Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Adopt the FINRA Rule 6800 Series (Consolidated Audit Trail Compliance Rule), 14563-14579 [2017-05504]

Download as PDF Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices 14563 FINRA (NASD) RULES, EXCHANGE ACT PROVISION OR SEC RULE BOX RULES BOX Rule 10070 Anti-Money Laundering Compliance Program # ........... FINRA Rule 3310 Anti-Money Laundering Compliance Program. * FINRA shall not have Regulatory Responsibilities for these rules as they pertain to violations of insider trading activities, which is covered by a separate 17d–2 Agreement by and among BATS BZX Exchange, Inc., BATS BYX Y-Exchange, Inc., Chicago Stock Exchange, Inc., BATS EDGA Exchange, Inc., BATS EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., 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., effective August 3, 2016, as may be amended from time to time. # FINRA shall not have any Regulatory Responsibilities regarding (i) notice, reporting or any other filings made directly to or from BOX, (ii) compliance with other referenced BOX Rules that are not Common Rules, (iii) exercise of discretion including, but not limited to exercise of exemptive authority, by BOX, (iv) prior written approval of BOX and (v) payment of fees or fines to BOX. IV. Solicitation of Comments In order to assist the Commission in determining whether to approve the proposed 17d–2 Plan and to relieve BOX of the responsibilities which would be assigned to FINRA, interested persons are invited to submit written data, views, and arguments concerning the foregoing. Comments may be submitted by any of the following methods: mstockstill on DSK3G9T082PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/other.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number 4–709 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, Station Place, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number 4–709. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/rules/ other.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 the plan also will be available for inspection and copying at the principal offices of BOX and FINRA. All comments received will be posted without change; the Commission does not edit personal VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number 4–709 and should be submitted on or before April 5, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–05506 Filed 3–20–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80255; File No. SR–FINRA– 2017–003] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Adopt the FINRA Rule 6800 Series (Consolidated Audit Trail Compliance Rule) March 15, 2017. I. Introduction On January 31, 2017, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt the FINRA Rule 6800 Series, to implement the compliance rules regarding the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’).3 The proposed rule change was published for comment in the Federal Register on February 9, 14 17 CFR 200.30–3(a)(34). 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–2017–002; FINRA subsequently withdrew that filing on January 30, 2017 and filed this proposed rule change. 1 15 PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 2017.4 The Commission received 3 comments in response to the proposed rule change.5 On March 15, the Participants 6 submitted a response to the comment letters.7 This order approves the proposed rule change.8 II. Background On September 30, 2014, 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 9 and Rule 608 of Regulation NMS thereunder,10 the CAT NMS Plan.11 The 4 Securities Exchange Act Release No. 79961 (February 3, 2017), 82 FR 10073 (‘‘Notice’’). 5 See letter from William H. Herbert, Managing Director, Financial Information Forum, dated March 1, 2017 (‘‘FIF Letter’’); letter from Bonnie Wachtel, Wachtel & Co Inc., dated March 2, 2017 (‘‘Wachtel Letter’’); and letter from Manisha Kimmel, Chief Regulatory Officer, Wealth Management, Thomson Reuters, dated March 2, 2017 (‘‘Thomson Reuters Letter’’). 6 See infra Section II. 7 See Letter from Participants to Brent J. Fields, Secretary, Commission, dated March 15, 2017 (‘‘Participants’ Response Letter’’). The Participants note that because all the Participants filed rules similar to FINRA’s proposed 6800 Series, the Participants’ Response Letter is submitted on behalf of all Participants and applicable to all the Participants’ proposed rules implementing the CAT NMS Plan (‘‘Participant Proposed Compliance Rules’’). Participants’ Response Letter at 1. 8 The Commission notes that for purposes of this Order, unless otherwise specified, capitalized terms used are defined as set forth in the Notice or in the CAT NMS Plan. 9 15 U.S.C. 78k–1. 10 17 CFR 242.608. 11 See Letter from the Participants to Brent J. Fields, Secretary, Commission, dated September 30, E:\FR\FM\21MRN1.SGM Continued 21MRN1 14564 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices Participants filed the Plan to comply with Rule 613 of Regulation NMS under the Exchange Act.12 The Plan was published for comment in the Federal Register on May 17, 2016,13 and approved by the Commission, as modified, on November 15, 2016.14 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.15 FINRA’s proposed Rule 6800 Series sets forth FINRA’s ‘‘Audit Trail Compliance Rule’’ implementing provisions of the CAT NMS Plan that are applicable to FINRA members.16 III. Description of the Proposed Rule Change The proposed Rule 6800 Series includes twelve 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. mstockstill on DSK3G9T082PROD with NOTICES A. Definitions (Rule 6810) Proposed Rule 6810 sets forth the definitions for the terms used in the 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. The CAT NMS Plan was approved by the Commission, with limited changes made by the Commission, on November 15, 2016. See infra note 14. 12 17 CFR 242.613. 13 Securities Exchange Act Release No. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016). 14 Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) (‘‘Approval Order’’). 15 See 17 CFR 242.613(g)(1). 16 The Commission notes that the CAT NMS Plan defines an ‘‘Industry Member’’ as a member of a national securities exchange or a member of a national securities association. CAT NMS Plan, supra note 11 at Section 1.1. Because FINRA’s proposed Rule 6800 Series implements the CAT NMS Plan, the term ‘‘Industry Member’’ is used throughout Series. For purposes of proposed Rule 6800 Series, the term ‘‘Industry Member’’ means a FINRA member. VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 proposed Rule 6800 Series. Each of the defined terms in proposed Rule 6810 is discussed below. 1. Account Effective Date (a) Customer Information Approach Rule 613 of Regulation NMS requires that certain data elements be reported to the CAT to enable regulators to identify Customers associated with orders. FINRA notes that 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,17 and that ‘‘Customer-ID’’ is defined in 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.’’ 18 Rule 613(c)(8) requires Industry Members to use the same Customer-ID for each Customer.19 FINRA notes that the Commission 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.20 The alternative approach is called the ‘‘Customer Information Approach.’’ FINRA states that under the Customer Information Approach, the CAT NMS Plan requires each Industry Member to assign a unique Firm Designated ID to each Customer, and that for 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).21 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) 17 17 CFR 242.613(c)(7)(i)(A). CFR 242.613(j)(5). 19 17 CFR 242.613(c)(8). 20 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 (‘‘Exemptive Request Letter’’). 21 See infra Section III.A.17 for a discussion of the application of the term ‘‘Firm Designated ID.’’ 18 17 PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 and Legal Entity Identifier (‘‘LEI’’) and/ or Large Trader ID (‘‘LTID’’)). This process is referred to as the ‘‘customer definition process.’’ FINRA noted that 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 ‘‘CustomerID’’ 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. (b) 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 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).’’ 22 Therefore, when reporting Customer Account Information, an Industry Member is required to report the date an account was opened. FINRA notes that the Participants requested and received from the Commission an exemption to allow an ‘‘Account Effective Date’’ to be reported in lieu of an account open date in certain limited circumstances.23 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. FINRA states that 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 22 17 CFR 242.613(j)(4). September 2, 2015, the Participants filed a supplement to the Exemptive Request Letter. See Letter from the Participants to Brent J. Fields, Secretary, Commission, dated September 2, 2015. This supplement to the Exemptive Request Letter further addressed the use of an ‘‘effective date’’ in lieu of a ‘‘date account opened.’’ 23 On E:\FR\FM\21MRN1.SGM 21MRN1 mstockstill on DSK3G9T082PROD with NOTICES Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices dates have replaced the descriptions of those dates set forth in Section 1.1 of the Plan. Specifically, paragraph (a)(1) defines ‘‘Account Effective Date’’ 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) of proposed Rule 6810 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) of proposed Rule 6810 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) of proposed Rule 6810 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 VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 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). In addition, proposed Rule 6810(a)(5) states that with regard to proposed Rule 6810(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. 2. Active Accounts 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. Accordingly, paragraph (b) of proposed Rule 6810 defines a ‘‘Active Accounts’’ as an account that has had activity in Eligible Securities within the last six months. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 3. Allocation Report (a) Allocation Report Approach Rule 613(c)(7)(vi)(A) of Regulation NMS 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).’’ 24 FINRA noted that the Participants requested and received from the Commission exemptive relief from Rule 613 for an alternative to this approach (‘‘Allocation Report Approach’’).25 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 Rule 613.26 Under 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 24 17 CFR 242.613(c)(7)(vi)(A). April 3, 2015, the Participants filed a supplement related to their Exemptive Request Letter. See Letter from Robert Colby, FINRA, on behalf of the Participants, to Brent J. Fields, Secretary, Commission, dated April 3, 2015. This supplement provided examples of how the proposed relief related to allocations would operate. 26 See Exemptive Request Letter, supra note 20, at 26–27; Exemption Order, supra note 20. 25 On PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 14565 able to link an allocation to the account to which it was made, and not to a specific order. (b) 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 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. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 4. 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. FINRA states that 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.’’ FINRA represents that this change is intended to recognize that the Industry Members’ obligations with regard to the CAT are set forth in this Rule 6800 Series. 5. CAT Paragraph (e) of proposed Rule 6810 defines the term ‘‘CAT’’ to mean the consolidated audit trail contemplated by Rule 613. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 6. 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. E:\FR\FM\21MRN1.SGM 21MRN1 14566 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices 7. CAT-Order-ID (a) Daisy Chain Approach FINRA states that under the CAT NMS Plan, a ‘‘daisy chain approach’’ would be used to link and reconstruct the complete lifecycle of each Reportable Event in CAT. According to this approach, Industry Members would assign their own identifiers to each order event. Within the Central Repository, the Plan Processor would replace 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 would be used to link the Reportable Events related to the same order. (b) Definition of CAT-Order-ID To implement a daisy chain approach, FINRA proposes to define the term ‘‘CAT-Order-ID’’ 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. FINRA states that this is the same definition as set forth in Rule 613(j)(1), and Section 1.1 of the CAT NMS Plan defines ‘‘CAT-Order-ID’’ by reference to Rule 613(j)(1) of Regulation NMS.27 8. 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.28 FINRA states that 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,29 as that term is used in the CAT NMS Plan. Therefore, 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.30 27 See 17 CFR 242.613(j)(1). CAT NMS Plan, supra note 11 at Appendix C, Section A.1(a). 29 See infra Section III.A.14 defining ‘‘Data Submitter.’’ 30 FINRA also notes that 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 FINRA member’s reporting obligations under Rule 7450. mstockstill on DSK3G9T082PROD with NOTICES 28 See VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 9. 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 Rule 613 of Regulation NMS and the CAT NMS Plan. FINRA states that 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.’’ 10. Compliance Threshold Proposed Rule 6810 states that the term ‘‘Compliance Threshold’’ has the meaning set forth in proposed Rule 6893(d), which proposed Rule is described and discussed below. FINRA states that this definition has the same substantive meaning as the definition set forth in Section 1.1 of the CAT NMS Plan. 11. 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’’ is 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). FINRA states that this is the same definition as set forth in 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.31 FINRA also notes that Section 1.1 of the CAT NMS Plan defines ‘‘Customer’’ by reference to Rule 613(j)(3). 12. 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 FINRA represents that the Reporting Agent for OATS fulfills a similar role to the CAT Reporting Agent. 31 17 CFR 242.613(j)(3). PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 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). 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 postmerger back office/clearing firm system; (3) where there are multiple dates associated with an account in an Industry Member’s system, and the parameters of each date are determined by the individual Industry Member; and (4) where the relevant account is an Industry Member proprietary account. The proposed definition is the same as the definition of ‘‘Customer Account Information’’ set forth in Section 1.1 of the CAT NMS Plan, provided, however, that specific dates have replaced the descriptions of those dates set forth in Section 1.1 of the Plan. 13. 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’’ to include, but not be E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices 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. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 14. Data Submitter The CAT NMS Plan uses the term ‘‘Data Submitter’’ to refer to any person that reports data to the Central Repository.32 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’’ 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. mstockstill on DSK3G9T082PROD with NOTICES 15. 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. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 32 See CAT NMS Plan, supra note 11 at Appendix C, Section A.1(a). VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 16. Error Rate (a) Generally The CAT NMS Plan requires the Plan Processor to: (1) Measure and report errors every business day; (2) provide Industry Members daily statistics and error reports as they become available, including a description of such errors; (3) provide monthly reports to Industry Members that detail an Industry Member’s performance and comparison statistics; (4) define educational and support programs for Industry Members to minimize Error Rates; and (5) identify, daily, all Industry Members exceeding the maximum allowable Error Rate. To timely correct data-submitted errors to the Central Repository, the CAT NMS Plan requires that the Central Repository receive and process error corrections at all times. Further, the CAT NMS Plan requires that Industry Members be able to submit error corrections to the Central Repository through a web-interface or via bulk uploads or file submissions, and that the Plan Processor, subject to the Operating Committee’s approval, support the bulk replacement of records and the reprocessing of such records. The Participants, furthermore, require that the Plan Processor identify Industry Member data submission errors based on the Plan Processor’s validation processes.33 (b) 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’’ 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. FINRA states that this is the same definition as set forth in Rule 613(j)(6), and Section 1.1 of the CAT NMS Plan defines ‘‘Error Rate’’ by reference to Rule 613(j)(6).34 (c) Maximum Error Rate Under the CAT NMS Plan, the Operating Committee would set the maximum Error Rate that the Central Repository would tolerate from an Industry Member reporting data to the Central Repository.35 The Operating Committee would review and reset the maximum Error Rate, at least annually.36 If an Industry Member reports CAT data to the Central 33 Approval Order, supra note 14 at 84718. CFR 242.613(j)(6). 35 CAT NMS Plan, supra note 11 at Section 6.5(d)(i). 36 CAT NMS Plan, supra note 11 at Appendix C, Section A.3(b). 34 17 PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 14567 Repository with errors such that their error percentage exceeds the maximum Error Rate, then such Industry Member would not be in compliance with the CAT NMS Plan or Rule 613.37 FINRA states that, according to the CAT NMS Plan, FINRA or the SEC may take appropriate action against an Industry Member for failing to comply with its CAT reporting obligations.38 The CAT NMS Plan sets the initial Error Rate at 5%.39 FINRA stated that 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.40 17. Firm Designated ID As discussed above, under the Customer Information Approach, the CAT NMS Plan requires each Industry Member to utilize a unique Firm Designated ID. 