Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Adopt the Rule Series 11.600 To Implement the Compliance Rule Regarding the National Market System Plan Governing the Consolidated Audit Trail, 9891-9903 [2017-02539]

Download as PDF Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES surveillance procedures.64 In approving the proposed listing and trading of the proposed RealDay Options, the Commission has also relied on the Exchange’s representation that it has the necessary systems capacity to support the new options series that will result from this proposal.65 Pilot Given the size and liquidity of the market for SPY, the Commission believes that the risks of manipulation and potential market disruption are significantly mitigated as discussed above. Notwithstanding this and the Exchange’s representations in this regard, the Commission believes that a prudent approach is warranted with respect to the Exchange’s proposal to list RealDay Options on SPY. To the extent the potential for adverse effects with regard to the markets for the SPY ETF, the S&P 500 component securities underlying the SPY ETF, or RealDay Options on SPY continues to exist, the Exchange’s proposal to implement this change on a pilot basis should help to address this concern. Accordingly, the Commission is approving the proposal on a twelve-month pilot basis. Within two months of the end of the Pilot Program the Exchange will be required to submit to the Commission the Pilot Report. As described in more detail above,66 the Pilot Report will contain an analysis of volume, open interest, and trading patterns examining trading in RealDay Options. In addition, for certain series, the Pilot Report will provide an analysis of price volatility and trading activity in additional option series. In addition to the Pilot Report, the Exchange will provide the Commission with periodic interim reports while the Pilot Program is in effect that would contain some, but not all, of the information contained in the Pilot Report. The Pilot Report will be provided to the Commission on a confidential basis. Furthermore, if the pilot is not extended or permanently approved by the end of the Pilot Program, any position in RealDay Options established during the Pilot Program would remain in effect, but any further trading in those RealDay Options would be restricted to transactions where at least one side of the trade is a closing transaction. The Commission expects that, throughout the Pilot Program, the Exchange will monitor for any problems and collect and analyze on an ongoing basis the data and information that the 64 See supra note 30 and accompanying text. supra note 31 and accompanying text. 66 See supra note 34 and accompanying text. 65 See VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 Exchange ultimately intends to include in the Pilot Report. The Commission also expects that the Exchange will take prompt action, including timely communication with the Commission and with other marketplace selfregulatory organizations responsible for oversight of trading in component stocks, should any unanticipated adverse market effects develop. Based on the Exchange’s representations with respect to the proposed RealDay Options on SPY and for the foregoing reasons, the Commission finds that the proposed rule change is consistent with the Act. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,67 that the proposed rule change (SR–BOX–2016– 50) be, and hereby is, approved on a twelve-month pilot basis set to expire on February 2, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.68 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–02541 Filed 2–7–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79934; File No. SR–IEX– 2017–04] Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Adopt the Rule Series 11.600 To Implement the Compliance Rule Regarding the National Market System Plan Governing the Consolidated Audit Trail February 2, 2017. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on January 30, 2017, the Investors Exchange LLC (‘‘IEX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the self-regulatory organization.4 The 67 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 4 The Exchange originally filed this proposed rule change on January 17, 2017 under File No. SR–IEX– 2017–02, and the Exchange subsequently withdrew that filing on January 30, 2017 and filed this proposed rule change. 68 17 PO 00000 Frm 00183 Fmt 4703 Sfmt 4703 9891 Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’),5 and Rule 19b–4 thereunder,6 IEX is filing with the Commission a proposed rule change to adopt the Rule Series 11.600 to implement the compliance rule (‘‘Compliance Rule’’) regarding the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’).7 The text of the proposed rule change is available at the Exchange’s Web site at www.iextrading.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 self-regulatory organization included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose (a) Purpose [sic] Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., International Securities Exchange, LLC, Investors Exchange LLC, ISE Gemini, LLC, ISE Mercury, LLC, Miami International Securities Exchange LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York Stock 5 15 U.S.C. 78s(b)(1). CRF 240.19b–4. 7 Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth herein or in the CAT NMS Plan. 6 17 E:\FR\FM\08FEN1.SGM 08FEN1 9892 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. (collectively, the ‘‘Participants’’) filed with the Commission, pursuant to Section 11A of the Exchange Act‘‘ 8 and Rule 608 of Regulation NMS thereunder,9 the CAT NMS Plan.10 The Participants filed the Plan to comply with Rule 613 of Regulation NMS under the Exchange Act. The Plan was published for comment in the Federal Register on May 17, 2016,11 and approved by the Commission, as modified, on November 15, 2016.12 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.13 As is described more fully below, the Proposed Series Rule 11.600 sets forth the Compliance Rule to require Industry Members to comply with the provisions of the CAT NMS Plan. The Proposed Rule 11.600 Series includes twelve Proposed Rules covering the following areas: (1) Definitions; (2) clock synchronization; (3) Industry Member Data reporting; (4) Customer information reporting; (5) Industry Member information reporting; (6) time stamps; (7) clock synchronization rule violations; (8) connectivity and data transmission; (9) development and testing; (10) recordkeeping; (11) timely, accurate and complete data; and (12) compliance dates. Each of these Proposed Rules are discussed in detail below. (i) Definitions Proposed Rule 11.610 (Consolidated Audit Trail—Definitions) sets forth the definitions for the terms used in the Proposed Rule 11.600 Series. Each of 8 15 U.S.C. 78k–1. CFR 242.608. 10 See Letter from the Participants to Brent J. Fields, Secretary, Commission, dated September 30, 2014; and Letter from Participants to Brent J. Fields, Secretary, Commission, dated February 27, 2015. On December 24, 2015, the Participants submitted an amendment to the CAT NMS Plan. See Letter from Participants to Brent J. Fields, Secretary, Commission, dated December 23, 2015. 11 Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016). 12 Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval Order’’). 13 See SEC Rule 613(g)(1). asabaliauskas on DSK3SPTVN1PROD with NOTICES 9 17 VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 the defined terms in Proposed Rule 11.610 is discussed in detail in this section. (A) Account Effective Date (I) Customer Information Approach SEC Rule 613 requires that numerous data elements be reported to the CAT to ensure there is sufficient information to create the lifecycle of an order, and provide regulators with sufficient detail about an order to perform their regulatory duties. Certain required elements are intended to ensure that the regulators can identify the Customer’s associated with orders. For example, SEC Rule 613(c)(7)(i)(A) requires an Industry Member to report the ‘‘Customer-IDs’’ for each Customer for the original receipt or origination of an order. ‘‘Customer-ID’’ is defined in SEC Rule 613(j)(5) to mean ‘‘with respect to a customer, a code that uniquely and consistently identifies such customer for purposes of providing data to the Central Repository.’’ SEC Rule 613(c)(8) requires Industry Members to use the same Customer-ID for each Customer. The SEC granted the Participants exemptive relief to permit the use of an alternative approach to the requirement that an Industry Member report a Customer-ID for every Customer upon original receipt or origination.14 The alternative approach is called the Customer Information Approach. 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, 14 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). PO 00000 Frm 00184 Fmt 4703 Sfmt 4703 trustee, person with power of attorney) and LEI and/or Larger Trader ID (‘‘LTID’’)). This process is referred to as the customer definition process. In accordance with the Customer Information Approach, Industry Members would be required to report only the Firm Designated ID for each new order submitted to the Central Repository, rather than the ‘‘CustomerID’’ 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 11.610 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 E:\FR\FM\08FEN1.SGM 08FEN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 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 11.610 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 VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 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 11.610 defines an ‘‘Active Account’’ as an account that has had activity in Eligible Securities within the last six months. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (C) Allocation Report (I) Allocation Report Approach SEC Rule 613(c)(7)(vi)(A) requires each Industry Member to record and report to the Central Repository ‘‘the account number for any subaccounts to which the execution is allocated (in whole or in part).’’ The SROs requested and received from the SEC exemptive relief from SEC Rule 613 for an alternative to this approach (‘‘Allocation Report Approach’’). The Allocation Report Approach would permit Industry Members to record and report to the Central Repository an Allocation Report that includes, among other things, the Firm Designated ID for any account(s) to which executed shares are allocated when an execution is allocated in whole or part in lieu of requiring the reporting of the account number for any subaccount to which an execution is allocated, as is required by SEC Rule 613.15 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. (II) Definition of Allocation Report To assist in implementing the Allocation Report Approach, paragraph (c) of Proposed Rule 11.610 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 15 See Exemptive Request Letter at 26–27; and Exemption Order. PO 00000 Frm 00185 Fmt 4703 Sfmt 4703 9893 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 11.610 defines the term ‘‘Business Clock’’ as a clock used to record the date and time of any Reportable Event required to be reported under this Rule 11.600 Series. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, except IEX 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 Rule 11.600 Series. (E) CAT Paragraph (e) of Proposed Rule 11.610 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 11.610 defines the term ‘‘CAT NMS Plan’’ to mean the National Market System Plan Governing the Consolidated Audit Trail, as amended from time to time. (G) CAT-Order-ID (I) Daisy Chain Approach Under the CAT NMS Plan, the Daisy Chain Approach is used to link and reconstruct the complete lifecycle of each Reportable Event in CAT. According to this Approach, Industry Members assign their own identifiers to each order event. Within the Central Repository, the Plan Processor later replaces the identifier provided by the Industry Member for each Reportable Event with a single identifier, called the CAT Order-ID, for all order events pertaining to the same order. This CAT Order-ID is used to links the Reportable Events related to the same order. E:\FR\FM\08FEN1.SGM 08FEN1 9894 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices (II) Definition of CAT-Order-ID (J) Compliance Threshold To implement the Daisy Chain Approach, Paragraph (g) of Proposed Rule 11.610 defines the term ‘‘CATOrder-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 ‘‘CATOrder-ID’’ by reference to SEC Rule 613(j)(1). Paragraph (j) of Proposed Rule 11.610 defines the term ‘‘Compliance Threshold’’ as having the meaning set forth in Proposed Rule 11.693(d). This definition has the same substantive meaning as the definition set forth in Section 1.1 of the CAT NMS Plan. As discussed in detail below with regard to Proposed Rule 11.693(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.’’ (H) CAT Reporting Agent (K) Customer 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.16 Such a third party, referred to in this Proposed Rule 11.600 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 11.610 defines the term ‘‘CAT Reporting Agent’’ to mean a Data Submitter that is a third party that enters into an agreement with an Industry Member pursuant to which the CAT Reporting Agent agrees to fulfill such Industry Member’s reporting obligations under this Rule 11.600 Series. 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 reporting obligations under Rule 7450. The Reporting Agent for OATS fulfills a similar role to the CAT Reporting Agent. asabaliauskas on DSK3SPTVN1PROD with NOTICES (I) Central Repository Paragraph (i) of Proposed Rule 11.610 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 IEX uses the phrase ‘‘CAT NMS Plan’’ in place of the phrase ‘‘this Agreement.’’ 16 See Appendix C, Section A.1(a) of the CAT NMS Plan. VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 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 11.610 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 IEX proposes to replace the references to a registered broker-dealer or brokerdealer with a reference to an Industry Member for consistency of terms used in the Proposed Rule 11.600 Series. IEX 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, IEX 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 11.610 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 11.610(l), however, provides an alternative definition of PO 00000 Frm 00186 Fmt 4703 Sfmt 4703 ‘‘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 postmerger 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, IEX 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 11.610 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 E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 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. asabaliauskas on DSK3SPTVN1PROD with NOTICES (N) Data Submitter The CAT NMS Plan uses the term ‘‘Data Submitter’’ to refer to any person that reports data to the Central Repository.17 Such Data Submitters may include those entities that are required to submit data to the Central Repository (e.g., national securities exchanges, national securities associations and Industry Members), third-parties that may submit data to the CAT on behalf of CAT Reporters (i.e., CAT Reporting Agents), and outside parties that are not required to submit data to the CAT but from which the CAT may receive data (e.g., securities information processors (‘‘SIPs’’)). To include this term in the Proposed Rule 11.600 Series, IEX proposes to define ‘‘Data Submitter’’ in paragraph (n) of Proposed Rule 11.610. Specifically, paragraph (n) of Proposed Rule 11.610 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. (O) Eligible Security The reporting requirements of the Proposed Rule 11.600 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 11.610 defines the term ‘‘Eligible Security’’ to include: (1) All NMS Securities; and (2) all OTC Equity Securities. The terms 17 See Appendix C, Section A.1(a) of the CAT NMS Plan. VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 ‘‘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.18 The Operating Committee reviews and resets the maximum Error Rate, at least annually.19 If an Industry Member reports CAT data to the Central Repository with errors such that their error percentage exceeds the maximum Error Rate, then such Industry Member would not be in compliance with the CAT NMS Plan or Rule 613.20 As such, IEX or the SEC ‘‘may take appropriate action against an Industry Member for failing to comply with its CAT reporting obligations.21 The CAT NMS Plan sets the initial Error Rate at 5%.22 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.23 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 18 See Section 6.5(d)(i) of the CAT NMS Plan. Appendix C, Section A.3(b) of the CAT NMS Plan. 20 See Appendix C, Section A.3(b) of the CAT NMS Plan; Rule 613(g)–(h). 21 See Appendix C, Section A.3(b) of the CAT NMS Plan. 22 See Section 6.5(d)(i) of the CAT NMS Plan. 23 See Appendix C, Section A.3(b) of the CAT NMS Plan. 19 See PO 00000 Frm 00187 Fmt 4703 Sfmt 4703 9895 Participants, furthermore, require that the Plan Processor identify Industry Member data submission errors based on the Plan Processor’s validation processes.24 (II) Definition of Error Rate To implement the requirements of the CAT NMS Plan related to the Error Rate, IEX proposes to define the term ‘‘Error Rate’’ in Proposed Rule 11.610. Paragraph (p) of Proposed Rule 11.610 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, IEX proposes to define the term ‘‘Firm Designated ID’’ in Proposed Rule 11.610. Specifically, paragraph (q) of Proposed Rule 11.610 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). 24 See E:\FR\FM\08FEN1.SGM Approval Order at 84718. 08FEN1 9896 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices (R) Industry Member Paragraph (r) of Proposed Rule 11.610 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 11.610 states that the term ‘‘Industry Member Data’’ has the meaning set forth in Rule 11.630(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 11.630(a)(2). (T) Initial Plan Processor Paragraph (t) of Proposed Rule 11.610 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.’’ asabaliauskas on DSK3SPTVN1PROD with NOTICES (U) Listed Option or Option The CAT NMS Plan and this Proposed Rule 11.600 Series applies to Eligible Securities, which includes NMS Securities, which, in turn, includes Listed Options. Certain requirements of the Proposed Rule 11.600 Series apply specifically to Listed Options. Accordingly, Paragraph (u) of Proposed Rule 11.610 defines the term ‘‘Listed Option’’ or ‘‘Option.’’ Specifically, paragraph (u) of Proposed Rule 11.610 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.’’ IEX 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 VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 Order Events granted by the Commission.25 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 and execution system uses timestamps in increments finer than milliseconds, such finer increments, when reporting to the Central Repository. For Manual Order Events, however, the Plan provides that such events must be recorded in increments up to and including one second, provided that Industry Members record and report the time the event is captured electronically in an order handling and execution system (‘‘Electronic Capture Time’’) in milliseconds. In addition, Industry Members are required to synchronize their respective Business Clocks (other than such Business Clocks used solely for Manual Order Events) at a minimum to within 50 milliseconds of the time maintained by the National Institute of Standards and Technology (‘‘NIST’’), and maintain such a synchronization. Each Industry Member is required to synchronize their Business Clocks used solely for Manual Order Events, however, at a minimum to within one second of the time maintained by the NIST. (II) Definition of Manual Order Event In order to clarify what a Manual Order Event is for clock synchronization and time stamp purposes, IEX proposes to define the term ‘‘Manual Order Event’’ in Proposed Rule 11.610. Specifically, paragraph (v) of Proposed Rule 11.610 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 11.630 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, IEX proposes to define the term ‘‘Material Terms of the Order’’ in Proposed Rule 11.610. Specifically, paragraph (w) of Proposed Rule 11.610 defines the term ‘‘Material Terms of the Order’’ to include: The NMS Security or OTC Equity Security symbol; security type; 25 See PO 00000 Exemption Order. Frm 00188 Fmt 4703 Sfmt 4703 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, IEX proposes to define the term ‘‘NMS Security’’ in Proposed Rule 11.610. Specifically, paragraph (x) of Proposed Rule 11.610 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, IEX proposes to define the term ‘‘NMS Stock’’ in Paragraph (y) of Proposed Rule 11.610 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 11.610 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 IEX proposes to use the phrase ‘‘CAT NMS LLC’’ in place of the phrase ‘‘the Company’’ for clarity. (AA) Options Market Maker (I) Options Market Maker Quote Exemption SEC Rule 613(c)(7) provides that the CAT NMS Plan must require each Industry Member to record and electronically report to the Central Repository details for each order and E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices each reportable event, including the routing and modification or cancellation of an order. SEC Rule 613(j)(8) defines ‘‘order’’ to include ‘‘any bid or offer.’’ Therefore, under SEC Rule 613, the details for each Options Market Maker quotation must be reported to the Central Repository by both the Options Market Maker and the options exchange to which it routes its quote. The SROs, however, requested and received exemptive relief from SEC Rule 613 so that the CAT NMS Plan may permit Options Market Maker quotes to be reported to the Central Repository by the relevant options exchange in lieu of requiring that such reporting be done by both the options exchange and the Options Market Maker, as is required by SEC Rule 613.26 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 asabaliauskas on DSK3SPTVN1PROD with NOTICES (II) Definition of Options Market Maker To implement the requirements related to Option Market Maker quotes, IEX proposes to define the term ‘‘Options Market Maker’’ in Proposed Rule 11.610. Specifically, paragraph (aa) of Proposed Rule 11.610 defines the term ‘‘Options Market Maker’’ to mean a broker-dealer registered with an exchange for the purpose of making markets in options contracts traded on the exchange. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (BB) Order The Proposed Rule 11.600 Series requires each Industry Member to record and electronically report to the Central Repository certain details for each order. Accordingly, IEX proposes to define the term ‘‘Order’’ in Proposed Rule 11.610. Specifically, paragraph (bb) of Proposed Rule 11.610 defines the term ‘‘Order’’, with respect to Eligible Securities, to include: (1) Any order received by an Industry Member from any person; (2) any order originated by an Industry Member; or (3) any bid or offer. This is the same definition as set forth in SEC Rule 613(j)(8), except IEX proposes to replace the phrase ‘‘member of a national securities exchange or national securities association’’ with the term ‘‘Industry Member.’’ IEX notes that Section 1.1 of the CAT NMS Plan 26 See Exemptive Request Letter at 2, and Exemption Order. VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 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, IEX proposes to define the term ‘‘OTC Equity Security’’ in Proposed Rule 11.610. Specifically, paragraph (cc) of Proposed Rule 11.610 defines the term ‘‘OTC Equity Security’’ to mean any equity security, other than an NMS Security, subject to prompt last sale reporting rules of a registered national securities association and reported to one of such association’s equity trade reporting facilities. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (DD) Participant Paragraph (dd) of Proposed Rule 11.610 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 11.610 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 11.610 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 11.610 states that the term ‘‘Received Industry Member Data’’ has the meaning set forth in Rule 11.630(a)(2). This definition has the same substantive meaning as the definition set forth in PO 00000 Frm 00189 Fmt 4703 Sfmt 4703 9897 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 11.630(a)(2). (HH) Recorded Industry Member Data Paragraph (hh) of Proposed Rule 11.610 states that the term ‘‘Recorded Industry Member Data’’ has the meaning set forth in Rule 11.630(a)(1). This definition has the same substantive meaning as the definition set forth in in Section 1.1 of the CAT NMS Plan. The definition of ‘‘Recorded Industry Member Data’’ is discussed more fully in the discussion below regarding Proposed Rule 11.630(a)(1). (II) Reportable Event The Proposed Rule 11.600 Series requires each Industry Member to record and electronically report to the Central Repository certain details for each Reportable Event. To clarify these requirements, IEX proposes to define the term ‘‘Reportable Event’’ in Proposed Rule 11.610. Specifically, paragraph (ii) of Proposed Rule 11.610 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 11.610 defines the term ‘‘SRO’’ to mean any self-regulatory organization within the meaning of Section 3(a)(26) of the Exchange Act. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (KK) SRO-Assigned Market Participant Identifier (I) Existing Identifier Approach The SROs requested and received exemptive relief from SEC Rule 613 so that the CAT NMS Plan may permit the Existing Identifier Approach, which would allow an Industry Member to report an existing SRO-Assigned Market Participant Identifier in lieu of requiring the reporting of a universal CATReporter-ID (that is, a code that uniquely and consistently identifies an Industry Member for purposes of providing data to the Central Repository).27 The CAT NMS Plan reflects the ‘‘Existing Identifier Approach’’ for purposes of identifying 27 See Exemptive Request Letter at 19, and Exemption Order. E:\FR\FM\08FEN1.SGM 08FEN1 9898 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 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 SROAssigned Market Participant Identifier for orders and certain Reportable Events to be used by the Central Repository to assign a unique CAT-Reporter-ID to identify Industry Members. For the Central Repository to link the SRO-Assigned Market Participant Identifier to the CAT-Reporter-ID, each SRO will submit to the Central Repository, on a daily basis, all SROAssigned Market Participant Identifiers used by its Industry Members, as well as information to identify each such Industry Member, including CRD number and LEI, if the SRO has collected such LEI of the Industry Member. Additionally, each Industry Member is required to submit to the Central Repository the CRD number of the Industry Member as well as the LEI of the Industry Member (if the Industry Member has an LEI). The Plan Processor will use this information to assign a CAT-Reporter-ID to each Industry Member for internal use within the Central Repository. asabaliauskas on DSK3SPTVN1PROD with NOTICES (II) Definition of SRO-Assigned Market Participant Identifier To implement the Existing Identifier Approach, IEX proposes to define the term ‘‘SRO-Assigned Market Participant’’ in Proposed Rule 11.610. Specifically, paragraph (kk) of Proposed Rule 11.610 defines the term ‘‘SROAssigned 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 SROAssigned 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 Rule 11.600 Series 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, IEX proposes to define the term ‘‘Small Industry Member’’ in Proposed Rule 11.610. VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 Specifically, paragraph (ll) of Proposed Rule 11.610 defines the term ‘‘Small Industry Member’’ to mean an Industry Member that qualifies as a small brokerdealer as defined in Rule 0–10(c) under the Securities Exchange Act of 1934, as amended. This is the same in substance as the definition of ‘‘Small Industry Member’’ as set forth in Section 1.1 of the CAT NMS Plan. Specifically, Section 1.1 of the CAT NMS Plan defines a ‘‘Small Industry Member’’ as ‘‘an Industry Member that qualifies as a small broker-dealer as defined in SEC Rule 613.’’ The definition of a small broker-dealer under SEC Rule 613, in turn, is a small broker-dealer as defined in SEC Rule 0–10(c). (MM) Trading Day Proposed Rule 11.630(b) establishes the deadlines for reporting certain data to the Central Repository using the term ‘‘Trading Day.’’ Accordingly, IEX proposes to define the term ‘‘Trading Day’’ in Proposed Rule 11.610. Specifically, Paragraph (mm) of Proposed Rule 11.610 states that the term ‘‘Trading Day’’ shall have the meaning as is determined by the Operating Committee. For the avoidance of doubt, the Operating Committee may establish different Trading Days for NMS Stocks (as defined in SEC Rule 600(b)(47)), Listed Options, OTC Equity Securities, and any other securities that are included as Eligible Securities from time to time. (ii) Clock Synchronization SEC Rule 613(d)(1) under Regulation NMS requires Industry Members to synchronize their Business Clocks to the time maintained by NIST, consistent with industry standards. To comply with this provision, Section 6.8 of the Plan sets forth the clock synchronization requirements for Industry Members.28 To implement these provisions with regard to its Industry Members, IEX proposes Rule 11.620 (Consolidated Audit Trail— Clock Synchronization) to require its Industry Members to comply with the clock synchronization requirements of the Plan. Paragraph (a) of Proposed Rule 11.620 sets forth the manner in which Industry Members must synchronize their Business Clocks. Paragraph (a)(1) of Proposed Rule 11.620 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 28 In addition, Section 6.7(a)(ii) of the Plan sets forth the timeline for CAT Reporters to comply with the clock synchronization requirements. PO 00000 Frm 00190 Fmt 4703 Sfmt 4703 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 11.620 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 11.620 clarifies that the tolerance described in paragraphs (a)(1) and (2) of the Proposed Rule 11.620 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 11.620 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 resynchronized, 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 11.620 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 E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES 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 11.620 sets forth certification requirements with regard to clock synchronization. Specifically, paragraph (c) of Proposed Rule 11.620 requires each Industry Member to certify to IEX that its Business Clocks satisfy the synchronization requirements set forth in paragraph (a) of Proposed Rule 11.620 periodically in accordance with the certification schedule established by the Operating Committee pursuant to the CAT NMS Plan. This requirement is the same requirement as set forth in Section 6.8(a)(ii)(B), (iii) and (iv) of the CAT NMS Plan. IEX intends to announce to its Industry Members the certification schedule established by the Operating Committee via Information Circular. Paragraph (d) of Proposed Rule 11.620 establishes reporting requirements with regard to clock synchronization. Paragraph (d) of Proposed Rule 11.620 requires Industry Members to report to the Plan Processor and IEX 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. IEX intends to announce to its Industry Members the relevant thresholds established by the Operating Committee via Information Circular. (iii) Industry Member Data Reporting SEC Rule 613(c) under Regulation NMS requires the CAT NMS Plan to set forth certain provisions requiring Industry Members to record and report data to the CAT. To comply with this provision, Section 6.4 of the CAT NMS Plan sets forth the data reporting requirements for Industry Members. To implement these provisions with regard to its Industry Members, IEX proposes Rule 11.630 (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 11.630 has six sections covering: (1) Recording and reporting VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 Industry Member Data, (2) timing of the recording and reporting, (3) the applicable securities cover [sic] by the recording and reporting requirements, (4) format, (5) the security symbology to be used in the recording and reporting, and (6) error correction requirements, each of which is described below. (A) Recording and Reporting Industry Member Data Paragraph (a) of Proposed Rule 11.630 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 11.630 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) SROAssigned 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 11.660); and (6) Material Terms of the Order; • for the routing of an order: (1) CATOrder-ID; (2) date on which the order is routed; (3) time at which the order is routed (using timestamps pursuant to Proposed Rule 11.660); (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) CATOrder-ID; (2) date on which the order is received; (3) time at which the order is received (using timestamps pursuant to Proposed Rule 11.660); (4) SRO-Assigned Market Participant Identifier of the Industry Member receiving the order; (5) SROAssigned 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 PO 00000 Frm 00191 Fmt 4703 Sfmt 4703 9899 timestamps pursuant to Proposed Rule 11.660); (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 11.660); (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 11.630 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 11.630(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) SROAssigned 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 11.640, Customer Account Information and Customer Identifying Information for the relevant Customer. Paragraph (a)(3) of Proposed Rule 11.630 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 11.630 describes the requirements related to the E:\FR\FM\08FEN1.SGM 08FEN1 9900 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices timing of recording and reporting of Industry Member Data. Paragraphs (b)(1)–(b)(3) of Proposed Rule 11.630 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 11.630 requires each Industry Member to record Recorded Industry Member Data contemporaneously with the applicable Reportable Event. Paragraph (b)(2) of Proposed Rule 11.630 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. asabaliauskas on DSK3SPTVN1PROD with NOTICES (C) Applicable Securities Paragraph (c) of Proposed Rule 11.630 describes the securities to which the recording and reporting requirements of Proposed Rule 11.630 apply. Paragraphs (c)(1) and (c)(2) of Proposed Rule 11.630 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 11.630 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 11.630 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 11.630 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 11.630 for each Eligible Security for which transaction reports are required to be submitted to FINRA. (D) Security Symbology Paragraph (d) of Proposed Rule 11.630 describes the security symbology that Industry Members are required to use when reporting Industry Member Data to the Central Repository. Paragraph (d)(1) of Proposed Rule 11.630 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 VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 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 11.630 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. IEX intends to announce to its Industry Members the relevant symbology formats established by the Operating Committee via 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, IEX proposes to adopt paragraph (e) of Proposed Rule 11.630, which addresses the correction of erroneous data reported to the Central Repository. Paragraph (e) of Proposed Rule 11.630 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. IEX proposes Rule 11.640 (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 11.640 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 PO 00000 Frm 00192 Fmt 4703 Sfmt 4703 reporting to the Central Repository and in accordance with the deadlines set forth in Rule 11.680. Paragraph (b) of Proposed Rule 