Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Eliminate Requirements That Will Be Duplicative of CAT, 25400-25404 [2017-11364]
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Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
connection with the reorganization were
paid by the applicant.
Filing Dates: The application was
filed on April 20, 2017 and amended on
[DATE].
Applicants’ Address: 333 West
Wacker Drive, Chicago, Illinois 60606.
AB Blended Style Series, Inc.
[File No. 811–21081]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80788; File No. SR–IEX–
2017–18]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing of Proposed Rule Change To
Eliminate Requirements That Will Be
Duplicative of CAT
May 26, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 15,
2017, Investors Exchange LLC (‘‘IEX’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
Alliance New York Municipal Income
Fund
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’), and Rule
19b–4 thereunder, Investors Exchange
LLC (‘‘IEX’’ or ‘‘Exchange’’) is filing
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
a proposed rule change to eliminate
Rule 11.420 (Order Audit Trail System
Requirements) and amend Rule 8.220 to
reflect a change to this rule once
Members are effectively reporting to the
consolidated audit trail (‘‘CAT’’)
adopted pursuant to the National
Market System Plan Governing the
Consolidated Audit Trail (the ‘‘CAT
NMS Plan’’ or ‘‘Plan’’) and the CAT’s
accuracy and reliability meets certain
standards as described below.
The text of the proposed rule change
is available at the Exchange’s Web site
at www.iextrading.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
Summary: Applicant, a closed-end
investment company, seeks an order
declaring that it has ceased to be an
investment company. On September 22,
2015, applicant made a liquidating
distribution to its shareholders, based
on net asset value. Payment was made
on applicant’s senior securities at the
liquidation preference per share in
accordance with their terms. All
remaining amounts were distributed to
common shareholders on the basis of
net assets. Expenses of $114,788
incurred in connection with the
liquidation were paid by the applicant.
Filing Dates: The application was
filed on May 16, 2017 and amended on
May 24, 2017.
Applicant’s Address: 1345 Avenue of
the Americas, New York, NY 10105.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–11346 Filed 5–31–17; 8:45 am]
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BILLING CODE 8011–01–P
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. On November 20,
2015, applicant made a liquidating
distribution to its shareholders, based
on net asset value. Expenses of $19,049
incurred in connection with the
liquidation were paid by the applicant’s
investment adviser.
Filing Date: The application was filed
on May 16, 2017.
Applicant’s Address: 1345 Avenue of
the Americas, New York, New York
10105.
[File No. 811–10577]
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
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(1) Background
Bats BYX Exchange, Inc., Bats BZX
Exchange, Inc., Bats EDGA Exchange,
Inc., Bats EDGX Exchange, Inc., BOX
Options Exchange LLC, C2 Options
Exchange, Incorporated, Chicago Board
Options Exchange, Incorporated,
Chicago Stock Exchange, Inc., Financial
Industry Regulatory Authority, Inc.,
International Securities Exchange, LLC,
Investors Exchange LLC, ISE Gemini,
LLC, ISE Mercury, LLC, Miami
International Securities Exchange LLC,
MIAX PEARL, LLC, NASDAQ BX, Inc.,
NASDAQ PHLX LLC, The NASDAQ
Stock Market LLC, National Stock
Exchange, Inc., New York Stock
Exchange LLC, NYSE MKT LLC, and
NYSE Arca, Inc. (collectively, the
‘‘Participants’’) filed with the
Commission, pursuant to Section 11A of
the Exchange Act 3 and Rule 608 of
Regulation NMS thereunder,4 the CAT
NMS Plan.5 The Participants filed the
Plan to comply with Rule 613 of
Regulation NMS under the Exchange
Act. The Plan was published for
comment in the Federal Register on
May 17, 2016,6 and approved by the
Commission, as modified, on November
15, 2016.7 On March 15, 2017, the
Commission approved the new IEX Rule
Series 11.600 to implement provisions
of the CAT NMS Plan that are
applicable to IEX Members.8
The CAT NMS Plan is designed to
create, implement, and maintain a
consolidated audit trail that will capture
in a single consolidated data source
customer and order event information
for orders in NMS Securities and OTC
3 15
U.S.C. 78k–1.
CFR 242.608.
5 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.
6 Securities Exchange Act Rel. No. 77724 (Apr.
27, 2016), 81 FR 30614 (May 17, 2016).
7 Securities Exchange Act Rel. No. 79318 (Nov.
15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval
Order’’).
8 Securities Exchange Act Rel. No. 80255 (March
15, 2017), 82 FR 14563 (March 21, 2017).
4 17
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Equity Securities, across all markets,
from the time of order inception through
routing, cancellation, modification, or
execution. Among other things, Section
C.9 of Appendix C to the Plan, as
modified by the Commission, requires
each Participant to ‘‘file with the SEC
the relevant rule change filing to
eliminate or modify its duplicative rules
within six (6) months of the SEC’s
approval of the CAT NMS Plan.’’ The
Plan notes that ‘‘the elimination of such
rules and the retirement of such systems
[will] be effective at such time as CAT
Data meets minimum standards of
accuracy and reliability.’’ Finally, the
Plan requires the rule filing to discuss
the following:
(i) Specific accuracy and reliability
standards that will determine when
duplicative systems will be retired,
including, but not limited to, whether
the attainment of a certain Error Rate
should determine when a system
duplicative of the CAT can be retired;
(ii) whether the availability of certain
data from Small Industry Members two
years after the Effective Date would
facilitate a more expeditious retirement
of duplicative systems; and
(iii) whether individual Industry
Members can be exempted from
reporting to duplicative systems once
their CAT reporting meets specified
accuracy and reliability standards,
including, but not limited to, ways in
which establishing cross-system
regulatory functionality or integrating
data from existing systems and the CAT
would facilitate such Individual
Industry Member exemptions.
In response to these requirements, the
proposed rule change deletes Rule
11.420 (the ‘‘OATS Rule’’) 9 and adds
new Supplementary Material to Rule
8.220 once the CAT achieves the
specific accuracy and reliability
standards described below and IEX has
determined that its usage of the CAT
Data has not revealed material issues
that have not been corrected, confirmed
that the CAT includes all data necessary
to allow IEX to continue to meet its
surveillance obligations,10 and
confirmed that the Plan Processor is
9 Rule 11.420 incorporates in relevant part the
requirements of FINRA Rule 7420 through 7460.
