Order Granting a Temporary Conditional Exemption Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934 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, 51369-51371 [2023-16518]
Download as PDF
Federal Register / Vol. 88, No. 148 / Thursday, August 3, 2023 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–16502 Filed 8–2–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98023]
Order Granting a Temporary
Conditional Exemption Pursuant to
Section 36(a)(1) of the Securities
Exchange Act of 1934 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
ddrumheller on DSK120RN23PROD with NOTICES1
I. Introduction
By letter dated March 31, 2023, BOX
Exchange LLC, Cboe BYX Exchange,
Inc., Cboe BZX Exchange, Inc., Cboe
EDGA Exchange, Inc., Cboe EDGX
Exchange, Inc., Cboe C2 Exchange, Inc.,
Cboe Exchange, Inc., Financial Industry
Regulatory Authority, Inc., Investors
Exchange LLC, Long-Term Stock
Exchange, Inc., MEMX 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, The
NASDAQ Stock Market LLC, New York
Stock Exchange LLC, NYSE American
LLC, NYSE Arca, Inc., NYSE Chicago,
Inc., and NYSE National, Inc.,
(collectively, the ‘‘Participants’’ or
‘‘SROs’’) requested that the Securities
and Exchange Commission
(‘‘Commission’’) grant temporary
conditional 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(a)(1) 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
15 17
CFR 200.30–3(a)(12).
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).
1 The
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relating to certain activities on the floors
of national securities exchanges and
certain activities by Industry Members
off exchange floors (‘‘upstairs
activity’’).3
Section 36(a)(1) 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
For the reasons set forth below, the
Commission believes that it is
consistent with the purposes of the
Exchange Act to grant temporary
conditional exemptive relief relating to
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; (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 (e.g.,
Bloomberg chats, text messages), subject
to certain conditions, and expiring on
July 31, 2026.
II. Background and Request for Relief
On November 12, 2020, pursuant to
section 36(a)(1) of the Exchange Act,6
and Rule 608(e) of the Exchange Act,7
3 See letter from the Participants to Vanessa
Countryman, Secretary, Commission, dated March
31, 2023 (the ‘‘March 31, 2023 Exemption
Request’’). Unless otherwise noted, capitalized
terms are used as defined in the CAT NMS Plan.
‘‘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.’’
4 15 U.S.C. 78mm(a)(1).
5 17 CFR 242.608(e).
6 15 U.S.C. 78mm(a)(1).
7 17 CFR 242.608(e).
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51369
the Commission granted the Participants
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; and
(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 certain conditions.8
In the March 31, 2023 Exemption
Request, the Participants request that
the Commission extend the temporary
exemptive relief granted in the 2020
Order for an additional three years, to
July 31, 2026. In support of their
request, the Participants reiterate their
belief that the verbal floor activity and
unstructured verbal and electronic
upstairs activity at issue were not
previously contemplated by Rule 613 or
the CAT NMS Plan.9 The Participants
state that the Commission disagreed
with the Participants’ view in the 2020
Order, but did not cite to any discussion
in the CAT NMS Plan or the CAT NMS
Plan Adopting Release regarding the
activity at issue, nor did the
Commission address the Participants’
assertion that there was no cost-benefit
analysis related to the capture and
reporting of this activity in the CAT
NMS Plan Adopting Release.10
The Participants also state that
potential technological or business
breakthroughs contemplated by the
2020 Order have not materialized, with
neither natural language processing nor
voice recognition technology currently
sophisticated enough to reliably,
accurately and consistently capture,
parse and analyze and report
interactions in the current trading
environments and workflows.11
Accordingly, the Participants state that
they, CAT Advisory Committee
members, and Industry Member groups,
including the Financial Information
Forum (FIF), have considered this issue
and continue to believe that capturing
and interpreting this activity in an
8 Securities Exchange Act Release No. 90405, 85
FR 73544 (November 18, 2020) (the ‘‘2020 Order’’).