11.640 requires each Industry Member to submit to the Central Repository any updates, additions or other changes to the Firm Designated ID, Customer Account Information and Customer Identifying Information for each of its Customers with an Active Account on a daily basis. Paragraph (c) of Proposed Rule 11.640 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. IEX intends to announce to its Industry Members when such a periodic refresh is required by the Plan Processor and the Operating Committee via Information Circular. Finally, paragraph (d) of Proposed Rule 11.640 addresses the correction of erroneous Customer data reported to the Central Repository to ensure an accurate audit trail. Paragraph (d) requires, for each Industry Member for which errors in Firm Designated ID, Customer Account Information and Customer Identifying Information for each of its Customers with an Active Account submitted to the Central Repository have been identified by the Plan Processor or otherwise, such Member to submit corrected data to the Central Repository by 5:00 p.m. Eastern Time on T+3. This requirement implements the error correction requirement set forth in Appendix C of the CAT NMS Plan. (v) Industry Member Information Reporting Section 6.4(d)(vi) of the CAT NMS Plan requires Industry Members to submit to the Central Repository information sufficient to identify such Industry Member, including CRD number and LEI, if such LEI has been obtained, in accordance with the Existing Identifier Approach discussed above. IEX proposes Rule 11.650 (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 11.650 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 E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices obtained, prior to such Industry Member’s commencement of reporting to the Central Repository and in accordance with the deadlines set forth in Rule 11.680, and keep such information up to date as necessary. asabaliauskas on DSK3SPTVN1PROD with NOTICES (vi) Time Stamps SEC Rule 613(d)(3) under Regulation NMS sets forth requirements for time stamps used by CAT Reporters in recording and reporting data to the CAT.29 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, IEX proposes new Rule 11.660 (Consolidated Audit Trail—Time Stamps) to require its Industry Members to comply with the time stamp requirements of the Plan. Paragraph (a) of Proposed Rule 11.660 sets forth the time stamp increments to be used by Industry Members in their CAT reporting. Paragraph (a)(1) of Proposed Rule 11.660 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 11.660. 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 11.660 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 11.660 regarding Manual Order Events and Allocation Reports. Paragraph (b) of Proposed Rule 11.660 sets forth the permissible time stamp increments for Manual Order Events and Allocation Reports. Specifically, paragraph (b)(1) of Proposed Rule 11.660 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 11.660 permits each Industry Member to record and report the time of Allocation Reports in increments up to and including one second. 29 17 CFR 242.613(d)(3). VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 (vii) Clock Synchronization Rule Violations Proposed Rule 11.665 (Consolidated Audit Trail—Clock Synchronization Rule Violations) describes potential violations of the clock synchronization time period requirements set forth in the Proposed Rule 11.600 Series. Proposed Rule 11.665 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 11.670 (Consolidated Audit Trail—Connectivity and Data Transmission) addresses connectivity and data transmission requirements related to the CAT. Paragraph (a) of Proposed Rule 11.670 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 11.670 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 11.670 addresses connectivity requirements related to the CAT. Paragraph (b) of Proposed Rule 11.670 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 PO 00000 Frm 00193 Fmt 4703 Sfmt 4703 9901 Agents to fulfill the OATS obligations of the OATS Reporting Member. Specifically, Paragraph (c)(1) of Proposed Rule 11.670 states that any Industry Member may enter into an agreement with a CAT Reporting Agent pursuant to which the CAT Reporting Agent agrees to fulfill the obligations of such Industry Member under the Proposed Rule 11.600 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 Proposed Rule 11.600 Series. IEX notes that, currently, no standardized form agreement for CAT Reporting Agent arrangements has been adopted. Paragraph (c)(2) of Proposed Rule 11.670 requires that all written documents evidencing an agreement with a CAT Reporting Agent be maintained by each party to the agreement. Paragraph (c)(3) states that each Industry Member remains primarily responsible for compliance with the requirements of the Proposed Rule 11.600 Series, notwithstanding the existence of an agreement described in paragraph (c) of Proposed Rule 11.670. (ix) Development and Testing IEX proposes Rule 11.680 (Consolidated Audit Trail— Development and Testing) to address requirements for Industry Members related to CAT development and testing. Paragraph (a) of Proposed Rule 11.680 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 11.640(a) and 11.650, respectively, to the Central Repository for processing no later than October 15, 2018. Paragraph (a)(2)(ii) requires Small Industry Members to begin reporting E:\FR\FM\08FEN1.SGM 08FEN1 9902 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES Customer and Industry Member information, as required by Rules 11.640(a) and 11.650, 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 11.680 implements the requirement under the CAT NMS Plan that Industry Members participate in required industry testing with the Central Repository.30 Specifically, Proposed Rule 11.680 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. IEX intends to announce to its Industry Members the schedule established pursuant to the CAT NMS Plan via Information Circular. (x) Recordkeeping Proposed Rule 11.690 (Consolidated Audit Trail—Recordkeeping) sets forth the recordkeeping obligations related to the CAT for Industry Members. Proposed Rule 11.690 requires each Industry Member to maintain and preserve records of the information required to be recorded under the Proposed Rule 11.600 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 Proposed Rule 11.600 Series may be immediately produced or reproduced on ‘‘micrographic media’’ as defined in SEC Rule 17a–4(f)(1)(i) or by means of 30 See Adopting Release at 84725. VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 ‘‘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 11.690 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.31 Accordingly, Proposed Rule 11.693 (Consolidated Audit Trail— Timely, Accurate and Complete Data) implements this requirement with regard to Industry Members. Paragraph (a) of Proposed Rule 11.693 requires that Industry Members record and report data to the Central Repository as required by the Proposed Rule 11.600 Series in a manner that ensures the timeliness, accuracy, integrity and completeness of such data. In addition, without limiting the general requirement as set forth in paragraph (a), paragraph (b) of Proposed Rule 11.693 requires Industry Members to accurately provide the LEIs in their records as required by the Proposed Rule 11.600 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.32 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 31 See SEC Rule 613(e)(4)(i)(D)(ii); and Section 6.5(d) of the CAT NMS Plan. 32 See Approval Order at 84745. PO 00000 Frm 00194 Fmt 4703 Sfmt 4703 Member would not be in compliance with the Rule 11.600 Series. As discussed above, the initial maximum Error Rate is 5%, although the Error Rate is expected to be reduced over time. IEX intends to announce to its Industry Members changes to the Error Rate established pursuant to the CAT NMS Plan via Information Circular. Furthermore, paragraph (d) of Proposed Rule 11.693 addresses Compliance Thresholds related to reporting data to the CAT. Proposed Rule 11.693 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.33 Compliance Thresholds will include compliance with the data reporting and clock synchronization requirements. Proposed Rule 11.693 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. (xii) Compliance Dates Proposed Rule 11.695 (Consolidated Audi Trail—Compliance Dates) sets forth the compliance dates for the various provisions of the Proposed Rule 11.600 Series. Paragraph (a) of Proposed Rule 11.695 states that, except as set forth in paragraphs (b) and (c) of this Rule or otherwise set forth in this Rule Series, the compliance date for the proposed Rule Series 11.600 shall be the date the proposed Rule Series 11.600 is approved by the Commission. Paragraph (b) of Proposed Rule 11.695 establishes the compliance dates for the clock synchronization requirements as set forth in Proposed Rule 11.620. Paragraph (b)(1) states that each Industry Member shall comply with Rule 11.620 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 11.620 with regard to Business Clocks that do not capture time in milliseconds commencing on or before 33 See E:\FR\FM\08FEN1.SGM Appendix C of the CAT NMS Plan. 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 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.34 Paragraph (c) of Proposed Rule 11.695 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 asabaliauskas on DSK3SPTVN1PROD with NOTICES IEX believes that the proposed rule change is consistent with the provisions of Section 6(b)(5) of the Act,35 which require, among other things, that the IEX rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, and Section 6(b)(8) of the Act,36 which requires that IEX rules not impose any burden on competition that is not necessary or appropriate. IEX 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 IEX 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 34 Concurrently with this filing, the Participants submitted a request for exemptive relief from SEC Rule 613(a)(3)(ii) of Regulation NMS under the Securities Exchange Act of 1934 and Section 6.7(a)(ii) of the CAT NMS Plan. See Letter from the Participants to Brent J. Fields, Secretary, Commission, dated September 30, 2014; and Letter from Participants to Brent J. Fields, Secretary, Commission, dated January 17, 2017. 35 15 U.S.C. 78f(b)(6). 36 15 U.S.C. 78f(b)(8). VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 Act.’’ 37 To the extent that this proposal implements, interprets or clarifies the Plan and applies specific requirements to Industry Members, IEX believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition IEX 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. IEX notes that the proposed rule change implements provisions of the CAT NMS Plan, and is designed to assist IEX in meeting its regulatory obligations pursuant to the Plan. IEX also notes that the Proposed Rule Series implementing provisions of the CAT NMS Plan will apply equally to all firms that trade NMS Securities and OTC Equity Securities. In addition, all national securities exchanges and FINRA are proposing this Proposed Rule 11.600 Series. Therefore, this is not a competitive rule filing, and, therefore, it does not impose a burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. 37 See PO 00000 Approval Order at 84697. Frm 00195 Fmt 4703 Sfmt 4703 9903 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 rule-comments@ sec.gov. Please include File Number SR– IEX–2017–04 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–IEX–2017–04. This file number should be included in 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 Section, 100 F Street NE., Washington, DC 20549–1090. Copies of the filing will also be available for inspection and copying at the IEX’s principal office and on its Internet Web site at www.iextrading.com. 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–IEX–2017–04 and should be submitted on or before March 1, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.38 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–02539 Filed 2–7–17; 8:45 am] BILLING CODE 8011–01–P 38 17 E:\FR\FM\08FEN1.SGM CFR 200.30–3(a)(12). 08FEN1

