Joint Industry Plan; Order Instituting Proceedings To Determine Whether To Approve or Disapprove an Amendment to the National Market System Plan Governing the Consolidated Audit Trail Regarding Cost Savings Measures, 58838-58847 [2024-15908]

Download as PDF 58838 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices specifications for CFE’s new product, thereby ensuring that OCC may clear and settle the new variance futures CFE intends to list based on the updated contract specifications. Accordingly, OCC believes the changes made to the inputs are designed to promote the prompt and accurate clearance and settlement of variance futures contracts for which OCC is responsible, in accordance with Section 17A(b)(3)(F) of the Exchange Act.17 (B) Clearing Agency’s Statement on Burden on Competition Section 17A(b)(3)(I) of the Act 18 requires that the rules of a clearing agency not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The proposed change would conform OCC’s Variance Futures Model to CFE’s new contract specification for the S&P 500 variance futures it intends to list. The Variance Futures Model, which is part of OCC’s STANS margin methodology, would be used to calculate margin requirements for all Clearing Members. The proposed changes would not inhibit access to OCC’s services in any way, would apply to all Clearing Members uniformly, and would not disadvantage or favor any particular user in relationship to another user. Accordingly, OCC does not believe that the proposed rule change would unfairly inhibit access to OCC’s services or impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. ddrumheller on DSK120RN23PROD with NOTICES1 (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were not and are not intended to be solicited with respect to the proposed change and none have been received. OCC will notify the Commission of any written comments received by OCC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 19 and paragraph (f) of Rule 19b–4 20 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such 17 15 U.S.C. 78q–1(b)(3)(F). U.S.C. 78q–1(b)(3)(I). 19 15 U.S.C. 78s(b)(3)(A). 20 17 CFR 240.19b–4(f). 18:53 Jul 18, 2024 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: Jkt 262001 Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–OCC–2024–008 and should be submitted on or before August 9, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 J. Matthew DeLesDernier, Deputy Secretary. Electronic Comments [FR Doc. 2024–15905 Filed 7–18–24; 8:45 am] • 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– OCC–2024–008 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–OCC–2024–008. 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 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of OCC and on OCC’s website at https:// www.theocc.com/CompanyInformation/Documents-and-Archives/ By-Laws-and-Rules. 21 Notwithstanding its immediate effectiveness, implementation of this rule change will be delayed until this change is deemed certified under CFTC Regulation 40.6. 18 15 VerDate Sep<11>2014 action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed.21 PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100530; File No. 4–698] Joint Industry Plan; Order Instituting Proceedings To Determine Whether To Approve or Disapprove an Amendment to the National Market System Plan Governing the Consolidated Audit Trail Regarding Cost Savings Measures July 15, 2024. I. Introduction In July 2012, the Securities and Exchange Commission (the ‘‘Commission’’ or ‘‘SEC’’) adopted Rule 613 of Regulation NMS, which required national securities exchanges and national securities associations (the ‘‘Participants’’) 1 to jointly develop and submit to the Commission a national market system (‘‘NMS’’) plan to create, implement, and maintain a consolidated audit trail (the ‘‘CAT’’).2 On November 15, 2016, the Commission approved the NMS plan required by Rule 613 (the ‘‘CAT NMS Plan’’).3 On March 27, 2024, 22 17 CFR 200.30–3(a)(12). Participants include BOX Exchange LLC, Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe Exchange, Inc., The 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, Inc., 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. 2 See Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722 (Aug. 1, 2012 (‘‘Rule 613 Adopting Release’’); 17 CFR 242.613. 3 See Securities Exchange Act Release No. 78318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘CAT NMS Plan Approval Order’’). The CAT NMS Plan is Exhibit A to the CAT NMS Plan Approval Order. 1 The E:\FR\FM\19JYN1.SGM 19JYN1 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices and pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’) 4 and Rule 608 of Regulation NMS thereunder,5 the Participants filed with the Commission proposed amendments to the CAT NMS Plan designed to implement certain costs saving measures (the ‘‘Proposed Cost Savings Amendments’’).6 The Proposed Cost Savings Amendments were published for comment in the Federal Register on April 16, 2024.7 This order institutes proceedings, under Rule 608(b)(2)(i) of Regulation NMS,8 to determine whether to disapprove the Proposed Cost Savings Amendments or to approve the Proposed Cost Savings Amendments with any changes or subject to any conditions the Commission deems necessary or appropriate. ddrumheller on DSK120RN23PROD with NOTICES1 II. Summary of Proposed Cost Savings Amendments 9 The Participants proposed to implement the following measures: (A) amendments that would change processing, query, and storage requirements for Options Market Maker quotes in Listed Options (‘‘Option Market Maker Quotes’’),10 (B) See CAT NMS Plan Approval Order, at 84943– 85034. The CAT NMS Plan, which is available at https://catnmsplan.com/about-cat/cat-nms-plan, functions as the limited liability company agreement of the jointly owned limited liability company formed under Delaware state law through which the Participants conduct the activities of the CAT (the ‘‘Company’’). Each Participant is a member of the Company and jointly owns the Company on an equal basis. The Participants submitted to the Commission a proposed amendment to the CAT NMS Plan on August 29, 2019, which they designated as effective on filing. On August 29, 2019, the Participants replaced the CAT NMS Plan in its entirety with the limited liability company agreement of a new limited liability company, CAT LLC, which became the Company. See Securities Exchange Act Release No. 87149 (Sept. 27, 2019), 84 FR 52905 (Oct. 3, 2019). 4 15 U.S.C. 78k–1(a)(3). 5 17 CFR 242.608. 6 See Letter from Brandon Becker, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, Commission, dated March 27, 2024, available at https://catnmsplan.com/sites/ default/files/2024-03/03.27.24-Proposed–CATNMS-Plan-Amendment-Cost-SavingsAmendment.pdf. 7 See Securities Exchange Act Release No. 99938 (Apr. 10, 2024), 89 FR 26983 (Apr. 16, 2024) (‘‘Notice’’). Comments received in response to the Notice can be found on the Commission’s website at https://www.sec.gov/comments/4-698/4-698d.htm. 8 17 CFR 242.608(b)(2)(i). 9 See Notice, supra note 7, for a full discussion of the Proposed Cost Savings Amendments. 10 An ‘‘Options Market Maker’’ is ‘‘a broker-dealer registered with an exchange for the purpose of making markets in options contracts on the exchange.’’ See CAT NMS Plan, supra note 3, at Section 1.1. A ‘‘Listed Option’’ is defined as having ‘‘the meaning set forth in Rule 600(b)(35) of Regulation NMS.’’ See id. Rule 600(b)(35) has since been redesignated as Rule 600(b)(43), which defines VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 amendments that would permit the Plan Processor 11 to move raw unprocessed data and interim operational copies of CAT Data 12 older than 15 days to what the Participants described as a more cost-effective storage tier; (C) amendments that would permit the Plan Processor to provide an interim CATOrder-ID 13 to regulatory users on an ‘‘as requested’’ basis, rather than on a daily basis; and (D) amendments that would codify and expand exemptive relief recently provided by the Commission related to certain recordkeeping and data retention requirements for industry testing data.14 The Participants represented that the Proposed Cost Savings Amendments are expected to result in approximately $23 million in new annual cost savings in the first year with limited impact on the regulatory function of the CAT. The Participants further stated that their cost and savings projections were estimates only and were based on, among other factors: the current state and costs of CAT operations, including the current number of national securities exchanges; current CAT NMS Plan requirements; reporting by Participants, Industry Members 15 and market data providers; observed data rates and volumes; current discounts, reservations, and cost savings plans; and associated cloud fees. According to the Participants, actual future savings could be more or less than their estimates due to changes in any of these variables. a ‘‘Listed Option’’ as ‘‘any option traded on a registered national securities exchange or automated facility of a national securities association.’’ 