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. Industry Members will be required to report only the Firm Designated ID for each new order submitted to the Central Repository, rather than the ‘‘CustomerID’’ with individual order events. Accordingly, FINRA proposes to define the term ‘‘Firm Designated ID’’ in proposed Rule 6810 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. FINRA states that 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).41 18. Industry Member Proposed Rule 6810 defines the term ‘‘Industry Member’’ to mean ‘‘a member of a national securities exchange or a 37 CAT NMS Plan, supra note 11 at Appendix C, Section A.3(b); 17 CFR 242.613(g)–(h). 38 CAT NMS Plan, supra note 11 at Appendix C, Section A.3(b). 39 CAT NMS Plan, supra note 11 at Section 6.5(d)(i). 40 CAT NMS Plan, supra note 11 at Appendix C, Section A.3(b). 41 See supra Section IV for a discussion of the application of the term ‘‘Firm Designated ID.’’ E:\FR\FM\21MRN1.SGM 21MRN1 14568 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices 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.’’ FINRA states that 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. 19. Industry Member Data Proposed Rule 6810 states that the term ‘‘Industry Member Data’’ has the meaning set forth in Rule 6830(a)(2). FINRA states that this definition has the same substantive meaning as the definition set forth in Section 1.1 of the CAT NMS Plan. 20. Initial Plan Processor Proposed Rule 6810 defines the term ‘‘Initial Plan Processor’’ to mean the first Plan Processor selected by the Operating Committee in accordance with 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.42 FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 21. Listed Option or Option mstockstill on DSK3G9T082PROD with NOTICES FINRA represented that the reporting requirements of the CAT NMS Plan and proposed Rule 6800 Series apply to Eligible Securities, which includes NMS Securities, which, in turn, includes Listed Options. Certain requirements of proposed Rule 6800 Series apply specifically to Listed Options. Accordingly, ‘‘Listed Option’’ or ‘‘Option’’ has the meaning set forth in 42 See Securities Exchange Act Release Nos. 70892 (November 15, 2013), 78 FR 69910 (November 21, 2013) (Selection Plan Notice); 75192 (June 17, 2015), 80 FR 36028 (June 23, 2015) (Order Approving Amendment No. 1 to the Selection Plan); 75980 (September 24, 2015), 80 FR 58796 (September 30, 2015) (Order Approving Amendment No. 2 to the Selection Plan); 77917 (May 25, 2016), 81 FR 35072 (June 1, 2016) (Notice of Filing and Immediate Effectiveness of Amendment No. 3 to the Selection Plan); 78477 (August 4, 2016), 81 FR 52917 (August 10, 2016) (Notice of Filing and Immediate Effectiveness of Amendment No. 4 to the Selection Plan); see also Securities Exchange Act Release Nos. 71596 (February 21, 2014), 79 FR 11152 (February 27, 2014) (Selection Plan Approval Order); 74223 (February 6, 2015), 80 FR 7654 (February 11, 2015) (Notice of Amendment No. 1 to the Selection Plan); 75193 (June 17, 2015), 80 FR 36006 (June 23, 2015) (Notice of Amendment No. 2 to the Selection Plan). VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 Rule 600(b)(35) of Regulation NMS.43 Rule 600(b)(35) of Regulation NMS defines a listed option as ‘‘any option traded on a registered national securities exchange or automated facility of a national securities association.’’ FINRA states 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. 22. Manual Order Event (a) 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.44 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 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. (b) 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, the term ‘‘Manual Order Event’’ means a non-electronic communication of order-related information for which Industry Members must record and report the time of the event. FINRA states that this 43 17 CFR 242.600(b)(35). Exemption Order, supra note 20. 44 See PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 23. 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 origination of an order, for the routing of an order). Accordingly, FINRA proposes to define 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 nondisplayed); 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. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 24. NMS Security NMS Securities are one of the types of Eligible Securities for the CAT. Therefore, FINRA proposes to define 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. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 25. 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,45 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’’ to mean any NMS Security other than an option. FINRA states that this is the same definition as set forth in Rule 600(b)(47) of Regulation NMS.46 26. Operating Committee Proposed Rule 6810 defines the term ‘‘Operating Committee’’ to mean the governing body of the CAT NMS, LLC 45 17 46 17 E:\FR\FM\21MRN1.SGM CFR 242.600(b)(47). CFR 242.600(b)(47). 21MRN1 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices designated as such and described in Article IV of the CAT NMS Plan. FINRA states that 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. 27. Options Market Maker (a) Options Market Maker Quote Exemption Rule 613(c)(7) provides that the CAT NMS Plan must require each Industry Member to record and electronically report to the Central Repository details for each order and each reportable event, including the routing and modification or cancellation of an order.47 Rule 613(j)(8) defines ‘‘order’’ to include ‘‘any bid or offer.’’ 48 Therefore, under Rule 613, the details for each Options Market Maker quotation must be reported to the Central Repository by both the Options Market Maker and the options exchange to which it routes its quote. The Participants, however, requested and received exemptive relief from Rule 613 of Regulation NMS 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 Rule 613.49 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. mstockstill on DSK3G9T082PROD with NOTICES (b) Definition of Options Market Maker To implement the requirements related to Option Market Maker quotes, FINRA proposes to define the term ‘‘Options Market Maker’’ to mean a broker-dealer registered with an exchange for the purpose of making markets in options contracts traded on the exchange. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 28. Order The proposed Rule 6800 Series requires each Industry Member to record and electronically report to the Central Repository certain details for 47 17 CFR 242.613(c)(7). CFR 242.613(j)(8). 49 See Exemptive Request Letter, supra note 20, at 2; Exemption Order, supra note 20 at 6. 48 17 VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 each order. Accordingly, FINRA proposes to define 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. FINRA states that this is the same definition as set forth in 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.’’50 FINRA also notes that Section 1.1 of the CAT NMS Plan defines ‘‘Order’’ by reference to Rule 613(j)(8). 29. 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’’ 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. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 30. Participant 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. FINRA states that this is the same definition in substance as set forth in Section 1.1 of the CAT NMS Plan. 31. Person 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. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 32. Plan Processor 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 Rule 613 and Sections 4.3(b)(i) and 6.1 of the CAT NMS Plan, and with regard to the Initial Plan Processor, the National Market System Plan Governing the Process for Selecting a Plan Processor and Developing a Plan 50 See PO 00000 17 CFR 242.613(j)(8). Frm 00069 Fmt 4703 Sfmt 4703 14569 for the Consolidated Audit Trail, to perform the CAT processing functions required by Rule 613 of Regulation NMS and set forth in the CAT NMS Plan. 33. Received Industry Member Data Proposed Rule 6810 states that the term ‘‘Received Industry Member Data’’ has the meaning set forth in Rule 6830(a)(2). FINRA represents that this definition has the same substantive meaning as the definition set forth in Section 1.1 of the CAT NMS Plan. 34. Recorded Industry Member Data Proposed Rule 6810 states that the term ‘‘Recorded Industry Member Data’’ has the meaning set forth in Rule 6830(a)(1). FINRA states that this definition has the same substantive meaning as the definition set forth in in Section 1.1 of the CAT NMS Plan. 35. 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. FINRA proposes to define the term ‘‘Reportable Event’’ to include, but not be 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. FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 36. SRO FINRA proposed to define the term ‘‘SRO’’ to mean any self-regulatory organization within the meaning of Section 3(a)(26) of the Exchange Act.51 FINRA states that this is the same definition as set forth in Section 1.1 of the CAT NMS Plan. 37. SRO-Assigned Market Participant Identifier (a) Existing Identifier Approach The Participants requested and received exemptive relief from Rule 613 of Regulation NMS so that the CAT NMS Plan may permit the ‘‘Existing Identifier Approach,’’ which would allow an Industry Member to report an existing SRO-Assigned Market Participant Identifier in lieu of requiring the reporting of a universal CATReporter-ID (that is, a code that uniquely and consistently identifies an Industry Member for purposes of providing data to the Central 51 See E:\FR\FM\21MRN1.SGM 15 U.S.C. 78c(a)(26). 21MRN1 14570 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices mstockstill on DSK3G9T082PROD with NOTICES Repository).52 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 SROAssigned Market Participant Identifier for orders and certain Reportable Events to be used by the Central Repository to assign a unique CAT-Reporter-ID to identify Industry Members. For the Central Repository to link the SRO-Assigned Market Participant Identifier to the CAT-Reporter-ID, each SRO will submit to the Central Repository, on a daily basis, all SROAssigned Market Participant Identifiers used by its Industry Members, as well as information to identify each such Industry Member, including CRD number and LEI, if the SRO has collected such LEI of the Industry Member. Additionally, each Industry Member is required to submit to the Central Repository the CRD number of the Industry Member as well as the LEI of the Industry Member (if the Industry Member has an LEI). The Plan Processor will use this information to assign a CAT-Reporter-ID to each Industry Member for internal use within the Central Repository. Industry Member that qualifies as a small broker-dealer as defined in Exchange Act Rule 0–10(c).54 FINRA states that 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 Rule 613.’’ The definition of a small brokerdealer under Rule 613, in turn, is a small broker-dealer as defined in Exchange Act Rule 0–10(c). 39. 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 that the term ‘‘Trading Day’’ shall have the meaning as is determined by the Operating Committee. For the avoidance of doubt, FINRA represents that the Operating Committee may establish different Trading Days for NMS Stocks, Listed Options, OTC Equity Securities, and any other securities that are included as Eligible Securities from time to time. B. Clock Synchronization (Rule 6820) Rule 613(d)(1) of Regulation NMS requires Industry Members to (b) Definition of SRO-Assigned Market synchronize their Business Clocks to the Participant Identifier time maintained by NIST, consistent with industry standards.55 To comply To implement the Existing Identifier with this provision, Section 6.8 of the Approach, FINRA proposes to define Plan sets forth the clock the term ‘‘SRO-Assigned Market synchronization requirements for Participant Identifier’’ to mean an Industry Members.56 To implement identifier assigned to an Industry Member by an SRO or an identifier used these provisions with regard to its by a Participant.53 FINRA states that this Industry Members, FINRA proposes Rule 6820 to require its Industry is the same definition as set forth in Members to comply with the clock Section 1.1 of the CAT NMS Plan. synchronization requirements of the 38. Small Industry Member Plan. FINRA represents that the requirements of the proposed Rule 6800 1. Clock Synchronization Paragraph (a) of proposed Rule 6820 Series differ to some extent for Small sets forth the manner in which Industry Industry Members versus Industry Members must synchronize their Members other than Small Industry Business Clocks. Paragraph (a)(1) of Members. For example, the compliance proposed Rule 6820 requires each dates for reporting data to the CAT are Industry Member to synchronize its different for Small Industry Members Business Clocks, other than such versus other Industry Members. Accordingly, to clarify the requirements 54 17 CFR 240.0–10(c). that apply to which Industry Members, 55 17 CFR 242.613(d)(1). Related to the clock FINRA proposes to define the term synchronization requirements, the Commission ‘‘Small Industry Member’’ to mean an notes that the Participants, including FINRA, also 52 See Exemptive Request Letter, supra note 20, at 19; Exemption Order, supra note 20 at 49. 53 FINRA notes that 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, for example. VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 filed a request for an exemption from the March 15, 2017 filing deadline requirement set forth Section 6.7(a)(ii) of the CAT NMS Plan and proposed FINRA Rule 6895(b)(1). See infra note 75. The Commission granted the Participants’ exemption request. See infra note 77. 56 In addition, Section 6.7(a)(ii) of the Plan sets forth the timeline for CAT Reporters to comply with the clock synchronization requirements. PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 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. FINRA states that this is the same requirement as set forth in Section 6.8(a)(ii)(A) of the CAT NMS Plan. Paragraph (a)(2) of proposed Rule 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. FINRA states that this is the same requirement as set forth in Section 6.8(a)(iii) and (iv) of the CAT NMS Plan. Paragraph (a)(3) of proposed Rule 6820 clarifies that the tolerance described in paragraphs (a)(1) and (2) of 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. 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 resynchronized, as necessary, throughout the day. 2. Documentation 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. FINRA states that these documentation requirements are the same as those set forth in the E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices ‘‘Sequencing orders and Clock Synchronization’’ section of Appendix C of the CAT NMS Plan. 3. Certification 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. FINRA states that 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 states that it intends to announce to its Industry Members the certification schedule established by the Operating Committee via Regulatory Notice. mstockstill on DSK3G9T082PROD with NOTICES 4. Violation Reporting 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. FINRA states that 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. C. Industry Member Data Reporting (Rule 6830) Rule 613(c) of Regulation NMS requires the CAT NMS Plan to set forth certain provisions requiring Industry Members to record and report data to the CAT.57 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 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, 57 See 17 CFR 242.613(c). VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 (4) the security symbology to be used in the recording and reporting, and (5) error correction requirements, each of which is described below. 1. 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, respectively. FINRA states that 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) CATOrder-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 PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 14571 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) SROAssigned 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) CATOrder-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 E:\FR\FM\21MRN1.SGM 21MRN1 14572 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices 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. mstockstill on DSK3G9T082PROD with NOTICES 2. 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. FINRA states that 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. 3. Applicable Securities Paragraph (c) of proposed Rule 6830 describes the securities to which the recording and reporting requirements of proposed Rule 6830 apply. FINRA states that 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 VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 paragraph (a) of this proposed Rule 6830 for each Eligible Security for which transaction reports are required to be submitted to FINRA. 4. 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. FINRA states that this requirement implements the requirement set forth in Section 2 of Appendix D of the CAT NMS Plan to use the listing exchange symbology when reporting data to the Central Repository for exchange-listed Eligible Securities. For each Eligible Security that is not exchange-listed, however, FNRA represents that 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 exchangelisted, 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 states that it intends to announce to its Industry Members the relevant symbology formats established by the Operating Committee via Regulatory Notice. 5. Error Correction Timeline 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 requires that 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, such Industry Member submit corrected Industry Member Data to the Central Repository by 8:00 a.m. Eastern Time on T+3. FINRA represents that this requirement implements the error correction requirement set forth in Section 6 of Appendix D of the CAT NMS Plan. PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 D. Customer Information Reporting (Rule 6840) 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 to implement this provision of the CAT NMS Plan with regard to its Industry Members. 1. Initial Set of Customer Information 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. 2. Daily Updates to Customer Information 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. 3. Periodic Updates To Complete Set of Customer Information 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 states that it 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. 4. Error Correction Timeline 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 E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices 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. FINRA states that this requirement implements the error correction requirement set forth in Appendix C of the CAT NMS Plan. E. Industry Member Information Reporting (Rule 6850) 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. 