Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Bats EDGX Exchange, Inc.; BOX Options Exchange LLC; C2 Options Exchange, Incorporated; Chicago Board Options Exchange, Incorporated; Financial Industry Regulatory Authority, Inc.; International Securities Exchange, LLC; Investors Exchange LLC; Miami International Securities Exchange LLC; MIAX PEARL, LLC; The NASDAQ Stock Market LLC; NASDAQ BX, Inc.; NASDAQ PHLX LLC; New York Stock Exchange LLC; NYSE Arca, Inc.; NYSE MKT LLC; Notice of Filing of Amendment No. 1 by Bats BZX Exchange, Inc.; Bats EDGX Exchange, Inc.; BOX Options Exchange LLC; C2 Options Exchange, Incorporated; Chicago Board Options Exchange, Incorporated; Financial Industry Regulatory Authority, Inc.; Investors Exchange LLC; New York Stock Exchange LLC; NYSE Arca, Inc.; NYSE MKT LLC, of Amendment Nos. 1 and 2 by International Securities Exchange, LLC; The NASDAQ Stock Market LLC; NASDAQ BX, Inc.; and NASDAQ PHLX LLC, of Amendment No. 2 by MIAX PEARL, LLC, and of Amendment No. 3 by Miami International Securities Exchange LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Changes, as Modified by Amendments Thereto, To Eliminate Requirements That Will Be Duplicative of CAT, 42168-42180 [2017-18793]

