Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt the FINRA Rule 6800 Series (Consolidated Audit Trail Compliance Rule), 10073-10086 [2017-02642]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 26 (Thursday, February 9, 2017)]
[Notices]
[Pages 10073-10086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02642]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79961; File No. SR-FINRA-2017-003]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt 
the FINRA Rule 6800 Series (Consolidated Audit Trail Compliance Rule)

February 3, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 31, 2017, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by FINRA.\3\ The 
Commission

[[Page 10074]]

is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ FINRA originally filed this proposed rule change on January 
17, 2017 under File No. SR-FINRA-2017-02, and FINRA subsequently 
withdrew that filing on January 30, 2017 and filed this proposed 
rule change.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt the FINRA Rule 6800 Series to implement 
the compliance rule regarding the National Market System Plan Governing 
the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\4\
---------------------------------------------------------------------------

    \4\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth herein or in the CAT NMS Plan.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on FINRA's Web 
site at https://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

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

    In its filing with the Commission, FINRA 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. FINRA 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
    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.; FINRA; International 
Securities Exchange, LLC; Investors' Exchange LLC; ISE Gemini, LLC; ISE 
Mercury, LLC; Miami International Securities Exchange LLC; MIAX PEARL, 
LLC; NASDAQ BX, Inc.; NASDAQ PHLX LLC; The NASDAQ Stock Market LLC; 
National Stock Exchange, Inc.; New York Stock Exchange LLC; NYSE MKT 
LLC; and NYSE Arca, Inc. (collectively, the ``Participants'') filed 
with the Commission, pursuant to Section 11A of the Exchange Act\5\ and 
Rule 608 of Regulation NMS thereunder,\6\ the CAT NMS Plan.\7\ The 
Participants filed the Plan to comply with Rule 613 of Regulation NMS 
under the Exchange Act.\8\ The Plan was published for comment in the 
Federal Register on May 17, 2016,\9\ and approved by the Commission, as 
modified, on November 15, 2016.\10\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78k-1.
    \6\ 17 CFR 242.608.
    \7\ See Letter from the Participants to Brent J. Fields, 
Secretary, Commission, dated September 30, 2014; and Letter from 
Participants to Brent J. Fields, Secretary, Commission, dated 
February 27, 2015. On December 24, 2015, the Participants submitted 
an amendment to the CAT NMS Plan. See Letter from Participants to 
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
    \8\ 17 CFR 242.613.
    \9\ Securities Exchange Act Release No. 77724 (April 27, 2016), 
81 FR 30614 (May 17, 2016).
    \10\ Securities Exchange Act Release No. 79318 (November 15, 
2016), 81 FR 84696 (November 23, 2016) (``Approval Order'').
---------------------------------------------------------------------------

    The Plan is designed to create, implement and maintain a 
consolidated audit trail (``CAT'') that would capture customer and 
order event information for orders in NMS Securities and OTC Equity 
Securities, across all markets, from the time of order inception 
through routing, cancellation, modification, or execution in a single 
consolidated data source. Each Participant is required to enforce 
compliance by its Industry Members, as applicable, with the provisions 
of the Plan, by adopting a Compliance Rule applicable to their Industry 
Members.\11\ As is described more fully below, the proposed Rule 6800 
Series sets forth the Compliance Rule to require Industry Members to 
comply with the provisions of the CAT NMS Plan. The proposed Rule 6800 
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 is discussed in 
detail below.
---------------------------------------------------------------------------

    \11\ See 17 CFR 242.613(g)(1).
---------------------------------------------------------------------------

(i) Definitions
    Proposed Rule 6810 (Definitions) sets forth the definitions for the 
terms used in the proposed Rule 6800 Series. Each of the defined terms 
in proposed Rule 6810 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.\12\ Certain required 
elements are intended to ensure that the regulators can identify the 
Customers associated with orders. For example, SEC Rule 613(c)(7)(i)(A) 
requires an Industry Member to report the ``Customer-ID'' for each 
Customer for the original receipt or origination of an order.\13\ 
``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.'' 
\14\ SEC Rule 613(c)(8) requires Industry Members to use the same 
Customer-ID for each Customer.\15\ 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.\16\ The alternative 
approach is called the Customer Information Approach.
---------------------------------------------------------------------------

    \12\ 17 CFR 242.613.
    \13\ 17 CFR 242.613(c)(7)(i)(A).
    \14\ 17 CFR 242.613(j)(5).
    \15\ 17 CFR 242.613(c)(8).
    \16\ 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''); CAT NMS 
Plan at Appendix C, Section A.1(a)(iii).
---------------------------------------------------------------------------

    Under the Customer Information Approach, the CAT NMS Plan requires 
each Industry Member to assign a unique Firm Designated ID to each 
Customer. As the Firm Designated ID, Industry Members are 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 must 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 Legal Entity Identifier (``LEI'') and/or 
Larger Trader ID (``LTID'')). This process is referred to as the 
customer definition process.

