisecond) or, if an
mean the percentage of Reportable definition as set forth in Section 1.1 of Industry Member’s order handling or
Events collected by the Central the CAT NMS Plan. execution system uses timestamps in
Repository in which the data reported (S) Industry Member Data increments finer than milliseconds,
does not fully and accurately reflect the such finer increments, when reporting
order event that occurred in the market. Paragraph (s) of Proposed Rule 14.1 to the Central Repository. For Manual
This is the same definition as set forth states that the term ‘‘Industry Member Order Events, however, the Plan
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Data’’ has the meaning set forth in Rule provides that such events must be
16 Appendix C, Section A.3(b) of the CAT NMS 14.3(a)(2). This definition has the same recorded in increments up to and
Plan; Rule 613(g)–(h). substantive meaning as the definition including one second, provided that
17 Appendix C, Section A.3(b) of the CAT NMS
set forth in Section 1.1 of the CAT NMS Industry Members record and report the
Plan.
18 Section 6.5(d)(i) of the CAT NMS Plan. Plan. The definition of ‘‘Industry time the event is captured electronically
19 Appendix C, Section A.3(b) of the CAT NMS Member Data’’ is discussed more fully in an order handling and execution
Plan. in the discussion below regarding
20 Approval Order at 84718. Proposed Rule 14.3(a)(2). 21 See Exemption Order.
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the same definition as set forth in (II) Reportable Event industry member [sic], including CRD
Section 1.1 of the CAT NMS Plan. Proposed Rules 14.1 through 14.12 number or [sic] 24 LEI, if the SRO has
require each Industry Member to record collected such LEI of the industry
(DD) Participant
and electronically report to the Central member [sic]. Additionally, each
Paragraph (dd) of Proposed Rule 14.1 Industry Member is required to submit
Repository certain details for each
defines the term ‘‘Participant’’ to mean to the Central Repository the CRD
Reportable Event. To clarify these
each Person identified as such in number of the industry member [sic] as
requirements, the Exchange proposes to
Exhibit A of the CAT NMS Plan, as well as the LEI of the industry member
define the term ‘‘Reportable Event’’ in
amended, in such Person’s capacity as [sic], if the industry member [sic] has an
Proposed Rule 14.1. Specifically,
a Participant in CAT NMS, LLC. This is LEI. The Plan Processor will use this
paragraph (ii) of Proposed Rule 14.1
the same definition in substance as set information to assign a CAT-Reporter-ID
states that the term ‘‘Reportable Event’’
forth in Section 1.1 of the CAT NMS to each Industry Member for internal
includes, but is not limited to, the
Plan. use within the Central Repository.
original receipt or origination,
(EE) Person modification, cancellation, routing, (II) Definition of SRO-Assigned Market
Paragraph (ee) of proposed Rule 14.1 execution (in whole or in part) and Participant Identifier
defines the term ‘‘Person’’ to mean any allocation of an order, and receipt of a To implement the Existing Identifier
individual, partnership, limited liability routed order. This is the same definition Approach, the Exchange proposes to
company, corporation, joint venture, as set forth in Section 1.1 of the CAT define the term ‘‘SRO-Assigned Market
trust, business trust, cooperative or NMS Plan. Participant’’ in Proposed Rule 14.1.
association and any heirs, executors, (JJ) SRO Specifically, paragraph (kk) of proposed
administrators, legal representatives, Rule 14.1 defines the term ‘‘SRO-
Paragraph (jj) of proposed Rule 14.1 Assigned Market Participant Identifier’’
successors and assigns of such Person
defines the term ‘‘SRO’’ to mean any to mean an identifier assigned to an
where the context so permits. This is the
self-regulatory organization within the Industry Member by an SRO or an
same definition as set forth in Section
meaning of Section 3(a)(26) of the identifier used by a Participant. This is
1.1 of the CAT NMS Plan.
Exchange Act. This is the same the same definition as set forth in
(FF) Plan Processor definition as set forth in Section 1.1 of Section 1.1 of the CAT NMS Plan. For
Paragraph (ff) of proposed Rule 14.1 the CAT NMS Plan. example, an Industry Member would be
defines the term ‘‘Plan Processor’’ to (KK) SRO-Assigned Market Participant permitted to use any existing SRO-
mean the Initial Plan Processor or any Identifier Assigned Market Participant Identifier
other Person selected by the Operating (e.g., FINRA MPID, NASDAQ MPID,
Committee pursuant to SEC Rule 613 (I) Existing Identifier Approach NYSE Mnemonic, CBOE User Acronym
and Sections 4.3(b)(i) and 6.1 of the The Participants requested and and CHX Acronym) when reporting
CAT NMS Plan, and with regard to the received exemptive relief from Rule 613 order information to the Central
Initial Plan Processor, the National so that the CAT NMS Plan may permit Repository.
