Order Granting a Temporary Conditional Exemption Pursuant to Section 36 of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 608(e) of Regulation NMS Under the Exchange Act, Relating to the Reporting of Certain Activities on the Floor of National Securities Exchanges and Certain Activities by Industry Members Off Exchange Floors, as Required by Section 6.4(d) of the National Market System Plan Governing the Consolidated Audit Trail, 73544-73548 [2020-25393]

Download as PDF 73544 Federal Register / Vol. 85, No. 223 / Wednesday, November 18, 2020 / Notices implementation date. This schedule appears reasonably designed to afford members sufficient time to come into compliance with the proposed rule change while adhering to the conditions set forth in the Facility Data Exemption Order. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,33 that the proposed rule change (SR–FINRA– 2020–029) is approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–25381 Filed 11–17–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–385, OMB Control No. 3235–0441] Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 khammond on DSKJM1Z7X2PROD with NOTICES Extension: Rule 18f–3 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (‘‘Paperwork Reduction Act’’), the Securities and Exchange Commission (the ‘‘Commission’’) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. Rule 18f–3 (17 CFR 270.18f–3) under the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) exempts from section 18(f)(1) a fund that issues multiple classes of shares representing interests in the same portfolio of securities (a ‘‘multiple class fund’’) if the fund satisfies the conditions of the rule. In general, each class must differ in its arrangement for shareholder services or distribution or both, and must pay the related expenses of that different arrangement. The rule includes one requirement for the collection of information. A multiple class fund must prepare, and fund directors must 33 15 34 17 1 3 hours per registrant per year × 1,045 registrants = 3,135 hours per year. U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:59 Nov 17, 2020 approve, a written plan setting forth the separate arrangement and expense allocation of each class, and any related conversion features or exchange privileges (‘‘rule 18f–3 plan’’). Approval of the plan must occur before the fund issues any shares of multiple classes and whenever the fund materially amends the plan. In approving the plan, the fund board, including a majority of the independent directors, must determine that the plan is in the best interests of each class and the fund as a whole. The requirement that the fund prepare and directors approve a written rule 18f–3 plan is intended to ensure that the fund compiles information relevant to the fairness of the separate arrangement and expense allocation for each class, and that directors review and approve the information. Without a blueprint that highlights material differences among classes, directors might not perceive potential conflicts of interests when they determine whether the plan is in the best interests of each class and the fund. In addition, the plan may be useful to Commission staff in reviewing the fund’s compliance with the rule. Based on an analysis of fund filings, the Commission estimates that there are approximately 7,293 multiple class funds offered by 990 registrants. The Commission estimates that each of the 990 registrants will make an average of 0.5 responses annually to prepare and approve a written 18f–3 plan. The Commission estimates each response will take 6 hours, requiring a total of 3 hours per registrant per year. Thus the total annual hour burden associated with these requirements of the rule is approximately 2,970 hours.1 Estimates of average burden hours are made solely for the purposes of the Paperwork Reduction Act and are not derived from a comprehensive or even a representative survey or study of the costs of Commission rules and forms. The collection of information under rule 18f–3 is mandatory. The information provided under rule 18f–3 will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. Written comments are invited on: (a) Whether the collections of information are necessary for the proper performance of the functions of the Commission, including whether the information has practical utility; (b) the accuracy of the Commission’s estimate of the burdens of the collections of Jkt 253001 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burdens of the collections of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, C/O Cynthia Roscoe, 100 F Street NE, Washington, DC 20549; or send an email to: PRA_ Mailbox@sec.gov. Dated: November 12, 2020. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–25352 Filed 11–17–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90405] Order Granting a Temporary Conditional Exemption Pursuant to Section 36 of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) and Rule 608(e) of Regulation NMS Under the Exchange Act, Relating to the Reporting of Certain Activities on the Floor of National Securities Exchanges and Certain Activities by Industry Members Off Exchange Floors, as Required by Section 6.4(d) of the National Market System Plan Governing the Consolidated Audit Trail November 12, 2020. I. Introduction By letter dated July 1, 2020, BOX Exchange LLC (‘‘BOX’’), Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe Exchange, Inc. (‘‘CBOE’’), Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), Investors Exchange LLC, Miami International Securities Exchange LLC, MIAX Emerald, LLC, MIAX PEARL, LLC, NASDAQ BX, LLC, Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX LLC (‘‘PHLX’’), The NASDAQ Stock Market LLC, New York Stock Exchange LLC (‘‘NYSE’’), NYSE American LLC (‘‘NYSE American’’), NYSE Arca, Inc. (‘‘NYSE Arca’’), NYSE Chicago, Inc., NYSE National, Inc., and Long Term Stock Exchange, Inc. (collectively, the ‘‘Participants’’ or ‘‘SROs’’) requested E:\FR\FM\18NON1.SGM 18NON1 Federal Register / Vol. 85, No. 223 / Wednesday, November 18, 2020 / Notices that the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) grant temporary exemptive relief to the Participants from the National Market System Plan Governing the Consolidated Audit Trail (‘‘CAT NMS Plan’’),1 pursuant to its authority under Section 36 of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 2 and Rule 608(e) of Regulation NMS under the Exchange Act, from certain reporting requirements in Section 6.4(d) of the CAT NMS Plan relating to certain activities on the floors of national securities exchanges and certain activities by Industry Members off exchange floors.3 Section 36 of the Exchange Act grants the Commission the authority, with certain limitations, to ‘‘conditionally or unconditionally exempt any person, security, or transaction . . . from any provision or provisions of [the Exchange Act] or of any rule or regulation thereunder, to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.’’ 4 Under Rule 608(e) of Regulation NMS, the Commission may ‘‘exempt from [Rule 608], either unconditionally or on specified terms and conditions, any selfregulatory organization, member thereof, or specified security, if the Commission determines that such exemption is consistent with the public interest, the protection of investors, the maintenance of fair and orderly markets and the removal of impediments to, and perfection of the mechanism of, a national market system.’’ 5 For the reasons set forth below, this Order grants the Participants’ request for a temporary exemption from Section 6.4(d) of the CAT NMS Plan as set forth in the July 1, 2020 Exemption Request, expiring on July 31, 2023. khammond on DSKJM1Z7X2PROD with NOTICES II. Request for Relief In the July 1, 2020 Exemption Request, the Participants request that the Commission exempt each Participant from the requirement in Section 6.4(d) of the CAT NMS Plan that 1 The CAT NMS Plan was approved by the Commission, as modified, on November 15, 2016. See Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) (‘‘CAT NMS Plan Approval Order’’). 2 15 U.S.C. 78mm(a)(1). 3 See letter from the Participants to Vanessa Countryman, Secretary, Commission, dated July 1, 2020 (the ‘‘July 1, 2020 Exemption Request’’). Unless otherwise noted, capitalized terms are used as defined in the CAT NMS Plan. MEMX LLC was added as a Participant to the CAT NMS Plan on June 5, 2020. See Securities Exchange Act Release No. 89306 (July 13, 2020), 85 FR 43626 (July 17, 2020). 4 15 U.S.C. 78mm(a)(1). 