[[Page 10075]]

    In accordance with the Customer Information Approach, Industry 
Members are 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 will 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 will 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 will 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 will 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).'' \17\ 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 6810 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.
---------------------------------------------------------------------------

    \17\ 17 CFR 242.613(j)(4).
---------------------------------------------------------------------------

    Specifically, paragraph (a)(1) defines ``Account Effective Date'' 
to mean, with regard to those circumstances in which an Industry Member 
has established a trading relationship with an institution but has not 
established an account with that institution: (1) When the trading 
relationship was established prior to November 15, 2018 for Industry 
Members other than Small Industry Members, or prior to November 15, 
2019 for Small Industry Members, either (a) the date the relationship 
identifier was established within the Industry Member; (b) the date 
when trading began (i.e., the date the first order was received) using 
the relevant relationship identifier; or (c) if both dates are 
available, the earlier date will be used to the extent that the dates 
differ; or (2) when the trading relationship was established on or 
after November 15, 2018 for Industry Members other than Small Industry 
Members, or on or after November 15, 2019 for Small Industry Members, 
the date the Industry Member established the relationship identifier, 
which would be no later than the date the first order was received.
    Paragraph (a)(2) of proposed Rule 6810 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 6810 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).'' \18\ The Participants requested and received from the SEC 
exemptive relief from SEC Rule 613 for an alternative to this approach 
(``Allocation Report Approach''). The Allocation Report Approach 
permits 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.\19\ 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.
---------------------------------------------------------------------------

    \18\ 17 CFR 242.613(c)(7)(vi)(A).
    \19\ See Exemptive Request Letter, supra note 16, at 26-27; 
Exemption Order, supra note 16.
---------------------------------------------------------------------------

(II) Definition of Allocation Report
    To assist in implementing the Allocation Report Approach, paragraph 
(c) of proposed Rule 6810 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

[[Page 10076]]

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 6810 
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 6800 Series. This is the same definition as set forth in Section 
1.1 of the CAT NMS Plan, except FINRA 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 6800 Series.
(E) CAT
    Paragraph (e) of proposed Rule 6810 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 6810 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, a daisy chain approach is used to link and 
reconstruct the complete lifecycle of each Reportable Event in CAT. 
According to this approach, Industry Members assign their own 
identifiers to each order event. Within the Central Repository, the 
Plan Processor later replaces the identifier provided by the Industry 
Member for each Reportable Event with a single identifier, called the 
CAT Order-ID, for all order events pertaining to the same order. This 
CAT Order-ID is used to link the Reportable Events related to the same 
order.
(II) Definition of CAT-Order-ID
    To implement a daisy chain approach, paragraph (g) of proposed Rule 
6810 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).\20\
---------------------------------------------------------------------------

    \20\ See 17 CFR 242.613(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.\21\ Such a third party, referred to 
in this proposed Rule 6800 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 6810 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 
obligations under this Rule 6800 Series.
---------------------------------------------------------------------------

    \21\ 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 Order Audit Trail System (``OATS'') 
rules. Specifically, 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 6810 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 
FINRA uses the phrase ``CAT NMS Plan'' in place of the phrase ``this 
Agreement.''
(J) Compliance Threshold
    Paragraph (j) of proposed Rule 6810 defines the term ``Compliance 
Threshold'' as having the meaning set forth in proposed Rule 6893(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 6893(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 6810 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 FINRA 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 6800 Series.\22\ FINRA also notes that Section 1.1 of the 
CAT NMS Plan defines ``Customer'' by reference to SEC Rule 613(j)(3).
---------------------------------------------------------------------------

    \22\ 17 CFR 242.613(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, FINRA 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 6810 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).

[[Page 10077]]

Proposed Rule 6810(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, FINRA proposes to define the term 
``Customer Account Information'' [sic] to clarify what Customer 
information would need to be reported to the Central Repository.
    Paragraph (m) of proposed Rule 6810 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, ITIN/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, EIN/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.\23\ 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 6800 Series, FINRA proposes to define ``Data 
Submitter'' in paragraph (n) of proposed Rule 6810. Specifically, 
paragraph (n) of proposed Rule 6810 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.
---------------------------------------------------------------------------

    \23\ Appendix C, Section A.1(a) of the CAT NMS Plan.
---------------------------------------------------------------------------

