Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change To Eliminate Requirements That Will Be Duplicative of CAT, 25429-25433 [2017-11373]

Download as PDF Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices reporting requirements should be replaced by the CAT reporting requirements as soon as accurate and reliable CAT Data is available. To this end, FINRA anticipates that the CAT will be designed to collect the data necessary to permit the retirement of OATS. As discussed above, FINRA disagrees with the recommendation to provide individual exemptions to those CAT Reporters who obtain satisfactory data reporting quality; however, FINRA supports amendments to the CAT NMS Plan that would accelerate reporting for Small Industry Members that are currently reporting to OATS to facilitate the retirement of OATS. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: mstockstill on DSK30JT082PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– FINRA–2017–013 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–FINRA–2017–013. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the VerDate Sep<11>2014 18:32 May 31, 2017 Jkt 241001 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 FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA– 2017–013 and should be submitted on or before June 22, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.42 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–11359 Filed 5–31–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80797; File No. SR–CBOE– 2017–041] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; 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 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 15, 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 42 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. PO 00000 Frm 00206 Fmt 4703 Sfmt 4703 25429 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 modify requirements for the collection of information that is duplicative of information intended to be collected for the consolidated audit trail (‘‘CAT’’) adopted pursuant to the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’).3 The Exchange will announce the implementation date of the proposed rule change and effective date of the retirement of any related systems by Regulatory Circular that will be published once the options exchanges determine the thresholds for accuracy and reliability described below have been met and that the Plan Processor for CAT is sufficiently meeting all of its obligations under the CAT NMS Plan. The text of the proposed rule change is available on the Exchange’s Web site (http://www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, 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 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. 3 Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth herein, or in the CAT Compliance Rule Series or in the CAT NMS Plan. E:\FR\FM\01JNN1.SGM 01JNN1 25430 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES (‘‘FINRA’’), Investors’ Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC,4 NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, NYSE Arca, Inc. and NYSE National, Inc.5 (collectively, the ‘‘Participants’’) filed with the Commission, pursuant to Section 11A of the Exchange Act 6 and Rule 608 of Regulation NMS thereunder,7 the CAT NMS Plan.8 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, 2016,9 and approved by the Commission, as modified, on November 15, 2016.10 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.11 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 4 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). 5 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). 6 15 U.S.C. 78k–1. 7 17 CFR 242.608. 8 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. 9 Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016). 10 Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval Order’’). 11 Appendix C of CAT NMS Plan, Approval Order at 85010. VerDate Sep<11>2014 18:32 May 31, 2017 Jkt 241001 approval of the CAT NMS Plan.’’ 12 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.’’ 13 After conducting its analysis of its rules in accordance with the CAT NMS Plan, the Exchange determined Rule 6.24 includes references to COATS, which will be retired in accordance with the proposed timeline discussed below, and Rules 6.24(c), 8.9(b) and 15.7 require the reporting of information intended to be collected by the CAT. Therefore, the Exchange believes those provisions will no longer be necessary once the CAT is operational and proposes to modify those Rules as described below. Additionally, the Exchange describes below additional reporting requirements that it may reduce for which no rule changes are necessary. These changes will be implemented in accordance with the timeline described below. (1) COATS The options exchanges utilize consolidated options audit trail system (‘‘COATS’’) to collect and review data regarding options orders, quotes and transactions. The Participants have provided COATS 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 COATS data elements in the CAT Technical Specifications. Accordingly, although the Technical Specifications for the CAT have not yet been finalized, the Exchange and the other options exchanges propose to eliminate COATS in accordance with the proposed timeline discussed below. The Exchange adopted certain provisions of Rule 6.24 to implement certain reporting requirements related to COATS.14 Rule 6.24(a) states the 12 Id. 13 Id. 14 COATS was developed to comply with an order of the Commission requiring CBOE, in coordination with other exchanges, to ‘‘design and implement’’ a consolidated audit trail to ‘‘enable the options exchanges to reconstruct markets promptly, effectively surveil them and enforce order handling, firm quote, trade reporting and other rules.’’ See Section IV.B.e.(v) of the Commission’s Order Instituting Public Administrative Proceedings Pursuant to Sections 19(h)(1) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (the ‘‘Order’’). See Securities Exchange Act Release No. 43268 (September 11, 2000) and Administrative Proceeding File No. 3–10282. As noted, 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 PO 00000 Frm 00207 Fmt 4703 Sfmt 4703 Exchange has undertaken with the options exchanges to develop COATS to provide an accurate, time-sequenced record of electronic and other orders, quotations, and transactions in certain option classes listed on the Exchange. CBOE proposes to delete this provision. Rule 6.24(c) requires a Trading Permit Holder transmitting from the floor a report of the execution of an order to record the time at which a report of such execution is received by such Trading Permit Holder. CAT will require Trading Permit Holders to record the time at which they report an execution.15 Therefore, this rule provision is duplicative of CAT requirements, and the Exchange proposes to delete it. Interpretations and Policies .01 and .03 through .06 state certain forms and functionality must comply with the requirements of COATS, and that the Exchange will maintain data for orders exempt from systematization requirements of Rule 6.24 in the same format as COATS data is maintained. As COATS will be retired, and data will be collected in a format that complies with the requirements of CAT, the proposed rule change replaces the references to COATS with references to CAT, as well as makes other nonsubstantive changes to conform the language throughout. (2) Market-Maker Equity Order Reports Rule 8.9(b) 16 requires Market-Makers, upon request of the Exchange and in the prescribed form, report to the Exchange every order entered by the MarketMaker for the purchase or sale of (i) a security underlying options traded on the Exchange, or (ii) a security convertible into or exchangeable for such underlying security, as well as opening and closing positions in all such securities held in each account reported pursuant to Rule 8.9(a). The report pertaining to orders must include the terms of each order, identification of the brokerage firms through which the Equity Securities, across all markets, from the time of order inception through routing, cancellation, modification, or execution in a single consolidated data source. CBOE has already adopted rules to enforce compliance by its Industry Members, as applicable, with the provisions of the Plan. See CBOE Chapter VI, Section F. Once the CAT is fully operational, it will be appropriate to delete certain provisions of CBOE rules implemented to comply with the Order as duplicative of the CAT. Accordingly, the Exchange believes that it would continue to be in compliance with the requirements of the Order once the CAT is fully operational and the COATS rule is modified. 15 See Chapter VI, Section F. 16 The Exchange recently submitted a rule filing to amend Rule 8.9(b), which was filed for immediate effectiveness. See SR–CBOE–2017–042. This proposed rule change reflects the amended rule text in that filing. E:\FR\FM\01JNN1.SGM 01JNN1 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES orders were entered, the times of entry or cancellation, the times report of execution were received and, if all or part of the order was executed, the quantity and execution price. CAT will require Market-Makers to report order information for such securities. Therefore, this rule provision as it relates to order reports is duplicative of CAT requirements, and the Exchange proposes to delete it. CAT does not require reporting of positions, so the Exchange will maintain the position reporting requirement in Rule 8.9(b). The Exchange also proposes a conforming change to the rule name and Interpretation and Policy .07. (3) EBS Rule 15.7 is the Exchange’s rule regarding the automated submission of specific trading data to the Exchange upon request using the Electronic Blue Sheet (‘‘EBS’’) system. Rule 15.7 requires a Trading Permit Holder to submit the trade data elements specified in the Rule in such automated format as may be prescribed by the Exchange from time to time, in regard to such transaction or transactions that are the subject of a particular request for information made by the Exchange. The Rule sets forth in paragraphs (a) and (b) the data elements required if the transaction was a proprietary transaction or if it was effected for a customer account, respectively. Paragraph (c) provides a Trading Permit Holder must submit such other information as may from time to time be required. Paragraph (d) permits the Exchange to grant exceptions from these requirements in such cases and for such time periods as it deems appropriate. The Exchange proposes to