5 17 CFR 242.608(e). VerDate Sep<11>2014 17:59 Nov 17, 2020 Jkt 253001 each Participant, through its Compliance Rule, require its Industry Members to record and electronically report to the Central Repository: (1) Floor broker verbal announcements of firm bids and offers on an exchange trading floor that are otherwise reported as systematized orders; and (2) market maker verbal announcements of firm quotes on an exchange trading floor, to the extent either are considered orders reportable under Rule 613 of Regulation NMS, the CAT NMS Plan and the Compliance Rules, until July 31, 2023. As a condition to this exemptive relief, the Participants state that they would continue to require that firm verbal interest on an exchange floor (which includes both floor broker verbal announcements of firm bids and offers and market maker verbal announcements of firm quotes) be expressed pursuant to exchange rules approved by the Commission,6 and that any such firm verbal interest expressed by a floor broker must be related to a CAT-reportable systematized order, and any resulting trade must be reported to CAT. In addition, the Participants request that the Commission exempt each Participant from the requirement in Section 6.4(d) of the CAT NMS Plan that each Participant, through its Compliance Rule, require its Industry Members to record and electronically report to the Central Repository the following communications that occur ‘‘upstairs,’’ 7 to the extent such are considered reportable under Rule 613 of Regulation NMS, the CAT NMS Plan and the Compliance Rules, until July 31, 2023: (1) Telephone discussions between an Industry Member and a client that may involve firm bid and offer communications; and (2) unstructured electronic and verbal communications that are not currently captured by Industry Member order management or execution systems (e.g., Bloomberg chats, text messages). 73545 A. Exchange Floor Activity The Participants state that on all exchanges with floor trading,8 each order must be systematized upon receipt by the floor broker on the floor of the exchange.9 The Participants further state that an order is considered systematized: (1) When it is sent electronically to the floor broker’s system at the exchange; or (2) when the order is manually systematized by the floor broker upon receipt outside of the floor broker’s system and prior to representation in the floor trading crowd.10 To the extent a floor broker is not holding a systematized order, the floor broker is not eligible to represent any firm bid or offer, or to request firm quotes from in-crowd market participants on the floor of an exchange.11 The Participants state that all firm bids or offers represented by a floor broker must be associated with orders that have already been systematized, and that any activity by the floor broker prior to systemization cannot be related to an order, bid or offer pursuant to the CAT NMS Plan.12 As a result of the systematization requirements, all orders represented verbally by a floor broker on an exchange floor are required to be captured in exchange systems and, under CAT requirements, the floor broker’s receipt of the order, and any modification, electronic route, cancellation, or execution of the order is subject to CAT reporting.13 The Participants believe that two verbal events on exchange floors may be CATreportable: Floor broker announcements of firm orders and market maker announcements of firm quotes. The Participants state that that reporting of either of these two verbal events were not contemplated when the Commission and the Participants were considering the cost and impact of the CAT NMS Plan.14 The Participants further state that requiring these elements to be reported to CAT would have a significant and costly impact to exchange floors, to floor broker and market maker business models, and to market structure; and the data being captured would provide minimal added regulatory benefit, likely not justified by 6 Exchanges with floors currently have rules that govern the operation of the trading floor, from original receipt and systematization of an order by a floor broker to execution, including rules describing how verbal interest on an exchange floor is to be communicated. See, e.g., July 1, 2020 Exemption Request, Exhibit A (describing the process for relevant exchanges). 7 ‘‘Upstairs’’ is a term used to describe the offexchange market. For example, trading that occurs within a broker-dealer firm or between two brokerdealers in the over-the-counter market would be described as occurring ‘‘upstairs.’’ 8 Currently, these exchanges are NYSE, NYSE American, NYSE Arca, CBOE, PHLX and BOX. 9 See July 1, 2020 Exemption Request, supra note 3, at 3. 10 See id. at 3. 11 See July 1, 2020 Exemption Request, supra note 3, at 3. See also NYSE Rule 7.35B, NYSE Arca Rule 6.67–O, NYSE American Rule 955NY and Cboe Rule 5.91(a)(4). 12 See July 1, 2020 Exemption Request, supra note 3, at 3. See also NYSE Rule 7.35B, NYSE Arca Rule 6.67–O, NYSE American Rule 955NY and Cboe Rule 5.91(a)(4). 13 See July 1, 2020 Exemption Request, supra note 3, at 3. 14 See id. at 6–7. PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 E:\FR\FM\18NON1.SGM 18NON1 73546 Federal Register / Vol. 85, No. 223 / Wednesday, November 18, 2020 / Notices the costs that would be required to create systems to capture the activity.15 The Participants explain that floor brokers and floor market makers will ultimately be required to expend significant effort and funds to provide the data necessary to report verbal orders and quotes to CAT.16 The Participants state that if verbal floor activity were required to be reported to CAT, Industry Members operating on exchange floors would need to create a process or system to electronically record in real time the firm data being verbally communicated on exchange floors and to merge that data into the information tracked electronically.17 The Participants state that neither the exchanges with floors nor Industry Members currently collect or have the means to collect the data for verbal activity on the floor for purposes for CAT reporting and the measures necessary to put such systems in place would significantly disrupt floor trading.18 The Participants further state that requiring such reporting would likely cause market makers to miss participation in fast-changing markets, and no similar burden would be borne by electronic market makers, whose data collection for CAT reporting will not impact their real-time ability to provide liquidity to the market.19 khammond on DSKJM1Z7X2PROD with NOTICES B. Unstructured Verbal and Electronic Activity The Participants believe that much unstructured verbal and electronic activity by Industry Members does not involve firm orders and is thus not subject to CAT reporting.20 However, the Participants believe that two types of verbal and unstructured electronic upstairs activity may involve firm orders that would be subject to CAT reporting: (1) Verbal telephone discussions between an Industry Member and a client and (2) unstructured electronic communications that are not currently captured by Industry Member order management or execution systems. The Participants state that telephonic discussions and unstructured electronic upstairs activities were not contemplated as being CAT reportable at the time the Commission adopted Rule 613 of Regulation NMS and the CAT NMS Plan.21 The Participants state that the industry has provided the 15 See id. at 6. id. at 6. 17 See id. at 9. 18 See July 1, 2020 Exemption Request, supra note 3, at 6. 19 See id. at 8. 20 See id. at 9. 21 See id. at 9–10. 16 See VerDate Sep<11>2014 17:59 Nov 17, 2020 Jkt 253001 Participants with cost projections for capturing and reporting upstairs negotiations, which are estimated to be approximately $485 million to $590 million.22 The Participants further state that these cost projections recognize that Industry Members do not currently collect data for these scenarios, and do not have the means today to collect such data. The Participants also explain that there is uncertainty whether necessary information can be captured with today’s technology or personnel in a reliable, accurate and consistent manner.23 The Participants do not believe this information will add much value to the data available in CAT and any minimal added regulatory benefit would be outweighed by costs imposed on, and adverse impact on, Industry Members.24 The Participants state that the changes required to capture and report verbal and unstructured electronic upstairs activity would cause significant and adverse changes to existing industry practices and business models, which would conflict with one of the underlying principles of the CAT.25 The Participants also state that reporting of this activity may also slow trading processes at certain broker-dealers, and/ or may increase the time to initiate a trade, causing clients potentially to receive less advantageous pricing for investors.26 The Participants also believe that if required to be reported, Industry Members may modify their workflows to rely more heavily on indications of interest or similar methods outside the definition of an order, thereby avoiding CAT reporting requirements for that activity, which could have a negative impact on the price discovery process as well as existing workflows.27 The Participants also state that identifying and reporting of verbal or unstructured electronic communications is difficult and given the subjective nature of determining whether or not a bid or offer is firm, CAT reporting of such communications will be variable and inconsistent.28 The Participants state that Industry Members and different individuals could reach different conclusions about whether or 22 See id. at 10. July 1, 2020 Exemption Request, supra note 3, at 10. The Commission understands that this estimation is based on industry cost projections and assumes significant manual intervention is necessary to capture this information. 