Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq General 7 (Consolidated Audit Trail Compliance), 38937-38951 [2020-13879]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 125 (Monday, June 29, 2020)]
[Notices]
[Pages 38937-38951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13879]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89137; File No. SR-NASDAQ-2020-035]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Nasdaq General 7 (Consolidated Audit Trail Compliance)

June 23, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 22, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Nasdaq General, the Exchange's 
compliance rule (``Compliance Rule'') regarding the National Market 
System Plan Governing the Consolidated Audit Trail (the ``CAT NMS 
Plan'' or ``Plan'') \3\ to be consistent with certain exemptions from 
the CAT NMS Plan as well as to facilitate the retirement of certain 
existing regulatory systems.
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    \3\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth in the Compliance Rule.
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    The text of the proposed rule change is available on the Exchange's 
website at

[[Page 38938]]

https://nasdaq.cchwallstreet.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend General 7, the 
Compliance Rule regarding the CAT NMS Plan, to be consistent with 
certain exemptions from the CAT NMS Plan as well as to facilitate the 
retirement of certain existing regulatory systems. As described more 
fully below, the proposed rule change would make the following changes 
to the Compliance Rule:
     Add additional data elements to the consolidated audit 
trail (``CAT'') reporting requirements for Industry Members to 
facilitate the retirement of the Financial Industry Regulatory 
Authority, Inc.'s (``FINRA'') Order Audit Trail System (``OATS'');
     Add additional data elements related to OTC Equity 
Securities that FINRA currently receives from alternative trading 
systems (``ATSs'') that trade OTC Equity Securities for regulatory 
oversight purposes to the CAT reporting requirements for Industry 
Members;
     Implement a phased approach for Industry Member reporting 
to the CAT (``Phased Reporting'');
     To the extent that any Industry Member's order handling or 
execution systems utilize time stamps in increments finer than 
milliseconds, revise the timestamp granularity requirement to require 
such Industry Member to record and report Industry Member Data to the 
Central Repository with time stamps in such finer increment up to 
nanoseconds;
     Require Introducing Industry Members (as defined below) to 
comply with the requirements of the CAT NMS Plan applicable to Small 
Industry Members;
     Revise the CAT reporting requirements so Industry Members 
would not be required to report to the Central Repository dates of 
birth, ``individual tax payer identification number (``ITIN'')/social 
security number (``SSN'')'' (collectively, referred to as ``SSNs'') or 
account numbers; and
     Revise the CAT reporting requirements regarding cancelled 
trades and SRO-Assigned Market Participant Identifiers of clearing 
brokers, if applicable, in connection with order executions, as such 
information will be available from FINRA's trade reports submitted to 
the CAT.
i. CAT-OATS Data Gaps
    The Participants have worked to identify gaps between data reported 
to existing systems and data to be reported to the CAT to ``ensure that 
by the time Industry Members are required to report to the CAT, the CAT 
will include all data elements necessary to facilitate the rapid 
retirement of duplicative systems.'' \4\ As a result of this process, 
the Participants identified several data elements that must be included 
in the CAT reporting requirements before existing systems can be 
retired. In particular, the Participants identified certain data 
elements that are required by OATS, but not currently enumerated in the 
CAT NMS Plan. Accordingly, the Exchange proposes to amend its 
Compliance Rule to include these OATS data elements in the CAT. Each of 
such OATS data elements are discussed below. With the addition of these 
OATS data elements to the CAT, the CAT will have the data elements 
necessary to retire OATS.
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    \4\ Letter from Participants to Brent J. Fields, Secretary, SEC, 
re: File Number 4-698; Notice of Filing of the National Market 
System Plan Governing the Consolidated Audit Trail (September 23, 
2016) at 21 (``Participants' Response to Comments'') (available at 
https://www.sec.gov/comments/4-698/4698-32.pdf).
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A. Information Barrier Identification
    The FINRA OATS rules require OATS Reporting Members \5\ to record 
the identification of information barriers for certain order events, 
including when an order is received or originated, transmitted to a 
department within the OATS Reporting Member, and when it is modified. 
The Participants propose to amend the Compliance Rule to incorporate 
these requirements into the CAT.
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    \5\ An OATS ``Reporting Member'' is defined in FINRA Rule 
7410(o).
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    Specifically, FINRA Rule 7440(b)(20) requires a FINRA OATS 
Reporting Member to record the following when an order is received or 
originated: ``if the member is relying on the exception provided in 
Rule 5320.02 with respect to the order, the unique identification of 
any appropriate information barriers in place at the department within 
the member where the order was received or originated.'' \6\ The 
Compliance Rule does not require Industry Members to report such 
information barrier information. To address this OATS-CAT data gap, the 
Exchange proposes to add new paragraph (a)(1)(A)(vii) to General 7, 
Section 3, which would require Industry Members to record and report to 
the Central Repository, for original receipt or origination of an 
order, ``the unique identification of any appropriate information 
barriers in place at the department within the Industry Member where 
the order was received or originated.''
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    \6\ FINRA Rule 5320 prohibits trading ahead of customer orders.
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    In addition, FINRA Rule 7440(c)(1) states that ``[w]hen a Reporting 
Member transmits an order to a department within the member, the 
Reporting Member shall record: . . . (H) if the member is relying on 
the exception provided in Rule 5320.02 with respect to the order, the 
unique identification of any appropriate information barriers in place 
at the department within the member to which the order was 
transmitted.'' The Compliance Rule does not require Industry Members to 
report such information barrier information. To address this OATS-CAT 
data gap, the Exchange proposes to revise paragraph (a)(1)(B)(vi) of 
General 7, Section 3 to require, for the routing of an order, if routed 
internally at the Industry Member, ``the unique identification of any 
appropriate information barriers in place at the department within the 
Industry Member to which the order was transmitted.''
    FINRA Rule 7440(c)(2)(B) and 7440(c)(4)(B) require an OATS 
Reporting Member that receives an order transmitted from another member 
to report the unique identification of any appropriate information 
barriers in place at the department within the member to which the 
order was transmitted. The Compliance Rule not require Industry Members 
to report such information barrier information. To address this OATS-
CAT data gap, the Exchange proposes to add new paragraph (a)(1)(C)(vii) 
to General 7, Section 3, which would require Industry Members to record 
and report to the Central Repository, for the receipt of an order that 
has been routed, ``the unique identification of any appropriate

[[Page 38939]]

information barriers in place at the department within the Industry 
Member which received the order.''
    FINRA Rule 7440(d)(1) requires an OATS Reporting Member that 
modifies or receives a modification to the terms of an order to report 
the unique identification of any appropriate information barriers in 
place at the department within the member to which the modification was 
originated or received. The Compliance Rule does not require Industry 
Members to report such information barrier information. To address this 
OATS-CAT data gap, the Exchange proposes to add new paragraph 
(a)(1)(D)(vii) to General 7, Section 3, which would require Industry 
Members to record and report to the Central Repository, if the order is 
modified or cancelled, ``the unique identification of any appropriate 
information barriers in place at the department within the Industry 
Member which received or originated the modification.''
B. Reporting Requirements for ATSs
    Under FINRA Rule 4554, ATSs that receive orders in NMS stocks are 
required to report certain order information to OATS, which FINRA uses 
to reconstruct ATS order books and perform order-based surveillance, 
including layering, spoofing, and mid-point pricing manipulation 
surveillance.\7\ The Participants believe that Industry Members 
operating ATSs--whether such ATS trades NMS stocks or OTC Equity 
Securities--should likewise be required to report this information to 
the CAT. Because ATSs that trade NMS stocks are already recording this 
information and reporting it to OATS, the Participants believe that 
reporting the same information to the CAT should impose little burden 
on these ATSs. Moreover, including this information in the CAT is also 
necessary for FINRA to be able to retire the OATS system. The 
Participants similarly believe that obtaining the same information from 
ATSs that trade OTC Equity Securities will be important for purposes of 
reconstructing ATS order books and surveillance. Accordingly, the 
Exchange proposes to add to the data reporting requirements in the 
Compliance Rule the reporting requirements for ATSs in FINRA Rule 
4554,\8\ but to expand such requirements so that they are applicable to 
all ATSs rather than solely to ATSs that trade NMS stocks.
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    \7\ See FINRA Regulatory Notice 16-28 (August 2016).
    \8\ FINRA Rule 4554 was approved by the SEC on May 10, 2016, 
while the CAT NMS Plan was pending with the Commission. See 
Securities Exchange Act Release No. 77798 (May 10, 2016), 81 FR 
30395 (May 16, 2016) (Order Approving SR-FINRA-2016-010). As noted 
in the Participants' Response to Comments, throughout the process of 
developing the Plan, the Participants worked to keep the gap 
analyses for OATS, electronic blue sheets, and the CAT up-to-date, 
which included adding data fields related to the tick size pilot and 
ATS order book amendments to the OATS rules. See Participants' 
Response to Comments at 21. However, due to the timing of the 
expiration of the tick size pilot, the Participants decided not to 
include those data elements into the CAT NMS Plan.
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(i) New Definition
    The Exchange proposes to add a definition of ``ATS'' to new 
paragraph (d) of General 7, Section 1 to facilitate the addition to the 
CAT of the reporting requirements for ATSs set forth in FINRA Rule 
4554. The Exchange proposes to define an ``ATS'' to mean ``an 
alternative trading system, as defined in Rule 300(a)(1) of Regulation 
ATS under the Exchange Act.''
(ii) ATS Order Type
    FINRA Rule 4554(b)(5) requires the following information to be 
recorded and reported to FINRA by ATSs when reporting receipt of an 
order to OATS:
    A unique identifier for each order type offered by the ATS. An ATS 
must provide FINRA with (i) a list of all of its order types 20 days 
before such order types become effective and (ii) any changes to its 
order types 20 days before such changes become effective. An identifier 
shall not be required for market and limit orders that have no other 
special handling instructions.
    The Compliance Rule does not require Industry Members to report 
such order type information to the Central Repository. To address this 
OATS-CAT data gap, the Exchange proposes to incorporate these 
requirements into four new provisions to the Compliance Rule: 
Paragraphs (a)(1)(A)(xi)(1), (a)(1)(C)(x)(1), (a)(1)(D)(ix)(1) and 
(a)(2)(D) of General 7, Section 3.
    Proposed paragraph (a)(1)(A)(xi)(1) of General 7, Section 3 would 
require an Industry Member that operates an ATS to record and report to 
the Central Repository for the original receipt or origination of an 
order ``the ATS's unique identifier for the order type of the order.'' 
Proposed paragraph (a)(1)(C)(x)(1) of General 7, Section 3 would 
require an Industry Member that operates an ATS to record and report to 
the Central Repository for the receipt of an order that has been routed 
``the ATS's unique identifier for the order type of the order.'' 
Proposed paragraph (a)(1)(D)(ix)(1) of General 7, Section 3 would 
require an Industry Member that operates an ATS to record and report to 
the Central Repository if the order is modified or cancelled ``the 
ATS's unique identifier for the order type of the order.'' Furthermore, 
as with the requirements in FINRA Rule 4554(b)(5), proposed paragraph 
(a)(2)(D) of General 7, Section 3 would state that:
    An Industry Member that operates an ATS must provide to the Central 
Repository: (1) A list of all of its order types twenty (20) days 
before such order types become effective; and (2) any changes to its 
order types twenty (20) days before such changes become effective. An 
identifier shall not be required for market and limit orders that have 
no other special handling instructions.
(iii) National Best Bid and Offer
    FINRA Rules 4554(b)(6) and (7) require the following information to 
be recorded and reported to FINRA by ATSs when reporting receipt of an 
order to OATS:

    (6) The NBBO (or relevant reference price) in effect at the time 
of order receipt and the timestamp of when the ATS recorded the 
effective NBBO (or relevant reference price); and
    (7) Identification of the market data feed used by the ATS to 
record the NBBO (or other reference price) for purposes of 
subparagraph (6). If for any reason, the ATS uses an alternative 
feed than what was reported on its ATS data submission, the ATS must 
notify FINRA of the fact that an alternative source was used, 
identify the alternative source, and specify the date(s), time(s) 
and securities for which the alternative source was used.