Market System Plan Governing the the Existing Identifier Approach, which
(LL) Small Industry Member
Process for Selecting a Plan Processor would allow an Industry Member to
and Developing a Plan for the report an existing SRO-Assigned Market The requirements of the proposed
Consolidated Audit Trail, to perform the Participant Identifier in lieu of requiring rules 14.1 through 14.12 differ to some
CAT processing functions required by the reporting of a universal CAT- extent for Small Industry Members
SEC Rule 613 and set forth in the CAT Reporter-ID (that is, a code that versus Industry Members other than
NMS Plan. uniquely and consistently identifies an Small Industry Members. For example,
Industry Member for purposes of the compliance dates for reporting data
(GG) Received Industry Member Data to the CAT are different for Small
providing data to the Central
Paragraph (gg) of proposed Rule 14.1 Repository).23 The CAT NMS Plan Industry Members versus other Industry
states that the term ‘‘Received Industry reflects the ‘‘Existing Identifier Members. Accordingly, to clarify the
Member Data’’ has the meaning set forth Approach’’ for purposes of identifying requirements that apply to which
in Rule 14.3(a)(2). This definition has each Industry Member associated with Industry Members, the Exchange
the same substantive meaning as the an order or Reportable Event. Under the proposes to define the term ‘‘Small
definition set forth in Section 1.1 of the Existing Identifier Approach, Industry Industry Member’’ in Proposed Rule
CAT NMS Plan. The definition of Members are required to record and 14.1. Specifically, paragraph (ll) of
‘‘Received Industry Member Data’’ is report to the Central Repository an SRO- proposed Rule 14.1 defines the term
discussed more fully in the discussion Assigned Market Participant Identifier ‘‘Small Industry Member’’ to mean an
below regarding Proposed Rule for orders and certain Reportable Events Industry Member that qualifies as a
14.3(a)(2). to be used by the Central Repository to small broker-dealer as defined in Rule
assign a unique CAT-Reporter-ID to 0–10(c) under the Securities Exchange
(HH) Recorded Industry Member Data Act of 1934, as amended. This is the
identify Industry Members.
Paragraph (hh) of proposed Rule 14.1 For the Central Repository to link the same in substance as the definition of
states that the term ‘‘Recorded Industry SRO-Assigned Market Participant ‘‘Small Industry Member’’ as set forth in
Member Data’’ has the meaning set forth Section 1.1 of the CAT NMS Plan.
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Identifier to the CAT-Reporter-ID, each
in Rule 14.3(a)(1). This definition has SRO will submit to the Central Specifically, Section 1.1 of the CAT
the same substantive meaning as the Repository, on a daily basis, all SRO- NMS Plan defines a ‘‘Small Industry
definition set forth in Section 1.1 of the Assigned Market Participant Identifiers Member’’ as ‘‘an Industry Member that
CAT NMS Plan. The definition of used by its Industry Members, as well 24 The Commission notes that the SRO must
‘‘Recorded Industry Member Data’’ is as information to identify each such submit to the Central Repository the CRD number
discussed more fully in the discussion as well as the LEI of each such Industry Member,
below regarding Proposed Rule 23 See Exemptive Request Letter at 19, and if the SRO has collected the LEI of the Industry
14.3(a)(1). Exemption Order. Member.
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qualifies as a small broker-dealer as time of allocation on Allocation Reports Rule 4590 (Synchronization of Member
defined in SEC Rule 613.’’ The at a minimum to within a one second Business Clocks).
definition of a small broker-dealer under tolerance of the time maintained by the Paragraph (c) of proposed Rule 14.2
SEC Rule 613, in turn, is a small broker- NIST atomic clock, and maintain such sets forth certification requirements
dealer as defined in SEC Rule 0–10(c). synchronization. This is the same with regard to clock synchronization.
requirement as set forth in Section Specifically, paragraph (c) of proposed
(MM) Trading Day
6.8(a)(iii) and (iv) of the CAT NMS Plan. Rule 14.2 requires each Industry
Proposed Rule 14.3(b) establishes the Paragraph (a)(3) of proposed Rule 14.2 Member to periodically certify to the
deadlines for reporting certain data to clarifies that the tolerance described in Exchange that its Business Clocks
the Central Repository using the term paragraphs (a)(1) and (2) of the proposed satisfy the synchronization
‘‘Trading Day.’’ Accordingly, the Rule 14.2 includes all of the following: requirements set forth in paragraph (a)
Exchange proposes to define the term (1) The time difference between the of Proposed Rule 14.2, in accordance
‘‘Trading Day’’ in proposed Rule 14.1. NIST atomic clock and the Industry with the certification schedule
Specifically, Paragraph (mm) of Member’s Business Clock; (2) the established by the Operating Committee
proposed Rule 14.1 states that the term transmission delay from the source; and pursuant to the CAT NMS Plan. This
‘‘Trading Day’’ shall have the meaning (3) the amount of drift of the Industry requirement is the same requirement as
as is determined by the Operating Member’s Business Clock. This set forth in Section 6.8(a)(ii)(B), (iii) and
Committee. For the avoidance of doubt, description of the clock synchronization (iv) of the CAT NMS Plan. The
the Operating Committee may establish tolerance is the same as set forth in Exchange intends to announce to its
different Trading Days for NMS Stocks paragraph (b) of FINRA Rule 4590 Industry Members the certification
(as defined in SEC Rule 600(b)(47), (Synchronization of Member Business schedule established by the Operating
Listed Options, OTC Equity Securities, Clocks). Committee via an Information Circular.