24 See id. 25 See id. 26 See id. 27 See id. 28 See July 1, 2020 Exemption Request, supra note 3, at 10. 23 See PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 not specific verbal or unstructured electronic communications meet the elements of a CAT Reportable Event and Industry Members on opposite sides of a bid/offer may capture the same activity differently, resulting in a misleading view of the transaction.29 III. Discussion of Participants’ Exemption Request The Commission has carefully considered the information provided by the Participants in support of the Participants’ exemption request. The Commission believes that granting temporary exemptive relief is, pursuant to Section 36 of the Exchange Act, appropriate in the public interest and consistent with the protection of investors, and that pursuant to Rule 608(e), this exemption is consistent with the public interest, the protection of investors, the maintenance of fair and orderly markets and the removal of impediments to, and the perfection of a national market system. Rule 613(j)(9) of Regulation NMS and Section 1.1 of the CAT NMS Plan defines the term ‘‘reportable event’’ as including, but not limited to, the original receipt or origination, modification, cancellation, routing, and execution (in whole or in part) of an order, and receipt of a routed order.30 The term ‘‘order’’ is defined in Rule 613(j)(8) of Regulation NMS and Section 1.1 of the CAT NMS Plan as including: (i) Any order received by a member of a national securities exchange or national securities association from any person; (ii) any order originated by a member of a national securities exchange or national securities association; or (iii) any bid or offer.31 ‘‘Bid’’ and ‘‘offer’’ are defined in Regulation NMS as the bid price or offer price communicated by a member of an exchange or association to any brokerdealer or to any customer, at which it is willing to buy or sell one or more round lots of an NMS security, as principal or agent, but excluding indications of interest.32 Rule 613 and the CAT NMS Plan both require the capture and reporting of quotes and orders that meet the definition of a CAT reportable event, which includes verbal quotes and orders. The Commission believes that many unstructured verbal or manual communications on exchange floors and ‘‘upstairs’’ are reportable events under Rule 613 and the CAT NMS Plan because firm verbal quotes and orders, 29 See id. at 10. 17 CFR 242.613(j)(9). 31 See 17 CFR 242.613(j)(8). 32 See 17 CFR 242.600(b)(8). 30 See E:\FR\FM\18NON1.SGM 18NON1 Federal Register / Vol. 85, No. 223 / Wednesday, November 18, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES whether they occur on an exchange floor or ‘‘upstairs,’’ are reportable to CAT if they are a firm bid or offer. As the Participants note, firm indications of a willingness to buy or sell a security are orders, bids, or offers and have reportable events associated with them pursuant to the CAT NMS Plan.33 However, indications of interest and other verbal negotiations that do not constitute firm quotes or orders are not reportable to CAT, and many unstructured verbal or manual communications on exchange floors and ‘‘upstairs’’ are not reportable to CAT because they are not firm. The Commission disagrees with the Participants’ statement that the verbal announcement of already systematized and reported orders and of firm quotes on exchange floors, firm bid and offer communications in verbal telephone discussions between an Industry Member and a client, and firm orders in unstructured electronic communications that are not currently captured by Industry Member order management or execution systems were not contemplated as being CATreportable at the time the Commission adopted Rule 613 and the approval of the CAT NMS Plan. Verbal quotes and orders are a subset of ‘‘Manual Order Events,’’ which, as defined by the CAT NMS Plan, are non-electronic communications of order-related information for which CAT Reporters must record and report the time of the event.34 Prior to approval of the CAT NMS Plan, the Participants requested and were granted exemptive relief from the requirement in Rule 613(d)(3) of Regulation NMS that, for Manual Order Events, each CAT Reporter record and report details for reportable events in timestamps to the millisecond.35 In support of the request, the SROs listed examples illustrating reportable events involving the non-electronic communication of order-related information for which CAT Reporters 33 See July 1, 2020 Exemption Request, supra note 3, at 3. 34 See CAT NMS Plan at Section 1.1 (defining ‘‘Manual Order Events’’ as ‘‘a non-electronic communication of order-related information for which CAT Reporters must record and report the time of the event’’). 35 See Securities Exchange Act Release No. 77265 (March 1, 2016), 81 FR 11856 (March 7, 2016). The Commission granted exemptive relief conditioned upon (1) Manual Order Events being recorded and reported with granularity to the second; (2) Manual Order Events being identified as such in the CAT; and (3) the Electronic Capture of Manual Order Events being recorded and reported to the millisecond. Manual Order Events are defined in the CAT NMS Plan as a non-electronic communication of order-related information for which CAT Reporters must record and report the time of the event. VerDate Sep<11>2014 17:59 Nov 17, 2020 Jkt 253001 must record and report the time of the event under Rule 613, and, among other things, noted that ‘‘a floor broker at an exchange that represents an order on the floor of the exchange may have to capture the time stamp of order events manually.’’ 36 The Participants state that capturing this verbal activity would be costly, and provide minimal added regulatory benefit likely not justified by the costs. In particular, as noted above, Industry Members have provided Participants with cost projections for capturing and reporting upstairs negotiations, which are estimated to be approximately $485M to $590M. The Commission acknowledges the current difficulties of implementing reporting of such events, as described by the Participants in the July 1, 2020 Exemption Request. Currently, the exchanges with floors and Industry Members do not have the means to collect the information necessary for reporting verbal activity on exchange floors or upstairs. At the same time, the Commission believes that the collection of verbal quotes and orders would provide regulatory benefits that do not currently exist today and disagrees with the Participants statement that capturing such data would provide minimal added regulatory benefit.37 Such reporting would help regulators better identify potential violations of securities laws, regulations, and exchange rules, including violations of best execution obligations, firm bid/offer obligations and exchange priority rules. For example, the reporting of firm verbal quotes from floor market makers would allow regulators to determine whether a market maker has ‘‘backed away’’ from a firm quote. Currently, regulators do not have detailed information relating to most verbal quotes and orders and such information would allow regulators to more capably perform regulatory and surveillance functions, and the Commission does not believe it is appropriate to exclude such quotes and orders from CAT reporting, which often are more complex and/or involve larger36 See letter from BATS Exchange, Inc., BATS YExchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Inc., Chicago Board Options Exchange, Inc., Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., International Securities Exchange, LLC, ISE Gemini, LLC, Miami International Securities Exchange LLC, The Nasdaq Stock Market LLC, Nasdaq OMX BX, Inc., Nasdaq OMX PHLX LLC, National Stock Exchange, Inc., NYSE Arca, Inc., New York Stock Exchange LLC, and NYSE MKT LLC to Brent J. Fields, Secretary, Commission, dated January 30, 2015, at 33, available at: https://www.sec.gov/rules/ exorders/2016/finra-incoming-letter-013015.pdf. 37 See July 1, 2020 Exemption Request, supra note 3, at 6 and 10. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 73547 sized orders, particularly on options trading floors and trading floors for proprietary products. Given the concerns expressed by the Participants, the Commission believes the Participants’ request to delay the reporting requirements for verbal quotes and orders is reasonable. While including verbal quotes and orders in the CAT will provide regulatory benefits, the Commission acknowledges that the reporting of such orders and quotes involves complexity and/or costs, especially because capture of this information may require significant manual human intervention. The Commission believes that granting temporary exemptive relief to delay the reporting of verbal quotes and orders could allow Participants and Industry Members time to develop or implement technological changes necessary to capture this information at a lower cost. The Commission further believes that over time, the costs of capturing this CAT reportable information could decline due to technological or business developments, such as through the usage of artificial intelligence or automated processes to capture and report such information, instead of reliance on the manual capture of order information. Based on the foregoing, pursuant to Section 36 of the Exchange Act, it is appropriate in the public interest and consistent with the protection of investors, and pursuant to Rule 608(e), it is consistent with the public interest, the protection of investors, the maintenance of fair and orderly markets and the removal of impediments to, and the perfection of a national market system to grant temporary relief for the reporting of: (1) Floor broker verbal announcements of firm orders on an exchange that are otherwise reported as systematized orders; (2) market maker verbal announcements of firm quotes on an exchange trading floor and; (3) telephone discussions between an Industry Member and a client that involve firm bid and offer communications; and (4) unstructured electronic communications that are not currently captured by Industry Member order management or execution systems. Granting temporary exemptive relief until July 31, 2023, which is the date requested by Participants in the July 1, 2020 Exemption Request, and which is approximately one year after the date by which the Participants previously estimated that the CAT would be fully implemented, July 11, E:\FR\FM\18NON1.SGM 18NON1 73548 Federal Register / Vol. 85, No. 223 / Wednesday, November 18, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES 2022,38 would provide CAT Reporters the time to fully consider how to report such events and create the necessary technological and process changes required to capture these required quotes and orders while minimizing potential business disruptions and impacts to existing workflows. As a condition to this relief, the Participants must provide the Commission a written status update on the reporting of these quotes and orders by July 31, 2022, including the estimated costs of reporting these quotes and orders and an implementation plan for the reporting of these quotes and orders. IV. Conclusion The Commission believes it is appropriate to grant temporary exemptive relief that exempts each Participant from the requirement in Section 6.4(d) of the CAT NMS Plan for each Participant, through its Compliance Rule, to require its Industry Members to record and electronically report to the Central Repository the following communications, until July 31, 2023: (1) Floor broker verbal announcements of firm orders on an exchange that are otherwise reported as systematized orders; (2) market maker verbal announcements of firm quotes on an exchange trading floor; (3) telephone discussions between an Industry Member and a client that may involve firm bid and offer communications; and (4) unstructured electronic and verbal communications that are not currently captured by Industry Member order management or execution systems. As a condition to this relief, the Participants must provide the Commission a written status update on the reporting of these quotes and orders by July 31, 2022, including the estimated costs of reporting these quotes and orders and an implementation plan for the reporting of these quotes and orders. Furthermore, as a condition to this exemptive relief, Participants must continue to require that firm verbal interest on an exchange floor be expressed pursuant to exchange rules approved by the Commission and Participants must require that any firm verbal interest expressed by a floor broker must be related to a CATreportable systematized order, and any resulting trade must be reported to CAT. Accordingly, it is hereby ordered, pursuant to Section 36(a)(1) of the Exchange Act,39 and Rule 608(e) of the Exchange Act 40 that the Participants are 38 See Securities Exchange Act Release No. 88890 (May 15, 2020), 85 FR 31322, 31334 (May 22, 2020). 39 15 U.S.C. 78mm(a)(1). 40 17 CFR 242.608(e). VerDate Sep<11>2014 17:59 Nov 17, 2020 Jkt 253001 granted an exemption, until July 31, 2023, from the requirement in Section 6.4(d) of the CAT NMS Plan that requires each Participant, through its Compliance Rule, to require its Industry Members to record and electronically report to the Central Repository: (1) Floor broker verbal announcements of firm orders on an exchange that are otherwise reported as systematized orders; (2) market maker verbal announcements of firm quotes on an exchange trading floor; (3) telephone discussions between an Industry Member and a client that may involve firm bid and offer communications; (4) unstructured electronic and verbal communications that are not currently captured by Industry Member order management or execution systems (e.g., Bloomberg chats, text messages), subject to the conditions described above. By the Commission. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–25393 Filed 11–17–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–399, OMB Control No. 3235–0456] Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Extension: Form 24F–2 Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520), the Securities and Exchange Commission (the ‘‘Commission’’) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget for extension and approval. Rule 24f–2 (17 CFR 270.24f–2) under the Investment Company Act of 1940 (15 U.S.C. 80a) requires any open-end management companies (‘‘mutual funds’’), unit investment trusts (‘‘UITs’’), registered closed-end investment companies that make periodic repurchase offers under rule 23c–3 under the Investment Company Act [17 CFR 270.23c–3] (‘‘interval funds’’), or face-amount certificate companies (collectively, ‘‘funds’’) deemed to have registered an indefinite PO 00000 Frm 00094 Fmt 4703 Sfmt 9990 amount of securities to file, not later than 90 days after the end of any fiscal year in which it has publicly offered such securities, Form 24F–2 (17 CFR 274.24) with the Commission. Form 24F–2 is the annual notice of securities sold by funds that accompanies the payment of registration fees with respect to the securities sold during the fiscal year. The Commission estimates that 6,794 funds file Form 24F–2 on the required annual basis. The average annual burden per respondent for Form 24F–2 is estimated to be four hours. The total annual burden for all respondents to Form 24F–2 is estimated to be 27,176 hours. The estimate of average burden hours is made solely for the purposes of the Paperwork Reduction Act, and is not derived from a comprehensive or even a representative survey or study of the costs of Commission rules. Compliance with the collection of information required by Form 24F–2 is mandatory. The Form 24F–2 filing that must be made to the Commission is available to the public. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The Commission requests written comments on: (a) Whether the collection of information is necessary for the proper performance of the functions of the Commission, including whether the information has practical utility; (b) the accuracy of the Commission’s estimate of the burdens of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, C/O Cynthia Roscoe, 100 F Street NE, Washington, DC 20549; or send an email to: PRA_ Mailbox@sec.gov. Dated: November 12, 2020. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–25354 Filed 11–17–20; 8:45 am] BILLING CODE 8011–01–P E:\FR\FM\18NON1.SGM 18NON1