10 IEX and the Financial Industry Regulatory
Authority (‘‘FINRA’’) are parties to a regulatory
contract pursuant to which FINRA performs certain
regulatory functions, including applicable
surveillance, on behalf of IEX, subject to IEX’s
oversight. IEX and FINRA are also parties to several
allocation agreements pursuant to Section 17d–1 of
the Act pursuant to which certain other IEX
regulatory functions are allocated to FINRA,
including applicable surveillance. See, e.g.,
Securities Exchange Act Release No. 34–78434 (July
28, 2016), 81 FR 51256 (August 3, 2016) (File No.
4–700).
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sufficiently meeting all of its obligations
under the CAT NMS Plan.
(2) Specific Accuracy and Reliability
Standards
The first issue the Plan requires the
proposed rule change to discuss is
‘‘specific accuracy and reliability
standards that will determine when
duplicative systems will be retired,
including, but not limited to, whether
the attainment of a certain Error Rate
should determine when a system
duplicative of the CAT can be retired.’’
IEX believes that relevant error rates are
the primary, but not the sole, metric by
which to determine the CAT’s accuracy
and reliability and will serve as the
baseline requirement needed before the
OATS Rule can be retired and requests
for trading information pursuant to Rule
8.220 can be adjusted.
As discussed in Section A.3.(b) of
Appendix C to the CAT NMS Plan, the
Participants established an initial Error
Rate, as defined in the Plan, of 5% on
initially submitted data (i.e., data as
submitted by a CAT Reporter before any
required corrections are performed). The
Participants noted in the Plan that their
expectation was that ‘‘error rates after
reprocessing of error corrections will be
de minimis.’’ 11 The Participants based
this Error Rate on their consideration of
‘‘current and historical OATS Error
Rates, the magnitude of new reporting
requirements on the CAT Reporters and
the fact that many CAT Reporters may
have never been obligated to report data
to an audit trail.’’ 12
IEX agrees with the Participants’
conclusion that a 5% pre-correction
threshold ‘‘strikes the balance of
adapting to a new reporting regime,
while ensuring that the data provided to
regulators will be capable of being used
to conduct surveillance and market
reconstruction, as well as having a
sufficient level of accuracy to facilitate
the retirement of existing regulatory
reports and systems where possible.’’ 13
However, IEX believes that, when
assessing the accuracy and reliability of
the data for the purposes of retiring
OATS, the error thresholds should be
measured in more granular ways and
should also include minimum error
rates of post-correction data, which
represents the data most likely to be
used by IEX (or FINRA on its behalf) to
conduct surveillance.14 Although IEX is
proposing to measure the appropriate
error rates in the aggregate, rather than
firm-by-firm, IEX believes that the error
11 See
CAT NMS Plan, at C–23 n.102.
NMS Plan at C–23.
13 CAT NMS Plan at C–24.
14 See note 10 supra.
12 CAT
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rates for equity securities should be
measured separately from options since
options orders are not currently
reported regularly or included in OATS.
To ensure the CAT’s accuracy and
reliability, IEX is proposing that, before
OATS could be retired, the CAT would
need to achieve a sustained error rate in
each of the categories below for a period
of at least 180 days of 5% or lower,
measured on a pre-correction or assubmitted basis and 2% or lower on a
post-correction basis (measured at
T+5).15 IEX proposes to measure the 5%
pre-correction and 2% post-correction
thresholds by averaging the error rate
across the period, not require a 5% precorrection and 2% post-correction
maximum each day for 180 consecutive
days. IEX believes that measuring each
of the thresholds over the course of 180
days will ensure that the CAT
consistently meets minimum accuracy
and reliability thresholds while also
ensuring that single-day measurements
do not unduly affect the overall
measurements. IEX also proposes to
measure the appropriate error rates in
the aggregate, rather than firm-by-firm.
IEX is proposing to use error rates in
each the following categories, measured
separately for equities, to assess whether
the threshold error rates are being met:
• Rejection Rates and Data
Validations. Data validations for the
CAT, while not expected to be designed
the same as OATS, must be functionally
equivalent to OATS in accordance with
the CAT NMS Plan (i.e., the same types
of basic data validations must be
performed by the Plan Processor to
comply with the CAT NMS Plan
requirements). Appendix D of the Plan,
for example, requires that certain file
validations and syntax and context
checks be performed.16 The specific
validations can be determined only after
the Plan Processor has finalized the
Industry Member Technical
Specifications; however, the Plan also
requires the Plan Processor to provide
daily statistics on rejection rates after
the data has been processed, including
the number of files rejected and
accepted, the number of order events
accepted and rejected, and the number
of each type of report rejected. FINRA
[sic] is proposing that, over the 180-day
period, aggregate rejection rates
(measured separately for equities and
options) must be no more than 5% precorrection or 2% post-correction across
all CAT Reporters.
15 The Plan requires that the Plan Processor must
ensure that regulators have access to corrected and
linked order and Customer data by 8:00 a.m.
Eastern Time on T+5. See CAT NMS Plan, at C–15.
16 See CAT NMS Plan, at D–21.
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• Intra-Firm Linkages. The Plan
requires that ‘‘the Plan Processor must
be able to link all related order events
from all CAT Reporters involved in the
lifecycle of an order.’’ 17 At a minimum,
this requirement includes the creation
of an order lifecycle between ‘‘[a]ll order
events handled within an individual
CAT Reporter, including orders routed
to internal desks or departments with
different functions (e.g., an internal
ATS).’’ 18 IEX is proposing that aggregate
intra-firm linkage rates across all
Industry Member Reporters must be at
least 95% pre-correction and 98% postcorrection.
• Inter-Firm Linkages. The order
linkage requirements in the Plan also
require that the Plan Processor be able
to create the lifecycle between orders
routed between broker-dealers.19 IEX is
proposing that at least a 95% precorrection and 98% post-correction
aggregate match rate be achieved for
orders routed between two Industry
Member Reporters.20
• Order Linkage Rates. In addition to
creating linkages within and between
broker-dealers, the Plan also includes
requirements that the Plan Processor be
able to create lifecycles to link various
pieces of related orders. For example,
the Plan requires linkages between
customer orders and ‘‘representative’’
orders created in firm accounts for the
purpose of facilitating a customer order,
various legs of option/equity complex
orders, riskless principal orders, and
orders worked through average price
accounts.21 IEX is proposing that there
be at least a 95% pre-correction and
98% post-correction linkage rate for
multi-legged orders (e.g., related equity/
options orders, VWAP orders, riskless
principal transactions).
