Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change To Eliminate Requirements That Will Be Duplicative of CAT, 25439-25443 [2017-11370]
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Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Section 6(b)(8) of the Exchange Act 23
requires that Exchange rules not impose
any burden on competition that is not
necessary or appropriate. The Exchange
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 Exchange Act. The
Exchange notes that the proposed rule
change implements the requirements of
the CAT NMS Plan approved by the
Commission regarding the elimination
of rules and systems that are duplicative
the CAT, and is designed to assist the
Exchange in meeting its regulatory
obligations pursuant to the Plan.
Similarly, all exchanges and FINRA are
proposing the elimination of their EBS
and other CAT duplicative rules to
implement the requirements of the CAT
NMS Plan. Therefore, this is not a
competitive rule filing and, therefore, it
does not raise competition issues
between and among the self-regulatory
organizations and/or their members.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
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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:
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
PEARL–2017–23 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–PEARL–2017–23. 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–
PEARL–2017–23, and should be
submitted on or before June 22, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–11368 Filed 5–31–17; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80794; File No. SR–
NYSEMKT–2017–30]
Self-Regulatory Organizations; NYSE
MKT 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 22,
2017, NYSE MKT LLC (‘‘NYSE MKT’’ 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 Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to delete the
Order Audit Trail System (‘‘OATS’’)
rules in the Rule 7400—Equities Series
(Order Audit Trail System) and amend
Rule 8211 of the Office Rules
(Automated Submission of Trading Data
Requested by the Exchange) governing
submission of Electronic Blue Sheet
trading data (‘‘EBS’’) as these Rules
provide for the collection of information
that is duplicative of the data collection
requirements of the CAT once the
Financial Industry Regulatory Authority
(‘‘FINRA’’) publishes a notice
announcing the date that it will retire its
OATS and EBS rules. The proposed rule
change is available on the Exchange’s
Web site at www.nyse.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 those 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,
1 15
23 15
U.S.C. 78f(b)(8).
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25439
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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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., 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,
the New York Stock Exchange LLC, the
Exchange, 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.8 The Plan was published for
comment in the Federal Register on
May 17, 2016,9 and approved by the
Commission, as modified, on November
15, 2016.10 On March 21, 2017, the
Commission approved 11 the Exchange’s
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 Release No. 80248 (March 15, 2017),
82 FR 14547 (March 21, 2017) (SR–ISEGemini–
2017–13); Securities Exchange Act Release No.
80326 (March 29, 2017), 82 FR 16460 (April 4,
2017) (SR–ISEMercury–2017–05); and Securities
Exchange Act Release No. 80325 (March 29, 2017),
82 FR 16445 (April 4, 2017) (SR–ISE–2017–25).
4 National Stock Exchange, Inc. has been renamed
NYSE National, Inc. See Securities Exchange Act
Release No. 79902 (January 30, 2017), 82 FR 9258
(February 3, 2017) (SR–NSX–2016–16).
5 15 U.S.C. 78k–1.
6 17 CFR 242.608.
7 See Letter from the Participants to Brent J.
Fields, Secretary, Commission, dated September 30,
2014; and Letter from Participants to Brent J. Fields,
Secretary, Commission, dated February 27, 2015.
On December 24, 2015, the Participants submitted
an amendment to the CAT NMS Plan. See Letter
from Participants to Brent J. Fields, Secretary,
Commission, dated December 23, 2015.
8 17 CFR 242.613.
9 Securities Exchange Act Release No. 77724
(April 27, 2016), 81 FR 30614 (May 17, 2016) (File
No. 4–698).
10 Securities Exchange Act Release No. 79318
(Nov. 15, 2016), 81 FR 84696 (November 23, 2016)
(File No. 4–698) (‘‘Approval Order’’).
11 See Securities Exchange Act Release No. 80256
(March 15, 2017), 82 FR 14526 (March 21, 2017)
(SR–NYSEMKT–2017–02) (Order Approving
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new Rule 6800 Series to implement
provisions of the CAT NMS Plan that
are applicable to Exchange member
organizations.12
The Plan is designed to create,
implement and maintain a 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.
Pursuant to Appendix C of the CAT
NMS Plan, each Participant is required
to conduct analyses of which of its
existing trade and order data rules and
systems require the collection of
information that is duplicative of
information collected for the CAT.13 In
addition, 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.’’ 14 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.’’ 15
After conducting its analysis of its
rules in accordance with the CAT NMS
Plan, the Exchange has determined that
the information collected pursuant to
the OATS and EBS rules is intended to
be collected by CAT. Therefore, the
Exchange believes that the Rule 7400—
Equities Series will no longer be
Proposed Rule Changes to Adopt Consolidated
Audit Trail Compliance Rules).