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. FINRA states that this provision of the CAT NMS Plan with regard to its Industry Members information reporting. mstockstill on DSK3G9T082PROD with NOTICES F. Time Stamps (Rule 6860) Rule 613(d)(3) of Regulation NMS sets forth requirements for time stamps used by CAT Reporters in recording and reporting data to the CAT.58 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 to require its Industry Members to comply with the time stamp requirements of the Plan. 1. Millisecond Time Stamps 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 58 17 CFR 242.613(d)(3). VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 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. 2. One Second Time Stamps/Electronic Order Capture 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. G. Time Stamp and Clock Synchronization Rule Violations (Rule 6865) Proposed Rule 6865 describes potential violations of the time stamp and clock synchronization time period requirements set forth in the proposed Rule 6800 Series. Proposed 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. FINRA states that 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 Rule 613 of Regulation NMS or the CAT NMS Plan. H. Connectivity and Data Transmission (Rule 6870) Proposed Rule 6870 addresses connectivity and data transmission requirements related to the CAT. 1. Data Transmission Paragraph (a) of proposed Rule 6870 describes the format(s) for reporting Industry Member Data to the Central Repository. Specifically, paragraph (a) of proposed Rule 6870 requires each PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 14573 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. FINRA states that this provision implements the formatting requirements as set forth in Section 6.4(a) of the CAT NMS Plan. 2. Connectivity 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). FINRA states that this provision implements the connectivity requirements set forth in Section 4 of Appendix D to the CAT NMS Plan. 3. CAT Reporting Agent Paragraph (c) permits Industry Members to enter into an agreement with CAT Reporting Agents to fulfill their data reporting obligations related to the CAT.59 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. 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. I. Development and Testing (Rule 6880) FINRA proposes Rule 6880 to address requirements for Industry Members related to CAT development and testing. 1. Development 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. FINRA states that these requirements are set forth in Appendix C to the CAT NMS Plan. Paragraph (a)(1) sets forth the deadlines related to connectivity and 59 FINRA represents that paragraph (c) is based on FINRA Rule 7450(c), which permits OATS Reporting Members to enter into agreements with Reporting Agents to fulfill the OATS obligations of the OATS Reporting Member. E:\FR\FM\21MRN1.SGM 21MRN1 14574 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices mstockstill on DSK3G9T082PROD with NOTICES 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 to Exchanges, beginning no later than October 15, 2018, for testing purposes. 2. Testing 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. 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 VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 states that it intends to announce to its Industry Members the schedule established pursuant to the CAT NMS Plan via Regulatory Notice. J. Recordkeeping (Rule 6890) Proposed Rule 6890 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 Exchange Act Rule 17a–4(b).60 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 Rule 17a–4(f)(1)(i) 61 or by means of ‘‘electronic storage media’’ as defined in Rule 17a–4(f)(1)(ii) 62 that meet the conditions set forth in Rule 17a–4(f) 63 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 recordkeeping requirements related to OATS. K. Timely, Accurate and Complete Data (Rule 6893) 1. General FINRA notes that Rule 613 of Regulation NMS and the CAT NMS Plan emphasize the importance of the timeliness, accuracy, completeness and integrity of the data submitted to the CAT.64 Accordingly, 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. FINRA states that proposed Rule 6893 implements the Plan’s requirement with respect to the importance of timely, accurate and complete data with regard to Industry Members. 2. LEIs 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 60 17 CFR 240.17a–4(b). CFR 240.17a–4(f)(1)(i). 62 17 CFR 240.17a–4(f)(1)(ii). 63 17 CFR 240.17a–4(f). 64 See 17 CFR 242.613(e)(4)(i)(D)(ii); and CAT NMS Plan, supra note 11 at Section 6.5(d). 61 17 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 Repository. FINRA notes that 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, FINRA states that 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. FINRA believes that paragraph (b) is consistent with the Approval Order for the CAT NMS Plan regarding an Industry Member’s obligations regarding LEIs.65 3. Compliance With Error Rate 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 states that it intends to announce to its Industry Members changes to the Error Rate established pursuant to the CAT NMS Plan via Regulatory Notice. 4. Compliance Thresholds 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’’). FINRA notes that 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.66 Compliance Thresholds will include compliance with the data reporting and clock synchronization requirements. 65 See 66 See Approval Order, supra note 14, at 84745. CAT NMS Plan, supra note 11 at Appendix C. E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices 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. L. Compliance Dates (Rule 6895) 1. General Proposed Rule 6895 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. 2. Clock Synchronization 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. FINRA states that 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.67 mstockstill on DSK3G9T082PROD with NOTICES 3. CAT Data Reporting 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. 67 See infra notes 75 and 77, and accompanying text (discussing the Participants’ Clock Synchronization Exemption Request and Order Granting Limited Exemptive Relief, Pursuant to Rule 608(e) of the Securities Exchange Act of 1934, from the Clock Synchronization Compliance Deadline Specified in Section 6.7(a)(ii) of the National Market System Plan Governing the Consolidated Audit Trail). VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 FINRA states that such compliance dates are consistent with the compliance dates set forth in Rule 613(a)(3)(v) and (vi),68 and Section 6.7(a)(v) and (vi) of the CAT NMS Plan. IV. Summary of Comments As noted above, the Commission received three comment letters on the proposed rule change and a response letter from the Participants.69 Two commenters raised concerns about the clock synchronization requirements for Allocation Reports.70 One commenter noted that the CAT NMS Plan states that the Participants have not yet determined how the ‘‘time of allocation’’ will be defined and that the Participants stated they would address this in the Technical Specifications.71 Given that the time of allocation had not yet been defined, this commenter stated that ‘‘it was not possible to ensure clock synchronization requirements on Allocation Reports at this time.’’ 72 Another commenter asked for clarification whether the Clock Synchronization Exemption Request, as discussed below, filed by the Participants extends to time stamps required for Allocation Reports, and for clarification regarding when time stamps on manual orders and electronic capture of manual orders need to be captured.73 The Participants noted in their Response Letter that Section 6.7(a)(ii) of the CAT NMS Plan requires that Industry Members must synchronize their Business Clocks and certify that they have satisfied applicable Business Clock synchronization requirements by March 15, 2017.74 However, the Participants noted that, on January 17, 2017, they filed with the Commission a request for exemptive relief from Section 6.7(a)(ii) of the CAT NMS Plan (the ‘‘Clock Synchronization Exemption Request’’).75 The Clock Synchronization Exemption Request requested that the Commission permit the Participants to extend the Business Clock synchronization compliance date in Section 6.7(a)(ii) of the CAT NMS Plan from March 15, 2017 to February 19, 2018 for Industry Members’ Business Clocks that do not capture time in 68 17 CFR 242.613(a)(3)(v), (vi). supra note 7. 70 Thomson Reuters Letter at 1; FIF Letter at 1. 71 Thomson Reuters Letter at 1. 72 Thomson Reuters Letter at 1–2. See also FIF Letter at 2. 73 FIF Letter at 1, 2. 74 Participants’ Response Letter at 2. 75 See Letter from Participants to Brent J. Fields, Secretary, Commission, dated January 17, 2017 (‘‘Clock Synchronization Exemption Request Letter’’). 69 See PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 14575 milliseconds.76 On March 2, 2017, the Commission granted the Exemption Request.77 The Participants also noted that the Operating Committee of the CAT NMS Plan recently approved guidance that clarifies that, for purposes of the initial March 15, 2017 Business Clock synchronization and certification deadlines, ‘‘Business Clocks’’ include those clocks that currently capture time in milliseconds and that are used to record time related to ‘‘Reportable Events,’’ as defined under the Plan, including, without limitation, 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, in Eligible Securities (i.e., NMS Securities and OTC Equity Securities).78 The Participants represented that each Participant has, or will, issue this guidance to its members. The Participants further stated in their response letter that to align the compliance rule with the Exemption Request, Business Clocks used solely for the time of allocation on Allocation Reports must comply with the March 15, 2017 synchronization deadline to the extent that such Business Clocks currently capture time in milliseconds.79 With respect to time stamps on manual orders and electronic capture of manual orders the Participants acknowledged in their response letter that additional information will be provided in Technical Specifications prepared by the Plan Processor and approved by the Operating Committee.80 The Participants noted that the Technical Specifications also will define the ‘‘time of the allocation.’’ The Participants stated that as a result, they cannot issue additional information or definitions at this time since the development and construction of the CAT System and Central Repository are underway. The Participants represented that they intend to work with the Plan Processor to define various terms, including ‘‘time of the allocation,’’ and to provide Technical Specifications approved by the Operating Committee before 76 Id. 77 See Order Granting Limited Exemptive Relief, Pursuant to Rule 608(e) of the Securities Exchange Act of 1934, from the Clock Synchronization Compliance Deadline Specified in Section 6.7(a)(ii) of the National Market System Plan Governing the Consolidated Audit Trail, Securities Exchange Act Release No. 80142 (March 2, 2017), 82 FR 13034 (March 8, 2017) (‘‘Clock Synchronization Exemption Order’’). 78 Participants’ Response Letter at 2. 79 Id. at 3. 80 Id. E:\FR\FM\21MRN1.SGM 21MRN1 mstockstill on DSK3G9T082PROD with NOTICES 14576 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices Industry Members will be required to report to the Central Repository on November 15, 2018 (or November 15, 2019 for Small Industry Members) or comply with the February 19, 2018 Business Clock synchronization requirement. One commenter discussed several concerns related to the clock synchronization requirements of proposed FINRA Rule 6820(b).81 This commenter noted that ‘‘retention of a complete log of clock synchronization events is an additional business cost without providing compensatory regulatory benefit.’’ 82 This commenter urged FINRA to collect clock synchronization data based on the data received as a result of the requirements of FINRA Rule 4590 to see if such a log of clock synchronization is ‘‘required to effectively surveil for compliance with clock synchronization standards’’ and requested that the Commission require FINRA to assess the effectiveness of the logging requirement.83 This commenter also noted that there is a two year difference in the log retention requirements between FINRA Rule 4590 and proposed Rule 6820(b) and stated that the extra two years of log retention represents an additional business cost for storage and clock management.84 In response, the Participants stated that they believe that it is appropriate for Industry Members to maintain a log of all clock synchronization events in order to demonstrate the Industry Members’ compliance with the Proposed Compliance Rule and the CAT NMS Plan and to retain such log for five-years.85 The Participants noted that the Business Clock synchronization log was discussed and considered in the CAT NMS Plan Proposing and Adopting Releases, and that the Commission considered an alternative where Industry Members would record only exceptions to the clock synchronization requirement. Because the CAT NMS Plan contains the requirement that logs be created and retained for five years, the Participants stated that the retention period set forth in the Participants’ Proposed Compliance Rules, including proposed FINRA Rule 6820, is consistent with the data retention period applicable to the Central Repository as set forth in Rule 613(e)(8). With respect to the clock synchronization procedures in FINRA’s proposed Rule 6800 Series, one commenter also stated that proposed Letter at 2. Letter at 2. 83 FIF Letter at 2. 84 FIF Letter at 2. 85 Participants’ Response Letter at 4. Rule 6820 ‘‘does not contain any definition of clock synchronization certification procedures and schedules, reporting procedures for violation notification or any specifics regarding documentation requirements.’’ 86 This commenter requested that the date for compliance with the clock synchronization procedures be delayed, and requested that there be the adoption of ‘‘one set of procedures for clock synchronization management and reporting to regulators be adopted across FINRA and CAT.’’ 87 In response, the Participants stated that they agree it would be helpful to provide Industry Members with additional guidance regarding Industry Members’ compliance with the clock synchronization and certification requirements set forth in the CAT NMS Plan and the Proposed Compliance Rules.88 Accordingly, the Participants stated that they have issued, or intend to issue, to their members guidance approved by the Operating Committee regarding clock synchronization and certification procedures and schedules, and documentation requirements (i.e., regarding the logging of clock synchronization events). The Participants represented that they intend to issue this guidance prior to the initial March 15, 2017 compliance deadline. The Participants also noted that thereafter the Participants will issue additional guidance approved by the Operating Committee regarding the reporting of violations of applicable clock synchronization thresholds. Accordingly, the Participants stated that they believe that the Proposed Compliance Rules need not be amended at this time. Two commenters also discussed the application of the Firm Designated ID requirement in the CAT NMS Plan. Both commenters noted that the Proposed Compliance Rules require each Industry Member to provide a Firm Designated ID ‘‘for each Customer,’’ whereas a ‘‘Firm Designated ID,’’ in relevant part, is defined as a ‘‘unique identifier for each trading account. Both commenters requested that the Participants amend the language of the Proposed Compliance Rules to reflect the Exemption Order.89 In response the Participants stated that they recognize that the definition of Firm Designated ID and the reporting requirements set forth in Section 6.3 of the CAT NMS Plan, as well as the 81 FIF 86 FIF 82 FIF 87 FIF VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 Letter at 3. Letter at 3. 88 Participants’ Response Letter at 5. 89 FIF Letter at 3–4; Thomson Reuters Letter at 2– 5. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 parallel provisions in the proposed Participant Compliance Rules, including FINRA’s definition of ‘‘Firm Designated ID’’ in Rule 6810 are somewhat unclear.90 The Participants noted that the Customer Information Approach is intended to require that each brokerdealer assign a unique Firm Designated ID at the account level, rather than the customer level. Accordingly, the Participants state that Section 6.3(d)(i)(A) of the CAT NMS Plan, which refers to the assignment of a ‘‘Firm Designated ID(s) for each Customer,’’ should not be interpreted to mean that each Customer must have a unique Firm Designated ID, rather, a Firm Designated ID must be assigned at the account level, so that multiple Customers may have the same Firm Designated ID. The Participants further stated that they will consider issuing additional guidance, subject to the approval of the Operating Committee of the CAT NMS Plan, to Industry Members on this issue and, as necessary, whether to amend the CAT NMS Plan to clarify the use of Firm Designated IDs. One commenter suggested that the Participants consider firms that are exempt from reporting to OATS as ‘‘Small Industry Members,’’ stating that ‘‘this should be so easy and so obviously warranted (given the huge incremental cost of first-time order reporting for those firms that choose to remain independent and comply) that we cannot imagine any objection.’’ 91 This commenter also requested that a cost and benefit analysis should be performed to review the impact of the CAT on firms currently exempt from OATS.92 In response, the Participants stated they believe that the definition of Small Industry Member for purposes of the CAT NMS Plan and Participant Compliance Rules is appropriate and need not be amended.93 The Participants noted that as a threshold matter, this definition was created and adopted by the Commission rather than the Participants, and that the definition of ‘‘Small Industry Member’’ in the CAT NMS Plan refers to the definition of 90 Participants’ Response Letter at 5. The Participants noted that Bats BZX Exchange, Inc.’s proposed Rule 4.7(a)(1)(A)(i) and 4.7(a)(2)(C) refers to ‘‘Customer’’ rather than ‘‘account.’’ See, e.g., Bats BZX Exchange, Inc.’s Proposed Compliance Rule Notice of Filing of a Proposed Rule Change to Adopt Rules 4.5 Through 4.16 to Implement the Compliance Rule Regarding the National Market System Plan Governing the Consolidated Audit Trail, Securities Exchange Act Release No. 79927 (February 2, 2017), 82 FR 9874 (February 8, 2017). 91 Wachtel Letter at 1. 92 Wachtel Letter at 1, 3. 93 Participants’ Response Letter at 6. E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices ‘‘small broker-dealer’’ in Rule 613 of Regulation NMS. Rule 613(a)(3)(v) and (vi) define ‘‘small broker-dealer’’ by using the definition set forth in Rule 0– 10(c) under the Exchange Act.94 In adopting Rule 613, the Participants noted that the Commission explained that defining ‘‘small broker-dealer’’ by reference to Rule 0–10(c) ‘‘is appropriate because it is an existing regulatory standard that is an indication of small entities for which regulators should be sensitive when imposing regulatory burden.’’ 