amend Rule 15.7 to state it 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 or involved securities that are not reportable to the CAT. In essence, under the proposed rule change, the Exchange will make requests under Rule 15.7 if and only if the information is not otherwise available through the CAT.17 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 and OTC Equity Securities. Consequently, the Exchange will not need to use the EBS system or request information pursuant to Rule 15.7 for 17 The proposed rule change also capitalizes the first word of paragraph (a). VerDate Sep<11>2014 18:32 May 31, 2017 Jkt 241001 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 15.7 cannot be completely eliminated immediately upon the CAT achieving the appropriate thresholds because Exchange staff may still need to request information pursuant to Rule 15.7 for trading activity occurring before a member was reporting to the CAT.18 In addition, Rule 15.7 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 indefinitely or until those transactions are captured in the CAT. (4) Other Reports Various other CBOE Rules require Trading Permit Holders to report information to the Exchange upon request.19 While the Exchange believes it is necessary to retain these Rules to ensure it has access to the necessary data to perform its regulatory duties and meet its surveillance obligations, it expects it will need to make fewer information requests pursuant to these Rule once Trading Permit Holders begin reporting to the CAT and accuracy and reliability standards are met. In connection with these Rules requiring Trading Permit Holders to report information to the Exchange upon request, Trading Permit Holders must currently submit to the Exchange stock transaction information for each Qualified Contingent Cross order executed at CBOE. CAT will require Trading Permit Holders to report stock transaction information. Therefore, the Exchange intends to eliminate this reporting requirement in accordance with the proposed timeline below. (5) 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.20 As discussed in more 18 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. 19 See, e.g., Rule 17.2, Interpretation and Policy .04. 20 Id. [sic] PO 00000 Frm 00208 Fmt 4703 Sfmt 4703 25431 detail below, the Exchange believes the Rule provisions and related systems described above 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 the Exchange 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 the Exchange 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. The Exchange believes the proposed rule changes should not be effective until all Participants and Industry Members that report data pursuant to the Rules described above are reporting comparable data to the CAT. In this way, the Exchange will continue to have access to the necessary data to perform its regulatory duties. 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.’’ 21 The Exchange believes COATS should not be retired until all Participants and Industry Members that report data to COATS are reporting comparable data to the CAT. While the early submission of options data to the CAT by Small Industry Members could expedite the retirement of COATS, the Exchange believes that it premature [sic] to consider such a change and that additional analysis would be necessary to determine whether such early reporting by Small Industry Members would be feasible. The CAT NMS Plan 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 The Exchange believes that a single cut-over from the reporting requirements described above to CAT is highly preferable to a firm-by-firm approach and is not proposing to exempt members from such reporting requirements on a firm-by-firm basis. The Exchange believes that providing 21 Id. 22 Id. E:\FR\FM\01JNN1.SGM 01JNN1 mstockstill on DSK30JT082PROD with NOTICES 25432 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices such individual exemptions to Industry Members would be inefficient, more costly, and less reliable than the single cut-over. Providing individual exemptions would require the options exchanges to create, for a brief temporary period, a cross-system regulatory function and to integrate data from reports received pursuant to the above requirements and the CAT to avoid creating any regulatory gaps as a result of such exemptions. Such a function would be costly to create and would give rise to a greater likelihood of data errors or other issues. Given the limited time in which such exemptions would be necessary, the Exchange does not believe that such exemptions would be an appropriate use of limited resources. 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.’’ 