12 The Rule 6800 Series applies to Exchange
member organizations. The term ‘‘member
organization’’ means a ‘‘registered broker or dealer
(unless exempt pursuant to the Securities Exchange
Act of 1934) (the ‘‘Act’’) that is a member of FINRA
or another registered securities exchange. Member
organizations that transact business with public
customers or conduct business on the Floor of the
Exchange shall at all times be members of FINRA.
A registered broker or dealer must also be approved
by the Exchange and authorized to designate an
associated natural person to effect transactions on
the floor of the Exchange or any facility thereof.
This term shall include a natural person so
registered, approved and licensed who directly
effects transactions on the floor of the Exchange or
any facility thereof.’’ See Rule 2(b)(i)—Equities. The
term ‘‘member organization’’ also includes any
registered broker or dealer that is a member of
FINRA or a registered securities exchange which
does not own a trading license and agrees to be
regulated by the Exchange as a member
organization and which the Exchange has agreed to
regulate. See Rule 2(b)(ii)—Equities. See also Rule
0—Equities (making clear that the proposed rule
applies to transactions conducted on the Equities
Trading Systems).
13 Appendix C of CAT NMS Plan, Approval Order
at 85010.
14 Id.
15 Id.
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necessary once FINRA publishes notice
announcing the date it will retire its
OATS rules. Similarly, the Exchange
believes that it will be necessary to
clarify how the Exchange will request
EBS data under Rule 8211 after
members are reporting to the CAT.
Accordingly, the Exchange proposes to
amend Rule 8211 to add new
Supplementary Material clarifying how
the Exchange will request data under
these rules after member organizations
are reporting to the CAT once FINRA
publishes notice announcing the date it
will retire its OATS rules. Discussed
below is a description of the duplicative
rule requirements as well as the
timeline for eliminating the duplicative
rules.
If the Commission approves the
proposed rule change, the rule text will
be effective; however, the amendments
will not be implemented until FINRA
publishes a notice announcing the date
that it will retire its OATS rules, at
which time the Exchange will publish a
regulatory notice announcing
implementation date of the proposed
rule change. As discussed below, FINRA
will publish its notice once the CAT
achieves certain specific accuracy and
reliability standards and FINRA 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 FINRA to continue to meet its
surveillance obligations,16 and
confirmed that the Plan Processor is
sufficiently meeting all of its obligations
under the CAT NMS Plan.
Duplicative OATS Requirements
The Exchange’s Rule 7400 Series
consists of Rules 7410—Equities
through 7470—Equities and sets forth
the recording and reporting
requirements of the OATS Rules. The
OATS Rules require all Exchange
member organizations and associated
persons to record in electronic form and
report to FINRA, on a daily basis,
certain information with respect to
orders originated, received, transmitted,
modified, canceled, or executed by
16 As noted in the Participants’ September 23,
2016 response to comment letters on the Plan, the
Participants ‘‘worked to keep [the CAT] gap
analyses up-to-date by including newly-added data
fields in these duplicative systems, such as the new
OATS data fields related to the tick size pilot and
ATS order book changes, in the gap analyses.’’
Letter from Participants to Brent J. Fields, Secretary,
Commission, dated September 23, 2016, at 21. The
Participants noted that they ‘‘will work with the
Plan Processor and the industry to develop detailed
Technical Specifications to ensure that by the time
Industry Members are required to report to the CAT,
the CAT will include all data elements necessary
to facilitate the rapid retirement of duplicative
systems.’’ Id.
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members in all NMS stocks, as that term
is defined in Rule 600(b)(47) of
Regulation NMS,17 traded on the
Exchange, including NYSE-listed
securities. This information is used by
FINRA staff to conduct surveillance and
investigations of member firms for
violations of FINRA rules and federal
securities laws. The Exchange has
determined that the requirements of the
Rule 7400—Equities Series are
duplicative of information available in
the CAT and thus will no longer be
necessary once the CAT is operational.
The Participants have provided OATS
technical specifications to the Plan
Processor for the CAT for use in
developing the Technical Specifications
for the CAT, and the Participants are
working with the Plan Processor to
include the necessary OATS data
elements in the CAT Technical
Specifications. Accordingly, the
Exchange proposes to eliminate its
OATS Rules in accordance with the
proposed timeline discussed below.
