Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Eliminate IEX Rule 11.420 (Order Audit Trail System (“OATS”) Requirements) To Reflect the September 1, 2021 Retirement of OATS, 50564-50568 [2021-19422]
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Federal Register / Vol. 86, No. 172 / Thursday, September 9, 2021 / Notices
p.m. until 9:00 p.m. (CT), at the Palo
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mtg.
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Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
Dated: September 2, 2021.
For the Nuclear Regulatory Commission.
Bruce A. Watson,
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Division of Decommissioning, Uranium
Recovery, and Waste Programs, Office of
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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
self-regulatory organization 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 self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
[FR Doc. 2021–19417 Filed 9–8–21; 8:45 am]
BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92868; File No. SR–IEX–
2021–10]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Eliminate
IEX Rule 11.420 (Order Audit Trail
System (‘‘OATS’’) Requirements) To
Reflect the September 1, 2021
Retirement of OATS
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September 2, 2021.
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 August
31, 2021, the Investors Exchange LLC
(‘‘IEX’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Pursuant to the provisions of Section
19(b)(1) of the Act, and Rule 19b–4
thereunder, IEX is filing with the
Commission a proposed rule change to
eliminate IEX Rule 11.420 (Order Audit
Trail System (‘‘OATS’’) Requirements)
to reflect that as of September 1, 2021,
the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) will have
retired OATS, and Industry Members
will be effectively reporting to the
consolidated audit trail (‘‘CAT’’)
adopted pursuant to the National
Market System Plan Governing the
Consolidated Audit Trail (the ‘‘CAT
NMS Plan’’ or ‘‘Plan’’).
The text of the proposed rule change
is available at the Exchange’s website at
www.iextrading.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
IEX is filing with the Commission a
proposed rule change to eliminate IEX
Rule 11.420 to reflect that as of
September 1, 2021, FINRA will have
retired OATS, and Industry Members
will be effectively reporting to the CAT
adopted pursuant to the CAT NMS Plan.
I Background
IEX, FINRA, and the other national
securities exchanges (collectively, the
‘‘Participants’’) 3 filed with the
3 For a complete list of Participants, see Exhibit
A to the Limited Liability Company Agreement of
Consolidated Audit Trail, LLC, available at
www.catnmsplan.com/sites/default/files/2020-07/
LLC-Agreement-of-Consolidated-Audit-Trail-LLCas-of-7.24.20.pdf.
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Commission, pursuant to Section 11A of
the Exchange Act 4 and Rule 608 of
Regulation NMS thereunder,5 the CAT
NMS Plan.6 The Participants filed the
Plan to comply with Rule 613 of
Regulation NMS under the Exchange
Act.7 The Plan was published for
comment in the Federal Register on
May 17, 2016,8 and approved by the
Commission, as modified, on November
15, 2016.9 On March 15, 2017, the
Commission approved the new IEX Rule
Series 11.600 10 to implement
provisions of the CAT NMS Plan that
are applicable to IEX Members.11
The CAT NMS Plan is intended to
create, implement, and maintain a
consolidated audit trail that will capture
in a single consolidated data source
customer and order event information
for orders in NMS Securities and OTC
Equity Securities, across all markets,
from the time of order inception through
routing, cancellation, modification, or
execution.12 Among other things, the
CAT NMS Plan, as modified by the
Commission, requires each Participant
to ‘‘file with the SEC the relevant rule
change filing to eliminate or modify its
duplicative rules within six (6) months
of the SEC’s approval of the CAT NMS
Plan.’’ 13 The Plan notes that ‘‘the
4 15
U.S.C. 78k–1.
CFR 242.608.
6 See Letter from the Participants to Brent J.
Fields, Secretary, Commission, dated September 30,
2014; and Letter from Participants to Brent J. Fields,
Secretary, Commission, dated February 27, 2015.
On December 24, 2015, the Participants submitted
an amendment to the CAT NMS Plan. See Letter
from Participants to Brent J. Fields, Secretary,
Commission, dated December 23, 2015.
7 17 CFR 242.613.
8 See Securities Exchange Act Rel. No. 77724
(Apr. 27, 2016), 81 FR 30614 (May 17, 2016).
9 See Securities Exchange Act Rel. No. 79318
(Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016).
10 See Securities Exchange Act Rel. No. 80255
(March 15, 2017), 82 FR 14563 (March 21, 2017).
11 See IEX Rule 1.160(s).
12 See, e.g., Securities Exchange Act Release No.
67457 (July 18, 2012), 77 FR 45722, 45723 (August
1, 2012).
13 See CAT NMS Plan, Appendix C, Section C.9.
In compliance with this requirement, on May 15,
2017, IEX, alongside the other Participants, filed a
proposed rule change to eliminate the OATS Rules
and amend IEX Rule 8.220 (the Electronic Blue
Sheets or ‘‘EBS’’ rule). See Securities Exchange Act
Release No. 80788 (May 26, 2017), 82 FR 25400
(June 1, 2017) (SR–IEX–2017–18) (‘‘original
proposal’’). IEX filed an amendment to the original
proposal on August 24, 2017. See Letter from
Claudia Crowley to Brent Fields dated August 24,
2017, available at https://www.sec.gov/comments/
sr-iex-2017-18/iex201718-2243339-160872.pdf. The
original proposal was subsequently withdrawn but
provided similar views and mechanisms for
eliminating the OATS rule as this proposed rule
change does, and, as noted above, also proposed to
amend the EBS rules. See Securities Exchange Act
Release No. 82524 (January 17, 2018), 83 FR 3239
(January 23, 2018) (Notice of Withdrawal of File No.
SR–IEX–2017–18). IEX notes that the current filing
addresses only the elimination of the OATS rule.
5 17
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elimination of such rules and the
retirement of such systems [will] be
effective at such time as CAT Data meets
minimum standards of accuracy and
reliability.’’ 14 Specifically, the Plan
requires the rule filing to discuss the
following:
• Specific accuracy and reliability
standards that will determine when
duplicative systems will be retired,
including, but not limited to, whether
the attainment of a certain Error Rate
should determine when a system
duplicative of the CAT can be retired;
• whether the availability of certain
data from Small Industry Members 15
two years after the Effective Date would
facilitate a more expeditious retirement
of duplicative systems; and
• whether individual Industry
Members can be exempted from
reporting to duplicative systems once
their CAT reporting meets specified
accuracy and reliability standards,
including, but not limited to, ways in
which establishing cross-system
regulatory functionality or integrating
data from existing systems and the CAT
would facilitate such Individual
Industry Member exemptions.16
On November 30, 2020, the
Commission approved a FINRA rule
filing proposing to eliminate the FINRA
OATS system once FINRA members are
effectively reporting to the CAT and the
CAT’s accuracy and reliability meet
certain standards.17 Specifically, FINRA
Proposed amendments to the EBS rules would be
subject to a separate rule filing made in conjunction
with SEC rulemaking to amend Rule 17a–25 under
the Exchange Act. 17 CFR 240.17a–25.