95 The Participants stated that they cannot modify the definition of ‘‘Small Industry Member’’ because it is based on the definition of small brokerdealer in Rule 613 and that the Commission would have to effectuate any change to the requirement that broker-dealers (other than ‘‘small broker-dealers’’) must report to the CAT no later than two years after the Effective Date.96 The Participants also noted that after the CAT is operational and the Central Repository begins to collect data, the Participants will conduct various assessments, as set forth in Section 6.6 of the CAT NMS Plan, regarding the operations and efficiency of the Plan Processor, CAT and Central Repository. As necessary, the Participants will consider whether to amend any requirements in the CAT NMS Plan or Proposed Compliance Rules, provided that such amendments are necessary or appropriate and comply with Rule 613 of Regulation NMS. V. Discussion and Commission Findings mstockstill on DSK3G9T082PROD with NOTICES After carefully considering the proposed rule change, the comments submitted, and the Participants’ response to the comments,97 the Commission finds that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national 94 Rule 0–10(c) defines a ‘‘small broker-dealer’’ as one that has total capital of less than $500,000 on the date in the prior fiscal year as of which its audited financial statements were filed (or on the last business day of the preceding fiscal year if not required to file such statements), and those not affiliated with any other person that is not a small business or small organization. See Rule 0–10(c). 95 See Approval Order, supra note 14 at 45722, 45804. 96 Participants’ Response Letter at 6. The Participants added that ‘‘[s]eparately, the Commission explained that the CAT NMS Plan ‘‘attempts to mitigate its impact on [OATS-exempt or excluded broker-dealers or limited purpose broker-dealers] by proposing to follow a cost allocation formula that should charge lower fees to smaller broker-dealers.’’ Accordingly, the Participants stated that they do not believe that an additional cost-benefit analysis is necessary at this time. Participants’ Response Letter at 7. 97 See supra note 7. VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 securities association.98 Specifically, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act,99 which requires, among other things, that FINRA’s rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest, and are not designed to permit unfair discrimination between customers, issuers, brokers or dealers. In addition, the Commission finds that the proposed rule change is consistent with Section 15A(b)(9) of the Act,100 which requires that FINRA rules not impose any burden on competition that is not necessary or appropriate. Rule 613(g) of Regulation NMS provides that each national securities exchange and national securities association shall file with the Commission pursuant to section 19(b)(2) of the Act and Rule 19b–4 on or before 60 days from approval of the CAT NMS Plan a proposed rule change to require its members to comply with the requirements of this section and the national market system plan approved by the Commission. In addition, Rule 608(c) of Regulation NMS provides that ‘‘[e]ach self-regulatory organization shall comply with the terms of any effective national market system plan of which it is a sponsor or participant. Each self-regulatory organization also shall, absent reasonable justification or excuse, enforce compliance with any such plan by its members and persons associated with its members.’’ 101 FINRA, as a Participant in the Plan, has an obligation to comply, and enforce compliance by its members, with the terms of the Plan. Accordingly, FINRA filed this proposed rule change to adopt the FINRA Rule 6800 Series, which would impose compliance obligations on FINRA members. As discussed below, the Commission also believes the proposal is consistent with the Act because it is designed to assist FINRA in meeting its regulatory obligations pursuant to Rule 608 of Regulation NMS and the Plan. A. Definitions (Rule 6810) The Commission finds that proposed FINRA Rule 6810 is consistent with the 98 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 99 15 U.S.C. 78o–3(b)(6). 100 15 U.S.C. 78o–3(b)(9). 101 17 CFR 242.608(c). PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 14577 Act as it implements the CAT NMS Plan. With the exception of the term ‘‘CAT Reporting Agent,’’ the definitions in proposed Rule 6810 are consistent with the definitions of Article I, Section 1.1 of the CAT NMS Plan. With respect to the inclusion of a definition for ‘‘CAT Reporting Agent,’’ FINRA notes that 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 an Industry Member, and that as defined, a ‘‘CAT Reporting Agent’’ would be one type of Data Submitter, which term is defined in the CAT NMS Plan. The Commission notes that two commenters discussed the need for further clarification on the application of the term ‘‘Firm Designated ID.’’ The Participants responded that the Customer Information Approach is intended to require that each brokerdealer assign a unique Firm Designated ID at the account level, rather than the customer level.102 Accordingly, a Firm Designated ID must be assigned at the account level, so multiple Customers may be associated with the same Firm Designated ID. The Commission believes that the definition of the term Firm Designated ID and its applicability to accounts is consistent with the Customer Information Approach and the CAT NMS Plan. B. Clock Synchronization (Rule 6820) The Commission finds that proposed Rule 6820 is consistent with the Act as it implements the clock synchronization provisions of the CAT NMS Plan. The Commission notes that proposed Rule 6820 sets out the clock synchronization requirements for FINRA industry members and that these clock synchronization requirements, including the synchronization standards, tolerance levels, documentation, certification and violation reporting are consistent with and implement the clock synchronization requirements of the CAT NMS Plan. As noted above, two commenters raised concerns about the clock synchronization requirements in proposed Rule 6820, including whether the synchronization requirements of the rule apply to Business Clocks that capture Manual Order Events; the definition of ‘‘time of allocation,’’ the necessity of the clock synchronization log; and the details concerning the clock synchronization certification. The Participants responded by clarifying the applicability of the clock synchronization requirements to 102 Participants’ E:\FR\FM\21MRN1.SGM 21MRN1 Response Letter 5. 14578 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices Allocation Reports, and by stating that the Participants intend to work with the Plan Processor to define various terms, including ‘‘time of allocation,’’ and to provide Technical Specifications approved by the Operating Committee— relating to time stamps on manual orders and electronic capture of manual orders, as well as the ‘‘time of allocation’’—before Industry Members will be required to report to the Central Repository on November 15, 2018 (or November 15, 2019 for Small Industry Members) or comply with the February 19, 2018 Business Clock synchronization requirement.103 The Participants also provided further details about the utility of the synchronization logs and discussed the clock synchronization certification requirements. The Commission believes that the Participants’ response is reasonable and consistent with the Act. C. Industry Member Data Reporting (Rule 6830) The Commission finds that proposed Rule 6830—which sets forth the data reporting requirements for Industry Members—is consistent with the Act as it implements the data reporting requirements for Industry Members that are required by the CAT NMS Plan. As noted above, proposed Rule 6830 is divided into five sections which address (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,104 and (5) error correction requirements. D. Customer Information Reporting (Rule 6840) mstockstill on DSK3G9T082PROD with NOTICES The Commission finds that proposed Rule 6840—which sets forth the requirements regarding the data reported to the CAT in order to identify Customers—is consistent with the Act as it implements the reporting provisions of the CAT NMS Plan relating to the identification of Customers. 103 Participants’ Response Letter at 3. See also Clock Synchronization Exemption Request Letter, supra note 75, and Clock Synchronization Order, supra note 77. 104 The Commission notes that, with respect to the security symbology that must be reported by an Industry Member for an Eligible Security that is not Exchange-listed, proposed Rule 6830(d)(2) states that an Industry Member should use the symbology format approved by the Operating Committee. FINRA represents that for such securities, there is no listing exchange to provide the symbology format and that the requisite symbology format has not been determined at this time. VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 E. Industry Member Information Reporting (Rule 6850) The Commission finds that proposed Rule 6850—which sets forth the requirements for Industry Members regarding the data that they must report to identify such Industry Member, including the timeframe for reporting such identifying information—is consistent with the Act as it implements the Industry Member reporting provisions of the CAT NMS Plan. F. Time Stamps (Rule 6860) The Commission finds that proposed Rule 6860—which sets forth the time stamp increments to be used by Industry Members in their CAT Reporting—is consistent with the Act as it implements the time stamp provisions of the CAT NMS Plan. In general, proposed Rule 6860(a)(1) requires Industry Members to record and report Industry Member Data to the Central Repository in milliseconds, but paragraph (a)(2) provides that, to the extent any Industry Member’s order handling or execution systems utilize time stamps in increments finer than milliseconds, such Industry Member is to record and report Industry Member Data to the Central Repository with time stamps in such finer increment. Proposed Rule 6860(b) addresses the need for Industry Members to capture Manual Order Events 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. G. Time Stamp and Clock Synchronization Rule Violations (Rule 6865) The Commission finds that proposed Rule 6865 is consistent with the Act as it implements the clock synchronization rule violation provisions of the CAT NMS Plan. The Commission notes that proposed Rule 6865 describes potential violations of clock synchronization as well as the time stamp time period requirements set forth in the CAT NMS Plan, and specifically 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 to the requirements set forth in the Rule 6800 Series without reasonable justification or exceptional circumstances may be considered in violation of this Rule. H. Connectivity and Data Transmission (Rule 6870) The Commission finds that proposed Rule 6870—which addresses connectivity and data transmission PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 requirements related to the CAT—is consistent with the Act as it implements the connectivity and data transmission provisions of the CAT NMS Plan. Proposed Rule 6870(a) 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, and proposed Rule 6870(b) 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). Proposed Rule 6870(c) permits Industry Members to use CAT Reporting Agents to fulfill their data reporting obligations related to the CAT. The Commission notes that Rule 6870(c) is substantively similar to FINRA Rule 7450(c), in that proposed Rule 6870(c), like FINRA Rule 7450(c), permits OATS Reporting Members to enter into agreements with Reporting Agents to fulfill the OATS obligations of the OATS Reporting Member, specifies responsibilities and procedures for maintaining such agreements between the OATS Reporting Member and the Reporting Members, and clarifies that an OATS Reporting Member remains primarily responsible for compliance with the OATS reporting rules. I. Development and Testing (Rule 6880) The Commission finds that proposed Rule 6880 is consistent with the Act as it implements the development and testing provisions of the CAT NMS Plan. Proposed Rule 6880(a)(1) addresses Industry Members’ connectivity and testing requirements, including connectivity and acceptance testing timelines. Proposed Rule 6880(a)(2) addresses the requirements relating to Industry Members’ reporting of Customer and Industry Member information. Proposed Rule 6880(a)(3)– (4) addresses the submission of order data, including the Quote Sent time to be reported by Options Market Makers. Proposed Rule 6880(b) requires that each Industry Member shall participate in the testing related to the Central Repository, including any industry-wide disaster recovery testing. J. Recordkeeping (Rule 6890) The Commission finds that proposed Rule 6890 is consistent with the Act. The Commission notes that proposed Rule 6890 requires each Industry Member to maintain and preserve, and specifies the manner in which such records must be maintained and preserved, information required to be recorded under the proposed Rule 6800 E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices Series for the period of time and accessibility specified in Rule 17a– 4(b). 105 Because proposed Rule 6890 incorporate Rule 17a–4(b) and implements the recordkeeping provision of the CAT NMS Plan, the Commission finds that proposed Rule 6890 is consistent with the Act. K. Timely, Accurate and Complete Data (Rule 6893) The Commission finds that proposed Rule 6893 is consistent with the Act as it implements the requirements for reporting timely, accurate and complete data to the CAT as set forth in the CAT NMS Plan. FINRA notes that proposed Rule 6893 implements the requirement in Rule 613 and the CAT NMS Plan that data reported to the CAT be timely, accurate and complete. Specifically, proposed Rule 6893(a) 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. Proposed Rule 6893(b) 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. Proposed Rule 6893(c) and (d) require Industry Members to be in compliance with the Error Rate as set forth in the CAT NMS Plan and the Compliance Thresholds as discussed in the CAT NMS Plan and determined by the Operating Committee. Proposed Rule 6893 implements the CAT NMS Plan’s provisions. mstockstill on DSK3G9T082PROD with NOTICES L. Compliance Dates (Rule 6895) The Commission finds that the compliance dates in proposed Rule 6895 are consistent with the Act, as they implement the compliance dates for reporting data to the CAT as set forth in the CAT NMS Plan and an exemptive order issued by the Commission. Proposed Rule 6895(a) states that, except as set forth in paragraphs (b) and (c) of the 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. Proposed Rule 6895(b)(1) states that each Industry Member that captures time in milliseconds shall comply with Rule 6820 with regard to Business Clocks on or before March 15, 2017. Paragraph (b)(2) states that each Industry Member that does not capture time in milliseconds shall comply with Rule 6820 with regard to Business Clocks on or before February 19, 2018. The Commission notes that the compliance date set forth in proposed Rule 6895(b)(2) reflects the exemptive relief requested by the Participants and granted by the Commission with regard to the clock synchronization requirements related to Business Clocks that do not capture time in milliseconds.106 Proposed Rule 6895(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. Proposed rule 6895(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, 2019.107 Proposed Rule 6895(c)(1) and (c)(2) implement the CAT NMS Plan’s provisions regarding the reporting of Industry Member data to the Central Repository. The Commission notes that one commenter also requested that FINRA classify all firms currently exempt from reporting to OATS to be classified as a ‘‘Small Industry Member’’ as defined by the CAT NMS Plan.108 The commenter notes that some OATS exempt firms would be classified as Large Industry Members but really should be subject to the three year implementation timeframe for Small Industry Members. The Participants responded that the definition of ‘‘Small Industry Member’’ is appropriate because it is an existing regulatory standard. The Commission believes that the proposed rule change’s use of the ‘‘Small Industry Member’’ definition is consistent with the CAT NMS Plan. The Commission notes that a commenter suggested that a cost/benefit analysis be performed to review the impact of CAT on firms currently exempt from reporting to OATS. The Participants responded the Commission had already undertaken into account the impact of CAT on firms currently exempt from OATS. The Commission likewise notes that it took into account VerDate Sep<11>2014 16:47 Mar 20, 2017 Jkt 241001 the impact of the Plan on firms currently exempt from reporting to OATS when it approved the CAT NMS Plan. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR–FINRA– 2017–003) is approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.109 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–05504 Filed 3–20–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549–0213 ACTION: Notice. [SEC File No. TM–S7–11–10, OMB Control No. 3235–0671] Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget (‘‘OMB’’) a request for approval of an amendment to a collection of information in connection with an National Market System (NMS) Plan filed with the Commission under Rule 613 (17 CFR 242.613), under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). Rule 613 of Regulation NMS (17 CFR part 242) required national securities exchanges and national securities associations (‘‘Participants’’) to jointly submit to the Commission a national market system (‘‘NMS’’) plan to govern the creation, implementation, and maintenance of a consolidated audit trail (‘‘CAT’’) and Central Repository for the collection of information for NMS securities. On February 27, 2015, the Participants submitted the CAT NMS Plan to the Commission.1 109 17 CFR 200.30–3(a)(12). Letter from Participants to Brent J. Fields, Secretary, Commission, dated February 27, 2015. The Participants filed the CAT NMS Plan on September 30, 2014. See Letter from the Participants, to Brent J. Fields, Secretary, Commission, dated September 30, 2014. The CAT 1 See 106 See supra note 77. compliance dates are consistent with the compliance dates set forth in SEC Rule 613(a)(3)(v) and (vi), and Sections 6.7(a)(v) and (vi) of the CAT NMS Plan. 108 Wachtel Letter at 1. 107 Such 105 17 CFR 240.17a–4(b). FINRA also notes that proposed Rule 6890 is based on Rule 7440(a)(5), which sets forth the recordkeeping requirements related to OATS. 14579 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 E:\FR\FM\21MRN1.SGM Continued 21MRN1