Timeline for Elimination of Duplicative
Rules
The CAT NMS Plan states that the
elimination of rules that are duplicative
of the requirements of the CAT and the
retirement of the related systems should
be effective at such time as CAT Data
meets minimum standards of accuracy
and reliability.18 As discussed in more
detail in its rule filing, FINRA believes
that OATS may be retired at a date after
all Industry Members are reporting to
the CAT when the proposed error rate
thresholds have been met, and FINRA
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 FINRA to continue to meet its
surveillance obligations, and confirmed
that the Plan Processor is sufficiently
meeting all of its obligations under the
CAT NMS Plan.19
The CAT NMS Plan requires that a
rule filing to eliminate a duplicative
rule address 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.’’ 20
FINRA believes that there is no effective
way to retire OATS until all current
OATS reporters are reporting to the
CAT. As discussed in FINRA’s filing,
FINRA believes that having data from
those Small Industry Members currently
17 17
CFR 242.600(B)(47).
C of CAT NMS Plan, Approval Order
at 85010.
19 See SR–FINRA–2017–013.
20 Id. [sic].
18 Appendix
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reporting to OATS available two years
after the Effective Date would
substantially facilitate a more
expeditious retirement of OATS and
therefore 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).21
The CAT NMS Plan also requires that
this rule filing address ‘‘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.’’ 22
FINRA 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. FINRA believes that that the
overall accuracy and reliability
thresholds for the CAT described above
[sic] would need to be met under any
conditions before firms could stop
reporting to OATS. Moreover, as
discussed above [sic], FINRA supports
amending the Plan to accelerate the
reporting requirements for Small
Industry Members that are OATS
Reporters to report on the same
timeframe as all other OATS Reporters.
If such an amendment were approved
by the Commission, there would be no
need to exempt members from OATS
requirements on a firm-by-firm basis.23
The CAT NMS Plan also requires that
a rule filing to eliminate a duplicative
rule to provide ‘‘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.’’ 24 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
21 See SR–FINRA–2017–013. FINRA has
represented that it 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.
22 Id. [sic].
23 Id.
24 Id. [sic].
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25441
‘‘error rates after reprocessing of error
corrections will be de minimis.’’ 25 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.’’ 26
As set forth in its filing, FINRA
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 FINRA to conduct
surveillance. To ensure the CAT’s
accuracy and reliability, FINRA is thus
proposing that, before OATS could be
retired, the CAT would generally need
to achieve a sustained error rate for
Industry Member reporting 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).27 FINRA is
proposing to measure the 5% precorrection 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. FINRA 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 for Industry
Member reporting while also ensuring
that single-day measurements do not
unduly affect the overall
measurements.28 Consequently, FINRA
is proposing to use error rates in four
categories, measured separately for
options and for equities, to assess
whether the threshold pre- and postcorrection error rates are being met.29
In addition to these minimum error
rates before OATS can be retired FINRA
believes that during the minimum 180day period during which the thresholds
are calculated, FINRA’s use of the data
in the CAT must confirm that (i) usage
over that time period has not revealed
material issues that have not been
25 See CAT NMS Plan, Appendix C, Section
A.3(b), at n.102.
26 Id.
27 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,
Appendix C, Section A.2(a).
28 See SR–FINRA–2017–013.
29 The categories are (1) rejection rates and data
validations; (2) intra-firm linkages; (3) order linkage
rates; and (4) Exchange and TRF/ORF match rates.
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corrected, (ii) the CAT includes all data
necessary to allow the Exchange to
continue to meet its surveillance
obligations, and (iii) the Plan Processor
is sufficiently meeting all of its
obligations under the CAT NMS Plan.
The Exchange 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.30
Rule 8211
In addition to the OATS rules, Rule
8211 will also be affected by the
implementation of the CAT. Rule 8211
is the Exchange’s rule regarding the
automated submission of specific
trading data to the Exchange upon
request (commonly referred to as ‘‘blue
sheet’’ data) using the EBS system.
Once broker-dealer reporting to the
CAT has begun, the CAT will contain
much of the data the Participants would
otherwise have requested via the EBS
system for purposes of NMS Securities
and OTC Equity Securities.