23 The Exchange believes that it is critical that the CAT Data be sufficiently accurate and reliable for the Exchange to perform the regulatory functions that it now performs using the information it receives pursuant to the reporting requirements described above. Accordingly, the Exchange believes that the CAT Data should meet specific quantitative error rates, as well as certain qualitative requirements. The Exchange believes (and the other options exchanges with respect to COATS and EBS) believe that, before reporting requirements may be modified or eliminated, as applicable, and related systems may be retired, the CAT would need to achieve a sustained error rate 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).24 The Exchange 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. The Exchange 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 23 Id. 24 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. VerDate Sep<11>2014 18:32 May 31, 2017 Jkt 241001 single-day measurements do not unduly affect the overall measurements. The Exchange proposes to measure the appropriate error rates in the aggregate, rather than firm-by-firm. In addition, with respect to COATS, the Exchange proposes to measure the error rates for options only, not equity securities, as only options are subject to COATS. The 2% and 5% error rates are in line with the proposed retirement threshold for FINRA’s Order Audit Trail System (‘‘OATS’’). In addition to these minimum error rates before reporting requirements may be modified or eliminated, as applicable, and related systems may be retired, the Exchange believes that during the minimum 180-day period during which the thresholds are calculated, the Exchange’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 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. If the Commission approves the proposed rule change, the Exchange will announce the date for modification or elimination, as applicable, of reporting requirements and retirement of related systems and the implementation date of the proposed rule change via Regulatory Circular that will be published once the Exchange (and other options exchanges with respect to COATS and EBS) determines that 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 the provisions of Section 6(b)(5) of the Exchange Act,25 which requires, among other things, that Exchange Rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, and not designed to permit unfair discrimination between customers, issuers, brokers and dealer. The Exchange believes that this proposal is consistent with the Exchange Act because it fulfills the obligation in the CAT NMS Plan for the Exchange to submit a proposed rule change to eliminate or modify duplicative rules. In approving the Plan, the SEC noted that the Plan ‘‘is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.’’ 26 As this proposal implements the Plan, the Exchange believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Exchange Act. Moreover, the purpose of the proposed rule change is to amend rules that require the submission of duplicative data to the Exchange. The elimination of such duplicative requirements will reduce unnecessary costs and other compliance burdens for the Exchange and its Trading Permit Holders, and therefore, will enhance the efficiency of the securities markets. Furthermore, the Exchange believes that the approach set forth in the proposed rule change strikes the appropriate balance between ensuring that the Exchange 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 Section 6(b)(8) of the Exchange Act 27 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 26 Approval 25 15 PO 00000 U.S.C. 78f(b)(5). Frm 00209 Fmt 4703 27 15 Sfmt 4703 E:\FR\FM\01JNN1.SGM Order at 84697. U.S.C. 78f(b)(8). 01JNN1 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices proposing the elimination of reporting requirements related to COATS and EBS, as well as other 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 mstockstill on DSK30JT082PROD with NOTICES Although written comments on the proposed rule change were not solicited, the Exchange 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. VerDate Sep<11>2014 18:32 May 31, 2017 Jkt 241001 As discussed above, the Exchange agrees with the commenters that the reporting requirements proposed to be modified or eliminated should be replaced by the CAT reporting requirements as soon as accurate and reliable CAT Data is available. To this end, the Exchange anticipates that the CAT will be designed to collect the data necessary to permit the modification or elimination, as applicable, of these reporting requirements and the retirement of related systems. However, as discussed above, the Exchange disagrees with the recommendation to provide individual exemptions to those CAT Reporters who obtain satisfactory data reporting quality. 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 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 Exchange consents, the Commission will: A. By order approve or disapprove such proposed rule change, or B. Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– CBOE–2017–041 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–CBOE–2017–041. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the PO 00000 Frm 00210 Fmt 4703 Sfmt 4703 25433 submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the 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–CBOE– 2017–041 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. 2017–11373 Filed 5–31–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80771; File No. SR–MRX– 2017–05] Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Supplementary Material .03 to Rule 713 May 25, 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 19, 2017, Nasdaq MRX, LLC (‘‘MRX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘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. 32 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\01JNN1.SGM 01JNN1