Agencies

[Federal Register Volume 82, Number 53 (Tuesday, March 21, 2017)]
[Notices]
[Pages 14563-14579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05504]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80255; File No. SR-FINRA-2017-003]


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

March 15, 2017.

I. Introduction

    On January 31, 2017, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt the FINRA Rule 6800 Series, to implement 
the compliance rules regarding the National Market System Plan 
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or 
``Plan'').\3\ The proposed rule change was published for comment in the 
Federal Register on February 9, 2017.\4\ The Commission received 3 
comments in response to the proposed rule change.\5\ On March 15, the 
Participants \6\ submitted a response to the comment letters.\7\ This 
order approves the proposed rule change.\8\
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    \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-2017-002; FINRA subsequently 
withdrew that filing on January 30, 2017 and filed this proposed 
rule change.
    \4\ Securities Exchange Act Release No. 79961 (February 3, 
2017), 82 FR 10073 (``Notice'').
    \5\ See letter from William H. Herbert, Managing Director, 
Financial Information Forum, dated March 1, 2017 (``FIF Letter''); 
letter from Bonnie Wachtel, Wachtel & Co Inc., dated March 2, 2017 
(``Wachtel Letter''); and letter from Manisha Kimmel, Chief 
Regulatory Officer, Wealth Management, Thomson Reuters, dated March 
2, 2017 (``Thomson Reuters Letter'').
    \6\ See infra Section II.
    \7\ See Letter from Participants to Brent J. Fields, Secretary, 
Commission, dated March 15, 2017 (``Participants' Response 
Letter''). The Participants note that because all the Participants 
filed rules similar to FINRA's proposed 6800 Series, the 
Participants' Response Letter is submitted on behalf of all 
Participants and applicable to all the Participants' proposed rules 
implementing the CAT NMS Plan (``Participant Proposed Compliance 
Rules''). Participants' Response Letter at 1.
    \8\ The Commission notes that for purposes of this Order, unless 
otherwise specified, capitalized terms used are defined as set forth 
in the Notice or in the CAT NMS Plan.
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II. Background

    On September 30, 2014, 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 \9\ and Rule 608 of Regulation NMS thereunder,\10\ the 
CAT NMS Plan.\11\ The

[[Page 14564]]

Participants filed the Plan to comply with Rule 613 of Regulation NMS 
under the Exchange Act.\12\ The Plan was published for comment in the 
Federal Register on May 17, 2016,\13\ and approved by the Commission, 
as modified, on November 15, 2016.\14\
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    \9\ 15 U.S.C. 78k-1.
    \10\ 17 CFR 242.608.
    \11\ 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. The 
CAT NMS Plan was approved by the Commission, with limited changes 
made by the Commission, on November 15, 2016. See infra note 14.
    \12\ 17 CFR 242.613.
    \13\ Securities Exchange Act Release No. 77724 (April 27, 2016), 
81 FR 30614 (May 17, 2016).
    \14\ Securities Exchange Act Release No. 79318 (November 15, 
2016), 81 FR 84696 (November 23, 2016) (``Approval Order'').
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    The Plan is designed to create, implement and maintain a 
consolidated audit trail (``CAT'') that would capture customer and 
order event information for orders in NMS Securities and OTC Equity 
Securities, across all markets, from the time of order inception 
through routing, cancellation, modification, or execution in a single 
consolidated data source. Each Participant is required to enforce 
compliance by its Industry Members, as applicable, with the provisions 
of the Plan, by adopting a Compliance Rule applicable to their Industry 
Members.\15\ FINRA's proposed Rule 6800 Series sets forth FINRA's 
``Audit Trail Compliance Rule'' implementing provisions of the CAT NMS 
Plan that are applicable to FINRA members.\16\
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    \15\ See 17 CFR 242.613(g)(1).
    \16\ The Commission notes that the CAT NMS Plan defines an 
``Industry Member'' as a member of a national securities exchange or 
a member of a national securities association. CAT NMS Plan, supra 
note 11 at Section 1.1. Because FINRA's proposed Rule 6800 Series 
implements the CAT NMS Plan, the term ``Industry Member'' is used 
throughout Series. For purposes of proposed Rule 6800 Series, the 
term ``Industry Member'' means a FINRA member.
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III. Description of the Proposed Rule Change

    The proposed Rule 6800 Series includes twelve 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.

A. Definitions (Rule 6810)

    Proposed Rule 6810 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 below.
1. Account Effective Date
(a) Customer Information Approach
    Rule 613 of Regulation NMS requires that certain data elements be 
reported to the CAT to enable regulators to identify Customers 
associated with orders. FINRA notes that 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,\17\ and that 
``Customer-ID'' is defined in 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.'' 
\18\ Rule 613(c)(8) requires Industry Members to use the same Customer-
ID for each Customer.\19\ FINRA notes that the Commission 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.\20\ The 
alternative approach is called the ``Customer Information Approach.''
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    \17\ 17 CFR 242.613(c)(7)(i)(A).
    \18\ 17 CFR 242.613(j)(5).
    \19\ 17 CFR 242.613(c)(8).
    \20\ 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 (``Exemptive Request Letter'').
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    FINRA states that under the Customer Information Approach, the CAT 
NMS Plan requires each Industry Member to assign a unique Firm 
Designated ID to each Customer, and that for 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).\21\ 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 Large Trader ID 
(``LTID'')). This process is referred to as the ``customer definition 
process.''
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    \21\ See infra Section III.A.17 for a discussion of the 
application of the term ``Firm Designated ID.''
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    FINRA noted that 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.
(b) 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 
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).'' \22\ Therefore, when reporting Customer 
Account Information, an Industry Member is required to report the date 
an account was opened. FINRA notes that the Participants requested and 
received from the Commission an exemption to allow an ``Account 
Effective Date'' to be reported in lieu of an account open date in 
certain limited circumstances.\23\ 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. 
FINRA states that 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

[[Page 14565]]

dates have replaced the descriptions of those dates set forth in 
Section 1.1 of the Plan.
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    \22\ 17 CFR 242.613(j)(4).
    \23\ On September 2, 2015, the Participants filed a supplement 
to the Exemptive Request Letter. See Letter from the Participants to 
Brent J. Fields, Secretary, Commission, dated September 2, 2015. 
This supplement to the Exemptive Request Letter further addressed 
the use of an ``effective date'' in lieu of a ``date account 
opened.''
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    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) of proposed Rule 6810 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) of proposed Rule 6810 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) of proposed Rule 6810 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). In addition, 
proposed Rule 6810(a)(5) states that with regard to proposed Rule 
6810(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.
2. Active Accounts
    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. 
Accordingly, paragraph (b) of proposed Rule 6810 defines a ``Active 
Accounts'' as an account that has had activity in Eligible Securities 
within the last six months. FINRA states that this is the same 
definition as set forth in Section 1.1 of the CAT NMS Plan.
3. Allocation Report
(a) Allocation Report Approach
    Rule 613(c)(7)(vi)(A) of Regulation NMS 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).'' \24\ FINRA noted that the Participants requested 
and received from the Commission exemptive relief from Rule 613 for an 
alternative to this approach (``Allocation Report Approach'').\25\ 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 
Rule 613.\26\ Under 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.
---------------------------------------------------------------------------

    \24\ 17 CFR 242.613(c)(7)(vi)(A).
    \25\ On April 3, 2015, the Participants filed a supplement 
related to their Exemptive Request Letter. See Letter from Robert 
Colby, FINRA, on behalf of the Participants, to Brent J. Fields, 
Secretary, Commission, dated April 3, 2015. This supplement provided 
examples of how the proposed relief related to allocations would 
operate.
    \26\ See Exemptive Request Letter, supra note 20, at 26-27; 
Exemption Order, supra note 20.
---------------------------------------------------------------------------

(b) 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 
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. FINRA states that this is the same definition as set forth 
in Section 1.1 of the CAT NMS Plan.
4. 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. FINRA states that 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.'' 
FINRA represents that this change is intended to recognize that the 
Industry Members' obligations with regard to the CAT are set forth in 
this Rule 6800 Series.
5. CAT
    Paragraph (e) of proposed Rule 6810 defines the term ``CAT'' to 
mean the consolidated audit trail contemplated by Rule 613. FINRA 
states that this is the same definition as set forth in Section 1.1 of 
the CAT NMS Plan.
6. 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.

[[Page 14566]]

7. CAT-Order-ID
(a) Daisy Chain Approach
    FINRA states that under the CAT NMS Plan, a ``daisy chain 
approach'' would be used to link and reconstruct the complete lifecycle 
of each Reportable Event in CAT. According to this approach, Industry 
Members would assign their own identifiers to each order event. Within 
the Central Repository, the Plan Processor would replace 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 would be used to link the Reportable 
Events related to the same order.
(b) Definition of CAT-Order-ID
    To implement a daisy chain approach, FINRA proposes to define the 
term ``CAT-Order-ID'' 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. FINRA states that this is the same definition as set forth in 
Rule 613(j)(1), and Section 1.1 of the CAT NMS Plan defines ``CAT-
Order-ID'' by reference to Rule 613(j)(1) of Regulation NMS.\27\
---------------------------------------------------------------------------

    \27\ See 17 CFR 242.613(j)(1).
---------------------------------------------------------------------------

8. 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.\28\ FINRA states that 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,\29\ as that 
term is used in the CAT NMS Plan. Therefore, 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.\30\
---------------------------------------------------------------------------

    \28\ See CAT NMS Plan, supra note 11 at Appendix C, Section 
A.1(a).
    \29\ See infra Section III.A.14 defining ``Data Submitter.''
    \30\ FINRA also notes that 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 FINRA member's reporting obligations under Rule 
7450. FINRA represents that the Reporting Agent for OATS fulfills a 
similar role to the CAT Reporting Agent.
---------------------------------------------------------------------------

9. 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 Rule 613 of Regulation NMS and the CAT NMS Plan. FINRA 
states that 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.''
10. Compliance Threshold
    Proposed Rule 6810 states that the term ``Compliance Threshold'' 
has the meaning set forth in proposed Rule 6893(d), which proposed Rule 
is described and discussed below. FINRA states that this definition has 
the same substantive meaning as the definition set forth in Section 1.1 
of the CAT NMS Plan.
11. 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'' is 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). FINRA states that this is the 
same definition as set forth in 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.\31\ FINRA also notes that 
Section 1.1 of the CAT NMS Plan defines ``Customer'' by reference to 
Rule 613(j)(3).
---------------------------------------------------------------------------

    \31\ 17 CFR 242.613(j)(3).
---------------------------------------------------------------------------

12. 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). 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.
13. 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'' to include, but not be

[[Page 14567]]

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. FINRA 
states that this is the same definition as set forth in Section 1.1 of 
the CAT NMS Plan.
14. Data Submitter
    The CAT NMS Plan uses the term ``Data Submitter'' to refer to any 
person that reports data to the Central Repository.\32\ 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'' 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.
---------------------------------------------------------------------------

    \32\ See CAT NMS Plan, supra note 11 at Appendix C, Section 
A.1(a).
---------------------------------------------------------------------------

15. 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. FINRA states that this is the same definition as 
set forth in Section 1.1 of the CAT NMS Plan.
16. Error Rate
(a) Generally
    The CAT NMS Plan requires the Plan Processor to: (1) Measure and 
report errors every business day; (2) provide Industry Members daily 
statistics and error reports as they become available, including a 
description of such errors; (3) provide monthly reports to Industry 
Members that detail an Industry Member's performance and comparison 
statistics; (4) define educational and support programs for Industry 
Members to minimize Error Rates; and (5) identify, daily, all Industry 
Members exceeding the maximum allowable Error Rate. To timely correct 
data-submitted errors to the Central Repository, the CAT NMS Plan 
requires that the Central Repository receive and process error 
corrections at all times. Further, the CAT NMS Plan requires that 
Industry Members be able to submit error corrections to the Central 
Repository through a web-interface or via bulk uploads or file 
submissions, and that the Plan Processor, subject to the Operating 
Committee's approval, support the bulk replacement of records and the 
reprocessing of such records. The Participants, furthermore, require 
that the Plan Processor identify Industry Member data submission errors 
based on the Plan Processor's validation processes.\33\
---------------------------------------------------------------------------

    \33\ Approval Order, supra note 14 at 84718.
---------------------------------------------------------------------------

(b) 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'' 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. FINRA states that this is the 
same definition as set forth in Rule 613(j)(6), and Section 1.1 of the 
CAT NMS Plan defines ``Error Rate'' by reference to Rule 613(j)(6).\34\
---------------------------------------------------------------------------

    \34\ 17 CFR 242.613(j)(6).
---------------------------------------------------------------------------

(c) Maximum Error Rate
    Under the CAT NMS Plan, the Operating Committee would set the 
maximum Error Rate that the Central Repository would tolerate from an 
Industry Member reporting data to the Central Repository.\35\ The 
Operating Committee would review and reset the maximum Error Rate, at 
least annually.\36\ If an Industry Member reports CAT data to the 
Central Repository with errors such that their error percentage exceeds 
the maximum Error Rate, then such Industry Member would not be in 
compliance with the CAT NMS Plan or Rule 613.\37\ FINRA states that, 
according to the CAT NMS Plan, FINRA or the SEC may take appropriate 
action against an Industry Member for failing to comply with its CAT 
reporting obligations.\38\ The CAT NMS Plan sets the initial Error Rate 
at 5%.\39\ FINRA stated that 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.\40\
---------------------------------------------------------------------------

    \35\ CAT NMS Plan, supra note 11 at Section 6.5(d)(i).
    \36\ CAT NMS Plan, supra note 11 at Appendix C, Section A.3(b).
    \37\ CAT NMS Plan, supra note 11 at Appendix C, Section A.3(b); 
17 CFR 242.613(g)-(h).
    \38\ CAT NMS Plan, supra note 11 at Appendix C, Section A.3(b).
    \39\ CAT NMS Plan, supra note 11 at Section 6.5(d)(i).
    \40\ CAT NMS Plan, supra note 11 at Appendix C, Section A.3(b).
---------------------------------------------------------------------------

17. Firm Designated ID
    As discussed above, under the Customer Information Approach, the 
CAT NMS Plan requires each Industry Member to utilize a unique Firm 
Designated ID. 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. 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 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. FINRA states that 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).\41\
---------------------------------------------------------------------------

    \41\ See supra Section IV for a discussion of the application of 
the term ``Firm Designated ID.''
---------------------------------------------------------------------------

18. Industry Member
    Proposed Rule 6810 defines the term ``Industry Member'' to mean ``a 
member of a national securities exchange or a

[[Page 14568]]

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.'' FINRA states that 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.
19. Industry Member Data
    Proposed Rule 6810 states that the term ``Industry Member Data'' 
has the meaning set forth in Rule 6830(a)(2). FINRA states that this 
definition has the same substantive meaning as the definition set forth 
in Section 1.1 of the CAT NMS Plan.
20. Initial Plan Processor
    Proposed Rule 6810 defines the term ``Initial Plan Processor'' to 
mean the first Plan Processor selected by the Operating Committee in 
accordance with 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.\42\ 
FINRA states that this is the same definition as set forth in Section 
1.1 of the CAT NMS Plan.
---------------------------------------------------------------------------