Consequently, the Exchange will not
need to use the EBS system or request
information pursuant to Rule 8211 for
NMS Securities or OTC Equity
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, Rule 8211 cannot
be completely eliminated upon the CAT
achieving the appropriate thresholds
because Exchange staff may still need to
request information pursuant to Rule
8211 for trading activity occurring
before a member organization was
reporting to the CAT.31 In addition, the
Rule 8211 applies to information
regarding transactions involving
securities that will not be reportable to
the CAT, such as fixed-income
securities; thus, the rule must remain in
effect with respect to those transactions
until those transactions are captured in
the CAT.
The proposed rule change proposes to
add new Supplementary Material to the
Rule 8211 to clarify how the Exchange
will request data under these rules after
member organizations are reporting to
the CAT. Specifically, the proposed
30 See
SR–FINRA–2017–013.
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.
31 Firms
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Supplementary Material to the Rule
8211 will note that the Exchange will
request information under Rule 8211
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 or involved securities that are
not reportable to the CAT. In essence,
under the new Supplementary Material,
the Exchange will make requests under
these rules if and only if the information
is not otherwise available through the
CAT.
However, as noted above, FINRA
believes that the CAT must meet certain
minimum accuracy and reliability
standards before FINRA could rely on
the CAT Data to replace existing
regulatory tools, including EBS.
Consequently, the proposed
Supplementary Material will be
implemented only after FINRA
publishes its notice after the CAT
achieves the thresholds set forth above
with respect to OATS and an accuracy
rate for customer and account
information of 95% for pre-corrected
data and 98% for post-correction data.
In addition, as discussed above, FINRA
can rely on CAT Data to replace EBS
requests only after FINRA has
determined that its usage of the CAT
Data over a 180-day period has not
revealed material issues that have not
been corrected, confirmed that the CAT
includes all data necessary to allow
FINRA to continue to meet its
surveillance obligations, and confirmed
that the CAT Plan Processor is fulfilling
its obligations under the CAT NMS
Plan.
As noted, if the Commission approves
the proposed rule change, the Exchange
will announce the implementation date
of the proposed rule change in a
regulatory notice that will be published
once FINRA publishes a notice
announcing the date that it will retire its
EBS rules, which FINRA will do once it
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
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,32 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,33 in particular, because it is
designed to prevent fraudulent and
manipulative acts and practices,
promote just and equitable principles of
trade, to foster cooperation and
32 15
33 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00219
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coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and 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.
In particular, the Exchange believes
that the proposed rule change
implements, supports, interprets or
clarifies the provisions of the Plan, and
is designed to assist the Exchange and
its Members in meeting regulatory
obligations pursuant to, and milestones
established by, the Plan. In approving
the Plan, the SEC noted that it ‘‘is
necessary and appropriate in the public
interest, for the protection of investors
and the maintenance of fair and orderly
markets, to remove impediments to, and
perfect the mechanism of a national
market system, or is otherwise in
furtherance of the purposes of the
Act.’’ 34 To the extent that this proposal
implements, interprets or clarifies the
Plan and applies specific requirements
to Members, the Exchange believes that
this proposal furthers the objectives of
the Plan, as identified by the SEC, and
is therefore consistent with the Act.
The Exchange also believes that
adding a preamble to each current Rule
impacted by the Plan would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system by adding
clarity and transparency to the
Exchange’s rules, reducing potential
confusion, and making the Exchange’s
rules easier to navigate and understand.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed change is not designed to
address any competitive issue but rather
implement provisions of the CAT NMS
Plan, and is designed to assist the
Exchange in meeting its regulatory
obligations pursuant to the Plan.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
34 Approval
Sfmt 4703
E:\FR\FM\01JNN1.SGM
Order, 81 FR at 84697.
01JNN1
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 up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEMKT–2017–30 on the
subject line.
mstockstill on DSK30JT082PROD with NOTICES
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–NYSEMKT–2017–30. 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
18:32 May 31, 2017
Jkt 241001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–11370 Filed 5–31–17; 8:45 am]
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:
VerDate Sep<11>2014
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–
NYSEMKT–2017–30, and should be
submitted on or before June 22, 2017.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80793; File No. SR–
NYSEMKT–2017–29]
Self-Regulatory Organizations; NYSE
MKT 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, NYSE MKT LLC (‘‘NYSE MKT’’ 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 Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to delete
subsections (a)(1)–(13) of Rule 956NY
(Record of Orders) of the Options Rules
as these Rules collect information for
the consolidated options audit trail
system (‘‘COATS’’) that are duplicative
of the data collection requirements of
the CAT NMS Plan. The Exchange will
announce the date for the retirement of
COATS in a regulatory notice that will
be published once the options
exchanges determine that the thresholds
for accuracy and reliability described
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00220
Fmt 4703
Sfmt 4703
25443
below have been met and that the Plan
Processor is sufficiently meeting all of
its obligations under the CAT NMS
Plan. The proposed rule change is
available on the Exchange’s Web site at
www.nyse.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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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, CBOE, 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, the
Exchange, 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
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 Release No. 80248 (March 15, 2017),
82 FR 14547 (March 21, 2017) (SR–ISEGemini–
2017–13); Securities Exchange Act Release No.