14 See CAT NMS Plan, Appendix C, Section C.9.
15 ‘‘Small Industry Member’’ is defined in IEX
Rule 11.610(pp) as an Industry Member that
qualifies as a small broker-dealer as defined in Rule
0–10(c) of the Exchange Act. On April 20, 2020, the
Commission granted exemptive relief from certain
provisions of the CAT NMS Plan related to brokerdealers that do not qualify as Small Industry
Members solely because such broker-dealers satisfy
Rule 0–10(i)(2) under the Exchange Act in that they
introduce transactions on a fully disclosed basis to
clearing firms that are not small businesses or small
organizations (referred to as ‘‘Introducing Industry
Members’’). Specifically, the Commission provided
exemptive relief from requiring Introducing
Industry Members to comply with the requirements
of the CAT NMS Plan that apply to Industry
Members other than Small Industry Members
(‘‘Large Industry Members’’), provided that the
Participants require such Introducing Industry
Members to comply with the requirements of the
CAT NMS Plan that apply to Small Industry
Members. See Securities Exchange Act Release No.
88703 (April 20, 2020), 85 FR 23115 (April 24,
2020) (Order Granting Limited Exemptive Relief
Related to Certain Introducing Brokers From the
Requirements of the CAT NMS Plan) (the
‘‘Introducing Brokers Exemptive Order’’). As used
herein, the term ‘‘Small Industry Member’’ includes
Introducing Industry Members in accordance with
the Introducing Brokers Exemptive Order.
16 See supra note 14.
17 See Securities Exchange Act Release No. 90535
(November 30, 2020), 85 FR 78395 (December 4,
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proposed that before OATS could be
retired, the CAT generally must achieve
a sustained error rate for Industry
Member reporting in five categories for
a period of at least 180 days 18 of 5% or
lower on a pre-correction basis, and 2%
or lower on a post-correction basis
(measured at T+5). In addition to the
maximum error rates and matching
thresholds (hereafter the ‘‘threshold
requirements’’), FINRA’s use of CAT
Data must confirm that (i) there are no
material issues that have not been
corrected, (ii) the CAT includes all data
necessary to allow FINRA to continue to
meet its surveillance obligations, and
(iii) the Plan Processor is sufficiently
meeting its obligations under the CAT
NMS Plan relating to the reporting and
linkage in the initial phase of reporting
(‘‘Phase 2a’’) of Industry Member Data.
In the OATS Retirement Plan Order,
the Commission approved FINRA’s
proposal for how it would measure the
CAT Data’s accuracy and reliability.
Specifically, the Commission endorsed
FINRA’s proposal that FINRA’s review
of CAT Data and error rates would be
based on data and linkages in Phase 2a,
which replicate the data in OATS today
and thus are most relevant for OATS
retirement purposes. Phase 2a Data
includes all events and scenarios
covered by OATS and applies only to
equities. And FINRA would not
consider options order events or Phase
2c data and validations, which are not
in OATS today, for purposes of OATS
retirement.19
On June 17, 2021, FINRA made an
immediately effective filing setting forth
the basis for its determination that the
accuracy and reliability of the CAT met
the standards approved by the
Commission in the OATS Retirement
Plan Order and designating September
1, 2021 as the date on which FINRA
would retire OATS.20 Specifically,
FINRA determined that the CAT met the
threshold requirements endorsed by the
Commission in the OATS Retirement
Plan Order for Industry Member
reporting in each of the following
categories:
A. Rejection Rates and Data Validations
As described in the OATS Retirement
Filing, the Plan Processor must perform
2020) (SR–FINRA–2020–024) (‘‘OATS Retirement
Plan Order’’).
18 As set forth in the OATS Retirement Plan
Order, the 180 day ‘‘applicable period’’ ran from
October 26, 2020 to April 26, 2021. October 26,
2020 was the date that Industry Members were
required to begin correcting all errors for inter-firm
linkages and exchange/TFR/ORF match validations.
19 See supra note 17.
20 See Securities Exchange Act Release No. 92239
(June 23, 2021), 86 FR 34293 (June 29, 2021) (SR–
FINRA–2021–017) (‘‘OATS Retirement Filing’’).
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50565
certain basic data validations, and if a
record does not pass these basic data
validations, it must be rejected and
returned to the CAT Reporter to be
corrected and resubmitted.21 FINRA
determined that for the applicable
period, aggregate rejection rates across
all Industry Member Reporters were
0.03% pre-correction and 0.01% postcorrection, which far exceeds the
threshold requirements of a 5% or lower
pre-correction error rate and a 2% or
lower post-correction error rate.
B. Intra-Firm Linkages
As described in the OATS Retirement
Filing, the Plan Processor must be able
to link all related order events from all
CAT Reporters involved in the lifecycle
of an order. At a minimum, this
requirement includes the creation of an
order lifecycle between all order events
handled within an individual CAT
Reporter, including orders routed to
internal desks or departments with
different functions (e.g., an internal
ATS). FINRA determined that for the
applicable period, the intra-firm linkage
accuracy rates across all Industry
Member Reporters were 99.07% precorrection and 99.99% post-correction,
which far exceeds the threshold
requirements of 95% or higher precorrection and 98% or higher postcorrection (in other words, the intrafirm linkages accuracy far exceeds the
threshold requirement that there be less
than 5% inaccuracy pre-correction and
less than 2% inaccuracy postcorrection).
C. Inter-Firm Linkages
As described in the OATS Retirement
Filing, the Plan Processor must be able
to create the lifecycle between orders
routed between broker-dealers. FINRA
determined that for the applicable
period, the intra-firm linkage accuracy
rates across all Industry Member
Reporters were 99.08% pre-correction
and 99.84% post-correction, which far
exceed the threshold requirements of
95% or higher pre-correction and 98%
or higher post-correction (in other
words, the inter-firm linkages accuracy
far exceeds the threshold requirement
that there be less than 5% inaccuracy
pre-correction and less than 2%
inaccuracy post-correction).
21 Appendix D of the CAT NMS Plan, Section 7.2,
for example, requires that certain file validations
(e.g., file transmission and receipt are in the correct
formats, confirmation of a valid SRO-Assigned
Market Participant Identifier, etc.), and syntax and
context checks (e.g., format checks, data type
checks, consistency checks, etc.) be performed on
all submitted records.
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D. Order Linkage Rates
As described in the OATS Retirement
Filing, in addition to creating linkages
within and between broker-dealers, the
Plan Processor must be able to create
lifecycles to link various pieces of
related orders. For example, the Plan
requires linkages of order information to
create an order lifecycle from
origination or receipt to cancellation or
execution. This category essentially
combines all of the order-related
linkages to capture an overall snapshot
of order linkages in the CAT.22 FINRA
determined that for the applicable
period, the order-related linkage
accuracy rates across all Industry
Member Reporters were 99.66% precorrection and 99.93% post-correction,
which far exceed the threshold
requirements of 95% or higher precorrection and 98% or higher postcorrection (in other words, the order
linkages accuracy far exceeds the
threshold requirement that there be less
than 5% inaccuracy pre-correction and
less than 2% inaccuracy postcorrection).
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E. Exchange and TRF/ORF Match Rates
As described in the OATS Retirement
Filing, an order lifecycle must be
created to link orders routed from
broker-dealers to exchanges and
executed orders and trade reports.
FINRA determined that for the
applicable period, the match rate across
all equity exchanges for orders routed
from Industry Members to an exchange
was 99.51% pre-correction and 99.87%
post-correction. This match rate far
exceeds the threshold requirements of
95% or higher pre-correction and 98%
or higher post-correction (in other
words, the match rate accuracy far
exceeds the threshold requirement that
there be less than 5% inaccuracy precorrection and less than 2% inaccuracy
post-correction).