and any other securities that are Paragraph (a)(4) of proposed Rule 14.2 Paragraph (d) of Proposed Rule 14.2
included as Eligible Securities from requires Industry Members to establishes further reporting
time to time. synchronize their Business Clocks every requirements with regard to clock
(ii) Clock Synchronization business day before market open to synchronization. Paragraph (d) of
ensure that timestamps for Reportable Proposed Rule 14.2 requires Industry
Rule 613(d)(1) under Regulation NMS Events are accurate. In addition, to Members to report to the Plan Processor
requires Industry Members to maintain clock synchronization, and to the Exchange violations of
synchronize their Business Clocks to the Business Clocks must be checked paragraph (a) of this Rule pursuant to
time maintained by NIST, consistent against the NIST atomic clock and re- the thresholds set by the Operating
with industry standards. To comply synchronized, as necessary, throughout Committee pursuant to the CAT NMS
with this provision, Section 6.8 of the the day. This description of the required Plan. This requirement is the same
Plan sets forth the clock frequency of clock synchronization is requirement as set forth in Section
synchronization requirements for the same as set forth in paragraph (c) of 6.8(a)(ii)(C), (iii) and (iv) of the CAT
Industry Members.25 To implement FINRA Rule 4590 (Synchronization of NMS Plan. The Exchange intends to
these provisions with regard to its Member Business Clocks). announce to its Industry Members the
Industry Members, the Exchange
Paragraph (b) of Proposed Rule 14.2 relevant thresholds established by the
proposes Rule 14.2 (Consolidated Audit
sets forth documentation requirements Operating Committee via an Information
Trail—Clock Synchronization) to
with regard to clock synchronization. Circular.
require its Industry Members to comply
Specifically, paragraph (b) requires
with the clock synchronization (iii) Industry Member Data Reporting
Industry Members to document and
requirements of the Plan.
maintain their synchronization Rule 613(c) under Regulation NMS
Paragraph (a) of proposed Rule 14.2
procedures for their Business Clocks. requires the CAT NMS Plan to set forth
sets forth the manner in which Industry
The Proposed Rule requires Industry certain provisions requiring Industry
Members must synchronize their
Members to keep a log of the times Members to record and report data to
Business Clocks. Paragraph (a)(1) of
when they synchronize their Business the CAT. To comply with this provision,
Proposed Rule 14.2 requires each
Clocks and the results of the Section 6.4 of the CAT NMS Plan sets
Industry Member to synchronize its
synchronization process. This log is forth the data reporting requirements for
Business Clocks, other than such
required to include notice of any time Industry Members. To implement these
Business Clocks used solely for Manual
a Business Clock drifts more than the provisions with regard to its Industry
Order Events or used solely for the time
applicable tolerance specified in Members, the Exchange proposes Rule
of allocation on Allocation Reports, at a
paragraph (a) of the Proposed Rule. 14.3 (Consolidated Audit Trail—
minimum to within a fifty (50)
Such logs must include results for a Industry Member Data Reporting) to
millisecond tolerance of the time
period of not less than five years ending require its Industry Members to comply
maintained by the NIST atomic clock,
on the then current date, or for the with the Industry Member Data
and maintain such synchronization.
entire period for which the Industry reporting requirements of the Plan.
This is the same requirement as set forth
Member has been required to comply Proposed Rule 14.3 has six [sic] sections
in Section 6.8(a)(ii)(A) of the CAT NMS
with this Rule if less than five years. covering: (1) Recording and reporting
Plan.
These documentation requirements are Industry Member Data, (2) timing of the
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Paragraph (a)(2) of proposed Rule 14.2
the same as those set forth in the recording and reporting, (3) the
requires each Industry Member to
‘‘Sequencing Orders and Clock applicable securities cover [sic] by the
synchronize (1) its Business Clocks used
Synchronization’’ section of Appendix recording and reporting requirements,
solely for Manual Order Events and (2)
C of the CAT NMS Plan. Moreover, (4) format, [sic] (5) the security
its Business Clocks used solely for the
these documentation requirements symbology to be used in the recording
25 In addition, Section 6.7(a)(ii) of the Plan sets regarding clock synchronization are and reporting, and (6) error correction
forth the timeline for CAT Reporters to comply with comparable to those set forth in requirements, each of which is
the clock synchronization requirements. Supplementary Material .01 of FINRA described below.