80326 (March 29, 2017), 82 FR 16460 (April 4,
2017) (SR–ISEMercury–2017–05); and Securities
Exchange Act Release No. 80325 (March 29, 2017),
82 FR 16445 (April 4, 2017) (SR–ISE–2017–25).
4 National Stock Exchange, Inc. has been renamed
NYSE National, Inc. See Securities Exchange Act
Release No. 79902 (January 30, 2017), 82 FR 9258
(February 3, 2017) (SR–NSX–2016–16).
5 15 U.S.C. 78k–1.
6 17 CFR 242.608.
E:\FR\FM\01JNN1.SGM
01JNN1
]]>Agencies
[Federal Register Volume 82, Number 104 (Thursday, June 1, 2017)]
[Notices]
[Pages 25439-25443]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11370]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80794; File No. SR-NYSEMKT-2017-30]
Self-Regulatory Organizations; NYSE MKT 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 22, 2017, NYSE MKT LLC (``NYSE MKT'' 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 Exchange. 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
The Exchange proposes to delete the Order Audit Trail System
(``OATS'') rules in the Rule 7400--Equities Series (Order Audit Trail
System) and amend Rule 8211 of the Office Rules (Automated Submission
of Trading Data Requested by the Exchange) governing submission of
Electronic Blue Sheet trading data (``EBS'') as these Rules provide for
the collection of information that is duplicative of the data
collection requirements of the CAT once the Financial Industry
Regulatory Authority (``FINRA'') publishes a notice announcing the date
that it will retire its OATS and EBS rules. The proposed rule change is
available on the Exchange's Web site at www.nyse.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 those 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,
[[Page 25440]]
of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
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., 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, the New York Stock
Exchange LLC, the Exchange, 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.\8\ The Plan was published for comment in the Federal
Register on May 17, 2016,\9\ and approved by the Commission, as
modified, on November 15, 2016.\10\ On March 21, 2017, the Commission
approved \11\ the Exchange's new Rule 6800 Series to implement
provisions of the CAT NMS Plan that are applicable to Exchange member
organizations.\12\
---------------------------------------------------------------------------
\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 Release No. 80248 (March 15, 2017), 82 FR 14547 (March 21, 2017)
(SR-ISEGemini-2017-13); Securities Exchange Act Release No. 80326
(March 29, 2017), 82 FR 16460 (April 4, 2017) (SR-ISEMercury-2017-
05); and Securities Exchange Act Release No. 80325 (March 29, 2017),
82 FR 16445 (April 4, 2017) (SR-ISE-2017-25).
\4\ National Stock Exchange, Inc. has been renamed NYSE
National, Inc. See Securities Exchange Act Release No. 79902
(January 30, 2017), 82 FR 9258 (February 3, 2017) (SR-NSX-2016-16).
\5\ 15 U.S.C. 78k-1.
\6\ 17 CFR 242.608.
\7\ See Letter from the Participants to Brent J. Fields,
Secretary, Commission, dated September 30, 2014; and Letter from
Participants to Brent J. Fields, Secretary, Commission, dated
February 27, 2015. On December 24, 2015, the Participants submitted
an amendment to the CAT NMS Plan. See Letter from Participants to
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
\8\ 17 CFR 242.613.
\9\ Securities Exchange Act Release No. 77724 (April 27, 2016),
81 FR 30614 (May 17, 2016) (File No. 4-698).
\10\ Securities Exchange Act Release No. 79318 (Nov. 15, 2016),
81 FR 84696 (November 23, 2016) (File No. 4-698) (``Approval
Order'').
\11\ See Securities Exchange Act Release No. 80256 (March 15,
2017), 82 FR 14526 (March 21, 2017) (SR-NYSEMKT-2017-02) (Order
Approving Proposed Rule Changes to Adopt Consolidated Audit Trail
Compliance Rules).