Based upon the accuracy and
reliability of the above five categories of
CAT Data, FINRA determined that the
CAT Data met the accuracy and
reliability standards required for OATS
retirement.23
II. FINRA’s Use of CAT Data
Additionally, the OATS Retirement
Plan Order set forth that before retiring
OATS, FINRA’s use of CAT data must
confirm that (i) there are no material
issues that have not been corrected (e.g.,
delays in the processing of data, issues
with query functions, etc.); (ii) the CAT
22 See Letter from Lisa C. Horrigan, Associate
General Counsel, FINRA, to Vanessa Countryman,
Secretary, Commission, dated October 29, 2020.
23 See supra note 20.
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includes all data necessary to allow
FINRA to continue to meet its
surveillance obligations; 24 and (iii) the
Plan Processor is sufficiently meeting its
obligations under the CAT NMS Plan
relating to the reporting and linkage of
Phase 2a Data.
As set forth in FINRA’s OATS
Retirement Filing, by September 1,
2021, FINRA will be ready to retire its
use of OATS data for cross-market
surveillance, and replace it with a
newly created surveillance data mart,
the Pattern Optimized Datamart
(‘‘POD’’), which incorporates equities
(and options) data submitted by both
Participants such as IEX and Industry
Members. IEX, like other Participants,
transitioned from reporting to FINRA
via the RSA specification, to reporting
via the CAT technical specification as of
April 26, 2021, and full Participant
equities reporting and linkage
validations commenced on June 1,
2021.25 Successful completion of the
transition to the CAT specification for
Participants was a prerequisite for
FINRA to retire the OATS-based cross
market surveillance patterns and
leverage CAT Data and linkages in POD
for its surveillance patterns. FINRA has
completed all planned activities on
schedule, including substantially
completing the process of integrating
CAT Data into POD and successfully
running large amounts of production
CAT Data for the month of May through
POD.26 FINRA anticipates completing
additional activities before the proposed
OATS retirement date of September 1,
2021, including planned user
acceptance testing.27
Additionally, FINRA has confirmed
that all of the data required to support
the transition from OATS to CAT is
available in CAT.28 Specifically, FINRA,
supported by the Participants,
conducted a mapping of all OATS data
24 FINRA conducts surveillance on behalf of IEX
pursuant to the Regulatory Service Agreement
entered into by IEX and FINRA (‘‘RSA’’). Therefore,
any references in this rule filing to FINRA
surveillance include FINRA’s use of either OATS or
CAT Data in furtherance of the regulatory services
it provides on behalf of IEX.
25 For example, according to the CAT Reporting
Technical Specification for Participants (version
4.0.0–r4 dated April 20, 2021), additional linkage
error feedback for off-exchange trade reports was
effective as of June 1, 2021. The Technical
Specifications can be found on the CAT NMS Plan
website at www.catnmsplan.com/sites/default/files/
2021-04/04.20.2021-CAT-Reporting-TechnicalSpecifications-for-Participants-4.0.0-r4.pdf.
26 See supra note 20.
27 As noted in the FINRA OATS Retirement
Filing, user acceptance testing is the final stage of
any software development lifecycle and enables
actual users to test the system to confirm it is able
to carry out the required tasks it was designed to
address in real-world situations.
28 See supra note 20.
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to CAT data, and then completed a ‘‘gap
analysis’’ to address any issues with the
field-level mapping of OATS to CAT
data. Furthermore, IEX, along with other
Participants, has had a very high
compliance rate in reporting CAT Data
using the CAT specifications (both in
the testing and production
environments).29 Reviewing the
Participant submitted CAT Data and
matching it with Industry Member data,
FINRA determined that the data
linkages in CAT are ‘‘comparable to the
linkages between RSA exchange data
and OATS data’’ currently used by
FINRA.30 Accordingly, the CAT NMS
Plan Operating Committee approved the
cutover from the RSA specification to
the CAT specification as the official
source of Participant data as of June 1,
2021, and today, all Industry Member
and Participant equities data reported
via the CAT specification is linked in
the CAT production environment.
Thus, FINRA will use OATS data for
surveillance patterns run through the
end of the second quarter of 2021 and
has already begun using CAT Data for
its surveillance patterns for review
periods beginning in the third quarter of
2021.31 As detailed in the OATS
Retirement Filing, FINRA will continue
to conduct regular reviews to ensure
confidence in the completeness and
accuracy of Industry Member reporting,
along with the ability to remediate any
issues in a timely manner.32
III. OATS May be Retired in Light of the
Accuracy and Reliability of the CAT
Data
IEX, like FINRA, believes that the
three additional standards set forth in
the OATS Retirement Order for retiring
OATS have been satisfied. With respect
to the first factor, IEX, like FINRA, does
not believe that there are any material
issues that have not been corrected (or
could not be corrected in the course of
operation of CAT, as approved by the
Operating Committee) that would
impact FINRA’s ability to incorporate
and use CAT Data in FINRA’s
surveillance program, which it conducts
on behalf of IEX pursuant to the RSA.
For example, the Plan requires that raw
unprocessed data that has been ingested
by the Plan Processor must be available
to Participant regulatory staff and the
SEC prior to 12:00 p.m. Eastern Time on
T+1, and access to all iterations of
processed data must be available to
29 For example, for the month of July 2021, IEX’s
compliance error rate for CAT Data reporting was
0.0435% (i.e., 99.9565% of records were
successfully reported).
30 See supra note 20.
31 See supra note 20.
32 See supra note 20.
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Participant regulatory staff and the SEC
between 12:00 p.m. Eastern Time on
T+1 and T+5.33 The Plan Processor also
must ensure that regulators have access
to corrected and linked order data by
8:00 a.m. Eastern Time on T+5.34
Additionally, after ingestion by the
Central Repository, the raw unprocessed
data must be transformed into a format
appropriate for data querying and
regulatory output.35 The user-defined
direct queries and bulk extracts must
provide authorized users with the
ability to retrieve CAT Data via a query
tool or language that allows users to
query all available attributes and data
sources.36 FINRA’s use of the CAT Data
has not uncovered any processing
delays or other material issues
impacting the availability of, and
FINRA’s access to, the data.37
With respect to the second factor, IEX,
like FINRA, believes that the CAT
includes all data necessary for FINRA to
meet its surveillance obligations after
the retirement of OATS. FINRA must
ensure that the CAT, as the single
source of order and trade data, can
enable FINRA to conduct accurate and
effective market surveillance in
accordance with its regulatory
obligations. As noted above, Phase 2a
Data includes all events and scenarios
covered by OATS and is the most
relevant for OATS retirement purposes.
FINRA’s testing, analysis and use of the
CAT Data (including integration into
POD), as described above, has
confirmed that the CAT includes all
data necessary for FINRA to meet its
surveillance obligations and that CAT is
a reliable substitute for OATS. In
addition, based on its qualitative data
reviews, FINRA has concluded that
Industry Member CAT Data, in the
aggregate, is a sufficient replacement for
OATS for purposes of FINRA’s
surveillance program.