• Exchange and TRF/ORF Match
Rates. The Plan requires that an order
lifecycle be created to link ‘‘[o]rders
routed from broker-dealers to
exchanges’’ and ‘‘[e]xecuted orders and
trade reports.’’ 22 IEX is proposing at
least a 95% pre-correction and 98%
post-correction aggregate match rate to
each equity exchange for orders routed
from Industry Members to an exchange
and, for over-the-counter executions, the
same match rate for orders linked to
trade reports.
In addition to these minimum error
rates and matching thresholds that must
be met before OATS can be retired, IEX
17 CAT
NMS Plan, at D–8.
18 Id.
19 Id.
20 This assumes linkage statistics will include
both unlinked route reports and new orders where
no related route report could be found.
21 See CAT NMS Plan, at D–8, D–9.
22 Id. at D–9.
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believes that during the minimum 180day period during which the thresholds
are calculated, FINRA’s use of the data
in the CAT on behalf of IEX must
confirm that (i) usage over that time
period has not revealed material issues
that have not been corrected, (ii) the
CAT includes all data necessary to
allow IEX to continue to meet its
surveillance obligations, and (iii) the
Plan Processor is sufficiently meeting all
of its obligations under the CAT NMS
Plan. IEX believes this time period to
use the CAT Data is necessary to reveal
any errors that may manifest themselves
only after surveillance patterns and
other queries have been run and to
confirm that the Plan Processor is
meeting its obligations and performing
its functions adequately.
(3) Small Industry Member Data
Availability
The second issue the Plan requires the
proposed rule change to address is
‘‘whether the availability of certain data
from Small Industry Members two years
after the Effective Date would facilitate
a more expeditious retirement of
duplicative systems.’’ IEX believes that
there is no effective way to retire OATS
until all current OATS reporters are
reporting to the CAT. Although
Technical Specifications for Industry
Members are not yet available, IEX
believes it would be inefficient, less
reliable, and more costly to attempt to
marry the OATS and CAT databases for
a temporary period to allow some IEX
members to report to CAT while others
continue to report to OATS.
Consequently, IEX believes that if the
Plan is amended and FINRA makes a
rule change 23 such that all Small
Industry Members 24 that are OATS
reporters must report to OATS
beginning in November 2018 rather than
November 2019, it would substantially
facilitate a more expeditious retirement
of OATS. For this reason, IEX supports
an amendment to the Plan that would
require current OATS Reporters that are
23 IEX Rule 11.420 (in relevant part) incorporates
FINRA Rules 7430, 7440 and 7450 related to OATS
reporting, providing that IEX Members must
comply with such rules as if such rules were part
of IEX’s rules.
24 FINRA has identified approximately 300
member firms that currently report to OATS and
meet the definition of ‘‘Small Industry Member;’’
however, only ten of these firms submit information
to OATS on their own behalf, and eight of the ten
firms report very few orders to OATS (e.g., in one
recent month, eight of the ten firms submitted fewer
than 100 reports during the month, with four firms
submitting fewer than 50). The vast majority of
these 300 firms use third parties to fulfill their
reporting obligations, and many of these third
parties will begin reporting to CAT in November
2018. IEX is assessing how many of its Members are
Small Industry Members.
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‘‘Small Industry Members’’ to report two
years after the Effective Date (instead of
three). IEX intends to work with the
other Participants to submit a proposed
amendment to the Plan to require Small
Industry Members that are OATS
Reporters to report two years after the
Effective Date. Based on FINRA’s
assessment of the impact to Small
Industry Members, as described
above,25 IEX believes that the burden on
current OATS Reporters that are ‘‘Small
Industry Members’’ would not be
significant if those firms are required to
report to CAT beginning in November
2018 rather than November 2019. The
burdens, however, are significantly
greater for those firms that are not
reporting to OATS currently; therefore,
IEX does not believe it would be
necessary or appropriate to accelerate
CAT reporting for ‘‘Small Industry
Members’’ that are not currently
reporting to OATS, and IEX would not
support an amendment to the Plan to
accelerate CAT reporting for ‘‘Small
Industry Members’’ that are not
currently OATS Reporters.
(4) Individual Industry Member
Exemptions
The final issue the Plan requires the
proposed rule change to address is
‘‘whether individual Industry Members
can be exempted from reporting to
duplicative systems once their CAT
reporting meets specified accuracy and
reliability standards, including, but not
limited to, ways in which establishing
cross-system regulatory functionality or
integrating data from existing systems
and the CAT would facilitate such
Individual Industry Member
exemptions.’’
IEX believes that a single cut-over
from OATS to CAT is highly preferable
to a firm-by-firm approach and is not
proposing to exempt members from the
OATS requirements on a firm-by-firm
basis. The primary benefit to a firm-byfirm exemptive approach would be to
reduce the amount of time an individual
firm is required to report to a legacy
system (e.g., OATS) if it is also
accurately and reliably reporting to the
CAT. IEX believes that the overall
accuracy and reliability thresholds for
the CAT described above would need to
be met under any conditions before
firms could stop reporting to OATS, and
there is no need to exempt members
from OATS requirements on a firm-byfirm basis.
25 See
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(5) Automated Submission of Trading
Data
In addition to the OATS rules, Rule 8.
[sic] 8.220 (the ‘‘EBS Rule’’) will also be
affected by the implementation of the
CAT. The EBS Rule is IEX’s rule
regarding the automated submission of
specific trading data to IEX (or FINRA
on behalf of IEX) upon request using the
FINRA Electronic Blue Sheet (‘‘EBS’’)
system.
Once broker-dealer reporting to the
CAT has begun, the CAT will contain
the data the Participants would
otherwise have requested via the EBS
system for purposes of NMS Securities.