9 March 31, 2023 Exemptive Request, at 4.
10 See id. at 4.
11 See id. at 5.
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Federal Register / Vol. 88, No. 148 / Thursday, August 3, 2023 / Notices
automated manner without human
intervention is not possible with current
technology, nor would it be costeffective to manually capture this
activity.12
The Participants also state that
manually capturing and reporting verbal
activity would be costly, inconsistent,
prone to error, and disruptive.13 The
Participants state that manually
capturing these events is impracticable
and not cost-effective because it would
require listening to every verbal
interaction either live or from tape and/
or sifting through electronic
communications, and that the
determination of whether unstructured
electronic and verbal activity involves a
firm bid or offer is a manual, subjective
process that could be highly prone to
error resulting in overreporting and/or
underreporting to the CAT.14 This
would lead to inconsistent or less
accurate data across CAT Reporters,
because Industry Members will capture
the same activity differently, resulting
in misleading or incomplete views of
transactions and limit regulators’ ability
to determine compliance with any
reporting requirement.15
In addition, the Participants do not
believe that the reporting of the verbal
and manual quotes and orders at issue
in the 2020 Order would provide
meaningful value from a regulatory or
surveillance perspective.16 The
Participants state that orders on
exchange floors are systematized and
reportable to CAT, and manual orders in
‘‘upstairs activity’’ whether or not trades
occur on an exchange floor or off-floor
are also reportable to CAT.17 The
Participants also represent that the CAT
Advisory Committee believes that
bilateral negotiations in upstairs
activity, such as between asset brokers
and broker-dealers, or between two
broker-dealers, are currently captured
when the broker either creates an order,
as in from an asset manager, or accepts
an order, as in from another brokerdealer, and when the trade execution
occurs.18 The Participants also state that
verbal floor and unstructured verbal and
electronic upstairs activities do not lend
themselves to the types of market
manipulation considered in the
adoption of Rule 613, and that the costs
of compliance would outweigh any
12 See
id.
id. at 5–6.
14 See id.
15 See id. at 6.
16 See id. at 5–6.
17 See id. at 6–7.
18 See id. at 7.
13 See
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17:35 Aug 02, 2023
incremental value for regulatory or
surveillance purposes.19
III. Discussion of Participants’
Exemption Request
The Commission has carefully
considered the Participants’ exemption
request. The Commission believes that
extending temporary exemptive relief is,
pursuant to section 36(a)(1) 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.
The Participants dispute the
Commission’s position that verbal and
manual quotes and orders are required
to be reported to the CAT.20 Because the
Commission believes that the
Participants’ request for an extension of
the temporary exemption from these
reporting requirements is reasonable, we
do not address their arguments here.
The Commission believes that
extending the temporary exemptive
relief should allow Participants and
Industry Members time to collaborate,
develop, and implement a reporting
framework, guidelines, FAQs, and
scenarios necessary for effective and
efficient reporting of floor-based verbal
quotes and order and upstairs activity.
Based on the foregoing, pursuant to
section 36(a)(1) 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 extend conditional 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; (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 (e.g.,
Bloomberg chats, text messages).
Extending the temporary exemptive
id.
2020 Order, supra note 8, at 73547; CAT
NMS Plan at Section 1.1.
relief until July 31, 2026, would provide
Participants the time to develop and
implement any necessary reporting
guidance, specifications, and any
technical changes to the CAT and is
approximately four years after the date
by which the Participants previously
estimated that the CAT would be fully
implemented, July 11, 2022.21 It would
also provide CAT Reporters the time to
fully consider and implement 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. However, the Commission
believes it is appropriate to provide
exemptive relief subject to certain
conditions discussed below.
IV. Conclusion
The Commission believes it is
appropriate to extend the 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, 2026: (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 (e.g.,
Bloomberg chats, text messages).
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, 2025, including, for both
verbal activity on exchange floors and
upstairs activity separately, an analysis
of the feasibility of traders
contemporaneously recording firm bid
and offer information for verbal and
manual quotes and orders, and an
implementation plan for the reporting of
these quotes and orders. Furthermore,
this implementation plan for the
reporting of these quotes and orders
must: (1) identify verbal and manual
workflows to facilitate the reporting of
these quotes and orders; (2) provide or
reference published guidelines for
19 See
20 See
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21 See Securities Exchange Act Release No. 88890
(May 15, 2020), 85 FR 31322, 31334 (May 22, 2020).
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Federal Register / Vol. 88, No. 148 / Thursday, August 3, 2023 / Notices
Industry Members for determining when
verbal or manual communications
become firm and are required to be
reported; and (3) provide or reference
published technical specifications to
allow for the reporting of verbal and
manual quotes and orders by Industry
Members. The purpose of these
conditions is to help ensure that the
Participants establish a framework
necessary to permit the reporting of
verbal and manual quotes and orders by
Industry Members before the expiration
of the temporary conditional exemptive
relief.