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Industry Members are required to use this provision of the CAT NMS Plan daily basis [sic],26 information sufficient
when reporting Industry Member Data with regard to its Industry Members. to identify such Industry Member,
to the Central Repository. Paragraph Specifically, paragraph (a) of proposed including CRD number and LEI, if such
(d)(1) of proposed Rule 14.3 requires, for Rule 14.4 requires each Industry LEI has been obtained, in accordance
each exchange-listed Eligible Security, Member to submit to the Central with the Existing Identifier Approach
each Industry Member to report Repository the Firm Designated ID, discussed above. The Exchange
Industry Member Data to the Central Customer Account Information and proposes Rule 14.5 (Consolidated Audit
Repository using the symbology format Customer Identifying Information for Trail—Industry Member Information
of the exchange listing the security. This each of its Customers with an Active Reporting) to implement this provision
requirement implements the Account prior to such Industry of the CAT NMS Plan with regard to its
requirement set forth in Section 2 of Member’s commencement of reporting Industry Members. Specifically,
Appendix D of the CAT NMS Plan to to the Central Repository and in proposed Rule 14.5 requires each
use the listing exchange symbology Industry Member to submit to the
accordance with the deadlines set forth
when reporting data to the Central Central Repository, information
in Rule 14.9.
Repository for exchange-listed Eligible sufficient to identify such Industry
Securities. Paragraph (b) of proposed Rule 14.4 Member, including CRD number and
For each Eligible Security that is not requires each Industry Member to LEI, if such LEI has been obtained, prior
exchange-listed, however, there is no submit to the Central Repository on a to such Industry Member’s
listing exchange to provide the daily basis any updates, additions or commencement of reporting to the
symbology format. Moreover, to date, other changes to the Firm Designated ID, Central Repository and in accordance
the requisite symbology format has not Customer Account Information and with the deadlines set forth in Rule
been determined. Therefore, Paragraph Customer Identifying Information for 14.9, and keep such information up to
(d)(2) of proposed Rule 14.3 requires, for each of its Customers with an Active date as necessary.
each Eligible Security that is not Account.
exchange-listed, each Industry Member (vi) Time Stamps
to report Industry Member Data to the Paragraph (c) of proposed Rule 14.4
requires each Industry Member, on a Rule 613(d)(3) under Regulation NMS
Central Repository using such sets forth requirements for time stamps
symbology format as approved by the periodic basis as designated by the Plan
used by CAT Reporters in recording and
Operating Committee pursuant to the Processor and approved by the
reporting data to the CAT.27 To comply
CAT NMS Plan. The Exchange intends Operating Committee, to submit to the
with this provision, Section 6.8(b) of the
to announce to its Industry Members the Central Repository a complete set of Plan sets forth time stamp requirements
relevant symbology formats established Firm Designated IDs, Customer Account for Industry Members. To implement
by the Operating Committee via an Information and Customer Identifying this provision with regard to its Industry
Information Circular. Information for each of its Customers Members, the Exchange proposes new
with an Active Account. This periodic Rule 14.6 (Consolidated Audit Trail—
(E) Error Correction
refresh is intended to ensure that the Time Stamps) to require its Industry
To ensure that the CAT contains Central Repository has the most current Members to comply with the time stamp
accurate data, the CAT NMS Plan information identifying a Customer. The requirements of the Plan.
requires Industry Members to correct Exchange intends to announce to its Paragraph (a) of proposed Rule 14.6
erroneous data submitted to the Central Industry Members when such a periodic sets forth the time stamp increments to
Repository. Therefore, the Exchange refresh is required by the Plan Processor be used by Industry Members in their
proposes to adopt paragraph (e) of and the Operating Committee via an CAT reporting. Paragraph (a)(1) of
proposed Rule 14.3, which addresses Information Circular. proposed Rule 14.6 requires each
the correction of erroneous data Industry Member to record and report
reported to the Central Repository. Finally, paragraph (d) of proposed
Rule 14.4 addresses the correction of Industry Member Data to the Central
Paragraph (e) of proposed Rule 14.3 Repository with time stamps in
requires, for each Industry Member for erroneous Customer data reported to the
Central Repository to ensure an accurate milliseconds, subject to paragraphs
which errors in Industry Member Data (a)(2) and (b) of proposed Rule 14.6. To
submitted to the Central Repository audit trail. Paragraph (d) requires, for
each Industry Member for which errors the extent that any Industry Member’s
have been identified by the Plan order handling or execution systems
Processor or otherwise, that such in Firm Designated ID, Customer
utilize time stamps in increments finer
Industry Member submit corrected Account Information and Customer
than milliseconds, paragraph (a)(2) of
Industry Member Data to the Central Identifying Information for each of its
Proposed Rule 14.6 requires such
Repository by 8:00 a.m. Eastern Time on Customers with an Active Account Industry Member to record and report
T+3. This requirement implements the submitted to the Central Repository Industry Member Data to the Central
error correction requirement set forth in have been identified by the Plan Repository with time stamps in such
Section 6 of Appendix D of the CAT Processor or otherwise, such Member to finer increment, subject to paragraph (b)
NMS Plan. submit corrected data to the Central of Proposed Rule 14.6 regarding Manual
(iv) Customer Information Reporting Repository by 5:00 p.m. Eastern Time on Order Events and Allocation Reports.