Consequently, IEX will not need to use
the EBS system or request information
pursuant to the EBS Rule for NMS
Securities for time periods after CAT
reporting has begun if the appropriate
accuracy and reliability thresholds are
achieved, including an acceptable
accuracy rate for customer and account
information. However, the EBS Rule
cannot be completely removed from the
IEX Rulebook immediately upon the
CAT achieving the appropriate
thresholds because IEX staff (or FINRA
staff on behalf of IEX) may still need to
request information pursuant to these
rules for trading activity occurring
before a member was reporting to the
CAT.26
The proposed rule change includes
new Supplementary Material .01 to
clarify how IEX (or FINRA on behalf of
IEX) will request data under these rules
after members are reporting to the CAT.
Specifically, the proposed
Supplementary Material to the rule will
note that IEX (or FINRA on behalf of
IEX) will request information under the
rule only if the information is not
available in the CAT because, for
example, the transactions in question
occurred before the firm was reporting
information to the CAT. In essence,
under the new Supplementary Material,
IEX (or FINRA on behalf of IEX) will
make requests under these rules if and
only if the information is not otherwise
available through the CAT.
However, as noted above, IEX believes
that the CAT must meet certain
minimum accuracy and reliability
standards before IEX could rely on the
CAT Data to replace existing regulatory
tools, including EBS. Consequently, the
proposed Supplementary Material will
be implemented only after the
thresholds set forth above with respect
26 Firms are required to maintain the trade
information for pre-CAT transactions in equities
and options pursuant to applicable rules, such as
books and records retention requirements, for the
relevant time period, which is generally three or six
years, depending upon the record. See 17 CFR
240.17a–3(a), 240.17a–4.
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to OATS and an acceptable accuracy
rate for customer and account
information are achieved and at least a
180-day time period has passed to allow
IEX staff (or FINRA staff on behalf of
IEX) to use the CAT to ensure that it is
functioning at a level sufficient to
ensure that IEX can rely solely on the
CAT for the data and that the CAT Plan
Processor is fulfilling its obligations
under the CAT NMS Plan.
If the Commission approves the
proposed rule change, IEX will
announce the implementation date of
the proposed rule change in a
Regulatory Notice that will be published
once IEX concludes the thresholds for
accuracy and reliability described above
have been met and that the Plan
Processor is sufficiently meeting all of
its obligations under the CAT NMS
Plan.
2. Statutory Basis
IEX believes that the proposed rule
change is consistent with the provisions
of Section 6(b)(5) of the Act,27 which
require, among other things, that the IEX
rules must be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest.
IEX believes that the proposed rule
change fulfills the obligation in the CAT
NMS Plan for IEX to submit a proposed
rule change to eliminate or modify
duplicative rules. IEX believes that the
approach set forth in the proposed rule
change strikes the appropriate balance
between ensuring that IEX is able to
continue to fulfill its statutory
obligation to protect investors and the
public interest by ensuring its
surveillance of market activity remains
accurate and effective while also
establishing a reasonable timeframe for
elimination or modification of its rules
that will be rendered duplicative after
implementation of the CAT.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
IEX does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. IEX notes
that the proposed rule change
implements provisions of the CAT NMS
Plan, and is designed to assist IEX in
meeting its regulatory obligations
pursuant to the Plan. IEX also notes that
the Proposed Rule Series implementing
provisions of the CAT NMS Plan will
apply equally to all firms that trade
NMS Securities. In addition, all national
27 15
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U.S.C. 78f(b)(6).
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25403
securities exchanges and FINRA are
proposing substantially similar rule
filings. Therefore, this is not a
competitive rule filing, and, therefore, it
does not impose a burden on
competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Although written comments on the
proposed rule change were not solicited,
the Participants received comments
from two commenters, the Financial
Information Forum (‘‘FIF’’) and the
Securities Industry and Financial
Markets Association (‘‘SIFMA’’),
regarding the retirement of systems
related to the CAT.28 In its comment
letters, with regard to the retirement of
duplicative systems more generally, FIF
recommended that the Participants
continue the effort to incorporate
current reporting obligations into the
CAT in order to replace existing
reportable systems with the CAT. In
addition, FIF further recommended that,
once a CAT Reporter achieved
satisfactory reporting data quality, the
CAT Reporter should be exempt from
reporting to any duplicative reporting
systems. FIF believed that these
recommendations ‘‘would serve both an
underlying regulatory objective of more
immediate and accurate access to data
as well as an industry objective of
reduced costs and burdens of regulatory
oversight.’’ 29 In its comments about
EBS specifically, FIF stated that the
retirement of the EBS requirements
should be a high priority, and that the
CAT should be designed to include the
requisite data elements to permit the
rapid retirement of EBS.30 Similarly,
SIFMA stated that ‘‘the establishment of
the CAT must be accompanied by the
prompt elimination of duplicative
systems,’’ and ‘‘recommend[ed] that the
initial technical specifications be
designed to facilitate the immediate
retirement of . . . duplicative reporting
systems.’’ 31
28 Letter from William H. Hebert, FIF, to
Participants re: Milestone for Participants’ rule
change filings to eliminate/modify duplicative rules
(Apr. 12, 2017) (‘‘FIF Letter’’); Letter from William
H. Hebert, FIF, to Brent J. Fields, SEC re: Milestone
for Participants’ rule change filings to eliminate/
modify duplicative rules (Apr. 12, 2017); and Letter
from Kenneth E. Bentsen, Jr., SIFMA, to
Participants re: Selection of Thesys as CAT
Processor (Apr. 4, 2017) (‘‘SIFMA Letter’’) at 2.
29 FIF Letter at 2.
30 FIF Letter at 2.
31 SIFMA Letter at 2.
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Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–IEX–
2017–18, and should be submitted on or
before June 22, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–11364 Filed 5–31–17; 8:45 am]
BILLING CODE 8011–01–P
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2017–18 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80785; File No. SR–CBOE–
2017–040]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Establish the Fees for
Industry Members Related to the
National Market System Plan
Governing the Consolidated Audit Trail
mstockstill on DSK30JT082PROD with NOTICES
Paper Comments
May 26, 2017.