Download as PDF 42168 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices Dated: August 31, 2017. Eduardo A. Aleman, Assistant Secretary. asabaliauskas on DSKBBXCHB2PROD with NOTICES Regulatory Authority, Inc. (‘‘FINRA’’); International Securities Exchange, LLC (‘‘ISE’’); Investors Exchange LLC (‘‘IEX’’); Miami International Securities [FR Doc. 2017–18858 Filed 9–5–17; 8:45 am] Exchange LLC (‘‘MIAX’’); MIAX PEARL, BILLING CODE 8011–01–P LLC (‘‘PEARL’’); NYSE Arca, Inc. (‘‘NYSE Arca’’); and NYSE MKT LLC SECURITIES AND EXCHANGE (‘‘NYSE MKT’’) (n/k/a NYSE American COMMISSION LLC) 1 filed with the Securities and Exchange Commission (‘‘Commission’’), [Release No. 34–81499; File Nos. SR– BatsBZX–2017–37; SR–BatsEDGX–2017–23; pursuant to Section 19(b)(1) of the SR–BOX–2017–17; SR–C2–2017–018; SR– Securities Exchange Act of 1934 CBOE–2017–041; SR–FINRA–2017–013; (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 SR–ISE–2017–46; SR–IEX–2017–18; SR– proposed rule changes to eliminate or MIAX–2017–20; SR–PEARL–2017–23; SR– NASDAQ–2017–055; SR–BX–2017–027; SR– modify certain rules that require the collection or reporting of information Phlx–2017–43; SR–NYSE–2017–23; SR– NYSEArca–2017–57; SR–NYSEArca–2017– that is duplicative of the information 59; SR–NYSEMKT–2017–29; SR–NYSEMKT– that will be collected by the 2017–30] Consolidated Audit Trail (‘‘CAT’’) established pursuant to the National Self-Regulatory Organizations; Bats Market System Plan contemplated by BZX Exchange, Inc.; Bats EDGX Rule 613 of Regulation NMS.4 On May Exchange, Inc.; BOX Options 22, 2017, the New York Stock Exchange Exchange LLC; C2 Options Exchange, LLC (‘‘NYSE’’) filed with the Incorporated; Chicago Board Options Commission a proposed rule change for Exchange, Incorporated; Financial the same purpose, and each of NYSE Industry Regulatory Authority, Inc.; Arca 5 and NYSE MKT filed an International Securities Exchange, LLC; Investors Exchange LLC; Miami additional proposed rule change for the International Securities Exchange LLC; same purpose. On May 26, 2017, the MIAX PEARL, LLC; The NASDAQ Stock NASDAQ Stock Market LLC Market LLC; NASDAQ BX, Inc.; (‘‘NASDAQ’’) and NASDAQ PHLX LLC NASDAQ PHLX LLC; New York Stock (‘‘Phlx’’) filed with the Commission Exchange LLC; NYSE Arca, Inc.; NYSE proposed rule changes for the same MKT LLC; Notice of Filing of purpose.6 On May 30, 2017, NASDAQ Amendment No. 1 by Bats BZX BX, Inc. (‘‘BX’’) filed with the Exchange, Inc.; Bats EDGX Exchange, Commission a proposed rule change for Inc.; BOX Options Exchange LLC; C2 the same purpose.7 In this notice and Options Exchange, Incorporated; order, all of these proposed rule changes Chicago Board Options Exchange, are referred to collectively as the Incorporated; Financial Industry ‘‘Systems Retirement Proposals.’’ Bats Regulatory Authority, Inc.; Investors BZX, Bats EDGX, BOX, BX, C2, CBOE, Exchange LLC; New York Stock Exchange LLC; NYSE Arca, Inc.; NYSE ISE, IEX, MIAX, PEARL, NASDAQ, NYSE, NYSE Arca, NYSE MKT, and MKT LLC, of Amendment Nos. 1 and 2 Phlx are collectively referred to as the by International Securities Exchange, LLC; The NASDAQ Stock Market LLC; 1 See Securities Exchange Act Release No. 80283 NASDAQ BX, Inc.; and NASDAQ PHLX (March 21, 2017), 82 FR 15244 (March 27, 2017) LLC, of Amendment No. 2 by MIAX (SR–NYSEMKT–2017–14). The name change was PEARL, LLC, and of Amendment No. 3 not yet effective when NYSE MKT filed SR– NYSEMKT–2017–29 and SR–NYSEMKT–2017–30. by Miami International Securities 2 15 U.S.C. 78s(b)(1). Exchange LLC; Order Instituting 3 17 CFR 240.19b–4. Proceedings To Determine Whether To 4 17 CFR 242.613. Approve or Disapprove the Proposed 5 Effective August 17, 2017, NYSE Arca amended, Rule Changes, as Modified by among other things, certain rules of the Exchange Amendments Thereto, To Eliminate to create a single rulebook. See Securities Exchange Requirements That Will Be Duplicative Act Release No. 81419 (August 17, 2017) (SR– NYSEArca–2017–40) (the ‘‘Arca Merger Filing’’). of CAT August 30, 2017. I. Introduction On May 15, 2017, Bats BZX Exchange, Inc. (‘‘Bats BZX’’); Bats EDGX Exchange, Inc. (‘‘Bats EDGX’’); BOX Options Exchange LLC (‘‘BOX’’); C2 Options Exchange, Incorporated (‘‘C2’’); Chicago Board Options Exchange, Incorporated (‘‘CBOE’’); Financial Industry VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 NYSE Arca rule text references in this notice and order reflect rule numbering changes as a result of the Arca Merger Filing. 6 Nasdaq and Phlx initially filed proposed rule changes on May 15, 2017 (SR–NASDAQ–2017–050 and SR–PHLX–2017–38). On May 26, 2017, Nasdaq and Phlx withdrew these filings and submitted new proposed rule changes (SR–NASDAQ–2017–055 and SR–PHLX–2017–43). 7 BX initially filed a proposed rule change on May 15, 2017 (SR–BX–2017–025). On May 30, 2017, BX withdrew that initial filing and submitted a new proposed rule change (SR–BX–2017–027). PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 ‘‘Exchanges,’’ and, together with FINRA, are referred to as the ‘‘SROs.’’ On June 1, 2017, the proposed rule changes submitted by Bats BZX, Bats EDGX, BOX, C2, CBOE, FINRA, IEX, ISE, MIAX, and PEARL; both proposed rule changes submitted by NYSE MKT; and one of the proposed rule changes submitted by NYSE Arca were published for comment in the Federal Register.8 On June 2, 2017, the proposed rule change submitted by NYSE and the other proposed rule change submitted by NYSE Arca were published for comment in the Federal Register.9 On June 5, 2017, the proposed rule changes submitted by NASDAQ, BX, and Phlx were published for comment in the Federal Register.10 Four comments were submitted to File Number SR–FINRA–2017–013.11 On June 22, 2017, each of NASDAQ, BX, ISE, and Phlx filed an amendment 8 See Securities Exchange Act Release No. 80796 (May 26, 2017), 82 FR 25374 (SR–BatsBZX–2017– 37) (‘‘Bats BZX Notice’’); Securities Exchange Act Release No. 80795 (May 26, 2017), 82 FR 25358 (SR–BatsEDGX–2017–23) (‘‘Bats EDGX Notice’’); Securities Exchange Act Release No. 80789 (May 26, 2017), 82 FR 25492 (SR–BOX–2017–17) (‘‘BOX Notice’’); Securities Exchange Act Release No. 80798 (May 26, 2017), 82 FR 25385 (SR–C2–2017– 018) (‘‘C2 Notice’’); Securities Exchange Act Release No. 80797 (May 26, 2017), 82 FR 25429 (SR–CBOE– 2017–041) (‘‘CBOE Notice’’); Securities Exchange Act Release No. 80783 (May 26, 2017), 82 FR 25423 (SR–FINRA–2017–013) (‘‘FINRA Notice’’); Securities Exchange Act Release No. 80788 (May 26, 2017), 82 FR 25400 (SR–IEX–2017–18) (‘‘IEX Notice’’); Securities Exchange Act Release No. 80787 (May 26, 2017), 82 FR 25469 (SR–ISE–2017– 46) (‘‘ISE Notice’’); Securities Exchange Act Release No. 80790 (May 26, 2017), 82 FR 25366 (SR–MIAX– 2017–20) (‘‘MIAX Notice’’); Securities Exchange Act Release No. 80792 (May 26, 2017), 82 FR 25436 (SR–PEARL–2017–23) (‘‘PEARL Notice’’); Securities Exchange Act Release No. 80791 (May 26, 2017), 82 FR 25362 (SR–NYSEArca–2017–59) (‘‘NYSE Arca Notice 1’’); Securities Exchange Act Release No. 80793 (May 26, 2017), 82 FR 25443 (SR– NYSEMKT–2017–29) (‘‘NYSE MKT Notice 1’’); Securities Exchange Act Release No. 80794 (May 26, 2017), 82 FR 25439 (SR–NYSEMKT–2017–30) (‘‘NYSE MKT Notice 2’’). 9 See Securities Exchange Act Release No. 80799 (May 26, 2017), 82 FR 25635 (SR–NYSE–2017–23) (‘‘NYSE Notice’’); Securities Exchange Act Release No. 80800 (May 26, 2017), 82 FR 25639 (SR– NYSEArca–2017–57) (‘‘NYSE Arca Notice 2’’). 10 See Securities Exchange Act Release No. 80813 (May 30, 2017), 82 FR 25820 (SR–NASDAQ–2017– 055) (‘‘NASDAQ Notice’’); Securities Exchange Act Release No. 80814 (May 30, 2017), 82 FR 25872 (SR–BX–2017–027) (‘‘BX Notice’’); Securities Exchange Act Release No. 80811 (May 30, 2017), 82 FR 25863 (SR–Phlx–2017–43) (‘‘Phlx Notice’’). 11 See letters from William H. Herbert, Managing Director, Financial Information Forum, dated June 22, 2017 (‘‘FIF Letter’’); Manisha Kimmel, Chief Regulatory Officer, Wealth Management, Thomson Reuters, dated June 22, 2017 (‘‘Thomson Reuters Letter’’); Marc R. Bryant, Senior Vice President, Deputy General Counsel, Fidelity Investments, dated June 22, 2017 (‘‘Fidelity Letter’’); and Ellen Greene, Managing Director and Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA, dated June 23, 2017 (‘‘SIFMA Letter’’). E:\FR\FM\06SEN1.SGM 06SEN1 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices asabaliauskas on DSKBBXCHB2PROD with NOTICES to its proposed rule change.12 On July 14, 2017, the Commission extended the time period for Commission action on all of the Systems Retirement Proposals to August 30, 2017.13 On August 24, 2017, BOX submitted Amendment No. 1 to its proposed rule filing,14 IEX submitted Amendment No. 1 to its proposed rule filing,15 PEARL submitted Amendment No. 2 to its proposed rule filing,16 and MIAX submitted Amendment No. 3 to its 12 These amendments modified Section 2 of the Form 19b–4 submitted by each of NASDAQ, BX, ISE, and Phlx to state that on June 1, 2017, the exchange obtained the necessary approval from its Board of Directors for the proposed rule change. When NASDAQ, BX, ISE, and Phlx each filed Amendment No. 1 to their respective proposals with the Commission, they also submitted the Amendment No. 1 to the public comment file for each of their respective proposals. 13 See Securities Exchange Act Release No. 81145, 82 FR 33533 (July 20, 2017). 14 This amendment: (1) Added introductory language to BOX’s COATS-related rules to clarify that the rules will be amended upon announcement by BOX that the CAT has achieved a sufficient level of accuracy and reliability; (2) modified rule text language for BOX’s EBS rule and the rule regarding securities accounts and orders of market makers to clarify that BOX will not request trade data or information, and members will not be required to provide trade data or information, pursuant to the rule for trades reported to the CAT after BOX announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to these rules; and (3) clarified that the accuracy and reliability standards discussed in its Systems Retirement Proposal apply to all of the rules discussed therein. When BOX filed Amendment No. 1 to its proposal with the Commission, it also submitted Amendment No. 1 to the public comment file for its proposal. 15 This amendment: (1) Added introductory language to IEX’s OATS rule series to clarify that the rules will be deleted upon announcement by IEX that the CAT has achieved a level of accuracy and reliability sufficient to replace OATS; (2) modified IEX’s EBS rule text language to clarify that IEX (or FINRA on behalf of IEX) will not request trade data or information, and members will not be required to provide trade data or information, pursuant to the EBS rule for trades reported to the CAT after IEX announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to the EBS rule; and (3) made two clarifying revisions to the Purpose section of its proposal. When IEX filed Amendment No. 1 to its proposal with the Commission, it also submitted Amendment No. 1 to the public comment file for its proposal. 16 PEARL filed Amendment No. 1 to its proposed rule change on August 22, 2017. On August 24, 2017, PEARL withdrew Amendment No. 1 and replaced it with Amendment No. 2. Amendment No. 2 modified the rule text for PEARL’s EBS rule (which is incorporated by reference from the MIAX rulebook) and its rule regarding market maker order and account information to clarify that PEARL will not request trade data or information, and members will not be required to provide trade data or information, pursuant to such rule for trades reported to the CAT after PEARL announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to these rules. When PEARL filed Amendment No. 2 to its proposal with the Commission, it also submitted Amendment No. 2 to the public comment file for its proposal. VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 proposed rule filing.17 On August 25, 2017, Bats BZX submitted Amendment No. 1 to its proposed rule filing,18 Bats EDGX submitted Amendment No. 1 to its proposed rule filing,19 BX submitted Amendment No. 1 to its proposed rule filing,20 C2 submitted Amendment No. 17 MIAX filed Amendment No. 1 to its proposed rule change on August 22, 2017 and withdrew and replaced it with Amendment No. 2 on the same day. On August 24, 2017, MIAX withdrew Amendment No. 2 and replaced it with Amendment No. 3. Amendment No. 3 modified the rule text for MIAX’s EBS rule and its rule regarding market maker order and account information to clarify that MIAX will not request trade data or information, and members will not be required to provide trade data or information, pursuant to such rule for trades reported to the CAT after MIAX announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to these rules. When MIAX filed Amendment No. 3 to its proposal with the Commission, it also submitted Amendment No. 3 to the public comment file for its proposal. 18 This amendment: (1) Added introductory language to BZX’s rule regarding securities accounts and orders of market makers to clarify that the rules will be amended upon announcement by BZX that the CAT has achieved a sufficient level of accuracy and reliability; and (2) modified rule text language for BZX’s EBS rule and the rule regarding furnishing of records to clarify that BZX will not request trade data or information, and members will not be required to provide trade data or information, pursuant to the rule for trades reported to the CAT after BZX announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to these rules. When BZX filed Amendment No. 1 to its proposal with the Commission, it also submitted Amendment No. 1 to the public comment file for its proposal. 19 This amendment: (1) Added introductory language to Bats EDGX’s rule regarding securities accounts and orders of market makers to clarify that the rule will be amended upon announcement by Bats EDGX that the CAT has achieved a sufficient level of accuracy and reliability; and (2) modified rule text language for Bats EDGX’s EBS rule and the rule regarding furnishing of records to clarify that Bats EDGX will not request trade data or information, and members will not be required to provide trade data or information, pursuant to the rule for trades reported to the CAT after Bats EDGX announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to these rules. When Bats EDGX filed Amendment No. 1 to its proposal with the Commission, it also submitted Amendment No. 1 to the public comment file for its proposal. 20 This amendment: (1) Added introductory language to BX’s OATS rule series to clarify that the rules will be deleted upon announcement by BX that the CAT has achieved a level of accuracy and reliability sufficient to replace OATS; (2) added introductory language to BX’s COATS-related rules to clarify that the rules will be amended upon announcement by BX that the CAT has achieved a level of accuracy and reliability sufficient to replace COATS; and (3) modified BX’s EBS rule text and the language of Chapter VII, Section 7, to clarify that BX will not request trade data or information, and members will not be required to provide trade data or information, pursuant to EBS Rules or Chapter VII, Section 7, for trades reported to the CAT after BX announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to these rules. When BX filed Amendment No. 2 to its proposal with the Commission, it also submitted Amendment No. 2 to the public comment file for its proposal. PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 42169 1 to its proposed rule filing,21 CBOE submitted Amendment No. 1 to its proposed rule filing,22 FINRA submitted Amendment No. 1 to its proposed rule filing,23 ISE submitted Amendment No. 2 to its proposed rule filing,24 NASDAQ submitted Amendment No. 2 to its proposed rule filing,25 NYSE submitted 21 This amendment added introductory language to C2’s rule regarding securities accounts and orders of market makers to clarify that the rule will be amended upon announcement by C2 that the CAT has achieved a sufficient level of accuracy and reliability. When C2 filed Amendment No. 1 to its proposal with the Commission, it also submitted Amendment No. 1 to the public comment file for its proposal. 22 This amendment: (1) Added introductory language to CBOE’s COATS-related rules and rule regarding securities accounts and orders of market makers to clarify that the rules will be amended upon announcement by CBOE that the CAT has achieved a sufficient level of accuracy and reliability; and (2) modified rule text language for CBOE’s EBS rule and the rule regarding complaints and investigations to clarify that CBOE will not request trade data or information, and members will not be required to provide trade data or information, pursuant to the rule for trades reported to the CAT after CBOE announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to these rules. When CBOE filed Amendment No. 1 to its proposal with the Commission, it also submitted Amendment No. 1 to the public comment file for its proposal. 23 This amendment: (1) Added introductory language to FINRA’s OATS rule series to clarify that the rules will be deleted upon announcement by FINRA that the CAT has achieved a level of accuracy and reliability sufficient to replace OATS; and (2) modified FINRA’s EBS rule text to clarify that FINRA will not request trade data or information, and members will not be required to provide trade data or information, pursuant to its EBS rules for trades reported to the CAT after FINRA announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to these rules. When FINRA filed Amendment No. 1 to its proposal with the Commission, it also submitted Amendment No. 1 to the public comment file for its proposal. 24 This amendment modified ISE’s EBS rule text language to clarify that ISE will not request trade data or information, and members will not be required to provide trade data or information, pursuant to ISE’s Rule 1404 for trades reported to the CAT after ISE announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to the rule. When ISE filed Amendment No. 2 to its proposal with the Commission, it also submitted Amendment No. 2 to the public comment file for its proposal. 25 This amendment: (1) Added introductory language to NASDAQ’s OATS rule series to clarify that the rules will be deleted upon announcement by NASDAQ that the CAT has achieved a level of accuracy and reliability sufficient to replace OATS; (2) added introductory language to NASDAQ’s COATS-related rules to clarify that these rules will be amended upon announcement by NASDAQ that the CAT has achieved a level of accuracy and reliability sufficient to replace COATS; and (3) modified NASDAQ’s EBS rule text and the language of Chapter VII, Section 7, to clarify that NASDAQ will not request trade data or information, and members will not be required to provide trade data or information, pursuant to the EBS Rules or Chapter VII, Section 7, for trades reported to the CAT after NASDAQ announces that it has E:\FR\FM\06SEN1.SGM Continued 06SEN1 42170 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices asabaliauskas on DSKBBXCHB2PROD with NOTICES Amendment No. 1 to its proposed rule filing,26 NYSE Arca submitted Amendment No. 1 to each of its proposed rule filings,27 NYSE MKT submitted Amendment No. 1 to each of its proposed rule filings,28 and Phlx determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to these rules. When NASDAQ filed Amendment No. 2 to its proposal with the Commission, it also submitted Amendment No. 2 to the public comment file for its proposal. 26 This amendment: (1) Added introductory language to NYSE’s OATS rules to clarify that they will be deleted upon announcement by FINRA that the CAT has achieved a level of accuracy and reliability sufficient to replace OATS; and (2) modified NYSE’s EBS rule text to clarify that NYSE will not request trade data or information, and member organizations will not be required to provide trade data or information, pursuant to the rule for trades reported to the CAT after FINRA announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to FINRA’s EBS rules. When NYSE filed Amendment No. 1 to its proposal with the Commission, it also submitted Amendment No. 1 to the public comment file for its proposal. 27 Amendment No. 1 to SR–NYSEArca–2017–59: (1) Added introductory language to NYSE Arca’s OATS rules to clarify that the OATS rules will be deleted upon announcement by FINRA that the CAT has achieved a level of accuracy and reliability sufficient to replace OATS; and (2) modified NYSE Arca’s EBS rule text to clarify that NYSE Arca will not request trade data or information, and ETP Holders, OTP Holders, OTP Firms, and associated persons of ETP Holders and OTP Firms (as defined in NYSE Arca’s rulebook) will not be required to provide trade data or information, pursuant to the rule for trades reported to the CAT after FINRA announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to FINRA’s EBS rules. Amendment No. 1 to SR–NYSEArca–2017–57 added introductory language to NYSE Arca’s COATS-related rules to clarify that these rules will be amended upon announcement by NYSE Arca, in conjunction with the other options exchanges, that CAT has achieved a level of accuracy and reliability sufficient to replace COATS. When NYSE Arca filed Amendment No. 1 to each of its proposed rule changes with the Commission, it also submitted Amendment No. 1 to the public comment file for each respective proposed rule change. 28 Amendment No. 1 to SR–NYSEMKT–2017–30: (1) Added introductory language to NYSE MKT’s OATS rules to clarify that they will be deleted upon announcement by FINRA that the CAT has achieved a level of accuracy and reliability sufficient to replace OATS; and (2) modified NYSE MKT’s EBS rule text to clarify that NYSE MKT will not request trade data or information, and member organizations and ATP Holders (as defined in NYSE MKT’s rulebook) will not be required to provide trade data or information, pursuant to the rule for trades reported to the CAT after FINRA announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to FINRA’s EBS rules. Amendment No. 1 to SR–NYSEMKT–2017–29 added introductory language to NYSE MKT’s COATS-related rules to clarify that the COATSrelated rules will be amended upon announcement by NYSE MKT, in conjunction with the other options exchanges, that CAT has achieved a level of accuracy and reliability sufficient to replace COATS. When NYSE MKT filed Amendment No. 1 to each of its proposed rule changes with the Commission, it also submitted Amendment No. 1 to the public comment file for each respective proposed rule change. VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 submitted Amendment No. 2 to its proposed rule filing.29 The Commission is publishing this notice and order to solicit comments on the proposed rule changes, as modified by the respective amendments thereto, from interested persons and to institute proceedings pursuant to Section 19(b)(2)(B) of the Act 30 to determine whether to approve or disapprove the proposed rule changes, as modified by the respective amendments thereto.31 II. Description of the Proposals, as Modified by Amendments Thereto As required by the CAT NMS Plan, the Systems Retirement Proposals discuss: (1) The specific standards that will govern when SRO rules and related systems that are duplicative of CAT— including the Order Audit Trail System (‘‘OATS’’), the Consolidated Options Audit Trail System (‘‘COATS’’), and the Electronic Blue Sheets system (‘‘EBS’’)—will be modified or eliminated; (2) whether the availability of data from Small Industry Members in November of 2018 would facilitate duplicative systems retirement; and (3) the feasibility of granting exemptions from reporting to duplicative systems to individual Industry Members whose CAT reporting meets certain accuracy and reliability thresholds. A. Specific Accuracy and Reliability Standards 1. OATS FINRA’s OATS rules require certain FINRA members to report a variety of data regarding transactions in OTC equity securities and NMS stocks to the 29 This amendment: (1) Added introductory language to Phlx OATS rule series to clarify that the rules will be deleted upon announcement by Phlx that the CAT has achieved a level of accuracy and reliability sufficient to replace OATS; (2) added introductory language to Phlx’s COATS-related rules to clarify that the rules will be amended upon announcement by Phlx that the CAT has achieved a level of accuracy and reliability sufficient to replace COATS; (3) modified Phlx’s EBS rule text and language in Phlx Rule 1022 to clarify that Phlx will not request trade data or information, and members will not be required to provide trade data or information, pursuant to the EBS Rule or Rule 1022 for trades reported to the CAT after Phlx announces that is has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to these rules; and (4) made a conforming change to Phlx Option Floor Procedure Advices and Order and Decorum Regulations C–2 to delete rule text that corresponds to rule text that Phlx previously proposed to delete in Rule 1063. When Phlx filed Amendment No. 2 to its proposal with the Commission, it also submitted Amendment No. 2 to the public comment file for its proposal. 30 15 U.S.C. 78s(b)(2)(B). 31 For purposes of this notice and order, capitalized terms are defined as set forth in the Notices or in the CAT NMS Plan unless otherwise specified. PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 system on a daily basis.32 Several other SROs have their own OATS rules that mirror FINRA’s rule or incorporate it by reference.33 FINRA and the other SROs with OATS rules (the ‘‘OATS SROs’’) have proposed to delete their OATS rules from their respective rulebooks. As described in more detail below, these deletions will be implemented once CAT Data achieves certain pre- and post-correction error rates and certain qualitative criteria have been met. In its Systems Retirement Proposal, FINRA stated that it believes that relevant error rates are the primary, but not the sole, metric by which to determine the CAT’s accuracy and reliability and will serve as the baseline requirement needed before OATS can be retired to account for information being available in the CAT.34 FINRA noted that the Participants established an initial Error Rate, as defined in the Plan, of 5% on initially submitted data (i.e., data as submitted by a CAT Reporter before any required corrections are performed).35 The Participants noted in the Plan their expectation that ‘‘error rates after reprocessing of error corrections will be de minimis.’’ 36 The Participants based this Error Rate on their consideration of ‘‘current and historical OATS Error Rates, the magnitude of new reporting requirements on the CAT Reporters and the fact that many CAT Reporters may have never been obligated to report data to an audit trail.’’ 37 In its Systems Retirement Proposal, FINRA expressed agreement with the Participants’ conclusion that a 5% precorrection threshold ‘‘strikes the balance of adapting to a new reporting regime, while ensuring that the data provided to regulators will be capable of being used to conduct surveillance and market reconstruction, as well as having a sufficient level of accuracy to facilitate the retirement of existing regulatory reports and systems where possible.’’ 38 However, FINRA believed that, when assessing the accuracy and reliability of the data for the purposes of retiring OATS, the error thresholds should be measured in more granular ways and should also include minimum error rates of post-correction data, which 32 See FINRA Rule 7400. BX Rule 6950, IEX Rule 11.420, NASDAQ Rule 7000A Series, NYSE Rule 7400 Series, NYSE Arca Rule 6–E, and NYSE MKT Rule 7400— Equities Series, Phlx Rule 3400 series. 34 See FINRA Notice, 82 FR at 25424. 35 See CAT NMS Plan, Appendix B, Section A.3(b). 36 CAT NMS Plan, Appendix C, Section A.3(b), at n. 102. 37 CAT NMS Plan, Appendix C, Section A.3(b). 38 Id. See also FINRA Notice, 82 FR at 25424. 33 See E:\FR\FM\06SEN1.SGM 06SEN1 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices represents the data most likely to be used by FINRA to conduct surveillance. Although FINRA is proposing to measure the appropriate error rates in the aggregate rather than firm-by-firm, FINRA expressed the belief that the error rates for equity securities should be measured separately from options since options orders are not currently reported regularly or included in OATS.39 FINRA has proposed that, before OATS could be retired, the CAT would generally need to achieve a sustained error rate for Industry Member reporting in each of the categories below: • Rejection Rates and Data Validations. Data validations for the CAT, while not expected to be designed the same as OATS, must be functionally equivalent to OATS in accordance with the CAT NMS Plan (i.e., the same types of basic data validations must be performed by the Plan Processor to comply with the CAT NMS Plan requirements). Appendix D of the Plan, for example, requires that certain file validations40 and syntax and context checks be performed on all submitted records.41 If a record does not pass these basic data validations, it must be rejected and returned to the CAT Reporter to be corrected and resubmitted.42 The specific validations can be determined only after the Plan Processor has finalized the Industry Member Technical Specifications; however, the Plan also requires the Plan Processor to provide daily statistics on rejection rates after the data has been processed, including the number of files rejected and accepted, the number of order events accepted and rejected, and the number of each type of report rejected.43 FINRA is proposing that, over the 180-day period, aggregate 39 See FINRA Notice, 82 FR at 25424. CAT NMS Plan, Appendix D, Section 7.2. The Plan requires the Plan Processor to confirm that file transmission and receipt are in the correct formats, including validation of header and trailers on the submitted report, confirmation of a valid SRO-Assigned Market Participant Identifier, and verification of the number of records in the file. See id. 41 See id. The Plan notes that syntax and context checks would include format checks (i.e., that data is entered in the specified format); data type checks (i.e., that the data type of each attribute conforms to the specifications); consistency checks (i.e., that all attributes for a record of a specified type are consistent); range/logic checks (i.e., that each attribute for every record has a value within specified limits and the values provided are associated with the event type they represent); data validity checks (i.e., that each attribute for every record has an acceptable value); completeness checks (i.e., that each mandatory attribute for every record is not null); and timeliness checks (i.e., that the records were submitted within the submission timelines). See id. 42 See id. 43 See id. asabaliauskas on DSKBBXCHB2PROD with NOTICES 40 See VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 rejection rates (measured separately for equities and options) must be no more than 5% pre-correction or 2% postcorrection across all CAT Reporters. • Intra-Firm Linkages. The Plan requires that ‘‘the Plan Processor must be able to link all related order events from all CAT Reporters involved in the lifecycle of an order.’’ 44 At a minimum, this requirement includes the creation of an order lifecycle between ‘‘[a]ll order events handled within an individual CAT Reporter, including orders routed to internal desks or departments with different functions (e.g., an internal ATS).’’ 45 FINRA is proposing that aggregate intra-firm linkage rates across all Industry Member Reporters must be at least 95% pre-correction and 98% post-correction. • Inter-Firm Linkages. The order linkage requirements in the Plan also require that the Plan Processor be able to create the lifecycle between orders routed between broker-dealers.46 FINRA is proposing that at least a 95% precorrection and 98% post-correction aggregate match rate be achieved for orders routed between two Industry Member Reporters. • Order Linkage Rates. In addition to creating linkages within and between broker-dealers, the Plan also includes requirements that the Plan Processor be able to create lifecycles to link various pieces of related orders.47 For example, the Plan requires linkages between customer orders and ‘‘representative’’ orders created in firm accounts for the purpose of facilitating a customer order, various legs of option/equity complex orders, riskless principal orders, and orders worked through average price accounts.48 FINRA is proposing that there be at least a 95% pre-correction and 98% post-correction linkage rate for multi-legged orders (e.g., related equity/ options orders, VWAP orders, riskless principal transactions). • Exchange and TRF/ORF Match Rates. The Plan requires that an order lifecycle be created to link ‘‘[o]rders routed from broker-dealers to exchanges’’ and ‘‘[e]xecuted orders and trade reports.’’ 49 FINRA is proposing at least a 95% pre-correction and 98% post-correction aggregate match rate to each equity exchange for orders routed from Industry Members to an exchange and, for over-the-counter executions, the 44 CAT NMS Plan, Appendix D, Section 3. 45 Id. 46 See id. id. 48 See id. 49 Id. 47 See PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 42171 same match rate for orders linked to trade reports. FINRA believes that an error rate of 5% or lower, measured on a precorrection or as-submitted basis, and 2% or lower on a post-correction basis (measured at T+5),50 should be attained across a 180-day period before retiring OATS. FINRA believes that this time period is necessary to reveal any errors that could 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. FINRA would not require a maximum 5% pre-correction error rate and 2% post-correction error rate each day for 180 consecutive days. FINRA’s Systems Retirement Proposal also provides that, during the 180-day period over which the thresholds are calculated, FINRA’s use of the data in the CAT must confirm that (i) usage over that time period has not revealed material issues that have not been corrected, (ii) the CAT includes all data necessary to allow FINRA to continue to meet its surveillance obligations, and (iii) the Plan Processor is sufficiently meeting all of its obligations under the Plan. Finally, FINRA notes that it will implement the deletion of its OATS rules on a date to be announced in a Regulatory Notice once FINRA concludes the thresholds for accuracy and reliability described above have been met.51 In addition, FINRA added proposed introductory language to its OATS rules in its Amendment No. 1 that clarified that, if approved, the OATS rules will be deleted from its rulebook upon announcement by FINRA that the CAT has achieved a level of accuracy and reliability sufficient to replace OATS. In their Systems Retirement Proposals, some of the OATS SROs 52 proposed to assess when to eliminate their respective OATS rules based on the same accuracy and reliability standards as proposed by FINRA, and to announce the implementation date of the elimination of their OATS rules via regulatory notice once each has concluded that these standards have 50 The Plan requires the Plan Processor to ensure that regulators have access to corrected and linked order and Customer data by 8:00 a.m. Eastern Time on T+5. See CAT NMS Plan, Appendix C, Section A.2(a). 51 See FINRA Notice, 82 FR at 25426. 52 BX, IEX, NASDAQ, and Phlx. E:\FR\FM\06SEN1.SGM 06SEN1 42172 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices been met.53 Other OATS SROs 54 proposed to implement the elimination of their OATS rules via regulatory notice once FINRA has determined that the accuracy and reliability standards proposed by FINRA had been met, and FINRA publishes a notice announcing the date it will retire its OATS rules.55 asabaliauskas on DSKBBXCHB2PROD with NOTICES 2. COATS Bats BZX, Bats EDGX, BX, BOX, CBOE, C2, NASDAQ, NYSE Arca, NYSE MKT, and Phlx (collectively, the ‘‘COATS SROs’’) utilize COATS to collect and review data regarding orders, quotes, and transactions in listed options.56 In their Systems Retirement Proposals, the COATS SROs noted that the Participants have provided COATS technical specifications to the CAT Plan Processor for use in developing the Technical Specifications for the CAT, and that the Participants are working with the Plan Processor to include the necessary COATS data elements in the CAT Technical Specifications.57 Accordingly, the COATS SROs have proposed to eliminate COATS once CAT is operational and CAT Data is sufficiently accurate and reliable for the COATS SROs to perform the regulatory functions that they now perform via 53 See BX Notice, 82 FR at 25873–74; IEX Notice, 82 FR at 25401–02; NASDAQ Notice, 82 FR at 25821–22; Phlx Notice, 82 FR at 25864. Similar to FINRA, each of these Exchanges also added proposed introductory language to its OATS rules to clarify that, if approved, the OATS rules will be deleted from its rulebook upon announcement by the Exchange that CAT has achieved a level of accuracy and reliability sufficient to replace OATS. See Amendment No. 1 to IEX Notice and Amendment No. 2 to BX Notice, NASDAQ Notice, and Phlx Notice. 54 NYSE, NYSE Arca, and NYSE MKT. 55 See NYSE Notice, 82 FR at 25636–37; NYSE Arca Notice 1, 82 FR at 25363–64; NYSE MKT Notice 2, 82 FR at 25440. Similar to FINRA, each of NYSE, NYSE Arca, and NYSE MKT also added proposed introductory language to its OATS rules to clarify that, if approved, the OATS rules will be deleted from its rulebook upon announcement by FINRA that the CAT has achieved a level of accuracy and reliability sufficient to replace OATS. See Amendment No. 1 to NYSE Notice, NYSE Arca Notice 1, and NYSE MKT Notice 2. 56 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.’’ Securities Exchange Act Release No. 43268, Section IV.B.e.(v) (September 11, 2000) (Administrative Proceeding File No. 3–10282) (Order Instituting Public Administrative Proceedings Pursuant to Sections 19(h)(1) of the Act, Making Findings and Imposing Remedial Sanctions). 57 See Bats BZX Notice, 82 FR at 25375; Bats EDGX Notice, 82 FR at 25359; BOX Notice, 82 FR at 25492; BX Notice, 82 FR at 25876; C2 Notice, 82 FR at 25386; CBOE Notice, 82 FR at 25430; NYSE Arca Notice 2, 82 FR at 25640; NYSE MKT Notice 1, 82 FR at 25444; NASDAQ Notice, 82 FR at 25824; Phlx Notice, 82 FR at 25868. VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 COATS. The COATS SROs also have proposed to eliminate certain provisions of their rules that reference COATS or implement COATS requirements 58 and/ or to replace certain provisions that implement COATS requirements with others that provide for compliance with CAT requirements.59 Similar to the standards described in the Systems Retirement Proposals that discuss eliminating OATS-related rules, the COATS SROs believe that, before COATS can be retired and the proposed modifications to COATS-related rules can be implemented, the CAT would need to achieve an aggregate average error rate 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).60 The 5% and 58 See CBOE Notice, 82 FR at 25430 (proposing to eliminate, from CBOE Rule 6.24, references to and background on COATS as well as COATS requirements regarding the reporting of the time of receipt of an execution report); NYSE Arca Notice 2, 82 FR at 25640 (proposing to eliminate the COATS-related clock synchronization requirements of NYSE Arca Rule 6.20–O). 59 See BX Notice, 82 FR at 25876 (proposing to eliminate the COATS-based information reporting requirements of BX Chapter V, Section 7, and to replace them with a requirement that BX members maintain order records consisting of the elements required by BX’s CAT Compliance Rule); Amendment No. 1 to BOX Notice (proposing to eliminate the COATS-based data requirements of BOX Rule 7120(b) and to replace them with a requirement that order tickets consist of the elements required by BOX’s CAT Compliance Rule); CBOE Notice, 82 FR at 25430 (proposing to amend various interpretations and policies of CBOE Rule 6.24 to require that certain systems and data reports comply with the functionality and format requirements of CAT rather than COATS); Nasdaq Notice, 82 FR at 25824 (proposing to eliminate the COATS-based information reporting requirements of Nasdaq Chapter V, Section 7, and to replace them with a requirement that Nasdaq members maintain order records consisting of the elements required by Nasdaq’s CAT Compliance Rule); NYSE Arca Notice 2, 82 FR at 25640 (proposing to amend NYSE Arca Rule 6.68–O to require order records to include the elements required by NYSE Arca’s CAT Compliance Rule rather than the elements required under COATS); NYSE MKT Notice 1, 82 FR at 25444 (proposing to amend NYSE MKT Rule 956NY to require order records to include the elements required by NYSE MKT’s CAT Compliance Rule rather than the elements required under COATS); Phlx Notice, 82 FR at 25868 and Amendment No. 2 to Phlx Notice (proposing to amend Phlx Rule 1063, which implements certain reporting requirements related to COATS, and Option Floor Procedure Advices and Order and Decorum Regulation C–2, which repeats these requirements and imposes a schedule of fines for violating them, by replacing the COATS requirements with provisions stating that order records must include the elements enumerated in Phlx’s CAT Compliance Rule). See also Bats EDGX Notice, 82 FR at 25359; BZX Notice, 82 FR at 25375; C2 Notice, 82 FR at 25386 (noting that BZX, EDGX, and C2 do not have any specific rules or requirements related to COATS but refer to the retirement of COATS in their filings to be consistent with the other options exchanges). 60 See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 FR at 25360–61; BOX Notice, 82 FR at 25493–94; BX Notice, 82 FR at 25877; C2 PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 2% error rates would be measured across a 180-day period. For purposes of COATS retirement, the COATS SROs have proposed to measure the error rates for CAT records relating only to listed options and not to equities, as only options orders and transactions are currently subject to COATS reporting. As with the proposals to retire OATS, the COATS SROs believe that, during the minimum 180-day period during which the error thresholds are calculated, their use of CAT Data must confirm that (1) there are no material issues that have not been corrected, (2) the CAT includes all data necessary to allow the COATS SROs to continue to meet their surveillance obligations, and (3) the Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan. Each COATS SRO also noted that, if the Commission approves its proposed rule change, it would announce the date for modification or elimination, as applicable, of reporting requirements and the implementation date of the proposed rule changes via regulatory notices or circulars that would be published once the thresholds for accuracy and reliability described above have been met and the Plan Processor is sufficiently meeting all of its obligations under the Plan.61 In amendments to their respective filings, each COATS SRO also added introductory language to each of the rules that it has proposed to modify in connection with the retirement of COATS specifying that the rule will be amended upon announcement by the SRO that the CAT has achieved a sufficient level of accuracy and reliability.62 Notice, 82 FR at 25387–88; CBOE Notice, 82 FR at 25432; NYSE Arca Notice 2, 82 FR at 25641; NYSE MKT Notice 1, 82 FR at 25445; NASDAQ Notice, 82 FR at 25825; Phlx Notice, 82 FR at 25869. 61 See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 at FR 25361; CBOE Notice, 82 FR at 25432; C2 Notice, 82 FR at 25388 (all stating that the proposed modifications will be implemented ‘‘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’’); BX Notice, 82 FR at 25877, NASDAQ Notice, 82 FR at 25826, and Phlx Notice, 82 FR at 25869 (all stating that the proposed modifications will be implemented ‘‘once [the Exchange] concludes the thresholds for accuracy and reliability described above have been met and that the Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan’’); BOX Notice, 82 FR at 25494, NYSE Arca Notice 2, 82 FR at 25640, and NYSE MKT Notice 1, 82 FR at 25444 (all stating that the proposed modifications will be implemented ‘‘once the options exchanges determine that the thresholds for accuracy and reliability described . . . have been met and that the Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan’’). 62 See Amendment No. 1 to Bats BZX Notice, Bats EDGX Notice, BOX Notice, C2 Notice, CBOE Notice, E:\FR\FM\06SEN1.SGM 06SEN1 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices 3. EBS asabaliauskas on DSKBBXCHB2PROD with NOTICES Each of Bats BZX, Bats EDGX, BX, BOX, CBOE, C2, FINRA, IEX, ISE, MIAX, PEARL, Phlx, NASDAQ, NYSE, NYSE Arca, and NYSE MKT (each an ‘‘EBS SRO’’) has a rule requiring a member, upon request by the SRO, to provide trading information using the electronic blue sheets (‘‘EBS’’) system in such format as may be prescribed by the SRO.63 According to the EBS SROs, after broker-dealer reporting to the CAT begins, CAT will contain much of the data with respect to transactions in CAT-Eligible Securities that an SRO could otherwise have requested via the EBS system.64 Consequently, the EBS SROs would no longer need to request information pursuant to the EBS Rules for transactions in CAT-Eligible Securities after such time as appropriate thresholds for accuracy and reliability, including for customer and account information, are achieved. However, the EBS SROs do not believe that the EBS rules can be completely removed from their rulebooks and the EBS system completely retired, because EBS requests might have to be made to obtain information about transactions occurring before CAT has attained an appropriate threshold for accuracy and reliability. Some of the EBS SROs 65 also noted that their EBS rules apply to transactions in non-CAT-Eligible Securities, such as fixed-income securities. Thus, the rules would have to NYSE Arca Notice 2, NYSE MKT Notice 1; and Amendment No. 2 to BX Notice, NASDAQ Notice, and Phlx Notice. 63 See Bats BZX Rule 24.4; Bats EDGX Rule 24.4; BOX Rule 10040; BX Equity Rule 8211; BX Options Rule Chapter IX, Section 4; C2 Chapter 15 (incorporating CBOE Rule 15.7 by reference); CBOE Rule 15.7; IEX Rule 8.220; ISE Rule 1404; FINRA Rules 8211 and 8213; MIAX Rule 804; Nasdaq Equity Rule 8211; Nasdaq Options Rule Chapter IX, Section 4; NYSE Rule 8211; NYSE Arca Rule 10.2(e); NYSE MKT Rule 8211; Phlx Rule 785; PEARL Rule 804. PEARL notes that PEARL Rule 804 is incorporated by reference from the rules in MIAX rulebook Chapter VIII. See PEARL Notice, 82 FR at 25437, n. 14. 64 See Bats BZX Notice, 82 FR at 25375; Bats EDGX Notice, 82 FR at 25359; BOX Notice, 82 FR at 25493; BX Notice, 82 FR at 25875; C2 Notice, 82 FR at 25386; CBOE Notice, 82 FR at 25431; FINRA Notice, 82 FR at 25426; IEX Notice, 82 FR at 25403; ISE Notice, 82 FR at 25470; MIAX Notice, 82 FR at 25367; NYSE Notice, 82 FR at 25637; NYSE Arca Notice 1, 82 FR at 25364; NYSE MKT Notice 2, 82 FR at 25442; NASDAQ Notice, 82 FR at 25823; PEARL Notice, 82 FR at 25437; Phlx Notice, 82 FR at 25866. 65 See Bats BZX Notice, 82 FR at 25375; Bats EDGX Notice, 82 FR at 25359–60; BX Notice, 82 FR at 25875; CBOE Notice, 82 FR at 25431; C2 Notice, 82 FR at 25386–87; FINRA Notice, 82 FR at 25426; Phlx Notice, 82 FR at 25867 ; NASDAQ Notice, 82 FR at 25823; NYSE Notice, 82 FR at 25637; NYSE Arca Notice 1, 82 FR at 25365; and NYSE MKT Notice 2, 82 FR at 25442. VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 remain in effect with respect to those transactions. Each of the EBS SROs proposed to add new language to its EBS rule to clarify how it will request data under these rules after members are reporting to the CAT.66 Specifically, the proposed new language notes that the SRO will not request trade data or information under the rule, and members will not be required to provide trade data or information under the rule, for trades reported to the CAT after the SRO (or, in some cases, FINRA) announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to the EBS rule.67 As noted above, the EBS SROs believe (or reiterate FINRA’s belief) that the CAT must meet certain minimum accuracy and reliability standards before it, or FINRA, could rely on the CAT Data to replace existing regulatory tools, including EBS. Therefore, the EBS SROs propose to implement the new rule text related to their EBS rules only after CAT achieves certain accuracy thresholds. The EBS SROs proposed similar standards to those for eliminating OATS-related rules set forth above, as well as specific accuracy standards for customer and account information.68 In 66 See Amendment No. 1 to Bats BZX Notice, Bats EDGX Notice, BOX Notice; C2 Notice, CBOE Notice, FINRA Notice, IEX Notice, NYSE Notice, NYSE Arca Notice 1, and NYSE MKT Notice 2; Amendment No. 2 to BX Notice, ISE Notice, NASDAQ Notice, PEARL Notice, and Phlx Notice; and Amendment No. 3 to MIAX Notice. 67 See proposed revisions to Bats BZX Rule 24.4, as modified by Amendment No. 1; proposed revisions to Bats EDGX Rule 24.4, as modified by Amendment No. 1; proposed Supplementary Material to BX Equity Rule 8211, as modified by Amendment No. 2; proposed Supplementary Material to BX Options Rule Chapter IX, Section 4, as modified by Amendment No. 2; proposed Interpretive Material to BOX Rule 10040, as modified by Amendment No. 1; C2 Chapter 15 (incorporating by reference the proposed revisions to CBOE Rule 15.7); proposed revisions to CBOE Rule 15.7, as modified by Amendment No. 1; proposed Supplementary Material to FINRA Rules 8211 and 8213, as modified by Amendment No. 1; proposed Supplementary Material .01 to IEX Rule 8.220, as modified by Amendment No. 1; proposed Supplementary Material to ISE Rule 1404, as modified by Amendment No. 2; proposed Interpretation and Policy .01 to MIAX Rule 804, as modified by Amendment No. 3; proposed Supplementary Material to Phlx Rule 785, as modified by Amendment No. 2; proposed Supplementary Material to Nasdaq Equity Rule 8211, as modified by Amendment No. 2; proposed Supplementary Material to Nasdaq Options Rule Chapter IX Section 4, as modified by Amendment No. 2; proposed Supplementary Material .01 to NYSE Rule 8211, as modified by Amendment No. 1; proposed Commentary .01(E) to NYSE Arca Rule 10.2, as modified by Amendment No. 1; proposed Supplementary Material .01 to NYSE MKT Rule 8211, as modified by Amendment No. 1; proposed Interpretation and Policy .01 to PEARL Rule 804, as modified by Amendment No. 2. 68 See BX Notice, 82 FR at 25876; Bats BZX Notice, 82 FR at 25375; Bats EDGX Notice, 82 FR PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 42173 addition, each of the EBS SROs states that it (or, in some cases, FINRA) can rely on CAT Data to replace EBS requests only after it has determined that its usage of the CAT Data over a 180-day period has not revealed material issues that have not been corrected, confirmed that the CAT includes all data necessary to allow it or FINRA to continue to meet its surveillance obligations, and confirmed that the Plan Processor is fulfilling its obligations under the Plan.69 4. Other Rules Certain Exchanges proposed to amend other reporting rules that they have determined are duplicative of CAT requirements. BatsBZX, BatsEDGX, BOX, BX, C2, CBOE, MIAX, PEARL, Phlx, and NASDAQ currently have rules requiring certain market participants (e.g., specialists and market makers) to report certain account or order information for accounts over which the market participant engages in trading activities or exercises investment discretion.70 These Exchanges stated at 25359; BOX Notice, 82 FR at 25493; C2 Notice, 82 FR at 25386; CBOE Notice, 82 FR at 25431; IEX Notice, 82 FR at 25403; ISE Notice, 82 FR at 25470– 71; MIAX Notice, 82 FR at 25367–68; NASDAQ Notice, 82 FR at 25823–24; PEARL Notice, 82 FR at 25437–38; and Phlx Notice, 82 FR at 25866–68, respectively (stating that each SRO will assess whether ‘‘an acceptable accuracy rate for customer and account information’’ has been reached); FINRA Notice, 82 FR at 25426; NYSE Notice, 82 FR at 25638; NYSE Arca Notice 1, 82 FR at 25365; and NYSE MKT Notice 2, 82 FR at 25442, respectively (stating that FINRA will assess whether ‘‘an accuracy rate for customer and account information of 95% for pre-corrected data and 98% for postcorrection data’’ has been reached). 