Agencies

[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9891-9903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02539]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79934; File No. SR-IEX-2017-04]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Proposed Rule Change To Adopt the Rule Series 11.600 To 
Implement the Compliance Rule Regarding the National Market System Plan 
Governing the Consolidated Audit Trail

February 2, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on January 30, 2017, the Investors Exchange LLC (``IEX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II and III below, which Items have been prepared by the self-regulatory 
organization.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ The Exchange originally filed this proposed rule change on 
January 17, 2017 under File No. SR-IEX-2017-02, and the Exchange 
subsequently withdrew that filing on January 30, 2017 and filed this 
proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act''),\5\ and Rule 19b-4 
thereunder,\6\ IEX is filing with the Commission a proposed rule change 
to adopt the Rule Series 11.600 to implement the compliance rule 
(``Compliance Rule'') regarding the National Market System Plan 
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or 
``Plan'').\7\ The text of the proposed rule change is available at the 
Exchange's Web site at www.iextrading.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.
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    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CRF 240.19b-4.
    \7\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth herein or in the CAT NMS Plan.
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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 self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
(a) Purpose [sic]
    Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA 
Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 
Options Exchange, Incorporated, Chicago Board Options Exchange, 
Incorporated, Chicago Stock Exchange, Inc., Financial Industry 
Regulatory Authority, Inc., International Securities Exchange, LLC, 
Investors Exchange LLC, ISE Gemini, LLC, ISE Mercury, LLC, Miami 
International Securities Exchange LLC, MIAX PEARL, LLC, NASDAQ BX, 
Inc., NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, National Stock 
Exchange, Inc., New York Stock

[[Page 9892]]

Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. (collectively, the 
``Participants'') filed with the Commission, pursuant to Section 11A of 
the Exchange Act`` \8\ and Rule 608 of Regulation NMS thereunder,\9\ 
the CAT NMS Plan.\10\ The Participants filed the Plan to comply with 
Rule 613 of Regulation NMS under the Exchange Act. The Plan was 
published for comment in the Federal Register on May 17, 2016,\11\ and 
approved by the Commission, as modified, on November 15, 2016.\12\
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    \8\ 15 U.S.C. 78k-1.
    \9\ 17 CFR 242.608.
    \10\ See Letter from the Participants to Brent J. Fields, 
Secretary, Commission, dated September 30, 2014; and Letter from 
Participants to Brent J. Fields, Secretary, Commission, dated 
February 27, 2015. On December 24, 2015, the Participants submitted 
an amendment to the CAT NMS Plan. See Letter from Participants to 
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
    \11\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 
FR 30614 (May 17, 2016).
    \12\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 
FR 84696 (Nov. 23, 2016) (``Approval Order'').
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    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.\13\ As is described more fully below, the Proposed Series Rule 
11.600 sets forth the Compliance Rule to require Industry Members to 
comply with the provisions of the CAT NMS Plan. The Proposed Rule 
11.600 Series includes twelve Proposed Rules covering the following 
areas: (1) Definitions; (2) clock synchronization; (3) Industry Member 
Data reporting; (4) Customer information reporting; (5) Industry Member 
information reporting; (6) time stamps; (7) clock synchronization rule 
violations; (8) connectivity and data transmission; (9) development and 
testing; (10) recordkeeping; (11) timely, accurate and complete data; 
and (12) compliance dates. Each of these Proposed Rules are discussed 
in detail below.
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    \13\ See SEC Rule 613(g)(1).
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(i) Definitions
    Proposed Rule 11.610 (Consolidated Audit Trail--Definitions) sets 
forth the definitions for the terms used in the Proposed Rule 11.600 
Series. Each of the defined terms in Proposed Rule 11.610 is discussed 
in detail in this section.
(A) Account Effective Date
(I) Customer Information Approach
    SEC Rule 613 requires that numerous data elements be reported to 
the CAT to ensure there is sufficient information to create the 
lifecycle of an order, and provide regulators with sufficient detail 
about an order to perform their regulatory duties. Certain required 
elements are intended to ensure that the regulators can identify the 
Customer's associated with orders. For example, SEC Rule 
613(c)(7)(i)(A) requires an Industry Member to report the ``Customer-
IDs'' for each Customer for the original receipt or origination of an 
order. ``Customer-ID'' is defined in SEC Rule 613(j)(5) to mean ``with 
respect to a customer, a code that uniquely and consistently identifies 
such customer for purposes of providing data to the Central 
Repository.'' SEC Rule 613(c)(8) requires Industry Members to use the 
same Customer-ID for each Customer. The SEC granted the Participants 
exemptive relief to permit the use of an alternative approach to the 
requirement that an Industry Member report a Customer-ID for every 
Customer upon original receipt or origination.\14\ The alternative 
approach is called the Customer Information Approach.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 77265 (March 1, 
2016), 81 FR 11856 (March 7, 2016) (``Exemption Order''). See also 
Letter from Participants to Brent J. Fields, Secretary, Commission, 
dated January 30, 2015 at 12 (``Exemptive Request Letter''); and CAT 
NMS Plan at Appendix C, Section A.1(a)(iii).
---------------------------------------------------------------------------

    Under the Customer Information Approach, the CAT NMS Plan would 
require each Industry Member to assign a unique Firm Designated ID to 
each Customer. As the Firm Designated ID, Industry Members would be 
permitted to use an account number or any other identifier defined by 
the firm, provided each identifier is unique across the firm for each 
business date (i.e., a single firm may not have multiple separate 
customers with the same identifier on any given date). Prior to their 
commencement of reporting to the CAT, Industry Members would submit an 
initial set of Customer information to the Central Repository, 
including the Firm Designated ID, Customer Identifying Information and 
Customer Account Information (which may include, as applicable, the 
Customer's name, address, date of birth, individual tax payer 
identifier number (``ITIN'')/social security number (``SSN''), 
individual's role in the account (e.g., primary holder, joint holder, 
guardian, trustee, person with power of attorney) and LEI and/or Larger 
Trader ID (``LTID'')). This process is referred to as the customer 
definition process.
    In accordance with the Customer Information Approach, Industry 
Members would be required to report only the Firm Designated ID for 
each new order submitted to the Central Repository, rather than the 
``Customer-ID'' with individual order events. Within the Central 
Repository, each Customer would be uniquely identified by identifiers 
or a combination of identifiers such as ITIN/SSN, date of birth, and as 
applicable, LEI and LTID. The Plan Processor would be required to use 
these unique identifiers to map orders to specific Customers across all 
Industry Members and Participants. To ensure information identifying a 
Customer is up to date, Industry Members would be required to submit to 
the Central Repository daily and periodic updates for reactivated 
accounts, newly established accounts, and revised Firm Designated IDs 
or associated reportable Customer information.
(II) Definition of Account Effective Date
    In connection with the Customer Information Approach, Industry 
Members would be required to report Customer Account Information to the 
Central Repository. ``Customer Account Information'' is defined in SEC 
Rule 613(j)(4) to ``include, but not be limited to, account number, 
account type, customer type, date account opened, and large trader 
identifier (if applicable).'' Therefore, when reporting Customer 
Account Information, an Industry Member is required to report the date 
an account was opened. The Participants requested and received an 
exemption to allow an ``Account Effective Date'' to be reported in lieu 
of an account open date in certain limited circumstances. The 
definition of ``Account Effective Date'' as set forth in Paragraph (a) 
of Proposed Rule 11.610 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

[[Page 9893]]

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 11.610 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 11.610 defines an 
``Active Account'' as an account that has had activity in Eligible 
Securities within the last six months. This is the same definition as 
set forth in Section 1.1 of the CAT NMS Plan.
(C) Allocation Report
(I) Allocation Report Approach
    SEC Rule 613(c)(7)(vi)(A) requires each Industry Member to record 
and report to the Central Repository ``the account number for any 
subaccounts to which the execution is allocated (in whole or in 
part).'' The SROs requested and received from the SEC exemptive relief 
from SEC Rule 613 for an alternative to this approach (``Allocation 
Report Approach''). The Allocation Report Approach would permit 
Industry Members to record and report to the Central Repository an 
Allocation Report that includes, among other things, the Firm 
Designated ID for any account(s) to which executed shares are allocated 
when an execution is allocated in whole or part in lieu of requiring 
the reporting of the account number for any subaccount to which an 
execution is allocated, as is required by SEC Rule 613.\15\ 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.
---------------------------------------------------------------------------

    \15\ 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 11.610 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 
11.610 defines the term ``Business Clock'' as a clock used to record 
the date and time of any Reportable Event required to be reported under 
this Rule 11.600 Series. This is the same definition as set forth in 
Section 1.1 of the CAT NMS Plan, except IEX 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 Rule 11.600 Series.
(E) CAT
    Paragraph (e) of Proposed Rule 11.610 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 11.610 defines the term ``CAT NMS 
Plan'' to mean the National Market System Plan Governing the 
Consolidated Audit Trail, as amended from time to time.
(G) CAT-Order-ID
(I) Daisy Chain Approach
    Under the CAT NMS Plan, the Daisy Chain Approach is used to link 
and reconstruct the complete lifecycle of each Reportable Event in CAT. 
According to this Approach, Industry Members assign their own 
identifiers to each order event. Within the Central Repository, the 
Plan Processor later replaces the identifier provided by the Industry 
Member for each Reportable Event with a single identifier, called the 
CAT Order-ID, for all order events pertaining to the same order. This 
CAT Order-ID is used to links the Reportable Events related to the same 
order.