(O) Eligible Security
    The reporting requirements of the proposed Rule 6800 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 6810 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.\24\ The Operating 
Committee reviews and resets the maximum Error Rate, at least 
annually.\25\ 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 SEC Rule 613.\26\ As such, FINRA or 
the SEC ``may take appropriate action against an Industry Member for 
failing to comply with its CAT reporting obligations.\27\ The CAT NMS 
Plan sets the initial Error Rate at 5%.\28\ 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.\29\
---------------------------------------------------------------------------

    \24\ Section 6.5(d)(i) of the CAT NMS Plan.
    \25\ Appendix C, Section A.3(b) of the CAT NMS Plan.
    \26\ Appendix C, Section A.3(b) of the CAT NMS Plan; 17 CFR 
242.613(g)-(h).
    \27\ Appendix C, Section A.3(b) of the CAT NMS Plan.
    \28\ Section 6.5(d)(i) of the CAT NMS Plan.
    \29\ 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

[[Page 10078]]

on the Plan Processor's validation processes.\30\
---------------------------------------------------------------------------

    \30\ Approval Order, supra note 10, at 84718.
---------------------------------------------------------------------------

(II) Definition of Error Rate
    To implement the requirements of the CAT NMS Plan related to the 
Error Rate, FINRA proposes to define the term ``Error Rate'' in 
proposed Rule 6810. Paragraph (p) of proposed Rule 6810 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).\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 242.613(j)(6).
---------------------------------------------------------------------------

(Q) Firm Designated ID
    As discussed above, under the Customer Information Approach, the 
CAT NMS Plan requires each Industry Member to assign a unique Firm 
Designated ID to each Customer. Industry Members will 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 will 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, FINRA 
proposes to define the term ``Firm Designated ID'' in proposed Rule 
6810. Specifically, paragraph (q) of proposed Rule 6810 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 will be permitted to use an 
account number or any other identifier defined by the firm, provided 
each identifier is unique across the firm for each business date (i.e., 
a single firm may not have multiple separate customers with the same 
identifier on any given date).
(R) Industry Member
    Paragraph (r) of proposed Rule 6810 defines the term ``Industry 
Member'' to mean ``a member of a national securities exchange or a 
member of a national securities association that is required to record 
and report information pursuant to the CAT NMS Plan and this Rule 6800 
Series.'' This is the same definition as set forth in Section 1.1 of 
the CAT NMS Plan; however, FINRA proposes to add the phrase ``that is 
required to record and report information pursuant to the CAT NMS Plan 
and this Rule 6800 Series'' to clarify that FINRA members that do not 
handle orders in Eligible Securities are not subject to any of the 
rules in the proposed Rule 6800 Series.
(S) Industry Member Data
    Paragraph (s) of proposed Rule 6810 states that the term ``Industry 
Member Data'' has the meaning set forth in Rule 6830(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 6830(a)(2).
(T) Initial Plan Processor
    Paragraph (t) of proposed Rule 6810 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 6800 Series applies to 
Eligible Securities, which includes NMS Securities, which, in turn, 
includes Listed Options. Certain requirements of the proposed Rule 6800 
Series apply specifically to Listed Options. Accordingly, paragraph (u) 
of proposed Rule 6810 defines the term ``Listed Option'' or ``Option.'' 
Specifically, paragraph (u) of proposed Rule 6810 states that the term 
``Listed Option'' or ``Option'' has the meaning set forth in Rule 
600(b)(35) of Regulation NMS. Rule 600(b)(35) of Regulation NMS, in 
turn, defines a listed option as ``any option traded on a registered 
national securities exchange or automated facility of a national 
securities association.'' \32\ FINRA 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.
---------------------------------------------------------------------------

    \32\ 17 CFR 242.600(b)(35).
---------------------------------------------------------------------------

(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.\33\ Specifically, the Plan 
requires Industry Members to record and report the time of each 
Reportable Event using timestamps reflecting current industry standards 
(which must be at least to the millisecond) or, if an Industry Member's 
order handling or execution system uses timestamps in increments finer 
than milliseconds, such finer increments, when reporting to the Central 
Repository. For Manual Order Events, however, the Plan provides that 
such events must be recorded in increments up to and including one 
second, provided that Industry Members record and report the time the 
event is captured electronically in an order handling and execution 
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 its Business Clocks used solely for Manual Order Events, 
however, at a minimum to within one second of the time maintained by 
the NIST.
---------------------------------------------------------------------------

    \33\ Exemption Order, supra note 16.
---------------------------------------------------------------------------

(II) Definition of Manual Order Event
    In order to clarify what a Manual Order Event is for clock 
synchronization and time stamp purposes, FINRA proposes to define the 
term ``Manual Order Event'' in proposed Rule 6810. Specifically, 
paragraph (v) of proposed Rule 6810 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 6830 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