69 See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 FR at 25360–61; BOX Notice, 82 FR at 25494; BX Notice, 82 FR at 25876; C2 Notice, 82 FR at 25387; CBOE Notice, 82 FR at 25432; FINRA Notice, 82 FR at 25426; IEX Notice, 82 FR at 25403; ISE Notice, 82 FR at 25471; MIAX Notice, 82 FR at 25368; NYSE Notice, 82 FR at 25636; NYSE Arca Notice 1, 82 FR at 25365; NYSE MKT Notice 2, 82 FR at 25442; NASDAQ Notice, 82 FR at 25824; PEARL Notice, 82 FR at 25438; Phlx Notice, 82 FR at 25868. NYSE, NYSE Arca, and NYSE MKT will implement this change by regulatory notice once FINRA publishes a notice announcing a date that it will retire its EBS Rules and thus will rely on FINRA’s conclusion that the described accuracy and reliability thresholds have been met and the CAT Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan. See NYSE Notice, 82 FR at 25636; NYSE Arca Notice 1, 82 FR at 25365; NYSE MKT Notice 2, 82 FR at 25442. 70 See Bats BZX Rule 22.7 and Interpretation and Policy .01 to Bats BZX Rule 22.7 (requiring market makers to identify accounts and report orders, and specifying requirements for joint accounts); Bats EDGX Rule 22.7 and Interpretation and Policy .01 to Bats EDGX Rule 22.7 (requiring market makers to identify accounts and report orders, and specifying requirements for joint accounts); BOX Rule 8060 (requiring market makers to identify accounts and report orders, and specifying requirements for joint accounts); BX Options Rule E:\FR\FM\06SEN1.SGM Continued 06SEN1 42174 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices asabaliauskas on DSKBBXCHB2PROD with NOTICES that, once broker-dealers are reporting to CAT, CAT will contain some of the data the Exchanges would otherwise have requested under these rules.71 Similar to the proposed revisions to the EBS rules, some of the Exchanges have proposed to add new text to these order and account identification rules stating that the Exchange will not request information under the rule, and members will not be required to provide information under the rule, for trades reported to CAT after the Exchange announces that it has determined that the accuracy and reliability of the CAT are sufficient to replace requests pursuant to the rule.72 Other Exchanges have proposed to revise these rules by deleting specific reporting requirements that are Chapter VII, Section 7 and Commentary .01 to BX Options Rule Chapter VII, Section 7 (requiring market makers to identify accounts and report orders, and specifying requirements for joint accounts); C2 Rule 8.7 (requiring market makers to identify accounts and report orders, and specifying requirements for joint accounts); CBOE Rule 8.9 and Interpretation and Policy .07 to CBOE Rule 8.9 (requiring market makers to identify accounts and report orders, and specifying requirements for joint accounts); MIAX Rule 607 (requiring market makers to identify accounts and report orders, and specifying requirements for joint accounts); Nasdaq Options Rule Chapter VII, Section 7 and Commentary .01 to Nasdaq Options Rule Chapter VII, Section 7 (requiring market makers to identify accounts and report orders, and specifying requirements for joint accounts); PEARL Rule 606 and Interpretation and Policy .01 to PEARL Rule 606 (requiring market makers to identify accounts and report orders, and specifying requirements for joint accounts); Phlx Options Rule 1022 and Commentary .01 and .02 to Phlx Options Rule 1022 (requiring specialists and market makers to identify accounts and, with respect to options in a foreign currency, make available books and records concerning transactions). 71 See Bats BZX Notice, 82 FR at 25375; Bats EDGX Notice, 82 FR at 25359; BOX Notice, 82 FR at 25492; BX Notice at 25875; C2 Notice, 82 FR at 25386; CBOE Notice, 82 FR at 25431; MIAX Notice, 82 FR at 25367; NASDAQ Notice, 82 FR at 25823; PEARL Notice, 82 FR at 25437; Phlx Notice, 82 FR at 25866. 72 See proposed Interpretive Material 8060–1 to BOX Rule 8060, as modified by Amendment No. 1; proposed Commentary .02 to BX Options Rule Chapter VII, Section 7, as modified by Amendment No. 2; proposed Interpretation and Policy .01 to MIAX Rule 607, as modified by Amendment No. 3; proposed Commentary .02 to Nasdaq Options Rule Chapter VII, Section 7, as modified by Amendment No. 2; proposed Interpretation and Policy .02 to PEARL Rule 606, as modified by Amendment No. 2; proposed Commentary .03 to Phlx Options Rule 1022, as modified by Amendment No. 2. In addition, BZX, CBOE, and EDGX proposed language for other rules that require the furnishing of data similar to the proposed revisions to the EBS rules— that is, that they will not request information for trades reported to the CAT after each has announced that it has determined that CAT is sufficiently accurate and reliable. See Amendment No. 1 to BZX Notice (proposing to add such language to Interpretation and Policy .02 to BZX Rule 4.2); Amendment No. 1 to EDGX Notice (proposing to add such language to Interpretation and Policy .02 to EDGX Rule 4.2); Amendment No. 1 to CBOE Notice (proposing to add such language to Interpretation and Policy .04 to CBOE Rule 17.2). VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 duplicative of CAT while retaining their position reporting requirements, which are not duplicative of CAT.73 In their respective amendments, these Exchanges proposed to add introductory language to these rules to clarify that the rules will be amended upon announcement by the Exchange that the CAT has achieved a sufficient level of accuracy and reliability.74 In addition, CBOE and EDGX currently require members to submit to the Exchange stock transaction information for each Qualified Contingent Cross order executed at the Exchange.75 CAT will require exchange members to report stock transaction information. Therefore, CBOE and EDGX intend to eliminate this reporting requirement in accordance with the proposed timeline and standards below. These Exchanges proposed standards for when the proposed modifications to these reporting rules will be implemented that are similar to those for eliminating OATS-related rules set forth above. Accordingly, these Exchanges proposed that 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).76 These Exchanges have proposed to measure the 5% pre-correction and 2% post-correction thresholds by averaging the error rate across the period, not requiring a 5% precorrection and 2% post-correction maximum each day for 180 consecutive days. In addition, each of these Exchanges stated that it can rely on CAT 73 See proposed revisions to Bats BZX Rule 22.7(b) and Interpretation and Policy .01 to Bats BZX Rule 22.7 (proposing to replace requirement that market makers report orders with requirement that market makers report positions and eliminate required elements of report pertaining to orders); proposed revisions to Bats EDGX Rule 22.7(b) and Interpretation and Policy .01 to Bats EDGX Rule 22.7 (proposing to replace requirement that market makers report orders with requirement that market makers report positions and eliminate required elements of report pertaining to orders); proposed revisions to C2 Rule 8.7(b) (proposing to replace requirement that market makers report orders with requirement that market makers report positions and eliminate required elements of report pertaining to orders); proposed revisions to CBOE Rule 8.9(b) and Interpretation and Policy .07 to CBOE Rule 8.9 (proposing to replace requirement that market makers report orders with requirement that market makers report positions and eliminate required elements of report pertaining to orders). 74 See Amendment No. 1 to each of Bats BZX Notice, Bats EDGX Notice, C2 Notice, and CBOE Notice. 75 See CBOE Notice, 82 FR at 25431; EDGX Notice, 82 FR at 25360. 76 The Plan requires the Plan Processor to 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. PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 Data to replace information required to be reported under duplicative rules only after it has determined that its usage of the CAT Data over a 180-day period has not revealed material issues that have not been corrected, confirmed that the CAT includes all data necessary to allow it to continue to meet its surveillance obligations, and confirmed that the CAT Plan Processor is fulfilling its obligations under the CAT NMS Plan.77 B. Small Industry Member Data Availability As noted above, the CAT NMS Plan requires the SROs, in their Systems Retirement Proposals, to 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.’’ 78 In its Systems Retirement Proposal, FINRA stated its view that there is no effective way to retire OATS until all current OATS reporters are reporting to the CAT and that having data from Small Industry Members currently reporting to OATS available two years after the Effective Date rather than three would ‘‘substantially facilitate a more expeditious retirement of OATS.’’ 79 Therefore, FINRA supports an amendment to the Plan that would require current OATS reporters that are Small Industry Members to report to CAT two years after the Effective Date (instead of three) and stated that it intends to work with the other SROs to propose such an amendment to the Plan.80 FINRA has identified approximately 300 member firms that currently report to OATS and meet the definition of ‘‘Small Industry Member.’’ According to FINRA, only ten of these firms submit information to OATS on their own behalf, and eight of those ten firms report very few records to OATS.81 The 77 See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 FR at 25360–61; BX Notice, 82 FR at 25876; BOX Notice, 82 FR at 25494; C2 Notice, 82 FR at 25387; CBOE Notice, 82 FR at 25432; MIAX Notice, 82 FR at 25368; NASDAQ Notice, 82 FR at 25824; PEARL Notice, 82 FR at 25438; Phlx Notice, 82 FR at 25867–68. 78 CAT NMS Plan, Appendix C, Section C.9. 79 FINRA Notice, 82 FR at 25425. 80 FINRA notes that the 180-day timeframes discussed above with respect to usage of the data and calculation of error rates would apply to data reported to the CAT by Small Industry Members that are reporting to OATS. If an amendment to the Plan to accelerate the reporting requirement for those firms is not approved, the retirement of OATS could not be accomplished until at least 180 days after Small Industry Members begin reporting, which is currently scheduled to begin in November 2019. See FINRA Notice, 82 FR at 25425. 81 See FINRA Notice, 82 FR at 25425 (noting that in one recent month eight of the ten firms submitted E:\FR\FM\06SEN1.SGM 06SEN1 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices asabaliauskas on DSKBBXCHB2PROD with NOTICES vast majority of these 300 firms use third parties to fulfill their reporting obligations, and many of these third parties will begin reporting to CAT in November 2018. Consequently, FINRA believes that the burden on current OATS reporters that are Small Industry Members would not be significant if those firms are required to report to CAT beginning in November 2018 rather than November 2019. FINRA does not believe that it is necessary or appropriate to accelerate CAT reporting for Small Industry Members that are not currently reporting to OATS.82 The Systems Retirement Proposals of BX, IEX, NYSE, NYSE Arca, NYSE MKT, NASDAQ, and Phlx contain the same analysis as FINRA (or summarize FINRA’s analysis) in connection with whether the earlier availability of data from Small Industry Members would facilitate the retirement of their own respective OATS rules, and these Exchanges expressed support for the Plan amendment described by FINRA.83 Some of the Systems Retirement Filings also discussed how earlier availability of data from Small Industry Members might affect the retirement of systems other than OATS. The COATS SROs expressed the view that COATS should not be retired until all Participants and Industry Members that report data to COATS are reporting comparable data to the CAT.84 They noted that, while the early submission of options data to the CAT by Small Industry Members could expedite the retirement of COATS, they believe it premature 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. Some of the EBS SROs made statements similar to the COATS SROs with respect to whether earlier availability of data from Small Industry Members would facilitate EBS retirement,85 while other fewer than 100 reports during the month, with four firms submitting fewer than 50). 82 See id. 83 See BX Notice, 82 FR at 25874–75; IEX Notice, 82 FR at 25402; NYSE Notice, 82 FR at 25636; NYSE Arca Notice 1, 82 FR at 25364; NYSE MKT Notice 2, 82 FR at 25441; NASDAQ Notice, 82 FR at 25822–23; Phlx Notice, 82 FR at 25866. See also FINRA Notice, 82 FR at 25427–28. 84 See Bats BZX Notice, 82 FR at 25375–76; Bats EDGX Notice, 82 FR at 25360; BOX Notice, 82 FR at 25493; BX Notice, 82 FR at 25877; C2 Notice at, 82 FR at 25387; CBOE Notice, 82 FR at 25431; NYSE Arca Notice 2, 82 FR at 25640; NYSE MKT Notice 1, 82 FR at 25444; NASDAQ Notice, 82 FR at 25825; Phlx Notice, 82 FR at 25868. 85 See MIAX Notice, 82 FR at 25368; PEARL Notice at 25437–38. MIAX and PEARL also make similar statements with respect to whether earlier availability of data from Small Industry Members would facilitate the retirement of MIAX Rule 607 VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 EBS SROs stated that the submission of data to the CAT by Small Industry Members a year earlier than is required in the CAT NMS Plan, at the same time as the other Industry Members, would expedite the replacement of EBS data with CAT Data because CAT would then have all necessary data from Industry Members to enable these SROs to perform the regulatory surveillance that currently is performed via EBS.86 C. Individual Industry Member Exemptions As noted above, the CAT NMS Plan also requires the SROs, in their Systems Retirement Proposals, to 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.’’ 87 All of the SROs stated (or reiterated FINRA’s statement) that a single ‘‘cutover’’ from existing systems to CAT is preferable to elimination of OATS reporting requirements on a firm-byfirm basis.88 Some of the SROs stated that providing individual exemptions to Industry Members would be inefficient, more costly, and less reliable than the single cut-over.89 These SROs further stated that providing individual exemptions would require the temporary creation of a cross-system regulatory function and the integration of data from existing systems and the CAT to avoid creating any regulatory and PEARL Rule 606, which require certain account and order information to be reported. See MIAX Notice, 82 FR at 25368; PEARL Notice at 25437–38. 86 See BX Notice, 82 FR at 25876; ISE Notice, 82 FR at 25470; NASDAQ Notice, 82 FR at 25824; Phlx Notice, 82 FR at 25867. 87 CAT NMS Plan, Appendix C, Section C.9. 88 See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 FR at 25360; BOX Notice, 82 FR at 25493; BX Notice, 82 FR at 25875–77; C2 Notice, 82 FR at 25387; CBOE Notice, 82 FR at 25431–32; FINRA Notice, 82 FR at 25425; IEX Notice, 82 FR at 25402; ISE Notice, 82 FR at 25470; MIAX Notice, 82 FR at 25368; NYSE Notice, 82 FR at 25637; NYSE Arca Notice 1, 82 FR at 25364; NYSE Arca Notice 2, 82 FR at 25640; NYSE MKT Notice 1, 82 FR at 25445; NYSE MKT Notice 2, 82 FR at 25441; NASDAQ Notice, 82 FR at 25823–25; PEARL Notice, 82 FR at 25438; Phlx Notice, 82 FR at 25866–68. 89 See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 FR at 25360; BOX Notice, 82 FR at 25493; BX Notice, 82 FR at 25876–77; C2 Notice, 82 FR at 25387; CBOE Notice, 82 FR at 25431–32; ISE Notice, 82 FR at 25470; MIAX Notice, 82 FR at 25368; NYSE Arca Notice 2, 82 FR at 25640; NYSE MKT Notice 1, 82 FR at 25445; NASDAQ Notice, 82 FR at 25824–25; PEARL Notice, 82 FR at 25438; Phlx Notice, 82 FR at 25867–68. PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 42175 gaps as a result of such exemptions. These SROs believed that such a function would be costly to create and would give rise to a greater likelihood of data errors or other issues. These SROs stated that, given the limited time in which such exemptions would be necessary, they did not believe that such exemptions would be an appropriate use of limited resources. Some of the SROs also noted that, if an amendment to require Small Industry Members who currently report to OATS to begin reporting to CAT in November of 2018 were approved by the Commission, there would be no need to exempt members from OATS requirements on a firm-by-firm basis.90 FINRA argued that the primary beneficiary of its proposed approach would be the investing public.91 FINRA noted that firm-by-firm retirement of OATS would require merging OATS and CAT data, and that such an approach would be ‘‘technologically costly and difficult and could introduce errors into the data being surveilled that did not exist prior to integration.’’ 92 FINRA further stated that conducting its surveillance using a single source ‘‘increases the efficiency and effectiveness of the process and improves the integrity of the markets.’’ 93 FINRA noted that the potential costs of this approach would be borne by those firms that would have met an individual threshold sooner and that the approach could disincentivize individual firms from meeting the minimum error rate thresholds, which could, at the margin, extend the period of duplicative reporting for all firms.94 However, FINRA noted this disincentive would be small for firms with significant reporting burdens, as they would want to end duplicative reporting quickly, and that firms that otherwise delay in meeting their error rates could incur higher costs through enforcement actions.95 III. Summary of Comments The Commission received four comments that were submitted to File Number SR–FINRA–2017–13.96 Two of the commenters noted that their comments applied to the similar 90 See BX Notice, 82 FR at 25875; FINRA Notice, 82 FR at 25426; NYSE Notice, 82 FR at 25637; NYSE Arca Notice 1, 82 FR at 25364; NYSE MKT Notice 2, 82 FR at 25441; NASDAQ Notice, 82 FR at 25823; Phlx Notice, 82 FR at 25866. 91 See FINRA Notice, 82 FR at 25427. 92 Id. 93 Id. 94 See id. 95 See id. 96 See supra note 11. E:\FR\FM\06SEN1.SGM 06SEN1 42176 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices proposals made by the other SROs.97 While the commenters supported certain aspects of the Systems Retirement Proposals, there were others—noted below—where the commenters did not agree and believed that the SROs had not provided adequate justification. A. Possibility of Firm-by-Firm Retirement All four of the commenters disagreed with the SROs’ proposed approach of applying a single cut-over from existing systems to CAT. Two of the commenters argued that individual firms that achieve the quality criteria—even if the industry as a whole has not—should be granted exemptions from reporting to existing systems until those systems can be retired. In the commenters’ view, the SROs’ proposed approach would penalize firms that quickly and consistently meet or exceed quality standards for CAT reporting.98 A third commenter argued that the single cutover approach provides little incentive for an individual firm to reduce its error rate, because the retirement of OATS will be based on an industry-wide error rate that is beyond its control.99 Two commenters took the view that FINRA had not provided sufficient cost/ benefit analysis to justify its position and emphasized the significant costs of duplicative reporting to brokerdealers.100 One of these commenters noted that broker-dealers who do not outsource their regulatory reporting (approximately 126 firms) spend on average $725,615 per month on their regulatory reporting obligations (which include OATS, EBS, large trader reporting, and other reporting).101 This commenter estimated that duplicative OATS and EBS reporting for these 126 broker-dealer firms would cost more than $20 million per month and stated that this approach would severely penalize broker-dealer firms that rapidly and consistently met reporting standards.102 Another commenter cited the same average monthly cost of 97 See FIF Letter at 1; Thomson Reuters Letter at asabaliauskas on DSKBBXCHB2PROD with NOTICES 103 SIFMA Letter at 3–4. FIF Letter at 3. 105 Id. (also stating that the Plan Processor could, for example, route all CAT reports and errors corrections from exempted firms to FINRA for conversion and input into OATS, and that more sophisticated data merge solutions are possible with a reasonable investment by FINRA and the Plan Processor). 106 See id. at 4. 107 See SIFMA Letter at 3–4 (‘‘once a brokerdealer meets accuracy thresholds in CAT, and the surveillance logic is recreated with the Central Repository, FINRA should utilize a subset of data from the CAT, and format it so that it effectively mimics what it would have received from OATS’’). 108 See Thomson Reuters Letter at 3. 109 Id. 104 See 1. 98 See FIF Letter at 3; SIFMA Letter at 3–4 (noting that the inaccurate reporting of the ‘‘slowest’’ broker-dealers, in the absence of individual firm exemptions, could force the whole industry to engage in duplicative reporting for an extended period). 99 See Fidelity Letter at 4. This commenter also suggested that FINRA could ‘‘consider migrating firms in tranches, or phases, based on priority of those firms that first met the proposed error rates’’ if FINRA does not agree that a firm-by-firm transition is appropriate. Id. 100 See FIF Letter at 3; Thomson Reuters Letter at 3. 101 See FIF Letter at 3. 102 See id. VerDate Sep<11>2014 $725,615 and argued that the benefits of individual Industry Member exemptions outweigh the ‘‘generalized and unsubstantiated justifications against such an approach’’ outlined by the SROs.103 One commenter stated that FINRA has not provided sufficient technological rationale to explain its opposition to individual firm exemptions, and disagreed with FINRA’s conclusion that the technology to merge OATS and CAT would be costly and could introduce errors.104 The commenter argued that there are ‘‘multiple possible approaches that could be used to integrate CAT and OATS data allowing FINRA to effectively surveil the market, especially if FINRA and the Plan Processor work jointly on a cooperative solution.’’ 105 In addition, the commenter noted that, because the EBS retirement plan proposes to extract any data available in CAT before requesting historical data or data for asset classes not covered by CAT, the SROs can effectively merge CAT data and existing EBS data to meet their surveillance obligations.106 Similarly, another commenter noted that the Participants have committed to include the relevant fields required for the decommissioning of OATS in the initial phase of CAT and recommended that FINRA utilize data from CAT to obtain what it would otherwise receive from OATS.107 Another commenter recommended that the SROs include a cost-benefit analysis of a ‘‘CAT-to-OATS converter’’ that would allow firms that meet the error rates to cease sending data to OATS directly.108 Instead, the Plan Processor would convert the CAT reports of the firm into an OATS-eligible format and report that firm’s audit trail information to OATS. The commenter believed that this approach is technically possible based on comments made by the Plan Processor, and ‘‘that CAT Industry Member Specifications could incorporate this concept.’’ 109 17:37 Sep 05, 2017 Jkt 241001 PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 B. Assessment Criteria All four of the commenters generally maintained that only data required by OATS or EBS rules today should be included in the accuracy and reliability metrics for system retirement, and that CAT data elements or other aspects of CAT that are not required by existing systems should be outside the scope for assessment.110 One commenter argued, for example, that CAT error rates related to customer information and options activity should not have any bearing on the retirement of OATS, as FINRA does not rely on OATS for that information.111 Another commenter posed a number of clarifying questions regarding the standards, including whether the proposed accuracy and reliability metrics apply to Participants as well as Industry Members, whether the proposed accuracy and reliability metrics for the OATS retirement plan apply only to equities data, whether customer and account information accuracy standards are excluded from the OATS retirement plan, whether the inter-firm linkage quality metric is calculated as an aggregate measurement across all Industry Members, and whether the 2% post-correction error rate is an average error rate over the period calculated as the number of erroneous records, as measured on T+5 divided by the total number of records received.112 This commenter also recommended that FINRA consider that the average pre-correction error rate across the five categories (i.e., rejection rates, intra-firm linkages, inter-firm linkages, order linkage rates, exchange and TRF/ORF match rates) must achieve 5%, but no single category could exceed 7% for the pre-correction error rate.113 This commenter further recommended that corrections should be calculated under CAT in the same timeframes as under existing audit trail systems (i.e., T+6 for OATS and T+10 for EBS rather than T+5, as proposed).114 Three commenters raised concerns about the broader, qualitative factors proposed by the SROs—that during the 180-day evaluation period material issues are not revealed, that the CAT includes all data necessary to allow FINRA to continue to meet its surveillance obligations, and that the 110 See FIF Letter at 4; SIFMA Letter at 2; Thomson Reuters Letter at 2–3; Fidelity Letter at 3. 111 See SIFMA Letter at 2. See also Fidelity Letter at 3. 112 See FIF Letter at 4–5. 113 See id. Similarly, the commenter recommended that ‘‘the average post-correction error rate across the five categories must achieve 2% but no single category could exceed a 3% postcorrection error rate.’’ Id. at 5. 114 See id. E:\FR\FM\06SEN1.SGM 06SEN1 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices Plan Processor is sufficiently meeting all of its obligations under the Plan.115 Two commenters suggested that the Systems Retirement Proposals should require these conditions to be met before CAT goes live and acknowledge that evaluation of all of these issues will begin with CAT Participant reporting.116 Another commenter opined that these additional standards do not provide enough clarity regarding when FINRA will retire OATS and provide too much discretion to FINRA.117 C. Assessment Length and Other Considerations Relating to the Assessment Period One commenter recommended that the SROs should consider shortening the trial period if all criteria have been met before the 180th day.118 This commenter also recommended that the 180-day trial period be a ‘‘rolling metric’’—i.e., if the industry does not meet the quality criteria by the end of the first 180 days, the most recent 180 days should be recalculated each day thereafter.119 The same commenter urged FINRA to ‘‘take a daily accounting of the measurements’’ and to ‘‘communicate both the aggregate measurements and the individual Industry Member measurements so that all parties are regularly updated’’ regarding the status of the various error rates and can make necessary corrections.120 Two commenters argued that the early phases of CAT compliance should be viewed as a ‘‘trial period’’ and that there should be no CAT penalties or regulatory inquiries associated with CAT reporting before the end of the trial period.121 One of these commenters suggested ‘‘that CAT not go-live until the 95% uncorrected and 98% postcorrection thresholds have been met for two weeks during the testing period.’’ 122 Similarly, another commenter stated that the SROs ‘‘should establish a test period to gather information prior to production reporting’’ to ‘‘enable CAT to go into production at a confidence level that asabaliauskas on DSKBBXCHB2PROD with NOTICES 115 See Fidelity Letter at 2–3; FIF Letter at 5; Thomson Reuters Letter at 4–5. 116 See FIF Letter at 5; Thomson Reuters Letter at 4–5. 117 See Fidelity Letter at 2–3. 118 See FIF Letter at 2. 119 See id. 120 Id. at 2. See also Thomson Reuters Letter at 2 (noting that these daily metrics should be issued during the planned testing phase that begins no later than three months before CAT reporting and that the actual date of OATS and EBS retirement will remain uncertain without access to these metrics). 121 See FIF Letter at 2; Thomson Reuters at 2. 122 Thomson Reuters Letter at 2–3. VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 allows its reporting systems to serve as many existing regulatory requirements and accompanying surveillance programs as possible.’’ 123 D. Additional Plan Amendments All of the commenters supported requiring reporting for current OATS reporters 24 months after the CAT effective date. Of those, two commenters supported the proposal to amend the CAT NMS Plan to accelerate CAT reporting for Small Industry Members who currently report to OATS from 36 to 24 months after the CAT Effective Date.124 Two other commenters instead recommended that all current OATS reporters—regardless of size—should begin reporting to CAT in November of 2018 and all non-OATS reporters should be allowed to begin reporting to CAT in November of 2019.125 One of these commenters noted that many large broker-dealers do not report to OATS and argued that ‘‘requiring such firms to implement the systems and reporting mechanisms for the CAT on a shortened timeframe simply due to their designation as a ‘Large Industry Member’ may result in significant technological and operational challenges.’’ 126 Accordingly, the commenter urged some mechanism to allow such Large Industry Members to begin reporting 36 rather than 24 months after the CAT Effective Date.127 The other commenter noted that, if the first phase of Industry Member reporting were limited to current OATS reporting firms, FINRA would still have all of the data that it currently has from OATS today.128 E. Other Comments Three commenters requested that the CAT NMS Plan be clarified to specify that prime broker transactions are included in the CAT reporting 123 SIFMA Letter at 2. FIF Letter at 2; Thomson Reuters Letter at 2 (commending the SROs for ‘‘their willingness to move all OATS reporters to the same timeline’’). One of these commenters noted that accelerating the compliance date might ‘‘place additional burden on the Small Industry Members who are OATS reporters, even for those members that will likely use third party providers for their CAT reporting obligations, because these reporters ultimately bear supervisory responsibility for the OATS and CAT regulatory reporting.’’ FIF Letter at 2. The commenter concluded, however, that ‘‘the economic trade-off of a significantly earlier date for OATS retirement for the entire industry’’ justifies the proposal. Id. 125 See SIFMA Letter at 2–3; Fidelity Letter at 3. 126 SIFMA Letter at 2. See also Fidelity Letter at 3 (arguing that phasing in CAT reporting based on current OATS-reporting status would give nonOATS reporting firms additional time to comply with CAT requirements). 127 See SIFMA Letter at 2–3. 128 See Fidelity Letter at 3. 124 See PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 42177 requirements.129 One commenter stated that ‘‘this will enable a more complete set of transactions in the CAT audit trail and allow CAT to replace EBS as a more complete reporting source for this data.’’ 130 Similarly, another commenter noted that prime broker transactions are missing from the CAT NMS Plan, which ‘‘may prevent the regulators from utilizing CAT data as envisioned.’’ 131 IV. Proceedings To Determine Whether To Approve or Disapprove the Systems Retirement Proposals, as Modified by Amendments Thereto The Commission hereby institutes proceedings pursuant to Section 19(b)(2) of the Act 132 to determine whether the Systems Retirement Proposals of Bats BZX, Bats EDGX, BOX, BX, C2, CBOE, FINRA, IEX, ISE, MIAX, NASDAQ, PEARL, NYSE, NYSE Arca, NYSE MKT, and Phlx, as modified by their respective amendments, should be approved or disapproved. Further, pursuant to Section 19(b)(2)(B) of the Act,133 the Commission is hereby providing notice of the grounds for disapproval under consideration. The Commission believes that it is appropriate to institute proceedings at this time in view of the legal and policy issues raised by the proposals. Institution of proceedings does not indicate, however, that the Commission has reached any conclusions with respect to any of the issues involved. In particular, the Commission is instituting proceedings to allow for additional analysis for consistency with: (1) Section 6(b)(5) of the Act,134 with respect to the Exchanges’ Systems Retirement Proposals, and Section 15A(b)(6) of the Act,135 with respect to FINRA’s Systems Retirement Proposal, both of which sections require, among other things, that the rules of a national securities exchange or registered securities association be designed ‘‘to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, . . . to remove impediments to and perfect the 129 See FIF Letter at 5; SIFMA Letter at 4; Thomson Reuters Letter at 4. 130 FIF Letter at 5. 131 SIFMA Letter at 4. 132 15 U.S.C. 78s(b)(2). 133 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. See id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding, or if the exchange consents to the longer period. See id. 134 15 U.S.C. 78f(b)(5). 135 15 U.S.C. 78o–3(b)(6). E:\FR\FM\06SEN1.SGM 06SEN1 asabaliauskas on DSKBBXCHB2PROD with NOTICES 42178 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest;’’ and (2) Section 6(b)(8) of the Act,136 with respect to the Exchanges’ Systems Retirement Proposals, and Section 15A(b)(9) of the Act,137 with respect to FINRA’s Systems Retirement Proposal, both of which sections require that the rules of a national securities exchange or registered securities association ‘‘not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Act].’’ In addition, the Commission is instituting proceedings to allow for additional analysis of whether the Systems Retirement Proposals are consistent with Section 11A of the Act 138 and Rules 608(c) and 613 of Regulation NMS thereunder.139 Section 11A of the Act directs the Commission, with due regard for the public interest, the protection of investors, and the maintenance of fair and orderly markets, to use its authority to facilitate the establishment of a national market system for securities, including by authorizing or requiring SROs to act jointly to plan, develop, operate, or regulate a national market system. Rule 608(c) requires each SRO to comply with the terms of any effective NMS plan of which it is a sponsor or participant. Rule 613 requires the CAT NMS Plan to include a ‘‘plan to eliminate existing rules and systems . . . that will be rendered duplicative by the consolidated audit trail.’’ 140 The Plan, in turn, required the SROs to file proposed rule changes, within six months of the Commission’s approval of the Plan, to eliminate or modify their duplicative rules.141 The Plan further stated that the rule change proposals to eliminate or modify duplicative rules and systems should be ‘‘effective at such time as CAT Data meets minimum standards of accuracy and reliability.’’ 142 As discussed above, the Plan also requires these proposals to discuss the specific accuracy and reliability standards that would determine when duplicative systems would be retired, whether the availability of certain data from Small Industry Members in November 2018 would facilitate a more expeditious retirement of duplicative systems, and whether individual Industry Members 136 15 U.S.C. 78f(b)(8). U.S.C. 78o–3(b)(9). 138 15 U.S.C. 78k–1. 139 17 CFR 242.608(c) and 242.613. 140 17 CFR 242.613(a)(9). 141 See CAT NMS Plan, Appendix C, Section C.9. 142 Id. 137 15 VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 could be exempted from reporting to duplicative systems once their CAT reporting meets specified accuracy and reliability standards.143 Accordingly, the SROs filed the Systems Retirement Proposals to indicate which duplicative rules and systems would be eliminated once CAT is sufficiently accurate and reliable and to explain how they intend to assess CAT’s accuracy and reliability. The Commission is therefore considering whether the Systems Retirement Proposals are consistent with the SROs’ regulatory obligations under Rule 608(c), Rule 613, and the Plan, and are otherwise consistent Section 11A of the Act and the rules and regulations thereunder. As noted above, the CAT NMS Plan required the SROs’ proposals to retire duplicative audit trail systems to consider 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.’’ 144 In addition, in the CAT Approval Order, the Commission noted ‘‘that FINRA is considering whether it can integrate CAT Data with OATS data in such a way that ‘ensures no interruption in FINRA’s surveillance capabilities,’ and that FINRA will consider ‘exempting firms from the OATS Rules provided they report data to the Central Repository pursuant to the CAT NMS Plan and any implementing rules.’ ’’ 145 The Commission also ‘‘encourage[d] the other Participants to consider similar measures to exempt firms from reporting to existing systems once they are accurately reporting comparable data to the CAT and to enable the usage of CAT Data to conduct their regulatory activities.’’ 146 As described above, the SROs considered individual firm exemptions but believe that a single cutover from existing systems to CAT is preferable to a firm-by-firm approach. Several of the SROs assert that providing firm-by-firm exemptions would be inefficient, more costly, and less reliable than the single cut-over.147 143 See id. CAT NMS Plan, Appendix C, Section C.9. 145 CAT Approval Order, 81 FR at 84771. 146 Id. 147 See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 FR at 25360; BOX Notice, 82 FR at 25493; BX Notice, 82 FR at 25876–77; C2 Notice, 82 FR at 25387; CBOE Notice, 82 FR at 25431–32; ISE Notice, 82 FR at 25470; MIAX Notice, 82 FR at 25368; NYSE Arca Notice 2, 82 FR at 25640; NYSE 144 See PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 However, commenters disagreed with this aspect of the SROs’ proposals, and questioned whether FINRA had adequately analyzed the costs and benefits of allowing firms to discontinue OATS reporting on an individual basis. Commenters also noted the high costs of duplicative reporting. Accordingly, the Commission is considering whether the Systems Retirement Proposals impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act, including the potential competitive burdens that may be created by an extended period of duplicative reporting for certain firms. As discussed in more detail above, the SROs also proposed certain accuracy and reliability standards that CAT Data must meet before existing systems can be retired. These standards include both quantitative and qualitative metrics. Commenters raised questions about the scope of these metrics, in particular data elements and functionalities that were not included in current audit trail systems, and asked for clarification regarding a number of metrics. In addition, several commenters raised concerns about the broader, qualitative factors proposed by the SROs. Accordingly, the Commission is considering the accuracy and reliability standards set forth in the Systems Retirement Proposals. In addition, the Commission is considering whether the Systems Retirement Proposals are designed to prevent fraudulent and manipulative acts and practices and, in particular, whether the Systems Retirement Proposals would help to ensure that the SROs can effectively conduct their surveillance and oversight functions. The Commission is also considering whether the Systems Retirement Proposals remove impediments to and perfect the mechanism of a free and open market and a national market system and whether they adequately balance the duplicative reporting costs incurred by broker-dealers and the risks to effective surveillance and oversight, which may impact investor protection. V. Commission’s Solicitation of Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns that they may have with any of the Systems Retirement Proposals. In particular, the Commission invites the MKT Notice 1, 82 FR at 25445; NASDAQ Notice, 82 FR at 25824–25; PEARL Notice, 82 FR at 25438; Phlx Notice, 82 FR at 25867–68. E:\FR\FM\06SEN1.SGM 06SEN1 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices asabaliauskas on DSKBBXCHB2PROD with NOTICES written views of interested persons concerning whether the Systems Retirement Proposals, as modified by the amendments thereto, are consistent with Sections 6(b)(5), 6(b)(8), 15A(b)(6), 15A(b)(9), or any other provision of the Act, and the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.148 Such comments should be submitted by September 27, 2017. Rebuttal comments should be submitted by October 11, 2017. The Commission asks that commenters address the sufficiency and merit of the SROs’ statements in support of their respective Systems Retirement Proposals, in addition to any other comments that commenters may wish to submit about any of the proposed rule changes. The Commission also asks the SROs to respond to the issues raised in the four comment letters received to date, including the commenters’ cost estimates. In addition, the Commission seeks comment, including, where relevant, any specific data, statistics, or studies, on the following: 1. What would be the monetary costs of constructing a CAT-to-OATS ‘‘converter’’ or developing an alternative mechanism for linking CAT Data to OATS that would provide continuity of the OATS SROs’ surveillance capabilities? To the extent possible, please provide specific data, analyses, or studies for support for your answer. 2. What technological challenges would have to be addressed to make a converter or other mechanism feasible? When could work begin on a converter or alternative mechanism? For example, could work begin before technical specifications for Industry Member reporting to CAT have been finalized? Could work begin before the Plan Processor had begun accepting CAT reports from Industry Members and making those reports available to regulators? How long would it take to construct a converter or other mechanism? To the extent possible, 148 Section 19(b)(2) of the Act, as amended by the Securities Act Amendments of 1975, Pub. L. 94–29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 please provide specific data, analyses, or studies for support for your answer. 3. Are there any entities that would be capable of constructing a converter? Please explain who they are and why you believe they have the ability to construct a converter. To the extent possible, please provide specific data, analyses, or studies for support for your answer. 4. If the costs of the converter would be passed on to Industry Members, would the benefits of a converter be undermined? To the extent possible please provide specific data, analyses, or studies for support for your answer. 5. Please estimate, to the extent possible, the percentage of Industry Members’ CAT reports that would qualify for an individual exemption from OATS reporting for each month after Industry Members begin reporting in November 2018. Do you believe that the costs and/or benefits of a converter would be affected by the number of Industry Members that can be expected to meet the threshold error rates for CAT reporting (weighted by their percentage of total CAT reports submitted by OATS-reporting Industry Members) before full OATS retirement, thus qualifying for an individual exemption from OATS and to have their CAT reports converted to OATS? To the extent possible, please provide specific data, analyses, or studies for support for your answer. 6. Do you believe that the Systems Retirement Proposals would result in any burden on competition and, if so, please analyze whether any such burden would be necessary or appropriate in furtherance of the purposes of the Act. If there are burdens, how would they compare to the burdens that would be imposed by the converter approach? To the extent possible, please provide specific data, analyses, or studies for support of your answer. 7. What impact would a converter have on the SROs’ ability to conduct their surveillance and oversight? Specifically, do you believe that there are risks that a converter might not be able to successfully integrate CAT reports into OATS? If so, what is the likelihood of failures and what would be the magnitude of the costs resulting from any such failures? What costs might be incurred by SROs to detect and address any regulatory gaps created by a converter? For example, would an OATS SRO have to design additional surveillances to address that possibility? If so, what sort of additional surveillances might be necessary and how would you estimate the cost for an SRO to develop them? To the extent PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 42179 possible, please provide specific data, analyses, or studies for support. 8. How long do you believe it will take before CAT reaches the accuracy and reliability thresholds proposed by the SROs before retiring OATS and other systems for all firms? Also, how long do you think it would take to make an effective converter available and how long would the converter be used for those firms who individually have met the thresholds while CAT overall has not? Does the length of this period affect your cost/benefit analysis for the converter approach? If so, how? 9. Regarding the converter approach and firm-by-firm exemptions from OATS reporting, what criteria should the OATS SROs consider for releasing a firm from its OATS requirements? To the extent possible please provide specific data, analyses, or studies for support. Would you still support a firmby-firm approach if it also incorporated an assessment of whether the Plan Processor is sufficiently meeting all of its obligations under the Plan? 10. Please describe any opportunity costs associated with the converter approach. For example, would the development of the converter and any new processes and procedures at the SRO level to accommodate the converter divert resources that otherwise would be devoted to CAT implementation? If so, please describe the nature and extent of such effects. 11. Do you agree with the estimated costs of duplicative reporting described by two of the commenters? 149 Are there any additional opportunity costs faced by Industry Members that would result from duplicative reporting? How would the length of the duplicative reporting period affect the opportunity costs? To the extent possible, please provide specific data, analyses, or studies for support. 12. Do you agree with the proposed quantitative metrics for the pre- and post-correction error rates that would have to be attained by CAT before the SROs would retire duplicative systems? Do you agree with the proposed categories for the assessment? Why or why not? Are these categories sufficiently clear? If you believe that different thresholds or alternative areas for consideration would be more appropriate, please describe. What are the costs and benefits of the proposed approach versus any alternative approach that you would recommend? 13. Do you agree with the SROs’ proposed qualitative standards for retirement of duplicative systems, i.e., 149 See supra notes 101–103 and accompanying text. E:\FR\FM\06SEN1.SGM 06SEN1 42180 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices that retirement could not be permitted to occur until it is confirmed that (1) there are no material issues in CAT that have not been corrected, (2) the CAT includes all data necessary to allow the SROs to continue to meet their surveillance obligations, and (3) the Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan? Why or why not? What are the costs and benefits of the proposed approach versus an alternative approach, which may include not having any additional qualitative considerations? 14. To what extent should the SROs consider CAT performance regarding functions and data elements not present within existing audit trail systems when determining when to allow retirement of those existing systems? What are the costs and benefits of the proposed approach versus any alternative approach that you would recommend? Do you believe that the Systems Retirement Proposals will promote efficiency, competition, and capital formation? Please submit any data or information that would assist the Commission in considering these issues. 15. Do you agree with the length of the assessment period proposed by the SROs? Why or why not? If not, what alternative do you believe would be more appropriate and why? What are the costs and benefits of the proposed approach versus any alternative approach that you would recommend? To the extent possible, please provide specific data, analyses, or studies for support. Comments may be submitted by any of the following methods: asabaliauskas on DSKBBXCHB2PROD 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 any of File Numbers SR–BatsBZX–2017–37, SR– BatsEDGX–2017–23, SR–BOX–2017–17, SR–BX–2017–027, SR–C2–2017–018, SR–CBOE–2017–041, SR–FINRA–2017– 013, SR–IEX–2017–18, SR–ISE–2017– 46, SR–MIAX–2017–20, SR–NASDAQ– 2017–055, SR–PEARL–2017–23, SR– NYSE–2017–23, SR–NYSEArca–2017– 57, SR–NYSEArca–2017–59, SR– NYSEMKT–2017–29, SR–NYSEMKT– 2017–30, or SR–Phlx–2017–43, as appropriate, 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. VerDate Sep<11>2014 17:37 Sep 05, 2017 Jkt 241001 All submissions should refer to any of: File Numbers SR–BatsBZX–2017–37, SR–BatsEDGX–2017–23, SR–BOX– 2017–17, SR–BX–2017–027, SR–C2– 2017–018, SR–CBOE–2017–041, SR– FINRA–2017–013, SR–IEX–2017–18, SR–ISE–2017–46, SR–MIAX–2017–20, SR–NASDAQ–2017–055, SR–PEARL– 2017–23, SR–NYSE–2017–23, SR– NYSEArca–2017–57, SR–NYSEArca– 2017–59, SR–NYSEMKT–2017–29, SR– NYSEMKT–2017–30, or SR–Phlx–2017– 43, as appropriate. The 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 SRO. 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 any of File Numbers SR–BatsBZX–2017–37, SR–BatsEDGX–2017–23, SR–BOX– 2017–17, SR–BX–2017–027, SR–C2– 2017–018, SR–CBOE–2017–041, SR– FINRA–2017–013, SR–IEX–2017–18, SR–ISE–2017–46, SR–MIAX–2017–20, SR–NASDAQ–2017–055, SR–PEARL– 2017–23, SR–NYSE–2017–23, SR– NYSEArca–2017–57, SR–NYSEArca– 2017–59, SR–NYSEMKT–2017–29, SR– NYSEMKT–2017–30, or SR–Phlx–2017– 43, as appropriate, and should be submitted by September 27, 2017. Rebuttal comments should be submitted by October 11, 2017. 150 17 CFR 200.30–3(a)(12); 17 CFR 200.30– 3(a)(57). PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.150 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–18793 Filed 9–5–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549–2736. Extension: Form N–54C, SEC File No. 270–184, OMB Control No. 3235–0236. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (the ‘‘Commission’’) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget for extension and approval. Certain investment companies can elect to be regulated as business development companies, as defined in section 2(a)(48) of the Investment Company Act of 1940 (‘‘Investment Company Act’’), under sections 55 through 65 of the Investment Company Act. Under section 54(a) of the Investment Company Act,1 any company defined in section 2(a)(48)(A) and (B) of the Investment Company Act may, if it meets certain enumerated eligibility requirements, elect to be subject to the provisions of Sections 55 through 65 of the Investment Company Act by filing with the Commission a notification of election. Under section 54(c) of the Investment Company Act,2 any business development company may voluntarily withdraw its election under section 54(a) of the Investment Company Act by filing a notice of withdrawal of election with the Commission. The Commission has adopted Form N–54C as the form for the notification of withdrawal of election to be subject to Sections 55 through 65 of the Investment Company Act. The purpose of Form N–54C is to notify the Commission that the business development company withdraws its election to be subject to Sections 55 1 15 2 15 E:\FR\FM\06SEN1.SGM U.S.C. 80a–53(a). U.S.C. 80a–53(c). 06SEN1