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–IEX–2017–18. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
VerDate Sep<11>2014
18:32 May 31, 2017
Jkt 241001
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 16,
2017, Chicago Board Options Exchange,
Incorporated (the ‘‘Exchange’’ or
‘‘CBOE’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
The Exchange proposes to amend its
Fees Schedule to establish the fees for
Industry Members related to the CAT
NMS Plan. The text of the proposed rule
change is available on the Exchange’s
Web site (https://www.cboe.com/
AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00181
Fmt 4703
Sfmt 4703
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Bats BYX Exchange, Inc., Bats BZX
Exchange, Inc., Bats EDGA Exchange,
Inc., Bats EDGX Exchange, Inc., BOX
Options Exchange LLC, C2 Options
Exchange, Incorporated, Chicago Board
Options Exchange, Incorporated,
Chicago Stock Exchange, Inc., Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’), Investors’ Exchange LLC,
Miami International Securities
Exchange, LLC, MIAX PEARL, LLC,
NASDAQ BX, Inc., Nasdaq GEMX, LLC,
Nasdaq ISE, LLC, Nasdaq MRX, LLC,3
NASDAQ PHLX LLC, The NASDAQ
Stock Market LLC, New York Stock
Exchange LLC, NYSE MKT LLC, NYSE
Arca, Inc. and NYSE National, Inc.4
(collectively, the ‘‘Participants’’) filed
with the Commission, pursuant to
Section 11A of the Exchange Act 5 and
Rule 608 of Regulation NMS
thereunder,6 the CAT NMS Plan.7 The
Participants filed the Plan to comply
with Rule 613 of Regulation NMS under
the Exchange Act. The Plan was
published for comment in the Federal
3 ISE Gemini, LLC, ISE Mercury, LLC and
International Securities Exchange, LLC have been
renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC,
and Nasdaq ISE, LLC, respectively. See Securities
Exchange Act Rel. No. 80248 (Mar. 15, 2017), 82 FR
14547 (Mar. 21, 2017); Securities Exchange Act Rel.
No. 80326 (Mar. 29, 2017), 82 FR 16460 (Apr. 4,
2017); and Securities Exchange Act Rel. No. 80325
(Mar. 29, 2017), 82 FR 16445 (Apr. 4, 2017).
4 National Stock Exchange, Inc. has been renamed
NYSE National, Inc. See Securities Exchange Act
Rel. No. 79902 (Jan. 30, 2017), 82 FR 9258 (Feb. 3,
2017).
5 15 U.S.C. 78k–1.
6 17 CFR 242.608.
7 See Letter from the Participants to Brent J.
Fields, Secretary, Commission, dated September 30,
2014; and Letter from Participants to Brent J. Fields,
Secretary, Commission, dated February 27, 2015.
On December 24, 2015, the Participants submitted
an amendment to the CAT NMS Plan. See Letter
from Participants to Brent J. Fields, Secretary,
Commission, dated December 23, 2015.
E:\FR\FM\01JNN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 104 (Thursday, June 1, 2017)]
[Notices]
[Pages 25400-25404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11364]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80788; File No. SR-IEX-2017-18]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing of Proposed Rule Change To Eliminate Requirements That Will Be
Duplicative of CAT
May 26, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 15, 2017, Investors Exchange LLC (``IEX'' or the ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act''), and Rule 19b-4 thereunder,
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the
Securities and Exchange Commission (``SEC'' or ``Commission'') a
proposed rule change to eliminate Rule 11.420 (Order Audit Trail System
Requirements) and amend Rule 8.220 to reflect a change to this rule
once Members are effectively reporting to the consolidated audit trail
(``CAT'') adopted pursuant to the National Market System Plan Governing
the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'') and the
CAT's accuracy and reliability meets certain standards as described
below.
The text of the proposed rule change is available at the Exchange's
Web site at www.iextrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
(1) Background
Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA
Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2
Options Exchange, Incorporated, Chicago Board Options Exchange,
Incorporated, Chicago Stock Exchange, Inc., Financial Industry
Regulatory Authority, Inc., International Securities Exchange, LLC,
Investors Exchange LLC, ISE Gemini, LLC, ISE Mercury, LLC, Miami
International Securities Exchange LLC, MIAX PEARL, LLC, NASDAQ BX,
Inc., NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, National Stock
Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and NYSE
Arca, Inc. (collectively, the ``Participants'') filed with the
Commission, pursuant to Section 11A of the Exchange Act \3\ and Rule
608 of Regulation NMS thereunder,\4\ the CAT NMS Plan.\5\ The
Participants filed the Plan to comply with Rule 613 of Regulation NMS
under the Exchange Act. The Plan was published for comment in the
Federal Register on May 17, 2016,\6\ and approved by the Commission, as
modified, on November 15, 2016.\7\ On March 15, 2017, the Commission
approved the new IEX Rule Series 11.600 to implement provisions of the
CAT NMS Plan that are applicable to IEX Members.\8\
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78k-1.
\4\ 17 CFR 242.608.
\5\ 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.
\6\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81
FR 30614 (May 17, 2016).
\7\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81
FR 84696 (Nov. 23, 2016) (``Approval Order'').
\8\ Securities Exchange Act Rel. No. 80255 (March 15, 2017), 82
FR 14563 (March 21, 2017).
---------------------------------------------------------------------------
The CAT NMS Plan is designed to create, implement, and maintain a
consolidated audit trail that will capture in a single consolidated
data source customer and order event information for orders in NMS
Securities and OTC
[[Page 25401]]
Equity Securities, across all markets, from the time of order inception
through routing, cancellation, modification, or execution. Among other
things, Section C.9 of Appendix C to the Plan, as modified by the
Commission, requires each Participant to ``file with the SEC the
relevant rule change filing to eliminate or modify its duplicative
rules within six (6) months of the SEC's approval of the CAT NMS
Plan.'' The Plan notes that ``the elimination of such rules and the
retirement of such systems [will] be effective at such time as CAT Data
meets minimum standards of accuracy and reliability.'' Finally, the
Plan requires the rule filing to discuss the following:
(i) Specific accuracy and reliability standards that will determine
when duplicative systems will be retired, including, but not limited
to, whether the attainment of a certain Error Rate should determine
when a system duplicative of the CAT can be retired;
(ii) whether the availability of certain data from Small Industry
Members two years after the Effective Date would facilitate a more
expeditious retirement of duplicative systems; and
(iii) whether individual Industry Members can be exempted from
reporting to duplicative systems once their CAT reporting meets
specified accuracy and reliability standards, including, but not
limited to, ways in which establishing cross-system regulatory
functionality or integrating data from existing systems and the CAT
would facilitate such Individual Industry Member exemptions.