[[Page 9894]]

(II) Definition of CAT-Order-ID
    To implement the Daisy Chain Approach, Paragraph (g) of Proposed 
Rule 11.610 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.\16\ Such a third party, referred to 
in this Proposed Rule 11.600 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 11.610 defines 
the term ``CAT Reporting Agent'' to mean a Data Submitter that is a 
third party that enters into an agreement with an Industry Member 
pursuant to which the CAT Reporting Agent agrees to fulfill such 
Industry Member's reporting obligations under this Rule 11.600 Series.
---------------------------------------------------------------------------

    \16\ See 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 reporting 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 11.610 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 IEX 
uses the phrase ``CAT NMS Plan'' in place of the phrase ``this 
Agreement.''
(J) Compliance Threshold
    Paragraph (j) of Proposed Rule 11.610 defines the term ``Compliance 
Threshold'' as having the meaning set forth in Proposed Rule 11.693(d). 
This definition has the same substantive meaning as the definition set 
forth in Section 1.1 of the CAT NMS Plan. As discussed in detail below 
with regard to Proposed Rule 11.693(d), each Industry Member is 
required to meet a separate compliance threshold which will be an 
Industry Member-specific rate that may be used as the basis for further 
review or investigation into the Industry Member's performance with 
regard to the CAT. This Industry Member-specific rate is the 
``Compliance Threshold.''
(K) Customer
    Industry Members are required to submit to the Central Repository 
certain information related to their Customers, including Customer 
Identifying Information and Customer Account Information, as well as 
data related to their Customer's Reportable Events. Accordingly, 
Paragraph (k) of Proposed Rule 11.610 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 IEX proposes to replace the 
references to a registered broker-dealer or broker-dealer with a 
reference to an Industry Member for consistency of terms used in the 
Proposed Rule 11.600 Series. IEX 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, IEX 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 11.610 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 11.610(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, IEX 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 11.610 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

[[Page 9895]]

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.\17\ Such Data 
Submitters may include those entities that are required to submit data 
to the Central Repository (e.g., national securities exchanges, 
national securities associations and Industry Members), third-parties 
that may submit data to the CAT on behalf of CAT Reporters (i.e., CAT 
Reporting Agents), and outside parties that are not required to submit 
data to the CAT but from which the CAT may receive data (e.g., 
securities information processors (``SIPs'')). To include this term in 
the Proposed Rule 11.600 Series, IEX proposes to define ``Data 
Submitter'' in paragraph (n) of Proposed Rule 11.610. Specifically, 
paragraph (n) of Proposed Rule 11.610 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.
---------------------------------------------------------------------------

    \17\ See Appendix C, Section A.1(a) of the CAT NMS Plan.
---------------------------------------------------------------------------

(O) Eligible Security
    The reporting requirements of the Proposed Rule 11.600 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 11.610 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.\18\ The Operating 
Committee reviews and resets the maximum Error Rate, at least 
annually.\19\ If an Industry Member reports CAT data to the Central 
Repository with errors such that their error percentage exceeds the 
maximum Error Rate, then such Industry Member would not be in 
compliance with the CAT NMS Plan or Rule 613.\20\ As such, IEX or the 
SEC ``may take appropriate action against an Industry Member for 
failing to comply with its CAT reporting obligations.\21\ The CAT NMS 
Plan sets the initial Error Rate at 5%.\22\ 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.\23\
---------------------------------------------------------------------------

    \18\ See Section 6.5(d)(i) of the CAT NMS Plan.
    \19\ See Appendix C, Section A.3(b) of the CAT NMS Plan.
    \20\ See Appendix C, Section A.3(b) of the CAT NMS Plan; Rule 
613(g)-(h).
    \21\ See Appendix C, Section A.3(b) of the CAT NMS Plan.
    \22\ See Section 6.5(d)(i) of the CAT NMS Plan.
    \23\ See 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.\24\
---------------------------------------------------------------------------

    \24\ See Approval Order at 84718.
---------------------------------------------------------------------------

(II) Definition of Error Rate
    To implement the requirements of the CAT NMS Plan related to the 
Error Rate, IEX proposes to define the term ``Error Rate'' in Proposed 
Rule 11.610. Paragraph (p) of Proposed Rule 11.610 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, IEX 
proposes to define the term ``Firm Designated ID'' in Proposed Rule 
11.610. Specifically, paragraph (q) of Proposed Rule 11.610 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).

[[Page 9896]]

(R) Industry Member
    Paragraph (r) of Proposed Rule 11.610 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 11.610 states that the term 
``Industry Member Data'' has the meaning set forth in Rule 
11.630(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 11.630(a)(2).
(T) Initial Plan Processor
    Paragraph (t) of Proposed Rule 11.610 defines the term ``Initial 
Plan Processor'' to mean the first Plan Processor selected by the 
Operating Committee in accordance with SEC Rule 613, Section 6.1 of the 
CAT NMS Plan and the National Market System Plan Governing the Process 
for Selecting a Plan Processor and Developing a Plan for the 
Consolidated Audit Trail. This is the same definition as set forth in 
Section 1.1 of the CAT NMS Plan, although the proposed definition uses 
the full name of the ``Selection Plan.''
(U) Listed Option or Option
    The CAT NMS Plan and this Proposed Rule 11.600 Series applies to 
Eligible Securities, which includes NMS Securities, which, in turn, 
includes Listed Options. Certain requirements of the Proposed Rule 
11.600 Series apply specifically to Listed Options. Accordingly, 
Paragraph (u) of Proposed Rule 11.610 defines the term ``Listed 
Option'' or ``Option.'' Specifically, paragraph (u) of Proposed Rule 
11.610 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.'' IEX 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.\25\ 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 and execution system uses timestamps in increments finer 
than milliseconds, such finer increments, when reporting to the Central 
Repository. For Manual Order Events, however, the Plan provides that 
such events must be recorded in increments up to and including one 
second, provided that Industry Members record and report the time the 
event is captured electronically in an order handling and execution 
system (``Electronic Capture Time'') in milliseconds. In addition, 
Industry Members are required to synchronize their respective Business 
Clocks (other than such Business Clocks used solely for Manual Order 
Events) at a minimum to within 50 milliseconds of the time maintained 
by the National Institute of Standards and Technology (``NIST''), and 
maintain such a synchronization. Each Industry Member is required to 
synchronize their Business Clocks used solely for Manual Order Events, 
however, at a minimum to within one second of the time maintained by 
the NIST.
---------------------------------------------------------------------------

    \25\ 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, IEX proposes to define the 
term ``Manual Order Event'' in Proposed Rule 11.610. Specifically, 
paragraph (v) of Proposed Rule 11.610 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 11.630 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, IEX proposes to 
define the term ``Material Terms of the Order'' in Proposed Rule 
11.610. Specifically, paragraph (w) of Proposed Rule 11.610 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, IEX proposes to define the term ``NMS Security'' in 
Proposed Rule 11.610. Specifically, paragraph (x) of Proposed Rule 
11.610 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, IEX proposes to define the term ``NMS Stock'' in Paragraph 
(y) of Proposed Rule 11.610 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 11.610 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 
IEX proposes to use the phrase ``CAT NMS LLC'' in place of the phrase 
``the Company'' for clarity.
(AA) Options Market Maker
(I) Options Market Maker Quote Exemption
    SEC Rule 613(c)(7) provides that the CAT NMS Plan must require each 
Industry Member to record and electronically report to the Central 
Repository details for each order and

[[Page 9897]]

each reportable event, including the routing and modification or 
cancellation of an order. SEC Rule 613(j)(8) defines ``order'' to 
include ``any bid or offer.'' Therefore, under SEC Rule 613, the 
details for each Options Market Maker quotation must be reported to the 
Central Repository by both the Options Market Maker and the options 
exchange to which it routes its quote.
    The SROs, however, requested and received exemptive relief from SEC 
Rule 613 so that the CAT NMS Plan may permit Options Market Maker 
quotes to be reported to the Central Repository by the relevant options 
exchange in lieu of requiring that such reporting be done by both the 
options exchange and the Options Market Maker, as is required by SEC 
Rule 613.\26\ 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
---------------------------------------------------------------------------