17 CFR 242.600(b)(43). 11 The ‘‘Plan Processor’’ is ‘‘the Initial Plan Processor or any other Person selected by the Operating Committee pursuant to SEC Rule 613 and Sections 4.3(b)(i) and 6.1, and with regard to the Initial Plan Processor, the Selection Plan, to perform the CAT processing functions required by SEC Rule 613 and set forth in this Agreement.’’ See CAT NMS Plan, supra note 3, at Section 1.1. 12 ‘‘CAT Data’’ is ‘‘data derived from Participant Data, Industry Member Data, SIP Data, and such other data as the Operating Committee may designate as ‘CAT Data’ from time to time.’’ See id. 13 The ‘‘CAT-Order-ID’’ is ‘‘a unique order identifier or series of unique order identifiers that allows the central repository to efficiently and accurately link all reportable events for an order, and all orders that result from the aggregation or disaggregation of such order.’’ See 17 CFR 242.613(j)(1); see also CAT NMS Plan, supra note 3, at Section 1.1 (‘‘‘CAT-Order-ID’ has the same meaning provided in SEC Rule 613(j)(1).’’). 14 See Securities Exchange Act Release No. 99023 (Nov. 27, 2023), 88 FR 84026 (Dec. 1, 2023) (‘‘Industry Test Data Exemptive Relief Order’’). 15 ‘‘Industry Member’’ means ‘‘a member of a national securities exchange or a member of a national securities association.’’ See CAT NMS Plan, supra note 3, at Section 1.1. PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 58839 A. Processing, Query, and Storage Requirements for Options Market Maker Quotes Section 6.3(d) of the CAT NMS Plan currently requires each Participant to record and electronically report to the Central Repository details for each Order and each Reportable Event, including all Options Market Maker Quotes and related Reportable Events.16 With respect to the reporting obligations of an Options Market Maker with regard to its quotes in Listed Options, Section 6.4(d)(iii) of the CAT NMS Plan states that Reportable Events required pursuant to Section 6.3(d)(ii) and (iv) shall be reported to the Central Repository by an Options Exchange in lieu of the reporting of such information by the Options Market Maker.17 Section 6.4(d)(iii) of the CAT NMS Plan also requires Options Market Makers to report to an Options Exchange the time at which a quote in a Listed Option is sent to the Options Exchange (and, if applicable, any subsequent quote modifications and/or cancellation time when such modification or cancellation is originated by the Options Market Maker), pursuant to compliance rules established by the Options Exchanges.18 Such time information must be reported to the Central Repository by the Options Exchange in lieu of reporting by the Options Market Maker.19 The CAT NMS Plan requires all CAT Data reported to the Central Repository to be processed and assembled to create the complete lifecycle of each Reportable Event.20 Appendix D, Section 3 of the CAT NMS Plan states that the Plan Processor must use a ‘‘daisy chain approach,’’ in which ‘‘a series of unique order identifiers, assigned to all order events handled by CAT Reporters[,] are linked together by the Central Repository and assigned a single CAT-generated CAT-Order-ID that is associated with each individual order event and used to create the 16 See Notice, supra note 7, at 26985. An Order includes ‘‘(i) [a]ny order received by a member of a national securities exchange or national securities association from any person; (ii) [a]ny order originated by a member of a national securities exchange or national securities association; or (iii) [a]ny bid or offer.’’ See 17 CFR 242.613(j)(8); see also CAT NMS Plan, supra note 3, at Section 1.1 (‘‘‘Order’ or ‘order’ has, with respect to Eligible Securities, the meaning set forth in SEC Rule 613(j)(8).’’). A ‘‘Reportable Event’’ includes, but is not limited to, ‘‘the original receipt or origination, modification, cancellation, routing, execution (in whole or in part) and allocation of an order, and receipt of a routed order.’’ See CAT NMS Plan, supra note 3, at Section 1.1. 17 See Notice, supra note 7, at 26985. 18 Id. 19 Id.; see also CAT NMS Plan, supra note 3, at Section 6.4(d)(iii). 20 See Notice, supra note 7, at 26985. E:\FR\FM\19JYN1.SGM 19JYN1 58840 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 complete lifecycle of an order.’’ 21 Timelines for data processing and data availability are described in Section 6.1 and Section 6.2 of Appendix D of the CAT NMS Plan.22 The CAT NMS Plan further provides that regulators will have access to processed CAT Data through an online targeted query tool and through user-defined direct queries and bulk extract tools described in Section 8.1 and Section 8.2 of Appendix D of the CAT NMS Plan.23 The Participants proposed to amend certain processing, query, and storage requirements that would otherwise apply to Options Market Maker Quotes. Specifically, proposed Section 3.4 of Appendix D would state that Options Market Maker Quotes in Listed Options would undergo ingestion only and such unlinked data would be made available to regulators by T+1 at 12:00 p.m. Eastern Time.24 Under proposed Section 3.4 of Appendix D, Options Market Maker Quotes would not be subject to any requirement to link and create an order lifecycle and would not undergo any validation, feedback, linkage, or enrichment processing.25 Options Market Maker Quotes in Listed Options would be accessible through BDSQL and Direct Read interfaces only under proposed Section 3.4 of Appendix D and would not be accessible through the online targeted query tool.26 In addition, the Participants proposed to make conforming changes to certain provisions of Appendix D to include cross-references to proposed Section 3.4.27 Under these proposed provisions, the Participants explained that Options Exchanges would continue to report Options Market Maker Quotes in the same manner they do today, but that the Plan Processor would only ingest and store such data.28 The Participants stated that the Plan Processor would no longer be required to create any lifecycle linkages for Options Market Maker Quotes 29 and that Options Market Maker Quotes would no longer be subject to Plan Processor enrichments (e.g., next event timestamp, lifecycle sequence number, CAT-Lifecycle-ID).30 However, the Participants represented that, upon request, the Plan Processor would provide regulators with the code required to derive such enrichments 21 See from the unprocessed data.31 While unlinked data would remain accessible to regulators by T+1 at 12:00 p.m. Eastern Time, the Participants stated that elimination of linkage and feedback processes would remove Options Market Maker Quotes from Options Market Replay, OLA Viewer, and AllRelated Lifecycle Event queries.32 The Participants also stated that Options Market Maker Quotes would no longer be accessible via DIVER, a CAT query tool, but would remain accessible through BDSQL and Direct Read interfaces.33 According to the Participants, executions that result from Options Market Maker Quotes would identify the ‘‘quoteId’’ of the quote that resulted in an execution, but would appear as orphaned lifecycle events.34 The Participants estimated that the costs related to creating lifecycles for Options Market Maker Quotes were $30 million in 2023.35 The Participants represented that Options Market Maker Quotes are the single largest data source for the CAT, comprising approximately 98% of all options exchange events and approximately 75% of all transaction volume stored in the CAT.36 However, the Participants explained that creating lifecycles for this data is less compute intensive than other processing tasks; because the vast majority of Options Market Maker Quote lifecycles consist of just two events—the quote and its subsequent cancellation—the number of quotes that result in an execution is extremely low.37 The Participants also stated that they had already begun to implement certain measures to reduce the costs associated with lifecycle linkages for Options Market Maker Quotes, pursuant to exemptive relief issued by the Commission in November 2023.38 The Participants stated that this exemptive relief allows the Plan Processor to create lifecycle linkages for Options Market Maker Quotes only once by T+2 at 8 a.m. Eastern Time (as opposed to requiring both an interim lifecycle by T+1 at 9 p.m. Eastern Time and a final lifecycle by T+5 at 8 a.m. Eastern Time).39 The Participants expected the 31 Id. 32 Id. 33 Id. 34 Id. 35 Id. also id. 36 Id. 22 Id. 37 Id. 23 Id. 38 See Securities Exchange Act Release No. 98848 (Nov. 2, 2023), 88 FR 77128 (Nov. 8, 2023) (‘‘November 2023 Exemptive Relief Order’’). 