    Similarly, FINRA Rule 4554(c) requires the following information to 
be recorded and reported to FINRA by ATSs when reporting the execution 
of an order to OATS:

    (1) The NBBO (or relevant reference price) in effect at the time 
of order execution;
    (2) The timestamp of when the ATS recorded the effective NBBO 
(or relevant reference price); and
    (3) Identification of the market data feed used by the ATS to 
record the NBBO (or other reference price) for purposes of 
subparagraph (1). If for any reason, the ATS uses an alternative 
feed than what was reported on its ATS data submission, the ATS must 
notify FINRA of the fact that an alternative source was used, 
identify the alternative source, and specify the date(s), time(s) 
and securities for which the alternative source was used.

    The Compliance Rule does not require Industry Members to report 
such NBBO information to the Central Repository. To address this OATS-
CAT data gap, the Exchange proposes to incorporate these requirements 
into four new provisions to the Compliance Rule: (a)(1)(A)(xi)(2)-(3), 
(a)(1)(C)(x)(2)-(3),

[[Page 38940]]

(a)(1)(D)(ix)(2)-(3) and (a)(1)(E)(viii)(1)-(2) of General 7, Section 
3.
    Specifically, proposed paragraph (a)(1)(A)(xi)(2)-(3) of General 7, 
Section 3 would require an Industry Member that operates an ATS to 
record and report to the Central Repository the following information 
when reporting the original receipt or origination of order:

    (2) the National Best Bid and National Best Offer (or relevant 
reference price) at the time of order receipt or origination, and 
the date and time at which the ATS recorded such National Best Bid 
and National Best Offer (or relevant reference price);
    (3) the identification of the market data feed used by the ATS 
to record the National Best Bid and National Best Offer (or relevant 
reference price) for purposes of subparagraph (xi)(2). If for any 
reason the ATS uses an alternative market data feed than what was 
reported on its ATS data submission, the ATS must provide notice to 
the Central Repository of the fact that an alternative source was 
used, identify the alternative source, and specify the date(s), 
time(s) and securities for which the alternative source was used.

    Similarly, proposed paragraphs (a)(1)(C)(x)(2)-(3), 
(a)(1)(D)(ix)(2)-(3) and (a)(1)(E)(viii)(1)-(2) of General 7, Section 3 
would require an Industry Member that operates an ATS to record and 
report to the Central Repository the same information when reporting 
receipt of an order that has been routed, when reporting if the order 
is modified or cancelled, and when an order has been executed, 
respectively.
(iv) Sequence Numbers
    FINRA Rule 4554(d) states that ``[f]or all OATS-reportable event 
types, all ATSs must record and report to FINRA the sequence number 
assigned to the order event by the ATS's matching engine.'' The 
Compliance Rule does not require Industry Members to report ATS 
sequence numbers to the Central Repository. To address this OATS-CAT 
data gap, the Exchange proposes to incorporate this requirement 
regarding ATS sequence numbers into each of the Reportable Events for 
the CAT. Specifically, the Exchange proposes to add proposed paragraph 
(a)(1)(A)(xi)(4) to General 7, Section 3, which would require an 
Industry Member that operates an ATS to record and report to the 
Central Repository ``the sequence number assigned to the receipt or 
origination of the order by the ATS's matching engine.'' The Exchange 
proposes to add proposed paragraph (a)(1)(B)(viii) to General 7, 
Section 3, which would require an Industry Member that operates an ATS 
to record and report to the Central Repository ``the sequence number 
assigned to the routing of the order by the ATS's matching engine.'' 
The Exchange also proposes to add proposed paragraph (a)(1)(C)(x)(4) to 
General 7, Section 3, which would require an Industry Member that 
operates an ATS to record and report to the Central Repository ``the 
sequence number assigned to the receipt of the order by the ATS's 
matching engine.'' In addition, the Exchange proposes to add proposed 
paragraph (a)(1)(D)(ix)(4) to General 7, Section 3, which would require 
an Industry Member that operates an ATS to record and report to the 
Central Repository ``the sequence number assigned to the modification 
or cancellation of the order by the ATS's matching engine.'' Finally, 
the Exchange proposes to add proposed paragraph (a)(1)(E)(viii)(3) to 
General 7, Section 3, which would require an Industry Member that 
operates an ATS to record and report to the Central Repository ``the 
sequence number assigned to the execution of the order by the ATS's 
matching engine.''
(v) Modification or Cancellation of Orders by ATSs
    FINRA Rule 4554(f) states that ``[f]or an ATS that displays 
subscriber orders, each time the ATS's matching engine re-prices a 
displayed order or changes the display quantity of a displayed order, 
the ATS must report to OATS the time of such modification,'' and ``the 
applicable new display price or size.'' The Exchange proposes adding a 
comparable requirement into new paragraph (a)(1)(D)(ix)(5) to General 
7, Section 3. Specifically, proposed new paragraph (a)(1)(D)(ix)(5) of 
General 7, Section 3 would require an Industry Member that operates an 
ATS to report to the Central Repository, if the order is modified or 
cancelled, ``each time the ATS's matching engine re-prices an order or 
changes the quantity of an order,'' the ATS must report to the Central 
Repository ``the time of such modification, and the applicable new 
price or size.'' Proposed paragraph (a)(1)(D)(ix)(5) of General 7, 
Section 3 would apply to all ATSs, not just ATSs that display orders.
(vi) Display of Subscriber Orders
    FINRA Rule 4554(b)(1) requires the following information to be 
recorded and reported to FINRA by ATSs when reporting receipt of an 
order to OATS:

    Whether the ATS displays subscriber orders outside the ATS 
(other than to alternative trading system employees). If an ATS does 
display subscriber orders outside the ATS (other than to alternative 
trading system employees), indicate whether the order is displayed 
to subscribers only or through publicly disseminated quotation 
data);

    The Compliance Rule does not require Industry Members to report to 
the CAT such information about the displaying of subscriber orders. The 
Exchange proposes to add comparable requirements into proposed 
paragraphs (a)(1)(A)(xi)(5) and (a)(1)(C)(x)(5) of General 7, Section 
3. Specifically, proposed paragraph (a)(1)(A)(xi)(5) would require an 
Industry Member that operates an ATS to report to the Central 
Repository, for the original receipt or origination of an order,

whether the ATS displays subscriber orders outside the ATS (other 
than to alternative trading system employees). If an ATS does 
display subscriber orders outside the ATS (other than to alternative 
trading system employees), indicate whether the order is displayed 
to subscribers only or through publicly disseminated quotation data.

    Similarly, proposed paragraph (a)(1)(C)(x)(5) of General 7, Section 
3 would require an Industry Member that operates an ATS to record and 
report to the Central Repository the same information when reporting 
receipt of an order that has been routed.
C. Customer Instruction Flag
    FINRA Rule 7440(b)(14) requires a FINRA OATS Reporting Member to 
record the following when an order is received or originated: ``any 
request by a customer that a limit order not be displayed, or that a 
block size limit order be displayed, pursuant to applicable rules.'' 
The Compliance Rule does not require Industry Members to report to the 
CAT such a customer instruction flag. To address this OATS-CAT data 
gap, the Exchange proposes to add paragraph (a)(1)(A)(viii) to General 
7, Section 3, which would require Industry Members to record and report 
to the Central Repository, for original receipt or origination of an 
order, ``any request by a Customer that a limit order not be displayed, 
or that a block size limit order be displayed, pursuant to applicable 
rules.'' The Exchange also proposes to add paragraph (a)(1)(C)(ix) to 
General 7, Section 3, which would require Industry Members to record 
and report to the Central Repository, for the receipt of an order that 
has been routed, ``any request by a Customer that a limit order not be 
displayed, or that a block size limit order be displayed, pursuant to 
applicable rules.''
    FINRA Rule 7440(d)(1) requires an OATS Reporting Member that 
modifies or receives a modification of an order to report the customer 
instruction flag. The Compliance Rule does not require Industry Members 
to report such a customer instruction flag. To address

[[Page 38941]]