    \26\ 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, IEX proposes to define the term ``Options Market Maker'' in 
Proposed Rule 11.610. Specifically, paragraph (aa) of Proposed Rule 
11.610 defines the term ``Options Market Maker'' to mean a broker-
dealer registered with an exchange for the purpose of making markets in 
options contracts traded on the exchange. This is the same definition 
as set forth in Section 1.1 of the CAT NMS Plan.
(BB) Order
    The Proposed Rule 11.600 Series requires each Industry Member to 
record and electronically report to the Central Repository certain 
details for each order. Accordingly, IEX proposes to define the term 
``Order'' in Proposed Rule 11.610. Specifically, paragraph (bb) of 
Proposed Rule 11.610 defines the term ``Order'', with respect to 
Eligible Securities, to include: (1) Any order received by an Industry 
Member from any person; (2) any order originated by an Industry Member; 
or (3) any bid or offer. This is the same definition as set forth in 
SEC Rule 613(j)(8), except IEX proposes to replace the phrase ``member 
of a national securities exchange or national securities association'' 
with the term ``Industry Member.'' IEX 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, IEX proposes to define the term ``OTC Equity 
Security'' in Proposed Rule 11.610. Specifically, paragraph (cc) of 
Proposed Rule 11.610 defines the term ``OTC Equity Security'' to mean 
any equity security, other than an NMS Security, subject to prompt last 
sale reporting rules of a registered national securities association 
and reported to one of such association's equity trade reporting 
facilities. This is the same definition as set forth in Section 1.1 of 
the CAT NMS Plan.
(DD) Participant
    Paragraph (dd) of Proposed Rule 11.610 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 11.610 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 11.610 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 11.610 states that the term 
``Received Industry Member Data'' has the meaning set forth in Rule 
11.630(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 11.630(a)(2).
(HH) Recorded Industry Member Data
    Paragraph (hh) of Proposed Rule 11.610 states that the term 
``Recorded Industry Member Data'' has the meaning set forth in Rule 
11.630(a)(1). This definition has the same substantive meaning as the 
definition set forth in in Section 1.1 of the CAT NMS Plan. The 
definition of ``Recorded Industry Member Data'' is discussed more fully 
in the discussion below regarding Proposed Rule 11.630(a)(1).
(II) Reportable Event
    The Proposed Rule 11.600 Series requires each Industry Member to 
record and electronically report to the Central Repository certain 
details for each Reportable Event. To clarify these requirements, IEX 
proposes to define the term ``Reportable Event'' in Proposed Rule 
11.610. Specifically, paragraph (ii) of Proposed Rule 11.610 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 11.610 defines the term ``SRO'' to 
mean any self-regulatory organization within the meaning of Section 
3(a)(26) of the Exchange Act. This is the same definition as set forth 
in Section 1.1 of the CAT NMS Plan.
(KK) SRO-Assigned Market Participant Identifier
(I) Existing Identifier Approach
    The SROs requested and received exemptive relief from SEC Rule 613 
so that the CAT NMS Plan may permit the Existing Identifier Approach, 
which would allow an Industry Member to report an existing SRO-Assigned 
Market Participant Identifier in lieu of requiring the reporting of a 
universal CAT-Reporter-ID (that is, a code that uniquely and 
consistently identifies an Industry Member for purposes of providing 
data to the Central Repository).\27\ The CAT NMS Plan reflects the 
``Existing Identifier Approach'' for purposes of identifying

[[Page 9898]]

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.
---------------------------------------------------------------------------

    \27\ See Exemptive Request Letter at 19, and Exemption Order.
---------------------------------------------------------------------------

    For the Central Repository to link the SRO-Assigned Market 
Participant Identifier to the CAT-Reporter-ID, each SRO will submit to 
the Central Repository, on a daily basis, all SRO-Assigned Market 
Participant Identifiers used by its Industry Members, as well as 
information to identify each such Industry Member, including CRD number 
and LEI, if the SRO has collected such LEI of the Industry Member. 
Additionally, each Industry Member is required to submit to the Central 
Repository the CRD number of the Industry Member as well as the LEI of 
the Industry Member (if the Industry Member has an LEI). The Plan 
Processor will use this information to assign a CAT-Reporter-ID to each 
Industry Member for internal use within the Central Repository.
(II) Definition of SRO-Assigned Market Participant Identifier
    To implement the Existing Identifier Approach, IEX proposes to 
define the term ``SRO-Assigned Market Participant'' in Proposed Rule 
11.610. Specifically, paragraph (kk) of Proposed Rule 11.610 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 Rule 11.600 Series 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, IEX proposes to define the term ``Small 
Industry Member'' in Proposed Rule 11.610. Specifically, paragraph (ll) 
of Proposed Rule 11.610 defines the term ``Small Industry Member'' to 
mean an Industry Member that qualifies as a small broker-dealer as 
defined in Rule 0-10(c) under the Securities Exchange Act of 1934, as 
amended. This is the same in substance as the definition of ``Small 
Industry Member'' as set forth in Section 1.1 of the CAT NMS Plan. 
Specifically, Section 1.1 of the CAT NMS Plan defines a ``Small 
Industry Member'' as ``an Industry Member that qualifies as a small 
broker-dealer as defined in SEC Rule 613.'' The definition of a small 
broker-dealer under SEC Rule 613, in turn, is a small broker-dealer as 
defined in SEC Rule 0-10(c).
(MM) Trading Day
    Proposed Rule 11.630(b) establishes the deadlines for reporting 
certain data to the Central Repository using the term ``Trading Day.'' 
Accordingly, IEX proposes to define the term ``Trading Day'' in 
Proposed Rule 11.610. Specifically, Paragraph (mm) of Proposed Rule 
11.610 states that the term ``Trading Day'' shall have the meaning as 
is determined by the Operating Committee. For the avoidance of doubt, 
the Operating Committee may establish different Trading Days for NMS 
Stocks (as defined in SEC Rule 600(b)(47)), Listed Options, OTC Equity 
Securities, and any other securities that are included as Eligible 
Securities from time to time.
(ii) Clock Synchronization
    SEC Rule 613(d)(1) under Regulation NMS requires Industry Members 
to synchronize their Business Clocks to the time maintained by NIST, 
consistent with industry standards. To comply with this provision, 
Section 6.8 of the Plan sets forth the clock synchronization 
requirements for Industry Members.\28\ To implement these provisions 
with regard to its Industry Members, IEX proposes Rule 11.620 
(Consolidated Audit Trail--Clock Synchronization) to require its 
Industry Members to comply with the clock synchronization requirements 
of the Plan.
---------------------------------------------------------------------------

    \28\ 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 11.620 sets forth the manner in 
which Industry Members must synchronize their Business Clocks. 
Paragraph (a)(1) of Proposed Rule 11.620 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 11.620 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 11.620 clarifies that the 
tolerance described in paragraphs (a)(1) and (2) of the Proposed Rule 
11.620 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 11.620 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 11.620 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

[[Page 9899]]

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 11.620 sets forth certification 
requirements with regard to clock synchronization. Specifically, 
paragraph (c) of Proposed Rule 11.620 requires each Industry Member to 
certify to IEX that its Business Clocks satisfy the synchronization 
requirements set forth in paragraph (a) of Proposed Rule 11.620 
periodically in accordance with the certification schedule established 
by the Operating Committee pursuant to the CAT NMS Plan. This 
requirement is the same requirement as set forth in Section 
6.8(a)(ii)(B), (iii) and (iv) of the CAT NMS Plan. IEX intends to 
announce to its Industry Members the certification schedule established 
by the Operating Committee via Information Circular.
    Paragraph (d) of Proposed Rule 11.620 establishes reporting 
requirements with regard to clock synchronization. Paragraph (d) of 
Proposed Rule 11.620 requires Industry Members to report to the Plan 
Processor and IEX 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. IEX intends to 
announce to its Industry Members the relevant thresholds established by 
the Operating Committee via Information Circular.
(iii) Industry Member Data Reporting
    SEC Rule 613(c) under Regulation NMS requires the CAT NMS Plan to 
set forth certain provisions requiring Industry Members to record and 
report data to the CAT. To comply with this provision, Section 6.4 of 
the CAT NMS Plan sets forth the data reporting requirements for 
Industry Members. To implement these provisions with regard to its 
Industry Members, IEX proposes Rule 11.630 (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 11.630 has six 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, (5) the security symbology to 
be used in the recording and reporting, and (6) error correction 
requirements, each of which is described below.
(A) Recording and Reporting Industry Member Data
    Paragraph (a) of Proposed Rule 11.630 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 11.630 
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 11.660); 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 11.660); (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 11.660); (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 
11.660); (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 11.660); (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 11.630 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 11.630(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 11.640, Customer Account Information and Customer 
Identifying Information for the relevant Customer.

    Paragraph (a)(3) of Proposed Rule 11.630 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 11.630 describes the requirements 
related to the

[[Page 9900]]

timing of recording and reporting of Industry Member Data. Paragraphs 
(b)(1)-(b)(3) of Proposed Rule 11.630 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 11.630 requires each Industry 
Member to record Recorded Industry Member Data contemporaneously with 
the applicable Reportable Event. Paragraph (b)(2) of Proposed Rule 
11.630 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 11.630 describes the securities to 
which the recording and reporting requirements of Proposed Rule 11.630 
apply. Paragraphs (c)(1) and (c)(2) of Proposed Rule 11.630 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 11.630 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 11.630 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 11.630 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 11.630 for each Eligible Security 
for which transaction reports are required to be submitted to FINRA.
(D) Security Symbology
    Paragraph (d) of Proposed Rule 11.630 describes the security 
symbology that Industry Members are required to use when reporting 
Industry Member Data to the Central Repository. Paragraph (d)(1) of 
Proposed Rule 11.630 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 11.630 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. IEX intends to announce to its Industry Members the 
relevant symbology formats established by the Operating Committee via 
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, IEX proposes to adopt paragraph (e) of 
Proposed Rule 11.630, which addresses the correction of erroneous data 
reported to the Central Repository. Paragraph (e) of Proposed Rule 
11.630 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. IEX proposes Rule 11.640 (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 11.640 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 11.680. Paragraph (b) of Proposed 
Rule 11.640 requires each Industry Member to submit to the Central 
Repository any updates, additions or other changes to the Firm 
Designated ID, Customer Account Information and Customer Identifying 
Information for each of its Customers with an Active Account on a daily 
basis. Paragraph (c) of Proposed Rule 11.640 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. IEX intends to announce to its Industry Members 
when such a periodic refresh is required by the Plan Processor and the 
Operating Committee via Information Circular.
    Finally, paragraph (d) of Proposed Rule 11.640 addresses the 
correction of erroneous Customer data reported to the Central 
Repository to ensure an accurate audit trail. Paragraph (d) requires, 
for each Industry Member for which errors in Firm Designated ID, 
Customer Account Information and Customer Identifying Information for 
each of its Customers with an Active Account submitted to the Central 
Repository have been identified by the Plan Processor or otherwise, 
such Member to submit corrected data to the Central Repository by 5:00 
p.m. Eastern Time on T+3. This requirement implements the error 
correction requirement set forth in Appendix C of the CAT NMS Plan.
(v) Industry Member Information Reporting
    Section 6.4(d)(vi) of the CAT NMS Plan requires Industry Members to 
submit to the Central Repository information sufficient to identify 
such Industry Member, including CRD number and LEI, if such LEI has 
been obtained, in accordance with the Existing Identifier Approach 
discussed above. IEX proposes Rule 11.650 (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 11.650 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