T+3. This requirement implements the Paragraph (b) of proposed Rule 14.6
Section 6.4(d)(iv) of the CAT NMS
asabaliauskas on DSK3SPTVN1PROD with NOTICES
error correction requirement set forth in sets forth the permissible time stamp
Plan requires Industry Members to Appendix C of the CAT NMS Plan.
submit to the Central Repository certain increments for Manual Order Events
information related to their Customers (v) Industry Member Information and Allocation Reports. Specifically,
in accordance with the Customer Reporting paragraph (b)(1) of proposed Rule 14.6
Information Approach discussed above. 26 The Commission notes that Section 6.4(d)(vi) of
The Exchange proposes Rule 14.4 Section 6.4(d)(vi) of the CAT NMS
the CAT NMS Plan does not specify a submission
(Consolidated Audit Trail—Customer Plan requires Industry Members to frequency.
Information Reporting) to implement submit to the Central Repository, on a 27 17 CFR 242.613(d)(3).
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![9952 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
permits each Industry Member to record proposed Rule 14.8 requires each Industry Members are required to begin
and report Manual Order Events to the Industry Member to connect to the connectivity and acceptance testing
Central Repository in increments up to Central Repository using a secure with the Central Repository no later
and including one second, provided that method(s), including, but not limited to, than August 15, 2019.
each Industry Member is required to private line(s) and virtual private Paragraph (a)(2) sets forth the
record and report the time when a network connection(s). This provision deadlines related to reporting Customer
Manual Order Event has been captured implements the connectivity
and Industry Member information.
electronically in an order handling and requirements set forth in Section 4 of
Paragraph (a)(2)(i) requires Industry
execution system of such Member Appendix D to the CAT NMS Plan.
Paragraph (c) permits Industry Members (other than Small Industry
(‘‘Electronic Capture Time’’) in
milliseconds. In addition, paragraph Members to use CAT Reporting Agents Members) to begin reporting Customer
(b)(2) of proposed Rule 14.6 permits to fulfill their data reporting obligations and Industry Member information, as
each Industry Member to record and related to the CAT. Paragraph (c) is required by Rules 14.4(a) and 14.5,
report the time of Allocation Reports in based on FINRA Rule 7450(c), which respectively, to the Central Repository
increments up to and including one permits OATS Reporting Members to for processing no later than October 15,
second. enter into agreements with Reporting 2018. Paragraph (a)(2)(ii) requires Small
Agents to fulfill the OATS obligations of Industry Members to begin reporting
(vii) Clock Synchronization Rule the OATS Reporting Member. Customer and Industry Member
Violations Specifically, Paragraph (c)(1) of information, as required by Rules
Proposed Rule 14.7 (Consolidated proposed Rule 14.8 states that any 14.4(a) and 14.5, respectively, to the
Audit Trail—Clock Synchronization Industry Member may enter into an Central Repository for processing no
Rule Violations [sic]) describes potential agreement with a CAT Reporting Agent later than October 15, 2019.
violations of the clock synchronization pursuant to which the CAT Reporting Paragraph (a)(3) sets forth the
time period requirements set forth in the Agent agrees to fulfill the obligations of deadlines related to the submission of
Chapter XIV Rule Series. Proposed Rule such Industry Member under the order data. Under paragraph (a)(3)(i),
14.7 states that an Industry Member that Chapter XIV Rule Series. Any such Industry Members (other than Small
engages in a pattern or practice of agreement must be evidenced in Industry Members) are permitted, but
reporting Reportable Events outside of writing, which specifies the respective
the required clock synchronization time not required, to submit order data for
functions and responsibilities of each
period as set forth in this Rule Series testing purposes beginning no later than
party to the agreement that are required
without reasonable justification or May 15, 2018. In addition, Industry
to effect full compliance with the
exceptional circumstances may be requirements of the Chapter XIV Rule Members (other than Small Industry
considered in violation of this Rule. Series. The Exchange notes that, Members) are required to participate in
This provision implements the currently, no standardized form the coordinated and structured testing
requirements of Section 6.8 of the CAT agreement for CAT Reporting Agent of order submission, which will begin
NMS Plan which requires the arrangements has been adopted. no later than August 15, 2018. Under
Compliance Rule to provide that a Paragraph (c)(2) of proposed Rule 14.8 paragraph (a)(3)(ii), Small Industry
pattern or practice of reporting events requires that all written documents Members are permitted, but not
outside of the required clock evidencing an agreement with a CAT required, to submit order data for testing
synchronization time period without Reporting Agent be maintained by each purposes beginning no later than May
reasonable justification or exceptional party to the agreement. Paragraph (c)(3) 15, 2019. In addition, Small Industry
circumstances may be considered a states that each Industry Member Members are required to participate in
violation of SEC Rule 613 or the CAT remains primarily responsible for the coordinated and structured testing
NMS Plan. compliance with the requirements of the of order submission, which will begin
Chapter XIV Rule Series, no later than August 15, 2019.