\12\ The Rule 6800 Series applies to Exchange member
organizations. The term ``member organization'' means a ``registered
broker or dealer (unless exempt pursuant to the Securities Exchange
Act of 1934) (the ``Act'') that is a member of FINRA or another
registered securities exchange. Member organizations that transact
business with public customers or conduct business on the Floor of
the Exchange shall at all times be members of FINRA. A registered
broker or dealer must also be approved by the Exchange and
authorized to designate an associated natural person to effect
transactions on the floor of the Exchange or any facility thereof.
This term shall include a natural person so registered, approved and
licensed who directly effects transactions on the floor of the
Exchange or any facility thereof.'' See Rule 2(b)(i)--Equities. The
term ``member organization'' also includes any registered broker or
dealer that is a member of FINRA or a registered securities exchange
which does not own a trading license and agrees to be regulated by
the Exchange as a member organization and which the Exchange has
agreed to regulate. See Rule 2(b)(ii)--Equities. See also Rule 0--
Equities (making clear that the proposed rule applies to
transactions conducted on the Equities Trading Systems).
---------------------------------------------------------------------------
The Plan is designed to create, implement and maintain a 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. Pursuant to Appendix C
of the CAT NMS Plan, each Participant is required to conduct analyses
of which of its existing trade and order data rules and systems require
the collection of information that is duplicative of information
collected for the CAT.\13\ In addition, 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.'' \14\ 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.'' \15\
---------------------------------------------------------------------------
\13\ Appendix C of CAT NMS Plan, Approval Order at 85010.
\14\ Id.
\15\ Id.
---------------------------------------------------------------------------
After conducting its analysis of its rules in accordance with the
CAT NMS Plan, the Exchange has determined that the information
collected pursuant to the OATS and EBS rules is intended to be
collected by CAT. Therefore, the Exchange believes that the Rule 7400--
Equities Series will no longer be necessary once FINRA publishes notice
announcing the date it will retire its OATS rules. Similarly, the
Exchange believes that it will be necessary to clarify how the Exchange
will request EBS data under Rule 8211 after members are reporting to
the CAT. Accordingly, the Exchange proposes to amend Rule 8211 to add
new Supplementary Material clarifying how the Exchange will request
data under these rules after member organizations are reporting to the
CAT once FINRA publishes notice announcing the date it will retire its
OATS rules. Discussed below is a description of the duplicative rule
requirements as well as the timeline for eliminating the duplicative
rules.
If the Commission approves the proposed rule change, the rule text
will be effective; however, the amendments will not be implemented
until FINRA publishes a notice announcing the date that it will retire
its OATS rules, at which time the Exchange will publish a regulatory
notice announcing implementation date of the proposed rule change. As
discussed below, FINRA will publish its notice once the CAT achieves
certain specific accuracy and reliability standards and FINRA 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 FINRA to continue to meet its surveillance
obligations,\16\ and confirmed that the Plan Processor is sufficiently
meeting all of its obligations under the CAT NMS Plan.
---------------------------------------------------------------------------
\16\ As noted in the Participants' September 23, 2016 response
to comment letters on the Plan, the Participants ``worked to keep
[the CAT] gap analyses up-to-date by including newly-added data
fields in these duplicative systems, such as the new OATS data
fields related to the tick size pilot and ATS order book changes, in
the gap analyses.'' Letter from Participants to Brent J. Fields,
Secretary, Commission, dated September 23, 2016, at 21. The
Participants noted that they ``will work with the Plan Processor and
the industry to develop detailed Technical Specifications to ensure
that by the time Industry Members are required to report to the CAT,
the CAT will include all data elements necessary to facilitate the
rapid retirement of duplicative systems.'' Id.
---------------------------------------------------------------------------
Duplicative OATS Requirements
The Exchange's Rule 7400 Series consists of Rules 7410--Equities
through 7470--Equities and sets forth the recording and reporting
requirements of the OATS Rules. The OATS Rules require all Exchange
member organizations and associated persons to record in electronic
form and report to FINRA, on a daily basis, certain information with
respect to orders originated, received, transmitted, modified,
canceled, or executed by
[[Page 25441]]
members in all NMS stocks, as that term is defined in Rule 600(b)(47)
of Regulation NMS,\17\ traded on the Exchange, including NYSE-listed
securities. This information is used by FINRA staff to conduct
surveillance and investigations of member firms for violations of FINRA
rules and federal securities laws. The Exchange has determined that the
requirements of the Rule 7400--Equities Series are duplicative of
information available in the CAT and thus will no longer be necessary
once the CAT is operational.