Accordingly, it is hereby ordered,
pursuant to section 36(a)(1) of the
Exchange Act,22 and Rule 608(e) of the
Exchange Act 23 that the Participants are
granted an exemption, until July 31,
2026, 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; and
(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.
Dated: July 28, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–16518 Filed 8–2–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
ddrumheller on DSK120RN23PROD with NOTICES1
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Fees Applicable to Securities Listed on
the Exchange, Which Are Set Forth in
BZX Rule 14.13, Company Listing Fees
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
22 15
23 17
U.S.C. 78mm(a)(1).
CFR 242.608(e).
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17:35 Aug 02, 2023
Jkt 259001
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (‘‘BZX’’ or
the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) a proposed
rule change to amend the fees
applicable to securities listed on the
Exchange, which are set forth in BZX
Rule 14.13, Company Listing Fees. The
text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–98015; File No. SR–
CboeBZX–2023–055]
July 28, 2023.
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on July 27,
2023, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘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
change from interested persons.
1. Purpose
On August 30, 2011, the Exchange
received approval of rules applicable to
the qualification, listing and delisting of
companies on the Exchange,3 which it
modified on February 8, 2012 in order
to adopt pricing for the listing of
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 65225
(August 30, 2011), 76 FR 55148 (September 6, 2011)
(SR–BATS–2011–018).
2 17
PO 00000
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Fmt 4703
Sfmt 4703
51371
exchange-traded products (‘‘ETPs’’) 4 on
the Exchange.5 On January 1, 2019, the
Exchange amended Rule 14.13 in order
to charge an entry fee for ETPs that are
not ‘‘Generically-Listed ETPs’’.6 7 Now,
the Exchange proposes to amend its
listing fees to provide that the entry fee
provided in Rule 14.13(b)(1)(C)(i) will
be charged for non-Generically Listed
ETPs for each proposed rule change
pursuant to Section 19(b) of the
Exchange Act (‘‘Exchange Rule Filing’’).
Currently, Exchange Rule
14.13(b)(1)(C) provides that a Company
that submits an application to list any
ETP shall be required to pay an entry fee
to the Exchange as follows:
(i) All ETPs, with the exception of
Generically-Listed ETPs, shall pay an
entry fee of $7,500. Each issuer will be
subject to an aggregate maximum entry
fee of $22,500 per calendar year.
(ii) There is no entry fee for
Generically-Listed ETPs or ETPs that
transfer their listing from another
national securities exchange to the
Exchange (a ‘‘Transfer Listing’’).
As such, a $7,500 fee applies to each
ETP per application rather than per
Exchange Rule Filing. The Exchange
now proposes to amend and restructure
Exchange Rule 14.13(b)(1)(C)(i) to
provide that all ETPs that are not
Generically-Listed will be charged the
fee for each Exchange Rule Filing unless
it is in furtherance of the same
continuous effort. Rule 14.13(b)(1)(C)(i)
would be modified to define the term
‘‘Exchange Rule Filing’’ and clarify that
the entry fee is applied on a per ETP
basis. Accordingly, proposed Rule
14.13(b)(1)(C)(i) would state that all
ETPs, with the exception of Index Fund
Shares, Portfolio Depositary Receipts,
Managed Fund Shares, Linked
Securities, Currency Trust Shares, and
Exchange-Traded Fund Shares that are
listed on the Exchange pursuant to Rule
19b–4(e) under the Exchange Act and
for which an Exchange Rule Filing is
not required to be filed with the
Commission (collectively, ‘‘Generically4 As defined in Rule 11.8(e)(1)(A), the term ‘‘ETP’’
means any security listed pursuant to Exchange
Rule 14.11.
5 See Securities Exchange Act Release No. 66422
(February 17, 2012), 77 FR 11179 (February 24,
2012) (SR–BATS–2012–010).
6 ‘‘Generically-Listed ETPs’’ refers to all ETPs,
with the exception of Index Fund Shares, Portfolio
Depositary Receipts, Managed Fund Shares, Linked
Securities, Currency Trust Shares, and ExchangeTraded Fund Shares that are listed on the Exchange
pursuant to Rule 19b–4(e) under the Exchange Act
and for which a proposed rule change pursuant to
Section 19(b) of the Exchange Act is not required
to be filed with the Commission. See Exchange Rule
14.13(b)(1)(C)(i).