(viii) Connectivity and Data
notwithstanding the existence of an Paragraph (a)(4) states that Industry
Transmission
agreement described in paragraph (c) of Members are permitted, but not required
Proposed Rule 14.8 (Consolidated proposed Rule 14.8. to, submit Quote Sent Times on Options
Audit Trail—Connectivity and Data Market Maker quotes, beginning no later
Transmission) addresses connectivity (ix) Development and Testing
than October 15, 2018.
and data transmission requirements The Exchange proposes Rule 14.9
related to the CAT. Paragraph (a) of (Consolidated Audit Trail— Paragraph (b) of Proposed Rule 14.9
Proposed Rule 14.8 describes the Development and Testing) to address implements the requirement under the
format(s) for reporting Industry Member requirements for Industry Members CAT NMS Plan that Industry Members
Data to the Central Repository, thereby related to CAT development and testing. participate in required industry testing
implementing the formatting Paragraph (a) of Proposed Rule 14.9 sets with the Central Repository.28
requirements as set forth in Section forth the testing requirements and Specifically, proposed Rule 14.9
6.4(a) of the CAT NMS Plan. deadlines for Industry Members to requires that each Industry Member
Specifically, paragraph (a) of proposed develop and commence reporting to the participate in testing related to the
Rule 14.8 requires each Industry Central Repository. These requirements Central Repository, including any
Member to transmit data as required are set forth in Appendix C to the CAT industry-wide disaster recovery testing,
asabaliauskas on DSK3SPTVN1PROD with NOTICES
under the CAT NMS Plan to the Central NMS Plan. Paragraph (a)(1) sets forth pursuant to the schedule established
Repository utilizing such format(s) as the deadlines related to connectivity pursuant to the CAT NMS Plan. The
may be provided by the Plan Processor and acceptance testing. Industry Exchange intends to announce to its
and approved by the Operating Members (other than Small Industry Industry Members the schedule
Committee. Members) are required to begin established pursuant to the CAT NMS
Paragraph (b) of proposed Rule 14.8 connectivity and acceptance testing Plan via an Information Circular.
addresses connectivity requirements with the Central Repository no later
related to the CAT. Paragraph (b) of than August 15, 2018, and Small 28 Adopting Release [sic] at 84725.
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![Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 9953
(x) Recordkeeping CAT purposes, Industry Members will to the compliance dates of the Rules in
Proposed Rule 14.10 (Consolidated be required to accurately provide the Chapter XIV. Furthermore, paragraph (a)
Audit Trail—Recordkeeping) sets forth LEIs in their records and may not specifies that, unless otherwise noted,
the recordkeeping obligations related to knowingly submit inaccurate LEIs to the the Rules set forth in Chapter XIV are
the CAT for Industry Members. CAT. Paragraph (b) is consistent with fully effective and ETP Holders must
Proposed Rule 14.10 requires each the SEC’s statements in the Approval comply with their terms.
Industry Member to maintain and Order for the CAT NMS Plan regarding Paragraph (b) of Proposed Rule 14.12
preserve records of the information an Industry Member’s obligations establishes the compliance dates for the
required to be recorded under the regarding LEIs.30
clock synchronization requirements as
Chapter XIV Rule Series for the period Paragraph (c) states that, if an
Industry Member reports data to the set forth in proposed Rule 14.2.
of time and accessibility specified in Paragraph (b)(1) states that each
SEC Rule 17a–4(b). The records required Central Repository with errors such that
its error percentage exceeds the Industry Member shall comply with
to be maintained and preserved under Rule 14.2 with regard to Business
the Chapter XIV Rule Series may be maximum Error Rate established by the
Operating Committee pursuant to the Clocks that capture time in milliseconds
immediately produced or reproduced on commencing on or before March 15,
‘‘micrographic media’’ as defined in CAT NMS Plan, then such Industry
Member would not be in compliance 2017. Paragraph (b)(2) states that each
SEC Rule 17a–4(f)(1)(i) or by means of Industry Member shall comply with
‘‘electronic storage media’’ as defined in with the Chapter XIV Rule Series. As
discussed above, the initial maximum Rule 14.2 with regard to Business
SEC Rule 17a–4(f)(1)(ii) that meet the Clocks that do not capture time in
conditions set forth in SEC Rule 17a– Error Rate is 5%, although the Error
Rate is expected to be reduced over milliseconds commencing on or before
4(f) and be maintained and preserved February 19, 2018. The compliance date
for the required time in that form. time. The Exchange intends to
announce to its Industry Members set forth in paragraph (b)(1) reflects the
Proposed Rule 14.10 is based on FINRA exemptive relief requested by the
Rule 7440(a)(5), which sets forth the changes to the Error Rate established
pursuant to the CAT NMS Plan via an Participants with regard to the clock
recordkeeping requirements related to synchronization requirements related to
OATS. Information Circular.