With respect to the third factor, IEX,
like FINRA, believes that the Plan
Processor is sufficiently meeting its
obligations under the CAT NMS Plan
relating to the reporting and linkage of
Phase 2a Data. As detailed in the
Implementation Plan and Quarterly
Progress Reports submitted by the Plan
Participants, the Plan Processor has met
its targeted completion dates for the
milestones for Phase 2a, including, for
example, production Go-Live for
Equities 2a file submission and data
integrity validation (Large Industry
33 See
34 See
CAT NMS Plan, Appendix D, Section 6.2.
CAT NMS Plan, Appendix C, Section
A.2(a).
35 See CAT NMS Plan, Appendix C, Section
A.1(b).
36 See CAT NMS Plan, Section 6.10(c).
37 See supra note 20.
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19:38 Sep 08, 2021
Jkt 253001
Members and Small OATS Reporters)
on June 22, 2020; Production Go-Live
for Equities 2a Intrafirm Linkage
validations on July 27, 2020; and
production go-live for firm-to-firm
linkage validations for equities (Large
Industry Members and Small OATS
Reporters) and exchange and TRF/ORF
linkage validations for equities (Large
Industry Members and Small OATS
Reporters) on October 26, 2020.38
Based on the foregoing, IEX agrees
with FINRA’s determination that the
CAT meets the accuracy and reliability
standards approved by the Commission
in the OATS Retirement Order for
purposes of eliminating OATS. FINRA
has determined to retire OATS effective
September 1, 2021.39 Firms must
continue to report to OATS all order
events that occur on or prior to August
31, 2021. Reports submitted to OATS for
order events that occur after August 31,
2021 will be rejected. In other words,
August 31, 2021 will be the last ‘‘OATS
Business Day,’’ as defined under FINRA
Rule 7450(b)(3), for which OATS will
accept order events and perform routine
processing (including incorporation of
corrections and repairs of rejections)
occurring within the normal OATS
timeframe for such activities. OATS will
continue to accept reports for order
events that occur on or prior to August
31, 2021 (including, but not limited to,
late and corrected reports for such order
events) through September 16, 2021.
Firms must ensure that their OATS
reporting is accurate and complete for
all order events that occur on or prior
to August 31, 2021. IEX Rule 11.420,
like the FINRA OATS Rules, will be
deleted from the IEX rulebook effective
September 1, 2021.40
In light of the foregoing, IEX, like
FINRA, believes that retiring OATS as of
September 1, 2021 is appropriate,
particularly given the potential risks of
continuing to run OATS and CAT in
parallel for an additional period of time.
Such potential risks may include, for
example, on an industry-wide basis: (1)
Processing and storage capacity issues
from operating two systems (particularly
in the event of extraordinary market
volume); (2) cybersecurity risks from
having data flow through two separate
systems for a longer time period; (3)
systems issues from reporting
38 The Implementation Plan and Quarterly
Progress Reports are available at
www.catnmsplan.com/implementation-plan.
39 See FINRA Regulatory Notice 21–21 (June
2021).
40 In the unlikely event that FINRA determines it
is unable to retire OATS effective September 1,
2021, IEX will delay the retirement of IEX Rule
11.420 pending the actual retirement of FINRA
OATS.
PO 00000
Frm 00044
Fmt 4703
Sfmt 4703
50567
infrastructure that is near end-of-life;
and (4) the expense and burden on CAT
Reporters of dual reporting, particularly
in the event of systems issues requiring
correction and/or resubmission of data
and competing resource priorities
between OATS and CAT reporting and
repair activities.
IEX has filed the proposed rule
change for immediate effectiveness and
is seeking a waiver of the 30 day
operative delay to allow its OATS rules
to be retired concurrent with the
September 1, 2021 retirement of
FINRA’s OATS Rules. IEX will also
announce the retirement of OATS via a
trader alert to its Members.
2. Statutory Basis
IEX believes that the proposed rule
change is consistent with the provisions
of Section 6(b)(5) of the Act,41 which
require, among other things, that IEX’s
rules must be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest.
IEX believes that the proposed
retirement of IEX Rule 11.420 fulfills the
obligation in the CAT NMS Plan for IEX
to submit a proposed rule change to
eliminate or modify duplicative rules,
and that the CAT NMS Plan has
achieved the accuracy and reliability
standards required by the Commission
in the OATS Retirement Order.
Additionally, as discussed in the
Purpose section, IEX believes that the
use of CAT Data, whether by IEX
directly, or by FINRA pursuant to the
RSA, will continue to allow for accurate
and effective surveillance of market
activity on IEX. Therefore, IEX will
continue to be able to fulfill its statutory
obligation to protect investors and the
public interest after the retirement of
OATS.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
IEX 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. IEX notes
that the proposed rule change
implements provisions of the CAT NMS
Plan, facilitates the retirement of certain
existing regulatory systems, and is
designed to assist the Exchange in
meeting its regulatory obligations
pursuant to the Plan. IEX also notes that
the proposed rule change will apply
equally to all firms that trade NMS
Securities. In addition, all national
securities exchanges and FINRA are
41 15
E:\FR\FM\09SEN1.SGM
U.S.C. 78f(b)(5).
09SEN1
50568
Federal Register / Vol. 86, No. 172 / Thursday, September 9, 2021 / Notices
proposing substantially similar rule
filings. Therefore, this is not a
competitive rule filing, and, therefore, it
does not impose a burden on
competition.
Furthermore, IEX notes that FINRA
undertook an economic impact
assessment of the potential costs and
benefits associated with OATS
retirement and determined that CAT
meets or exceeds the OATS standards.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 42 and Rule
19b–4(f)(6) thereunder.43 Because the
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
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 44 and Rule 19b–4(f)(6)(iii)
thereunder.45
A proposed rule change filed under
Rule 19b–4(f)(6) 46 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),47 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 September 1, 2021,
the first day on which FINRA will no
longer accept OATS data (unless FINRA
delays the OATS retirement past that
42 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
44 15 U.S.C. 78s(b)(3)(A).
45 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s 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.
46 17 CFR 240.19b–4(f)(6).
47 17 CFR 240.19b–4(f)(6)(iii).
lotter on DSK11XQN23PROD with NOTICES1
43 17
VerDate Sep<11>2014
19:38 Sep 08, 2021
Jkt 253001
date.) 48 As discussed above, IEX
believes that it is appropriate for FINRA
to retire OATS as of September 1, 2021.
IEX states that the use of CAT Data,
whether by IEX directly, or by FINRA
pursuant to IEX’s RSA with FINRA, will
continue to allow for accurate and
effective surveillance of market activity
on IEX. In addition, August 31, 2021,
will be the last ‘‘OATS Business Day,’’
as defined under FINRA Rule
7450(b)(3), and reports submitted to
OATS for order events that occur after
August 31, 2021, will be rejected. The
Commission believes that it is
consistent with the protection of
investors and the public interest for IEX
to delete its OATS reporting rules at the
same time that FINRA retires OATS.
Accordingly, the Commission hereby
waives the 30-day operative delay and
designates the proposal operative on
September 1, 2021.49
At any time within 60 days of the
filing of this 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 will institute proceedings
to determine whether the proposed rule
change 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:
Commission process and review your
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 will also be available for
inspection and copying at the IEX’s
principal office and on its internet
website at www.iextrading.com. All
comments received will be posted
without change. 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–IEX–
2021–10, and should be submitted on or
before September 30, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–19422 Filed 9–8–21; 8:45 am]
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2021–10 on the subject line.