39 See Notice, supra note 7, at 26984 n.15 (citing November 2023 Exemptive Relief Order). To the extent the Proposed Cost Savings Amendments are approved, the Participants stated that Plan Processor would no longer be required to create any 24 Id. 25 Id. 26 Id. 27 Id. 28 Id. at 26984. at 26984 n.15. 30 Id. at 26984. 29 Id. VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 above-described ‘‘single pass’’ approach to generating lifecycles for options quotes to result in annual savings of approximately $5.4 million upon implementation in April 2024.40 The Participants estimated that the Proposed Cost Savings Amendment would result in approximately $20 million in additional annual cost savings in the first year, such that the cost impact of Options Market Maker Quotes on the CAT would be reduced from approximately $24.4 million (inclusive of anticipated savings resulting from the implementation of the options quotes ‘‘single pass’’ proposal referenced above) to approximately $4.0 million annually.41 They stated there would be limited regulatory impact.42 The Participants stated that the vast majority of Options Market Maker Quote lifecycles do not involve any execution or allocation and usage data demonstrates that such data is very rarely accessed by regulators. The Participants also stated that regulators would still have access to unlinked Options Market Maker Quotes data by T+1 at 12:00 p.m. Eastern Time under the Proposed Cost Savings Amendments and stated that regulatory users would be able to derive the currently available data enrichments if needed.43 B. Storage for Raw Unprocessed Data and Interim Operational Copies of CAT Data Older Than 15 Days The CAT NMS Plan requires CAT Data to be ‘‘directly available and searchable electronically without manual intervention for at least six years’’ 44 and within certain query tool response times.45 These requirements apply not only to the final corrected data version that is delivered to regulators by T+5 at 8 a.m. Eastern lifecycle linkages for Options Market Maker Quotes. See id. at 26984. 40 Id. at 26984. 41 See id. at 26984–85. The Participants stated that their cost savings estimates assumed an approximate 65% reduction in compute runtime associated with options exchange events and an approximate 80% reduction in storage footprint through the elimination of versioned options quote data (e.g., interim, final, DIVER-optimized, OLA copies). See id. at 26985 n.19. 42 See id. at 26984–85. 43 See id. 44 See CAT NMS Plan, supra note 3, at Section 6.5(b)(i) and Appendix D, Section 1.4; see also Notice, supra note 7, at 26986. 45 See, e.g., CAT NMS Plan, supra note 3, at Appendix D, Section 8.1 and 8.2; see also Notice, supra note 7, at 26986. The Participants explained that the Commission had granted conditional exemptive relief from certain performance requirements related to the online targeted query tool. See Notice, supra note 7, at 26986; see also November 2023 Exemptive Relief Order, supra note 38. E:\FR\FM\19JYN1.SGM 19JYN1 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Time, but also to raw unprocessed data and various types of interim operational data, as well as to copies of all submission and feedback files provided to CAT Reporters as part of the correction process (collectively, ‘‘Operational Data’’).46 Specifically, with respect to raw unprocessed data and interim operational copies of data created between T+1 and T+5, Section 6.2 of Appendix D of the CAT NMS Plan provides that, prior to 12:00 p.m. Eastern Time on T+1, raw unprocessed data that has been ingested by the Plan Processor must be available to Participants’ regulatory staff and the SEC, and between 12:00 p.m. Eastern Time on T+1 and T+5, access to all iterations of processed data must be available to Participants’ regulatory staff and the SEC.47 Currently, the Participants explained that interim operational data is supplanted in all CAT query tools by the final version of corrected data that is made available at T+5 at 8:00 a.m. Eastern Time.48 However, they stated that such data remains available to regulators after T+5 ‘‘without manual intervention’’ via the use of CAT data management APIs.49 Because the Participants believed that regulators generally access the latest, corrected version of CAT data, the Participants believed that interim operational data generally does not provide any regulatory value after the final corrected data version is delivered by T+5 at 8 a.m. Eastern Time.50 The Participants stated that cost savings could be achieved by archiving Operational Data older than 15 days to a more cost-effective storage tier that is optimized for infrequent access. Specifically, the Participants proposed to add new Section 6.3 to Appendix D of the CAT NMS Plan that would state that certain types of data may be retained in an archive storage tier, in which case they would be made available upon request by Participant regulatory staff or the SEC to the CAT Help Desk.51 These types of data would include: • ‘‘All raw unprocessed data (i.e., as submitted data) and interim operational data older than 15 days. Interim operational data includes all processed, validated and unlinked data made 46 See Notice, supra note 7, at 26986. CAT NMS Plan, supra note 3, at Appendix D, Section 6.2. 48 See Notice, supra note 7, at 26986. 49 Id. 50 Id. According to the Participants, after four years of operation, the Plan Processor has not seen any regulatory usage of this interim operational data. Id. 51 Id. at 26987. 47 Id.; VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 available to regulators by T+1 at 12:00 p.m. ET, and all iterations of processed data made available to regulators between T+1 and T+5, but excludes the final version of corrected data that is made available at T+5 at 8:00 a.m. ET. • All submission and feedback files older than 15 days.’’ 52 Operational Data not older than 15 days, as well as all final, corrected data, would remain accessible ‘‘without manual intervention’’ within required query tool response times.53 In addition, the Participants proposed to add references to proposed Section 6.3 of Appendix D to Section 6.5(d)(i) and Section 1.4 of Appendix D of the CAT NMS Plan.54 Under proposed Section 6.3 of Appendix D, archived data would not be directly available and searchable electronically without manual intervention and would not be subject to any query tool performance requirements until restored to an accessible storage tier.55 The Participants explained that archived data would be restored generally within several hours or business days of a request to the CAT Help Desk that is maintained pursuant to Section 10.3 of Appendix D of the CAT NMS Plan, depending on the volume and size of the date range of the requested data restore. For example, a request to restore a single day of data may take less than 24 hours, whereas a request to restore a year’s worth of data may take several days.56 The Participants further represented that the Plan Processor would develop policies and procedures to ensure the confidentiality of any at 26987. Exhibit A of the Proposed Cost Savings Amendments sets forth a different version of this rule text, which states, in relevant part, that ‘‘[a]ll interim raw unprocessed data (i.e., as submitted data) and operational data older than 15. Interim operational data includes all processed, validated and unlinked data and made available to regulators by T+1 at 12:00 p.m. ET, and all iterations of processed data made available to regulators between T+1 and T+5, but excludes the final version of corrected data that is made available at T+5 at 8:00 a.m. ET.’’ Id. at 26996. The Participants do not indicate which version of this rule text is meant to govern. 53 Id. at 26986. 54 Id. at 26987. Although the Participants indicated that this was their intent, they did not add this phrase to Section 6.5(d)(i) in Exhibit A of the Proposed Cost Savings Amendments. Id. at 26996. The Participants do not indicate which version of this rule text is meant to govern. 55 Id. at 26987. 56 Id. at 26986. The Participants reasoned that, when the Commission adopted the CAT NMS Plan, it noted that ‘‘[m]ost current data sources do not provide direct access to most regulators, and data requests can take as long as weeks or even months to process.’’ See id. (citing CAT NMS Plan Approval Order, supra note 3, at 84833 and Rule 613 Adopting Release, supra note 2, at 45729). PO 00000 52 Id. Frm 00139 Fmt 4703 Sfmt 4703 58841 regulator requests to obtain Operational Data.57 Accordingly, the Participants believed that the anticipated savings associated with optimizing storage costs, which they estimated as approximately $1 million in annual costs, outweigh the impact on regulatory access to CAT Data. C. Provision of an Interim CAT-Order-ID on an ‘‘As Requested’’ Basis Appendix D, Section 6.1 of the CAT NMS Plan states that ‘‘Noon Eastern Time T+1 (transaction date + one day)’’ is the deadline for ‘‘initial data validation, lifecycle linkages and communication of errors to CAT Reporters.’’ 58 Appendix D, Section 3 of the CAT NMS Plan further requires that the Plan Processor must use a ‘‘daisy chain approach,’’ in which ‘‘a series of unique order identifiers, assigned to all order events handled by CAT Reporters[,] are linked together by the Central Repository and assigned a single CAT-generated CAT-Order-ID that is associated with each individual order event and used to create the complete lifecycle of an order.’’ 59 The Participants explained that they provide a final CAT-Order-ID at T+5 at 8 a.m. Eastern Time, pursuant to the following timeline: T+1 @8 a.m. ET: Initial submissions due T+1 @12 p.m. ET: Initial data validation, communication of errors to CAT Reporters; unlinked data available to regulators T+1 @9 p.m. ET: Interim CAT-Order-ID available 60 57 Id. 58 Id. at 26987. 59 Id. 60 The Participants further stated that, pursuant to the November 2023 Exemptive Relief Order, the Plan Processor assigns an interim CAT-Order-ID by T+1 at 9 p.m. Eastern Time, rather than by the T+1 at noon Eastern Time deadline set forth in the CAT NMS Plan. See Notice, supra note 7, at 26987; see also November 2023 Exemptive Relief Order, supra note 38. The Participants stated that the November 2023 Exemptive Relief Order provides that the Plan Processor will no longer be required to provide an interim CAT-Order-ID for Options Quotes once it has developed and implemented the functionality to provide a final CAT-Order-ID and lifecycle linkage for Options Quotes by T+2 at 8 a.m. Eastern Time, including all enrichments currently provided for such order events at T+5 at 8 a.m. Eastern Time. When late or corrected data is received for Options Quotes between T+1 at 8 a.m. Eastern Time and T+4 at 8 a.m. Eastern Time, the Participants stated that the Plan Processor must run, on an ad hoc basis, a second processing cycle such that lifecycle linkage and all enrichments currently provided for such order events are performed by T+5 at 8 a.m. Eastern Time. See Notice, supra note 7, at 26987 n.27. To the extent the proposed amendments are approved, the Participants stated that the Plan Processor would no longer be required to create any lifecycle linkages for Options Market Maker Quotes. See id. E:\FR\FM\19JYN1.SGM 19JYN1 ddrumheller on DSK120RN23PROD with NOTICES1 58842 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices T+3 @8 a.m. ET: Resubmission of corrected data T+4 @8 a.m. ET: Final lifecycle assembly begins, reprocessing of late submissions and corrections T+5 @8 a.m. ET: Corrected data available to Participant regulatory staff and the SEC The Participants proposed to amend Section 6.1 of Appendix D of the CAT NMS Plan to require the Plan Processor to provide an interim CAT-Order-ID on an ‘‘as requested’’ basis, rather than on a regular ongoing basis, where there is an immediate regulatory need (for example, in the case of a major market event), upon request of a senior officer of the Division of Trading and Markets, the Division of Enforcement, or the Division of Examinations to CAT LLC.61 In such cases, proposed Section 6.1 of Appendix D states that the Plan Processor would be directed to create an interim CAT-Order-ID and make it available to regulators by T+1 at 9 p.m. ET if the request is received prior to T+1 at 8 a.m. ET, or generally within 14 hours of receiving the request if such request was received after T+1 at 8 a.m. ET.62 Other conforming changes to Section 6.1 of Appendix D were also proposed.63 The Participants clarified that, subject to the proposed amendments described above with respect to Options Market Maker Quotes, there would be no change to any other aspect of the CAT NMS Plan requirements for the processing of data, error feedback, and final delivery of data to regulators by T+5 at 8 a.m. ET, and no impact to Industry Members. Prior to 12:00 p.m. ET on T+1, regulators would continue to have access to raw unprocessed data that has been ingested by the Plan Processor, and between 12:00 p.m. on T+1 and T+5, regulators would continue to have access to all iterations of unlinked, processed data.64 The Participants believed that the Proposed Cost Savings Amendments would preserve the SEC’s ability to obtain an interim CAT-Order-ID on an as needed basis, while avoiding the substantial cost of delivering an interim CATOrder-ID on a regular ongoing basis.65 The Participants therefore stated that the anticipated savings associated with this change would substantially outweigh the minimal regulatory impact.66 According to the Participants, the Proposed Cost Savings Amendments 61 See Notice, supra note 7, at 26988. 62 Id. 63 Id. 64 Id. at 26987. 65 Id. 66 Id. VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 would result in approximately $2 million in annual compute savings.67 They further stated that the estimated cost of an ad hoc interim CAT-Order-ID delivery is approximately $10,000 to $12,000 per request, based on current data volumes,68 and represented that CAT LLC would add a separate line item to its budget to reflect costs related to any SEC requests to generate an interim CAT-Order-ID.69 D. Codification and Expansion of Exemptive Relief Permitting Deletion of Industry Test Data Older Than Three Months According to the Participants, Industry Members and Participants submit data to the CAT pursuant to required and voluntary testing, feedback files related to such data, and output files that hold the detailed transactions, referred to herein as ‘‘Industry Test Data.’’ 70 Under Section 1.2 of Appendix D of the CAT NMS Plan, such Industry Test Data must be saved for three months.71 Separate from this specific three-month retention requirement, Rule 17a–1 under the Exchange Act requires every national securities exchange and national securities association to keep and preserve at least one copy of all documents, including all correspondence, memoranda, papers, books, notices, accounts, and other such records as shall be made or received by it in the course of its business as such and in the conduct of its self-regulatory activity, and to keep all such documents for a period of not less than five years, 67 Id. The Participants explained that the average typical daily compute costs for interim lifecycle processing is estimated to be approximately $8,000/ day to $10,000/day for a typical day based on current data volumes (including savings attributable to the daily ODCR and Compute Savings Plans), which totals approximately $2 million per year based on 252 trading days per year. Id. at 26988 n.28. 68 According to the Participants, this cost savings estimate was calculated assuming the Plan Processor implements functionality to provide a final CAT-Order-ID and lifecycle linkage for options quotes by T+2 at 8 a.m. Eastern Time (in lieu of T+5 at 8 a.m. Eastern Time), which the Participants stated was expected in April 2024. Id. at 26987 n.24. 69 Id. at 26987. The Participants noted, however, that they were unable to predict the number of authorized ad hoc runs per year that would be requested by the Commission. Id. at 26988 n.29. 70 Separately, the Participants stated that CAT LLC, through the Plan Processor, also retains ‘‘[o]perational metrics associated with industry testing (including but not limited to testing results, firms who participated, and amount of data reported and linked)’’ for six years, in accordance with the CAT NMS Plan. See Notice, supra note 7, at 26988 n.30; see also CAT NMS Plan, supra note 3, at Appendix D, Section 1.2. The Participants explained that the proposed amendments do not affect such operational metrics. See Notice, supra note 7, at 26988 n.30. 