Agencies

[Federal Register Volume 85, Number 223 (Wednesday, November 18, 2020)]
[Notices]
[Pages 73544-73548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25393]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90405]


Order Granting a Temporary Conditional Exemption Pursuant to 
Section 36 of the Securities Exchange Act of 1934 (``Exchange Act'') 
and Rule 608(e) of Regulation NMS Under the Exchange Act, Relating to 
the Reporting of Certain Activities on the Floor of National Securities 
Exchanges and Certain Activities by Industry Members Off Exchange 
Floors, as Required by Section 6.4(d) of the National Market System 
Plan Governing the Consolidated Audit Trail

November 12, 2020.

I. Introduction

    By letter dated July 1, 2020, BOX Exchange LLC (``BOX''), Cboe BYX 
Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe 
EDGX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe Exchange, Inc. 
(``CBOE''), Financial Industry Regulatory Authority, Inc. (``FINRA''), 
Investors Exchange LLC, Miami International Securities Exchange LLC, 
MIAX Emerald, LLC, MIAX PEARL, LLC, NASDAQ BX, LLC, Nasdaq GEMX, LLC, 
Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX LLC (``PHLX''), The 
NASDAQ Stock Market LLC, New York Stock Exchange LLC (``NYSE''), NYSE 
American LLC (``NYSE American''), NYSE Arca, Inc. (``NYSE Arca''), NYSE 
Chicago, Inc., NYSE National, Inc., and Long Term Stock Exchange, Inc. 
(collectively, the ``Participants'' or ``SROs'') requested

[[Page 73545]]

that the Securities and Exchange Commission (``Commission'' or ``SEC'') 
grant temporary exemptive relief to the Participants from the National 
Market System Plan Governing the Consolidated Audit Trail (``CAT NMS 
Plan''),\1\ pursuant to its authority under Section 36 of the 
Securities Exchange Act of 1934 (``Exchange Act'') \2\ and Rule 608(e) 
of Regulation NMS under the Exchange Act, from certain reporting 
requirements in Section 6.4(d) of the CAT NMS Plan relating to certain 
activities on the floors of national securities exchanges and certain 
activities by Industry Members off exchange floors.\3\
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    \1\ The CAT NMS Plan was approved by the Commission, as 
modified, on November 15, 2016. See Securities Exchange Act Release 
No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) 
(``CAT NMS Plan Approval Order'').
    \2\ 15 U.S.C. 78mm(a)(1).
    \3\ See letter from the Participants to Vanessa Countryman, 
Secretary, Commission, dated July 1, 2020 (the ``July 1, 2020 
Exemption Request''). Unless otherwise noted, capitalized terms are 
used as defined in the CAT NMS Plan. MEMX LLC was added as a 
Participant to the CAT NMS Plan on June 5, 2020. See Securities 
Exchange Act Release No. 89306 (July 13, 2020), 85 FR 43626 (July 
17, 2020).
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    Section 36 of the Exchange Act grants the Commission the authority, 
with certain limitations, to ``conditionally or unconditionally exempt 
any person, security, or transaction . . . from any provision or 
provisions of [the Exchange Act] or of any rule or regulation 
thereunder, to the extent that such exemption is necessary or 
appropriate in the public interest, and is consistent with the 
protection of investors.'' \4\ Under Rule 608(e) of Regulation NMS, the 
Commission may ``exempt from [Rule 608], either unconditionally or on 
specified terms and conditions, any self-regulatory organization, 
member thereof, or specified security, if the Commission determines 
that such exemption is consistent with the public interest, the 
protection of investors, the maintenance of fair and orderly markets 
and the removal of impediments to, and perfection of the mechanism of, 
a national market system.'' \5\
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    \4\ 15 U.S.C. 78mm(a)(1).
    \5\ 17 CFR 242.608(e).
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    For the reasons set forth below, this Order grants the 
Participants' request for a temporary exemption from Section 6.4(d) of 
the CAT NMS Plan as set forth in the July 1, 2020 Exemption Request, 
expiring on July 31, 2023.