BILLING CODE 8011–01–P
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–IEX–2021–10. This file
number should be included on the
subject line if email is used. To help the
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Designation of a
Longer Period for Commission Action
on a Proposed Rule Change To List
and Trade Shares of the Sprott ESG
Gold ETF Under NYSE Arca Rule
8.201–E (Commodity-Based Trust
Shares)
48 See
supra note 40.
49 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).
PO 00000
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Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92867; File No. SR–
NYSEArca–2021–65]
September 2, 2021.
On July 19, 2021, NYSE Arca, Inc.
(‘‘NYSE Arca’’) filed with the Securities
and Exchange Commission
50 17
E:\FR\FM\09SEN1.SGM
CFR 200.30–3(a)(12).
09SEN1
]]>Agencies
[Federal Register Volume 86, Number 172 (Thursday, September 9, 2021)]
[Notices]
[Pages 50564-50568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19422]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92868; File No. SR-IEX-2021-10]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Eliminate IEX Rule 11.420 (Order Audit Trail System (``OATS'')
Requirements) To Reflect the September 1, 2021 Retirement of OATS
September 2, 2021.
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 August 31, 2021, the Investors Exchange LLC (``IEX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) of the Act, and Rule
19b-4 thereunder, IEX is filing with the Commission a proposed rule
change to eliminate IEX Rule 11.420 (Order Audit Trail System
(``OATS'') Requirements) to reflect that as of September 1, 2021, the
Financial Industry Regulatory Authority, Inc. (``FINRA'') will have
retired OATS, and Industry Members will be effectively reporting to the
consolidated audit trail (``CAT'') adopted pursuant to the National
Market System Plan Governing the Consolidated Audit Trail (the ``CAT
NMS Plan'' or ``Plan'').
The text of the proposed rule change is available at the Exchange's
website at www.iextrading.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 self-regulatory organization
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 self-regulatory organization
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
IEX is filing with the Commission a proposed rule change to
eliminate IEX Rule 11.420 to reflect that as of September 1, 2021,
FINRA will have retired OATS, and Industry Members will be effectively
reporting to the CAT adopted pursuant to the CAT NMS Plan.
I Background
IEX, FINRA, and the other national securities exchanges
(collectively, the ``Participants'') \3\ filed with the Commission,
pursuant to Section 11A of the Exchange Act \4\ and Rule 608 of
Regulation NMS thereunder,\5\ the CAT NMS Plan.\6\ The Participants
filed the Plan to comply with Rule 613 of Regulation NMS under the
Exchange Act.\7\ The Plan was published for comment in the Federal
Register on May 17, 2016,\8\ and approved by the Commission, as
modified, on November 15, 2016.\9\ On March 15, 2017, the Commission
approved the new IEX Rule Series 11.600 \10\ to implement provisions of
the CAT NMS Plan that are applicable to IEX Members.\11\
---------------------------------------------------------------------------
\3\ For a complete list of Participants, see Exhibit A to the
Limited Liability Company Agreement of Consolidated Audit Trail,
LLC, available at www.catnmsplan.com/sites/default/files/2020-07/LLC-Agreement-of-Consolidated-Audit-Trail-LLC-as-of-7.24.20.pdf.
\4\ 15 U.S.C. 78k-1.
\5\ 17 CFR 242.608.
\6\ See Letter from the Participants to Brent J. Fields,
Secretary, Commission, dated September 30, 2014; and Letter from
Participants to Brent J. Fields, Secretary, Commission, dated
February 27, 2015. On December 24, 2015, the Participants submitted
an amendment to the CAT NMS Plan. See Letter from Participants to
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
\7\ 17 CFR 242.613.
\8\ See Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016),
81 FR 30614 (May 17, 2016).
\9\ See Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016),
81 FR 84696 (Nov. 23, 2016).
\10\ See Securities Exchange Act Rel. No. 80255 (March 15,
2017), 82 FR 14563 (March 21, 2017).
\11\ See IEX Rule 1.160(s).
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The CAT NMS Plan is intended to create, implement, and maintain a
consolidated audit trail that will capture in a single consolidated
data source customer and order event information for orders in NMS
Securities and OTC Equity Securities, across all markets, from the time
of order inception through routing, cancellation, modification, or
execution.\12\ Among other things, the CAT NMS Plan, as modified by the
Commission, requires each Participant to ``file with the SEC the
relevant rule change filing to eliminate or modify its duplicative
rules within six (6) months of the SEC's approval of the CAT NMS
Plan.'' \13\ The Plan notes that ``the
[[Page 50565]]
elimination of such rules and the retirement of such systems [will] be
effective at such time as CAT Data meets minimum standards of accuracy
and reliability.'' \14\ Specifically, the Plan requires the rule filing
to discuss the following:
---------------------------------------------------------------------------
\12\ See, e.g., Securities Exchange Act Release No. 67457 (July
18, 2012), 77 FR 45722, 45723 (August 1, 2012).
\13\ See CAT NMS Plan, Appendix C, Section C.9. In compliance
with this requirement, on May 15, 2017, IEX, alongside the other
Participants, filed a proposed rule change to eliminate the OATS
Rules and amend IEX Rule 8.220 (the Electronic Blue Sheets or
``EBS'' rule). See Securities Exchange Act Release No. 80788 (May
26, 2017), 82 FR 25400 (June 1, 2017) (SR-IEX-2017-18) (``original
proposal''). IEX filed an amendment to the original proposal on
August 24, 2017. See Letter from Claudia Crowley to Brent Fields
dated August 24, 2017, available at https://www.sec.gov/comments/sr-iex-2017-18/iex201718-2243339-160872.pdf. The original proposal was
subsequently withdrawn but provided similar views and mechanisms for
eliminating the OATS rule as this proposed rule change does, and, as
noted above, also proposed to amend the EBS rules. See Securities
Exchange Act Release No. 82524 (January 17, 2018), 83 FR 3239
(January 23, 2018) (Notice of Withdrawal of File No. SR-IEX-2017-
18). IEX notes that the current filing addresses only the
elimination of the OATS rule. Proposed amendments to the EBS rules
would be subject to a separate rule filing made in conjunction with
SEC rulemaking to amend Rule 17a-25 under the Exchange Act. 17 CFR
240.17a-25.
\14\ See CAT NMS Plan, Appendix C, Section C.9.
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Specific accuracy and reliability standards that will
determine when duplicative systems will be retired, including, but not
limited to, whether the attainment of a certain Error Rate should
determine when a system duplicative of the CAT can be retired;
whether the availability of certain data from Small
Industry Members \15\ two years after the Effective Date would
facilitate a more expeditious retirement of duplicative systems; and
---------------------------------------------------------------------------
\15\ ``Small Industry Member'' is defined in IEX Rule 11.610(pp)
as an Industry Member that qualifies as a small broker-dealer as
defined in Rule 0-10(c) of the Exchange Act. On April 20, 2020, the
Commission granted exemptive relief from certain provisions of the
CAT NMS Plan related to broker-dealers that do not qualify as Small
Industry Members solely because such broker-dealers satisfy Rule 0-
10(i)(2) under the Exchange Act in that they introduce transactions
on a fully disclosed basis to clearing firms that are not small
businesses or small organizations (referred to as ``Introducing
Industry Members''). Specifically, the Commission provided exemptive
relief from requiring Introducing Industry Members to comply with
the requirements of the CAT NMS Plan that apply to Industry Members
other than Small Industry Members (``Large Industry Members''),
provided that the Participants require such Introducing Industry
Members to comply with the requirements of the CAT NMS Plan that
apply to Small Industry Members. See Securities Exchange Act Release
No. 88703 (April 20, 2020), 85 FR 23115 (April 24, 2020) (Order
Granting Limited Exemptive Relief Related to Certain Introducing
Brokers From the Requirements of the CAT NMS Plan) (the
``Introducing Brokers Exemptive Order''). As used herein, the term
``Small Industry Member'' includes Introducing Industry Members in
accordance with the Introducing Brokers Exemptive Order.