Furthermore, paragraph (d) of Business Clocks that do not capture
(xi) Timely, Accurate and Complete proposed Rule 14.11 addresses time in milliseconds.32
Data Compliance Thresholds related to Paragraph (c) of proposed Rule 14.12
SEC Rule 613 and the CAT NMS Plan reporting data to the CAT. Proposed establishes the compliance dates for the
emphasize the importance of the Rule 14.11 states that each Industry data recording and reporting
timeliness, accuracy, completeness and Member is required to meet a separate requirements for Industry Members.
integrity of the data submitted to the compliance threshold which will be an Paragraph (c)(1) requires each Industry
CAT.29 Accordingly, proposed Rule Industry Member-specific rate that may Member (other than Small Industry
14.11 (Consolidated Audit Trail— be used as the basis for further review Members) to record and report the
Timely, Accurate and Complete Data) or investigation into the Industry Industry Member Data to the Central
implements this requirement with Member’s performance with regard to Repository by November 15, 2018.
regard to Industry Members. Paragraph the CAT (the ‘‘Compliance Paragraph (c)(2) requires that each
(a) of proposed Rule 14.11 requires that Thresholds’’). Compliance Thresholds Industry Member that is a Small
Industry Members record and report will compare an Industry Member’s Industry Member to record and report
data to the Central Repository as error rate to the aggregate Error Rate the Industry Member Data to the Central
required by the Chapter XIV Rule Series over a period of time to be defined by Repository by November 15, 2019. Such
in a manner that ensures the timeliness, the Operating Committee. Compliance compliance dates are consistent with
accuracy, integrity and completeness of Thresholds will be set by the Operating the compliance dates set forth in SEC
such data. Committee, and will be calculated at Rule 613(a)(3)(v) and (vi), and Section
In addition, without limiting the intervals to be set by the Operating 6.7(a)(v) and (vi) of the CAT NMS Plan.
general requirement as set forth in Committee.31 Compliance Thresholds
paragraph (a), paragraph (b) of proposed will include compliance with the data 2. Statutory Basis
Rule 14.11 requires Industry Members reporting and clock synchronization
The Exchange believes that the
to accurately provide the LEIs in their requirements. Proposed Rule 14.11
proposed rule change is consistent with
records as required by the Chapter XIV states that an Industry Member’s
the provisions of Section 6(b)(5) of the
Rule Series and states that Industry performance with respect to its
Act,33 which require, among other
Members may not knowingly submit Compliance Threshold will not signify,
as a matter of law, that such Industry things, that the rules of the Exchange
inaccurate LEIs to the Central
must be designed to prevent fraudulent
Repository. Paragraph (b) notes, Member has violated this Proposed Rule
however, that this requirement does not Series. and manipulative acts and practices, to
impose any additional due diligence promote just and equitable principles of
(xi) Compliance Dates trade, and, in general, to protect
obligations on Industry Members with
regard to LEIs for CAT purposes. Proposed Rule 14.12 (Consolidated investors and the public interest, and
Accordingly, this provision does not Audi [sic] Trail—Compliance Dates) sets Section 6(b)(8) of the Act,34 which
requires that the Exchange’s rules not
asabaliauskas on DSK3SPTVN1PROD with NOTICES
impose any due diligence obligations forth the compliance dates for the
beyond those that may exist today with various provisions of the rules impose any burden on competition that
respect to information associated with contained in Chapter XIV. Proposed
32 See Letter from Participants to Brent J. Fields,
an LEI. Although Industry Members will paragraph (a) specifies that paragraphs
Secretary, Commission, dated January 17, 2017
not be required to perform additional (b) and (c) of proposed Rule 14.12 set requesting exemptive relief from SEC Rule
due diligence with regard to the LEIs for forth the additional details with respect 613(a)(3)(iii) and Section 6.7(a)(ii) of the CAT NMS
Plan.
29 See Rule 613(e)(4)(i)(D)(ii); and Section 6.5(d) 30 Approval Order at 84745. 33 15 U.S.C. 78f(b)(6) [sic].
of the CAT NMS Plan. 31 Appendix C of the CAT NMS Plan. 34 15 U.S.C. 78f(b)(8).
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![9954 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
is not necessary or appropriate in up to 90 days (i) as the Commission may information that you wish to make
furtherance of the purposes of the Act. designate if it finds such longer period available publicly. All submissions
The Exchange believes that this to be appropriate and publishes its should refer to File Number SR–NSX–
proposal is consistent with the Act reasons for so finding or (ii) as to which 2017–03 and should be submitted on or
because it implements, interprets or the self-regulatory organization before March 1, 2017.
clarifies the provisions of the Plan, and consents, the Commission will: For the Commission, by the Division of
is designed to assist SRO and its (A) By order approve or disapprove Trading and Markets, pursuant to delegated
Industry Members in meeting regulatory the proposed rule change, or authority.36
obligations pursuant to the Plan. In (B) institute proceedings to determine Robert W. Errett,
approving the Plan, the SEC noted that whether the proposed rule change
Deputy Secretary.
the Plan ‘‘is necessary and appropriate should be disapproved.