II. Request for Relief

    In the July 1, 2020 Exemption Request, the Participants request 
that the Commission exempt each Participant from the requirement in 
Section 6.4(d) of the CAT NMS Plan that each Participant, through its 
Compliance Rule, require its Industry Members to record and 
electronically report to the Central Repository: (1) Floor broker 
verbal announcements of firm bids and offers on an exchange trading 
floor that are otherwise reported as systematized orders; and (2) 
market maker verbal announcements of firm quotes on an exchange trading 
floor, to the extent either are considered orders reportable under Rule 
613 of Regulation NMS, the CAT NMS Plan and the Compliance Rules, until 
July 31, 2023. As a condition to this exemptive relief, the 
Participants state that they would continue to require that firm verbal 
interest on an exchange floor (which includes both floor broker verbal 
announcements of firm bids and offers and market maker verbal 
announcements of firm quotes) be expressed pursuant to exchange rules 
approved by the Commission,\6\ and that any such firm verbal interest 
expressed by a floor broker must be related to a CAT-reportable 
systematized order, and any resulting trade must be reported to CAT.
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    \6\ Exchanges with floors currently have rules that govern the 
operation of the trading floor, from original receipt and 
systematization of an order by a floor broker to execution, 
including rules describing how verbal interest on an exchange floor 
is to be communicated. See, e.g., July 1, 2020 Exemption Request, 
Exhibit A (describing the process for relevant exchanges).
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    In addition, the Participants request that the Commission exempt 
each Participant from the requirement in Section 6.4(d) of the CAT NMS 
Plan that each Participant, through its Compliance Rule, require its 
Industry Members to record and electronically report to the Central 
Repository the following communications that occur ``upstairs,'' \7\ to 
the extent such are considered reportable under Rule 613 of Regulation 
NMS, the CAT NMS Plan and the Compliance Rules, until July 31, 2023: 
(1) Telephone discussions between an Industry Member and a client that 
may involve firm bid and offer communications; and (2) unstructured 
electronic and verbal communications that are not currently captured by 
Industry Member order management or execution systems (e.g., Bloomberg 
chats, text messages).
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    \7\ ``Upstairs'' is a term used to describe the off-exchange 
market. For example, trading that occurs within a broker-dealer firm 
or between two broker-dealers in the over-the-counter market would 
be described as occurring ``upstairs.''
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A. Exchange Floor Activity

    The Participants state that on all exchanges with floor trading,\8\ 
each order must be systematized upon receipt by the floor broker on the 
floor of the exchange.\9\ The Participants further state that an order 
is considered systematized: (1) When it is sent electronically to the 
floor broker's system at the exchange; or (2) when the order is 
manually systematized by the floor broker upon receipt outside of the 
floor broker's system and prior to representation in the floor trading 
crowd.\10\ To the extent a floor broker is not holding a systematized 
order, the floor broker is not eligible to represent any firm bid or 
offer, or to request firm quotes from in-crowd market participants on 
the floor of an exchange.\11\ The Participants state that all firm bids 
or offers represented by a floor broker must be associated with orders 
that have already been systematized, and that any activity by the floor 
broker prior to systemization cannot be related to an order, bid or 
offer pursuant to the CAT NMS Plan.\12\ As a result of the 
systematization requirements, all orders represented verbally by a 
floor broker on an exchange floor are required to be captured in 
exchange systems and, under CAT requirements, the floor broker's 
receipt of the order, and any modification, electronic route, 
cancellation, or execution of the order is subject to CAT 
reporting.\13\ The Participants believe that two verbal events on 
exchange floors may be CAT-reportable: Floor broker announcements of 
firm orders and market maker announcements of firm quotes.
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    \8\ Currently, these exchanges are NYSE, NYSE American, NYSE 
Arca, CBOE, PHLX and BOX.
    \9\ See July 1, 2020 Exemption Request, supra note 3, at 3.
    \10\ See id. at 3.
    \11\ See July 1, 2020 Exemption Request, supra note 3, at 3. See 
also NYSE Rule 7.35B, NYSE Arca Rule 6.67-O, NYSE American Rule 
955NY and Cboe Rule 5.91(a)(4).
    \12\ See July 1, 2020 Exemption Request, supra note 3, at 3. See 
also NYSE Rule 7.35B, NYSE Arca Rule 6.67-O, NYSE American Rule 
955NY and Cboe Rule 5.91(a)(4).
    \13\ See July 1, 2020 Exemption Request, supra note 3, at 3.
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    The Participants state that that reporting of either of these two 
verbal events were not contemplated when the Commission and the 
Participants were considering the cost and impact of the CAT NMS 
Plan.\14\ The Participants further state that requiring these elements 
to be reported to CAT would have a significant and costly impact to 
exchange floors, to floor broker and market maker business models, and 
to market structure; and the data being captured would provide minimal 
added regulatory benefit, likely not justified by

[[Page 73546]]

the costs that would be required to create systems to capture the 
activity.\15\
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    \14\ See id. at 6-7.
    \15\ See id. at 6.
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    The Participants explain that floor brokers and floor market makers 
will ultimately be required to expend significant effort and funds to 
provide the data necessary to report verbal orders and quotes to 
CAT.\16\ The Participants state that if verbal floor activity were 
required to be reported to CAT, Industry Members operating on exchange 
floors would need to create a process or system to electronically 
record in real time the firm data being verbally communicated on 
exchange floors and to merge that data into the information tracked 
electronically.\17\ The Participants state that neither the exchanges 
with floors nor Industry Members currently collect or have the means to 
collect the data for verbal activity on the floor for purposes for CAT 
reporting and the measures necessary to put such systems in place would 
significantly disrupt floor trading.\18\ The Participants further state 
that requiring such reporting would likely cause market makers to miss 
participation in fast-changing markets, and no similar burden would be 
borne by electronic market makers, whose data collection for CAT 
reporting will not impact their real-time ability to provide liquidity 
to the market.\19\
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    \16\ See id. at 6.
    \17\ See id. at 9.
    \18\ See July 1, 2020 Exemption Request, supra note 3, at 6.
    \19\ See id. at 8.
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B. Unstructured Verbal and Electronic Activity