    \42\ See Securities Exchange Act Release Nos. 70892 (November 
15, 2013), 78 FR 69910 (November 21, 2013) (Selection Plan Notice); 
75192 (June 17, 2015), 80 FR 36028 (June 23, 2015) (Order Approving 
Amendment No. 1 to the Selection Plan); 75980 (September 24, 2015), 
80 FR 58796 (September 30, 2015) (Order Approving Amendment No. 2 to 
the Selection Plan); 77917 (May 25, 2016), 81 FR 35072 (June 1, 
2016) (Notice of Filing and Immediate Effectiveness of Amendment No. 
3 to the Selection Plan); 78477 (August 4, 2016), 81 FR 52917 
(August 10, 2016) (Notice of Filing and Immediate Effectiveness of 
Amendment No. 4 to the Selection Plan); see also Securities Exchange 
Act Release Nos. 71596 (February 21, 2014), 79 FR 11152 (February 
27, 2014) (Selection Plan Approval Order); 74223 (February 6, 2015), 
80 FR 7654 (February 11, 2015) (Notice of Amendment No. 1 to the 
Selection Plan); 75193 (June 17, 2015), 80 FR 36006 (June 23, 2015) 
(Notice of Amendment No. 2 to the Selection Plan).
---------------------------------------------------------------------------

21. Listed Option or Option
    FINRA represented that the reporting requirements of the CAT NMS 
Plan and proposed Rule 6800 Series apply to Eligible Securities, which 
includes NMS Securities, which, in turn, includes Listed Options. 
Certain requirements of proposed Rule 6800 Series apply specifically to 
Listed Options. Accordingly, ``Listed Option'' or ``Option'' has the 
meaning set forth in Rule 600(b)(35) of Regulation NMS.\43\ Rule 
600(b)(35) of Regulation NMS defines a listed option as ``any option 
traded on a registered national securities exchange or automated 
facility of a national securities association.'' FINRA states 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.
---------------------------------------------------------------------------

    \43\ 17 CFR 242.600(b)(35).
---------------------------------------------------------------------------

22. Manual Order Event
(a) 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.\44\ 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 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.
---------------------------------------------------------------------------

    \44\ See Exemption Order, supra note 20.
---------------------------------------------------------------------------

(b) 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, the 
term ``Manual Order Event'' means a non-electronic communication of 
order-related information for which Industry Members must record and 
report the time of the event. FINRA states that this is the same 
definition as set forth in Section 1.1 of the CAT NMS Plan.
23. 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 origination of an 
order, for the routing of an order). Accordingly, FINRA proposes to 
define 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. FINRA states that 
this is the same definition as set forth in Section 1.1 of the CAT NMS 
Plan.
24. NMS Security
    NMS Securities are one of the types of Eligible Securities for the 
CAT. Therefore, FINRA proposes to define 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. FINRA states that this is 
the same definition as set forth in Section 1.1 of the CAT NMS Plan.
25. 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,\45\ 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'' to 
mean any NMS Security other than an option. FINRA states that this is 
the same definition as set forth in Rule 600(b)(47) of Regulation 
NMS.\46\
---------------------------------------------------------------------------

    \45\ 17 CFR 242.600(b)(47).
    \46\ 17 CFR 242.600(b)(47).
---------------------------------------------------------------------------

26. Operating Committee
    Proposed Rule 6810 defines the term ``Operating Committee'' to mean 
the governing body of the CAT NMS, LLC

[[Page 14569]]

designated as such and described in Article IV of the CAT NMS Plan. 
FINRA states that 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.
27. Options Market Maker
(a) Options Market Maker Quote Exemption
    Rule 613(c)(7) provides that the CAT NMS Plan must require each 
Industry Member to record and electronically report to the Central 
Repository details for each order and each reportable event, including 
the routing and modification or cancellation of an order.\47\ Rule 
613(j)(8) defines ``order'' to include ``any bid or offer.'' \48\ 
Therefore, under Rule 613, the details for each Options Market Maker 
quotation must be reported to the Central Repository by both the 
Options Market Maker and the options exchange to which it routes its 
quote.
---------------------------------------------------------------------------

    \47\ 17 CFR 242.613(c)(7).
    \48\ 17 CFR 242.613(j)(8).
---------------------------------------------------------------------------

    The Participants, however, requested and received exemptive relief 
from Rule 613 of Regulation NMS 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 Rule 613.\49\ 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.
---------------------------------------------------------------------------

    \49\ See Exemptive Request Letter, supra note 20, at 2; 
Exemption Order, supra note 20 at 6.
---------------------------------------------------------------------------

(b) Definition of Options Market Maker
    To implement the requirements related to Option Market Maker 
quotes, FINRA proposes to define the term ``Options Market Maker'' to 
mean a broker-dealer registered with an exchange for the purpose of 
making markets in options contracts traded on the exchange. FINRA 
states that this is the same definition as set forth in Section 1.1 of 
the CAT NMS Plan.
28. 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'' 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. FINRA states 
that this is the same definition as set forth in 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.''\50\ FINRA also notes that Section 1.1 of the CAT NMS Plan 
defines ``Order'' by reference to Rule 613(j)(8).
---------------------------------------------------------------------------

    \50\ See 17 CFR 242.613(j)(8).
---------------------------------------------------------------------------

29. 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'' 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. FINRA states that this is the same 
definition as set forth in Section 1.1 of the CAT NMS Plan.
30. Participant
    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. FINRA 
states that this is the same definition in substance as set forth in 
Section 1.1 of the CAT NMS Plan.
31. Person
    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. FINRA states that 
this is the same definition as set forth in Section 1.1 of the CAT NMS 
Plan.
32. Plan Processor
    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 Rule 613 and Sections 4.3(b)(i) and 6.1 of the 
CAT NMS Plan, and with regard to the Initial Plan Processor, the 
National Market System Plan Governing the Process for Selecting a Plan 
Processor and Developing a Plan for the Consolidated Audit Trail, to 
perform the CAT processing functions required by Rule 613 of Regulation 
NMS and set forth in the CAT NMS Plan.
33. Received Industry Member Data
    Proposed Rule 6810 states that the term ``Received Industry Member 
Data'' has the meaning set forth in Rule 6830(a)(2). FINRA represents 
that this definition has the same substantive meaning as the definition 
set forth in Section 1.1 of the CAT NMS Plan.
34. Recorded Industry Member Data
    Proposed Rule 6810 states that the term ``Recorded Industry Member 
Data'' has the meaning set forth in Rule 6830(a)(1). FINRA states that 
this definition has the same substantive meaning as the definition set 
forth in in Section 1.1 of the CAT NMS Plan.
35. 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. FINRA proposes to define the term 
``Reportable Event'' to include, but not be 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. FINRA states that this is the same definition as set 
forth in Section 1.1 of the CAT NMS Plan.
36. SRO
    FINRA proposed to define the term ``SRO'' to mean any self-
regulatory organization within the meaning of Section 3(a)(26) of the 
Exchange Act.\51\ FINRA states that this is the same definition as set 
forth in Section 1.1 of the CAT NMS Plan.
---------------------------------------------------------------------------

    \51\ See 15 U.S.C. 78c(a)(26).
---------------------------------------------------------------------------

37. SRO-Assigned Market Participant Identifier
(a) Existing Identifier Approach
    The Participants requested and received exemptive relief from Rule 
613 of Regulation NMS 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

[[Page 14570]]

Repository).\52\ 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.
---------------------------------------------------------------------------

    \52\ See Exemptive Request Letter, supra note 20, at 19; 
Exemption Order, supra note 20 at 49.
---------------------------------------------------------------------------

    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.
(b) Definition of SRO-Assigned Market Participant Identifier
    To implement the Existing Identifier Approach, FINRA proposes to 
define 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.\53\ FINRA states that this is the same 
definition as set forth in Section 1.1 of the CAT NMS Plan.
---------------------------------------------------------------------------

    \53\ FINRA notes that 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, 
for example.
---------------------------------------------------------------------------

38. Small Industry Member
    FINRA represents that 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'' to mean an Industry Member 
that qualifies as a small broker-dealer as defined in Exchange Act Rule 
0-10(c).\54\ FINRA states that 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 Rule 613.'' The definition of a small 
broker-dealer under Rule 613, in turn, is a small broker-dealer as 
defined in Exchange Act Rule 0-10(c).
---------------------------------------------------------------------------

    \54\ 17 CFR 240.0-10(c).
---------------------------------------------------------------------------

39. 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 that the term ``Trading Day'' shall have 
the meaning as is determined by the Operating Committee. For the 
avoidance of doubt, FINRA represents that the Operating Committee may 
establish different Trading Days for NMS Stocks, Listed Options, OTC 
Equity Securities, and any other securities that are included as 
Eligible Securities from time to time.

B. Clock Synchronization (Rule 6820)

    Rule 613(d)(1) of Regulation NMS requires Industry Members to 
synchronize their Business Clocks to the time maintained by NIST, 
consistent with industry standards.\55\ To comply with this provision, 
Section 6.8 of the Plan sets forth the clock synchronization 
requirements for Industry Members.\56\ To implement these provisions 
with regard to its Industry Members, FINRA proposes Rule 6820 to 
require its Industry Members to comply with the clock synchronization 
requirements of the Plan.
---------------------------------------------------------------------------

    \55\ 17 CFR 242.613(d)(1). Related to the clock synchronization 
requirements, the Commission notes that the Participants, including 
FINRA, also filed a request for an exemption from the March 15, 2017 
filing deadline requirement set forth Section 6.7(a)(ii) of the CAT 
NMS Plan and proposed FINRA Rule 6895(b)(1). See infra note 75. The 
Commission granted the Participants' exemption request. See infra 
note 77.
    \56\ In addition, Section 6.7(a)(ii) of the Plan sets forth the 
timeline for CAT Reporters to comply with the clock synchronization 
requirements.
---------------------------------------------------------------------------

1. Clock Synchronization
    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. FINRA states that this is the same 
requirement as set forth in Section 6.8(a)(ii)(A) of the CAT NMS Plan.
    Paragraph (a)(2) of proposed Rule 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. FINRA states that this is the same requirement as 
set forth in Section 6.8(a)(iii) and (iv) of the CAT NMS Plan. 
Paragraph (a)(3) of proposed Rule 6820 clarifies that the tolerance 
described in paragraphs (a)(1) and (2) of 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.
    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.
2. Documentation
    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. 
FINRA states that these documentation requirements are the same as 
those set forth in the

[[Page 14571]]

``Sequencing orders and Clock Synchronization'' section of Appendix C 
of the CAT NMS Plan.
3. Certification
    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. FINRA states 
that 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 states that it 
intends to announce to its Industry Members the certification schedule 
established by the Operating Committee via Regulatory Notice.
4. Violation Reporting
    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. FINRA states that 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.

C. Industry Member Data Reporting (Rule 6830)

    Rule 613(c) of Regulation NMS requires the CAT NMS Plan to set 
forth certain provisions requiring Industry Members to record and 
report data to the CAT.\57\ 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 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.
---------------------------------------------------------------------------

    \57\ See 17 CFR 242.613(c).
---------------------------------------------------------------------------

1. 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, respectively. FINRA states that 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

[[Page 14572]]

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.
2. 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. FINRA states that 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.
3. Applicable Securities
    Paragraph (c) of proposed Rule 6830 describes the securities to 
which the recording and reporting requirements of proposed Rule 6830 
apply. FINRA states that 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.
4. 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. FINRA states that this requirement implements the 
requirement set forth in Section 2 of Appendix D of the CAT NMS Plan to 
use the listing exchange symbology when reporting data to the Central 
Repository for exchange-listed Eligible Securities.
    For each Eligible Security that is not exchange-listed, however, 
FNRA represents that 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 states that it intends to 
announce to its Industry Members the relevant symbology formats 
established by the Operating Committee via Regulatory Notice.
5. Error Correction Timeline
    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 requires that 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, 
such Industry Member submit corrected Industry Member Data to the 
Central Repository by 8:00 a.m. Eastern Time on T+3. FINRA represents 
that this requirement implements the error correction requirement set 
forth in Section 6 of Appendix D of the CAT NMS Plan.

D. Customer Information Reporting (Rule 6840)

    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 to implement this provision 
of the CAT NMS Plan with regard to its Industry Members.
1. Initial Set of Customer Information
    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.
2. Daily Updates to Customer Information
    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.
3. Periodic Updates To Complete Set of Customer Information
    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 states that it 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.
4. Error Correction Timeline
    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

[[Page 14573]]

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. FINRA states that this requirement implements the error correction 
requirement set forth in Appendix C of the CAT NMS Plan.

E. Industry Member Information Reporting (Rule 6850)

    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. 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. FINRA states that this provision of the CAT NMS Plan with 
regard to its Industry Members information reporting.

F. Time Stamps (Rule 6860)

    Rule 613(d)(3) of Regulation NMS sets forth requirements for time 
stamps used by CAT Reporters in recording and reporting data to the 
CAT.\58\ 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 to require its Industry Members to comply with the time stamp 
requirements of the Plan.
---------------------------------------------------------------------------

    \58\ 17 CFR 242.613(d)(3).
---------------------------------------------------------------------------

1. Millisecond Time Stamps
    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.
2. One Second Time Stamps/Electronic Order Capture
    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.

G. Time Stamp and Clock Synchronization Rule Violations (Rule 6865)

    Proposed Rule 6865 describes potential violations of the time stamp 
and clock synchronization time period requirements set forth in the 
proposed Rule 6800 Series. Proposed 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. FINRA states that 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 Rule 613 of Regulation NMS or the CAT 
NMS Plan.

H. Connectivity and Data Transmission (Rule 6870)

    Proposed Rule 6870 addresses connectivity and data transmission 
requirements related to the CAT.
1. Data Transmission
    Paragraph (a) of proposed Rule 6870 describes the format(s) for 
reporting Industry Member Data to the Central Repository. 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. FINRA states that 
this provision implements the formatting requirements as set forth in 
Section 6.4(a) of the CAT NMS Plan.
2. Connectivity
    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). FINRA states that 
this provision implements the connectivity requirements set forth in 
Section 4 of Appendix D to the CAT NMS Plan.
3. CAT Reporting Agent
    Paragraph (c) permits Industry Members to enter into an agreement 
with CAT Reporting Agents to fulfill their data reporting obligations 
related to the CAT.\59\ 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. 
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.
---------------------------------------------------------------------------

    \59\ FINRA represents that paragraph (c) is based on FINRA Rule 
7450(c), which permits OATS Reporting Members to enter into 
agreements with Reporting Agents to fulfill the OATS obligations of 
the OATS Reporting Member.
---------------------------------------------------------------------------

I. Development and Testing (Rule 6880)

    FINRA proposes Rule 6880 to address requirements for Industry 
Members related to CAT development and testing.
1. Development
    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. FINRA states that these 
requirements are set forth in Appendix C to the CAT NMS Plan.
    Paragraph (a)(1) sets forth the deadlines related to connectivity 
and

[[Page 14574]]

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 
to Exchanges, beginning no later than October 15, 2018, for testing 
purposes.
2. Testing
    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. 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 states that it intends to announce to its Industry 
Members the schedule established pursuant to the CAT NMS Plan via 
Regulatory Notice.