In response to these requirements, the proposed rule change deletes
Rule 11.420 (the ``OATS Rule'') \9\ and adds new Supplementary Material
to Rule 8.220 once the CAT achieves the specific accuracy and
reliability standards described below and IEX has determined that its
usage of the CAT Data has not revealed material issues that have not
been corrected, confirmed that the CAT includes all data necessary to
allow IEX to continue to meet its surveillance obligations,\10\ and
confirmed that the Plan Processor is sufficiently meeting all of its
obligations under the CAT NMS Plan.
---------------------------------------------------------------------------
\9\ Rule 11.420 incorporates in relevant part the requirements
of FINRA Rule 7420 through 7460.
\10\ IEX and the Financial Industry Regulatory Authority
(``FINRA'') are parties to a regulatory contract pursuant to which
FINRA performs certain regulatory functions, including applicable
surveillance, on behalf of IEX, subject to IEX's oversight. IEX and
FINRA are also parties to several allocation agreements pursuant to
Section 17d-1 of the Act pursuant to which certain other IEX
regulatory functions are allocated to FINRA, including applicable
surveillance. See, e.g., Securities Exchange Act Release No. 34-
78434 (July 28, 2016), 81 FR 51256 (August 3, 2016) (File No. 4-
700).
---------------------------------------------------------------------------
(2) Specific Accuracy and Reliability Standards
The first issue the Plan requires the proposed rule change to
discuss is ``specific accuracy and reliability standards that will
determine when duplicative systems will be retired, including, but not
limited to, whether the attainment of a certain Error Rate should
determine when a system duplicative of the CAT can be retired.'' IEX
believes that relevant error rates are the primary, but not the sole,
metric by which to determine the CAT's accuracy and reliability and
will serve as the baseline requirement needed before the OATS Rule can
be retired and requests for trading information pursuant to Rule 8.220
can be adjusted.
As discussed in Section A.3.(b) of Appendix C to the CAT NMS Plan,
the Participants established an initial Error Rate, as defined in the
Plan, of 5% on initially submitted data (i.e., data as submitted by a
CAT Reporter before any required corrections are performed). The
Participants noted in the Plan that their expectation was that ``error
rates after reprocessing of error corrections will be de minimis.''
\11\ The Participants based this Error Rate on their consideration of
``current and historical OATS Error Rates, the magnitude of new
reporting requirements on the CAT Reporters and the fact that many CAT
Reporters may have never been obligated to report data to an audit
trail.'' \12\
---------------------------------------------------------------------------
\11\ See CAT NMS Plan, at C-23 n.102.
\12\ CAT NMS Plan at C-23.
---------------------------------------------------------------------------
IEX agrees with the Participants' conclusion that a 5% pre-
correction threshold ``strikes the balance of adapting to a new
reporting regime, while ensuring that the data provided to regulators
will be capable of being used to conduct surveillance and market
reconstruction, as well as having a sufficient level of accuracy to
facilitate the retirement of existing regulatory reports and systems
where possible.'' \13\ However, IEX believes that, when assessing the
accuracy and reliability of the data for the purposes of retiring OATS,
the error thresholds should be measured in more granular ways and
should also include minimum error rates of post-correction data, which
represents the data most likely to be used by IEX (or FINRA on its
behalf) to conduct surveillance.\14\ Although IEX is proposing to
measure the appropriate error rates in the aggregate, rather than firm-
by-firm, IEX believes that the error rates for equity securities should
be measured separately from options since options orders are not
currently reported regularly or included in OATS.
---------------------------------------------------------------------------
\13\ CAT NMS Plan at C-24.
\14\ See note 10 supra.
---------------------------------------------------------------------------
To ensure the CAT's accuracy and reliability, IEX is proposing
that, before OATS could be retired, the CAT would need to achieve a
sustained error rate in each of the categories below for a period of at
least 180 days of 5% or lower, measured on a pre-correction or as-
submitted basis and 2% or lower on a post-correction basis (measured at
T+5).\15\ IEX proposes to measure the 5% pre-correction and 2% post-
correction thresholds by averaging the error rate across the period,
not require a 5% pre-correction and 2% post-correction maximum each day
for 180 consecutive days. IEX believes that measuring each of the
thresholds over the course of 180 days will ensure that the CAT
consistently meets minimum accuracy and reliability thresholds while
also ensuring that single-day measurements do not unduly affect the
overall measurements. IEX also proposes to measure the appropriate
error rates in the aggregate, rather than firm-by-firm.
---------------------------------------------------------------------------
\15\ The Plan requires that the Plan Processor must ensure that
regulators have access to corrected and linked order and Customer
data by 8:00 a.m. Eastern Time on T+5. See CAT NMS Plan, at C-15.
---------------------------------------------------------------------------
IEX is proposing to use error rates in each the following
categories, measured separately for equities, to assess whether the
threshold error rates are being met:
Rejection Rates and Data Validations. Data validations for
the CAT, while not expected to be designed the same as OATS, must be
functionally equivalent to OATS in accordance with the CAT NMS Plan
(i.e., the same types of basic data validations must be performed by
the Plan Processor to comply with the CAT NMS Plan requirements).
Appendix D of the Plan, for example, requires that certain file
validations and syntax and context checks be performed.\16\ The
specific validations can be determined only after the Plan Processor
has finalized the Industry Member Technical Specifications; however,
the Plan also requires the Plan Processor to provide daily statistics
on rejection rates after the data has been processed, including the
number of files rejected and accepted, the number of order events
accepted and rejected, and the number of each type of report rejected.
FINRA [sic] is proposing that, over the 180-day period, aggregate
rejection rates (measured separately for equities and options) must be
no more than 5% pre-correction or 2% post-correction across all CAT
Reporters.
---------------------------------------------------------------------------
\16\ See CAT NMS Plan, at D-21.
---------------------------------------------------------------------------
[[Page 25402]]
Intra-Firm Linkages. The Plan requires that ``the Plan
Processor must be able to link all related order events from all CAT
Reporters involved in the lifecycle of an order.'' \17\ At a minimum,
this requirement includes the creation of an order lifecycle between
``[a]ll order events handled within an individual CAT Reporter,
including orders routed to internal desks or departments with different
functions (e.g., an internal ATS).'' \18\ IEX is proposing that
aggregate intra-firm linkage rates across all Industry Member Reporters
must be at least 95% pre-correction and 98% post-correction.