    The Participants believe that much unstructured verbal and 
electronic activity by Industry Members does not involve firm orders 
and is thus not subject to CAT reporting.\20\ However, the Participants 
believe that two types of verbal and unstructured electronic upstairs 
activity may involve firm orders that would be subject to CAT 
reporting: (1) Verbal telephone discussions between an Industry Member 
and a client and (2) unstructured electronic communications that are 
not currently captured by Industry Member order management or execution 
systems.
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    \20\ See id. at 9.
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    The Participants state that telephonic discussions and unstructured 
electronic upstairs activities were not contemplated as being CAT 
reportable at the time the Commission adopted Rule 613 of Regulation 
NMS and the CAT NMS Plan.\21\ The Participants state that the industry 
has provided the Participants with cost projections for capturing and 
reporting upstairs negotiations, which are estimated to be 
approximately $485 million to $590 million.\22\ The Participants 
further state that these cost projections recognize that Industry 
Members do not currently collect data for these scenarios, and do not 
have the means today to collect such data. The Participants also 
explain that there is uncertainty whether necessary information can be 
captured with today's technology or personnel in a reliable, accurate 
and consistent manner.\23\ The Participants do not believe this 
information will add much value to the data available in CAT and any 
minimal added regulatory benefit would be outweighed by costs imposed 
on, and adverse impact on, Industry Members.\24\
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    \21\ See id. at 9-10.
    \22\ See id. at 10.
    \23\ See July 1, 2020 Exemption Request, supra note 3, at 10. 
The Commission understands that this estimation is based on industry 
cost projections and assumes significant manual intervention is 
necessary to capture this information.
    \24\ See id.
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    The Participants state that the changes required to capture and 
report verbal and unstructured electronic upstairs activity would cause 
significant and adverse changes to existing industry practices and 
business models, which would conflict with one of the underlying 
principles of the CAT.\25\ The Participants also state that reporting 
of this activity may also slow trading processes at certain broker-
dealers, and/or may increase the time to initiate a trade, causing 
clients potentially to receive less advantageous pricing for 
investors.\26\ The Participants also believe that if required to be 
reported, Industry Members may modify their workflows to rely more 
heavily on indications of interest or similar methods outside the 
definition of an order, thereby avoiding CAT reporting requirements for 
that activity, which could have a negative impact on the price 
discovery process as well as existing workflows.\27\
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    \25\ See id.
    \26\ See id.
    \27\ See id.
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    The Participants also state that identifying and reporting of 
verbal or unstructured electronic communications is difficult and given 
the subjective nature of determining whether or not a bid or offer is 
firm, CAT reporting of such communications will be variable and 
inconsistent.\28\ The Participants state that Industry Members and 
different individuals could reach different conclusions about whether 
or not specific verbal or unstructured electronic communications meet 
the elements of a CAT Reportable Event and Industry Members on opposite 
sides of a bid/offer may capture the same activity differently, 
resulting in a misleading view of the transaction.\29\
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    \28\ See July 1, 2020 Exemption Request, supra note 3, at 10.
    \29\ See id. at 10.
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III. Discussion of Participants' Exemption Request

    The Commission has carefully considered the information provided by 
the Participants in support of the Participants' exemption request. The 
Commission believes that granting temporary exemptive relief is, 
pursuant to Section 36 of the Exchange Act, appropriate in the public 
interest and consistent with the protection of investors, and that 
pursuant to Rule 608(e), this exemption is consistent with the public 
interest, the protection of investors, the maintenance of fair and 
orderly markets and the removal of impediments to, and the perfection 
of a national market system.
    Rule 613(j)(9) of Regulation NMS and Section 1.1 of the CAT NMS 
Plan defines the term ``reportable event'' as including, but not 
limited to, the original receipt or origination, modification, 
cancellation, routing, and execution (in whole or in part) of an order, 
and receipt of a routed order.\30\ The term ``order'' is defined in 
Rule 613(j)(8) of Regulation NMS and Section 1.1 of the CAT NMS Plan as 
including: (i) Any order received by a member of a national securities 
exchange or national securities association from any person; (ii) any 
order originated by a member of a national securities exchange or 
national securities association; or (iii) any bid or offer.\31\ ``Bid'' 
and ``offer'' are defined in Regulation NMS as the bid price or offer 
price communicated by a member of an exchange or association to any 
broker-dealer or to any customer, at which it is willing to buy or sell 
one or more round lots of an NMS security, as principal or agent, but 
excluding indications of interest.\32\
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    \30\ See 17 CFR 242.613(j)(9).
    \31\ See 17 CFR 242.613(j)(8).
    \32\ See 17 CFR 242.600(b)(8).
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    Rule 613 and the CAT NMS Plan both require the capture and 
reporting of quotes and orders that meet the definition of a CAT 
reportable event, which includes verbal quotes and orders. The 
Commission believes that many unstructured verbal or manual 
communications on exchange floors and ``upstairs'' are reportable 
events under Rule 613 and the CAT NMS Plan because firm verbal quotes 
and orders,

[[Page 73547]]