J. Recordkeeping (Rule 6890)

    Proposed Rule 6890 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 Exchange Act Rule 17a-
4(b).\60\ 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 Rule 17a-4(f)(1)(i) \61\ or by 
means of ``electronic storage media'' as defined in Rule 17a-
4(f)(1)(ii) \62\ that meet the conditions set forth in Rule 17a-4(f) 
\63\ 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 recordkeeping requirements related to OATS.
---------------------------------------------------------------------------

    \60\ 17 CFR 240.17a-4(b).
    \61\ 17 CFR 240.17a-4(f)(1)(i).
    \62\ 17 CFR 240.17a-4(f)(1)(ii).
    \63\ 17 CFR 240.17a-4(f).
---------------------------------------------------------------------------

K. Timely, Accurate and Complete Data (Rule 6893)

1. General
    FINRA notes that Rule 613 of Regulation NMS and the CAT NMS Plan 
emphasize the importance of the timeliness, accuracy, completeness and 
integrity of the data submitted to the CAT.\64\ Accordingly, 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. FINRA states that proposed 
Rule 6893 implements the Plan's requirement with respect to the 
importance of timely, accurate and complete data with regard to 
Industry Members.
---------------------------------------------------------------------------

    \64\ See 17 CFR 242.613(e)(4)(i)(D)(ii); and CAT NMS Plan, supra 
note 11 at Section 6.5(d).
---------------------------------------------------------------------------

2. LEIs
    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. FINRA notes 
that 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, FINRA states that 
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. 
FINRA believes that paragraph (b) is consistent with the Approval Order 
for the CAT NMS Plan regarding an Industry Member's obligations 
regarding LEIs.\65\
---------------------------------------------------------------------------

    \65\ See Approval Order, supra note 14, at 84745.
---------------------------------------------------------------------------

3. Compliance With Error Rate
    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 states that it intends to announce to its 
Industry Members changes to the Error Rate established pursuant to the 
CAT NMS Plan via Regulatory Notice.
4. Compliance Thresholds
    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''). FINRA notes that 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.\66\ Compliance 
Thresholds will include compliance with the data reporting and clock 
synchronization requirements.

[[Page 14575]]

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

    \66\ See CAT NMS Plan, supra note 11 at Appendix C.
---------------------------------------------------------------------------

L. Compliance Dates (Rule 6895)

1. General
    Proposed Rule 6895 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.
2. Clock Synchronization
    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. FINRA states that 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.\67\
---------------------------------------------------------------------------

    \67\ See infra notes 75 and 77, and accompanying text 
(discussing the Participants' Clock Synchronization Exemption 
Request and Order Granting Limited Exemptive Relief, Pursuant to 
Rule 608(e) of the Securities Exchange Act of 1934, from the Clock 
Synchronization Compliance Deadline Specified in Section 6.7(a)(ii) 
of the National Market System Plan Governing the Consolidated Audit 
Trail).
---------------------------------------------------------------------------

3. CAT Data Reporting
    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. FINRA states that such compliance dates are 
consistent with the compliance dates set forth in Rule 613(a)(3)(v) and 
(vi),\68\ and Section 6.7(a)(v) and (vi) of the CAT NMS Plan.
---------------------------------------------------------------------------

    \68\ 17 CFR 242.613(a)(3)(v), (vi).
---------------------------------------------------------------------------

IV. Summary of Comments

    As noted above, the Commission received three comment letters on 
the proposed rule change and a response letter from the 
Participants.\69\ Two commenters raised concerns about the clock 
synchronization requirements for Allocation Reports.\70\ One commenter 
noted that the CAT NMS Plan states that the Participants have not yet 
determined how the ``time of allocation'' will be defined and that the 
Participants stated they would address this in the Technical 
Specifications.\71\ Given that the time of allocation had not yet been 
defined, this commenter stated that ``it was not possible to ensure 
clock synchronization requirements on Allocation Reports at this 
time.'' \72\ Another commenter asked for clarification whether the 
Clock Synchronization Exemption Request, as discussed below, filed by 
the Participants extends to time stamps required for Allocation 
Reports, and for clarification regarding when time stamps on manual 
orders and electronic capture of manual orders need to be captured.\73\
---------------------------------------------------------------------------

    \69\ See supra note 7.
    \70\ Thomson Reuters Letter at 1; FIF Letter at 1.
    \71\ Thomson Reuters Letter at 1.
    \72\ Thomson Reuters Letter at 1-2. See also FIF Letter at 2.
    \73\ FIF Letter at 1, 2.
---------------------------------------------------------------------------

    The Participants noted in their Response Letter that Section 
6.7(a)(ii) of the CAT NMS Plan requires that Industry Members must 
synchronize their Business Clocks and certify that they have satisfied 
applicable Business Clock synchronization requirements by March 15, 
2017.\74\ However, the Participants noted that, on January 17, 2017, 
they filed with the Commission a request for exemptive relief from 
Section 6.7(a)(ii) of the CAT NMS Plan (the ``Clock Synchronization 
Exemption Request'').\75\ The Clock Synchronization Exemption Request 
requested that the Commission permit the Participants to extend the 
Business Clock synchronization compliance date in Section 6.7(a)(ii) of 
the CAT NMS Plan from March 15, 2017 to February 19, 2018 for Industry 
Members' Business Clocks that do not capture time in milliseconds.\76\ 
On March 2, 2017, the Commission granted the Exemption Request.\77\
---------------------------------------------------------------------------

    \74\ Participants' Response Letter at 2.
    \75\ See Letter from Participants to Brent J. Fields, Secretary, 
Commission, dated January 17, 2017 (``Clock Synchronization 
Exemption Request Letter'').
    \76\ Id.
    \77\ See Order Granting Limited Exemptive Relief, Pursuant to 
Rule 608(e) of the Securities Exchange Act of 1934, from the Clock 
Synchronization Compliance Deadline Specified in Section 6.7(a)(ii) 
of the National Market System Plan Governing the Consolidated Audit 
Trail, Securities Exchange Act Release No. 80142 (March 2, 2017), 82 
FR 13034 (March 8, 2017) (``Clock Synchronization Exemption 
Order'').
---------------------------------------------------------------------------

    The Participants also noted that the Operating Committee of the CAT 
NMS Plan recently approved guidance that clarifies that, for purposes 
of the initial March 15, 2017 Business Clock synchronization and 
certification deadlines, ``Business Clocks'' include those clocks that 
currently capture time in milliseconds and that are used to record time 
related to ``Reportable Events,'' as defined under the Plan, including, 
without limitation, 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, in Eligible Securities 
(i.e., NMS Securities and OTC Equity Securities).\78\ The Participants 
represented that each Participant has, or will, issue this guidance to 
its members. The Participants further stated in their response letter 
that to align the compliance rule with the Exemption Request, Business 
Clocks used solely for the time of allocation on Allocation Reports 
must comply with the March 15, 2017 synchronization deadline to the 
extent that such Business Clocks currently capture time in 
milliseconds.\79\
---------------------------------------------------------------------------

    \78\ Participants' Response Letter at 2.
    \79\ Id. at 3.
---------------------------------------------------------------------------

    With respect to time stamps on manual orders and electronic capture 
of manual orders the Participants acknowledged in their response letter 
that additional information will be provided in Technical 
Specifications prepared by the Plan Processor and approved by the 
Operating Committee.\80\ The Participants noted that the Technical 
Specifications also will define the ``time of the allocation.'' The 
Participants stated that as a result, they cannot issue additional 
information or definitions at this time since the development and 
construction of the CAT System and Central Repository are underway. The 
Participants represented that they intend to work with the Plan 
Processor to define various terms, including ``time of the 
allocation,'' and to provide Technical Specifications approved by the 
Operating Committee before

[[Page 14576]]

Industry Members will be required to report to the Central Repository 
on November 15, 2018 (or November 15, 2019 for Small Industry Members) 
or comply with the February 19, 2018 Business Clock synchronization 
requirement.
---------------------------------------------------------------------------

    \80\ Id.
---------------------------------------------------------------------------

    One commenter discussed several concerns related to the clock 
synchronization requirements of proposed FINRA Rule 6820(b).\81\ This 
commenter noted that ``retention of a complete log of clock 
synchronization events is an additional business cost without providing 
compensatory regulatory benefit.'' \82\ This commenter urged FINRA to 
collect clock synchronization data based on the data received as a 
result of the requirements of FINRA Rule 4590 to see if such a log of 
clock synchronization is ``required to effectively surveil for 
compliance with clock synchronization standards'' and requested that 
the Commission require FINRA to assess the effectiveness of the logging 
requirement.\83\ This commenter also noted that there is a two year 
difference in the log retention requirements between FINRA Rule 4590 
and proposed Rule 6820(b) and stated that the extra two years of log 
retention represents an additional business cost for storage and clock 
management.\84\
---------------------------------------------------------------------------

    \81\ FIF Letter at 2.
    \82\ FIF Letter at 2.
    \83\ FIF Letter at 2.
    \84\ FIF Letter at 2.
---------------------------------------------------------------------------

    In response, the Participants stated that they believe that it is 
appropriate for Industry Members to maintain a log of all clock 
synchronization events in order to demonstrate the Industry Members' 
compliance with the Proposed Compliance Rule and the CAT NMS Plan and 
to retain such log for five-years.\85\ The Participants noted that the 
Business Clock synchronization log was discussed and considered in the 
CAT NMS Plan Proposing and Adopting Releases, and that the Commission 
considered an alternative where Industry Members would record only 
exceptions to the clock synchronization requirement. Because the CAT 
NMS Plan contains the requirement that logs be created and retained for 
five years, the Participants stated that the retention period set forth 
in the Participants' Proposed Compliance Rules, including proposed 
FINRA Rule 6820, is consistent with the data retention period 
applicable to the Central Repository as set forth in Rule 613(e)(8).
---------------------------------------------------------------------------

    \85\ Participants' Response Letter at 4.
---------------------------------------------------------------------------

    With respect to the clock synchronization procedures in FINRA's 
proposed Rule 6800 Series, one commenter also stated that proposed Rule 
6820 ``does not contain any definition of clock synchronization 
certification procedures and schedules, reporting procedures for 
violation notification or any specifics regarding documentation 
requirements.'' \86\ This commenter requested that the date for 
compliance with the clock synchronization procedures be delayed, and 
requested that there be the adoption of ``one set of procedures for 
clock synchronization management and reporting to regulators be adopted 
across FINRA and CAT.'' \87\
---------------------------------------------------------------------------

    \86\ FIF Letter at 3.
    \87\ FIF Letter at 3.
---------------------------------------------------------------------------

    In response, the Participants stated that they agree it would be 
helpful to provide Industry Members with additional guidance regarding 
Industry Members' compliance with the clock synchronization and 
certification requirements set forth in the CAT NMS Plan and the 
Proposed Compliance Rules.\88\ Accordingly, the Participants stated 
that they have issued, or intend to issue, to their members guidance 
approved by the Operating Committee regarding clock synchronization and 
certification procedures and schedules, and documentation requirements 
(i.e., regarding the logging of clock synchronization events). The 
Participants represented that they intend to issue this guidance prior 
to the initial March 15, 2017 compliance deadline. The Participants 
also noted that thereafter the Participants will issue additional 
guidance approved by the Operating Committee regarding the reporting of 
violations of applicable clock synchronization thresholds. Accordingly, 
the Participants stated that they believe that the Proposed Compliance 
Rules need not be amended at this time.
---------------------------------------------------------------------------

    \88\ Participants' Response Letter at 5.
---------------------------------------------------------------------------

    Two commenters also discussed the application of the Firm 
Designated ID requirement in the CAT NMS Plan. Both commenters noted 
that the Proposed Compliance Rules require each Industry Member to 
provide a Firm Designated ID ``for each Customer,'' whereas a ``Firm 
Designated ID,'' in relevant part, is defined as a ``unique identifier 
for each trading account. Both commenters requested that the 
Participants amend the language of the Proposed Compliance Rules to 
reflect the Exemption Order.\89\
---------------------------------------------------------------------------

    \89\ FIF Letter at 3-4; Thomson Reuters Letter at 2-5.
---------------------------------------------------------------------------

    In response the Participants stated that they recognize that the 
definition of Firm Designated ID and the reporting requirements set 
forth in Section 6.3 of the CAT NMS Plan, as well as the parallel 
provisions in the proposed Participant Compliance Rules, including 
FINRA's definition of ``Firm Designated ID'' in Rule 6810 are somewhat 
unclear.\90\ The Participants noted that the Customer Information 
Approach is intended to require that each broker-dealer assign a unique 
Firm Designated ID at the account level, rather than the customer 
level. Accordingly, the Participants state that Section 6.3(d)(i)(A) of 
the CAT NMS Plan, which refers to the assignment of a ``Firm Designated 
ID(s) for each Customer,'' should not be interpreted to mean that each 
Customer must have a unique Firm Designated ID, rather, a Firm 
Designated ID must be assigned at the account level, so that multiple 
Customers may have the same Firm Designated ID. The Participants 
further stated that they will consider issuing additional guidance, 
subject to the approval of the Operating Committee of the CAT NMS Plan, 
to Industry Members on this issue and, as necessary, whether to amend 
the CAT NMS Plan to clarify the use of Firm Designated IDs.
---------------------------------------------------------------------------

    \90\ Participants' Response Letter at 5. The Participants noted 
that Bats BZX Exchange, Inc.'s proposed Rule 4.7(a)(1)(A)(i) and 
4.7(a)(2)(C) refers to ``Customer'' rather than ``account.'' See, 
e.g., Bats BZX Exchange, Inc.'s Proposed Compliance Rule Notice of 
Filing of a Proposed Rule Change to Adopt Rules 4.5 Through 4.16 to 
Implement the Compliance Rule Regarding the National Market System 
Plan Governing the Consolidated Audit Trail, Securities Exchange Act 
Release No. 79927 (February 2, 2017), 82 FR 9874 (February 8, 2017).
---------------------------------------------------------------------------

    One commenter suggested that the Participants consider firms that 
are exempt from reporting to OATS as ``Small Industry Members,'' 
stating that ``this should be so easy and so obviously warranted (given 
the huge incremental cost of first-time order reporting for those firms 
that choose to remain independent and comply) that we cannot imagine 
any objection.'' \91\ This commenter also requested that a cost and 
benefit analysis should be performed to review the impact of the CAT on 
firms currently exempt from OATS.\92\
---------------------------------------------------------------------------

    \91\ Wachtel Letter at 1.
    \92\ Wachtel Letter at 1, 3.
---------------------------------------------------------------------------

    In response, the Participants stated they believe that the 
definition of Small Industry Member for purposes of the CAT NMS Plan 
and Participant Compliance Rules is appropriate and need not be 
amended.\93\ The Participants noted that as a threshold matter, this 
definition was created and adopted by the Commission rather than the 
Participants, and that the definition of ``Small Industry Member'' in 
the CAT NMS Plan refers to the definition of

[[Page 14577]]

``small broker-dealer'' in Rule 613 of Regulation NMS. Rule 
613(a)(3)(v) and (vi) define ``small broker-dealer'' by using the 
definition set forth in Rule 0-10(c) under the Exchange Act.\94\ In 
adopting Rule 613, the Participants noted that the Commission explained 
that defining ``small broker-dealer'' by reference to Rule 0-10(c) ``is 
appropriate because it is an existing regulatory standard that is an 
indication of small entities for which regulators should be sensitive 
when imposing regulatory burden.'' \95\ The Participants stated that 
they cannot modify the definition of ``Small Industry Member'' because 
it is based on the definition of small broker-dealer in Rule 613 and 
that the Commission would have to effectuate any change to the 
requirement that broker-dealers (other than ``small broker-dealers'') 
must report to the CAT no later than two years after the Effective 
Date.\96\ The Participants also noted that after the CAT is operational 
and the Central Repository begins to collect data, the Participants 
will conduct various assessments, as set forth in Section 6.6 of the 
CAT NMS Plan, regarding the operations and efficiency of the Plan 
Processor, CAT and Central Repository. As necessary, the Participants 
will consider whether to amend any requirements in the CAT NMS Plan or 
Proposed Compliance Rules, provided that such amendments are necessary 
or appropriate and comply with Rule 613 of Regulation NMS.
---------------------------------------------------------------------------