---------------------------------------------------------------------------
whether individual Industry Members can be exempted from
reporting to duplicative systems once their CAT reporting meets
specified accuracy and reliability standards, including, but not
limited to, ways in which establishing cross-system regulatory
functionality or integrating data from existing systems and the CAT
would facilitate such Individual Industry Member exemptions.\16\
---------------------------------------------------------------------------
\16\ See supra note 14.
---------------------------------------------------------------------------
On November 30, 2020, the Commission approved a FINRA rule filing
proposing to eliminate the FINRA OATS system once FINRA members are
effectively reporting to the CAT and the CAT's accuracy and reliability
meet certain standards.\17\ Specifically, FINRA proposed that before
OATS could be retired, the CAT generally must achieve a sustained error
rate for Industry Member reporting in five categories for a period of
at least 180 days \18\ of 5% or lower on a pre-correction basis, and 2%
or lower on a post-correction basis (measured at T+5). In addition to
the maximum error rates and matching thresholds (hereafter the
``threshold requirements''), FINRA's use of CAT Data must confirm that
(i) there are no material issues that have not been corrected, (ii) the
CAT includes all data necessary to allow FINRA to continue to meet its
surveillance obligations, and (iii) the Plan Processor is sufficiently
meeting its obligations under the CAT NMS Plan relating to the
reporting and linkage in the initial phase of reporting (``Phase 2a'')
of Industry Member Data.
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 90535 (November 30,
2020), 85 FR 78395 (December 4, 2020) (SR-FINRA-2020-024) (``OATS
Retirement Plan Order'').
\18\ As set forth in the OATS Retirement Plan Order, the 180 day
``applicable period'' ran from October 26, 2020 to April 26, 2021.
October 26, 2020 was the date that Industry Members were required to
begin correcting all errors for inter-firm linkages and exchange/
TFR/ORF match validations.
---------------------------------------------------------------------------
In the OATS Retirement Plan Order, the Commission approved FINRA's
proposal for how it would measure the CAT Data's accuracy and
reliability. Specifically, the Commission endorsed FINRA's proposal
that FINRA's review of CAT Data and error rates would be based on data
and linkages in Phase 2a, which replicate the data in OATS today and
thus are most relevant for OATS retirement purposes. Phase 2a Data
includes all events and scenarios covered by OATS and applies only to
equities. And FINRA would not consider options order events or Phase 2c
data and validations, which are not in OATS today, for purposes of OATS
retirement.\19\
---------------------------------------------------------------------------
\19\ See supra note 17.
---------------------------------------------------------------------------
On June 17, 2021, FINRA made an immediately effective filing
setting forth the basis for its determination that the accuracy and
reliability of the CAT met the standards approved by the Commission in
the OATS Retirement Plan Order and designating September 1, 2021 as the
date on which FINRA would retire OATS.\20\ Specifically, FINRA
determined that the CAT met the threshold requirements endorsed by the
Commission in the OATS Retirement Plan Order for Industry Member
reporting in each of the following categories:
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 92239 (June 23,
2021), 86 FR 34293 (June 29, 2021) (SR-FINRA-2021-017) (``OATS
Retirement Filing'').
---------------------------------------------------------------------------
A. Rejection Rates and Data Validations
As described in the OATS Retirement Filing, the Plan Processor must
perform certain basic data validations, and if a record does not pass
these basic data validations, it must be rejected and returned to the
CAT Reporter to be corrected and resubmitted.\21\ FINRA determined that
for the applicable period, aggregate rejection rates across all
Industry Member Reporters were 0.03% pre-correction and 0.01% post-
correction, which far exceeds the threshold requirements of a 5% or
lower pre-correction error rate and a 2% or lower post-correction error
rate.
---------------------------------------------------------------------------
\21\ Appendix D of the CAT NMS Plan, Section 7.2, for example,
requires that certain file validations (e.g., file transmission and
receipt are in the correct formats, confirmation of a valid SRO-
Assigned Market Participant Identifier, etc.), and syntax and
context checks (e.g., format checks, data type checks, consistency
checks, etc.) be performed on all submitted records.
---------------------------------------------------------------------------
B. Intra-Firm Linkages
As described in the OATS Retirement Filing, the Plan Processor must
be able to link all related order events from all CAT Reporters
involved in the lifecycle of an order. At a minimum, this requirement
includes the creation of an order lifecycle between all order events
handled within an individual CAT Reporter, including orders routed to
internal desks or departments with different functions (e.g., an
internal ATS). FINRA determined that for the applicable period, the
intra-firm linkage accuracy rates across all Industry Member Reporters
were 99.07% pre-correction and 99.99% post-correction, which far
exceeds the threshold requirements of 95% or higher pre-correction and
98% or higher post-correction (in other words, the intra-firm linkages
accuracy far exceeds the threshold requirement that there be less than
5% inaccuracy pre-correction and less than 2% inaccuracy post-
correction).
C. Inter-Firm Linkages
As described in the OATS Retirement Filing, the Plan Processor must
be able to create the lifecycle between orders routed between broker-
dealers. FINRA determined that for the applicable period, the intra-
firm linkage accuracy rates across all Industry Member Reporters were
99.08% pre-correction and 99.84% post-correction, which far exceed the
threshold requirements of 95% or higher pre-correction and 98% or
higher post-correction (in other words, the inter-firm linkages
accuracy far exceeds the threshold requirement that there be less than
5% inaccuracy pre-correction and less than 2% inaccuracy post-
correction).
[[Page 50566]]
D. Order Linkage Rates
As described in the OATS Retirement Filing, in addition to creating
linkages within and between broker-dealers, the Plan Processor must be
able to create lifecycles to link various pieces of related orders. For
example, the Plan requires linkages of order information to create an
order lifecycle from origination or receipt to cancellation or
execution. This category essentially combines all of the order-related
linkages to capture an overall snapshot of order linkages in the
CAT.\22\ FINRA determined that for the applicable period, the order-
related linkage accuracy rates across all Industry Member Reporters
were 99.66% pre-correction and 99.93% post-correction, which far exceed
the threshold requirements of 95% or higher pre-correction and 98% or
higher post-correction (in other words, the order linkages accuracy far
exceeds the threshold requirement that there be less than 5% inaccuracy
pre-correction and less than 2% inaccuracy post-correction).
---------------------------------------------------------------------------
\22\ See Letter from Lisa C. Horrigan, Associate General
Counsel, FINRA, to Vanessa Countryman, Secretary, Commission, dated
October 29, 2020.