[[Page 10079]]

origination of an order, for the routing of an order). Accordingly, 
FINRA proposes to define the term ``Material Terms of the Order'' in 
proposed Rule 6810. Specifically, paragraph (w) of proposed Rule 6810 
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, FINRA proposes to define the term ``NMS Security'' in 
proposed Rule 6810. Specifically, paragraph (x) of proposed Rule 6810 
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 Rule 600(b)(47) of 
Regulation NMS \34\), Listed Options, OTC Equity Securities, and any 
other securities that are included as Eligible Securities from time to 
time. Accordingly, FINRA proposes to define the term ``NMS Stock'' in 
paragraph (y) of proposed Rule 6810 to mean any NMS Security other than 
an option. This is the same definition as set forth in Rule 600(b)(47) 
of Regulation NMS.\35\
---------------------------------------------------------------------------

    \34\ 17 CFR 242.600(b)(47).
    \35\ 17 CFR 242.600(b)(47).
---------------------------------------------------------------------------

(Z) Operating Committee
    Paragraph (z) of proposed Rule 6810 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 
FINRA proposes to use the phrase ``CAT NMS LLC'' in place of the phrase 
``the Company'' for clarity.
(AA) Options Market Maker
(I) Options Market Maker Quote Exemption
    SEC Rule 613(c)(7) provides that the CAT NMS Plan must require each 
Industry Member to record and electronically report to the Central 
Repository details for each order and each reportable event, including 
the routing and modification or cancellation of an order.\36\ SEC Rule 
613(j)(8) defines ``order'' to include ``any bid or offer.'' \37\ 
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.
---------------------------------------------------------------------------

    \36\ 17 CFR 242.613(c)(7).
    \37\ 17 CFR 242.613(j)(8).
---------------------------------------------------------------------------

    The Participants, 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.\38\ In accordance with the exemptive relief, Options 
Market Makers will 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.
---------------------------------------------------------------------------

    \38\ See Exemptive Request Letter, supra note 16, at 2; 
Exemption Order, supra note 16.
---------------------------------------------------------------------------

(II) Definition of Options Market Maker
    To implement the requirements related to Option Market Maker 
quotes, FINRA proposes to define the term ``Options Market Maker'' in 
proposed Rule 6810. Specifically, paragraph (aa) of proposed Rule 6810 
defines the term ``Options Market Makers'' to mean a broker-dealer 
registered with an exchange for the purpose of making markets in 
options contracts traded on the exchange. This is the same definition 
as set forth in Section 1.1 of the CAT NMS Plan.
(BB) Order
    The proposed Rule 6800 Series requires each Industry Member to 
record and electronically report to the Central Repository certain 
details for each order. Accordingly, FINRA proposes to define the term 
``Order'' in proposed Rule 6810. Specifically, paragraph (bb) of 
proposed Rule 6810 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 FINRA proposes to replace the phrase ``member of a 
national securities exchange or national securities association'' with 
the term ``Industry Member.'' \39\ FINRA notes that Section 1.1 of the 
CAT NMS Plan defines ``Order'' by reference to SEC Rule 613(j)(8).
---------------------------------------------------------------------------

    \39\ See 17 CFR 242.613(j)(8).
---------------------------------------------------------------------------

(CC) OTC Equity Security
    OTC Equity Securities are one of the types of Eligible Securities 
for the CAT. Therefore, FINRA proposes to define the term ``OTC Equity 
Security'' in proposed Rule 6810. Specifically, paragraph (cc) of 
proposed Rule 6810 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 6810 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 6810 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 6810 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

[[Page 10080]]

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 6810 states that the term 
``Received Industry Member Data'' has the meaning set forth in Rule 
6830(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 6830(a)(2).
(HH) Recorded Industry Member Data
    Paragraph (hh) of proposed Rule 6810 states that the term 
``Recorded Industry Member Data'' has the meaning set forth in Rule 
6830(a)(1). This definition has the same substantive meaning as the 
definition set forth in Section 1.1 of the CAT NMS Plan. The definition 
of ``Recorded Industry Member Data'' is discussed more fully in the 
discussion below regarding proposed Rule 6830(a)(1).
(II) Reportable Event
    The proposed Rule 6800 Series requires each Industry Member to 
record and electronically report to the Central Repository certain 
details for each Reportable Event. To clarify these requirements, FINRA 
proposes to define the term ``Reportable Event'' in proposed Rule 6810. 
Specifically, paragraph (ii) of proposed Rule 6810 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 6810 defines the term ``SRO'' to 
mean any self-regulatory organization within the meaning of Section 
3(a)(26) of the Exchange Act.\40\ This is the same definition as set 
forth in Section 1.1 of the CAT NMS Plan.
---------------------------------------------------------------------------