7 See Securities Exchange Act No. 83597 (July 5,
2018) 83 FR 32164 (July 11, 2018) (SR–CboeBZX–
2018–046) (the ‘‘Original Entry Fee Filing’’).
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Agencies
[Federal Register Volume 88, Number 148 (Thursday, August 3, 2023)]
[Notices]
[Pages 51369-51371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16518]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98023]
Order Granting a Temporary Conditional Exemption Pursuant to
Section 36(a)(1) of the Securities Exchange Act of 1934 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
I. Introduction
By letter dated March 31, 2023, BOX Exchange LLC, Cboe BYX
Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe
EDGX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe Exchange, Inc.,
Financial Industry Regulatory Authority, Inc., Investors Exchange LLC,
Long-Term Stock Exchange, Inc., MEMX 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, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE
American LLC, NYSE Arca, Inc., NYSE Chicago, Inc., and NYSE National,
Inc., (collectively, the ``Participants'' or ``SROs'') requested that
the Securities and Exchange Commission (``Commission'') grant temporary
conditional 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(a)(1) 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 (``upstairs
activity'').\3\
---------------------------------------------------------------------------
\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 March 31, 2023 (the ``March 31, 2023
Exemption Request''). Unless otherwise noted, capitalized terms are
used as defined in the CAT NMS Plan. ``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.''
---------------------------------------------------------------------------
Section 36(a)(1) 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\
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78mm(a)(1).
\5\ 17 CFR 242.608(e).
---------------------------------------------------------------------------
For the reasons set forth below, the Commission believes that it is
consistent with the purposes of the Exchange Act to grant temporary
conditional exemptive relief relating to 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; (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 (e.g., Bloomberg
chats, text messages), subject to certain conditions, and expiring on
July 31, 2026.
II. Background and Request for Relief
On November 12, 2020, pursuant to section 36(a)(1) of the Exchange
Act,\6\ and Rule 608(e) of the Exchange Act,\7\ the Commission granted
the Participants 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; and (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 certain conditions.\8\
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78mm(a)(1).
\7\ 17 CFR 242.608(e).
\8\ Securities Exchange Act Release No. 90405, 85 FR 73544
(November 18, 2020) (the ``2020 Order'').
---------------------------------------------------------------------------
In the March 31, 2023 Exemption Request, the Participants request
that the Commission extend the temporary exemptive relief granted in
the 2020 Order for an additional three years, to July 31, 2026. In
support of their request, the Participants reiterate their belief that
the verbal floor activity and unstructured verbal and electronic
upstairs activity at issue were not previously contemplated by Rule 613
or the CAT NMS Plan.\9\ The Participants state that the Commission
disagreed with the Participants' view in the 2020 Order, but did not
cite to any discussion in the CAT NMS Plan or the CAT NMS Plan Adopting
Release regarding the activity at issue, nor did the Commission address
the Participants' assertion that there was no cost-benefit analysis
related to the capture and reporting of this activity in the CAT NMS
Plan Adopting Release.\10\
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\9\ March 31, 2023 Exemptive Request, at 4.
\10\ See id. at 4.
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The Participants also state that potential technological or
business breakthroughs contemplated by the 2020 Order have not
materialized, with neither natural language processing nor voice
recognition technology currently sophisticated enough to reliably,
accurately and consistently capture, parse and analyze and report
interactions in the current trading environments and workflows.\11\
Accordingly, the Participants state that they, CAT Advisory Committee
members, and Industry Member groups, including the Financial
Information Forum (FIF), have considered this issue and continue to
believe that capturing and interpreting this activity in an
[[Page 51370]]
automated manner without human intervention is not possible with
current technology, nor would it be cost-effective to manually capture
this activity.\12\
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\11\ See id. at 5.
\12\ See id.
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The Participants also state that manually capturing and reporting
verbal activity would be costly, inconsistent, prone to error, and
disruptive.\13\ The Participants state that manually capturing these
events is impracticable and not cost-effective because it would require
listening to every verbal interaction either live or from tape and/or
sifting through electronic communications, and that the determination
of whether unstructured electronic and verbal activity involves a firm
bid or offer is a manual, subjective process that could be highly prone
to error resulting in overreporting and/or underreporting to the
CAT.\14\ This would lead to inconsistent or less accurate data across
CAT Reporters, because Industry Members will capture the same activity
differently, resulting in misleading or incomplete views of
transactions and limit regulators' ability to determine compliance with
any reporting requirement.\15\
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\13\ See id. at 5-6.