whether they occur on an exchange floor or ``upstairs,'' are reportable 
to CAT if they are a firm bid or offer. As the Participants note, firm 
indications of a willingness to buy or sell a security are orders, 
bids, or offers and have reportable events associated with them 
pursuant to the CAT NMS Plan.\33\ However, indications of interest and 
other verbal negotiations that do not constitute firm quotes or orders 
are not reportable to CAT, and many unstructured verbal or manual 
communications on exchange floors and ``upstairs'' are not reportable 
to CAT because they are not firm.
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    \33\ See July 1, 2020 Exemption Request, supra note 3, at 3.
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    The Commission disagrees with the Participants' statement that the 
verbal announcement of already systematized and reported orders and of 
firm quotes on exchange floors, firm bid and offer communications in 
verbal telephone discussions between an Industry Member and a client, 
and firm orders in unstructured electronic communications that are not 
currently captured by Industry Member order management or execution 
systems were not contemplated as being CAT-reportable at the time the 
Commission adopted Rule 613 and the approval of the CAT NMS Plan. 
Verbal quotes and orders are a subset of ``Manual Order Events,'' 
which, as defined by the CAT NMS Plan, are non-electronic 
communications of order-related information for which CAT Reporters 
must record and report the time of the event.\34\ Prior to approval of 
the CAT NMS Plan, the Participants requested and were granted exemptive 
relief from the requirement in Rule 613(d)(3) of Regulation NMS that, 
for Manual Order Events, each CAT Reporter record and report details 
for reportable events in timestamps to the millisecond.\35\ In support 
of the request, the SROs listed examples illustrating reportable events 
involving the non-electronic communication of order-related information 
for which CAT Reporters must record and report the time of the event 
under Rule 613, and, among other things, noted that ``a floor broker at 
an exchange that represents an order on the floor of the exchange may 
have to capture the time stamp of order events manually.'' \36\
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    \34\ See CAT NMS Plan at Section 1.1 (defining ``Manual Order 
Events'' as ``a non-electronic communication of order-related 
information for which CAT Reporters must record and report the time 
of the event'').
    \35\ See Securities Exchange Act Release No. 77265 (March 1, 
2016), 81 FR 11856 (March 7, 2016). The Commission granted exemptive 
relief conditioned upon (1) Manual Order Events being recorded and 
reported with granularity to the second; (2) Manual Order Events 
being identified as such in the CAT; and (3) the Electronic Capture 
of Manual Order Events being recorded and reported to the 
millisecond. Manual Order Events are defined in the CAT NMS Plan as 
a non-electronic communication of order-related information for 
which CAT Reporters must record and report the time of the event.
    \36\ See letter from BATS Exchange, Inc., BATS Y-Exchange, Inc., 
BOX Options Exchange LLC, C2 Options Exchange, Inc., Chicago Board 
Options Exchange, Inc., Chicago Stock Exchange, Inc., EDGA Exchange, 
Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, 
Inc., International Securities Exchange, LLC, ISE Gemini, LLC, Miami 
International Securities Exchange LLC, The Nasdaq Stock Market LLC, 
Nasdaq OMX BX, Inc., Nasdaq OMX PHLX LLC, National Stock Exchange, 
Inc., NYSE Arca, Inc., New York Stock Exchange LLC, and NYSE MKT LLC 
to Brent J. Fields, Secretary, Commission, dated January 30, 2015, 
at 33, available at: https://www.sec.gov/rules/exorders/2016/finra-incoming-letter-013015.pdf.
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    The Participants state that capturing this verbal activity would be 
costly, and provide minimal added regulatory benefit likely not 
justified by the costs. In particular, as noted above, Industry Members 
have provided Participants with cost projections for capturing and 
reporting upstairs negotiations, which are estimated to be 
approximately $485M to $590M. The Commission acknowledges the current 
difficulties of implementing reporting of such events, as described by 
the Participants in the July 1, 2020 Exemption Request. Currently, the 
exchanges with floors and Industry Members do not have the means to 
collect the information necessary for reporting verbal activity on 
exchange floors or upstairs. At the same time, the Commission believes 
that the collection of verbal quotes and orders would provide 
regulatory benefits that do not currently exist today and disagrees 
with the Participants statement that capturing such data would provide 
minimal added regulatory benefit.\37\ Such reporting would help 
regulators better identify potential violations of securities laws, 
regulations, and exchange rules, including violations of best execution 
obligations, firm bid/offer obligations and exchange priority rules. 
For example, the reporting of firm verbal quotes from floor market 
makers would allow regulators to determine whether a market maker has 
``backed away'' from a firm quote. Currently, regulators do not have 
detailed information relating to most verbal quotes and orders and such 
information would allow regulators to more capably perform regulatory 
and surveillance functions, and the Commission does not believe it is 
appropriate to exclude such quotes and orders from CAT reporting, which 
often are more complex and/or involve larger-sized orders, particularly 
on options trading floors and trading floors for proprietary products.
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    \37\ See July 1, 2020 Exemption Request, supra note 3, at 6 and 
10.
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    Given the concerns expressed by the Participants, the Commission 
believes the Participants' request to delay the reporting requirements 
for verbal quotes and orders is reasonable. While including verbal 
quotes and orders in the CAT will provide regulatory benefits, the 
Commission acknowledges that the reporting of such orders and quotes 
involves complexity and/or costs, especially because capture of this 
information may require significant manual human intervention. The 
Commission believes that granting temporary exemptive relief to delay 
the reporting of verbal quotes and orders could allow Participants and 
Industry Members time to develop or implement technological changes 
necessary to capture this information at a lower cost. The Commission 
further believes that over time, the costs of capturing this CAT 
reportable information could decline due to technological or business 
developments, such as through the usage of artificial intelligence or 
automated processes to capture and report such information, instead of 
reliance on the manual capture of order information.
    Based on the foregoing, pursuant to Section 36 of the Exchange Act, 
it is appropriate in the public interest and consistent with the 
protection of investors, and pursuant to Rule 608(e), it is consistent 
with the public interest, the protection of investors, the maintenance 
of fair and orderly markets and the removal of impediments to, and the 
perfection of a national market system to grant temporary relief for 
the reporting of: (1) Floor broker verbal announcements of firm orders 
on an exchange that are otherwise reported as systematized orders; (2) 
market maker verbal announcements of firm quotes on an exchange trading 
floor and; (3) telephone discussions between an Industry Member and a 
client that involve firm bid and offer communications; and (4) 
unstructured electronic communications that are not currently captured 
by Industry Member order management or execution systems. Granting 
temporary exemptive relief until July 31, 2023, which is the date 
requested by Participants in the July 1, 2020 Exemption Request, and 
which is approximately one year after the date by which the 
Participants previously estimated that the CAT would be fully 
implemented, July 11,

[[Page 73548]]

2022,\38\ would provide CAT Reporters the time to fully consider how to 
report such events and create the necessary technological and process 
changes required to capture these required quotes and orders while 
minimizing potential business disruptions and impacts to existing 
workflows. As a condition to this relief, the Participants must provide 
the Commission a written status update on the reporting of these quotes 
and orders by July 31, 2022, including the estimated costs of reporting 
these quotes and orders and an implementation plan for the reporting of 
these quotes and orders.
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    \38\ See Securities Exchange Act Release No. 88890 (May 15, 
2020), 85 FR 31322, 31334 (May 22, 2020).
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IV. Conclusion

    The Commission believes it is appropriate to grant temporary 
exemptive relief that exempts each Participant from the requirement in 
Section 6.4(d) of the CAT NMS Plan for each Participant, through its 
Compliance Rule, to require its Industry Members to record and 
electronically report to the Central Repository the following 
communications, until July 31, 2023: (1) Floor broker verbal 
announcements of firm orders on an exchange that are otherwise reported 
as systematized orders; (2) market maker verbal announcements of firm 
quotes on an exchange trading floor; (3) telephone discussions between 
an Industry Member and a client that may involve firm bid and offer 
communications; and (4) unstructured electronic and verbal 
communications that are not currently captured by Industry Member order 
management or execution systems. As a condition to this relief, the 
Participants must provide the Commission a written status update on the 
reporting of these quotes and orders by July 31, 2022, including the 
estimated costs of reporting these quotes and orders and an 
implementation plan for the reporting of these quotes and orders. 
Furthermore, as a condition to this exemptive relief, Participants must 
continue to require that firm verbal interest on an exchange floor be 
expressed pursuant to exchange rules approved by the Commission and 
Participants must require that any firm verbal interest expressed by a 
floor broker must be related to a CAT-reportable systematized order, 
and any resulting trade must be reported to CAT.
    Accordingly, it is hereby ordered, pursuant to Section 36(a)(1) of 
the Exchange Act,\39\ and Rule 608(e) of the Exchange Act \40\ that the 
Participants are granted an exemption, until July 31, 2023, from the 
requirement in Section 6.4(d) of the CAT NMS Plan that requires each 
Participant, through its Compliance Rule, to require its Industry 
Members to record and electronically report to the Central Repository: 
(1) Floor broker verbal announcements of firm orders on an exchange 
that are otherwise reported as systematized orders; (2) market maker 
verbal announcements of firm quotes on an exchange trading floor; (3) 
telephone discussions between an Industry Member and a client that may 
involve firm bid and offer communications; (4) unstructured electronic 
and verbal communications that are not currently captured by Industry 
Member order management or execution systems (e.g., Bloomberg chats, 
text messages), subject to the conditions described above.
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    \39\ 15 U.S.C. 78mm(a)(1).
    \40\ 17 CFR 242.608(e).

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25393 Filed 11-17-20; 8:45 am]
BILLING CODE 8011-01-P
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