    \40\ See 15 U.S.C. 78c(a)(26).
---------------------------------------------------------------------------

(KK) SRO-Assigned Market Participant Identifier
(I) Existing Identifier Approach
    The Participants 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).\41\ The CAT NMS Plan 
reflects the ``Existing Identifier Approach'' for purposes of 
identifying each Industry Member associated with an order or Reportable 
Event. Under the Existing Identifier Approach, Industry Members are 
required to record and report to the Central Repository an SRO-Assigned 
Market Participant Identifier for orders and certain Reportable Events 
to be used by the Central Repository to assign a unique CAT-Reporter-ID 
to identify Industry Members.
---------------------------------------------------------------------------

    \41\ See Exemptive Request Letter, supra note 16, at 19; 
Exemption Order, supra note 16.
---------------------------------------------------------------------------

    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, FINRA proposes to 
define the term ``SRO-Assigned Market Participant Identifier'' in 
proposed Rule 6810. Specifically, paragraph (kk) of proposed Rule 6810 
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 6800 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, FINRA proposes to define the term ``Small 
Industry Member'' in proposed Rule 6810. Specifically, paragraph (ll) 
of proposed Rule 6810 defines the term ``Small Industry Member'' to 
mean an Industry Member that qualifies as a small broker-dealer as 
defined in SEA Rule 0-10(c).\42\ 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 SEA Rule 0-10(c).
---------------------------------------------------------------------------

    \42\ 17 CFR 240.0-10(c).
---------------------------------------------------------------------------

(MM) Trading Day
    Proposed Rule 6830(b) establishes the deadlines for reporting 
certain data to the Central Repository using the term ``Trading Day.'' 
Accordingly, FINRA proposes to define the term ``Trading Day'' in 
proposed Rule 6810. Specifically, paragraph (mm) of proposed Rule 6810 
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 Rule 600(b)(47) of Regulation NMS), 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.\43\ To comply with this provision, 
Section 6.8 of the

[[Page 10081]]

Plan sets forth the clock synchronization requirements for Industry 
Members.\44\ To implement these provisions with regard to its Industry 
Members, FINRA proposes Rule 6820 (Clock Synchronization) to require 
its Industry Members to comply with the clock synchronization 
requirements of the Plan. FINRA notes that the clock synchronization 
requirements proposed here in Rule 6820 are substantially the same as 
clock synchronization requirements that FINRA recently adopted in Rule 
4590.\45\ Accordingly, except as where noted throughout this 
discussion, FINRA does not believe proposed Rule 6820 will impose new 
substantive requirements on its Industry Members. While proposed Rule 
6820 largely reflects FINRA's existing Rule 4590, FINRA believes it is 
important to include Rule 6820 in its entirety in this filing to 
promote consistency among the CAT Compliance Rules filed by the 
Participants.
---------------------------------------------------------------------------

    \43\ 17 CFR 242.613(d)(1).
    \44\ In addition, Section 6.7(a)(ii) of the Plan sets forth the 
timeline for CAT Reporters to comply with the clock synchronization 
requirements.
    \45\ See Securities Exchange Act Release No. 77565 (April 8, 
2016), 81 FR 22136 (April 14, 2016) (Order Approving SR-FINRA-2016-
005).
---------------------------------------------------------------------------