this OATS-CAT data gap, the Exchange proposes to add paragraph 
(a)(1)(D)(viii) to General 7, Section 3, which would require Industry 
Members to record and report to the Central Repository, if the order is 
modified or cancelled, ``any request by a Customer that a limit order 
not be displayed, or that a block size limit order be displayed, 
pursuant to applicable rules.''
D. Department Type
    FINRA Rules 7440(b)(4) and (5) require an OATS Reporting Member 
that receives or originates an order to record the following 
information: ``the identification of any department or the 
identification number of any terminal where an order is received 
directly from a customer'' and ``where the order is originated by a 
Reporting Member, the identification of the department of the member 
that originates the order.'' The Compliance Rule does not require 
Industry Members to report to the CAT information regarding the 
department or terminal where the order is received or originated. To 
address this OATS-CAT data gap, the Exchange proposes to add paragraph 
(a)(1)(A)(ix) to General 7, Section 3, which would require Industry 
Members to record and report to the Central Repository upon the 
original receipt or origination of an order ``the nature of the 
department or desk that originated the order, or received the order 
from a Customer.''
    Similarly, per FINRA Rules 7440(c)(2)(B) and (4)(B), when an OATS 
Reporting Member receives an order that has been transmitted by another 
Member, the receiving OATS Reporting Member is required to record the 
information required in 7440(b)(4) and (5) described above as 
applicable. The Compliance Rule does not require Industry Members to 
report to the CAT information regarding the department that received an 
order. To address this OATS-CAT data gap, the Exchange propose to add 
paragraph (a)(1)(C)(viii) to General 7, Section 3, which would require 
Industry Members to record and report to the Central Repository upon 
the receipt of an order that has been routed ``the nature of the 
department or desk that received the order.''
E. Account Holder Type
    FINRA Rule 7440(b)(18) requires an OATS Reporting Member that 
receives or originates an order to record the following information: 
``the type of account, i.e., retail, wholesale, employee, proprietary, 
or any other type of account designated by FINRA, for which the order 
is submitted.'' The Compliance Rule does not require Industry Members 
to report to the CAT information regarding the type of account holder 
for which the order is submitted. To address this OATS-CAT data gap, 
the Exchange proposes to add paragraph (a)(1)(A)(x) to General 7, 
Section 3, which would require Industry Members to record and report to 
the Central Repository upon the original receipt or origination of an 
order ``the type of account holder for which the order is submitted.''
ii. OTC Equity Securities
    The Participants have identified several data elements related to 
OTC Equity Securities that FINRA currently receives from ATSs that 
trade OTC Equity Securities for regulatory oversight purposes, but are 
not currently included in CAT Data. In particular, the Participants 
identified three data elements that need to be added to the CAT: (1) 
Bids and offers for OTC Equity Securities; (2) a flag indicating 
whether a quote in OTC Equity Securities is solicited or unsolicited; 
and (3) unpriced bids and offers in OTC Equity Securities. The 
Participants believe that such data will continue to be important for 
regulators to oversee the OTC Equity Securities market when using the 
CAT. Moreover, the Participants do not believe that the proposed 
requirement would burden ATSs because they currently report this 
information to FINRA and thus the reporting requirement would merely 
shift from FINRA to the CAT. Accordingly, as discussed below, the 
Exchange proposes to amend its Compliance Rule to include these data 
elements.
A. Bids and Offers for OTC Equity Securities
    In performing its current regulatory oversight, FINRA receives a 
data feed of the best bids and offers in OTC Equity Securities from 
ATSs that trade OTC Equity Securities. These best bid and offer data 
feeds for OTC Equity Securities are similar to the best bid and offer 
SIP Data required to be collected by the Central Repository with regard 
to NMS Securities.\9\ Accordingly, the Exchange proposes to add 
paragraph (f)(1) to General 7, Section 3 to require the reporting of 
the best bid and offer data feeds for OTC Equity Securities to the CAT. 
Specifically, proposed paragraph (f)(1) of General 7, Section 3 would 
require each Industry Member that operates an ATS that trades OTC 
Equity Securities to provide to the Central Repository ``the best bid 
and best offer for each OTC Equity Security traded on such ATS.''
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    \9\ Section 6.5(a)(ii) of the CAT NMS Plan.
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B. Unsolicited Bid or Offer Flag
    FINRA also receives from ATSs that trade OTC Equity Securities an 
indication whether each bid or offer in OTC Equity Securities on such 
ATS was solicited or unsolicited. Therefore, the Exchange proposes to 
add paragraph (f)(2) to General 7, Section 3 to require the reporting 
to the CAT of an indication as to whether a bid or offer was solicited 
or unsolicited. Specifically, proposed paragraph (f)(2) of General 7, 
Section 3 would require each Industry Member that operates an ATS that 
trades OTC Equity Securities to provide to the Central Repository ``an 
indication of whether each bid and offer for OTC Equity Securities was 
solicited or unsolicited.''
C. Unpriced Bids and Offers
    FINRA receives from ATSs that trade OTC Equity Securities certain 
unpriced bids and offers for each OTC Equity Security traded on the 
ATS. Therefore, the Exchange proposes to add paragraph (f)(3) to 
General 7, Section 3, which would require each Industry Member that 
operates an ATS that trades OTC Equity Securities to provide to the 
Central Repository ``the unpriced bids and offers for each OTC Equity 
Security traded on such ATS.''
iii. Revised Industry Member Reporting Timeline
    On February 19, 2020, the Participants filed with the Commission a 
request for exemptive relief from certain provisions of the CAT NMS 
Plan to allow for the implementation of phased reporting to the CAT by 
Industry Members (``Phased Reporting'').\10\ Specifically, in their 
exemptive request, the Participants requested that the SEC exempt each 
Participant from the requirement in Section 6.7(a)(v) of the CAT NMS 
Plan for each Participant, through its Compliance Rule, to require its 
Industry Members other than Small Industry Members (``Large Industry 
Members'') to report to the Central Repository Industry Member Data 
within two years of the Effective Date (that is, by November 15, 2018). 
In addition, the Participants requested that the SEC exempt each 
Participant from the requirement in Section 6.7(a)(vi) of the CAT NMS 
Plan for each Participant, through its Compliance Rule, to require

[[Page 38942]]

its Small Industry Members \11\ to report to the Central Repository 
Industry Member Data within three years of the Effective Date (that is, 
by November 15, 2019). Correspondingly, the Participants requested that 
the SEC provide an exemption from the requirement in Section 6.4 of the 
CAT NMS Plan that ``[t]he requirements for Industry Members under this 
Section 6.4 shall become effective on the second anniversary of the 
Effective Date in the case of Industry Members other than Small 
Industry Members, or the third anniversary of the Effective Date in the 
case of Small Industry Members.'' On April 20, 2020, the SEC granted 
the Participants exemptive relief to implement Phased Reporting, 
subject to certain timeline changes and conditions.\12\
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    \10\ See Letter to Vanessa Countryman, Secretary, SEC, from 
Michael Simon, CAT NMS Plan Operating Committee Chair, re: Request 
for Exemption from Provisions of the National Market System Plan 
Governing the Consolidated Audit Trail related to Industry Member 
Reporting Dates (Feb. 19, 2020).
    \11\ See Section 1.1 of the CAT NMS Plan.
    \12\ See Securities Exchange Act Release No. 88702 (April 20, 
2020), 85 FR 23075 (April 24, 2020). As discussed in the SEC's 
exemptive order, the Commission granted the Participants conditional 
exemptive relief from the CAT NMS Plan so that the Compliance Rules 
may require Phase 2a reporting to commence on June 22, 2020, rather 
than the April 20, 2020 date set forth in the exemptive request, and 
Phase 2b reporting to commence on July 20, 2020, rather than the May 
18, 2020 date set forth in the exemptive request. As a condition to 
the exemptive relief, Industry Members who elect to report to the 
CAT prior to such dates will be permitted to report to the CAT as 
early as April 20, 2020 for Phase 2a reporting and as early as May 
18, 2020 for Phase 2b reporting.
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    As a condition to the exemption, each Participant would implement 
Phased Reporting through its Compliance Rule by requiring:
    (1) Its Large Industry Members and its Small Industry Members that 
are required to record or report information to OATS pursuant to 
applicable SRO rules (``Small Industry OATS Reporters'') to commence 
reporting to the Central Repository Phase 2a Industry Member Data by 
June 22, 2020, and its Small Industry Non-OATS Reporters to commence 
reporting to the Central Repository Phase 2a Industry Member Data by 
December 13, 2021;
    (2) its Large Industry Members to commence reporting to the Central 
Repository Phase 2b Industry Member Data by July 20, 2020, and its 
Small Industry Members to commence reporting to the Central Repository 
Phase 2b Industry Member Data by December 13, 2021;
    (3) its Large Industry Members to commence reporting to the Central 
Repository Phase 2c Industry Member Data by April 26, 2021, and its 
Small Industry Members to commence reporting to the Central Repository 
Phase 2c Industry Member Data by December 13, 2021;
    (4) its Large Industry Members and Small Industry Members to 
commence reporting to the Central Repository Phase 2d Industry Member 
Data by December 13, 2021; and
    (5) its Large Industry Members and Small Industry Members to 
commence reporting to the Central Repository Phase 2e Industry Member 
Data by July 11, 2022.
    The full scope of CAT Data required under the CAT NMS Plan will be 
required to be reported when all five phases of the Phased Reporting 
have been implemented, subject to any applicable exemptive relief or 
amendments related to the CAT NMS Plan.
    As a further condition to the exemption, each Participant proposes 
to implement the testing timelines described in Section F below through 
its Compliance Rule by requiring the following:
    (1) Industry Member file submission and data integrity testing for 
Phases 2a and 2b begins in December 2019.
    (2) Industry Member testing of the Reporter Portal, including data 
integrity error correction tools and data submissions, begins in 
February 2020.
    (3) The Industry Member test environment will be open with intra-
firm linkage validations to Industry Members for both Phases 2a and 2b 
in April 2020.
    (4) The Industry Member test environment will be open to Industry 
Members with inter-firm linkage validations for both Phases 2a and 2b 
in July 2020.
    (5) The Industry Member test environment will be open to Industry 
Members with Phase 2c functionality (full representative order 
linkages) in January 2021.
    (6) The Industry Member test environment will be open to Industry 
Members with Phase 2d functionality (manual options orders, complex 
options orders, and options allocations) in June 2021.
    (7) Participant exchanges that support options market making 
quoting will begin accepting Quote Sent Time on quotes from Industry 
Members no later than April 2020.
    (8) The Industry Member test environment (customer and account 
information) will be open to Industry Members in January 2022.
    As a result, the Exchange proposes to amend its Compliance Rule to 
be consistent with the exemptive relief to implement Phased Reporting 
as described below.
A. Phase 2a
    In the first phase of Phased Reporting, referred to as Phase 2a, 
Large Industry Members and Small Industry OATS Reporters would be 
required to report to the Central Repository ``Phase 2a Industry Member 
Data'' by June 22, 2020.\13\ To implement the Phased Reporting for 
Phase 2a, the Exchange proposes to add paragraph (t)(1) of General 7, 
Section 1 (previously paragraph (s)) and amend paragraphs (c)(1) and 
(2) of General 7, Section 12.
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    \13\ Small Industry Members that are not required to record and 
report information to FINRA's OATS pursuant to applicable SRO rules 
(``Small Industry Non-OATS Reporters'') would be required to report 
to the Central Repository ``Phase 2a Industry Member Data'' by 
December 13, 2021, which is approximately seventeen months after 
Large Industry Members and Small Industry OATS Reporters begin 
reporting.
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(i) Scope of Reporting in Phase 2a
    To implement the Phased Reporting with respect to Phase 2a, the 
Exchange proposes to add a definition of ``Phase 2a Industry Member 
Data'' as paragraph (t)(1) of General 7, Section 1. Specifically, the 
Exchange proposes to define the term ``Phase 2a Industry Member Data'' 
as ``Industry Member Data required to be reported to the Central 
Repository commencing in Phase 2a.'' Phase 2a Industry Member Data 
would include Industry Member Data solely related to Eligible 
Securities that are equities. While the following summarizes categories 
of Industry Member Data required for Phase 2a, the Industry Member 
Technical Specifications provide detailed guidance regarding the 
reporting for Phase 2a.\14\
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    \14\ The items required to be reported commencing in Phase 2a do 
not include the items required to be reported in Phase 2c or Phase 
2d, as discussed below.
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    Phase 2a Industry Member Data would include all events and 
scenarios covered by OATS. FINRA Rule 7440 describes the OATS 
requirements for recording information, which includes information 
related to the receipt or origination of orders, order transmittal, and 
order modifications, cancellations and executions. Large Industry 
Members and Small Industry OATS Reporters would be required to submit 
data to the CAT for these same events and scenarios during Phase 2a. 
The inclusion of all OATS events and scenarios in the CAT is intended 
to facilitate the retirement of OATS.
    Phase 2a Industry Member Data also would include Reportable Events 
for:
     Proprietary orders, including market maker orders, for 
Eligible Securities that are equities;