71 Id. at 26988. PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 the first two years in an easily accessible place, subject to the destruction and disposition provisions of Rule 17a–6 under the Exchange Act.72 Section 9.1 of the CAT NMS Plan, the general recordkeeping provision for the CAT NMS Plan, also states, in relevant part, that the Company shall maintain complete and accurate books and records of the Company in accordance with SEC Rule 17a–1.73 The Participants explained that, on June 2, 2023, CAT LLC requested exemptive relief from Rule 17a–1 under the Exchange Act and certain provisions of the CAT NMS Plan relating to the retention of Industry Test Data beyond three months.74 On November 27, 2023, the Participants stated that the Commission granted the requested relief.75 The Participants stated that their request for exemptive relief and the Industry Test Data Exemptive Relief Order apply only to Industry Test Data related to the CAT order and transaction system, not to the customer account and information system (‘‘CAIS’’).76 The Participants proposed to amend Section 1.2 of Appendix D of the CAT NMS Plan to clarify that test data (whether related to the CAT order and transaction system or to the CAIS may be deleted by the Plan Processor after three months.77 Proposed Section 1.2 of Appendix D would continue to state that operational metrics associated with industry testing (including but not limited to testing results, firms who participated, and amount of data reported and linked) must be stored for the same duration as the CAT production data.’’ 78 72 See 17 CFR 240.17a–1(a)–(b) and 17 CFR 240.17a–6; see also Notice, supra note 7, at 26988. The Participants explained that the CAT is a facility of each of the Participants to the CAT NMS Plan. See Notice, supra note 7, at 26988. 73 See id. at 26988–89. 74 See Notice, supra note 7, at 26988; see also Letter from Brandon Becker, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, Commission, dated June 2, 2023, https://catnmsplan.com/sites/default/files/ 2023-06/06.02.23-Exemptive-Request-Test-DataRetention.pdf. As noted in the exemptive request, CAT LLC does not believe that Industry Test Data constitutes documents covered by Rule 17a–1 under the Exchange Act and adheres to its view that the specific three-month period for Industry Test Data supersedes the more general, longer retention periods in the CAT NMS Plan, but submitted the exemptive request to obtain regulatory clarity in light of the SEC staff’s comments that the longer retention periods set forth in Rule 17a–1 under the Exchange Act and the CAT NMS Plan may apply to Industry Test Data. 75 See Notice, supra note 7, at 26988; see also Industry Test Data Exemptive Relief Order, supra note 14. 76 See Notice, supra note 7, at 26988. 77 Id. at 26989. 78 See id. E:\FR\FM\19JYN1.SGM 19JYN1 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices Prior to the issuance of the Industry Test Data Exemptive Relief Order, the Participants explained that the Plan Processor had been retaining Industry Test Data beyond the three-month period prescribed by Appendix D of the CAT NMS Plan; they stated that eliminating Industry Test Data older than three months as permitted by the exemptive order is expected to achieve approximately $1 million per year in savings. According to the Participants, the Proposed Cost Savings Amendments would not generate additional cost savings beyond those achievable pursuant to the Industry Test Data Exemptive Relief Order. III. Summary of Comments The Commission received four comment letters in connection with the Proposed Cost Savings Amendments.79 All commenters, CAT LLC, Nasdaq, Inc., the Financial Information Forum (‘‘FIF’’) and the Securities Industry and Financial Markets Association (‘‘SIFMA’’) supported the Proposed Cost Savings Amendments. CAT LLC and Nasdaq urged the Commission to approve the Proposed Cost Savings Amendments and all commenters stated that further steps should be taken to reduce costs associated with the CAT. ddrumheller on DSK120RN23PROD with NOTICES1 A. Processing, Query, and Storage Requirements for Options Market Maker Quotes All commenters supported this aspect of the Proposed Cost Savings Amendments. FIF and CAT LLC supported this proposed change because as the Participants had stated in the Proposed Cost Savings Amendments ‘‘the vast majority of Options Market Maker Quote lifecycles do not involve any execution or allocation and usage data demonstrates that such data is very rarely accessed by regulators.’’ 80 FIF 79 See Letter from Howard Meyerson, Managing Director, Financial Information Forum, to Secretary, Commission, dated May 7, 2024, available at https://www.sec.gov/comments/4-698/4698-4675911256394.pdf (‘‘FIF Letter’’); Letter from Ellen Greene, Managing Director, Equities and Options Market Structure, and Joseph Corcoran, Managing Director, Associate General Counsel, The Securities Industry and Financial Markets Association, to Vanessa Countryman, Secretary, Commission, dated May 31, 2024, available at https://www.sec.gov/ comments/4-698/4698-479631-1372454.pdf (‘‘SIFMA Letter’’); Letter from Jeffrey S. Davis, Senior Vice President, Principal Deputy General Counsel, Nasdaq, Inc. to Vanessa Countryman, Secretary, Commission, dated July 1, 2024, available at https://www.sec.gov/comments/4-698/ 4698-487351-1391254.pdf (‘‘Nasdaq Letter’’); See Letter from Brandon Becker, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, Commission, dated July 8, 2024, available at https://www.sec.gov/comments/ 4-698/4-698-d.htm (‘‘SRO Letter’’). 80 See FIF Letter at 2; SRO Letter at 2 and 5 (citing Notice, supra note 7). VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 further supported ‘‘eliminating Options Market Maker Quotes from CAT’’ altogether and requested that the Commission and the Participants ‘‘conduct’’ and make public ‘‘a costbenefit analysis of maintaining Options Market Maker Quotes in CAT vs. removing them from CAT.’’ 81 CAT LLC stated that eliminating optimizations that are currently required to make Options Market Maker Quotes accessible to regulatory users via DIVER would result in significant savings.82 CAT LLC stated that the ‘‘Plan Processor estimates that the continued optimization of Options Market Maker Quotes to make them available via DIVER would cost approximately $2.8 million per year. According to CAT LLC, this estimate consists of approximately (i) $2.2 million per year in compute costs for producing the DIVER-specific hash partition copy of Options Market Maker Quotes, and (ii) $600,000 per year in storage costs for one year’s worth of DIVER-specific copies of Options Market Maker Quotes.’’ CAT LLC further stated that it ‘‘does not believe such costs are justified given the multiple additional and less costly alternative means that exist for regulatory users to access such data.’’ 83 CAT LLC stated that although Options Market Maker Quotes would no longer be accessible via DIVER, Options Market Maker Quotes would remain accessible through BDSQL and Direct Read interfaces, which represent more costefficient methods of providing access to the data.84 CAT LLC also stated that the ‘‘regulatory groups of each of the Participants have indicated that they are able to conduct their regulatory programs accessing Options Market Maker Quotations via BDSQL and/or Direct Read.’’ 85 Further, CAT LLC stated that the Proposed Cost Savings Amendments will eliminate the following Plan Processor enrichments: ‘‘(i) derived next event timestamp; (ii) lifecycle sequence number; and (iii) the CAT Lifecycle ID (collectively, the ‘‘Eliminated Enrichments’’).’’ 86 CAT LLC stated that only one Participant has used any of the three Eliminated Enrichments in connection with Options Market Maker Quotes, but that the Plan Processor will provide the existing code and/or logic required to derive the Eliminated Enrichments to the SEC and Participant PO 00000 regulators upon request.87 This logic would include written technical requirements explaining how regulators can generate the Eliminated Enrichments themselves, and CAT LLC stated that it ‘‘believes that regulators have demonstrated the technical ability to integrate this code into their own environments and to process data sets of this size in their regulatory and surveillance activities to date.’’ 88 Following approval of the Cost Savings Amendments, CAT LLC stated that the Plan Processor will not maintain the code or logic, but it will maintain a copy of each so that they may be provided to any regulators that might request them in the future.89 CAT LLC clarified that only market maker quotes that are reported to CAT as quote events would be affected by the Proposed Cost Savings Amendments, and that market maker quotes reported to CAT as order events will not be impacted by this proposal and will continue to receive all enrichments and be fully available to regulatory users in DIVER.90 CAT LLC stated that market maker quotes that are reported as quote events are ‘‘primarily responsible for driving CAT operating costs. For example, over the last year, there has been an average of approximately 214 billion market maker quotes reported as quote events each day compared to an average of approximately 13 billion market maker quotes reported as order events each day.’’ 91 Additionally, CAT LLC stated that (i) quote events are clearly identifiable as quotes while it would be difficult for the Plan Processor to discern which order events represent market maker quotes, and (ii) the Eliminated Enrichments are not required to determine the correct sequence of events for quotes like they are for orders.92 SIFMA also supported this aspect of the Proposed Cost Savings Amendments, stating that the ‘‘enormity of this data set . . . has created costs and challenges far beyond those envisioned when CAT was approved.’’ 