    Paragraph (a) of proposed Rule 6820 sets forth the manner in which 
Industry Members must synchronize their Business Clocks. Paragraph 
(a)(1) of proposed Rule 6820 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. FINRA notes that 
this paragraph does not place additional requirements on its Industry 
Members beyond what is required by Rule 4590.
    Paragraph (a)(2) of proposed Rule 6820 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. FINRA notes that this 
paragraph does not place additional requirements on its Industry 
Members beyond what is required by Rule 4590. Paragraph (a)(3) of 
proposed Rule 6820 clarifies that the tolerance described in paragraphs 
(a)(1) and (2) of the proposed Rule 6820 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 Rule 4590 (Synchronization of Member 
Business Clocks).
    Paragraph (a)(4) of proposed Rule 6820 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 Rule 4590.
    Paragraph (b) of proposed Rule 6820 sets forth documentation 
requirements with regard to clock synchronization. Specifically, 
paragraph (b) requires Industry Members to document and maintain their 
synchronization procedures for their Business Clocks. The proposed rule 
requires Industry Members to keep a log of the times when they 
synchronize their Business Clocks and the results of the 
synchronization process. This log is required to include notice of any 
time a Business Clock drifts more than the applicable tolerance 
specified in paragraph (a) of the proposed rule. Such logs must include 
results for a period of not less than five years ending on the then 
current date, or for the entire period for which the Industry Member 
has been required to comply with this Rule if less than five years. 
These documentation requirements are the same as those set forth in the 
``Sequencing Orders and Clock Synchronization'' section of Appendix C 
of the CAT NMS Plan. Moreover, these documentation requirements 
regarding clock synchronization are comparable to those set forth in 
Supplementary Material .01 of Rule 4590.
    Paragraph (c) of proposed Rule 6820 sets forth certification 
requirements with regard to clock synchronization. Specifically, 
paragraph (c) of proposed Rule 6820 requires each Industry Member to 
certify to FINRA that its Business Clocks satisfy the synchronization 
requirements set forth in paragraph (a) of proposed Rule 6820 
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. FINRA intends to 
announce to its Industry Members the certification schedule established 
by the Operating Committee via Regulatory Notice. This is a new 
requirement that is not currently contained in Rule 4590.
    Paragraph (d) of proposed Rule 6820 establishes reporting 
requirements with regard to clock synchronization. Paragraph (d) of 
proposed Rule 6820 requires Industry Members to report to the Plan 
Processor and FINRA 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. FINRA 
intends to announce to its Industry Members the relevant thresholds 
established by the Operating Committee via Regulatory Notice. This is a 
new requirement that is not currently contained in Rule 4590.
(iii) Industry Member Data Reporting
    SEC Rule 613(c) requires the CAT NMS Plan to set forth certain 
provisions requiring Industry Members to record and report data to the 
CAT.\46\ 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, FINRA 
proposes Rule 6830 (Industry Member Data Reporting) to require its 
Industry Members to comply with the Industry Member Data reporting 
requirements of the Plan. Proposed Rule 6830 has five sections 
covering: (1) Recording and reporting Industry Member Data, (2) timing 
of the recording and reporting, (3) the applicable securities covered 
by the recording and reporting requirements, (4) the security symbology 
to be used in the recording and reporting, and (5) error correction 
requirements, each of which is described below.
---------------------------------------------------------------------------

    \46\ See 17 CFR 242.613(c).
---------------------------------------------------------------------------

(A) Recording and Reporting Industry Member Data
    Paragraph (a) of proposed Rule 6830 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,

[[Page 10082]]

respectively. Paragraphs (a)(1)-(a)(3) of proposed Rule 6830 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 6860); 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 6860); (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 6860); (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 6860); (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 6860); (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 6830 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 6830(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 6840, Customer Account Information and Customer 
Identifying Information for the relevant Customer.
    Paragraph (a)(3) of proposed Rule 6830 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 6830 describes the requirements 
related to the timing of recording and reporting of Industry Member 
Data. Paragraphs (b)(1)-(b)(3) of proposed Rule 6830 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 6830 requires each Industry 
Member to record Recorded Industry Member Data contemporaneously with 
the applicable Reportable Event. Paragraph (b)(2) of proposed Rule 6830 
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 6830 describes the securities to 
which the recording and reporting requirements of proposed Rule 6830 
apply. Paragraphs (c)(1) and (c)(2) of proposed Rule 6830 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 6830 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 6830 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 6830 
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 6830 for each Eligible Security for which 
transaction reports are required to be submitted to FINRA.
(D) Security Symbology
    Paragraph (d) of proposed Rule 6830 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 6830 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

[[Page 10083]]

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 6830 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. FINRA intends to announce to its Industry Members the 
relevant symbology formats established by the Operating Committee via 
Regulatory Notice.
(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, FINRA proposes to adopt paragraph (e) of 
proposed Rule 6830, which addresses the correction of erroneous data 
reported to the Central Repository. Paragraph (e) of proposed Rule 6830 
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. FINRA proposes Rule 6840 (Customer Information 
Reporting) to implement this provision of the CAT NMS Plan with regard 
to its Industry Members. Specifically, paragraph (a) of proposed Rule 
6840 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 6880. Paragraph (b) of proposed Rule 6840 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 6840 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. FINRA intends to 
announce to its Industry Members when such a periodic refresh is 
required by the Plan Processor and the Operating Committee via 
Regulatory Notice.
    Finally, paragraph (d) of proposed Rule 6840 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. FINRA proposes Rule 6850 (Industry Member Information 
Reporting) to implement this provision of the CAT NMS Plan with regard 
to its Industry Members. Specifically, proposed Rule 6850 requires each 
Industry Member to submit to the Central Repository information 
sufficient to identify such Industry Member, including CRD number and 
LEI, if such LEI has been obtained, prior to such Industry Member's 
commencement of reporting to the Central Repository and in accordance 
with the deadlines set forth in Rule 6880, and keep such information up 
to date as necessary.
(vi) Time Stamps
    SEC Rule 613(d)(3) sets forth requirements for time stamps used by 
CAT Reporters in recording and reporting data to the CAT.\47\ 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, FINRA proposes new Rule 6860 (Time 
Stamps) to require its Industry Members to comply with the time stamp 
requirements of the Plan.
---------------------------------------------------------------------------