\14\ See id.
\15\ See id. at 6.
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In addition, the Participants do not believe that the reporting of
the verbal and manual quotes and orders at issue in the 2020 Order
would provide meaningful value from a regulatory or surveillance
perspective.\16\ The Participants state that orders on exchange floors
are systematized and reportable to CAT, and manual orders in ``upstairs
activity'' whether or not trades occur on an exchange floor or off-
floor are also reportable to CAT.\17\ The Participants also represent
that the CAT Advisory Committee believes that bilateral negotiations in
upstairs activity, such as between asset brokers and broker-dealers, or
between two broker-dealers, are currently captured when the broker
either creates an order, as in from an asset manager, or accepts an
order, as in from another broker-dealer, and when the trade execution
occurs.\18\ The Participants also state that verbal floor and
unstructured verbal and electronic upstairs activities do not lend
themselves to the types of market manipulation considered in the
adoption of Rule 613, and that the costs of compliance would outweigh
any incremental value for regulatory or surveillance purposes.\19\
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\16\ See id. at 5-6.
\17\ See id. at 6-7.
\18\ See id. at 7.
\19\ See id.
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III. Discussion of Participants' Exemption Request
The Commission has carefully considered the Participants' exemption
request. The Commission believes that extending temporary exemptive
relief is, pursuant to section 36(a)(1) 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.
The Participants dispute the Commission's position that verbal and
manual quotes and orders are required to be reported to the CAT.\20\
Because the Commission believes that the Participants' request for an
extension of the temporary exemption from these reporting requirements
is reasonable, we do not address their arguments here.
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\20\ See 2020 Order, supra note 8, at 73547; CAT NMS Plan at
Section 1.1.
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The Commission believes that extending the temporary exemptive
relief should allow Participants and Industry Members time to
collaborate, develop, and implement a reporting framework, guidelines,
FAQs, and scenarios necessary for effective and efficient reporting of
floor-based verbal quotes and order and upstairs activity.
Based on the foregoing, pursuant to section 36(a)(1) 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 extend
conditional 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; (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 (e.g., Bloomberg chats, text messages).
Extending the temporary exemptive relief until July 31, 2026, would
provide Participants the time to develop and implement any necessary
reporting guidance, specifications, and any technical changes to the
CAT and is approximately four years after the date by which the
Participants previously estimated that the CAT would be fully
implemented, July 11, 2022.\21\ It would also provide CAT Reporters the
time to fully consider and implement 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. However, the
Commission believes it is appropriate to provide exemptive relief
subject to certain conditions discussed below.
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\21\ 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 extend the 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, 2026: (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 (e.g., Bloomberg chats, text messages).
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, 2025, including, for both verbal activity on
exchange floors and upstairs activity separately, an analysis of the
feasibility of traders contemporaneously recording firm bid and offer
information for verbal and manual quotes and orders, and an
implementation plan for the reporting of these quotes and orders.
Furthermore, this implementation plan for the reporting of these quotes
and orders must: (1) identify verbal and manual workflows to facilitate
the reporting of these quotes and orders; (2) provide or reference
published guidelines for
[[Page 51371]]
Industry Members for determining when verbal or manual communications
become firm and are required to be reported; and (3) provide or
reference published technical specifications to allow for the reporting
of verbal and manual quotes and orders by Industry Members. The purpose
of these conditions is to help ensure that the Participants establish a
framework necessary to permit the reporting of verbal and manual quotes
and orders by Industry Members before the expiration of the temporary
conditional exemptive relief.
Accordingly, it is hereby ordered, pursuant to section 36(a)(1) of
the Exchange Act,\22\ and Rule 608(e) of the Exchange Act \23\ that the
Participants are granted an exemption, until July 31, 2026, 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; and (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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\22\ 15 U.S.C. 78mm(a)(1).
\23\ 17 CFR 242.608(e).
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By the Commission.
Dated: July 28, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16518 Filed 8-2-23; 8:45 am]
BILLING CODE 8011-01-P