Agencies

[Federal Register Volume 82, Number 171 (Wednesday, September 6, 2017)]
[Notices]
[Pages 42168-42180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18793]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81499; File Nos. SR-BatsBZX-2017-37; SR-BatsEDGX-2017-
23; SR-BOX-2017-17; SR-C2-2017-018; SR-CBOE-2017-041; SR-FINRA-2017-
013; SR-ISE-2017-46; SR-IEX-2017-18; SR-MIAX-2017-20; SR-PEARL-2017-23; 
SR-NASDAQ-2017-055; SR-BX-2017-027; SR-Phlx-2017-43; SR-NYSE-2017-23; 
SR-NYSEArca-2017-57; SR-NYSEArca-2017-59; SR-NYSEMKT-2017-29; SR-
NYSEMKT-2017-30]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Bats EDGX 
Exchange, Inc.; BOX Options Exchange LLC; C2 Options Exchange, 
Incorporated; Chicago Board Options Exchange, Incorporated; Financial 
Industry Regulatory Authority, Inc.; International Securities Exchange, 
LLC; Investors Exchange LLC; Miami International Securities Exchange 
LLC; MIAX PEARL, LLC; The NASDAQ Stock Market LLC; NASDAQ BX, Inc.; 
NASDAQ PHLX LLC; New York Stock Exchange LLC; NYSE Arca, Inc.; NYSE MKT 
LLC; Notice of Filing of Amendment No. 1 by Bats BZX Exchange, Inc.; 
Bats EDGX Exchange, Inc.; BOX Options Exchange LLC; C2 Options 
Exchange, Incorporated; Chicago Board Options Exchange, Incorporated; 
Financial Industry Regulatory Authority, Inc.; Investors Exchange LLC; 
New York Stock Exchange LLC; NYSE Arca, Inc.; NYSE MKT LLC, of 
Amendment Nos. 1 and 2 by International Securities Exchange, LLC; The 
NASDAQ Stock Market LLC; NASDAQ BX, Inc.; and NASDAQ PHLX LLC, of 
Amendment No. 2 by MIAX PEARL, LLC, and of Amendment No. 3 by Miami 
International Securities Exchange LLC; Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove the Proposed Rule Changes, 
as Modified by Amendments Thereto, To Eliminate Requirements That Will 
Be Duplicative of CAT

August 30, 2017.