Agencies

[Federal Register Volume 82, Number 104 (Thursday, June 1, 2017)]
[Notices]
[Pages 25429-25433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11373]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80797; File No. SR-CBOE-2017-041]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; 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 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 15, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify requirements for the collection of 
information that is duplicative of information intended to be collected 
for the consolidated audit trail (``CAT'') adopted pursuant to the 
National Market System Plan Governing the Consolidated Audit Trail (the 
``CAT NMS Plan'' or ``Plan'').\3\ The Exchange will announce the 
implementation date of the proposed rule change and effective date of 
the retirement of any related systems by Regulatory Circular that will 
be published once the options exchanges determine the thresholds for 
accuracy and reliability described below have been met and that the 
Plan Processor for CAT is sufficiently meeting all of its obligations 
under the CAT NMS Plan.
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    \3\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth herein, or in the CAT 
Compliance Rule Series or in the CAT NMS Plan.
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    The text of the proposed rule change is available on the Exchange's 
Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 
at the Exchange's Office of the Secretary, 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 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.

[[Page 25430]]

(``FINRA''), Investors' Exchange LLC, Miami International Securities 
Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, 
Nasdaq ISE, LLC, Nasdaq MRX, LLC,\4\ NASDAQ PHLX LLC, The NASDAQ Stock 
Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, NYSE Arca, Inc. 
and NYSE National, Inc.\5\ (collectively, the ``Participants'') filed 
with the Commission, pursuant to Section 11A of the Exchange Act \6\ 
and Rule 608 of Regulation NMS thereunder,\7\ the CAT NMS Plan.\8\ 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,\9\ and approved by the Commission, as 
modified, on November 15, 2016.\10\ 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.\11\ 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.'' \12\ 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.'' \13\
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    \4\ 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).
    \5\ 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).
    \6\ 15 U.S.C. 78k-1.
    \7\ 17 CFR 242.608.
    \8\ 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.
    \9\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 
FR 30614 (May 17, 2016).
    \10\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 
FR 84696 (Nov. 23, 2016) (``Approval Order'').
    \11\ Appendix C of CAT NMS Plan, Approval Order at 85010.
    \12\ Id.
    \13\ Id.
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    After conducting its analysis of its rules in accordance with the 
CAT NMS Plan, the Exchange determined Rule 6.24 includes references to 
COATS, which will be retired in accordance with the proposed timeline 
discussed below, and Rules 6.24(c), 8.9(b) and 15.7 require the 
reporting of information intended to be collected by the CAT. 
Therefore, the Exchange believes those provisions will no longer be 
necessary once the CAT is operational and proposes to modify those 
Rules as described below. Additionally, the Exchange describes below 
additional reporting requirements that it may reduce for which no rule 
changes are necessary. These changes will be implemented in accordance 
with the timeline described below.
(1) COATS
    The options exchanges utilize consolidated options audit trail 
system (``COATS'') to collect and review data regarding options orders, 
quotes and transactions. The Participants have provided COATS 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 COATS data 
elements in the CAT Technical Specifications. Accordingly, although the 
Technical Specifications for the CAT have not yet been finalized, the 
Exchange and the other options exchanges propose to eliminate COATS in 
accordance with the proposed timeline discussed below.
    The Exchange adopted certain provisions of Rule 6.24 to implement 
certain reporting requirements related to COATS.\14\ Rule 6.24(a) 
states the Exchange has undertaken with the options exchanges to 
develop COATS to provide an accurate, time-sequenced record of 
electronic and other orders, quotations, and transactions in certain 
option classes listed on the Exchange. CBOE proposes to delete this 
provision.
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    \14\ COATS was developed to comply with an order of the 
Commission requiring CBOE, in coordination with other exchanges, to 
``design and implement'' a consolidated audit trail to ``enable the 
options exchanges to reconstruct markets promptly, effectively 
surveil them and enforce order handling, firm quote, trade reporting 
and other rules.'' See Section IV.B.e.(v) of the Commission's Order 
Instituting Public Administrative Proceedings Pursuant to Sections 
19(h)(1) of the Securities Exchange Act of 1934, Making Findings and 
Imposing Remedial Sanctions (the ``Order''). See Securities Exchange 
Act Release No. 43268 (September 11, 2000) and Administrative 
Proceeding File No. 3-10282. As noted, 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. CBOE has already adopted rules to 
enforce compliance by its Industry Members, as applicable, with the 
provisions of the Plan. See CBOE Chapter VI, Section F. Once the CAT 
is fully operational, it will be appropriate to delete certain 
provisions of CBOE rules implemented to comply with the Order as 
duplicative of the CAT. Accordingly, the Exchange believes that it 
would continue to be in compliance with the requirements of the 
Order once the CAT is fully operational and the COATS rule is 
modified.
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    Rule 6.24(c) requires a Trading Permit Holder transmitting from the 
floor a report of the execution of an order to record the time at which 
a report of such execution is received by such Trading Permit Holder. 
CAT will require Trading Permit Holders to record the time at which 
they report an execution.\15\ Therefore, this rule provision is 
duplicative of CAT requirements, and the Exchange proposes to delete 
it.
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    \15\ See Chapter VI, Section F.
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    Interpretations and Policies .01 and .03 through .06 state certain 
forms and functionality must comply with the requirements of COATS, and 
that the Exchange will maintain data for orders exempt from 
systematization requirements of Rule 6.24 in the same format as COATS 
data is maintained. As COATS will be retired, and data will be 
collected in a format that complies with the requirements of CAT, the 
proposed rule change replaces the references to COATS with references 
to CAT, as well as makes other nonsubstantive changes to conform the 
language throughout.
(2) Market-Maker Equity Order Reports
    Rule 8.9(b) \16\ requires Market-Makers, upon request of the 
Exchange and in the prescribed form, report to the Exchange every order 
entered by the Market-Maker for the purchase or sale of (i) a security 
underlying options traded on the Exchange, or (ii) a security 
convertible into or exchangeable for such underlying security, as well 
as opening and closing positions in all such securities held in each 
account reported pursuant to Rule 8.9(a). The report pertaining to 
orders must include the terms of each order, identification of the 
brokerage firms through which the