    \47\ 17 CFR 242.613(d)(3).
---------------------------------------------------------------------------

    Paragraph (a) of proposed Rule 6860 sets forth the time stamp 
increments to be used by Industry Members in their CAT reporting. 
Paragraph (a)(1) of proposed Rule 6860 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 6860. 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 6860 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 6860 regarding Manual Order Events and 
Allocation Reports.
    Paragraph (b) of proposed Rule 6860 sets forth the permissible time 
stamp increments for Manual Order Events and Allocation Reports. 
Specifically, paragraph (b)(1) of proposed Rule 6860 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 Electronic 
Capture Time in milliseconds. In addition, paragraph (b)(2) of proposed 
Rule 6860 permits each Industry Member to record and report the time of 
Allocation Reports in increments up to and including one second.
(vii) Time Stamp and Clock Synchronization Rule Violations
    Proposed Rule 6865 (Clock Synchronization Rule Violations) 
describes potential violations of the time stamp and clock 
synchronization time period requirements set forth in the proposed Rule 
6800 Series. Proposed

[[Page 10084]]

Rule 6865 states that an Industry Member that engages in a pattern or 
practice of reporting Reportable Events with time stamps generated by 
Business Clocks that are not synchronized according the requirements 
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 6870 (Connectivity and Data Transmission) addresses 
connectivity and data transmission requirements related to the CAT. 
Paragraph (a) of proposed Rule 6870 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 6870 
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 6870 addresses connectivity 
requirements related to the CAT. Paragraph (b) of proposed Rule 6870 
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 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 6870 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 6800 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 6800 
Series. FINRA notes that, currently, no standardized form agreement for 
CAT Reporting Agent arrangements has been adopted. Paragraph (c)(2) of 
proposed Rule 6870 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 6800 Series, notwithstanding the existence of an 
agreement described in paragraph (c) of proposed Rule 6870.
(ix) Development and Testing
    FINRA proposes Rule 6880 (Development and Testing) to address 
requirements for Industry Members related to CAT development and 
testing. Paragraph (a) of proposed Rule 6880 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 6840(a) 
and 6850, respectively, to the Central Repository for processing no 
later than October 15, 2018. Paragraph (a)(2)(ii) requires Small 
Industry Members to begin reporting Customer and Industry Member 
information, as required by Rules 6840(a) and 6850, 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 6880 implements the requirement 
under the CAT NMS Plan that Industry Members participate in required 
industry testing with the Central Repository.\48\ Specifically, 
proposed Rule 6880 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. FINRA intends to announce to its Industry 
Members the schedule established pursuant to the CAT NMS Plan via 
Regulatory Notice.
---------------------------------------------------------------------------

    \48\ Adopting Release at 84725.
---------------------------------------------------------------------------

(x) Recordkeeping
    Proposed Rule 6890 (Recordkeeping) sets forth the recordkeeping 
obligations related to the CAT for Industry Members. Proposed Rule 6890 
requires each Industry Member to maintain and preserve records of the 
information required to be recorded under the proposed Rule 6800 Series 
for the period of time and accessibility specified in SEA Rule 17a-
4(b).\49\ The records required to be maintained and preserved under the 
proposed Rule 6800 Series may be immediately produced or reproduced on 
``micrographic media'' as defined in SEA Rule 17a-4(f)(1)(i) \50\ or by 
means of ``electronic storage media'' as defined in SEA Rule 17a-
4(f)(1)(ii) \51\ that meet the conditions set forth in SEA Rule 17a-
4(f) \52\ and be maintained and preserved for the required time in that 
form. Proposed Rule 6890 is based on Rule 7440(a)(5), which sets forth 
the

[[Page 10085]]

recordkeeping requirements related to OATS.
---------------------------------------------------------------------------

    \49\ 17 CFR 240.17a-4(b).
    \50\ 17 CFR 240.17a-4(f)(1)(i).
    \51\ 17 CFR 240.17a-4(f)(1)(ii).
    \52\ 17 CFR 240.17a-4(f).
---------------------------------------------------------------------------

(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.\53\ Accordingly, proposed Rule 6893 (Timely, Accurate and 
Complete Data) implements this requirement with regard to Industry 
Members. Paragraph (a) of proposed Rule 6893 requires that Industry 
Members record and report data to the Central Repository as required by 
the proposed Rule 6800 Series in a manner that ensures the timeliness, 
accuracy, integrity and completeness of such data.
---------------------------------------------------------------------------