---------------------------------------------------------------------------
\17\ 17 CFR 242.600(B)(47).
---------------------------------------------------------------------------
The Participants have provided OATS technical specifications to the
Plan Processor for the CAT for use in developing the Technical
Specifications for the CAT, and the Participants are working with the
Plan Processor to include the necessary OATS data elements in the CAT
Technical Specifications. Accordingly, the Exchange proposes to
eliminate its OATS Rules in accordance with the proposed timeline
discussed below.
Timeline for Elimination of Duplicative Rules
The CAT NMS Plan states that the elimination of rules that are
duplicative of the requirements of the CAT and the retirement of the
related systems should be effective at such time as CAT Data meets
minimum standards of accuracy and reliability.\18\ As discussed in more
detail in its rule filing, FINRA believes that OATS may be retired at a
date after all Industry Members are reporting to the CAT when the
proposed error rate thresholds have been met, and FINRA 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 FINRA to continue to meet its surveillance
obligations, and confirmed that the Plan Processor is sufficiently
meeting all of its obligations under the CAT NMS Plan.\19\
---------------------------------------------------------------------------
\18\ Appendix C of CAT NMS Plan, Approval Order at 85010.
\19\ See SR-FINRA-2017-013.
---------------------------------------------------------------------------
The CAT NMS Plan requires that a rule filing to eliminate a
duplicative rule address 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.'' \20\
FINRA believes that there is no effective way to retire OATS until all
current OATS reporters are reporting to the CAT. As discussed in
FINRA's filing, FINRA believes that having data from those Small
Industry Members currently reporting to OATS available two years after
the Effective Date would substantially facilitate a more expeditious
retirement of OATS and therefore 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).\21\
---------------------------------------------------------------------------
\20\ Id. [sic].
\21\ See SR-FINRA-2017-013. FINRA has represented that it
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.
---------------------------------------------------------------------------
The CAT NMS Plan also requires that this rule filing address
``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.'' \22\
---------------------------------------------------------------------------
\22\ Id. [sic].
---------------------------------------------------------------------------
FINRA 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. FINRA
believes that that the overall accuracy and reliability thresholds for
the CAT described above [sic] would need to be met under any conditions
before firms could stop reporting to OATS. Moreover, as discussed above
[sic], FINRA supports amending the Plan to accelerate the reporting
requirements for Small Industry Members that are OATS Reporters to
report on the same timeframe as all other OATS Reporters. If such an
amendment were approved by the Commission, there would be no need to
exempt members from OATS requirements on a firm-by-firm basis.\23\
---------------------------------------------------------------------------
\23\ Id.
---------------------------------------------------------------------------
The CAT NMS Plan also requires that a rule filing to eliminate a
duplicative rule to provide ``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.'' \24\ 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.'' \25\ 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.'' \26\
---------------------------------------------------------------------------
\24\ Id. [sic].
\25\ See CAT NMS Plan, Appendix C, Section A.3(b), at n.102.
\26\ Id.
---------------------------------------------------------------------------
As set forth in its filing, FINRA 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 FINRA to conduct
surveillance. To ensure the CAT's accuracy and reliability, FINRA is
thus proposing that, before OATS could be retired, the CAT would
generally need to achieve a sustained error rate for Industry Member
reporting 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).\27\ FINRA
is proposing 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. FINRA 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 for Industry Member
reporting while also ensuring that single-day measurements do not
unduly affect the overall measurements.\28\ Consequently, FINRA is
proposing to use error rates in four categories, measured separately
for options and for equities, to assess whether the threshold pre- and
post-correction error rates are being met.\29\
---------------------------------------------------------------------------
\27\ 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, Appendix C,
Section A.2(a).
\28\ See SR-FINRA-2017-013.
\29\ The categories are (1) rejection rates and data
validations; (2) intra-firm linkages; (3) order linkage rates; and
(4) Exchange and TRF/ORF match rates.
---------------------------------------------------------------------------
In addition to these minimum error rates before OATS can be retired
FINRA believes that during the minimum 180-day period during which the
thresholds are calculated, FINRA's use of the data in the CAT must
confirm that (i) usage over that time period has not revealed material
issues that have not been
[[Page 25442]]
corrected, (ii) the CAT includes all data necessary to allow the
Exchange to continue to meet its surveillance obligations, and (iii)
the Plan Processor is sufficiently meeting all of its obligations under
the CAT NMS Plan. The Exchange 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.\30\
---------------------------------------------------------------------------
\30\ See SR-FINRA-2017-013.