---------------------------------------------------------------------------
E. Exchange and TRF/ORF Match Rates
As described in the OATS Retirement Filing, an order lifecycle must
be created to link orders routed from broker-dealers to exchanges and
executed orders and trade reports. FINRA determined that for the
applicable period, the match rate across all equity exchanges for
orders routed from Industry Members to an exchange was 99.51% pre-
correction and 99.87% post-correction. This match rate far exceeds the
threshold requirements of 95% or higher pre-correction and 98% or
higher post-correction (in other words, the match rate accuracy far
exceeds the threshold requirement that there be less than 5% inaccuracy
pre-correction and less than 2% inaccuracy post-correction).
Based upon the accuracy and reliability of the above five
categories of CAT Data, FINRA determined that the CAT Data met the
accuracy and reliability standards required for OATS retirement.\23\
---------------------------------------------------------------------------
\23\ See supra note 20.
---------------------------------------------------------------------------
II. FINRA's Use of CAT Data
Additionally, the OATS Retirement Plan Order set forth that before
retiring OATS, FINRA's use of CAT data must confirm that (i) there are
no material issues that have not been corrected (e.g., delays in the
processing of data, issues with query functions, etc.); (ii) the CAT
includes all data necessary to allow FINRA to continue to meet its
surveillance obligations; \24\ and (iii) the Plan Processor is
sufficiently meeting its obligations under the CAT NMS Plan relating to
the reporting and linkage of Phase 2a Data.
---------------------------------------------------------------------------
\24\ FINRA conducts surveillance on behalf of IEX pursuant to
the Regulatory Service Agreement entered into by IEX and FINRA
(``RSA''). Therefore, any references in this rule filing to FINRA
surveillance include FINRA's use of either OATS or CAT Data in
furtherance of the regulatory services it provides on behalf of IEX.
---------------------------------------------------------------------------
As set forth in FINRA's OATS Retirement Filing, by September 1,
2021, FINRA will be ready to retire its use of OATS data for cross-
market surveillance, and replace it with a newly created surveillance
data mart, the Pattern Optimized Datamart (``POD''), which incorporates
equities (and options) data submitted by both Participants such as IEX
and Industry Members. IEX, like other Participants, transitioned from
reporting to FINRA via the RSA specification, to reporting via the CAT
technical specification as of April 26, 2021, and full Participant
equities reporting and linkage validations commenced on June 1,
2021.\25\ Successful completion of the transition to the CAT
specification for Participants was a prerequisite for FINRA to retire
the OATS-based cross market surveillance patterns and leverage CAT Data
and linkages in POD for its surveillance patterns. FINRA has completed
all planned activities on schedule, including substantially completing
the process of integrating CAT Data into POD and successfully running
large amounts of production CAT Data for the month of May through
POD.\26\ FINRA anticipates completing additional activities before the
proposed OATS retirement date of September 1, 2021, including planned
user acceptance testing.\27\
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\25\ For example, according to the CAT Reporting Technical
Specification for Participants (version 4.0.0-r4 dated April 20,
2021), additional linkage error feedback for off-exchange trade
reports was effective as of June 1, 2021. The Technical
Specifications can be found on the CAT NMS Plan website at
www.catnmsplan.com/sites/default/files/2021-04/04.20.2021-CAT-Reporting-Technical-Specifications-for-Participants-4.0.0-r4.pdf.
\26\ See supra note 20.
\27\ As noted in the FINRA OATS Retirement Filing, user
acceptance testing is the final stage of any software development
lifecycle and enables actual users to test the system to confirm it
is able to carry out the required tasks it was designed to address
in real-world situations.
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Additionally, FINRA has confirmed that all of the data required to
support the transition from OATS to CAT is available in CAT.\28\
Specifically, FINRA, supported by the Participants, conducted a mapping
of all OATS data to CAT data, and then completed a ``gap analysis'' to
address any issues with the field-level mapping of OATS to CAT data.
Furthermore, IEX, along with other Participants, has had a very high
compliance rate in reporting CAT Data using the CAT specifications
(both in the testing and production environments).\29\ Reviewing the
Participant submitted CAT Data and matching it with Industry Member
data, FINRA determined that the data linkages in CAT are ``comparable
to the linkages between RSA exchange data and OATS data'' currently
used by FINRA.\30\ Accordingly, the CAT NMS Plan Operating Committee
approved the cutover from the RSA specification to the CAT
specification as the official source of Participant data as of June 1,
2021, and today, all Industry Member and Participant equities data
reported via the CAT specification is linked in the CAT production
environment.
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\28\ See supra note 20.
\29\ For example, for the month of July 2021, IEX's compliance
error rate for CAT Data reporting was 0.0435% (i.e., 99.9565% of
records were successfully reported).
\30\ See supra note 20.
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Thus, FINRA will use OATS data for surveillance patterns run
through the end of the second quarter of 2021 and has already begun
using CAT Data for its surveillance patterns for review periods
beginning in the third quarter of 2021.\31\ As detailed in the OATS
Retirement Filing, FINRA will continue to conduct regular reviews to
ensure confidence in the completeness and accuracy of Industry Member
reporting, along with the ability to remediate any issues in a timely
manner.\32\
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\31\ See supra note 20.
\32\ See supra note 20.
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III. OATS May be Retired in Light of the Accuracy and Reliability of
the CAT Data
IEX, like FINRA, believes that the three additional standards set
forth in the OATS Retirement Order for retiring OATS have been
satisfied. With respect to the first factor, IEX, like FINRA, does not
believe that there are any material issues that have not been corrected
(or could not be corrected in the course of operation of CAT, as
approved by the Operating Committee) that would impact FINRA's ability
to incorporate and use CAT Data in FINRA's surveillance program, which
it conducts on behalf of IEX pursuant to the RSA. For example, the Plan
requires that raw unprocessed data that has been ingested by the Plan
Processor must be available to Participant regulatory staff and the SEC
prior to 12:00 p.m. Eastern Time on T+1, and access to all iterations
of processed data must be available to
[[Page 50567]]
Participant regulatory staff and the SEC between 12:00 p.m. Eastern
Time on T+1 and T+5.\33\ The Plan Processor also must ensure that
regulators have access to corrected and linked order data by 8:00 a.m.
Eastern Time on T+5.\34\ Additionally, after ingestion by the Central
Repository, the raw unprocessed data must be transformed into a format
appropriate for data querying and regulatory output.\35\ The user-
defined direct queries and bulk extracts must provide authorized users
with the ability to retrieve CAT Data via a query tool or language that
allows users to query all available attributes and data sources.\36\
FINRA's use of the CAT Data has not uncovered any processing delays or
other material issues impacting the availability of, and FINRA's access
to, the data.\37\
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\33\ See CAT NMS Plan, Appendix D, Section 6.2.
\34\ See CAT NMS Plan, Appendix C, Section A.2(a).
\35\ See CAT NMS Plan, Appendix C, Section A.1(b).
\36\ See CAT NMS Plan, Section 6.10(c).
\37\ See supra note 20.