    \93\ Participants' Response Letter at 6.
    \94\ Rule 0-10(c) defines a ``small broker-dealer'' as one that 
has total capital of less than $500,000 on the date in the prior 
fiscal year as of which its audited financial statements were filed 
(or on the last business day of the preceding fiscal year if not 
required to file such statements), and those not affiliated with any 
other person that is not a small business or small organization. See 
Rule 0-10(c).
    \95\ See Approval Order, supra note 14 at 45722, 45804.
    \96\ Participants' Response Letter at 6. The Participants added 
that ``[s]eparately, the Commission explained that the CAT NMS Plan 
``attempts to mitigate its impact on [OATS-exempt or excluded 
broker-dealers or limited purpose broker-dealers] by proposing to 
follow a cost allocation formula that should charge lower fees to 
smaller broker-dealers.'' Accordingly, the Participants stated that 
they do not believe that an additional cost-benefit analysis is 
necessary at this time. Participants' Response Letter at 7.
---------------------------------------------------------------------------

V. Discussion and Commission Findings

    After carefully considering the proposed rule change, the comments 
submitted, and the Participants' response to the comments,\97\ the 
Commission finds that the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities association.\98\ Specifically, the Commission finds 
that the proposed rule change is consistent with Section 15A(b)(6) of 
the Act,\99\ which requires, among other things, that FINRA's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest, and are not designed to permit unfair discrimination between 
customers, issuers, brokers or dealers. In addition, the Commission 
finds that the proposed rule change is consistent with Section 
15A(b)(9) of the Act,\100\ which requires that FINRA rules not impose 
any burden on competition that is not necessary or appropriate.
---------------------------------------------------------------------------

    \97\ See supra note 7.
    \98\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \99\ 15 U.S.C. 78o-3(b)(6).
    \100\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

    Rule 613(g) of Regulation NMS provides that each national 
securities exchange and national securities association shall file with 
the Commission pursuant to section 19(b)(2) of the Act and Rule 19b-4 
on or before 60 days from approval of the CAT NMS Plan a proposed rule 
change to require its members to comply with the requirements of this 
section and the national market system plan approved by the Commission. 
In addition, Rule 608(c) of Regulation NMS provides that ``[e]ach self-
regulatory organization shall comply with the terms of any effective 
national market system plan of which it is a sponsor or participant. 
Each self-regulatory organization also shall, absent reasonable 
justification or excuse, enforce compliance with any such plan by its 
members and persons associated with its members.'' \101\ FINRA, as a 
Participant in the Plan, has an obligation to comply, and enforce 
compliance by its members, with the terms of the Plan. Accordingly, 
FINRA filed this proposed rule change to adopt the FINRA Rule 6800 
Series, which would impose compliance obligations on FINRA members. As 
discussed below, the Commission also believes the proposal is 
consistent with the Act because it is designed to assist FINRA in 
meeting its regulatory obligations pursuant to Rule 608 of Regulation 
NMS and the Plan.
---------------------------------------------------------------------------

    \101\ 17 CFR 242.608(c).
---------------------------------------------------------------------------

A. Definitions (Rule 6810)

    The Commission finds that proposed FINRA Rule 6810 is consistent 
with the Act as it implements the CAT NMS Plan. With the exception of 
the term ``CAT Reporting Agent,'' the definitions in proposed Rule 6810 
are consistent with the definitions of Article I, Section 1.1 of the 
CAT NMS Plan. With respect to the inclusion of a definition for ``CAT 
Reporting Agent,'' FINRA notes that 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 an Industry 
Member, and that as defined, a ``CAT Reporting Agent'' would be one 
type of Data Submitter, which term is defined in the CAT NMS Plan.
    The Commission notes that two commenters discussed the need for 
further clarification on the application of the term ``Firm Designated 
ID.'' The Participants responded that the Customer Information Approach 
is intended to require that each broker-dealer assign a unique Firm 
Designated ID at the account level, rather than the customer 
level.\102\ Accordingly, a Firm Designated ID must be assigned at the 
account level, so multiple Customers may be associated with the same 
Firm Designated ID. The Commission believes that the definition of the 
term Firm Designated ID and its applicability to accounts is consistent 
with the Customer Information Approach and the CAT NMS Plan.
---------------------------------------------------------------------------

    \102\ Participants' Response Letter 5.
---------------------------------------------------------------------------

B. Clock Synchronization (Rule 6820)

    The Commission finds that proposed Rule 6820 is consistent with the 
Act as it implements the clock synchronization provisions of the CAT 
NMS Plan. The Commission notes that proposed Rule 6820 sets out the 
clock synchronization requirements for FINRA industry members and that 
these clock synchronization requirements, including the synchronization 
standards, tolerance levels, documentation, certification and violation 
reporting are consistent with and implement the clock synchronization 
requirements of the CAT NMS Plan.
    As noted above, two commenters raised concerns about the clock 
synchronization requirements in proposed Rule 6820, including whether 
the synchronization requirements of the rule apply to Business Clocks 
that capture Manual Order Events; the definition of ``time of 
allocation,'' the necessity of the clock synchronization log; and the 
details concerning the clock synchronization certification. The 
Participants responded by clarifying the applicability of the clock 
synchronization requirements to

[[Page 14578]]

Allocation Reports, and by stating that the Participants intend to work 
with the Plan Processor to define various terms, including ``time of 
allocation,'' and to provide Technical Specifications approved by the 
Operating Committee--relating to time stamps on manual orders and 
electronic capture of manual orders, as well as the ``time of 
allocation''--before Industry Members will be required to report to the 
Central Repository on November 15, 2018 (or November 15, 2019 for Small 
Industry Members) or comply with the February 19, 2018 Business Clock 
synchronization requirement.\103\ The Participants also provided 
further details about the utility of the synchronization logs and 
discussed the clock synchronization certification requirements. The 
Commission believes that the Participants' response is reasonable and 
consistent with the Act.
---------------------------------------------------------------------------

    \103\ Participants' Response Letter at 3. See also Clock 
Synchronization Exemption Request Letter, supra note 75, and Clock 
Synchronization Order, supra note 77.
---------------------------------------------------------------------------

C. Industry Member Data Reporting (Rule 6830)

    The Commission finds that proposed Rule 6830--which sets forth the 
data reporting requirements for Industry Members--is consistent with 
the Act as it implements the data reporting requirements for Industry 
Members that are required by the CAT NMS Plan. As noted above, proposed 
Rule 6830 is divided into five sections which address (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,\104\ and (5) error correction requirements.
---------------------------------------------------------------------------

    \104\ The Commission notes that, with respect to the security 
symbology that must be reported by an Industry Member for an 
Eligible Security that is not Exchange-listed, proposed Rule 
6830(d)(2) states that an Industry Member should use the symbology 
format approved by the Operating Committee. FINRA represents that 
for such securities, there is no listing exchange to provide the 
symbology format and that the requisite symbology format has not 
been determined at this time.
---------------------------------------------------------------------------

D. Customer Information Reporting (Rule 6840)

    The Commission finds that proposed Rule 6840--which sets forth the 
requirements regarding the data reported to the CAT in order to 
identify Customers--is consistent with the Act as it implements the 
reporting provisions of the CAT NMS Plan relating to the identification 
of Customers.

E. Industry Member Information Reporting (Rule 6850)

    The Commission finds that proposed Rule 6850--which sets forth the 
requirements for Industry Members regarding the data that they must 
report to identify such Industry Member, including the timeframe for 
reporting such identifying information--is consistent with the Act as 
it implements the Industry Member reporting provisions of the CAT NMS 
Plan.

F. Time Stamps (Rule 6860)

    The Commission finds that proposed Rule 6860--which sets forth the 
time stamp increments to be used by Industry Members in their CAT 
Reporting--is consistent with the Act as it implements the time stamp 
provisions of the CAT NMS Plan. In general, proposed Rule 6860(a)(1) 
requires Industry Members to record and report Industry Member Data to 
the Central Repository in milliseconds, but paragraph (a)(2) provides 
that, to the extent any Industry Member's order handling or execution 
systems utilize time stamps in increments finer than milliseconds, such 
Industry Member is to record and report Industry Member Data to the 
Central Repository with time stamps in such finer increment. Proposed 
Rule 6860(b) addresses the need for Industry Members to capture Manual 
Order Events 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.

G. Time Stamp and Clock Synchronization Rule Violations (Rule 6865)

    The Commission finds that proposed Rule 6865 is consistent with the 
Act as it implements the clock synchronization rule violation 
provisions of the CAT NMS Plan. The Commission notes that proposed Rule 
6865 describes potential violations of clock synchronization as well as 
the time stamp time period requirements set forth in the CAT NMS Plan, 
and specifically 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 to the 
requirements set forth in the Rule 6800 Series without reasonable 
justification or exceptional circumstances may be considered in 
violation of this Rule.

H. Connectivity and Data Transmission (Rule 6870)

    The Commission finds that proposed Rule 6870--which addresses 
connectivity and data transmission requirements related to the CAT--is 
consistent with the Act as it implements the connectivity and data 
transmission provisions of the CAT NMS Plan. Proposed Rule 6870(a) 
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, and proposed Rule 6870(b) 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). Proposed Rule 6870(c) permits Industry Members to use 
CAT Reporting Agents to fulfill their data reporting obligations 
related to the CAT. The Commission notes that Rule 6870(c) is 
substantively similar to FINRA Rule 7450(c), in that proposed Rule 
6870(c), like FINRA Rule 7450(c), permits OATS Reporting Members to 
enter into agreements with Reporting Agents to fulfill the OATS 
obligations of the OATS Reporting Member, specifies responsibilities 
and procedures for maintaining such agreements between the OATS 
Reporting Member and the Reporting Members, and clarifies that an OATS 
Reporting Member remains primarily responsible for compliance with the 
OATS reporting rules.

I. Development and Testing (Rule 6880)

    The Commission finds that proposed Rule 6880 is consistent with the 
Act as it implements the development and testing provisions of the CAT 
NMS Plan. Proposed Rule 6880(a)(1) addresses Industry Members' 
connectivity and testing requirements, including connectivity and 
acceptance testing timelines. Proposed Rule 6880(a)(2) addresses the 
requirements relating to Industry Members' reporting of Customer and 
Industry Member information. Proposed Rule 6880(a)(3)-(4) addresses the 
submission of order data, including the Quote Sent time to be reported 
by Options Market Makers. Proposed Rule 6880(b) requires that each 
Industry Member shall participate in the testing related to the Central 
Repository, including any industry-wide disaster recovery testing.

J. Recordkeeping (Rule 6890)

    The Commission finds that proposed Rule 6890 is consistent with the 
Act. The Commission notes that proposed Rule 6890 requires each 
Industry Member to maintain and preserve, and specifies the manner in 
which such records must be maintained and preserved, information 
required to be recorded under the proposed Rule 6800

[[Page 14579]]

Series for the period of time and accessibility specified in Rule 17a-
4(b). \105\ Because proposed Rule 6890 incorporate Rule 17a-4(b) and 
implements the recordkeeping provision of the CAT NMS Plan, the 
Commission finds that proposed Rule 6890 is consistent with the Act.
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    \105\ 17 CFR 240.17a-4(b). FINRA also notes that proposed Rule 
6890 is based on Rule 7440(a)(5), which sets forth the recordkeeping 
requirements related to OATS.
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K. Timely, Accurate and Complete Data (Rule 6893)

    The Commission finds that proposed Rule 6893 is consistent with the 
Act as it implements the requirements for reporting timely, accurate 
and complete data to the CAT as set forth in the CAT NMS Plan. FINRA 
notes that proposed Rule 6893 implements the requirement in Rule 613 
and the CAT NMS Plan that data reported to the CAT be timely, accurate 
and complete. Specifically, proposed Rule 6893(a) 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. Proposed 
Rule 6893(b) 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. Proposed Rule 
6893(c) and (d) require Industry Members to be in compliance with the 
Error Rate as set forth in the CAT NMS Plan and the Compliance 
Thresholds as discussed in the CAT NMS Plan and determined by the 
Operating Committee. Proposed Rule 6893 implements the CAT NMS Plan's 
provisions.

L. Compliance Dates (Rule 6895)

    The Commission finds that the compliance dates in proposed Rule 
6895 are consistent with the Act, as they implement the compliance 
dates for reporting data to the CAT as set forth in the CAT NMS Plan 
and an exemptive order issued by the Commission. Proposed Rule 6895(a) 
states that, except as set forth in paragraphs (b) and (c) of the 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.
    Proposed Rule 6895(b)(1) states that each Industry Member that 
captures time in milliseconds shall comply with Rule 6820 with regard 
to Business Clocks on or before March 15, 2017. Paragraph (b)(2) states 
that each Industry Member that does not capture time in milliseconds 
shall comply with Rule 6820 with regard to Business Clocks on or before 
February 19, 2018. The Commission notes that the compliance date set 
forth in proposed Rule 6895(b)(2) reflects the exemptive relief 
requested by the Participants and granted by the Commission with regard 
to the clock synchronization requirements related to Business Clocks 
that do not capture time in milliseconds.\106\
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    \106\ See supra note 77.
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    Proposed Rule 6895(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. Proposed rule 
6895(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.\107\ Proposed Rule 6895(c)(1) and 
(c)(2) implement the CAT NMS Plan's provisions regarding the reporting 
of Industry Member data to the Central Repository.
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    \107\ Such compliance dates are consistent with the compliance 
dates set forth in SEC Rule 613(a)(3)(v) and (vi), and Sections 
6.7(a)(v) and (vi) of the CAT NMS Plan.
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    The Commission notes that one commenter also requested that FINRA 
classify all firms currently exempt from reporting to OATS to be 
classified as a ``Small Industry Member'' as defined by the CAT NMS 
Plan.\108\ The commenter notes that some OATS exempt firms would be 
classified as Large Industry Members but really should be subject to 
the three year implementation timeframe for Small Industry Members. The 
Participants responded that the definition of ``Small Industry Member'' 
is appropriate because it is an existing regulatory standard. The 
Commission believes that the proposed rule change's use of the ``Small 
Industry Member'' definition is consistent with the CAT NMS Plan.
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    \108\ Wachtel Letter at 1.
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    The Commission notes that a commenter suggested that a cost/benefit 
analysis be performed to review the impact of CAT on firms currently 
exempt from reporting to OATS. The Participants responded the 
Commission had already undertaken into account the impact of CAT on 
firms currently exempt from OATS. The Commission likewise notes that it 
took into account the impact of the Plan on firms currently exempt from 
reporting to OATS when it approved the CAT NMS Plan.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-FINRA-2017-003) is approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\109\
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    \109\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05504 Filed 3-20-17; 8:45 am]
 BILLING CODE 8011-01-P