[[Page 25431]]

orders were entered, the times of entry or cancellation, the times 
report of execution were received and, if all or part of the order was 
executed, the quantity and execution price. CAT will require Market-
Makers to report order information for such securities. Therefore, this 
rule provision as it relates to order reports is duplicative of CAT 
requirements, and the Exchange proposes to delete it. CAT does not 
require reporting of positions, so the Exchange will maintain the 
position reporting requirement in Rule 8.9(b). The Exchange also 
proposes a conforming change to the rule name and Interpretation and 
Policy .07.
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    \16\ The Exchange recently submitted a rule filing to amend Rule 
8.9(b), which was filed for immediate effectiveness. See SR-CBOE-
2017-042. This proposed rule change reflects the amended rule text 
in that filing.
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(3) EBS
    Rule 15.7 is the Exchange's rule regarding the automated submission 
of specific trading data to the Exchange upon request using the 
Electronic Blue Sheet (``EBS'') system. Rule 15.7 requires a Trading 
Permit Holder to submit the trade data elements specified in the Rule 
in such automated format as may be prescribed by the Exchange from time 
to time, in regard to such transaction or transactions that are the 
subject of a particular request for information made by the Exchange. 
The Rule sets forth in paragraphs (a) and (b) the data elements 
required if the transaction was a proprietary transaction or if it was 
effected for a customer account, respectively. Paragraph (c) provides a 
Trading Permit Holder must submit such other information as may from 
time to time be required. Paragraph (d) permits the Exchange to grant 
exceptions from these requirements in such cases and for such time 
periods as it deems appropriate.
    The Exchange proposes to amend Rule 15.7 to state it 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 or involved 
securities that are not reportable to the CAT. In essence, under the 
proposed rule change, the Exchange will make requests under Rule 15.7 
if and only if the information is not otherwise available through the 
CAT.\17\
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    \17\ The proposed rule change also capitalizes the first word of 
paragraph (a).
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    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 and OTC Equity 
Securities. Consequently, the Exchange will not need to use the EBS 
system or request information pursuant to Rule 15.7 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 15.7 cannot be completely eliminated 
immediately upon the CAT achieving the appropriate thresholds because 
Exchange staff may still need to request information pursuant to Rule 
15.7 for trading activity occurring before a member was reporting to 
the CAT.\18\ In addition, Rule 15.7 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 indefinitely or until those 
transactions are captured in the CAT.
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    \18\ 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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(4) Other Reports
    Various other CBOE Rules require Trading Permit Holders to report 
information to the Exchange upon request.\19\ While the Exchange 
believes it is necessary to retain these Rules to ensure it has access 
to the necessary data to perform its regulatory duties and meet its 
surveillance obligations, it expects it will need to make fewer 
information requests pursuant to these Rule once Trading Permit Holders 
begin reporting to the CAT and accuracy and reliability standards are 
met.
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    \19\ See, e.g., Rule 17.2, Interpretation and Policy .04.
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    In connection with these Rules requiring Trading Permit Holders to 
report information to the Exchange upon request, Trading Permit Holders 
must currently submit to the Exchange stock transaction information for 
each Qualified Contingent Cross order executed at CBOE. CAT will 
require Trading Permit Holders to report stock transaction information. 
Therefore, the Exchange intends to eliminate this reporting requirement 
in accordance with the proposed timeline below.
(5) 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.\20\ As discussed in more 
detail below, the Exchange believes the Rule provisions and related 
systems described above 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 the Exchange 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 the Exchange 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.
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    \20\ Id. [sic]
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    The Exchange believes the proposed rule changes should not be 
effective until all Participants and Industry Members that report data 
pursuant to the Rules described above are reporting comparable data to 
the CAT. In this way, the Exchange will continue to have access to the 
necessary data to perform its regulatory duties.
    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.'' \21\ 
The Exchange believes COATS should not be retired until all 
Participants and Industry Members that report data to COATS are 
reporting comparable data to the CAT. While the early submission of 
options data to the CAT by Small Industry Members could expedite the 
retirement of COATS, the Exchange believes that it premature [sic] to 
consider such a change and that additional analysis would be necessary 
to determine whether such early reporting by Small Industry Members 
would be feasible.
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    \21\ Id.
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    The CAT NMS Plan 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\ The Exchange believes that a single 
cut-over from the reporting requirements described above to CAT is 
highly preferable to a firm-by-firm approach and is not proposing to 
exempt members from such reporting requirements on a firm-by-firm 
basis. The Exchange believes that providing