I. Introduction

    On May 15, 2017, Bats BZX Exchange, Inc. (``Bats BZX''); Bats EDGX 
Exchange, Inc. (``Bats EDGX''); BOX Options Exchange LLC (``BOX''); C2 
Options Exchange, Incorporated (``C2''); Chicago Board Options 
Exchange, Incorporated (``CBOE''); Financial Industry Regulatory 
Authority, Inc. (``FINRA''); International Securities Exchange, LLC 
(``ISE''); Investors Exchange LLC (``IEX''); Miami International 
Securities Exchange LLC (``MIAX''); MIAX PEARL, LLC (``PEARL''); NYSE 
Arca, Inc. (``NYSE Arca''); and NYSE MKT LLC (``NYSE MKT'') (n/k/a NYSE 
American LLC) \1\ filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ 
proposed rule changes to eliminate or modify certain rules that require 
the collection or reporting of information that is duplicative of the 
information that will be collected by the Consolidated Audit Trail 
(``CAT'') established pursuant to the National Market System Plan 
contemplated by Rule 613 of Regulation NMS.\4\ On May 22, 2017, the New 
York Stock Exchange LLC (``NYSE'') filed with the Commission a proposed 
rule change for the same purpose, and each of NYSE Arca \5\ and NYSE 
MKT filed an additional proposed rule change for the same purpose. On 
May 26, 2017, the NASDAQ Stock Market LLC (``NASDAQ'') and NASDAQ PHLX 
LLC (``Phlx'') filed with the Commission proposed rule changes for the 
same purpose.\6\ On May 30, 2017, NASDAQ BX, Inc. (``BX'') filed with 
the Commission a proposed rule change for the same purpose.\7\ In this 
notice and order, all of these proposed rule changes are referred to 
collectively as the ``Systems Retirement Proposals.'' Bats BZX, Bats 
EDGX, BOX, BX, C2, CBOE, ISE, IEX, MIAX, PEARL, NASDAQ, NYSE, NYSE 
Arca, NYSE MKT, and Phlx are collectively referred to as the 
``Exchanges,'' and, together with FINRA, are referred to as the 
``SROs.''
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    \1\ See Securities Exchange Act Release No. 80283 (March 21, 
2017), 82 FR 15244 (March 27, 2017) (SR-NYSEMKT-2017-14). The name 
change was not yet effective when NYSE MKT filed SR-NYSEMKT-2017-29 
and SR-NYSEMKT-2017-30.
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ 17 CFR 242.613.
    \5\ Effective August 17, 2017, NYSE Arca amended, among other 
things, certain rules of the Exchange to create a single rulebook. 
See Securities Exchange Act Release No. 81419 (August 17, 2017) (SR-
NYSEArca-2017-40) (the ``Arca Merger Filing''). NYSE Arca rule text 
references in this notice and order reflect rule numbering changes 
as a result of the Arca Merger Filing.
    \6\ Nasdaq and Phlx initially filed proposed rule changes on May 
15, 2017 (SR-NASDAQ-2017-050 and SR-PHLX-2017-38). On May 26, 2017, 
Nasdaq and Phlx withdrew these filings and submitted new proposed 
rule changes (SR-NASDAQ-2017-055 and SR-PHLX-2017-43).
    \7\ BX initially filed a proposed rule change on May 15, 2017 
(SR-BX-2017-025). On May 30, 2017, BX withdrew that initial filing 
and submitted a new proposed rule change (SR-BX-2017-027).
---------------------------------------------------------------------------

    On June 1, 2017, the proposed rule changes submitted by Bats BZX, 
Bats EDGX, BOX, C2, CBOE, FINRA, IEX, ISE, MIAX, and PEARL; both 
proposed rule changes submitted by NYSE MKT; and one of the proposed 
rule changes submitted by NYSE Arca were published for comment in the 
Federal Register.\8\ On June 2, 2017, the proposed rule change 
submitted by NYSE and the other proposed rule change submitted by NYSE 
Arca were published for comment in the Federal Register.\9\ On June 5, 
2017, the proposed rule changes submitted by NASDAQ, BX, and Phlx were 
published for comment in the Federal Register.\10\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 80796 (May 26, 
2017), 82 FR 25374 (SR-BatsBZX-2017-37) (``Bats BZX Notice''); 
Securities Exchange Act Release No. 80795 (May 26, 2017), 82 FR 
25358 (SR-BatsEDGX-2017-23) (``Bats EDGX Notice''); Securities 
Exchange Act Release No. 80789 (May 26, 2017), 82 FR 25492 (SR-BOX-
2017-17) (``BOX Notice''); Securities Exchange Act Release No. 80798 
(May 26, 2017), 82 FR 25385 (SR-C2-2017-018) (``C2 Notice''); 
Securities Exchange Act Release No. 80797 (May 26, 2017), 82 FR 
25429 (SR-CBOE-2017-041) (``CBOE Notice''); Securities Exchange Act 
Release No. 80783 (May 26, 2017), 82 FR 25423 (SR-FINRA-2017-013) 
(``FINRA Notice''); Securities Exchange Act Release No. 80788 (May 
26, 2017), 82 FR 25400 (SR-IEX-2017-18) (``IEX Notice''); Securities 
Exchange Act Release No. 80787 (May 26, 2017), 82 FR 25469 (SR-ISE-
2017-46) (``ISE Notice''); Securities Exchange Act Release No. 80790 
(May 26, 2017), 82 FR 25366 (SR-MIAX-2017-20) (``MIAX Notice''); 
Securities Exchange Act Release No. 80792 (May 26, 2017), 82 FR 
25436 (SR-PEARL-2017-23) (``PEARL Notice''); Securities Exchange Act 
Release No. 80791 (May 26, 2017), 82 FR 25362 (SR-NYSEArca-2017-59) 
(``NYSE Arca Notice 1''); Securities Exchange Act Release No. 80793 
(May 26, 2017), 82 FR 25443 (SR-NYSEMKT-2017-29) (``NYSE MKT Notice 
1''); Securities Exchange Act Release No. 80794 (May 26, 2017), 82 
FR 25439 (SR-NYSEMKT-2017-30) (``NYSE MKT Notice 2'').
    \9\ See Securities Exchange Act Release No. 80799 (May 26, 
2017), 82 FR 25635 (SR-NYSE-2017-23) (``NYSE Notice''); Securities 
Exchange Act Release No. 80800 (May 26, 2017), 82 FR 25639 (SR-
NYSEArca-2017-57) (``NYSE Arca Notice 2'').
    \10\ See Securities Exchange Act Release No. 80813 (May 30, 
2017), 82 FR 25820 (SR-NASDAQ-2017-055) (``NASDAQ Notice''); 
Securities Exchange Act Release No. 80814 (May 30, 2017), 82 FR 
25872 (SR-BX-2017-027) (``BX Notice''); Securities Exchange Act 
Release No. 80811 (May 30, 2017), 82 FR 25863 (SR-Phlx-2017-43) 
(``Phlx Notice'').
---------------------------------------------------------------------------

    Four comments were submitted to File Number SR-FINRA-2017-013.\11\
---------------------------------------------------------------------------

    \11\ See letters from William H. Herbert, Managing Director, 
Financial Information Forum, dated June 22, 2017 (``FIF Letter''); 
Manisha Kimmel, Chief Regulatory Officer, Wealth Management, Thomson 
Reuters, dated June 22, 2017 (``Thomson Reuters Letter''); Marc R. 
Bryant, Senior Vice President, Deputy General Counsel, Fidelity 
Investments, dated June 22, 2017 (``Fidelity Letter''); and Ellen 
Greene, Managing Director and Theodore R. Lazo, Managing Director 
and Associate General Counsel, SIFMA, dated June 23, 2017 (``SIFMA 
Letter'').
---------------------------------------------------------------------------

    On June 22, 2017, each of NASDAQ, BX, ISE, and Phlx filed an 
amendment

[[Page 42169]]

to its proposed rule change.\12\ On July 14, 2017, the Commission 
extended the time period for Commission action on all of the Systems 
Retirement Proposals to August 30, 2017.\13\
---------------------------------------------------------------------------

    \12\ These amendments modified Section 2 of the Form 19b-4 
submitted by each of NASDAQ, BX, ISE, and Phlx to state that on June 
1, 2017, the exchange obtained the necessary approval from its Board 
of Directors for the proposed rule change. When NASDAQ, BX, ISE, and 
Phlx each filed Amendment No. 1 to their respective proposals with 
the Commission, they also submitted the Amendment No. 1 to the 
public comment file for each of their respective proposals.
    \13\ See Securities Exchange Act Release No. 81145, 82 FR 33533 
(July 20, 2017).
---------------------------------------------------------------------------

    On August 24, 2017, BOX submitted Amendment No. 1 to its proposed 
rule filing,\14\ IEX submitted Amendment No. 1 to its proposed rule 
filing,\15\ PEARL submitted Amendment No. 2 to its proposed rule 
filing,\16\ and MIAX submitted Amendment No. 3 to its proposed rule 
filing.\17\ On August 25, 2017, Bats BZX submitted Amendment No. 1 to 
its proposed rule filing,\18\ Bats EDGX submitted Amendment No. 1 to 
its proposed rule filing,\19\ BX submitted Amendment No. 1 to its 
proposed rule filing,\20\ C2 submitted Amendment No. 1 to its proposed 
rule filing,\21\ CBOE submitted Amendment No. 1 to its proposed rule 
filing,\22\ FINRA submitted Amendment No. 1 to its proposed rule 
filing,\23\ ISE submitted Amendment No. 2 to its proposed rule 
filing,\24\ NASDAQ submitted Amendment No. 2 to its proposed rule 
filing,\25\ NYSE submitted

[[Page 42170]]

Amendment No. 1 to its proposed rule filing,\26\ NYSE Arca submitted 
Amendment No. 1 to each of its proposed rule filings,\27\ NYSE MKT 
submitted Amendment No. 1 to each of its proposed rule filings,\28\ and 
Phlx submitted Amendment No. 2 to its proposed rule filing.\29\
---------------------------------------------------------------------------

    \14\ This amendment: (1) Added introductory language to BOX's 
COATS-related rules to clarify that the rules will be amended upon 
announcement by BOX that the CAT has achieved a sufficient level of 
accuracy and reliability; (2) modified rule text language for BOX's 
EBS rule and the rule regarding securities accounts and orders of 
market makers to clarify that BOX will not request trade data or 
information, and members will not be required to provide trade data 
or information, pursuant to the rule for trades reported to the CAT 
after BOX announces that it has determined that the accuracy and 
reliability of the CAT are sufficient to replace requests pursuant 
to these rules; and (3) clarified that the accuracy and reliability 
standards discussed in its Systems Retirement Proposal apply to all 
of the rules discussed therein. When BOX filed Amendment No. 1 to 
its proposal with the Commission, it also submitted Amendment No. 1 
to the public comment file for its proposal.
    \15\ This amendment: (1) Added introductory language to IEX's 
OATS rule series to clarify that the rules will be deleted upon 
announcement by IEX that the CAT has achieved a level of accuracy 
and reliability sufficient to replace OATS; (2) modified IEX's EBS 
rule text language to clarify that IEX (or FINRA on behalf of IEX) 
will not request trade data or information, and members will not be 
required to provide trade data or information, pursuant to the EBS 
rule for trades reported to the CAT after IEX announces that it has 
determined that the accuracy and reliability of the CAT are 
sufficient to replace requests pursuant to the EBS rule; and (3) 
made two clarifying revisions to the Purpose section of its 
proposal. When IEX filed Amendment No. 1 to its proposal with the 
Commission, it also submitted Amendment No. 1 to the public comment 
file for its proposal.
    \16\ PEARL filed Amendment No. 1 to its proposed rule change on 
August 22, 2017. On August 24, 2017, PEARL withdrew Amendment No. 1 
and replaced it with Amendment No. 2. Amendment No. 2 modified the 
rule text for PEARL's EBS rule (which is incorporated by reference 
from the MIAX rulebook) and its rule regarding market maker order 
and account information to clarify that PEARL will not request trade 
data or information, and members will not be required to provide 
trade data or information, pursuant to such rule for trades reported 
to the CAT after PEARL announces that it has determined that the 
accuracy and reliability of the CAT are sufficient to replace 
requests pursuant to these rules. When PEARL filed Amendment No. 2 
to its proposal with the Commission, it also submitted Amendment No. 
2 to the public comment file for its proposal.
    \17\ MIAX filed Amendment No. 1 to its proposed rule change on 
August 22, 2017 and withdrew and replaced it with Amendment No. 2 on 
the same day. On August 24, 2017, MIAX withdrew Amendment No. 2 and 
replaced it with Amendment No. 3. Amendment No. 3 modified the rule 
text for MIAX's EBS rule and its rule regarding market maker order 
and account information to clarify that MIAX will not request trade 
data or information, and members will not be required to provide 
trade data or information, pursuant to such rule for trades reported 
to the CAT after MIAX announces that it has determined that the 
accuracy and reliability of the CAT are sufficient to replace 
requests pursuant to these rules. When MIAX filed Amendment No. 3 to 
its proposal with the Commission, it also submitted Amendment No. 3 
to the public comment file for its proposal.
    \18\ This amendment: (1) Added introductory language to BZX's 
rule regarding securities accounts and orders of market makers to 
clarify that the rules will be amended upon announcement by BZX that 
the CAT has achieved a sufficient level of accuracy and reliability; 
and (2) modified rule text language for BZX's EBS rule and the rule 
regarding furnishing of records to clarify that BZX will not request 
trade data or information, and members will not be required to 
provide trade data or information, pursuant to the rule for trades 
reported to the CAT after BZX announces that it has determined that 
the accuracy and reliability of the CAT are sufficient to replace 
requests pursuant to these rules. When BZX filed Amendment No. 1 to 
its proposal with the Commission, it also submitted Amendment No. 1 
to the public comment file for its proposal.
    \19\ This amendment: (1) Added introductory language to Bats 
EDGX's rule regarding securities accounts and orders of market 
makers to clarify that the rule will be amended upon announcement by 
Bats EDGX that the CAT has achieved a sufficient level of accuracy 
and reliability; and (2) modified rule text language for Bats EDGX's 
EBS rule and the rule regarding furnishing of records to clarify 
that Bats EDGX will not request trade data or information, and 
members will not be required to provide trade data or information, 
pursuant to the rule for trades reported to the CAT after Bats EDGX 
announces that it has determined that the accuracy and reliability 
of the CAT are sufficient to replace requests pursuant to these 
rules. When Bats EDGX filed Amendment No. 1 to its proposal with the 
Commission, it also submitted Amendment No. 1 to the public comment 
file for its proposal.
    \20\ This amendment: (1) Added introductory language to BX's 
OATS rule series to clarify that the rules will be deleted upon 
announcement by BX that the CAT has achieved a level of accuracy and 
reliability sufficient to replace OATS; (2) added introductory 
language to BX's COATS-related rules to clarify that the rules will 
be amended upon announcement by BX that the CAT has achieved a level 
of accuracy and reliability sufficient to replace COATS; and (3) 
modified BX's EBS rule text and the language of Chapter VII, Section 
7, to clarify that BX will not request trade data or information, 
and members will not be required to provide trade data or 
information, pursuant to EBS Rules or Chapter VII, Section 7, for 
trades reported to the CAT after BX announces that it has determined 
that the accuracy and reliability of the CAT are sufficient to 
replace requests pursuant to these rules. When BX filed Amendment 
No. 2 to its proposal with the Commission, it also submitted 
Amendment No. 2 to the public comment file for its proposal.
    \21\ This amendment added introductory language to C2's rule 
regarding securities accounts and orders of market makers to clarify 
that the rule will be amended upon announcement by C2 that the CAT 
has achieved a sufficient level of accuracy and reliability. When C2 
filed Amendment No. 1 to its proposal with the Commission, it also 
submitted Amendment No. 1 to the public comment file for its 
proposal.
    \22\ This amendment: (1) Added introductory language to CBOE's 
COATS-related rules and rule regarding securities accounts and 
orders of market makers to clarify that the rules will be amended 
upon announcement by CBOE that the CAT has achieved a sufficient 
level of accuracy and reliability; and (2) modified rule text 
language for CBOE's EBS rule and the rule regarding complaints and 
investigations to clarify that CBOE will not request trade data or 
information, and members will not be required to provide trade data 
or information, pursuant to the rule for trades reported to the CAT 
after CBOE announces that it has determined that the accuracy and 
reliability of the CAT are sufficient to replace requests pursuant 
to these rules. When CBOE filed Amendment No. 1 to its proposal with 
the Commission, it also submitted Amendment No. 1 to the public 
comment file for its proposal.
    \23\ This amendment: (1) Added introductory language to FINRA's 
OATS rule series to clarify that the rules will be deleted upon 
announcement by FINRA that the CAT has achieved a level of accuracy 
and reliability sufficient to replace OATS; and (2) modified FINRA's 
EBS rule text to clarify that FINRA will not request trade data or 
information, and members will not be required to provide trade data 
or information, pursuant to its EBS rules for trades reported to the 
CAT after FINRA announces that it has determined that the accuracy 
and reliability of the CAT are sufficient to replace requests 
pursuant to these rules. When FINRA filed Amendment No. 1 to its 
proposal with the Commission, it also submitted Amendment No. 1 to 
the public comment file for its proposal.
    \24\ This amendment modified ISE's EBS rule text language to 
clarify that ISE will not request trade data or information, and 
members will not be required to provide trade data or information, 
pursuant to ISE's Rule 1404 for trades reported to the CAT after ISE 
announces that it has determined that the accuracy and reliability 
of the CAT are sufficient to replace requests pursuant to the rule. 
When ISE filed Amendment No. 2 to its proposal with the Commission, 
it also submitted Amendment No. 2 to the public comment file for its 
proposal.
    \25\ This amendment: (1) Added introductory language to NASDAQ's 
OATS rule series to clarify that the rules will be deleted upon 
announcement by NASDAQ that the CAT has achieved a level of accuracy 
and reliability sufficient to replace OATS; (2) added introductory 
language to NASDAQ's COATS-related rules to clarify that these rules 
will be amended upon announcement by NASDAQ that the CAT has 
achieved a level of accuracy and reliability sufficient to replace 
COATS; and (3) modified NASDAQ's EBS rule text and the language of 
Chapter VII, Section 7, to clarify that NASDAQ will not request 
trade data or information, and members will not be required to 
provide trade data or information, pursuant to the EBS Rules or 
Chapter VII, Section 7, for trades reported to the CAT after NASDAQ 
announces that it has determined that the accuracy and reliability 
of the CAT are sufficient to replace requests pursuant to these 
rules. When NASDAQ filed Amendment No. 2 to its proposal with the 
Commission, it also submitted Amendment No. 2 to the public comment 
file for its proposal.
    \26\ This amendment: (1) Added introductory language to NYSE's 
OATS rules to clarify that they will be deleted upon announcement by 
FINRA that the CAT has achieved a level of accuracy and reliability 
sufficient to replace OATS; and (2) modified NYSE's EBS rule text to 
clarify that NYSE will not request trade data or information, and 
member organizations will not be required to provide trade data or 
information, pursuant to the rule for trades reported to the CAT 
after FINRA announces that it has determined that the accuracy and 
reliability of the CAT are sufficient to replace requests pursuant 
to FINRA's EBS rules. When NYSE filed Amendment No. 1 to its 
proposal with the Commission, it also submitted Amendment No. 1 to 
the public comment file for its proposal.
    \27\ Amendment No. 1 to SR-NYSEArca-2017-59: (1) Added 
introductory language to NYSE Arca's OATS rules to clarify that the 
OATS rules will be deleted upon announcement by FINRA that the CAT 
has achieved a level of accuracy and reliability sufficient to 
replace OATS; and (2) modified NYSE Arca's EBS rule text to clarify 
that NYSE Arca will not request trade data or information, and ETP 
Holders, OTP Holders, OTP Firms, and associated persons of ETP 
Holders and OTP Firms (as defined in NYSE Arca's rulebook) will not 
be required to provide trade data or information, pursuant to the 
rule for trades reported to the CAT after FINRA announces that it 
has determined that the accuracy and reliability of the CAT are 
sufficient to replace requests pursuant to FINRA's EBS rules. 
Amendment No. 1 to SR-NYSEArca-2017-57 added introductory language 
to NYSE Arca's COATS-related rules to clarify that these rules will 
be amended upon announcement by NYSE Arca, in conjunction with the 
other options exchanges, that CAT has achieved a level of accuracy 
and reliability sufficient to replace COATS. When NYSE Arca filed 
Amendment No. 1 to each of its proposed rule changes with the 
Commission, it also submitted Amendment No. 1 to the public comment 
file for each respective proposed rule change.
    \28\ Amendment No. 1 to SR-NYSEMKT-2017-30: (1) Added 
introductory language to NYSE MKT's OATS rules to clarify that they 
will be deleted upon announcement by FINRA that the CAT has achieved 
a level of accuracy and reliability sufficient to replace OATS; and 
(2) modified NYSE MKT's EBS rule text to clarify that NYSE MKT will 
not request trade data or information, and member organizations and 
ATP Holders (as defined in NYSE MKT's rulebook) will not be required 
to provide trade data or information, pursuant to the rule for 
trades reported to the CAT after FINRA announces that it has 
determined that the accuracy and reliability of the CAT are 
sufficient to replace requests pursuant to FINRA's EBS rules. 
Amendment No. 1 to SR-NYSEMKT-2017-29 added introductory language to 
NYSE MKT's COATS-related rules to clarify that the COATS-related 
rules will be amended upon announcement by NYSE MKT, in conjunction 
with the other options exchanges, that CAT has achieved a level of 
accuracy and reliability sufficient to replace COATS. When NYSE MKT 
filed Amendment No. 1 to each of its proposed rule changes with the 
Commission, it also submitted Amendment No. 1 to the public comment 
file for each respective proposed rule change.
    \29\ This amendment: (1) Added introductory language to Phlx 
OATS rule series to clarify that the rules will be deleted upon 
announcement by Phlx that the CAT has achieved a level of accuracy 
and reliability sufficient to replace OATS; (2) added introductory 
language to Phlx's COATS-related rules to clarify that the rules 
will be amended upon announcement by Phlx that the CAT has achieved 
a level of accuracy and reliability sufficient to replace COATS; (3) 
modified Phlx's EBS rule text and language in Phlx Rule 1022 to 
clarify that Phlx will not request trade data or information, and 
members will not be required to provide trade data or information, 
pursuant to the EBS Rule or Rule 1022 for trades reported to the CAT 
after Phlx announces that is has determined that the accuracy and 
reliability of the CAT are sufficient to replace requests pursuant 
to these rules; and (4) made a conforming change to Phlx Option 
Floor Procedure Advices and Order and Decorum Regulations C-2 to 
delete rule text that corresponds to rule text that Phlx previously 
proposed to delete in Rule 1063. When Phlx filed Amendment No. 2 to 
its proposal with the Commission, it also submitted Amendment No. 2 
to the public comment file for its proposal.
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    The Commission is publishing this notice and order to solicit 
comments on the proposed rule changes, as modified by the respective 
amendments thereto, from interested persons and to institute 
proceedings pursuant to Section 19(b)(2)(B) of the Act \30\ to 
determine whether to approve or disapprove the proposed rule changes, 
as modified by the respective amendments thereto.\31\
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    \30\ 15 U.S.C. 78s(b)(2)(B).
    \31\ For purposes of this notice and order, capitalized terms 
are defined as set forth in the Notices or in the CAT NMS Plan 
unless otherwise specified.
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II. Description of the Proposals, as Modified by Amendments Thereto

    As required by the CAT NMS Plan, the Systems Retirement Proposals 
discuss: (1) The specific standards that will govern when SRO rules and 
related systems that are duplicative of CAT--including the Order Audit 
Trail System (``OATS''), the Consolidated Options Audit Trail System 
(``COATS''), and the Electronic Blue Sheets system (``EBS'')--will be 
modified or eliminated; (2) whether the availability of data from Small 
Industry Members in November of 2018 would facilitate duplicative 
systems retirement; and (3) the feasibility of granting exemptions from 
reporting to duplicative systems to individual Industry Members whose 
CAT reporting meets certain accuracy and reliability thresholds.