[[Page 9901]]

obtained, prior to such Industry Member's commencement of reporting to 
the Central Repository and in accordance with the deadlines set forth 
in Rule 11.680, and keep such information up to date as necessary.
(vi) Time Stamps
    SEC Rule 613(d)(3) under Regulation NMS sets forth requirements for 
time stamps used by CAT Reporters in recording and reporting data to 
the CAT.\29\ 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, IEX proposes new 
Rule 11.660 (Consolidated Audit Trail--Time Stamps) to require its 
Industry Members to comply with the time stamp requirements of the 
Plan.
---------------------------------------------------------------------------

    \29\ 17 CFR 242.613(d)(3).
---------------------------------------------------------------------------

    Paragraph (a) of Proposed Rule 11.660 sets forth the time stamp 
increments to be used by Industry Members in their CAT reporting. 
Paragraph (a)(1) of Proposed Rule 11.660 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 11.660. 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 11.660 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 11.660 regarding Manual Order Events and 
Allocation Reports.
    Paragraph (b) of Proposed Rule 11.660 sets forth the permissible 
time stamp increments for Manual Order Events and Allocation Reports. 
Specifically, paragraph (b)(1) of Proposed Rule 11.660 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 
11.660 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 11.665 (Consolidated Audit Trail--Clock 
Synchronization Rule Violations) describes potential violations of the 
clock synchronization time period requirements set forth in the 
Proposed Rule 11.600 Series. Proposed Rule 11.665 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 11.670 (Consolidated Audit Trail--Connectivity and 
Data Transmission) addresses connectivity and data transmission 
requirements related to the CAT. Paragraph (a) of Proposed Rule 11.670 
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 11.670 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 11.670 addresses connectivity 
requirements related to the CAT. Paragraph (b) of Proposed Rule 11.670 
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 11.670 states that any 
Industry Member may enter into an agreement with a CAT Reporting Agent 
pursuant to which the CAT Reporting Agent agrees to fulfill the 
obligations of such Industry Member under the Proposed Rule 11.600 
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 Proposed Rule 11.600 Series. IEX notes that, 
currently, no standardized form agreement for CAT Reporting Agent 
arrangements has been adopted. Paragraph (c)(2) of Proposed Rule 11.670 
requires that all written documents evidencing an agreement with a CAT 
Reporting Agent be maintained by each party to the agreement. Paragraph 
(c)(3) states that each Industry Member remains primarily responsible 
for compliance with the requirements of the Proposed Rule 11.600 
Series, notwithstanding the existence of an agreement described in 
paragraph (c) of Proposed Rule 11.670.
(ix) Development and Testing
    IEX proposes Rule 11.680 (Consolidated Audit Trail--Development and 
Testing) to address requirements for Industry Members related to CAT 
development and testing. Paragraph (a) of Proposed Rule 11.680 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 
11.640(a) and 11.650, respectively, to the Central Repository for 
processing no later than October 15, 2018. Paragraph (a)(2)(ii) 
requires Small Industry Members to begin reporting

[[Page 9902]]

Customer and Industry Member information, as required by Rules 
11.640(a) and 11.650, 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 11.680 implements the requirement 
under the CAT NMS Plan that Industry Members participate in required 
industry testing with the Central Repository.\30\ Specifically, 
Proposed Rule 11.680 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. IEX intends to announce to its Industry 
Members the schedule established pursuant to the CAT NMS Plan via 
Information Circular.
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    \30\ See Adopting Release at 84725.
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(x) Recordkeeping
    Proposed Rule 11.690 (Consolidated Audit Trail--Recordkeeping) sets 
forth the recordkeeping obligations related to the CAT for Industry 
Members. Proposed Rule 11.690 requires each Industry Member to maintain 
and preserve records of the information required to be recorded under 
the Proposed Rule 11.600 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 Proposed Rule 11.600 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 11.690 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.\31\ Accordingly, Proposed Rule 11.693 (Consolidated Audit 
Trail--Timely, Accurate and Complete Data) implements this requirement 
with regard to Industry Members. Paragraph (a) of Proposed Rule 11.693 
requires that Industry Members record and report data to the Central 
Repository as required by the Proposed Rule 11.600 Series in a manner 
that ensures the timeliness, accuracy, integrity and completeness of 
such data.
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    \31\ See SEC Rule 613(e)(4)(i)(D)(ii); and Section 6.5(d) of the 
CAT NMS Plan.
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    In addition, without limiting the general requirement as set forth 
in paragraph (a), paragraph (b) of Proposed Rule 11.693 requires 
Industry Members to accurately provide the LEIs in their records as 
required by the Proposed Rule 11.600 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.\32\
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    \32\ See Approval Order at 84745.
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    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 Rule 11.600 Series. As discussed above, the initial 
maximum Error Rate is 5%, although the Error Rate is expected to be 
reduced over time. IEX intends to announce to its Industry Members 
changes to the Error Rate established pursuant to the CAT NMS Plan via 
Information Circular.
    Furthermore, paragraph (d) of Proposed Rule 11.693 addresses 
Compliance Thresholds related to reporting data to the CAT. Proposed 
Rule 11.693 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.\33\ Compliance 
Thresholds will include compliance with the data reporting and clock 
synchronization requirements. Proposed Rule 11.693 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.
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    \33\ See Appendix C of the CAT NMS Plan.
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(xii) Compliance Dates
    Proposed Rule 11.695 (Consolidated Audi Trail--Compliance Dates) 
sets forth the compliance dates for the various provisions of the 
Proposed Rule 11.600 Series. Paragraph (a) of Proposed Rule 11.695 
states that, except as set forth in paragraphs (b) and (c) of this Rule 
or otherwise set forth in this Rule Series, the compliance date for the 
proposed Rule Series 11.600 shall be the date the proposed Rule Series 
11.600 is approved by the Commission.
    Paragraph (b) of Proposed Rule 11.695 establishes the compliance 
dates for the clock synchronization requirements as set forth in 
Proposed Rule 11.620. Paragraph (b)(1) states that each Industry Member 
shall comply with Rule 11.620 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 11.620 with regard to Business Clocks that do not capture time in 
milliseconds commencing on or before

[[Page 9903]]

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.\34\
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    \34\ Concurrently with this filing, the Participants submitted a 
request for exemptive relief from SEC Rule 613(a)(3)(ii) of 
Regulation NMS under the Securities Exchange Act of 1934 and Section 
6.7(a)(ii) of the CAT NMS Plan. See Letter from the Participants to 
Brent J. Fields, Secretary, Commission, dated September 30, 2014; 
and Letter from Participants to Brent J. Fields, Secretary, 
Commission, dated January 17, 2017.
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    Paragraph (c) of Proposed Rule 11.695 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
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b)(5) of the Act,\35\ which require, among 
other things, that the IEX rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest, and Section 6(b)(8) of the Act,\36\ which requires 
that IEX rules not impose any burden on competition that is not 
necessary or appropriate.
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    \35\ 15 U.S.C. 78f(b)(6).
    \36\ 15 U.S.C. 78f(b)(8).
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    IEX 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 IEX 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.'' \37\ To the extent that this proposal 
implements, interprets or clarifies the Plan and applies specific 
requirements to Industry Members, IEX believes that this proposal 
furthers the objectives of the Plan, as identified by the SEC, and is 
therefore consistent with the Act.
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    \37\ See Approval Order at 84697.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX 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. IEX notes that the proposed 
rule change implements provisions of the CAT NMS Plan, and is designed 
to assist IEX in meeting its regulatory obligations pursuant to the 
Plan. IEX also notes that the Proposed Rule Series implementing 
provisions of the CAT NMS Plan will apply equally to all firms that 
trade NMS Securities and OTC Equity Securities. In addition, all 
national securities exchanges and FINRA are proposing this Proposed 
Rule 11.600 Series. Therefore, this is not a competitive rule filing, 
and, therefore, it does not impose a burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-IEX-2017-04 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-IEX-2017-04. This file 
number should be included in 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 Section, 100 F Street 
NE., Washington, DC 20549-1090. Copies of the filing will also be 
available for inspection and copying at the IEX's principal office and 
on its Internet Web site at www.iextrading.com. 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-IEX-2017-04 and should be submitted on 
or before March 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-02539 Filed 2-7-17; 8:45 am]
 BILLING CODE 8011-01-P