---------------------------------------------------------------------------
\17\ CAT NMS Plan, at D-8.
\18\ Id.
---------------------------------------------------------------------------
Inter-Firm Linkages. The order linkage requirements in the
Plan also require that the Plan Processor be able to create the
lifecycle between orders routed between broker-dealers.\19\ IEX is
proposing that at least a 95% pre-correction and 98% post-correction
aggregate match rate be achieved for orders routed between two Industry
Member Reporters.\20\
---------------------------------------------------------------------------
\19\ Id.
\20\ This assumes linkage statistics will include both unlinked
route reports and new orders where no related route report could be
found.
---------------------------------------------------------------------------
Order Linkage Rates. In addition to creating linkages
within and between broker-dealers, the Plan also includes requirements
that the Plan Processor be able to create lifecycles to link various
pieces of related orders. For example, the Plan requires linkages
between customer orders and ``representative'' orders created in firm
accounts for the purpose of facilitating a customer order, various legs
of option/equity complex orders, riskless principal orders, and orders
worked through average price accounts.\21\ IEX is proposing that there
be at least a 95% pre-correction and 98% post-correction linkage rate
for multi-legged orders (e.g., related equity/options orders, VWAP
orders, riskless principal transactions).
---------------------------------------------------------------------------
\21\ See CAT NMS Plan, at D-8, D-9.
---------------------------------------------------------------------------
Exchange and TRF/ORF Match Rates. The Plan requires that
an order lifecycle be created to link ``[o]rders routed from broker-
dealers to exchanges'' and ``[e]xecuted orders and trade reports.''
\22\ IEX is proposing at least a 95% pre-correction and 98% post-
correction aggregate match rate to each equity exchange for orders
routed from Industry Members to an exchange and, for over-the-counter
executions, the same match rate for orders linked to trade reports.
---------------------------------------------------------------------------
\22\ Id. at D-9.
---------------------------------------------------------------------------
In addition to these minimum error rates and matching thresholds
that must be met before OATS can be retired, IEX believes that during
the minimum 180-day period during which the thresholds are calculated,
FINRA's use of the data in the CAT on behalf of IEX must confirm that
(i) usage over that time period has not revealed material issues that
have not been corrected, (ii) the CAT includes all data necessary to
allow IEX to continue to meet its surveillance obligations, and (iii)
the Plan Processor is sufficiently meeting all of its obligations under
the CAT NMS Plan. IEX believes this time period to use the CAT Data is
necessary to reveal any errors that may manifest themselves only after
surveillance patterns and other queries have been run and to confirm
that the Plan Processor is meeting its obligations and performing its
functions adequately.
(3) Small Industry Member Data Availability
The second issue the Plan requires the proposed rule change to
address is ``whether the availability of certain data from Small
Industry Members two years after the Effective Date would facilitate a
more expeditious retirement of duplicative systems.'' IEX believes that
there is no effective way to retire OATS until all current OATS
reporters are reporting to the CAT. Although Technical Specifications
for Industry Members are not yet available, IEX believes it would be
inefficient, less reliable, and more costly to attempt to marry the
OATS and CAT databases for a temporary period to allow some IEX members
to report to CAT while others continue to report to OATS. Consequently,
IEX believes that if the Plan is amended and FINRA makes a rule change
\23\ such that all Small Industry Members \24\ that are OATS reporters
must report to OATS beginning in November 2018 rather than November
2019, it would substantially facilitate a more expeditious retirement
of OATS. For this reason, IEX supports an amendment to the Plan that
would require current OATS Reporters that are ``Small Industry
Members'' to report two years after the Effective Date (instead of
three). IEX intends to work with the other Participants to submit a
proposed amendment to the Plan to require Small Industry Members that
are OATS Reporters to report two years after the Effective Date. Based
on FINRA's assessment of the impact to Small Industry Members, as
described above,\25\ IEX believes that the burden on current OATS
Reporters that are ``Small Industry Members'' would not be significant
if those firms are required to report to CAT beginning in November 2018
rather than November 2019. The burdens, however, are significantly
greater for those firms that are not reporting to OATS currently;
therefore, IEX does not believe it would be necessary or appropriate to
accelerate CAT reporting for ``Small Industry Members'' that are not
currently reporting to OATS, and IEX would not support an amendment to
the Plan to accelerate CAT reporting for ``Small Industry Members''
that are not currently OATS Reporters.
---------------------------------------------------------------------------
\23\ IEX Rule 11.420 (in relevant part) incorporates FINRA Rules
7430, 7440 and 7450 related to OATS reporting, providing that IEX
Members must comply with such rules as if such rules were part of
IEX's rules.
\24\ FINRA has identified approximately 300 member firms that
currently report to OATS and meet the definition of ``Small Industry
Member;'' however, only ten of these firms submit information to
OATS on their own behalf, and eight of the ten firms report very few
orders to OATS (e.g., in one recent month, eight of the ten firms
submitted fewer than 100 reports during the month, with four firms
submitting fewer than 50). The vast majority of these 300 firms use
third parties to fulfill their reporting obligations, and many of
these third parties will begin reporting to CAT in November 2018.
IEX is assessing how many of its Members are Small Industry Members.
\25\ See supra note 24.
---------------------------------------------------------------------------
(4) Individual Industry Member Exemptions
The final issue the Plan requires the proposed rule change to
address is ``whether individual Industry Members can be exempted from
reporting to duplicative systems once their CAT reporting meets
specified accuracy and reliability standards, including, but not
limited to, ways in which establishing cross-system regulatory
functionality or integrating data from existing systems and the CAT
would facilitate such Individual Industry Member exemptions.''
IEX believes that a single cut-over from OATS to CAT is highly
preferable to a firm-by-firm approach and is not proposing to exempt
members from the OATS requirements on a firm-by-firm basis. The primary
benefit to a firm-by-firm exemptive approach would be to reduce the
amount of time an individual firm is required to report to a legacy
system (e.g., OATS) if it is also accurately and reliably reporting to
the CAT. IEX believes that the overall accuracy and reliability
thresholds for the CAT described above would need to be met under any
conditions before firms could stop reporting to OATS, and there is no
need to exempt members from OATS requirements on a firm-by-firm basis.
