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
<![CDATA[
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 (https://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 (https://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
(https://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 (https://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 (https://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]
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx),
at the Exchange's Office of the Secretary, and at the Commission's
Public Reference Room.
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\15\ See Chapter VI, Section F.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
(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\
---------------------------------------------------------------------------
\17\ The proposed rule change also capitalizes the first word of
paragraph (a).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
(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.
---------------------------------------------------------------------------
\19\ See, e.g., Rule 17.2, Interpretation and Policy .04.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\20\ Id. [sic]
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\21\ Id.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\22\ 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.'' \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.
---------------------------------------------------------------------------
\23\ Id.
---------------------------------------------------------------------------
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'').
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(b)(5).
\26\ Approval Order at 84697.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 (https://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 (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 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\
---------------------------------------------------------------------------
\32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-11373 Filed 5-31-17; 8:45 am]
BILLING CODE 8011-01-P