[[Page 38943]]

     electronic quotes in listed equity Eligible Securities 
(i.e., NMS stocks) sent to a national securities exchange or FINRA's 
Alternative Display Facility (``ADF'');
     electronic quotes in unlisted Eligible Securities (i.e., 
OTC Equity Securities) received by an Industry Member operating an 
interdealer quotation system (``IDQS''); and
     electronic quotes in unlisted Eligible Securities sent to 
an IDQS or other quotation system not operated by a Participant or 
Industry Member.
    Phase 2a Industry Member Data would include Firm Designated IDs. 
During Phase 2a, Industry Members would be required to report Firm 
Designated IDs to the CAT, as required by paragraphs (a)(1)(A)(i), and 
(a)(2)(C) of General 7, Section 3. Paragraph (a)(1)(A)(i) of General 7, 
Section 3 requires Industry Members to submit the Firm Designated ID 
for the original receipt or origination of an order. Paragraph 
(a)(2)(C) of General 7, Section 3 requires Industry Members to record 
and report to the Central Repository, for original receipt and 
origination of an order, the Firm Designated ID if the order is 
executed, in whole or in part.
    In Phase 2a, Industry Members would be required to report all 
street side representative orders, including both agency and 
proprietary orders and mark such orders as representative orders, 
except in certain limited exceptions as described in the Industry 
Member Technical Specifications. A representative order is an order 
originated in a firm owned or controlled account, including principal, 
agency average price and omnibus accounts, by an Industry Member for 
the purpose of working one or more customer or client orders.
    In Phase 2a, Industry Members would be required to report the link 
between the street side representative order and the order being 
represented when: (1) The representative order was originated 
specifically to represent a single order received either from a 
customer or another broker-dealer; and (2) there is (a) an existing 
direct electronic link in the Industry Member's system between the 
order being represented and the representative order and (b) any 
resulting executions are immediately and automatically applied to the 
represented order in the Industry Member's system.
    Phase 2a Industry Member Data also would include the manual and 
Electronic Capture Time for Manual Order Events. Specifically, for each 
Reportable Event in General 7, Section 3, Industry Members would be 
required to provide a timestamp pursuant to General 7, Section 6. 
General 7, Section 6(b)(i) states that

    Each Industry Member may record and report: Manual Order Events 
to the Central Repository in increments up to and including one 
second, provided that each Industry Members shall record and report 
the time when a Manual Order Event has been captured electronically 
in an order handling and execution system of such Industry Member 
(``Electronic Capture Time'') in milliseconds.

    Accordingly, for Phase 2a, Industry Members would be required to 
provide both the manual and Electronic Capture Time for Manual Order 
Events.\15\
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    \15\ Industry Members would be required to provide an Electronic 
Capture Time following the manual capture time only for new orders 
that are Manual Order Events and, in certain instances, routes that 
are Manual Order Events. The Electronic Capture Time would not be 
required for other Manual Order Events.
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    Industry Members would be required to report special handling 
instructions for the original receipt or origination of an order during 
Phase 2a. In addition, during Phase 2a, Industry Members will be 
required to report, when routing an order, whether the order was routed 
as an intermarket sweep order (``ISO''). Industry Members would be 
required to report special handling instructions on routes other than 
ISOs in Phase 2c, rather than Phase 2a.
    In Phase 2a, Industry Members would not be required to report 
modifications of a previously routed order in certain limited 
instances. Specifically, if a trader or trading software modifies a 
previously routed order, the routing firm is not required to report the 
modification of an order route if the destination to which the order 
was routed is a CAT Reporter that is required to report the 
corresponding order activity. If, however, the order was modified by a 
Customer or other non-CAT Reporter, and subsequently the routing 
Industry Members sends a modification to the destination to which the 
order was originally routed, then the routing Industry Member must 
report the modification of the order route.\16\ In addition, in Phase 
2a, Industry Members would not be required to report a cancellation of 
an order received from a Customer after the order has been executed.
---------------------------------------------------------------------------

    \16\ This approach is comparable to the approach set forth in 
OATS Compliance FAQ 35.
---------------------------------------------------------------------------

(ii) Timing of Phase 2a Reporting
    Pursuant to paragraph (c)(1) of General 7, Section 12, Large 
Industry Members are required to begin reporting to the CAT by November 
15, 2018. To implement the Phased Reporting for Phase 2a for Large 
Industry Members, the Exchange proposes to delete the November 15, 2018 
date and to supplement paragraph (c)(1) of General 7, Section 12 with 
new paragraph (c)(1)(A) of General 7, Section 12, which would state, in 
relevant part, that ``Each Industry Member (other than a Small Industry 
Member) shall record and report the Industry Member Data to the Central 
Repository, as follows: (A) Phase 2a Industry Member Data by June 22, 
2020.''
    Pursuant to paragraph (c)(2) of General 7, Section 12, Small 
Industry Members are required to begin reporting to the CAT by November 
15, 2019. To implement the Phased Reporting for Phase 2a for Small 
Industry Members, the Exchange proposes to delete the November 15, 2019 
date and to supplement paragraph (c)(2) of General 7, Section 12 with 
new paragraphs (c)(2)(A) and (B) of General 7, Section 12. Proposed 
paragraph (c)(2)(A) of General 7, Section 12 would state that

    Each Industry Member that is a Small Industry Member shall 
record and report the Industry Member Data to the Central 
Repository, as follows: (A) Small Industry Members that are required 
to record or report information to FINRA's Order Audit Trail System 
pursuant to applicable SRO rules (``Small Industry OATS Reporter'') 
to report to the Central Repository Phase 2a Industry Member Data by 
June 22, 2020.

    Proposed paragraph (c)(2)(B) of General 7, Section 12 would state 
that ``Small Industry Members that are not required to record or report 
information to FINRA's Order Audit Trail System pursuant to applicable 
SRO rules (``Small Industry Non-OATS Reporter'') to report to the 
Central Repository Phase 2a Industry Member Data by December 13, 
2021.''
B. Phase 2b
    In the second phase of the Phased Reporting, referred to as Phase 
2b, Large Industry Members would be required to report to the Central 
Repository ``Phase 2b Industry Member Data'' by July 20, 2020. Small 
Industry Members would be required to report to the Central Repository 
``Phase 2b Industry Member Data'' by December 13, 2021, which is 
approximately seventeen months after Large Industry Members begin 
reporting such data to the Central Repository. To implement the Phased 
Reporting for Phase 2b, the Exchange proposes to add paragraph (t)(2) 
to General 7, Section 1 and amend paragraphs (c)(1) and (2) of General 
7, Section 12.
(i) Scope of Phase 2b Reporting
    To implement the Phased Reporting with respect to Phase 2b, the 
Exchange proposes to add a definition of ``Phase 2b Industry Member 
Data'' as paragraph

[[Page 38944]]

(t)(2) to General 7, Section 1. Specifically, the Exchange proposes to 
define the term ``Phase 2b Industry Member Data'' as ``Industry Member 
Data required to be reported to the Central Repository commencing in 
Phase 2b.'' Phase 2b Industry Member Data is described in detail in the 
Industry Member Technical Specifications for Phase 2b. While the 
following summarizes the categories of Industry Member Data required 
for Phase 2b, the Industry Member Technical Specifications provide 
detailed guidance regarding the reporting for Phase 2b.
    Phase 2b Industry Member Data would include Industry Member Data 
related to Eligible Securities that are options and related to simple 
electronic option orders, excluding electronic paired option 
orders.\17\ A simple electronic option order is an order to buy or sell 
a single option that is not related to or dependent on any other 
transaction for pricing and timing of execution that is either received 
or routed electronically by an Industry Member. Electronic receipt of 
an order is defined as the initial receipt of an order by an Industry 
Member in electronic form in standard format directly into an order 
handling or execution system. Electronic routing of an order is the 
routing of an order via electronic medium in standard format from one 
Industry Member's order handling or execution system to an exchange or 
another Industry Member. An electronic paired option order is an 
electronic option order that contains both the buy and sell side that 
is routed to another Industry Member or exchange for crossing and/or 
price improvement as a single transaction on an exchange. Responses to 
auctions of simple orders and paired simple orders are also reportable 
in Phase 2b.
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    \17\ The items required to be reported in Phase 2b do not 
include the items required to be reported in Phase 2d, as discussed 
below in Section A.4.
---------------------------------------------------------------------------