A. Specific Accuracy and Reliability Standards

1. OATS
    FINRA's OATS rules require certain FINRA members to report a 
variety of data regarding transactions in OTC equity securities and NMS 
stocks to the system on a daily basis.\32\ Several other SROs have 
their own OATS rules that mirror FINRA's rule or incorporate it by 
reference.\33\ FINRA and the other SROs with OATS rules (the ``OATS 
SROs'') have proposed to delete their OATS rules from their respective 
rulebooks. As described in more detail below, these deletions will be 
implemented once CAT Data achieves certain pre- and post-correction 
error rates and certain qualitative criteria have been met.
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    \32\ See FINRA Rule 7400.
    \33\ See BX Rule 6950, IEX Rule 11.420, NASDAQ Rule 7000A 
Series, NYSE Rule 7400 Series, NYSE Arca Rule 6-E, and NYSE MKT Rule 
7400--Equities Series, Phlx Rule 3400 series.
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    In its Systems Retirement Proposal, FINRA stated that it believes 
that relevant error rates are the primary, but not the sole, metric by 
which to determine the CAT's accuracy and reliability and will serve as 
the baseline requirement needed before OATS can be retired to account 
for information being available in the CAT.\34\
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    \34\ See FINRA Notice, 82 FR at 25424.
---------------------------------------------------------------------------

    FINRA noted that the Participants established an initial Error 
Rate, as defined in the Plan, of 5% on initially submitted data (i.e., 
data as submitted by a CAT Reporter before any required corrections are 
performed).\35\ The Participants noted in the Plan their expectation 
that ``error rates after reprocessing of error corrections will be de 
minimis.'' \36\ The Participants based this Error Rate on their 
consideration of ``current and historical OATS Error Rates, the 
magnitude of new reporting requirements on the CAT Reporters and the 
fact that many CAT Reporters may have never been obligated to report 
data to an audit trail.'' \37\
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    \35\ See CAT NMS Plan, Appendix B, Section A.3(b).
    \36\ CAT NMS Plan, Appendix C, Section A.3(b), at n. 102.
    \37\ CAT NMS Plan, Appendix C, Section A.3(b).
---------------------------------------------------------------------------

    In its Systems Retirement Proposal, FINRA expressed agreement with 
the Participants' conclusion that a 5% pre-correction threshold 
``strikes the balance of adapting to a new reporting regime, while 
ensuring that the data provided to regulators will be capable of being 
used to conduct surveillance and market reconstruction, as well as 
having a sufficient level of accuracy to facilitate the retirement of 
existing regulatory reports and systems where possible.'' \38\ However, 
FINRA believed that, when assessing the accuracy and reliability of the 
data for the purposes of retiring OATS, the error thresholds should be 
measured in more granular ways and should also include minimum error 
rates of post-correction data, which

[[Page 42171]]

represents the data most likely to be used by FINRA to conduct 
surveillance. Although FINRA is proposing to measure the appropriate 
error rates in the aggregate rather than firm-by-firm, FINRA expressed 
the belief that the error rates for equity securities should be 
measured separately from options since options orders are not currently 
reported regularly or included in OATS.\39\
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    \38\ Id. See also FINRA Notice, 82 FR at 25424.
    \39\ See FINRA Notice, 82 FR at 25424.
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    FINRA has proposed that, before OATS could be retired, the CAT 
would generally need to achieve a sustained error rate for Industry 
Member reporting in each of the categories below:
     Rejection Rates and Data Validations. Data validations for 
the CAT, while not expected to be designed the same as OATS, must be 
functionally equivalent to OATS in accordance with the CAT NMS Plan 
(i.e., the same types of basic data validations must be performed by 
the Plan Processor to comply with the CAT NMS Plan requirements). 
Appendix D of the Plan, for example, requires that certain file 
validations\40\ and syntax and context checks be performed on all 
submitted records.\41\ If a record does not pass these basic data 
validations, it must be rejected and returned to the CAT Reporter to be 
corrected and resubmitted.\42\ The specific validations can be 
determined only after the Plan Processor has finalized the Industry 
Member Technical Specifications; however, the Plan also requires the 
Plan Processor to provide daily statistics on rejection rates after the 
data has been processed, including the number of files rejected and 
accepted, the number of order events accepted and rejected, and the 
number of each type of report rejected.\43\ FINRA is proposing that, 
over the 180-day period, aggregate rejection rates (measured separately 
for equities and options) must be no more than 5% pre-correction or 2% 
post-correction across all CAT Reporters.
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    \40\ See CAT NMS Plan, Appendix D, Section 7.2. The Plan 
requires the Plan Processor to confirm that file transmission and 
receipt are in the correct formats, including validation of header 
and trailers on the submitted report, confirmation of a valid SRO-
Assigned Market Participant Identifier, and verification of the 
number of records in the file. See id.
    \41\ See id. The Plan notes that syntax and context checks would 
include format checks (i.e., that data is entered in the specified 
format); data type checks (i.e., that the data type of each 
attribute conforms to the specifications); consistency checks (i.e., 
that all attributes for a record of a specified type are 
consistent); range/logic checks (i.e., that each attribute for every 
record has a value within specified limits and the values provided 
are associated with the event type they represent); data validity 
checks (i.e., that each attribute for every record has an acceptable 
value); completeness checks (i.e., that each mandatory attribute for 
every record is not null); and timeliness checks (i.e., that the 
records were submitted within the submission timelines). See id.
    \42\ See id.
    \43\ See id.
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     Intra-Firm Linkages. The Plan requires that ``the Plan 
Processor must be able to link all related order events from all CAT 
Reporters involved in the lifecycle of an order.'' \44\ At a minimum, 
this requirement includes the creation of an order lifecycle between 
``[a]ll order events handled within an individual CAT Reporter, 
including orders routed to internal desks or departments with different 
functions (e.g., an internal ATS).'' \45\ FINRA is proposing that 
aggregate intra-firm linkage rates across all Industry Member Reporters 
must be at least 95% pre-correction and 98% post-correction.
---------------------------------------------------------------------------

    \44\ CAT NMS Plan, Appendix D, Section 3.
    \45\ Id.
---------------------------------------------------------------------------

     Inter-Firm Linkages. The order linkage requirements in the 
Plan also require that the Plan Processor be able to create the 
lifecycle between orders routed between broker-dealers.\46\ FINRA is 
proposing that at least a 95% pre-correction and 98% post-correction 
aggregate match rate be achieved for orders routed between two Industry 
Member Reporters.
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    \46\ See id.
---------------------------------------------------------------------------

     Order Linkage Rates. In addition to creating linkages 
within and between broker-dealers, the Plan also includes requirements 
that the Plan Processor be able to create lifecycles to link various 
pieces of related orders.\47\ For example, the Plan requires linkages 
between customer orders and ``representative'' orders created in firm 
accounts for the purpose of facilitating a customer order, various legs 
of option/equity complex orders, riskless principal orders, and orders 
worked through average price accounts.\48\ FINRA is proposing that 
there be at least a 95% pre-correction and 98% post-correction linkage 
rate for multi-legged orders (e.g., related equity/options orders, VWAP 
orders, riskless principal transactions).
---------------------------------------------------------------------------

    \47\ See id.
    \48\ See id.
---------------------------------------------------------------------------

     Exchange and TRF/ORF Match Rates. The Plan requires that 
an order lifecycle be created to link ``[o]rders routed from broker-
dealers to exchanges'' and ``[e]xecuted orders and trade reports.'' 
\49\ FINRA is proposing at least a 95% pre-correction and 98% post-
correction aggregate match rate to each equity exchange for orders 
routed from Industry Members to an exchange and, for over-the-counter 
executions, the same match rate for orders linked to trade reports.
---------------------------------------------------------------------------

    \49\ Id.
---------------------------------------------------------------------------

    FINRA believes that an error rate 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),\50\ should be attained across a 
180-day period before retiring OATS. FINRA believes that this time 
period is necessary to reveal any errors that could 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. FINRA would not require a maximum 
5% pre-correction error rate and 2% post-correction error rate each day 
for 180 consecutive days. FINRA's Systems Retirement Proposal also 
provides that, during the 180-day period over which the thresholds are 
calculated, FINRA's use of the data in the CAT must confirm that (i) 
usage over that time period has not revealed material issues that have 
not been corrected, (ii) the CAT includes all data necessary to allow 
FINRA to continue to meet its surveillance obligations, and (iii) the 
Plan Processor is sufficiently meeting all of its obligations under the 
Plan.
---------------------------------------------------------------------------

    \50\ The Plan requires the Plan Processor to ensure that 
regulators have access to corrected and linked order and Customer 
data by 8:00 a.m. Eastern Time on T+5. See CAT NMS Plan, Appendix C, 
Section A.2(a).
---------------------------------------------------------------------------

    Finally, FINRA notes that it will implement the deletion of its 
OATS rules on a date to be announced in a Regulatory Notice once FINRA 
concludes the thresholds for accuracy and reliability described above 
have been met.\51\ In addition, FINRA added proposed introductory 
language to its OATS rules in its Amendment No. 1 that clarified that, 
if approved, the OATS rules will be deleted from its rulebook upon 
announcement by FINRA that the CAT has achieved a level of accuracy and 
reliability sufficient to replace OATS.
---------------------------------------------------------------------------

    \51\ See FINRA Notice, 82 FR at 25426.
---------------------------------------------------------------------------

    In their Systems Retirement Proposals, some of the OATS SROs \52\ 
proposed to assess when to eliminate their respective OATS rules based 
on the same accuracy and reliability standards as proposed by FINRA, 
and to announce the implementation date of the elimination of their 
OATS rules via regulatory notice once each has concluded that these 
standards have

[[Page 42172]]

been met.\53\ Other OATS SROs \54\ proposed to implement the 
elimination of their OATS rules via regulatory notice once FINRA has 
determined that the accuracy and reliability standards proposed by 
FINRA had been met, and FINRA publishes a notice announcing the date it 
will retire its OATS rules.\55\
---------------------------------------------------------------------------

    \52\ BX, IEX, NASDAQ, and Phlx.
    \53\ See BX Notice, 82 FR at 25873-74; IEX Notice, 82 FR at 
25401-02; NASDAQ Notice, 82 FR at 25821-22; Phlx Notice, 82 FR at 
25864. Similar to FINRA, each of these Exchanges also added proposed 
introductory language to its OATS rules to clarify that, if 
approved, the OATS rules will be deleted from its rulebook upon 
announcement by the Exchange that CAT has achieved a level of 
accuracy and reliability sufficient to replace OATS. See Amendment 
No. 1 to IEX Notice and Amendment No. 2 to BX Notice, NASDAQ Notice, 
and Phlx Notice.
    \54\ NYSE, NYSE Arca, and NYSE MKT.
    \55\ See NYSE Notice, 82 FR at 25636-37; NYSE Arca Notice 1, 82 
FR at 25363-64; NYSE MKT Notice 2, 82 FR at 25440. Similar to FINRA, 
each of NYSE, NYSE Arca, and NYSE MKT also added proposed 
introductory language to its OATS rules to clarify that, if 
approved, the OATS rules will be deleted from its rulebook upon 
announcement by FINRA that the CAT has achieved a level of accuracy 
and reliability sufficient to replace OATS. See Amendment No. 1 to 
NYSE Notice, NYSE Arca Notice 1, and NYSE MKT Notice 2.
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2. COATS
    Bats BZX, Bats EDGX, BX, BOX, CBOE, C2, NASDAQ, NYSE Arca, NYSE 
MKT, and Phlx (collectively, the ``COATS SROs'') utilize COATS to 
collect and review data regarding orders, quotes, and transactions in 
listed options.\56\ In their Systems Retirement Proposals, the COATS 
SROs noted that the Participants have provided COATS technical 
specifications to the CAT Plan Processor for use in developing the 
Technical Specifications for the CAT, and that the Participants are 
working with the Plan Processor to include the necessary COATS data 
elements in the CAT Technical Specifications.\57\ Accordingly, the 
COATS SROs have proposed to eliminate COATS once CAT is operational and 
CAT Data is sufficiently accurate and reliable for the COATS SROs to 
perform the regulatory functions that they now perform via COATS. The 
COATS SROs also have proposed to eliminate certain provisions of their 
rules that reference COATS or implement COATS requirements \58\ and/or 
to replace certain provisions that implement COATS requirements with 
others that provide for compliance with CAT requirements.\59\
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    \56\ 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.'' Securities Exchange Act Release No. 43268, 
Section IV.B.e.(v) (September 11, 2000) (Administrative Proceeding 
File No. 3-10282) (Order Instituting Public Administrative 
Proceedings Pursuant to Sections 19(h)(1) of the Act, Making 
Findings and Imposing Remedial Sanctions).
    \57\ See Bats BZX Notice, 82 FR at 25375; Bats EDGX Notice, 82 
FR at 25359; BOX Notice, 82 FR at 25492; BX Notice, 82 FR at 25876; 
C2 Notice, 82 FR at 25386; CBOE Notice, 82 FR at 25430; NYSE Arca 
Notice 2, 82 FR at 25640; NYSE MKT Notice 1, 82 FR at 25444; NASDAQ 
Notice, 82 FR at 25824; Phlx Notice, 82 FR at 25868.
    \58\ See CBOE Notice, 82 FR at 25430 (proposing to eliminate, 
from CBOE Rule 6.24, references to and background on COATS as well 
as COATS requirements regarding the reporting of the time of receipt 
of an execution report); NYSE Arca Notice 2, 82 FR at 25640 
(proposing to eliminate the COATS-related clock synchronization 
requirements of NYSE Arca Rule 6.20-O).
    \59\ See BX Notice, 82 FR at 25876 (proposing to eliminate the 
COATS-based information reporting requirements of BX Chapter V, 
Section 7, and to replace them with a requirement that BX members 
maintain order records consisting of the elements required by BX's 
CAT Compliance Rule); Amendment No. 1 to BOX Notice (proposing to 
eliminate the COATS-based data requirements of BOX Rule 7120(b) and 
to replace them with a requirement that order tickets consist of the 
elements required by BOX's CAT Compliance Rule); CBOE Notice, 82 FR 
at 25430 (proposing to amend various interpretations and policies of 
CBOE Rule 6.24 to require that certain systems and data reports 
comply with the functionality and format requirements of CAT rather 
than COATS); Nasdaq Notice, 82 FR at 25824 (proposing to eliminate 
the COATS-based information reporting requirements of Nasdaq Chapter 
V, Section 7, and to replace them with a requirement that Nasdaq 
members maintain order records consisting of the elements required 
by Nasdaq's CAT Compliance Rule); NYSE Arca Notice 2, 82 FR at 25640 
(proposing to amend NYSE Arca Rule 6.68-O to require order records 
to include the elements required by NYSE Arca's CAT Compliance Rule 
rather than the elements required under COATS); NYSE MKT Notice 1, 
82 FR at 25444 (proposing to amend NYSE MKT Rule 956NY to require 
order records to include the elements required by NYSE MKT's CAT 
Compliance Rule rather than the elements required under COATS); Phlx 
Notice, 82 FR at 25868 and Amendment No. 2 to Phlx Notice (proposing 
to amend Phlx Rule 1063, which implements certain reporting 
requirements related to COATS, and Option Floor Procedure Advices 
and Order and Decorum Regulation C-2, which repeats these 
requirements and imposes a schedule of fines for violating them, by 
replacing the COATS requirements with provisions stating that order 
records must include the elements enumerated in Phlx's CAT 
Compliance Rule). See also Bats EDGX Notice, 82 FR at 25359; BZX 
Notice, 82 FR at 25375; C2 Notice, 82 FR at 25386 (noting that BZX, 
EDGX, and C2 do not have any specific rules or requirements related 
to COATS but refer to the retirement of COATS in their filings to be 
consistent with the other options exchanges).
---------------------------------------------------------------------------

    Similar to the standards described in the Systems Retirement 
Proposals that discuss eliminating OATS-related rules, the COATS SROs 
believe that, before COATS can be retired and the proposed 
modifications to COATS-related rules can be implemented, the CAT would 
need to achieve an aggregate average error rate 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).\60\ The 5% and 2% error rates would 
be measured across a 180-day period. For purposes of COATS retirement, 
the COATS SROs have proposed to measure the error rates for CAT records 
relating only to listed options and not to equities, as only options 
orders and transactions are currently subject to COATS reporting. As 
with the proposals to retire OATS, the COATS SROs believe that, during 
the minimum 180-day period during which the error thresholds are 
calculated, their use of CAT Data must confirm that (1) there are no 
material issues that have not been corrected, (2) the CAT includes all 
data necessary to allow the COATS SROs to continue to meet their 
surveillance obligations, and (3) the Plan Processor is sufficiently 
meeting all of its obligations under the CAT NMS Plan. Each COATS SRO 
also noted that, if the Commission approves its proposed rule change, 
it would announce the date for modification or elimination, as 
applicable, of reporting requirements and the implementation date of 
the proposed rule changes via regulatory notices or circulars that 
would be published once the thresholds for accuracy and reliability 
described above have been met and the Plan Processor is sufficiently 
meeting all of its obligations under the Plan.\61\ In amendments to 
their respective filings, each COATS SRO also added introductory 
language to each of the rules that it has proposed to modify in 
connection with the retirement of COATS specifying that the rule will 
be amended upon announcement by the SRO that the CAT has achieved a 
sufficient level of accuracy and reliability.\62\
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    \60\ See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 
FR at 25360-61; BOX Notice, 82 FR at 25493-94; BX Notice, 82 FR at 
25877; C2 Notice, 82 FR at 25387-88; CBOE Notice, 82 FR at 25432; 
NYSE Arca Notice 2, 82 FR at 25641; NYSE MKT Notice 1, 82 FR at 
25445; NASDAQ Notice, 82 FR at 25825; Phlx Notice, 82 FR at 25869.
    \61\ See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 
at FR 25361; CBOE Notice, 82 FR at 25432; C2 Notice, 82 FR at 25388 
(all stating that the proposed modifications will be implemented 
``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''); BX Notice, 82 FR at 25877, NASDAQ Notice, 82 FR at 
25826, and Phlx Notice, 82 FR at 25869 (all stating that the 
proposed modifications will be implemented ``once [the Exchange] 
concludes the thresholds for accuracy and reliability described 
above have been met and that the Plan Processor is sufficiently 
meeting all of its obligations under the CAT NMS Plan''); BOX 
Notice, 82 FR at 25494, NYSE Arca Notice 2, 82 FR at 25640, and NYSE 
MKT Notice 1, 82 FR at 25444 (all stating that the proposed 
modifications will be implemented ``once the options exchanges 
determine that the thresholds for accuracy and reliability described 
. . . have been met and that the Plan Processor is sufficiently 
meeting all of its obligations under the CAT NMS Plan'').
    \62\ See Amendment No. 1 to Bats BZX Notice, Bats EDGX Notice, 
BOX Notice, C2 Notice, CBOE Notice, NYSE Arca Notice 2, NYSE MKT 
Notice 1; and Amendment No. 2 to BX Notice, NASDAQ Notice, and Phlx 
Notice.

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[[Page 42173]]

3. EBS
    Each of Bats BZX, Bats EDGX, BX, BOX, CBOE, C2, FINRA, IEX, ISE, 
MIAX, PEARL, Phlx, NASDAQ, NYSE, NYSE Arca, and NYSE MKT (each an ``EBS 
SRO'') has a rule requiring a member, upon request by the SRO, to 
provide trading information using the electronic blue sheets (``EBS'') 
system in such format as may be prescribed by the SRO.\63\
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    \63\ See Bats BZX Rule 24.4; Bats EDGX Rule 24.4; BOX Rule 
10040; BX Equity Rule 8211; BX Options Rule Chapter IX, Section 4; 
C2 Chapter 15 (incorporating CBOE Rule 15.7 by reference); CBOE Rule 
15.7; IEX Rule 8.220; ISE Rule 1404; FINRA Rules 8211 and 8213; MIAX 
Rule 804; Nasdaq Equity Rule 8211; Nasdaq Options Rule Chapter IX, 
Section 4; NYSE Rule 8211; NYSE Arca Rule 10.2(e); NYSE MKT Rule 
8211; Phlx Rule 785; PEARL Rule 804. PEARL notes that PEARL Rule 804 
is incorporated by reference from the rules in MIAX rulebook Chapter 
VIII. See PEARL Notice, 82 FR at 25437, n. 14.
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    According to the EBS SROs, after broker-dealer reporting to the CAT 
begins, CAT will contain much of the data with respect to transactions 
in CAT-Eligible Securities that an SRO could otherwise have requested 
via the EBS system.\64\ Consequently, the EBS SROs would no longer need 
to request information pursuant to the EBS Rules for transactions in 
CAT-Eligible Securities after such time as appropriate thresholds for 
accuracy and reliability, including for customer and account 
information, are achieved. However, the EBS SROs do not believe that 
the EBS rules can be completely removed from their rulebooks and the 
EBS system completely retired, because EBS requests might have to be 
made to obtain information about transactions occurring before CAT has 
attained an appropriate threshold for accuracy and reliability. Some of 
the EBS SROs \65\ also noted that their EBS rules apply to transactions 
in non-CAT-Eligible Securities, such as fixed-income securities. Thus, 
the rules would have to remain in effect with respect to those 
transactions.
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    \64\ See Bats BZX Notice, 82 FR at 25375; Bats EDGX Notice, 82 
FR at 25359; BOX Notice, 82 FR at 25493; BX Notice, 82 FR at 25875; 
C2 Notice, 82 FR at 25386; CBOE Notice, 82 FR at 25431; FINRA 
Notice, 82 FR at 25426; IEX Notice, 82 FR at 25403; ISE Notice, 82 
FR at 25470; MIAX Notice, 82 FR at 25367; NYSE Notice, 82 FR at 
25637; NYSE Arca Notice 1, 82 FR at 25364; NYSE MKT Notice 2, 82 FR 
at 25442; NASDAQ Notice, 82 FR at 25823; PEARL Notice, 82 FR at 
25437; Phlx Notice, 82 FR at 25866.
    \65\ See Bats BZX Notice, 82 FR at 25375; Bats EDGX Notice, 82 
FR at 25359-60; BX Notice, 82 FR at 25875; CBOE Notice, 82 FR at 
25431; C2 Notice, 82 FR at 25386-87; FINRA Notice, 82 FR at 25426; 
Phlx Notice, 82 FR at 25867 ; NASDAQ Notice, 82 FR at 25823; NYSE 
Notice, 82 FR at 25637; NYSE Arca Notice 1, 82 FR at 25365; and NYSE 
MKT Notice 2, 82 FR at 25442.
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    Each of the EBS SROs proposed to add new language to its EBS rule 
to clarify how it will request data under these rules after members are 
reporting to the CAT.\66\ Specifically, the proposed new language notes 
that the SRO will not request trade data or information under the rule, 
and members will not be required to provide trade data or information 
under the rule, for trades reported to the CAT after the SRO (or, in 
some cases, FINRA) announces that it has determined that the accuracy 
and reliability of the CAT are sufficient to replace requests pursuant 
to the EBS rule.\67\
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    \66\ See Amendment No. 1 to Bats BZX Notice, Bats EDGX Notice, 
BOX Notice; C2 Notice, CBOE Notice, FINRA Notice, IEX Notice, NYSE 
Notice, NYSE Arca Notice 1, and NYSE MKT Notice 2; Amendment No. 2 
to BX Notice, ISE Notice, NASDAQ Notice, PEARL Notice, and Phlx 
Notice; and Amendment No. 3 to MIAX Notice.
    \67\ See proposed revisions to Bats BZX Rule 24.4, as modified 
by Amendment No. 1; proposed revisions to Bats EDGX Rule 24.4, as 
modified by Amendment No. 1; proposed Supplementary Material to BX 
Equity Rule 8211, as modified by Amendment No. 2; proposed 
Supplementary Material to BX Options Rule Chapter IX, Section 4, as 
modified by Amendment No. 2; proposed Interpretive Material to BOX 
Rule 10040, as modified by Amendment No. 1; C2 Chapter 15 
(incorporating by reference the proposed revisions to CBOE Rule 
15.7); proposed revisions to CBOE Rule 15.7, as modified by 
Amendment No. 1; proposed Supplementary Material to FINRA Rules 8211 
and 8213, as modified by Amendment No. 1; proposed Supplementary 
Material .01 to IEX Rule 8.220, as modified by Amendment No. 1; 
proposed Supplementary Material to ISE Rule 1404, as modified by 
Amendment No. 2; proposed Interpretation and Policy .01 to MIAX Rule 
804, as modified by Amendment No. 3; proposed Supplementary Material 
to Phlx Rule 785, as modified by Amendment No. 2; proposed 
Supplementary Material to Nasdaq Equity Rule 8211, as modified by 
Amendment No. 2; proposed Supplementary Material to Nasdaq Options 
Rule Chapter IX Section 4, as modified by Amendment No. 2; proposed 
Supplementary Material .01 to NYSE Rule 8211, as modified by 
Amendment No. 1; proposed Commentary .01(E) to NYSE Arca Rule 10.2, 
as modified by Amendment No. 1; proposed Supplementary Material .01 
to NYSE MKT Rule 8211, as modified by Amendment No. 1; proposed 
Interpretation and Policy .01 to PEARL Rule 804, as modified by 
Amendment No. 2.
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    As noted above, the EBS SROs believe (or reiterate FINRA's belief) 
that the CAT must meet certain minimum accuracy and reliability 
standards before it, or FINRA, could rely on the CAT Data to replace 
existing regulatory tools, including EBS. Therefore, the EBS SROs 
propose to implement the new rule text related to their EBS rules only 
after CAT achieves certain accuracy thresholds. The EBS SROs proposed 
similar standards to those for eliminating OATS-related rules set forth 
above, as well as specific accuracy standards for customer and account 
information.\68\ In addition, each of the EBS SROs states that it (or, 
in some cases, FINRA) can rely on CAT Data to replace EBS requests only 
after it has determined that its usage of the CAT Data over a 180-day 
period has not revealed material issues that have not been corrected, 
confirmed that the CAT includes all data necessary to allow it or FINRA 
to continue to meet its surveillance obligations, and confirmed that 
the Plan Processor is fulfilling its obligations under the Plan.\69\
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    \68\ See BX Notice, 82 FR at 25876; Bats BZX Notice, 82 FR at 
25375; Bats EDGX Notice, 82 FR at 25359; BOX Notice, 82 FR at 25493; 
C2 Notice, 82 FR at 25386; CBOE Notice, 82 FR at 25431; IEX Notice, 
82 FR at 25403; ISE Notice, 82 FR at 25470-71; MIAX Notice, 82 FR at 
25367-68; NASDAQ Notice, 82 FR at 25823-24; PEARL Notice, 82 FR at 
25437-38; and Phlx Notice, 82 FR at 25866-68, respectively (stating 
that each SRO will assess whether ``an acceptable accuracy rate for 
customer and account information'' has been reached); FINRA Notice, 
82 FR at 25426; NYSE Notice, 82 FR at 25638; NYSE Arca Notice 1, 82 
FR at 25365; and NYSE MKT Notice 2, 82 FR at 25442, respectively 
(stating that FINRA will assess whether ``an accuracy rate for 
customer and account information of 95% for pre-corrected data and 
98% for post-correction data'' has been reached).
    \69\ See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 
FR at 25360-61; BOX Notice, 82 FR at 25494; BX Notice, 82 FR at 
25876; C2 Notice, 82 FR at 25387; CBOE Notice, 82 FR at 25432; FINRA 
Notice, 82 FR at 25426; IEX Notice, 82 FR at 25403; ISE Notice, 82 
FR at 25471; MIAX Notice, 82 FR at 25368; NYSE Notice, 82 FR at 
25636; NYSE Arca Notice 1, 82 FR at 25365; NYSE MKT Notice 2, 82 FR 
at 25442; NASDAQ Notice, 82 FR at 25824; PEARL Notice, 82 FR at 
25438; Phlx Notice, 82 FR at 25868. NYSE, NYSE Arca, and NYSE MKT 
will implement this change by regulatory notice once FINRA publishes 
a notice announcing a date that it will retire its EBS Rules and 
thus will rely on FINRA's conclusion that the described accuracy and 
reliability thresholds have been met and the CAT Plan Processor is 
sufficiently meeting all of its obligations under the CAT NMS Plan. 
See NYSE Notice, 82 FR at 25636; NYSE Arca Notice 1, 82 FR at 25365; 
NYSE MKT Notice 2, 82 FR at 25442.
---------------------------------------------------------------------------