93 SIFMA explained that the ‘‘quote-to-trade ratio in listed options markets is so large that the operational costs of linking quotes to trades is an unreasonable burden’’ that had not been supported by a cost-benefit analysis.94 Moreover, SIFMA noted that ‘‘the ratio 87 Id. 88 See 81 FIF Letter at 2. 82 See SRO Letter at 5. 83 Id. 84 Id. 85 Id. 86 Id. Frm 00141 Fmt 4703 SRO Letter at 6. 89 Id. 90 Id. at 7. 91 Id. 92 Id. 93 SIFMA 94 Id. Sfmt 4703 58843 E:\FR\FM\19JYN1.SGM Letter at 2. at 2–3. 19JYN1 58844 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 keeps increasing, with [its] member data showing the most recent peak of 32,000 quotes per trade in the U.S. options market in December 2023,’’ a ratio that they stated was ‘‘nearly 4 times greater than the ratio described’’ in the CAT NMS Plan Approval Order.95 SIFMA further expressed concern that there were no forces to ‘‘constrain the increase in this ratio’’ and stated that ‘‘certain SEC market structure initiatives might only accelerate the increase.’’ 96 Given the ‘‘extremely small number of quotes’’ with a ‘‘corresponding trade,’’ SIFMA did not believe it was reasonable to spend so much on processing and storage costs for Options Market Maker Quotes, especially if such data would continue to be reported to the CAT and if ‘‘the SEC or a Participant can use the quote data as part of its surveillance or investigation patterns, albeit with the need to perform some additional computations.’’ 97 Additionally, Nasdaq supported this proposed change and stated that Options Market Maker Quotes ‘‘are the single largest data source for the CAT and the cost impact of storing and processing Options Market Maker Quotes remains a significant percentage of overall CAT costs.’’ 98 Nasdaq further stated that if the proposed amendment is adopted, CAT is expected to save $20 million related to options quotes.99 CAT LLC reiterated the $20 million annual savings and stated that ‘‘this number is based on an estimated 65 percent reduction in compute runtime associated with Options Exchange events, and an estimated 80 percent reduction in storage footprint through the elimination of versioned quote data (e.g., T+2 8AM version, Final, DIVER, and OLA copies).’’ 100 CAT LLC further stated that the cost savings estimates reflect the Plan Processor’s knowledge of current conditions and other factors, and that the estimated cost savings could change based on available AWS offerings or other variables.101 Further, CAT LLC clarified that the Plan Processor would continue to perform ingestion validation on Options Market Maker Quotes, but would stop performing linkage validation.102 95 Id. at 2 (citing CAT NMS Plan Approval Order, supra note 3, at 84750). 96 Id. For example, SIFMA explained that the Commission’s recent ‘‘tick size proposal has the potential to significantly expand the amount of quoting activity in the equities and listed options markets.’’ Id. at 2 n.7. 97 Id. at 2–3. 98 See Nasdaq Letter at 2. 99 Id. 100 See SRO Letter at 3. 101 Id. 102 Id. at 4. VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 B. Storage for Raw Unprocessed Data and Interim Operational Copies of CAT Data Older Than 15 Days All commenters supported this aspect of the Proposed Cost Savings Amendments.103 SIFMA further stated the Commission should consider ‘‘whether its recordkeeping requirements are appropriate’’ and recommended that the SEC ‘‘embark on a more comprehensive undertaking about what other data can be moved to more cost-effective storage solutions.’’ 104 FIF also stated that ‘‘further steps can be taken.’’ 105 For instance, FIF stated that, ‘‘[i]f the Operational Data does not provide any value to CAT Reporters 106 or to regulators after T+5, there is no reason to store this data after T+5.’’ 107 Conversely, if the Commission and the Participants issued a public report that ‘‘explains the regulatory value of maintaining this Operational Data,’’ FIF stated that it would ‘‘agree with the proposal . . . to move the Operational Data to a more cost-effective storage tier.’’ 108 FIF further requested that the Commission and the Participants ‘‘publish an analysis as to whether this data could be stored in tiers within AWS S3, such as Glacier or Glacier Deep Archive, that could be more cost effective than the AWS S3 Intelligent Tier, as proposed in the Participant filing.’’ 109 In addition, FIF stated that ‘‘enhanced transparency regarding the operation of the CAT system is necessary and appropriate’’ and expressed concern that ‘‘there could be other requirements that the Commission is imposing on the . . . Participants that either do not provide regulatory value or are beyond the scope of CAT.’’ 110 FIF requested that the Commission ‘‘provide clarification’’ as to why Industry Members and their customers should be ‘‘required to incur costs for storage of data that has no regulatory value.’’ 111 With regard to additional information requested on the cost calculations for moving Operational Data older than 15 days to a different storage tier, CAT LLC 103 See, e.g., FIF Letter at 3; SIFMA Letter at 3; Nasdaq Letter at 2; SRO Letter at 2–7. 104 SIFMA Letter at 3. 105 FIF Letter at 3. 106 ‘‘CAT Reporter’’ means ‘‘each national securities exchange, national securities association and Industry Member that is required to record and report information to the Central Repository pursuant to SEC Rule 613(c).’’ See CAT NMS Plan, supra note 3, at Section 1.1. 107 FIF Letter at 3. 108 Id. 109 Id. 110 Id. at 3–4. 111 Id. PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 explained that their $1 million per year savings estimate is ‘‘based on current storage tier pricing differentials and a 1:1:8 ratio of the data between the three S3 storage tiers. Operational Data older than 15 days is currently stored at the ‘S3–FA’ storage tier. AWS cloud offers three storage tiers that are cheaper than the S3–FA storage tier, including Glacier Deep Archive. Moving Operational Data older than 15 days from S3–FA to Glacier Deep Archive, as contemplated in the Cost Savings Amendments, would result in storage savings of more than 90 percent the cost of continuing to store such data in the S3–FA storage tier, representing cost savings of approximately $1 million per year.’’ 112 CAT LLC further explained the storage tier pricing ratio of 1:1:8 and stated that specific to storage cost estimates, S3 Intelligent Tier storage fees are allocated at a ratio of 1 (S3 Frequent Access): 1 (S3 Infrequent Access): 8 (S3 Archive Instant Access).113 CAT LLC stated that ‘‘this ratio describes the current percentage distribution of data files between storage tiers, which is driven by regulatory usage.’’ 114 Data files that are either new or that have recently been read by regulatory users are stored in S3 Frequent Access, and less frequently used files are moved to other S3 storage tiers based on usage. The Plan Processor’s storage cost model is based on a 1:1:8 ratio across the S3 storage tiers, in accordance with current observed regulatory usage. If regulatory users begin to read older data files more frequently, then those files would be moved up to S3 Frequent Access, and the 1:1:8 ratio between the S3 storage tiers would change.115 Because each S3 storage tier has its own cost-perpetabyte of data, any change in the 1:1:8 ratio based on regulatory usage would affect storage costs.116 CAT LLC further stated that after moving raw unprocessed data and interim operational data older than 15 days to a more cost-effective storage tier, retrieving such data for regulators would require some ‘‘manual intervention’’ by the Plan Processor.117 CAT LLC noted that the Commission sought clarification on this ‘‘manual intervention’’, as this data is currently available ‘‘without manual intervention’’ in accordance with the CAT NMS Plan via the use of CAT data 112 SRO 113 See Letter at 3–4. SRO Letter at 3. 