    Furthermore, combined orders in options would be treated in Phase 
2b in the same way as equity representative orders are treated in Phase 
2a. A combined order would mean, as permitted by Exchange rules, a 
single, simple order in Listed Options created by combining individual, 
simple orders in Listed Options from a customer with the same exchange 
origin code before routing to an exchange. During Phase 2b, the single 
combined order sent to an exchange must be reported and marked as a 
combined order, but the linkage to the underlying orders is not 
required to be reported until Phase 2d.
(ii) Timing of Phase 2b Reporting
    Pursuant to paragraph (c)(1) of General 7, Section 12, Large 
Industry Members are required to begin reporting to the CAT by November 
15, 2018. To implement the Phased Reporting for Phase 2b for Large 
Industry Members, the Exchange proposes to delete the November 15, 2018 
date and to supplement paragraph (c)(1) of General 7, Section 12 with 
new paragraph (c)(1)(B) of General 7, Section 12, which would state, in 
relevant part, that ``Each Industry Member (other than a Small Industry 
Member) shall record and report the Industry Member Data to the Central 
Repository, as follows: . . . (B) Phase 2b Industry Member Data by July 
20, 2020.''
    Pursuant to paragraph (c)(2) of General 7, Section 12, Small 
Industry Members are required to begin reporting to the CAT by November 
15, 2019. To implement the Phased Reporting for Phase 2b for Small 
Industry Members, the Exchange proposes to delete the November 15, 2019 
date and to supplement paragraph (c)(2) of General 7, Section 12 with 
new paragraph (c)(2)(C) of General 7, Section 12, which would state, in 
relevant part, that ``Each Industry Member that is a Small Industry 
Member shall record and report the Industry Member Data to the Central 
Repository, as follows: . . . (C) Small Industry Members to report to 
the Central Repository Phase 2b Industry Member Data . . . by December 
13, 2021.''
C. Phase 2c
    In the third phase of the Phased Reporting, referred to as Phase 
2c, Large Industry Members would be required to report to the Central 
Repository ``Phase 2c Industry Member Data'' by April 26, 2021. Small 
Industry Members would be required to report to the Central Repository 
``Phase 2c Industry Member Data'' by December 13, 2021, which is 
approximately seven months after Large Industry Members begin reporting 
such data to the Central Repository. To implement the Phased Reporting 
for Phase 2c, the Exchange proposes to add paragraph (t)(3) to General 
7, Section 1 and amend paragraphs (c)(1) and (2) of General 7, Section 
12.
(i) Scope of Phase 2c Reporting
    To implement the Phased Reporting with respect to Phase 2c, the 
Exchange proposes to add a definition of ``Phase 2c Industry Member 
Data'' as paragraph (t)(3) to General 7, Section 1. Specifically, the 
Exchange proposes to define the term ``Phase 2c Industry Member Data'' 
as ``Industry Member Data required to be reported to the Central 
Repository commencing in Phase 2c.'' Phase 2c Industry Member Data'' 
would be Industry Member Data related to Eligible Securities that are 
equities other than Phase 2a Industry Member Data, Phase 2d Industry 
Member Data or Phase 2e Industry Member Data. Phase 2c Industry Member 
Data is described in detail in the Industry Member Technical 
Specifications for Phase 2c. While the following summarizes the 
categories of Industry Member Data required for Phase 2c, the Industry 
Member Technical Specifications provide detailed guidance regarding the 
reporting for Phase 2c.
    Phase 2c Industry Member Data would include Industry Member Data 
that is related to Eligible Securities that are equities and that is 
related to: (1) Allocation Reports as required to be recorded and 
reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) 
of the CAT NMS Plan; (2) quotes in unlisted Eligible Securities sent to 
an IDQS operated by a CAT Reporter (reportable by the Industry Member 
sending the quotes) (except for quotes reportable in Phase 2d, as 
discussed below); (3) electronic quotes in listed equity Eligible 
Securities (i.e., NMS stocks) that are not sent to a national 
securities exchange or FINRA's Alternative Display Facility; (4) 
reporting changes to client instructions regarding modifications to 
algorithms; (5) marking as a representative order any order originated 
to work a customer order in price guarantee scenarios, such as a 
guaranteed VWAP; (6) flagging rejected external routes to indicate a 
route was not accepted by the receiving destination; (7) linkage of 
duplicate electronic messages related to a Manual Order Event between 
the electronic event and the original manual route; (8) special 
handling instructions on order route reports (other than the ISO, which 
is required to be reported in Phase 2a); (9) quote identifier on trade 
events; (10) reporting of large trader identifiers \18\ (``LTID'') (if 
applicable) for accounts with Reportable Events that are reportable to 
CAT as of and including Phase 2c; (11) reporting of date account opened 
or Account Effective Date \19\ (as

[[Page 38945]]

applicable) for accounts and flag indicating the Firm Designated ID 
type as account or relationship; (12) order effective time for orders 
that are received by an Industry Member and do not become effective 
until a later time; (13) the modification or cancellation of an 
internal route of an order; and (14) linkages to the customer order(s) 
being represented for all representative order scenarios, including 
agency average price trades, net trades, aggregated orders, and 
disconnected Order Management System (``OMS'')--Execution Management 
System (``EMS'') scenarios, as required in the Industry Member 
Technical Specifications.\20\
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    \18\ See definition of ``Customer Account Information'' in 
Section 1.1 of the CAT NMS Plan. See also Rule 13h-1 under the 
Exchange Act.
    \19\ See definition of ``Customer Account Information'' and 
``Account Effective Date'' in Section 1.1 of the CAT NMS Plan. Note 
that the Exchange also proposes to amend the dates in the 
definitions of ``Account Effective Date'' and ``Customer Account 
Information'' to reflect the Phased Reporting. Specifically, the 
Exchange proposes to amend paragraph (m)(2) of General 7, Section 1 
to replace the references to November 15, 2018 and 2019 with 
references to the commencement of Phase 2c and Phase 2d. The 
Exchange also proposes to amend paragraphs (a)(1)(A), (a)(1)(B) and 
(a)(2)-(5) of General 7, Section 1 regarding the definition of 
``Account Effective Date'' with similar changes to the dates set 
forth therein.
    \20\ In Phase 2c, for any scenarios that involve orders 
originated in different systems that are not directly linked, such 
as a customer order originated in an OMS and represented by a 
principal order originated in an EMS that is not linked to the OMS, 
marking and linkages must be reported as required in the Industry 
Member Technical Specifications.
---------------------------------------------------------------------------

    Phase 2c Industry Member Data also includes electronic quotes that 
are provided by or received in a CAT Reporter's order/quote handling or 
execution systems in Eligible Securities that are equities and are 
provided by an Industry Member to other market participants off a 
national securities exchange under the following conditions: (1) An 
equity bid or offer is displayed publicly or has been communicated (a) 
for listed securities to the Alternative Display Facility (ADF) 
operated by FINRA; or (b) for unlisted equity securities to an ``inter-
dealer quotation system'' as defined in FINRA Rule 6420(c); or (2) an 
equity bid or offer which is accessible electronically by customers or 
other market participants and is immediately actionable for execution 
or routing; i.e., no further manual or electronic action is required by 
the responder providing the quote in order to execute or cause a trade 
to be executed). With respect to OTC Equity Securities, OTC Equity 
Securities quotes sent by an Industry Member to an IDQS operated by an 
Industry Member CAT Reporter (other than such an IDQS that does not 
match and execute orders) are reportable by the Industry Member sending 
them in Phase 2c. Accordingly, any response to a request for quote or 
other form of solicitation response provided in standard electronic 
format (e.g., FIX) that meets this quote definition (i.e., an equity 
bid or offer which is accessible electronically by customers or other 
market participants and is immediately actionable for execution or 
routing) would be reportable in Phase 2c.
(ii) Timing of Phase 2c Reporting
    Pursuant to paragraph (c)(1) of General 7, Section 12, Large 
Industry Members are required to begin reporting to the CAT by November 
15, 2018. To implement the Phased Reporting for Phase 2c for Large 
Industry Members, the Exchange proposes to delete the November 15, 2018 
date and to supplement paragraph (c)(1) of General 7, Section 12 with 
new paragraph (c)(1)(C) of General 7, Section 12, which would state, in 
relevant part, that ``Each Industry Member (other than a Small Industry 
Member) shall record and report the Industry Member Data to the Central 
Repository, as follows: . . . (C) Phase 2c Industry Member Data by 
April 26, 2021.''
    Pursuant to paragraph (c)(2) of General 7, Section 12, Small 
Industry Members are required to begin reporting to the CAT by November 
15, 2019. To implement the Phased Reporting for Phase 2c for Small 
Industry Members, the Exchange proposes to delete the November 15, 2019 
date and to supplement paragraph (c)(2) of General 7, Section 12 with 
new paragraph (c)(2)(C) of General 7, Section 12, which would state, in 
relevant part, that ``Each Industry Member that is a Small Industry 
Member shall record and report the Industry Member Data to the Central 
Repository, as follows: . . . (C) Small Industry Members to report to 
the Central Repository . . . Phase 2c Industry Member Data . . . by 
December 13, 2021.''
D. Phase 2d
    In the fourth phase of the Phased Reporting, referred to as Phase 
2d, Large Industry Members and Small Industry Members would be required 
to report to the Central Repository ``Phase 2d Industry Member Data'' 
by December 13, 2021. To implement the Phased Reporting for Phase 2d, 
the Exchange proposes to add paragraph (t)(4) to General 7, Section 1 
and amend paragraphs (c)(1) and (2) of General 7, Section 12.
(i) Scope of Phase 2d Reporting
    To implement the Phased Reporting with respect to Phase 2d, the 
Exchange proposes to add a definition of ``Phase 2d Industry Member 
Data'' as paragraph (t)(4) to General 7, Section 1. Specifically, the 
Exchange proposes to define the term ``Phase 2d Industry Member Data'' 
as ``Industry Member Data required to be reported to the Central 
Repository commencing in Phase 2d.'' \21\
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    \21\ The Participants have determined that reporting information 
regarding the modification or cancellation of a route is necessary 
to create the full lifecycle of an order. Accordingly, the 
Participants require the reporting of information related to the 
modification or cancellation of a route similar to the data required 
for the routing of an order and modification and cancellation of an 
order pursuant to Sections 6.3(d)(ii) and (iv) of the CAT NMS Plan.
---------------------------------------------------------------------------

    ``Phase 2d Industry Member Data'' is Industry Member Data that is 
related to Eligible Securities that are options other than Phase 2b 
Industry Member Data, Industry Member Data that is related to Eligible 
Securities that are equities other than Phase 2a Industry Member Data 
or Phase 2c Industry Member Data, and Industry Member Data other than 
Phase 2e Industry Member Data. Phase 2d Industry Member Data is 
described in detail in the Industry Member Technical Specifications for 
Phase 2d. While the following summarizes the categories of Industry 
Member Data required for Phase 2d, the Industry Member Technical 
Specifications provide detailed guidance regarding the reporting for 
Phase 2d.
    Phase 2d Industry Member Data includes with respect to the Eligible 
Securities that are options: (1) Simple manual orders; (2) electronic 
and manual paired orders; (3) all complex orders with linkages to all 
CAT-reportable legs; (4) LTIDs (if applicable) for accounts with 
Reportable Events for Phase 2d; (5) date account opened or Account 
Effective Date (as applicable) for accounts with an LTID and flag 
indicating the Firm Designated ID type as account or relationship for 
such accounts; \22\ (6) Allocation Reports as required to be recorded 
and reported to the Central Repository pursuant to Section 
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (7) the modification or 
cancellation of an internal route of an order; and (8) linkage between 
a combined order and the original customer orders.
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    \22\ As noted above, the Exchange also proposes to amend the 
dates in the definitions of ``Account Effective Date'' and 
``Customer Account Information'' to reflect the Phased Reporting. 
Specifically, the Exchange proposes to amend paragraph (m)(2) of 
General 7, Section 1 to replace the references to November 15, 2018 
and 2019 with references to the commencement of Phase 2c and Phase 
2d. The Exchange also proposes to amend paragraphs (a)(1)(A), 
(a)(1)(B) and (a)(2)-(5) of General 7, Section 1 regarding the 
definition of ``Account Effective Date'' with similar changes to the 
dates set forth therein.
---------------------------------------------------------------------------

    Phase 2d Industry Member Data also would include electronic quotes 
that are provided by or received in a CAT Reporter's order/quote 
handling or execution systems in Eligible Securities that are options 
and are provided by an Industry Member to other market

