Securities and Exchange Commission
- [Release No. 34-104662]
I. Introduction
On July 18, 2012, the Securities and Exchange Commission (the “Commission” or the “SEC”) adopted Rule 613 of Regulation NMS, which required the national securities exchanges and national securities associations (the “Participants”) [1] to ( printed page 3573) jointly develop and submit to the Commission a national market system plan to create, implement, and maintain the consolidated audit trail (“CAT”).[2] The goal of Rule 613 was to create a modernized audit trail system that would provide regulators with timely access to a comprehensive set of trading data, thus enabling regulators to more efficiently and effectively analyze and reconstruct market events, monitor market behavior, conduct market analysis to support regulatory decisions, and perform surveillance, investigation, and enforcement activities. On November 15, 2016, the Commission approved the national market system plan required by Rule 613 (“the CAT NMS Plan”).[3]
On May 20, 2024, in response to a request from the Participants,[4] the Commission granted temporary exemptive relief, pursuant to its authority under section 36(a)(1) of the Exchange Act,[5] and Rule 608(e) of Regulation NMS under the Exchange Act,[6] from certain reporting requirements in section 6.4(d) of the CAT NMS Plan [7] relating to the reporting of bids and/or offers made in response to a request for quote (“RFQ”) or other form of solicitation response provided in standard electronic format ( e.g., FIX) that is not “immediately actionable” ( i.e., further action is required by the responder providing the quote in order to execute or cause a trade to be executed) (“NIA Electronic RFQ Responses”).[8] Pursuant to the Prior Order, this temporary conditional exemptive relief has an expiration date of July 31, 2026.[9]
For the reasons set forth below, this Order grants the Participants exemptive relief consistent with that previously granted by the Commission relating to the reporting of NIA Electronic RFQ Reponses in the Prior Order, except without the conditions previously imposed and without an expiration date.
II. Discussion and Exemptive Relief
Section 36(a)(1) of the Exchange Act grants the Commission the authority, with certain limitations, to “conditionally or unconditionally exempt any person, security, or transaction . . . from any provision or provisions of [the Exchange Act] or of any rule or regulation thereunder, to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.” [10] Under Rule 608(e) of Regulation NMS, the Commission may “exempt from [Rule 608], either unconditionally or on specified terms and conditions, any self-regulatory organization, member thereof, or specified security, if the Commission determines that such exemption is consistent with the public interest, the protection of investors, the maintenance of fair and orderly markets and the removal of impediments to, and perfection of the mechanism of, a national market system.” [11]
After careful consideration, the Commission has determined to grant exemptive relief consistent with that previously granted by the Commission relating to the reporting of NIA Electronic RFQ Reponses but without conditions or time limits. Industry members and Participants have continued to devote and expend substantial resources toward the ongoing development of CAT. The implementation of electronic recording and reporting of NIA Electronic RFQ Responses has proven to be particularly challenging. Compliance requires both the sender and receiver of the information to determine how to report information to the CAT, and this information is not currently captured in a format designed to be reported to the CAT. Additionally, the Commission received comment letters stating that exemptive relief is “necessary” for electronic responses to RFQs that cannot be executed by the party that receives the RFQ response,[12] and cautioning that the requirement to report RFQ responses that are not actionable would “involve costly manual processes.” [13] Also, some Industry Members maintain that the reporting of NIA Electronic RFQ Responses is not required by Rule 613 or the CAT NMS Plan.[14]
After further evaluation and in light of the implementation challenges, the Commission has determined that relief from Section 6.4(d) of the CAT NMS Plan for the recording and reporting of NIA Electronic RFQ Responses is appropriate because the regulatory value of this information does not justify the difficulty and costs associated with collecting and reporting such information. In addition, regulators will still have insight into the RFQ process, because any follow-up order activity subsequent to the transmission of NIA ( printed page 3574) Electronic RFQ Responses that results in an execution, will be reported to the CAT.
As provided in the Prior Order, the NIA Electronic RFQ Responses that are subject to this exemptive relief: (1) are those that satisfy the definition of an “order” as defined in Rule 613(j)(8) and the CAT NMS Plan; [15] (2) do not include RFQ responses that were required to be reported commencing in Phase 2c and Phase 2d; [16] and (3) do not include activity that is subject to section 6.3(g) of the CAT NMS Plan.[17]
Based on the foregoing, pursuant to section 36(a)(1) of the Exchange Act, it is appropriate in the public interest and is consistent with the protection of investors, and, pursuant to Rule 608(e), it is consistent with the public interest, the protection of investors, the maintenance of fair and orderly markets and the removal of impediments to, and the perfection of, the mechanisms of a national market system, to grant exemptive relief from the requirement in section 6.4(d) of the CAT NMS Plan for the recording and reporting of NIA Electronic RFQ Responses.[18] This exemptive relief is intended to mirror the relief granted in the Prior Order, except without the conditions previously imposed and without an expiration date. When this Order takes effect, the relief granted therein will supersede the relief granted in the Prior Order.
IV. Conclusion
As discussed above, it is appropriate to grant exemptive relief that exempts each Participant from the requirement in section 6.4(d) of the CAT NMS Plan for each Participant, through its Compliance Rule, to require its Industry Members to record and electronically report to the Central Repository NIA Electronic RFQ Responses.
Accordingly, it is hereby ordered , pursuant to section 36(a)(1) of the Exchange Act,[19] and Rule 608(e) of the Exchange Act [20] that the Participants are granted an exemption from the requirement in section 6.4(d) of the CAT NMS Plan that requires each Participant, through its Compliance Rule, to require its Industry Members to record and electronically report to the Central Repository bids and/or offers made in response to a request for quote or other form of solicitation response provided in standard electronic format ( e.g., FIX) that is not “immediately actionable” ( i.e., further action is required by the responder providing the quote in order to execute or cause a trade to be executed).
By the Commission.
Stephanie J. Fouse,
Assistant Secretary.