---------------------------------------------------------------------------
Rule 8211
In addition to the OATS rules, Rule 8211 will also be affected by
the implementation of the CAT. Rule 8211 is the Exchange's rule
regarding the automated submission of specific trading data to the
Exchange upon request (commonly referred to as ``blue sheet'' data)
using the EBS system.
Once broker-dealer reporting to the CAT has begun, the CAT will
contain much of the data the Participants would otherwise have
requested via the EBS system for purposes of NMS Securities and OTC
Equity Securities. Consequently, the Exchange will not need to use the
EBS system or request information pursuant to Rule 8211 for NMS
Securities or OTC Equity 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, Rule 8211 cannot be
completely eliminated upon the CAT achieving the appropriate thresholds
because Exchange staff may still need to request information pursuant
to Rule 8211 for trading activity occurring before a member
organization was reporting to the CAT.\31\ In addition, the Rule 8211
applies to information regarding transactions involving securities that
will not be reportable to the CAT, such as fixed-income securities;
thus, the rule must remain in effect with respect to those transactions
until those transactions are captured in the CAT.
---------------------------------------------------------------------------
\31\ 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 proposes to add new Supplementary Material
to the Rule 8211 to clarify how the Exchange will request data under
these rules after member organizations are reporting to the CAT.
Specifically, the proposed Supplementary Material to the Rule 8211 will
note that the Exchange will request information under Rule 8211 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 or involved securities that are not reportable
to the CAT. In essence, under the new Supplementary Material, the
Exchange will make requests under these rules if and only if the
information is not otherwise available through the CAT.
However, as noted above, FINRA believes that the CAT must meet
certain minimum accuracy and reliability standards before FINRA could
rely on the CAT Data to replace existing regulatory tools, including
EBS. Consequently, the proposed Supplementary Material will be
implemented only after FINRA publishes its notice after the CAT
achieves the thresholds set forth above with respect to OATS and an
accuracy rate for customer and account information of 95% for pre-
corrected data and 98% for post-correction data. In addition, as
discussed above, FINRA can rely on CAT Data to replace EBS requests
only after FINRA has determined that its usage of the CAT Data over a
180-day period has not revealed material issues that have not been
corrected, confirmed that the CAT includes all data necessary to allow
FINRA to continue to meet its surveillance obligations, and confirmed
that the CAT Plan Processor is fulfilling its obligations under the CAT
NMS Plan.
As noted, if the Commission approves the proposed rule change, the
Exchange will announce the implementation date of the proposed rule
change in a regulatory notice that will be published once FINRA
publishes a notice announcing the date that it will retire its EBS
rules, which FINRA will do once it 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
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\32\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\33\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and 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.
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\32\ 15 U.S.C. 78f(b).
\33\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes that the proposed rule change
implements, supports, interprets or clarifies the provisions of the
Plan, and is designed to assist the Exchange and its Members in meeting
regulatory obligations pursuant to, and milestones established by, the
Plan. In approving the Plan, the SEC noted that it ``is necessary and
appropriate in the public interest, for the protection of investors and
the maintenance of fair and orderly markets, to remove impediments to,
and perfect the mechanism of a national market system, or is otherwise
in furtherance of the purposes of the Act.'' \34\ To the extent that
this proposal implements, interprets or clarifies the Plan and applies
specific requirements to Members, the Exchange believes that this
proposal furthers the objectives of the Plan, as identified by the SEC,
and is therefore consistent with the Act.
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\34\ Approval Order, 81 FR at 84697.
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The Exchange also believes that adding a preamble to each current
Rule impacted by the Plan would remove impediments to and perfect the
mechanism of a free and open market and a national market system by
adding clarity and transparency to the Exchange's rules, reducing
potential confusion, and making the Exchange's rules easier to navigate
and understand.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed change is not
designed to address any competitive issue but rather implement
provisions of the CAT NMS Plan, and is designed to assist the Exchange
in meeting its regulatory obligations pursuant to the Plan.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
[[Page 25443]]
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 up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the 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-NYSEMKT-2017-30 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-NYSEMKT-2017-30. 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-NYSEMKT-2017-30, and should
be submitted on or before June 22, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-11370 Filed 5-31-17; 8:45 am]
BILLING CODE 8011-01-P