[[Page 38946]]

participants off a national securities exchange under the following 
conditions: A listed option bid or offer which is accessible 
electronically by customers or other market participants and is 
immediately actionable (i.e., no further action is required by the 
responder providing the quote in order to execute or cause a trade to 
be executed). Accordingly, any response to a request for quote or other 
form of solicitation response provided in standard electronic format 
(e.g., FIX) that meets this definition would be reportable in Phase 2d 
for options.
    Phase 2d Industry Member Data also would include with respect to 
Eligible Securities that are options or equities (1) receipt time of 
cancellation and modification instructions through Order Cancel Request 
and Order Modification Request events; (2) modifications of previously 
routed orders in certain instances; and (3) OTC Equity Securities 
quotes sent by an Industry Member to an IDQS operated by an Industry 
Member CAT Reporter that does not match and execute orders. In 
addition, subject to any exemptive or other relief, Phase 2d Industry 
Member Data will include verbal or manual quotes on an exchange floor 
or in the over-the-counter market, where verbal quotes and manual 
quotes are defined as bids or offers in Eligible Securities provided 
verbally or that are provided or received other than via a CAT 
Reporter's order handling and execution system (e.g., quotations 
provided via email or instant messaging).
(ii) Timing of Phase 2d Reporting
    Pursuant to paragraph (c)(1) of General 7, Section 12, Large 
Industry Members are required to begin reporting to the CAT by November 
15, 2018. To implement the Phased Reporting for Phase 2d for Large 
Industry Members, the Exchange proposes to delete the November 15, 2018 
date and to supplement paragraph (c)(1) of General 7, Section 12 with 
new paragraph (c)(1)(D) of General 7, Section 12, which would state, in 
relevant part, that ``[e]ach Industry Member (other than a Small 
Industry Member) shall record and report the Industry Member Data to 
the Central Repository, as follows: . . . (D) Phase 2d Industry Member 
Data by December 13, 2021.''
    Pursuant to paragraph (c)(2) of General 7, Section 12, Small 
Industry Members are required to begin reporting to the CAT by November 
15, 2019. To implement the Phased Reporting for Phase 2d for Small 
Industry Members, the Exchange proposes to delete the November 15, 2019 
date and to supplement paragraph (c)(2) of General 7, Section 12 with 
new paragraph (c)(2)(C) of General 7, Section 12, which would state, in 
relevant part, that ``Each Industry Member that is a Small Industry 
Member shall record and report the Industry Member Data to the Central 
Repository, as follows: . . . (C) Small Industry Members to report to 
the Central Repository . . . Phase 2d Industry Member Data by December 
13, 2021.''
E. Phase 2e
    In the fifth phase of Phased Reporting, referred to as Phase 2e, 
both Large Industry Members and Small Industry Members would be 
required to report to the Central Repository ``Phase 2e Industry Member 
Data'' by July 11, 2022. To implement the Phased Reporting for Phase 
2e, the Exchange proposes to add paragraph (t)(5) to General 7, Section 
1 and amend paragraphs (c)(1) and (2) of General 7, Section 12.
(i) Scope of Phase 2e Reporting
    To implement the Phased Reporting with respect to Phase 2e, the 
Exchange proposes to add a definition of ``Phase 2e Industry Member 
Data'' as paragraph (t)(5) of General 7, Section 1. Specifically, the 
Exchange proposes to define the term ``Phase 2e Industry Member Data'' 
as ``Industry Member Data required to be reported to the Central 
Repository commencing in Phase 2e. The full scope of Industry Member 
Data required by the CAT NMS Plan will be required to be reported to 
the CAT when Phase 2e has been implemented, subject to any applicable 
exemptive relief or amendments to the CAT NMS Plan.'' LTIDs and Account 
Effective Date are both required to be reported in Phases 2c and 2d in 
certain circumstances, as discussed above. The terms ``Customer Account 
Information'' and ``Customer Identifying Information'' are defined in 
General 7, Section 1 of the Compliance Rule.\23\ The Industry Member 
Technical Specifications provide detailed guidance regarding the 
reporting for Phase 2e.
---------------------------------------------------------------------------

    \23\ The term ``Customer Account Information'' includes account 
numbers, and the term ``Customer Identifying Information'' includes, 
with respect to individuals, dates of birth and SSNs. See General 7, 
Section 1. The Participants have received exemptive relief from the 
requirements for the Participants to require their members to 
provide dates of birth, account numbers and social security numbers 
for individuals to the CAT. See Securities Exchange Act Release No. 
88393 (March 17, 2020), 85 FR 16152 (March 20, 2020). See also 
Letter to Vanessa Countryman, Secretary, SEC, from Michael Simon, 
CAT NMS Plan Operating Committee Chair, re: Request for Exemptive 
Relief from Certain Provisions of the CAT NMS Plan related to Social 
Security Numbers, Dates of Birth and Account Numbers (Jan. 29, 
2020). Given the relief has been granted, Phase 2e Industry Member 
Data will not include account numbers, dates of birth and SSNs for 
individuals.
---------------------------------------------------------------------------

(ii) Timing of Phase 2e Reporting
    Pursuant to paragraph (c)(1) of General 7, Section 12, Large 
Industry Members are required to begin reporting to the CAT by November 
15, 2018. To implement the Phased Reporting for Phase 2e for Large 
Industry Members, the Exchange proposes to delete the November 15, 2018 
date and to supplement paragraph (c)(1) of General 7, Section 12 with 
new paragraph (c)(1)(E) of General 7, Section 12, which would state, in 
relevant part, that ``[e]ach Industry Member (other than a Small 
Industry Member) shall record and report the Industry Member Data to 
the Central Repository, as follows: . . . (E) Phase 2e Industry Member 
Data by July 11, 2022.''
    Pursuant to paragraph (c)(2) of General 7, Section 12, Small 
Industry Members are required to begin reporting to the CAT by November 
15, 2019. To implement the Phased Reporting for Phase 2e for Small 
Industry Members, the Exchange proposes to delete the November 15, 2019 
date and to supplement paragraph (c)(2) of General 7, Section 12 with 
new paragraph (c)(2)(D) of General 7, Section 12, which would state, in 
relevant part, that ``[e]ach Industry Member that is a Small Industry 
Member shall record and report the Industry Member Data to the Central 
Repository, as follows: . . . (E) Small Industry Members to report to 
the Central Repository Phase 2e Industry Member Data by July 11, 
2022.''
F. Industry Member Testing Requirements
    General 7, Section 9(a) sets forth various compliance dates for the 
testing and development for connectivity, acceptance and the submission 
order data. In light of the intent to shift to Phased Reporting in 
place of the two specified dates for the commencement of reporting for 
Large and Small Industry Members, the Exchange correspondingly proposes 
to replace the Industry Member development testing milestones in 
General 7, Section 9(a) with the testing milestones set forth in the 
exemptive relief. Specifically, the Exchange proposes to replace 
General 7, Section 9(a) with the following:

    (1) Industry Member file submission and data integrity testing 
for Phases 2a and 2b shall begin in December 2019.
    (2) Industry Member testing of the Reporter Portal, including 
data integrity error correction tools and data submissions, shall 
begin in February 2020.
    (3) The Industry Member test environment shall open with intra-
firm linkage validations

[[Page 38947]]

to Industry Members for both Phases 2a and 2b in April 2020.
    (4) The Industry Member test environment shall open to Industry 
Members with inter-firm linkage validations for both Phases 2a and 
2b in July 2020.
    (5) The Industry Member test environment shall open to Industry 
Members with Phase 2c functionality (full representative order 
linkages) in January 2021.
    (6) The Industry Member test environment shall open to Industry 
Members with Phase 2d functionality (manual options orders, complex 
options orders, and options allocations) in June 2021.
    (7) Participant exchanges that support options market making 
quoting shall begin accepting Quote Sent Time on quotes from 
Industry Members no later than April 2020.
    (8) The Industry Member test environment (customer and account 
information) will be open to Industry Members in January 2022.
iv. Granularity of Timestamps
    On February 3, 2020, the Participants filed with the Commission a 
request for exemptive relief from the requirement in Section 6.8(b) of 
the CAT NMS Plan for each Participant, through its Compliance Rule, to 
require that, to the extent that its Industry Members utilize 
timestamps in increments finer than nanoseconds in their order handling 
or execution systems, such Industry Members utilize such finer 
increment when reporting CAT Data to the Central Repository.\24\ On 
April 8, 2020, the Participants received the exemptive relief.\25\ As a 
condition to this exemption, the Participants, through their Compliance 
Rules, will require Industry Members that capture timestamps in 
increments more granular than nanoseconds to truncate the timestamps, 
after the nanosecond level for submission to CAT, not round up or down 
in such circumstances. The timestamp granularity exemption remains in 
effect for five years, until April 8, 2025. After five years, the 
exemption would no longer be in effect unless the period the exemption 
is in effect is extended by the SEC.
---------------------------------------------------------------------------

    \24\ See Letter to Vanessa Countryman, Secretary, SEC, from 
Michael Simon, CAT NMS Plan Operating Committee Chair, re: Request 
for Exemption from Certain Provisions of the National Market System 
Plan Governing the Consolidated Audit Trail related to Granularity 
of Timestamps and Relationship Identifiers (Feb. 3, 2020).
    \25\ See Securities Exchange Act Release No. 88608 (April 8, 
2020), 85 FR 20743 (April 14, 2020).
---------------------------------------------------------------------------

    Accordingly, the Exchange proposes to amend its Compliance Rule to 
reflect the exemptive relief. Specifically, the Exchange proposes to 
amend paragraph (a)(2) of General 7, Section 6. General 7, Section 
6(a)(2) states that

    Subject to paragraph (b), to the extent that any Industry 
Member's order handling or execution systems utilize time stamps in 
increments finer than milliseconds, such Industry Member shall 
record and report Industry Member Data to the Central Repository 
with time stamps in such finer increment.