[FR Doc. 2017–02538 Filed 2–7–17; 8:45 am]
in the public interest, for the protection IV. Solicitation of Comments BILLING CODE 8011–01–P
of investors and the maintenance of fair
and orderly markets, to remove Interested persons are invited to
impediments to, and perfect the submit written data, views, and
mechanism of a national market system, arguments concerning the foregoing, SMALL BUSINESS ADMINISTRATION
or is otherwise in furtherance of the including whether the proposed rule
[Disaster Declaration #15035 and #15036]
purposes of the Act.’’ 35 To the extent change is consistent with the Act.
that this proposal implements, Comments may be submitted by any of Tennessee Disaster #TN–00101
interprets or clarifies the Plan and the following methods:
AGENCY: U.S. Small Business
applies specific requirements to Electronic Comments Administration.
Industry Members, the Exchange
• Use the Commission’s Internet ACTION: Notice.
believes that this proposal furthers the
comment form (http://www.sec.gov/
objectives of the Plan, as identified by SUMMARY: This is a notice of an
rules/sro.shtml); or
the SEC, and is therefore consistent with • Send an email to rule- Administrative declaration of a disaster
the Act. comments@sec.gov. Please include File for the State of Tennessee dated 02/01/
B. Self-Regulatory Organization’s Number SR–NSX–2017–03 on the 2017.
Statement on Burden on Competition subject line. Incident: Severe Thunder Storms,
The Exchange does not believe that Tornadoes, Wind and Hail.
Paper Comments Incident Period: 11/29/2016 through
the proposed rule change will result in • Send paper comments in triplicate 11/30/2016.
any burden on competition that is not to Secretary, Securities and Exchange Effective Date: 02/01/2017.
necessary or appropriate in furtherance Commission, 100 F Street NE., Physical Loan Application Deadline
of the purposes of the Act. The Washington, DC 20549–1090. Date: 04/03/2017.
Exchange notes that the proposed rule Economic Injury (EIDL) Loan
All submissions should refer to File
change implements provisions of the Application Deadline Date: 11/01/2017.
Number SR–NSX–2017–03. This file
CAT NMS Plan, and is designed to
number should be included on the ADDRESSES: Submit completed loan
assist the Exchange in meeting its
subject line if email is used. To help the applications to: U.S. Small Business
regulatory obligations pursuant to the
Commission process and review your Administration, Processing and
Plan. The Exchange also notes that the
comments more efficiently, please use Disbursement Center, 14925 Kingsport
proposed rule change implementing
only one method. The Commission will Road, Fort Worth, TX 76155.
provisions of the CAT NMS Plan will
post all comments on the Commission’s FOR FURTHER INFORMATION CONTACT: A.
apply equally to all firms that trade
Internet Web site (http://www.sec.gov/ Escobar, Office of Disaster Assistance,
NMS Securities and OTC Equity
rules/sro.shtml). Copies of the U.S. Small Business Administration,
Securities. In addition, all national
submission, all subsequent 409 3rd Street SW., Suite 6050,
securities exchanges and FINRA are
amendments, all written statements Washington, DC 20416.
proposing the same rules. Therefore,
with respect to the proposed rule SUPPLEMENTARY INFORMATION: Notice is
this rule filing does not present any
change that are filed with the hereby given that as a result of the
competitive issues and, therefore, it
Commission, and all written Administrator’s disaster declaration,
does not impose a burden on
communications relating to the applications for disaster loans may be
competition.
proposed rule change between the filed at the address listed above or other
C. Self-Regulatory Organization’s Commission and any person, other than locally announced locations.
Statement on Comments on the those that may be withheld from the The following areas have been
Proposed Rule Change Received From public in accordance with the determined to be adversely affected by
Market Participants or Others provisions of 5 U.S.C. 552, will be the disaster:
The Exchange has not solicited or available for Web site viewing and
Primary Counties: McMinn.
received any comments on the proposed printing in the Commission’s Public
Contiguous Counties:
rule change from market participants or Reference Room, 100 F Street NE., Tennessee: Bradley, Loudon, Meigs,
others. Washington, DC 20549, on official Monroe, Polk, Roane.
business days between the hours of
asabaliauskas on DSK3SPTVN1PROD with NOTICES
III. Date of Effectiveness of the 10:00 a.m. and 3:00 p.m. Copies of such The Interest Rates are:
Proposed Rule Change and Timing for filing will also be available for
Commission Action Percent
inspection and copying at the principal
Within 45 days of the date of office of the Exchange. All comments For Physical Damage:
publication of this notice in the Federal received will be posted without change; Homeowners With Credit Avail-
Register or within such longer period the Commission does not edit personal able Elsewhere ...................... 3.000
identifying information from
35 Approval Order at 84697. submissions. You should submit only 36 17 CFR 200.30–3(a)(12).
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Document Created: 2017-02-08 02:59:43
Document Modified: 2017-02-08 02:59:43
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 9942 |
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