[[Page 25403]]
(5) Automated Submission of Trading Data
In addition to the OATS rules, Rule 8. [sic] 8.220 (the ``EBS
Rule'') will also be affected by the implementation of the CAT. The EBS
Rule is IEX's rule regarding the automated submission of specific
trading data to IEX (or FINRA on behalf of IEX) upon request using the
FINRA Electronic Blue Sheet (``EBS'') system.
Once broker-dealer reporting to the CAT has begun, the CAT will
contain the data the Participants would otherwise have requested via
the EBS system for purposes of NMS Securities. Consequently, IEX will
not need to use the EBS system or request information pursuant to the
EBS Rule for NMS Securities for time periods after CAT reporting has
begun if the appropriate accuracy and reliability thresholds are
achieved, including an acceptable accuracy rate for customer and
account information. However, the EBS Rule cannot be completely removed
from the IEX Rulebook immediately upon the CAT achieving the
appropriate thresholds because IEX staff (or FINRA staff on behalf of
IEX) may still need to request information pursuant to these rules for
trading activity occurring before a member was reporting to the
CAT.\26\
---------------------------------------------------------------------------
\26\ Firms are required to maintain the trade information for
pre-CAT transactions in equities and options pursuant to applicable
rules, such as books and records retention requirements, for the
relevant time period, which is generally three or six years,
depending upon the record. See 17 CFR 240.17a-3(a), 240.17a-4.
---------------------------------------------------------------------------
The proposed rule change includes new Supplementary Material .01 to
clarify how IEX (or FINRA on behalf of IEX) will request data under
these rules after members are reporting to the CAT. Specifically, the
proposed Supplementary Material to the rule will note that IEX (or
FINRA on behalf of IEX) will request information under the rule only if
the information is not available in the CAT because, for example, the
transactions in question occurred before the firm was reporting
information to the CAT. In essence, under the new Supplementary
Material, IEX (or FINRA on behalf of IEX) will make requests under
these rules if and only if the information is not otherwise available
through the CAT.
However, as noted above, IEX believes that the CAT must meet
certain minimum accuracy and reliability standards before IEX could
rely on the CAT Data to replace existing regulatory tools, including
EBS. Consequently, the proposed Supplementary Material will be
implemented only after the thresholds set forth above with respect to
OATS and an acceptable accuracy rate for customer and account
information are achieved and at least a 180-day time period has passed
to allow IEX staff (or FINRA staff on behalf of IEX) to use the CAT to
ensure that it is functioning at a level sufficient to ensure that IEX
can rely solely on the CAT for the data and that the CAT Plan Processor
is fulfilling its obligations under the CAT NMS Plan.
If the Commission approves the proposed rule change, IEX will
announce the implementation date of the proposed rule change in a
Regulatory Notice that will be published once IEX concludes the
thresholds for accuracy and reliability described above have been met
and that the Plan Processor is sufficiently meeting all of its
obligations under the CAT NMS Plan.
2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions of Section 6(b)(5) of the Act,\27\ which require, among
other things, that the IEX rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. IEX believes that the proposed rule change fulfills
the obligation in the CAT NMS Plan for IEX to submit a proposed rule
change to eliminate or modify duplicative rules. IEX believes that the
approach set forth in the proposed rule change strikes the appropriate
balance between ensuring that IEX is able to continue to fulfill its
statutory obligation to protect investors and the public interest by
ensuring its surveillance of market activity remains accurate and
effective while also establishing a reasonable timeframe for
elimination or modification of its rules that will be rendered
duplicative after implementation of the CAT.
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\27\ 15 U.S.C. 78f(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
IEX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. IEX notes that the proposed
rule change implements provisions of the CAT NMS Plan, and is designed
to assist IEX in meeting its regulatory obligations pursuant to the
Plan. IEX also notes that the Proposed Rule Series implementing
provisions of the CAT NMS Plan will apply equally to all firms that
trade NMS Securities. In addition, all national securities exchanges
and FINRA are proposing substantially similar rule filings. Therefore,
this is not a competitive rule filing, and, therefore, it does not
impose a burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Although written comments on the proposed rule change were not
solicited, the Participants received comments from two commenters, the
Financial Information Forum (``FIF'') and the Securities Industry and
Financial Markets Association (``SIFMA''), regarding the retirement of
systems related to the CAT.\28\ In its comment letters, with regard to
the retirement of duplicative systems more generally, FIF recommended
that the Participants continue the effort to incorporate current
reporting obligations into the CAT in order to replace existing
reportable systems with the CAT. In addition, FIF further recommended
that, once a CAT Reporter achieved satisfactory reporting data quality,
the CAT Reporter should be exempt from reporting to any duplicative
reporting systems. FIF believed that these recommendations ``would
serve both an underlying regulatory objective of more immediate and
accurate access to data as well as an industry objective of reduced
costs and burdens of regulatory oversight.'' \29\ In its comments about
EBS specifically, FIF stated that the retirement of the EBS
requirements should be a high priority, and that the CAT should be
designed to include the requisite data elements to permit the rapid
retirement of EBS.\30\ Similarly, SIFMA stated that ``the establishment
of the CAT must be accompanied by the prompt elimination of duplicative
systems,'' and ``recommend[ed] that the initial technical
specifications be designed to facilitate the immediate retirement of .
. . duplicative reporting systems.'' \31\
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\28\ Letter from William H. Hebert, FIF, to Participants re:
Milestone for Participants' rule change filings to eliminate/modify
duplicative rules (Apr. 12, 2017) (``FIF Letter''); Letter from
William H. Hebert, FIF, to Brent J. Fields, SEC re: Milestone for
Participants' rule change filings to eliminate/modify duplicative
rules (Apr. 12, 2017); and Letter from Kenneth E. Bentsen, Jr.,
SIFMA, to Participants re: Selection of Thesys as CAT Processor
(Apr. 4, 2017) (``SIFMA Letter'') at 2.
\29\ FIF Letter at 2.
\30\ FIF Letter at 2.
\31\ SIFMA Letter at 2.
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[[Page 25404]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-IEX-2017-18 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-IEX-2017-18. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-IEX-2017-18, and should be
submitted on or before June 22, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-11364 Filed 5-31-17; 8:45 am]
BILLING CODE 8011-01-P