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With respect to the second factor, IEX, like FINRA, believes that
the CAT includes all data necessary for FINRA to meet its surveillance
obligations after the retirement of OATS. FINRA must ensure that the
CAT, as the single source of order and trade data, can enable FINRA to
conduct accurate and effective market surveillance in accordance with
its regulatory obligations. As noted above, Phase 2a Data includes all
events and scenarios covered by OATS and is the most relevant for OATS
retirement purposes. FINRA's testing, analysis and use of the CAT Data
(including integration into POD), as described above, has confirmed
that the CAT includes all data necessary for FINRA to meet its
surveillance obligations and that CAT is a reliable substitute for
OATS. In addition, based on its qualitative data reviews, FINRA has
concluded that Industry Member CAT Data, in the aggregate, is a
sufficient replacement for OATS for purposes of FINRA's surveillance
program.
With respect to the third factor, IEX, like FINRA, believes that
the Plan Processor is sufficiently meeting its obligations under the
CAT NMS Plan relating to the reporting and linkage of Phase 2a Data. As
detailed in the Implementation Plan and Quarterly Progress Reports
submitted by the Plan Participants, the Plan Processor has met its
targeted completion dates for the milestones for Phase 2a, including,
for example, production Go-Live for Equities 2a file submission and
data integrity validation (Large Industry Members and Small OATS
Reporters) on June 22, 2020; Production Go-Live for Equities 2a
Intrafirm Linkage validations on July 27, 2020; and production go-live
for firm-to-firm linkage validations for equities (Large Industry
Members and Small OATS Reporters) and exchange and TRF/ORF linkage
validations for equities (Large Industry Members and Small OATS
Reporters) on October 26, 2020.\38\
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\38\ The Implementation Plan and Quarterly Progress Reports are
available at www.catnmsplan.com/implementation-plan.
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Based on the foregoing, IEX agrees with FINRA's determination that
the CAT meets the accuracy and reliability standards approved by the
Commission in the OATS Retirement Order for purposes of eliminating
OATS. FINRA has determined to retire OATS effective September 1,
2021.\39\ Firms must continue to report to OATS all order events that
occur on or prior to August 31, 2021. Reports submitted to OATS for
order events that occur after August 31, 2021 will be rejected. In
other words, August 31, 2021 will be the last ``OATS Business Day,'' as
defined under FINRA Rule 7450(b)(3), for which OATS will accept order
events and perform routine processing (including incorporation of
corrections and repairs of rejections) occurring within the normal OATS
timeframe for such activities. OATS will continue to accept reports for
order events that occur on or prior to August 31, 2021 (including, but
not limited to, late and corrected reports for such order events)
through September 16, 2021. Firms must ensure that their OATS reporting
is accurate and complete for all order events that occur on or prior to
August 31, 2021. IEX Rule 11.420, like the FINRA OATS Rules, will be
deleted from the IEX rulebook effective September 1, 2021.\40\
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\39\ See FINRA Regulatory Notice 21-21 (June 2021).
\40\ In the unlikely event that FINRA determines it is unable to
retire OATS effective September 1, 2021, IEX will delay the
retirement of IEX Rule 11.420 pending the actual retirement of FINRA
OATS.
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In light of the foregoing, IEX, like FINRA, believes that retiring
OATS as of September 1, 2021 is appropriate, particularly given the
potential risks of continuing to run OATS and CAT in parallel for an
additional period of time. Such potential risks may include, for
example, on an industry-wide basis: (1) Processing and storage capacity
issues from operating two systems (particularly in the event of
extraordinary market volume); (2) cybersecurity risks from having data
flow through two separate systems for a longer time period; (3) systems
issues from reporting infrastructure that is near end-of-life; and (4)
the expense and burden on CAT Reporters of dual reporting, particularly
in the event of systems issues requiring correction and/or resubmission
of data and competing resource priorities between OATS and CAT
reporting and repair activities.
IEX has filed the proposed rule change for immediate effectiveness
and is seeking a waiver of the 30 day operative delay to allow its OATS
rules to be retired concurrent with the September 1, 2021 retirement of
FINRA's OATS Rules. IEX will also announce the retirement of OATS via a
trader alert to its Members.
2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions of Section 6(b)(5) of the Act,\41\ which require, among
other things, that IEX's rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. IEX believes that the proposed retirement of IEX Rule
11.420 fulfills the obligation in the CAT NMS Plan for IEX to submit a
proposed rule change to eliminate or modify duplicative rules, and that
the CAT NMS Plan has achieved the accuracy and reliability standards
required by the Commission in the OATS Retirement Order.
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\41\ 15 U.S.C. 78f(b)(5).
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Additionally, as discussed in the Purpose section, IEX believes
that the use of CAT Data, whether by IEX directly, or by FINRA pursuant
to the RSA, will continue to allow for accurate and effective
surveillance of market activity on IEX. Therefore, IEX will continue to
be able to fulfill its statutory obligation to protect investors and
the public interest after the retirement of OATS.
B. Self-Regulatory Organization's Statement on Burden on Competition
IEX 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. IEX notes that the proposed
rule change implements provisions of the CAT NMS Plan, facilitates the
retirement of certain existing regulatory systems, and is designed to
assist the Exchange in meeting its regulatory obligations pursuant to
the Plan. IEX also notes that the proposed rule change will apply
equally to all firms that trade NMS Securities. In addition, all
national securities exchanges and FINRA are
[[Page 50568]]
proposing substantially similar rule filings. Therefore, this is not a
competitive rule filing, and, therefore, it does not impose a burden on
competition.
Furthermore, IEX notes that FINRA undertook an economic impact
assessment of the potential costs and benefits associated with OATS
retirement and determined that CAT meets or exceeds the OATS standards.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \42\ and Rule 19b-4(f)(6) thereunder.\43\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \44\ and Rule 19b-
4(f)(6)(iii) thereunder.\45\
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\42\ 15 U.S.C. 78s(b)(3)(A)(iii).
\43\ 17 CFR 240.19b-4(f)(6).
\44\ 15 U.S.C. 78s(b)(3)(A).
\45\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's 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) \46\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\47\ 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 September 1, 2021, the first day on which FINRA
will no longer accept OATS data (unless FINRA delays the OATS
retirement past that date.) \48\ As discussed above, IEX believes that
it is appropriate for FINRA to retire OATS as of September 1, 2021. IEX
states that the use of CAT Data, whether by IEX directly, or by FINRA
pursuant to IEX's RSA with FINRA, will continue to allow for accurate
and effective surveillance of market activity on IEX. In addition,
August 31, 2021, will be the last ``OATS Business Day,'' as defined
under FINRA Rule 7450(b)(3), and reports submitted to OATS for order
events that occur after August 31, 2021, will be rejected. The
Commission believes that it is consistent with the protection of
investors and the public interest for IEX to delete its OATS reporting
rules at the same time that FINRA retires OATS. Accordingly, the
Commission hereby waives the 30-day operative delay and designates the
proposal operative on September 1, 2021.\49\
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\46\ 17 CFR 240.19b-4(f)(6).
\47\ 17 CFR 240.19b-4(f)(6)(iii).
\48\ See supra note 40.
\49\ 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 this 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 will institute proceedings to
determine whether the proposed rule change 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-IEX-2021-10 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-IEX-2021-10. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet 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 will also be available for inspection
and copying at the IEX's principal office and on its internet website
at www.iextrading.com. All comments received will be posted without
change. 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-IEX-2021-10, and should be
submitted on or before September 30, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19422 Filed 9-8-21; 8:45 am]
BILLING CODE 8011-01-P