    The Exchange proposes to amend this provision to read as follows to 
reflect the exemptive relief:

    Subject to paragraph (b), to the extent that any Industry 
Member's order handling or execution systems utilize time stamps in 
increments finer than milliseconds, such Industry Member shall 
record and report Industry Member Data to the Central Repository 
with time stamps in such finer increment up to nanoseconds; 
provided, that Industry Members that capture timestamps in 
increments more granular than nanoseconds must truncate the 
timestamps after the nanosecond level for submission to CAT, rather 
than rounding such timestamps up or down, until April 8, 2025.

v. Introducing Industry Members
    On February 3, 2020, the Participants requested that the Commission 
exempt broker-dealers that do not qualify as Small Industry Members 
solely because they satisfy Rule 0-10(i)(2) under the Exchange Act and, 
as a result, are deemed affiliated with an entity that is not a small 
business or small organization (``Introducing Industry Member'') from 
the requirements in the CAT NMS Plan applicable to Industry Members 
other than Small Industry Members (``Large Industry Members'').\26\ 
Instead, such Introducing Industry Members would comply with the 
requirements in the CAT NMS Plan applicable to Small Industry Members. 
On April 20, 2020, the SEC granted the Participants exemptive relief 
with regard to Introducing Industry Members.\27\
---------------------------------------------------------------------------

    \26\ See Letter to Vanessa Countryman, Secretary, SEC, from 
Michael Simon, CAT NMS Plan Operating Committee Chair, re: Request 
for Exemption from Certain Provisions of the National Market System 
Plan Governing the Consolidated Audit Trail related to Small 
Industry Members (Feb. 3, 2020).
    \27\ See Securities Exchange Act Release No. 88703 (April 20, 
2020), 85 FR 23115 (April 24, 2020).
---------------------------------------------------------------------------

    As a result, the Exchange proposes to amend its Compliance Rule to 
adopt a definition of ``Introducing Industry Member'' and to revise 
General 7, Section 12 to require Introducing Industry Members to comply 
with the requirements of the CAT NMS Plan applicable to Small Industry 
Members. Specifically, the Exchange proposes to define ``Introducing 
Industry Member'' in proposed paragraph (v) to General 7, Section 1, as 
``a broker-dealer that does not qualify as a Small Industry Member 
solely because such broker-dealer satisfies Rule 0-10(i)(2) under the 
Exchange Act in that it introduces transactions on a fully disclosed 
basis to clearing firms that are not small businesses or small 
organizations.'' The Exchange also proposes to add a new paragraph (3) 
to General 7, Section 12(c) to state that ``Introducing Industry 
Members must comply with the requirements of the CAT NMS Plan 
applicable to Small Industry Members.'' With these changes, Introducing 
Industry Members would be required to comply with the requirements in 
the CAT NMS Plan applicable to Small Industry Members, rather than the 
requirements in the CAT NMS Plan applicable to Large Industry Members.
vi. CCID/PII
    On January 29, 2020, the Participants filed with the Commission a 
request for exemptive relief from certain requirements related to 
reporting SSNs, dates of birth and account numbers to the CAT.\28\ The 
Commission, Participants and others indicated security concerns with 
maintaining such sensitive Customer information in the CAT. On March 
17, 2020, the Participants received the exemptive relief, subject to 
certain conditions.\29\ Assuming the Participants comply with the 
conditions set forth in the PII Exemption Order, Industry Members would 
not be required to report SSNs, dates of birth and account numbers to 
the CAT NMS Plan.
---------------------------------------------------------------------------

    \28\ See Letter to Vanessa Countryman, Secretary, SEC, from 
Michael Simon, CAT NMS Plan Operating Committee Chair, re: Request 
for Exemptive Relief from Certain Provisions of the CAT NMS Plan 
related to Social Security Numbers, Dates of Birth and Account 
Numbers (Jan. 29, 2020).
    \29\ See Securities Exchange Act Release No. 88393 (March 17, 
2020), 85 FR 16152 (March 20, 2020) (Order Granting Conditional 
Exemptive Relief, Pursuant to Section 36 and Rule 608(e) of the 
Securities Exchange Act of 1934, from Section 6.4(d)(ii)(C) and 
Appendix D Sections 4.1.6, 6.2, 8.1.1, 8.2, 9.1, 9.2, 9.4, 10.1, and 
10.3 of the National Market System Plan Governing the Consolidated 
Audit Trail) (``PII Exemption Order''). The PII Exemption Order 
lists several conditions that must be met by the Exchange. If the 
Exchange does not satisfy the conditions, the PII Exemption Order 
would not apply to the Exchange.
---------------------------------------------------------------------------

    As described in the request for exemptive relief, the Participants 
requested exemptive relief to allow for an alternative approach to 
generating a CAT Customer ID (``CCID'') without requiring Industry 
Members to report SSNs to the CAT (the ``CCID Alternative''). In lieu 
of retaining such SSNs in the CAT, the Participants would use the CCID 
Alternative, a strategy developed by the Chief Information Security 
Officer for the CAT and the Chief Information Security Officers from 
each of the Participants, in consultation with security experts from 
member firms of Securities Industry and

[[Page 38948]]

Financial Markets Association. The CCID Alternative facilitates the 
ability of the Plan Processor to generate a CCID without requiring the 
Plan Processor to receive SSNs or store SSNs within the CAT. Under the 
CCID Alternative, the Plan Processor would generate a unique CCID using 
a two-phase transformation process that avoids having SSNs reported to 
or stored in the CAT. In the first transformation phase, a CAT Reporter 
would transform the SSN to an interim value (the ``transformed 
value''). This transformed value, and not the SSN, would be submitted 
to a separate system within the CAT (``CCID Subsystem''). The CCID 
Subsystem would then perform a second transformation to create the 
globally unique CCID for each Customer that is unknown to, and not 
shared with, the original CAT Reporter. The CCID would then be sent to 
the customer and account information system of the CAT, where it would 
be linked with the other customer and account information. The CCID may 
then be used by the Participants' regulatory staff and the SEC in 
queries and analysis of CAT Data. To implement the CCID Alternative, 
the Participants requested exemptive relief from the requirement in 
Section 6.4(d)(ii)(C) of the CAT NMS Plan to require, through their 
Compliance Rules, Industry Members to record and report SSNs to the 
Central Repository for the original receipt of an order. As set forth 
in one condition of the PII Exemption Order, Industry Members would be 
required to transform an SSN to an interim value, and report the 
transformed value to the CAT.
    The Participants also requested exemptive relief to allow for an 
alternative approach which would exempt the reporting of dates of birth 
and account numbers \30\ to the CAT (``Modified PII Approach''), and 
instead would require Industry Members to report the year of birth and 
the Firm Designated ID for each trading account associated with the 
Customers. To implement the Modified PII Approach, the Participants 
requested exemptive relief from the requirement in Section 
6.4(d)(ii)(C) of the CAT NMS Plan to require, through their Compliance 
Rules, Industry Members to record and report to the Central Repository 
for the original receipt of an order dates of birth and account numbers 
for Customers. As conditions to the exemption, Industry Members would 
be required to report the year of birth of an individual to the Central 
Repository, and to report the Firm Designated ID to the Central 
Repository.
---------------------------------------------------------------------------

    \30\ With respect to this aspect of the requested relief, the 
PII Exemption Order provided relief with regard to the reporting of 
all account numbers, not just account numbers for individuals as 
requested by the Participants.
---------------------------------------------------------------------------

    To implement the request for exemptive relief and to eliminate the 
requirement to report SSNs, date of birth and account numbers to the 
CAT, the Exchange proposes to amend its Compliance Rule to reflect the 
exemptive relief. General 7, Section 3(a)(2)(C) states that

[s]ubject to paragraph (3) below, each Industry Member shall record 
and report to the Central Repository the following, as applicable 
(``Received Industry Member Data'' and collectively with the 
information referred to in General 7, Section 3(a)(1) ``Industry 
Member Data'')) in the manner prescribed by the Operating Committee 
pursuant to the CAT NMS Plan: . . . (C) for original receipt or 
origination of an order, the Firm Designated ID for the relevant 
Customer, and in accordance with General 7, Section 4, Customer 
Account Information and Customer Identifying Information for the 
relevant Customer.

    Similarly, General 7, Section 4 requires the reporting of Customer 
Account Information and Customer Identifying Information to the Central 
Repository. Currently, General 7, Section 1(m) defines ``Customer 
Identifying Information'' to include, with respect to individuals, 
``date of birth'' and ``individual tax payer identification number 
(``ITIN'')/social security number (``SSN'').'' Accordingly, the 
Exchange proposes to replace ``date of birth'' in the definition of 
``Customer Identifying Information'' in General 7, Section 1(m) (now 
renumbered General 7, Section 1(n)) with ``year of birth'' and to 
delete ``individual tax payer identification number (``ITIN'')/social 
security number (``SSN'')'' from General 7, Section 1(m) (now 
renumbered General 7, Section 1(n)). In addition, currently, General 7, 
Section 1(l) defines ``Customer Account Information'' to include 
account numbers. The Exchange proposes to delete ``account number'' 
from the definition of ``Customer Account Information'' in General 7, 
Section 1(l) (now renumbered General 7, Section 1(m)).
    The Exchange also proposes to add a definition of the term 
``Transformed Value for individual tax payer identification number 
(``ITIN'')/social security number (``SSN'')'' to General 7, Section 1. 
Specifically, the Exchange proposes to add paragraph (pp) to General 7, 
Section 1 to define ``Transformed Value for individual tax payer 
identification number (``ITIN'')/social security number (``SSN'')'' to 
mean ``the interim value created by an Industry Member based on a 
Customer ITIN/SSN.''
    The Exchange proposes to revise General 7, Section 3(a)(2)(C) to 
include the Transformed Value for individual tax payer identification 
number (``ITIN'')/social security number (``SSN''). Specifically, the 
Exchange proposes to revise General 7, Section 3(a)(2)(C) to state:

[s]ubject to paragraph (3) below, each Industry Member shall record 
and report to the Central Repository the following, as applicable 
(``Received Industry Member Data'' and collectively with the 
information referred to in General 7, Section 3(a)(1) ``Industry 
Member Data'')) in the manner prescribed by the Operating Committee 
pursuant to the CAT NMS Plan: . . . (C) for original receipt or 
origination of an order, the Firm Designated ID for the relevant 
Customer, Transformed Value for individual tax payer identification 
number (``ITIN'')/social security number (``SSN''), and in 
accordance with General 7, Section 4, Customer Account Information 
and Customer Identifying Information for the relevant Customer.

    The Exchange also proposes to include the Transformed Value for 
individual tax payer identification number (``ITIN'')/social security 
number (``SSN'') in the Customer information reporting required under 
General 7, Section 4. Specifically, the Exchange proposes to revise 
General 7, Section 4(a) to require each Industry Member to submit to 
the Central Repository the Transformed Value for individual tax payer 
identification number (``ITIN'')/social security number (``SSN''), for 
each of its Customers with an Active Account prior to such Industry 
Member's commencement of reporting to the Central Repository and in 
accordance with the deadlines set forth in General 7, Section 9. The 
Exchange also proposes to revise General 7, Section 4(b) to require 
each Industry Member to submit to the Central Repository any updates, 
additions or other changes to the Transformed Value for individual tax 
payer identification number (``ITIN'')/social security number (``SSN'') 
for each of its Customers with an Active Account on a daily basis. In 
addition, the Exchange proposes to revise General 7, Section 4(c) to 
require, on a periodic basis as designated by the Plan Processor and 
approved by the Operating Committee, each Industry Member to submit to 
the Central Repository a complete set of the Transformed Value for 
individual tax payer identification number (``ITIN'')/social security 
number (``SSN'') for each of its Customers with an Active Account. The 
Exchange also proposes to revise General 7, Section 4(d) to require, 
for each Industry Member for which