4. Other Rules
    Certain Exchanges proposed to amend other reporting rules that they 
have determined are duplicative of CAT requirements. BatsBZX, BatsEDGX, 
BOX, BX, C2, CBOE, MIAX, PEARL, Phlx, and NASDAQ currently have rules 
requiring certain market participants (e.g., specialists and market 
makers) to report certain account or order information for accounts 
over which the market participant engages in trading activities or 
exercises investment discretion.\70\ These Exchanges stated

[[Page 42174]]

that, once broker-dealers are reporting to CAT, CAT will contain some 
of the data the Exchanges would otherwise have requested under these 
rules.\71\ Similar to the proposed revisions to the EBS rules, some of 
the Exchanges have proposed to add new text to these order and account 
identification rules stating that the Exchange will not request 
information under the rule, and members will not be required to provide 
information under the rule, for trades reported to CAT after the 
Exchange announces that it has determined that the accuracy and 
reliability of the CAT are sufficient to replace requests pursuant to 
the rule.\72\ Other Exchanges have proposed to revise these rules by 
deleting specific reporting requirements that are duplicative of CAT 
while retaining their position reporting requirements, which are not 
duplicative of CAT.\73\ In their respective amendments, these Exchanges 
proposed to add introductory language to these rules to clarify that 
the rules will be amended upon announcement by the Exchange that the 
CAT has achieved a sufficient level of accuracy and reliability.\74\
---------------------------------------------------------------------------

    \70\ See Bats BZX Rule 22.7 and Interpretation and Policy .01 to 
Bats BZX Rule 22.7 (requiring market makers to identify accounts and 
report orders, and specifying requirements for joint accounts); Bats 
EDGX Rule 22.7 and Interpretation and Policy .01 to Bats EDGX Rule 
22.7 (requiring market makers to identify accounts and report 
orders, and specifying requirements for joint accounts); BOX Rule 
8060 (requiring market makers to identify accounts and report 
orders, and specifying requirements for joint accounts); BX Options 
Rule Chapter VII, Section 7 and Commentary .01 to BX Options Rule 
Chapter VII, Section 7 (requiring market makers to identify accounts 
and report orders, and specifying requirements for joint accounts); 
C2 Rule 8.7 (requiring market makers to identify accounts and report 
orders, and specifying requirements for joint accounts); CBOE Rule 
8.9 and Interpretation and Policy .07 to CBOE Rule 8.9 (requiring 
market makers to identify accounts and report orders, and specifying 
requirements for joint accounts); MIAX Rule 607 (requiring market 
makers to identify accounts and report orders, and specifying 
requirements for joint accounts); Nasdaq Options Rule Chapter VII, 
Section 7 and Commentary .01 to Nasdaq Options Rule Chapter VII, 
Section 7 (requiring market makers to identify accounts and report 
orders, and specifying requirements for joint accounts); PEARL Rule 
606 and Interpretation and Policy .01 to PEARL Rule 606 (requiring 
market makers to identify accounts and report orders, and specifying 
requirements for joint accounts); Phlx Options Rule 1022 and 
Commentary .01 and .02 to Phlx Options Rule 1022 (requiring 
specialists and market makers to identify accounts and, with respect 
to options in a foreign currency, make available books and records 
concerning transactions).
    \71\ See Bats BZX Notice, 82 FR at 25375; Bats EDGX Notice, 82 
FR at 25359; BOX Notice, 82 FR at 25492; BX Notice at 25875; C2 
Notice, 82 FR at 25386; CBOE Notice, 82 FR at 25431; MIAX Notice, 82 
FR at 25367; NASDAQ Notice, 82 FR at 25823; PEARL Notice, 82 FR at 
25437; Phlx Notice, 82 FR at 25866.
    \72\ See proposed Interpretive Material 8060-1 to BOX Rule 8060, 
as modified by Amendment No. 1; proposed Commentary .02 to BX 
Options Rule Chapter VII, Section 7, as modified by Amendment No. 2; 
proposed Interpretation and Policy .01 to MIAX Rule 607, as modified 
by Amendment No. 3; proposed Commentary .02 to Nasdaq Options Rule 
Chapter VII, Section 7, as modified by Amendment No. 2; proposed 
Interpretation and Policy .02 to PEARL Rule 606, as modified by 
Amendment No. 2; proposed Commentary .03 to Phlx Options Rule 1022, 
as modified by Amendment No. 2. In addition, BZX, CBOE, and EDGX 
proposed language for other rules that require the furnishing of 
data similar to the proposed revisions to the EBS rules--that is, 
that they will not request information for trades reported to the 
CAT after each has announced that it has determined that CAT is 
sufficiently accurate and reliable. See Amendment No. 1 to BZX 
Notice (proposing to add such language to Interpretation and Policy 
.02 to BZX Rule 4.2); Amendment No. 1 to EDGX Notice (proposing to 
add such language to Interpretation and Policy .02 to EDGX Rule 
4.2); Amendment No. 1 to CBOE Notice (proposing to add such language 
to Interpretation and Policy .04 to CBOE Rule 17.2).
    \73\ See proposed revisions to Bats BZX Rule 22.7(b) and 
Interpretation and Policy .01 to Bats BZX Rule 22.7 (proposing to 
replace requirement that market makers report orders with 
requirement that market makers report positions and eliminate 
required elements of report pertaining to orders); proposed 
revisions to Bats EDGX Rule 22.7(b) and Interpretation and Policy 
.01 to Bats EDGX Rule 22.7 (proposing to replace requirement that 
market makers report orders with requirement that market makers 
report positions and eliminate required elements of report 
pertaining to orders); proposed revisions to C2 Rule 8.7(b) 
(proposing to replace requirement that market makers report orders 
with requirement that market makers report positions and eliminate 
required elements of report pertaining to orders); proposed 
revisions to CBOE Rule 8.9(b) and Interpretation and Policy .07 to 
CBOE Rule 8.9 (proposing to replace requirement that market makers 
report orders with requirement that market makers report positions 
and eliminate required elements of report pertaining to orders).
    \74\ See Amendment No. 1 to each of Bats BZX Notice, Bats EDGX 
Notice, C2 Notice, and CBOE Notice.
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    In addition, CBOE and EDGX currently require members to submit to 
the Exchange stock transaction information for each Qualified 
Contingent Cross order executed at the Exchange.\75\ CAT will require 
exchange members to report stock transaction information. Therefore, 
CBOE and EDGX intend to eliminate this reporting requirement in 
accordance with the proposed timeline and standards below.
---------------------------------------------------------------------------

    \75\ See CBOE Notice, 82 FR at 25431; EDGX Notice, 82 FR at 
25360.
---------------------------------------------------------------------------

    These Exchanges proposed standards for when the proposed 
modifications to these reporting rules will be implemented that are 
similar to those for eliminating OATS-related rules set forth above. 
Accordingly, these Exchanges proposed that 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).\76\ These Exchanges have 
proposed to measure the 5% pre-correction and 2% post-correction 
thresholds by averaging the error rate across the period, not requiring 
a 5% pre-correction and 2% post-correction maximum each day for 180 
consecutive days. In addition, each of these Exchanges stated that it 
can rely on CAT Data to replace information required to be reported 
under duplicative rules only after it has determined that its usage of 
the CAT Data over a 180-day period has not revealed material issues 
that have not been corrected, confirmed that the CAT includes all data 
necessary to allow it to continue to meet its surveillance obligations, 
and confirmed that the CAT Plan Processor is fulfilling its obligations 
under the CAT NMS Plan.\77\
---------------------------------------------------------------------------

    \76\ The Plan requires the Plan Processor to 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.
    \77\ See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 
FR at 25360-61; BX Notice, 82 FR at 25876; BOX Notice, 82 FR at 
25494; C2 Notice, 82 FR at 25387; CBOE Notice, 82 FR at 25432; MIAX 
Notice, 82 FR at 25368; NASDAQ Notice, 82 FR at 25824; PEARL Notice, 
82 FR at 25438; Phlx Notice, 82 FR at 25867-68.
---------------------------------------------------------------------------

B. Small Industry Member Data Availability

    As noted above, the CAT NMS Plan requires the SROs, in their 
Systems Retirement Proposals, to 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.'' \78\
---------------------------------------------------------------------------

    \78\ CAT NMS Plan, Appendix C, Section C.9.
---------------------------------------------------------------------------

    In its Systems Retirement Proposal, FINRA stated its view that 
there is no effective way to retire OATS until all current OATS 
reporters are reporting to the CAT and that having data from Small 
Industry Members currently reporting to OATS available two years after 
the Effective Date rather than three would ``substantially facilitate a 
more expeditious retirement of OATS.'' \79\ Therefore, FINRA supports 
an amendment to the Plan that would require current OATS reporters that 
are Small Industry Members to report to CAT two years after the 
Effective Date (instead of three) and stated that it intends to work 
with the other SROs to propose such an amendment to the Plan.\80\
---------------------------------------------------------------------------

    \79\ FINRA Notice, 82 FR at 25425.
    \80\ FINRA notes that the 180-day timeframes discussed above 
with respect to usage of the data and calculation of error rates 
would apply to data reported to the CAT by Small Industry Members 
that are reporting to OATS. If an amendment to the Plan to 
accelerate the reporting requirement for those firms is not 
approved, the retirement of OATS could not be accomplished until at 
least 180 days after Small Industry Members begin reporting, which 
is currently scheduled to begin in November 2019. See FINRA Notice, 
82 FR at 25425.
---------------------------------------------------------------------------

    FINRA has identified approximately 300 member firms that currently 
report to OATS and meet the definition of ``Small Industry Member.'' 
According to FINRA, only ten of these firms submit information to OATS 
on their own behalf, and eight of those ten firms report very few 
records to OATS.\81\ The

[[Page 42175]]

vast majority of these 300 firms use third parties to fulfill their 
reporting obligations, and many of these third parties will begin 
reporting to CAT in November 2018. Consequently, FINRA believes that 
the burden on current OATS reporters that are Small Industry Members 
would not be significant if those firms are required to report to CAT 
beginning in November 2018 rather than November 2019. FINRA does not 
believe that it is necessary or appropriate to accelerate CAT reporting 
for Small Industry Members that are not currently reporting to 
OATS.\82\
---------------------------------------------------------------------------

    \81\ See FINRA Notice, 82 FR at 25425 (noting that in one recent 
month eight of the ten firms submitted fewer than 100 reports during 
the month, with four firms submitting fewer than 50).
    \82\ See id.
---------------------------------------------------------------------------

    The Systems Retirement Proposals of BX, IEX, NYSE, NYSE Arca, NYSE 
MKT, NASDAQ, and Phlx contain the same analysis as FINRA (or summarize 
FINRA's analysis) in connection with whether the earlier availability 
of data from Small Industry Members would facilitate the retirement of 
their own respective OATS rules, and these Exchanges expressed support 
for the Plan amendment described by FINRA.\83\
---------------------------------------------------------------------------

    \83\ See BX Notice, 82 FR at 25874-75; IEX Notice, 82 FR at 
25402; NYSE Notice, 82 FR at 25636; NYSE Arca Notice 1, 82 FR at 
25364; NYSE MKT Notice 2, 82 FR at 25441; NASDAQ Notice, 82 FR at 
25822-23; Phlx Notice, 82 FR at 25866. See also FINRA Notice, 82 FR 
at 25427-28.
---------------------------------------------------------------------------

    Some of the Systems Retirement Filings also discussed how earlier 
availability of data from Small Industry Members might affect the 
retirement of systems other than OATS. The COATS SROs expressed the 
view that COATS should not be retired until all Participants and 
Industry Members that report data to COATS are reporting comparable 
data to the CAT.\84\ They noted that, while the early submission of 
options data to the CAT by Small Industry Members could expedite the 
retirement of COATS, they believe it premature 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. Some of the EBS SROs made statements similar to the COATS 
SROs with respect to whether earlier availability of data from Small 
Industry Members would facilitate EBS retirement,\85\ while other EBS 
SROs stated that the submission of data to the CAT by Small Industry 
Members a year earlier than is required in the CAT NMS Plan, at the 
same time as the other Industry Members, would expedite the replacement 
of EBS data with CAT Data because CAT would then have all necessary 
data from Industry Members to enable these SROs to perform the 
regulatory surveillance that currently is performed via EBS.\86\
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    \84\ See Bats BZX Notice, 82 FR at 25375-76; Bats EDGX Notice, 
82 FR at 25360; BOX Notice, 82 FR at 25493; BX Notice, 82 FR at 
25877; C2 Notice at, 82 FR at 25387; CBOE Notice, 82 FR at 25431; 
NYSE Arca Notice 2, 82 FR at 25640; NYSE MKT Notice 1, 82 FR at 
25444; NASDAQ Notice, 82 FR at 25825; Phlx Notice, 82 FR at 25868.
    \85\ See MIAX Notice, 82 FR at 25368; PEARL Notice at 25437-38. 
MIAX and PEARL also make similar statements with respect to whether 
earlier availability of data from Small Industry Members would 
facilitate the retirement of MIAX Rule 607 and PEARL Rule 606, which 
require certain account and order information to be reported. See 
MIAX Notice, 82 FR at 25368; PEARL Notice at 25437-38.
    \86\ See BX Notice, 82 FR at 25876; ISE Notice, 82 FR at 25470; 
NASDAQ Notice, 82 FR at 25824; Phlx Notice, 82 FR at 25867.
---------------------------------------------------------------------------

C. Individual Industry Member Exemptions

    As noted above, the CAT NMS Plan also requires the SROs, in their 
Systems Retirement Proposals, to 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.'' 
\87\
---------------------------------------------------------------------------

    \87\ CAT NMS Plan, Appendix C, Section C.9.
---------------------------------------------------------------------------

    All of the SROs stated (or reiterated FINRA's statement) that a 
single ``cut-over'' from existing systems to CAT is preferable to 
elimination of OATS reporting requirements on a firm-by-firm basis.\88\ 
Some of the SROs stated that providing individual exemptions to 
Industry Members would be inefficient, more costly, and less reliable 
than the single cut-over.\89\ These SROs further stated that providing 
individual exemptions would require the temporary creation of a cross-
system regulatory function and the integration of data from existing 
systems and the CAT to avoid creating any regulatory gaps as a result 
of such exemptions. These SROs believed that such a function would be 
costly to create and would give rise to a greater likelihood of data 
errors or other issues. These SROs stated that, given the limited time 
in which such exemptions would be necessary, they did not believe that 
such exemptions would be an appropriate use of limited resources. Some 
of the SROs also noted that, if an amendment to require Small Industry 
Members who currently report to OATS to begin reporting to CAT in 
November of 2018 were approved by the Commission, there would be no 
need to exempt members from OATS requirements on a firm-by-firm 
basis.\90\
---------------------------------------------------------------------------

    \88\ See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 
FR at 25360; BOX Notice, 82 FR at 25493; BX Notice, 82 FR at 25875-
77; C2 Notice, 82 FR at 25387; CBOE Notice, 82 FR at 25431-32; FINRA 
Notice, 82 FR at 25425; IEX Notice, 82 FR at 25402; ISE Notice, 82 
FR at 25470; MIAX Notice, 82 FR at 25368; NYSE Notice, 82 FR at 
25637; NYSE Arca Notice 1, 82 FR at 25364; NYSE Arca Notice 2, 82 FR 
at 25640; NYSE MKT Notice 1, 82 FR at 25445; NYSE MKT Notice 2, 82 
FR at 25441; NASDAQ Notice, 82 FR at 25823-25; PEARL Notice, 82 FR 
at 25438; Phlx Notice, 82 FR at 25866-68.
    \89\ See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 
FR at 25360; BOX Notice, 82 FR at 25493; BX Notice, 82 FR at 25876-
77; C2 Notice, 82 FR at 25387; CBOE Notice, 82 FR at 25431-32; ISE 
Notice, 82 FR at 25470; MIAX Notice, 82 FR at 25368; NYSE Arca 
Notice 2, 82 FR at 25640; NYSE MKT Notice 1, 82 FR at 25445; NASDAQ 
Notice, 82 FR at 25824-25; PEARL Notice, 82 FR at 25438; Phlx 
Notice, 82 FR at 25867-68.
    \90\ See BX Notice, 82 FR at 25875; FINRA Notice, 82 FR at 
25426; NYSE Notice, 82 FR at 25637; NYSE Arca Notice 1, 82 FR at 
25364; NYSE MKT Notice 2, 82 FR at 25441; NASDAQ Notice, 82 FR at 
25823; Phlx Notice, 82 FR at 25866.
---------------------------------------------------------------------------

    FINRA argued that the primary beneficiary of its proposed approach 
would be the investing public.\91\ FINRA noted that firm-by-firm 
retirement of OATS would require merging OATS and CAT data, and that 
such an approach would be ``technologically costly and difficult and 
could introduce errors into the data being surveilled that did not 
exist prior to integration.'' \92\ FINRA further stated that conducting 
its surveillance using a single source ``increases the efficiency and 
effectiveness of the process and improves the integrity of the 
markets.'' \93\ FINRA noted that the potential costs of this approach 
would be borne by those firms that would have met an individual 
threshold sooner and that the approach could disincentivize individual 
firms from meeting the minimum error rate thresholds, which could, at 
the margin, extend the period of duplicative reporting for all 
firms.\94\ However, FINRA noted this disincentive would be small for 
firms with significant reporting burdens, as they would want to end 
duplicative reporting quickly, and that firms that otherwise delay in 
meeting their error rates could incur higher costs through enforcement 
actions.\95\
---------------------------------------------------------------------------

    \91\ See FINRA Notice, 82 FR at 25427.
    \92\ Id.
    \93\ Id.
    \94\ See id.
    \95\ See id.
---------------------------------------------------------------------------

III. Summary of Comments

    The Commission received four comments that were submitted to File 
Number SR-FINRA-2017-13.\96\ Two of the commenters noted that their 
comments applied to the similar

[[Page 42176]]

proposals made by the other SROs.\97\ While the commenters supported 
certain aspects of the Systems Retirement Proposals, there were 
others--noted below--where the commenters did not agree and believed 
that the SROs had not provided adequate justification.
---------------------------------------------------------------------------

    \96\ See supra note 11.
    \97\ See FIF Letter at 1; Thomson Reuters Letter at 1.
---------------------------------------------------------------------------

A. Possibility of Firm-by-Firm Retirement

    All four of the commenters disagreed with the SROs' proposed 
approach of applying a single cut-over from existing systems to CAT. 
Two of the commenters argued that individual firms that achieve the 
quality criteria--even if the industry as a whole has not--should be 
granted exemptions from reporting to existing systems until those 
systems can be retired. In the commenters' view, the SROs' proposed 
approach would penalize firms that quickly and consistently meet or 
exceed quality standards for CAT reporting.\98\ A third commenter 
argued that the single cut-over approach provides little incentive for 
an individual firm to reduce its error rate, because the retirement of 
OATS will be based on an industry-wide error rate that is beyond its 
control.\99\
---------------------------------------------------------------------------

    \98\ See FIF Letter at 3; SIFMA Letter at 3-4 (noting that the 
inaccurate reporting of the ``slowest'' broker-dealers, in the 
absence of individual firm exemptions, could force the whole 
industry to engage in duplicative reporting for an extended period).
    \99\ See Fidelity Letter at 4. This commenter also suggested 
that FINRA could ``consider migrating firms in tranches, or phases, 
based on priority of those firms that first met the proposed error 
rates'' if FINRA does not agree that a firm-by-firm transition is 
appropriate. Id.
---------------------------------------------------------------------------

    Two commenters took the view that FINRA had not provided sufficient 
cost/benefit analysis to justify its position and emphasized the 
significant costs of duplicative reporting to broker-dealers.\100\ One 
of these commenters noted that broker-dealers who do not outsource 
their regulatory reporting (approximately 126 firms) spend on average 
$725,615 per month on their regulatory reporting obligations (which 
include OATS, EBS, large trader reporting, and other reporting).\101\ 
This commenter estimated that duplicative OATS and EBS reporting for 
these 126 broker-dealer firms would cost more than $20 million per 
month and stated that this approach would severely penalize broker-
dealer firms that rapidly and consistently met reporting 
standards.\102\ Another commenter cited the same average monthly cost 
of $725,615 and argued that the benefits of individual Industry Member 
exemptions outweigh the ``generalized and unsubstantiated 
justifications against such an approach'' outlined by the SROs.\103\
---------------------------------------------------------------------------

    \100\ See FIF Letter at 3; Thomson Reuters Letter at 3.
    \101\ See FIF Letter at 3.
    \102\ See id.
    \103\ SIFMA Letter at 3-4.
---------------------------------------------------------------------------

    One commenter stated that FINRA has not provided sufficient 
technological rationale to explain its opposition to individual firm 
exemptions, and disagreed with FINRA's conclusion that the technology 
to merge OATS and CAT would be costly and could introduce errors.\104\ 
The commenter argued that there are ``multiple possible approaches that 
could be used to integrate CAT and OATS data allowing FINRA to 
effectively surveil the market, especially if FINRA and the Plan 
Processor work jointly on a cooperative solution.'' \105\ In addition, 
the commenter noted that, because the EBS retirement plan proposes to 
extract any data available in CAT before requesting historical data or 
data for asset classes not covered by CAT, the SROs can effectively 
merge CAT data and existing EBS data to meet their surveillance 
obligations.\106\ Similarly, another commenter noted that the 
Participants have committed to include the relevant fields required for 
the decommissioning of OATS in the initial phase of CAT and recommended 
that FINRA utilize data from CAT to obtain what it would otherwise 
receive from OATS.\107\
---------------------------------------------------------------------------

    \104\ See FIF Letter at 3.
    \105\ Id. (also stating that the Plan Processor could, for 
example, route all CAT reports and errors corrections from exempted 
firms to FINRA for conversion and input into OATS, and that more 
sophisticated data merge solutions are possible with a reasonable 
investment by FINRA and the Plan Processor).
    \106\ See id. at 4.
    \107\ See SIFMA Letter at 3-4 (``once a broker-dealer meets 
accuracy thresholds in CAT, and the surveillance logic is recreated 
with the Central Repository, FINRA should utilize a subset of data 
from the CAT, and format it so that it effectively mimics what it 
would have received from OATS'').
---------------------------------------------------------------------------

    Another commenter recommended that the SROs include a cost-benefit 
analysis of a ``CAT-to-OATS converter'' that would allow firms that 
meet the error rates to cease sending data to OATS directly.\108\ 
Instead, the Plan Processor would convert the CAT reports of the firm 
into an OATS-eligible format and report that firm's audit trail 
information to OATS. The commenter believed that this approach is 
technically possible based on comments made by the Plan Processor, and 
``that CAT Industry Member Specifications could incorporate this 
concept.'' \109\
---------------------------------------------------------------------------