[[Page 25432]]

such individual exemptions to Industry Members would be inefficient, 
more costly, and less reliable than the single cut-over. Providing 
individual exemptions would require the options exchanges to create, 
for a brief temporary period, a cross-system regulatory function and to 
integrate data from reports received pursuant to the above requirements 
and the CAT to avoid creating any regulatory gaps as a result of such 
exemptions. Such a function would be costly to create and would give 
rise to a greater likelihood of data errors or other issues. Given the 
limited time in which such exemptions would be necessary, the Exchange 
does not believe that such exemptions would be an appropriate use of 
limited resources.
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    \22\ Id.
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    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.'' \23\ The Exchange believes that it is critical that the CAT 
Data be sufficiently accurate and reliable for the Exchange to perform 
the regulatory functions that it now performs using the information it 
receives pursuant to the reporting requirements described above. 
Accordingly, the Exchange believes that the CAT Data should meet 
specific quantitative error rates, as well as certain qualitative 
requirements.
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    \23\ Id.
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    The Exchange believes (and the other options exchanges with respect 
to COATS and EBS) believe that, before reporting requirements may be 
modified or eliminated, as applicable, and related systems may be 
retired, the CAT would need to achieve a sustained error rate 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).\24\ The Exchange 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. The Exchange 
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. The Exchange proposes to 
measure the appropriate error rates in the aggregate, rather than firm-
by-firm. In addition, with respect to COATS, the Exchange proposes to 
measure the error rates for options only, not equity securities, as 
only options are subject to COATS. The 2% and 5% error rates are in 
line with the proposed retirement threshold for FINRA's Order Audit 
Trail System (``OATS'').
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    \24\ 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.
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    In addition to these minimum error rates before reporting 
requirements may be modified or eliminated, as applicable, and related 
systems may be retired, the Exchange believes that during the minimum 
180-day period during which the thresholds are calculated, the 
Exchange'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 
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.
    If the Commission approves the proposed rule change, the Exchange 
will announce the date for modification or elimination, as applicable, 
of reporting requirements and retirement of related systems and the 
implementation date of the proposed rule change via Regulatory Circular 
that will be published once the Exchange (and other options exchanges 
with respect to COATS and EBS) determines that 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 the provisions of Section 6(b)(5) of the Exchange Act,\25\ which 
requires, among other things, that Exchange Rules must be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest, and not designed to permit unfair 
discrimination between customers, issuers, brokers and dealer. The 
Exchange believes that this proposal is consistent with the Exchange 
Act because it fulfills the obligation in the CAT NMS Plan for the 
Exchange to submit a proposed rule change to eliminate or modify 
duplicative rules. In approving the Plan, the SEC noted that the Plan 
``is necessary and appropriate in the public interest, for the 
protection of investors and the maintenance of fair and orderly 
markets, to remove impediments to, and perfect the mechanism of a 
national market system, or is otherwise in furtherance of the purposes 
of the Act.'' \26\ As this proposal implements the Plan, the Exchange 
believes that this proposal furthers the objectives of the Plan, as 
identified by the SEC, and is therefore consistent with the Exchange 
Act.
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    \25\ 15 U.S.C. 78f(b)(5).
    \26\ Approval Order at 84697.
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    Moreover, the purpose of the proposed rule change is to amend rules 
that require the submission of duplicative data to the Exchange. The 
elimination of such duplicative requirements will reduce unnecessary 
costs and other compliance burdens for the Exchange and its Trading 
Permit Holders, and therefore, will enhance the efficiency of the 
securities markets. Furthermore, the Exchange believes that the 
approach set forth in the proposed rule change strikes the appropriate 
balance between ensuring that the Exchange 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

    Section 6(b)(8) of the Exchange Act \27\ 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

[[Page 25433]]

proposing the elimination of reporting requirements related to COATS 
and EBS, as well as other 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.
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    \27\ 15 U.S.C. 78f(b)(8).
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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 Exchange 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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    As discussed above, the Exchange agrees with the commenters that 
the reporting requirements proposed to be modified or eliminated should 
be replaced by the CAT reporting requirements as soon as accurate and 
reliable CAT Data is available. To this end, the Exchange anticipates 
that the CAT will be designed to collect the data necessary to permit 
the modification or elimination, as applicable, of these reporting 
requirements and the retirement of related systems. However, as 
discussed above, the Exchange disagrees with the recommendation to 
provide individual exemptions to those CAT Reporters who obtain 
satisfactory data reporting quality.

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 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 Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2017-041 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2017-041. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the 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-CBOE-2017-041 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. 2017-11373 Filed 5-31-17; 8:45 am]
 BILLING CODE 8011-01-P