[[Page 38949]]

errors in the Transformed Value for individual tax payer identification 
number (``ITIN'')/social security number (``SSN'') for each of its 
Customers with an Active Account submitted to the Central Repository 
have been identified by the Plan Processor or otherwise, such Industry 
Member to submit corrected data to the Central Repository by 5:00 p.m. 
Eastern Time on T+3.
    Paragraph (1)(B) of General 7, Section 1(m), the definition of 
``Customer Account Information'' states that ``in those circumstances 
in which an Industry Member has established a trading relationship with 
an institution but has not established an account with that 
institution, the Industry Member will'' . . . ``provide the 
relationship identifier in lieu of the ``account number.'' As an 
account number will no longer be an element in ``Customer Account 
Information,'' the relationship identifier used in lieu of the account 
number will no longer be required as an element of Customer Account 
Information. Therefore, the Exchange proposes to delete the requirement 
set forth in General 7, Section 1(m)(a)(B) regarding relationship 
identifiers from General 7, Section 1(m).
    With these changes, Industry Members would not be required to 
report to the Central Repository dates of birth, SSNs or account 
numbers pursuant to General 7, Section 3(a)(2)(C). However, Industry 
Members would be required to report the Transformed Value for 
individual tax payer identification number (``ITIN'')/social security 
number (``SSN'') and the year of birth to the Central Repository.\31\
---------------------------------------------------------------------------

    \31\ The Exchange anticipates that the Compliance Rule may be 
further amended when further details regarding the CCID Alternative 
are finalized.
---------------------------------------------------------------------------

vii. FINRA Facility Data Linkage
    On June 5, 2020, the Participants filed with the Commission a 
request for exemptive relief from certain provisions of the CAT NMS 
Plan to allow for an alternative approach to the reporting of clearing 
numbers and cancelled trade indicators.\32\ The SEC provided this 
exemptive relief on June 11, 2020.\33\ FINRA is required to report to 
the Central Repository data collected by FINRA's Trade Reporting 
Facilities, FINRA's OTC Reporting Facility or FINRA's Alternative 
Display Facility (collectively, ``FINRA Facility'') pursuant to 
applicable SRO rules (``FINRA Facility Data''). Included in this FINRA 
Facility Data is the clearing number of the clearing broker for a 
reported trade as well as the cancelled trade indicator. Under this 
alternative approach, the clearing number and the cancelled trade 
indicator of the FINRA Facility Data that is reported to the CAT would 
be linked to the related execution reports reported by Industry 
Members. To implement this approach in a phased manner, the 
Participants received exemptive relief from the requirement in Sections 
6.4(d)(ii)(A)(2) and (B) of the CAT NMS Plan to require, through their 
Compliance Rules, that Industry Members record and report to the 
Central Repository: (1) If the order is executed, in whole or in part, 
the SRO-Assigned Market Participant Identifier of the clearing broker, 
if applicable; and (2) if the trade is cancelled, a cancelled trade 
indicator, subject to certain conditions.
---------------------------------------------------------------------------

    \32\ See Letter to Vanessa Countryman, Secretary, SEC, from 
Michael Simon, CAT NMS Plan Operating Committee Chair, re: Request 
for Exemption from Certain Provisions of the National Market System 
Plan Governing the Consolidated Audit Trail related to FINRA 
Facility Data Linkage (June 5, 2020).
    \33\ See Securities Exchange Act Release No. 89051 (June 11, 
2020) (Federal Register publication pending).
---------------------------------------------------------------------------

    As a condition to this exemption, the Participants would continue 
to require Industry Members to submit a trade report for a trade, and, 
if the trade is cancelled, a cancellation, to a FINRA Facility pursuant 
to applicable SRO rules, and to report the corresponding execution to 
the Central Repository. In addition, Industry Members would be required 
to report to the Central Repository the unique trade identifier 
reported to a FINRA Facility with the corresponding trade report. 
Furthermore, if an Industry Member does not submit a cancellation to a 
FINRA Facility, or is unable to provide a link between the execution 
reported to the Central Repository and the related FINRA Facility trade 
report, then the Industry Member would be required to record and report 
to the Central Repository a cancelled trade indicator and cancelled 
trade timestamp if the trade is cancelled. Similarly, if an Industry 
Member does not submit the clearing number of the clearing broker to a 
FINRA Facility for a trade, or is unable to provide a link between the 
execution reported to the Central Repository and the related FINRA 
Facility trade report, then the Industry Member would be required to 
record and report to the Central Repository the clearing number as well 
as contra party information.
    As a result, the Exchange proposes to amend its Compliance Rule to 
reflect the exemptive relief to implement this alternative approach. 
Specifically, the Exchange proposes to require Industry Members to 
report to the CAT with an execution report the unique trade identifier 
reported to a FINRA facility with the corresponding trade report. For 
example, the unique trade identifier for the OTC Reporting Facility and 
the Alternative Display Facility would be the Compliance ID, for the 
FINRA/Nasdaq Trade Reporting Facility, it would be the Branch Sequence 
Number, and for the FINRA/NYSE Trade Reporting Facility, it would the 
FINRA Compliance Number. This unique trade identifier would be used to 
link the FINRA Facility Data with the execution report in the CAT. 
Specifically, the Exchange proposes to add new paragraph (a)(2)(E) to 
General 7, Section 3, which states that:

    (E) If an Industry Member is required to submit and submits a 
trade report for a trade, and, if the trade is cancelled, a 
cancellation, to one of FINRA's Trade Reporting Facilities, OTC 
Reporting Facility or Alternative Display Facility pursuant to 
applicable SRO rules, and the Industry Member is required to report 
the corresponding execution and/or cancellation to the Central 
Repository:
    (1) the Industry Member is required to report to the Central 
Repository trade identifier reported by the Industry Member to such 
FINRA facility for the trade when the Industry Member reports the 
execution of an order pursuant to General 7, Section 3(a)(1)(E) or 
cancellation of an order pursuant to General 7, Section 3(a)(1)(D) 
beginning June 22, 2020 for Large Industry Members and Small 
Industry OATS Reporters and beginning December 13, 2021 for Small 
Industry Non-OATS Reporters, and such trade identifier must be 
unique beginning October 26, 2020 for Large Industry Members and 
Small Industry OATS Reporters and beginning December 13, 2021 for 
Small Industry Non-OATS Reporters.

    The Exchange also proposes to relieve Industry Members of the 
obligation to report to the CAT data related to clearing brokers and 
trade cancellations pursuant to General 7, Section 3(a)(2)(A)(ii) and 
(B), respectively, as this data will be reported by FINRA to the CAT, 
except in certain circumstances. Accordingly, the Exchange proposes new 
paragraphs (a)(2)(E)(2) and (3) to General 7, Section 3, which would 
state:

    (2) if the order is executed in whole or in part, and the 
Industry Member submits the trade report to one of FINRA's Trade 
Reporting Facilities, OTC Reporting Facility or Alternative Display 
Facility pursuant to applicable SRO rules, the Industry Member is 
not required to submit the SRO-Assigned Market Participant 
Identifier of the clearing broker pursuant to General 7, Section 
3(a)(2)(A)(ii); provided, however, if the Industry Member does not 
report the clearing number of the clearing broker to such FINRA 
facility for a trade, or does not report the unique trade identifier 
to the Central Repository as required by General 7, Section 
3(a)(2)(E)(1), then the Industry Member would be required to record 
and report to the Central Repository the clearing number of the

[[Page 38950]]

clearing broker as well as information about the contra party to the 
trade beginning April 26, 2021 for Large Industry Members and Small 
Industry OATS Reporters and beginning December 13, 2021 for Small 
Industry Non-OATS Reporters; and
    (3) if the trade is cancelled and the Industry Member submits 
the cancellation to one of FINRA's Trade Reporting Facilities, OTC 
Reporting Facility or Alternative Display Facility pursuant to 
applicable SRO rules, the Industry Member is not required to submit 
the cancelled trade indicator pursuant to General 7, Section 
3(a)(2)(B); provided, however, if the Industry Member does not 
report a cancellation for a canceled trade to such FINRA facility, 
or does not report the unique trade identifier as required by 
6830(a)(2)(E)(1), then the Industry Member would be required to 
record and report to the Central Repository a cancelled trade 
indicator as well as a cancelled trade timestamp beginning June 22, 
2020 for Large Industry Members and Small Industry OATS Reporters 
and beginning December 13, 2021 for Small Industry Non-OATS 
Reporters.

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\34\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\35\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest, and Section 6(b)(8) of the Act,\36\ 
which requires that the Exchange's rules not impose any burden on 
competition that is not necessary or appropriate.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b).
    \35\ 15 U.S.C. 78f(b)(5).
    \36\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Exchange believes that this proposal is consistent with the Act 
because it is consistent with certain exemptions from the CAT NMS Plan, 
because it facilitates the retirement of certain existing regulatory 
systems, and is designed to assist the Exchange and its Industry 
Members in meeting regulatory obligations pursuant to the Plan. In 
approving the Plan, the SEC noted that the Plan ``is necessary and 
appropriate in the public interest, for the protection of investors and 
the maintenance of fair and orderly markets, to remove impediments to, 
and perfect the mechanism of a national market system, or is otherwise 
in furtherance of the purposes of the Act.'' \37\ To the extent that 
this proposal implements the Plan, including the exemptive relief, and 
applies specific requirements to Industry Members, the Exchange 
believes that this proposal furthers the objectives of the Plan, as 
identified by the SEC, and is therefore consistent with the Act.
---------------------------------------------------------------------------

    \37\ See Securities Exchange Act Release No. 79318 (November 15, 
2016), 81 FR 84696, 84697 (November 23, 2016).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that the proposed rule changes are consistent with certain 
exemptions from the CAT NMS Plan, facilitate the retirement of certain 
existing regulatory systems, and are designed to assist the Exchange in 
meeting its regulatory obligations pursuant to the Plan. The Exchange 
also notes that the amendments to the Compliance Rules will apply 
equally to all Industry Members that trade NMS Securities and OTC 
Equity Securities. In addition, all national securities exchanges and 
FINRA are proposing these amendments to their Compliance Rules. 
Therefore, this is not a competitive rule filing, and, therefore, it 
does not impose a burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \38\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\39\
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    \38\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \39\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \40\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\41\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative by June 22, 2020. The Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest because it implements exemptive 
relief from the CAT NMS Plan granted by the Commission and facilitates 
the start of Industry Member reporting on June 22, 2020. In addition, 
as noted by the Exchange, the proposed rule change is based on a filing 
recently approved by the Commission.\42\ Accordingly, the Commission 
waives the 30-day operative delay and designates the proposed rule 
change operative as of June 22, 2020.\43\
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    \40\ 17 CFR 240.19b-4(f)(6).
    \41\ 17 CFR 240.19b-4(f)(6)(iii).
    \42\ See Securities Exchange Act Release No. 89108 (June 19, 
2020).
    \43\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2020-035 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2020-035. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your

[[Page 38951]]

comments more efficiently, please use only one method. The Commission 
will post all comments on the Commission's internet website (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 website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2020-035 and should be submitted on or before July 20, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
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    \44\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13879 Filed 6-26-20; 8:45 am]
 BILLING CODE 8011-01-P