    \108\ See Thomson Reuters Letter at 3.
    \109\ Id.
---------------------------------------------------------------------------

B. Assessment Criteria

    All four of the commenters generally maintained that only data 
required by OATS or EBS rules today should be included in the accuracy 
and reliability metrics for system retirement, and that CAT data 
elements or other aspects of CAT that are not required by existing 
systems should be outside the scope for assessment.\110\ One commenter 
argued, for example, that CAT error rates related to customer 
information and options activity should not have any bearing on the 
retirement of OATS, as FINRA does not rely on OATS for that 
information.\111\ Another commenter posed a number of clarifying 
questions regarding the standards, including whether the proposed 
accuracy and reliability metrics apply to Participants as well as 
Industry Members, whether the proposed accuracy and reliability metrics 
for the OATS retirement plan apply only to equities data, whether 
customer and account information accuracy standards are excluded from 
the OATS retirement plan, whether the inter-firm linkage quality metric 
is calculated as an aggregate measurement across all Industry Members, 
and whether the 2% post-correction error rate is an average error rate 
over the period calculated as the number of erroneous records, as 
measured on T+5 divided by the total number of records received.\112\ 
This commenter also recommended that FINRA consider that the average 
pre-correction error rate across the five categories (i.e., rejection 
rates, intra-firm linkages, inter-firm linkages, order linkage rates, 
exchange and TRF/ORF match rates) must achieve 5%, but no single 
category could exceed 7% for the pre-correction error rate.\113\ This 
commenter further recommended that corrections should be calculated 
under CAT in the same timeframes as under existing audit trail systems 
(i.e., T+6 for OATS and T+10 for EBS rather than T+5, as 
proposed).\114\
---------------------------------------------------------------------------

    \110\ See FIF Letter at 4; SIFMA Letter at 2; Thomson Reuters 
Letter at 2-3; Fidelity Letter at 3.
    \111\ See SIFMA Letter at 2. See also Fidelity Letter at 3.
    \112\ See FIF Letter at 4-5.
    \113\ See id. Similarly, the commenter recommended that ``the 
average post-correction error rate across the five categories must 
achieve 2% but no single category could exceed a 3% post-correction 
error rate.'' Id. at 5.
    \114\ See id.
---------------------------------------------------------------------------

    Three commenters raised concerns about the broader, qualitative 
factors proposed by the SROs--that during the 180-day evaluation period 
material issues are not revealed, that the CAT includes all data 
necessary to allow FINRA to continue to meet its surveillance 
obligations, and that the

[[Page 42177]]

Plan Processor is sufficiently meeting all of its obligations under the 
Plan.\115\ Two commenters suggested that the Systems Retirement 
Proposals should require these conditions to be met before CAT goes 
live and acknowledge that evaluation of all of these issues will begin 
with CAT Participant reporting.\116\ Another commenter opined that 
these additional standards do not provide enough clarity regarding when 
FINRA will retire OATS and provide too much discretion to FINRA.\117\
---------------------------------------------------------------------------

    \115\ See Fidelity Letter at 2-3; FIF Letter at 5; Thomson 
Reuters Letter at 4-5.
    \116\ See FIF Letter at 5; Thomson Reuters Letter at 4-5.
    \117\ See Fidelity Letter at 2-3.
---------------------------------------------------------------------------

C. Assessment Length and Other Considerations Relating to the 
Assessment Period

    One commenter recommended that the SROs should consider shortening 
the trial period if all criteria have been met before the 180th 
day.\118\ This commenter also recommended that the 180-day trial period 
be a ``rolling metric''--i.e., if the industry does not meet the 
quality criteria by the end of the first 180 days, the most recent 180 
days should be recalculated each day thereafter.\119\ The same 
commenter urged FINRA to ``take a daily accounting of the 
measurements'' and to ``communicate both the aggregate measurements and 
the individual Industry Member measurements so that all parties are 
regularly updated'' regarding the status of the various error rates and 
can make necessary corrections.\120\
---------------------------------------------------------------------------

    \118\ See FIF Letter at 2.
    \119\ See id.
    \120\ Id. at 2. See also Thomson Reuters Letter at 2 (noting 
that these daily metrics should be issued during the planned testing 
phase that begins no later than three months before CAT reporting 
and that the actual date of OATS and EBS retirement will remain 
uncertain without access to these metrics).
---------------------------------------------------------------------------

    Two commenters argued that the early phases of CAT compliance 
should be viewed as a ``trial period'' and that there should be no CAT 
penalties or regulatory inquiries associated with CAT reporting before 
the end of the trial period.\121\ One of these commenters suggested 
``that CAT not go-live until the 95% uncorrected and 98% post-
correction thresholds have been met for two weeks during the testing 
period.'' \122\ Similarly, another commenter stated that the SROs 
``should establish a test period to gather information prior to 
production reporting'' to ``enable CAT to go into production at a 
confidence level that allows its reporting systems to serve as many 
existing regulatory requirements and accompanying surveillance programs 
as possible.'' \123\
---------------------------------------------------------------------------

    \121\ See FIF Letter at 2; Thomson Reuters at 2.
    \122\ Thomson Reuters Letter at 2-3.
    \123\ SIFMA Letter at 2.
---------------------------------------------------------------------------

D. Additional Plan Amendments

    All of the commenters supported requiring reporting for current 
OATS reporters 24 months after the CAT effective date. Of those, two 
commenters supported the proposal to amend the CAT NMS Plan to 
accelerate CAT reporting for Small Industry Members who currently 
report to OATS from 36 to 24 months after the CAT Effective Date.\124\ 
Two other commenters instead recommended that all current OATS 
reporters--regardless of size--should begin reporting to CAT in 
November of 2018 and all non-OATS reporters should be allowed to begin 
reporting to CAT in November of 2019.\125\ One of these commenters 
noted that many large broker-dealers do not report to OATS and argued 
that ``requiring such firms to implement the systems and reporting 
mechanisms for the CAT on a shortened timeframe simply due to their 
designation as a `Large Industry Member' may result in significant 
technological and operational challenges.'' \126\ Accordingly, the 
commenter urged some mechanism to allow such Large Industry Members to 
begin reporting 36 rather than 24 months after the CAT Effective 
Date.\127\ The other commenter noted that, if the first phase of 
Industry Member reporting were limited to current OATS reporting firms, 
FINRA would still have all of the data that it currently has from OATS 
today.\128\
---------------------------------------------------------------------------

    \124\ See FIF Letter at 2; Thomson Reuters Letter at 2 
(commending the SROs for ``their willingness to move all OATS 
reporters to the same timeline''). One of these commenters noted 
that accelerating the compliance date might ``place additional 
burden on the Small Industry Members who are OATS reporters, even 
for those members that will likely use third party providers for 
their CAT reporting obligations, because these reporters ultimately 
bear supervisory responsibility for the OATS and CAT regulatory 
reporting.'' FIF Letter at 2. The commenter concluded, however, that 
``the economic trade-off of a significantly earlier date for OATS 
retirement for the entire industry'' justifies the proposal. Id.
    \125\ See SIFMA Letter at 2-3; Fidelity Letter at 3.
    \126\ SIFMA Letter at 2. See also Fidelity Letter at 3 (arguing 
that phasing in CAT reporting based on current OATS-reporting status 
would give non-OATS reporting firms additional time to comply with 
CAT requirements).
    \127\ See SIFMA Letter at 2-3.
    \128\ See Fidelity Letter at 3.
---------------------------------------------------------------------------

E. Other Comments

    Three commenters requested that the CAT NMS Plan be clarified to 
specify that prime broker transactions are included in the CAT 
reporting requirements.\129\ One commenter stated that ``this will 
enable a more complete set of transactions in the CAT audit trail and 
allow CAT to replace EBS as a more complete reporting source for this 
data.'' \130\ Similarly, another commenter noted that prime broker 
transactions are missing from the CAT NMS Plan, which ``may prevent the 
regulators from utilizing CAT data as envisioned.'' \131\
---------------------------------------------------------------------------

    \129\ See FIF Letter at 5; SIFMA Letter at 4; Thomson Reuters 
Letter at 4.
    \130\ FIF Letter at 5.
    \131\ SIFMA Letter at 4.
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Systems Retirement Proposals, as Modified by Amendments Thereto

    The Commission hereby institutes proceedings pursuant to Section 
19(b)(2) of the Act \132\ to determine whether the Systems Retirement 
Proposals of Bats BZX, Bats EDGX, BOX, BX, C2, CBOE, FINRA, IEX, ISE, 
MIAX, NASDAQ, PEARL, NYSE, NYSE Arca, NYSE MKT, and Phlx, as modified 
by their respective amendments, should be approved or disapproved. 
Further, pursuant to Section 19(b)(2)(B) of the Act,\133\ the 
Commission is hereby providing notice of the grounds for disapproval 
under consideration. The Commission believes that it is appropriate to 
institute proceedings at this time in view of the legal and policy 
issues raised by the proposals. Institution of proceedings does not 
indicate, however, that the Commission has reached any conclusions with 
respect to any of the issues involved.
---------------------------------------------------------------------------

    \132\ 15 U.S.C. 78s(b)(2).
    \133\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act 
also provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the 
exchange consents to the longer period. See id.
---------------------------------------------------------------------------

    In particular, the Commission is instituting proceedings to allow 
for additional analysis for consistency with: (1) Section 6(b)(5) of 
the Act,\134\ with respect to the Exchanges' Systems Retirement 
Proposals, and Section 15A(b)(6) of the Act,\135\ with respect to 
FINRA's Systems Retirement Proposal, both of which sections require, 
among other things, that the rules of a national securities exchange or 
registered securities association be designed ``to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, . . . to remove impediments to and perfect the

[[Page 42178]]

mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest;'' and (2) 
Section 6(b)(8) of the Act,\136\ with respect to the Exchanges' Systems 
Retirement Proposals, and Section 15A(b)(9) of the Act,\137\ with 
respect to FINRA's Systems Retirement Proposal, both of which sections 
require that the rules of a national securities exchange or registered 
securities association ``not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of [the Act].''
---------------------------------------------------------------------------

    \134\ 15 U.S.C. 78f(b)(5).
    \135\ 15 U.S.C. 78o-3(b)(6).
    \136\ 15 U.S.C. 78f(b)(8).
    \137\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

    In addition, the Commission is instituting proceedings to allow for 
additional analysis of whether the Systems Retirement Proposals are 
consistent with Section 11A of the Act \138\ and Rules 608(c) and 613 
of Regulation NMS thereunder.\139\ Section 11A of the Act directs the 
Commission, with due regard for the public interest, the protection of 
investors, and the maintenance of fair and orderly markets, to use its 
authority to facilitate the establishment of a national market system 
for securities, including by authorizing or requiring SROs to act 
jointly to plan, develop, operate, or regulate a national market 
system. Rule 608(c) requires each SRO to comply with the terms of any 
effective NMS plan of which it is a sponsor or participant. Rule 613 
requires the CAT NMS Plan to include a ``plan to eliminate existing 
rules and systems . . . that will be rendered duplicative by the 
consolidated audit trail.'' \140\ The Plan, in turn, required the SROs 
to file proposed rule changes, within six months of the Commission's 
approval of the Plan, to eliminate or modify their duplicative 
rules.\141\ The Plan further stated that the rule change proposals to 
eliminate or modify duplicative rules and systems should be ``effective 
at such time as CAT Data meets minimum standards of accuracy and 
reliability.'' \142\ As discussed above, the Plan also requires these 
proposals to discuss the specific accuracy and reliability standards 
that would determine when duplicative systems would be retired, whether 
the availability of certain data from Small Industry Members in 
November 2018 would facilitate a more expeditious retirement of 
duplicative systems, and whether individual Industry Members could be 
exempted from reporting to duplicative systems once their CAT reporting 
meets specified accuracy and reliability standards.\143\ Accordingly, 
the SROs filed the Systems Retirement Proposals to indicate which 
duplicative rules and systems would be eliminated once CAT is 
sufficiently accurate and reliable and to explain how they intend to 
assess CAT's accuracy and reliability. The Commission is therefore 
considering whether the Systems Retirement Proposals are consistent 
with the SROs' regulatory obligations under Rule 608(c), Rule 613, and 
the Plan, and are otherwise consistent Section 11A of the Act and the 
rules and regulations thereunder.
---------------------------------------------------------------------------

    \138\ 15 U.S.C. 78k-1.
    \139\ 17 CFR 242.608(c) and 242.613.
    \140\ 17 CFR 242.613(a)(9).
    \141\ See CAT NMS Plan, Appendix C, Section C.9.
    \142\ Id.
    \143\ See id.
---------------------------------------------------------------------------

    As noted above, the CAT NMS Plan required the SROs' proposals to 
retire duplicative audit trail systems to consider 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.'' \144\ In addition, in the CAT Approval Order, the 
Commission noted ``that FINRA is considering whether it can integrate 
CAT Data with OATS data in such a way that `ensures no interruption in 
FINRA's surveillance capabilities,' and that FINRA will consider 
`exempting firms from the OATS Rules provided they report data to the 
Central Repository pursuant to the CAT NMS Plan and any implementing 
rules.' '' \145\ The Commission also ``encourage[d] the other 
Participants to consider similar measures to exempt firms from 
reporting to existing systems once they are accurately reporting 
comparable data to the CAT and to enable the usage of CAT Data to 
conduct their regulatory activities.'' \146\ As described above, the 
SROs considered individual firm exemptions but believe that a single 
cut-over from existing systems to CAT is preferable to a firm-by-firm 
approach. Several of the SROs assert that providing firm-by-firm 
exemptions would be inefficient, more costly, and less reliable than 
the single cut-over.\147\ However, commenters disagreed with this 
aspect of the SROs' proposals, and questioned whether FINRA had 
adequately analyzed the costs and benefits of allowing firms to 
discontinue OATS reporting on an individual basis. Commenters also 
noted the high costs of duplicative reporting. Accordingly, the 
Commission is considering whether the Systems Retirement Proposals 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, including the potential 
competitive burdens that may be created by an extended period of 
duplicative reporting for certain firms.
---------------------------------------------------------------------------

    \144\ See CAT NMS Plan, Appendix C, Section C.9.
    \145\ CAT Approval Order, 81 FR at 84771.
    \146\ Id.
    \147\ See Bats BZX Notice, 82 FR at 25376; Bats EDGX Notice, 82 
FR at 25360; BOX Notice, 82 FR at 25493; BX Notice, 82 FR at 25876-
77; C2 Notice, 82 FR at 25387; CBOE Notice, 82 FR at 25431-32; ISE 
Notice, 82 FR at 25470; MIAX Notice, 82 FR at 25368; NYSE Arca 
Notice 2, 82 FR at 25640; NYSE MKT Notice 1, 82 FR at 25445; NASDAQ 
Notice, 82 FR at 25824-25; PEARL Notice, 82 FR at 25438; Phlx 
Notice, 82 FR at 25867-68.
---------------------------------------------------------------------------

    As discussed in more detail above, the SROs also proposed certain 
accuracy and reliability standards that CAT Data must meet before 
existing systems can be retired. These standards include both 
quantitative and qualitative metrics. Commenters raised questions about 
the scope of these metrics, in particular data elements and 
functionalities that were not included in current audit trail systems, 
and asked for clarification regarding a number of metrics. In addition, 
several commenters raised concerns about the broader, qualitative 
factors proposed by the SROs. Accordingly, the Commission is 
considering the accuracy and reliability standards set forth in the 
Systems Retirement Proposals.
    In addition, the Commission is considering whether the Systems 
Retirement Proposals are designed to prevent fraudulent and 
manipulative acts and practices and, in particular, whether the Systems 
Retirement Proposals would help to ensure that the SROs can effectively 
conduct their surveillance and oversight functions. The Commission is 
also considering whether the Systems Retirement Proposals remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and whether they adequately balance the 
duplicative reporting costs incurred by broker-dealers and the risks to 
effective surveillance and oversight, which may impact investor 
protection.

V. Commission's Solicitation of Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns that they may 
have with any of the Systems Retirement Proposals. In particular, the 
Commission invites the

[[Page 42179]]

written views of interested persons concerning whether the Systems 
Retirement Proposals, as modified by the amendments thereto, are 
consistent with Sections 6(b)(5), 6(b)(8), 15A(b)(6), 15A(b)(9), or any 
other provision of the Act, and the rules and regulations thereunder. 
Although there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral 
presentation.\148\
---------------------------------------------------------------------------

    \148\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    Such comments should be submitted by September 27, 2017. Rebuttal 
comments should be submitted by October 11, 2017. The Commission asks 
that commenters address the sufficiency and merit of the SROs' 
statements in support of their respective Systems Retirement Proposals, 
in addition to any other comments that commenters may wish to submit 
about any of the proposed rule changes. The Commission also asks the 
SROs to respond to the issues raised in the four comment letters 
received to date, including the commenters' cost estimates. In 
addition, the Commission seeks comment, including, where relevant, any 
specific data, statistics, or studies, on the following:
    1. What would be the monetary costs of constructing a CAT-to-OATS 
``converter'' or developing an alternative mechanism for linking CAT 
Data to OATS that would provide continuity of the OATS SROs' 
surveillance capabilities? To the extent possible, please provide 
specific data, analyses, or studies for support for your answer.
    2. What technological challenges would have to be addressed to make 
a converter or other mechanism feasible? When could work begin on a 
converter or alternative mechanism? For example, could work begin 
before technical specifications for Industry Member reporting to CAT 
have been finalized? Could work begin before the Plan Processor had 
begun accepting CAT reports from Industry Members and making those 
reports available to regulators? How long would it take to construct a 
converter or other mechanism? To the extent possible, please provide 
specific data, analyses, or studies for support for your answer.
    3. Are there any entities that would be capable of constructing a 
converter? Please explain who they are and why you believe they have 
the ability to construct a converter. To the extent possible, please 
provide specific data, analyses, or studies for support for your 
answer.
    4. If the costs of the converter would be passed on to Industry 
Members, would the benefits of a converter be undermined? To the extent 
possible please provide specific data, analyses, or studies for support 
for your answer.
    5. Please estimate, to the extent possible, the percentage of 
Industry Members' CAT reports that would qualify for an individual 
exemption from OATS reporting for each month after Industry Members 
begin reporting in November 2018. Do you believe that the costs and/or 
benefits of a converter would be affected by the number of Industry 
Members that can be expected to meet the threshold error rates for CAT 
reporting (weighted by their percentage of total CAT reports submitted 
by OATS-reporting Industry Members) before full OATS retirement, thus 
qualifying for an individual exemption from OATS and to have their CAT 
reports converted to OATS? To the extent possible, please provide 
specific data, analyses, or studies for support for your answer.
    6. Do you believe that the Systems Retirement Proposals would 
result in any burden on competition and, if so, please analyze whether 
any such burden would be necessary or appropriate in furtherance of the 
purposes of the Act. If there are burdens, how would they compare to 
the burdens that would be imposed by the converter approach? To the 
extent possible, please provide specific data, analyses, or studies for 
support of your answer.
    7. What impact would a converter have on the SROs' ability to 
conduct their surveillance and oversight? Specifically, do you believe 
that there are risks that a converter might not be able to successfully 
integrate CAT reports into OATS? If so, what is the likelihood of 
failures and what would be the magnitude of the costs resulting from 
any such failures? What costs might be incurred by SROs to detect and 
address any regulatory gaps created by a converter? For example, would 
an OATS SRO have to design additional surveillances to address that 
possibility? If so, what sort of additional surveillances might be 
necessary and how would you estimate the cost for an SRO to develop 
them? To the extent possible, please provide specific data, analyses, 
or studies for support.
    8. How long do you believe it will take before CAT reaches the 
accuracy and reliability thresholds proposed by the SROs before 
retiring OATS and other systems for all firms? Also, how long do you 
think it would take to make an effective converter available and how 
long would the converter be used for those firms who individually have 
met the thresholds while CAT overall has not? Does the length of this 
period affect your cost/benefit analysis for the converter approach? If 
so, how?
    9. Regarding the converter approach and firm-by-firm exemptions 
from OATS reporting, what criteria should the OATS SROs consider for 
releasing a firm from its OATS requirements? To the extent possible 
please provide specific data, analyses, or studies for support. Would 
you still support a firm-by-firm approach if it also incorporated an 
assessment of whether the Plan Processor is sufficiently meeting all of 
its obligations under the Plan?
    10. Please describe any opportunity costs associated with the 
converter approach. For example, would the development of the converter 
and any new processes and procedures at the SRO level to accommodate 
the converter divert resources that otherwise would be devoted to CAT 
implementation? If so, please describe the nature and extent of such 
effects.
    11. Do you agree with the estimated costs of duplicative reporting 
described by two of the commenters? \149\ Are there any additional 
opportunity costs faced by Industry Members that would result from 
duplicative reporting? How would the length of the duplicative 
reporting period affect the opportunity costs? To the extent possible, 
please provide specific data, analyses, or studies for support.
---------------------------------------------------------------------------

    \149\ See supra notes 101-103 and accompanying text.
---------------------------------------------------------------------------

    12. Do you agree with the proposed quantitative metrics for the 
pre- and post-correction error rates that would have to be attained by 
CAT before the SROs would retire duplicative systems? Do you agree with 
the proposed categories for the assessment? Why or why not? Are these 
categories sufficiently clear? If you believe that different thresholds 
or alternative areas for consideration would be more appropriate, 
please describe. What are the costs and benefits of the proposed 
approach versus any alternative approach that you would recommend?
    13. Do you agree with the SROs' proposed qualitative standards for 
retirement of duplicative systems, i.e.,

[[Page 42180]]

that retirement could not be permitted to occur until it is confirmed 
that (1) there are no material issues in CAT that have not been 
corrected, (2) the CAT includes all data necessary to allow the SROs to 
continue to meet their surveillance obligations, and (3) the Plan 
Processor is sufficiently meeting all of its obligations under the CAT 
NMS Plan? Why or why not? What are the costs and benefits of the 
proposed approach versus an alternative approach, which may include not 
having any additional qualitative considerations?
    14. To what extent should the SROs consider CAT performance 
regarding functions and data elements not present within existing audit 
trail systems when determining when to allow retirement of those 
existing systems? What are the costs and benefits of the proposed 
approach versus any alternative approach that you would recommend? Do 
you believe that the Systems Retirement Proposals will promote 
efficiency, competition, and capital formation? Please submit any data 
or information that would assist the Commission in considering these 
issues.
    15. Do you agree with the length of the assessment period proposed 
by the SROs? Why or why not? If not, what alternative do you believe 
would be more appropriate and why? What are the costs and benefits of 
the proposed approach versus any alternative approach that you would 
recommend? To the extent possible, please provide specific data, 
analyses, or studies for support.
    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 any 
of File Numbers SR-BatsBZX-2017-37, SR-BatsEDGX-2017-23, SR-BOX-2017-
17, SR-BX-2017-027, SR-C2-2017-018, SR-CBOE-2017-041, SR-FINRA-2017-
013, SR-IEX-2017-18, SR-ISE-2017-46, SR-MIAX-2017-20, SR-NASDAQ-2017-
055, SR-PEARL-2017-23, SR-NYSE-2017-23, SR-NYSEArca-2017-57, SR-
NYSEArca-2017-59, SR-NYSEMKT-2017-29, SR-NYSEMKT-2017-30, or SR-Phlx-
2017-43, as appropriate, 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 any of: File Numbers SR-BatsBZX-
2017-37, SR-BatsEDGX-2017-23, SR-BOX-2017-17, SR-BX-2017-027, SR-C2-
2017-018, SR-CBOE-2017-041, SR-FINRA-2017-013, SR-IEX-2017-18, SR-ISE-
2017-46, SR-MIAX-2017-20, SR-NASDAQ-2017-055, SR-PEARL-2017-23, SR-
NYSE-2017-23, SR-NYSEArca-2017-57, SR-NYSEArca-2017-59, SR-NYSEMKT-
2017-29, SR-NYSEMKT-2017-30, or SR-Phlx-2017-43, as appropriate. The 
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 SRO. 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 any of File Numbers SR-BatsBZX-
2017-37, SR-BatsEDGX-2017-23, SR-BOX-2017-17, SR-BX-2017-027, SR-C2-
2017-018, SR-CBOE-2017-041, SR-FINRA-2017-013, SR-IEX-2017-18, SR-ISE-
2017-46, SR-MIAX-2017-20, SR-NASDAQ-2017-055, SR-PEARL-2017-23, SR-
NYSE-2017-23, SR-NYSEArca-2017-57, SR-NYSEArca-2017-59, SR-NYSEMKT-
2017-29, SR-NYSEMKT-2017-30, or SR-Phlx-2017-43, as appropriate, and 
should be submitted by September 27, 2017. Rebuttal comments should be 
submitted by October 11, 2017.
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    \150\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\150\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18793 Filed 9-5-17; 8:45 am]
 BILLING CODE 8011-01-P
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