    \53\ See 17 CFR 242.613(e)(4)(i)(D)(ii); and Section 6.5(d) of 
the CAT NMS Plan.
---------------------------------------------------------------------------

    In addition, without limiting the general requirement as set forth 
in paragraph (a), paragraph (b) of proposed Rule 6893 requires Industry 
Members to accurately provide the LEIs in their records as required by 
the proposed Rule 6800 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.\54\
---------------------------------------------------------------------------

    \54\ Approval Order, supra note 10, at 84745.
---------------------------------------------------------------------------

    Paragraph (c) states that, if an Industry Member reports data to 
the Central Repository with errors such that its error percentage 
exceeds the maximum Error Rate established by the Operating Committee 
pursuant to the CAT NMS Plan, then such Industry Member would not be in 
compliance with the Rule 6800 Series. As discussed above, the initial 
maximum Error Rate is 5%, although the Error Rate is expected to be 
reduced over time. FINRA intends to announce to its Industry Members 
changes to the Error Rate established pursuant to the CAT NMS Plan via 
Regulatory Notice.
    Furthermore, paragraph (d) of proposed Rule 6893 addresses 
Compliance Thresholds related to reporting data to the CAT. Proposed 
Rule 6893 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.\55\ Compliance 
Thresholds will include compliance with the data reporting and clock 
synchronization requirements. Proposed Rule 6893 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.
---------------------------------------------------------------------------

    \55\ Appendix C of the CAT NMS Plan.
---------------------------------------------------------------------------

(xii) Compliance Dates
    Proposed Rule 6895 (Compliance Dates) sets forth the compliance 
dates for the various provisions of the proposed Rule 6800 Series. 
Paragraph (a) of proposed Rule 6895 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 6800 Series will be 
the date of Commission approval of the proposed rule change.
    Paragraph (b) of proposed Rule 6895 establishes the compliance 
dates for the clock synchronization requirements as set forth in 
proposed Rule 6820. Paragraph (b)(1) states that each Industry Member 
shall comply with Rule 6820 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 6820 
with regard to Business Clocks that do not capture time in milliseconds 
commencing on or before February 19, 2018. The compliance date set 
forth in paragraph (b)(1) reflects the exemptive relief requested by 
the Participants with regard to the clock synchronization requirements 
related to Business Clocks that do not capture time in 
milliseconds.\56\
---------------------------------------------------------------------------

    \56\ As discussed in the exemptive request letter filed by the 
Participants, the proposed clock synchronization compliance dates in 
Rule 6895(b) reflect the same compliance dates for the clock 
synchronization requirements recently adopted by FINRA in Rule 4590. 
In the discussion above FINRA notes the similarities, which are 
substantial, and the differences between the clock synchronization 
requirements proposed in this filing and the existing clock 
synchronization requirements in Rule 4590.
---------------------------------------------------------------------------

    Paragraph (c) of proposed Rule 6895 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),\57\ and 
Section 6.7(a)(v) and (vi) of the CAT NMS Plan.
---------------------------------------------------------------------------

    \57\ 17 CFR 242.613(a)(3)(v), (vi).
---------------------------------------------------------------------------

    If the Commission approves the proposed rule change, the effective 
date of the proposed rule change will be the date of approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\58\ which requires, among 
other things, that FINRA 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 15A(b)(9) of the Act,\59\ which requires 
that FINRA rules not impose any burden on competition that is not 
necessary or appropriate.
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78o-3(b)(6).
    \59\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

    FINRA believes that this proposed rule change is consistent with 
the Act because it implements, interprets or clarifies the provisions 
of the Plan, and is designed to assist FINRA 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.'' \60\ To the extent that this 
proposal implements, interprets or clarifies the Plan and applies 
specific requirements to

[[Page 10086]]

Industry Members, FINRA believes that this proposal furthers the 
objectives of the Plan, as identified by the SEC, and is therefore 
consistent with the Act.
---------------------------------------------------------------------------

    \60\ Approval Order, supra note 9, at 84697.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA 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. FINRA notes that the proposed 
rule change implements provisions of the CAT NMS Plan, and is designed 
to assist FINRA in meeting its regulatory obligations pursuant to the 
Plan. FINRA 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, the 
national securities exchanges are proposing similar rules to require 
compliance by their members with the CAT NMS Plan. 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 self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2017-003 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-FINRA-2017-003. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available 
for inspection and copying at the principal office of FINRA. 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-FINRA-2017-003 and should be 
submitted on or before March 2, 2017.
---------------------------------------------------------------------------

    \61\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\61\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02642 Filed 2-8-17; 8:45 am]
 BILLING CODE 8011-01-P