114 Id. 115 Id. 116 Id. 117 See E:\FR\FM\19JYN1.SGM SRO Letter at 7. 19JYN1 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices management APIs.118 CAT LLC stated that during the four year operation of the CAT, the Plan Processor had not observed any regulatory usage of the data in question,119 thus CAT LLC reiterated its proposal that upon request to the CAT Help Desk, the Plan Processor would restore archived data to an accessible storage tier so that it is available to and searchable by regulatory users directly.120 C. Provision of an Interim CAT-Order-ID on an ‘‘As Requested’’ Basis All commenters supported this aspect of the Proposed Cost Savings Amendments. Nasdaq stated that this proposal could save ‘‘$2[sic] by changing the availability of the interim CAT-Order-ID from a daily basis to an as requested basis.’’ 121 CAT LLC stated that by multiplying the ‘‘$8,000 to $10,000 cost per day by 252 trading days per year,’’ the ‘‘Plan Processor estimates that it costs approximately $2 million per year to generate an interim CAT-Order-ID on a daily basis.’’ 122 The Proposed Cost Savings Amendments would change this from an ongoing daily expense to an ‘‘as requested’’ expense, which the Plan Processor estimates would cost between $10,000 and $12,000 per request.123 CAT LLC stated that this estimate is ‘‘based on ondemand AWS rates for a typical day with average data volumes, less Options Market Maker Quotes data volume and its associated storage needs.’’ 124 CAT LLC noted that the Plan Processor did not estimate the number of requests that it may receive from regulators each year to generate an interim CAT-Order-ID, so the estimated $2 million in annual savings would decrease depending on number of requests received from regulators.125 FIF agreed with the Participants that ‘‘the substantial cost of delivering an interim CAT-Order-ID on a continuous basis outweighs any regulatory benefit.’’ 126 FIF also requested that the Commission and the Participants ‘‘publish a cost-benefit analysis of the current and proposed mandates relating to the assignment of an interim CATOrder-ID,’’ including an analysis of why assignment of an interim CAT-Order-ID 118 Id. ddrumheller on DSK120RN23PROD with NOTICES1 119 Id. 120 Id. 121 See 122 See Nasdaq Letter at 2. SRO Letter at 4. would be appropriate even on an ‘‘as requested’’ basis.127 SIFMA stated that the Participants had proposed to ‘‘provide an interim CAT-Order-ID on an as needed basis and in doing so would realize substantial cost savings.’’ 128 SIFMA therefore stated that the proposed changes were ‘‘essential and long overdue’’ and stated that ‘‘[d]ecisions made by the SEC years ago about what it thought it needed in terms of the timeliness and availability of interim data must be re-examined by the SEC in light of its real-world experience and its understanding of the incremental costs to provide such data.’’ 129 D. Codification and Expansion of Exemptive Relief Permitting Deletion of Industry Test Data Older Than Three Months Two commenters supported this aspect of the Proposed Cost Savings Amendments. SIFMA stated that it supported this change, ‘‘as it incorporates into the [CAT NMS] Plan previously-granted relief as well as applies that relief to test data used in connection with the CAT CAIS.’’ 130 FIF stated that it supported this change ‘‘because storage of test data in CAT is not relevant for regulatory surveillance.’’ 131 FIF further stated that it supported ‘‘deletion of all test data after one week’’ and requested that the Commission and the Participants ‘‘publish a cost-benefit analysis of any mandate to retain test data beyond one week,’’ which analysis should ‘‘identify any use cases that would involve access to test data beyond one week, including the regulatory purpose.’’ 132 E. Additional Information on the Participants’ Proposed Cost Savings Amendments In response to the Commission staff’s request for additional details regarding their cost savings calculations, CAT LLC stated that ‘‘all cost and savings projections necessarily are good faith estimates based on current information and reflect the current state and costs of CAT operations, including the current number of exchanges.’’ 133 CAT LLC also stated that ‘‘it would be unduly burdensome and not necessarily meaningful to require CAT LLC and the Plan Processor to provide separate cost estimates attributable to each interdependent subcomponent of a 123 Id. 127 FIF 124 Id. 128 SIFMA 125 Id. 126 FIF Letter at 4 (citing Notice, supra note 7); see also SIFMA Letter at 4 (‘‘This is yet another illustration of incurring costs without a corresponding regulatory benefit.’’). VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 PO 00000 Letter at 4. Letter at 3. 129 Id. at 3–4. 130 Id. at 4. 131 FIF Letter at 5. 132 FIF Letter at 5. 133 See SRO Letter at 2. Frm 00143 Fmt 4703 58845 particular proposal . . . All of the cost savings estimates for the Cost Savings Amendments are based on, among other factors: current CAT NMS Plan requirements; reporting by Participants, Industry Members, and market data providers; observed data rates and volumes; current storage and compute pricing discounts, compute reservations, and cost savings plans (i.e., including savings attributable to the daily OnDemand Capacity Reservations and Compute Savings Plans); and associated cloud fees. Actual future savings could be more or less than estimated due to changes in any of these variables.’’ 134 F. Other Comments All commenters requested that additional steps be taken to further manage and reduce CAT operating costs.135 For instance, SIFMA suggested that the Commission and the Participants should ‘‘assess their own CAT usage patterns and needs to identify further cost saving measures.’’ 136 SIFMA stated that the CAT ‘‘should be operated to meet the reasonable and legitimate needs of regulators, and not as a monolith to address any regulatory use case regardless of the costs.’’ 137 SIFMA also stated that the Participants and the Commission could ‘‘provide Industry Members with a more meaningful opportunity to contribute their experience and expertise to the CAT’s budget setting and cost savings processes.’’ 138 Specifically, SIFMA recommended that the Participants establish a separate working group that includes Industry Members to focus on ways the CAT system can be made more efficient from a cost perspective while still achieving its goals.139 ‘‘Without more direct involvement by Industry Members in the CAT budgeting process,’’ SIFMA stated that ‘‘there is an insufficient structural framework and incentives to bring CAT costs under control.’’ 140 FIF expressed similar concerns.141 FIF stated that it was important for the 134 Id. at 2–3. e.g., FIF Letter at 2; SIFMA Letter at 1; Nasdaq Letter at 2. 136 See, e.g., SIFMA Letter at 2. 137 Id. 138 See, e.g., SIFMA Letter at 1. 139 Id. 140 Id. 141 These concerns were also set forth in a previous comment letter to the Commission that was jointly submitted by SIFMA and FIF. See FIF Letter, at 5 n.19; see also Letter from Joseph Corcoran, Managing Director, Associate General Counsel, and Ellen Greene, Managing Director, Equities & Options Market Structure, SIFMA, and Howard Meyerson, Managing Director, FIF, to 135 See, Continued Sfmt 4703 E:\FR\FM\19JYN1.SGM 19JYN1 58846 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices Commission to ‘‘provide transparency about any proposed CAT processing changes and the associated costs of those changes.’’ 142 FIF stated that the Commission ‘‘should not impose CAT reporting requirements that are beyond the scope of Commission Rule 613 and the CAT NMS Plan’’ and that ‘‘[p]roposed changes to current CAT processing or reporting requirements that could involve further significant increases in CAT operating costs should be subject to an appropriate cost-benefit analysis that is included as part of a CAT NMS Plan amendment.’’ 143 The SRO Letter and Nasdaq Letter reiterated the Participants’ points in the Proposed Cost Savings Amendments regarding the impact on regulatory usage by stating that the proposals would have a minimal impact on regulatory usage and that the Participants believe that the expected savings substantially outweigh the minimal regulatory impact of the proposed changes.144 Both commenters further stated that they note that SIFMA and FIF are in support of the Proposed Cost Savings Amendments.145 ddrumheller on DSK120RN23PROD with NOTICES1 IV. Proceedings To Determine Whether To Approve or Disapprove the Proposed Amendment The Commission is instituting proceedings pursuant to Rule 608(b)(2)(i) of Regulation NMS,146 and Rules 700 and 701 of the Commission’s Rules of Practice,147 to determine whether to disapprove the Proposed Cost Savings Amendments or to approve the Proposed Cost Savings Amendments with any changes or subject to any conditions the Commission deems necessary or appropriate. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, the Commission seeks and encourages interested persons to provide additional comment on the Proposed Cost Savings Amendments to inform the Commission’s analysis. Rule 608(b)(2) of Regulation NMS provides that the Commission ‘‘shall approve a national market system plan or proposed amendment to an effective national market system plan, with such changes or subject to such conditions as the Commission may deem necessary or appropriate, if it finds that such plan or amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the [Exchange] Act.’’ 148 Rule 608(b)(2) further provides that the Commission shall disapprove a national market system plan or proposed amendment if it does not make such a finding.149 In the Notice, the Commission sought comment on the Proposed Cost Savings Amendments, including whether the Proposed Cost Savings Amendments are consistent with the Exchange Act.150 In this order, pursuant to Rule 608(b)(2)(i) of Regulation NMS,151 the Commission is providing notice of the grounds for disapproval under consideration: • Whether, consistent with Rule 608 of Regulation NMS, the Participants have demonstrated how the Proposed Cost Savings Amendments are necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Exchange Act; 152 • Whether the Participants have demonstrated how the Proposed Cost Savings Amendments are consistent with Section 6(b)(5) 153 and Section 15A(b)(6) 154 of the Exchange Act, which require that the rules of a national securities exchange or national securities association be ‘‘designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest’’; • Whether the Participants have demonstrated how the Proposed Cost Savings Amendments are consistent with Section 11A of the Exchange Act,155 which directs the Commission, ‘‘having due regard for the public interest, the protection of investors, and Secretary, Commission, dated July 31, 2023, available at https://www.sec.gov/comments/4-698/ 4698-238359-498762.pdf. 142 FIF Letter at 5. 143 Id. 144 See Nasdaq Letter at 2; SRO Letter at 2. 145 See Nasdaq Letter at 2; SRO Letter at 8. 146 17 CFR 242.608(b)(2)(i). 147 17 CFR 201.700; 17 CFR 201.701. VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 PO 00000 148 17 CFR 242.608(b)(2). 149 Id. Notice, supra note 7, at 26997–98. CFR 242.608(b)(2)(i). 152 17 CFR 242.608(b)(2). 153 15 U.S.C. 78f(b)(5). 154 15 U.S.C. 78o–3(b)(6). 155 15 U.S.C. 78k–1. the maintenance of fair and orderly markets, to use its authority under this chapter to facilitate the establishment of a national market system . . . in accordance with the findings and to carry out the objectives’’ expressed by Congress, including, among other things, that ‘‘[i]t is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure . . . (i) economically efficient execution of securities transactions; [and] (ii) fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets,’’ as well as ‘‘to authorize or require self-regulatory organizations to act jointly with respect to matters as to which they share authority under this chapter in planning, developing, operating, or regulating a national market system (or a subsystem thereof) or on or more facilities thereof’’; • Whether the Participants have demonstrated how the Proposed Cost Savings Amendments are consistent with Section 17 of the Exchange Act 156 and Rules 17a–1 and 17a–4,157 which set forth requirements for national securities exchanges, national securities associations, brokers, and dealers related to making, keeping, furnishing, and disseminating records; • Whether and if so how, the Proposed Cost Savings Amendments would affect efficiency, competition, or capital formation, which analysis is required by Rule 613 under the Exchange Act; 158 and • Whether modifications to the Proposed Cost Savings Amendments, or conditions to its approval, would be necessary or appropriate in the public interest, for the protection of investors and the maintenance of orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the Exchange Act.159 Under the Commission’s Rules of Practice, the ‘‘burden to demonstrate that a NMS plan filing is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the plan participants that filed the NMS plan filing.’’ 160 The description of the NMS plan filing, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an 150 See 151 17 Frm 00144 Fmt 4703 Sfmt 4703 156 15 U.S.C. 78q. CFR 240.17a–1. 158 17 CFR 242.613(a)(5). 159 17 CFR 242.608(b)(2). 160 17 CFR 201.701(b)(3)(ii). 157 17 E:\FR\FM\19JYN1.SGM 19JYN1 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 affirmative Commission finding.161 Any failure of the plan participants that filed the NMS plan filing to provide such detail and specificity may result in the Commission not having a sufficient basis to make an affirmative finding that the NMS plan filing is consistent with the Exchange Act and the applicable rules and regulations thereunder.162 V. Commission’s Solicitation of Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the Proposed Cost Savings Amendments. In particular, the Commission invites the written views of interested persons concerning whether the Proposed Cost Savings Amendments are consistent with the Exchange Act, the rules and regulations thereunder, or any other provisions of the CAT NMS Plan. The Commission asks that commenters address the sufficiency and merit of the Participants’ statements in support of the Proposed Cost Savings Amendments, in addition to any other comments they may wish to submit about the proposed rule changes. To consider the impact of the Proposed Cost Savings Amendments on efficiency, competition, and capital formation,163 the Commission requests additional information. In particular: • To understand the effect of the Proposed Cost Savings Amendments on the operational efficiency of the Central Repository (and the follow-on effects on market efficiency, competition, and capital formation), the Commission requests additional details and underlying calculations used to estimate the cost savings as well as information on the costs to the Plan Processor of implementing each element of each of the proposed amendments (e.g., some amendments would require coding changes, which would impose costs). The Commission also requests more specific information on data processes, such as processes for identifying and tracking linkage-related errors without the use of an interim CAT-Order-ID, that inform on how the Proposed Cost Savings Amendments affect operational efficiency. • To understand the effect of the Proposed Cost Savings Amendments on regulatory efficiency (and follow-on 161 Id. 162 Id. 163 The Commission is required to consider the impact of amendments to the CAT NMS Plan on efficiency, competition, and capital formation. See 17 CFR 242.613(a)(5). VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 effects on investor protection and capital formation), in addition to the three ‘‘Eliminated Enhancements’’ discussed in the SRO Letter,164 the Commission requests more information on data elements—namely, a list of fields and variables for various event types in current CAT Data—that would no longer be directly available, would only be available indirectly (via notifications or making of requests to the Plan Processor or other entities), or would be available on a delay relative to today. The Commission also requests information on existing substitutes for such data elements (e.g., substitutes for interim CAT-Order-ID), and on how these substitutes could be used by data users to alleviate any reductions in regulatory efficiency. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 608(b)(2)(i) of Regulation NMS,165 any request for an opportunity to make an oral presentation.166 Interested persons are invited to submit written data, views, and arguments regarding whether the Proposed Cost Savings Amendments should be approved or disapproved by August 9, 2024. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by August 23, 2024. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number 4– 698 (CAT Cost Savings Amendment) 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 4–698 (CAT Cost Savings Amendment). This file number should be included on the subject line if email is used. To help the Commission process and review your comments SRO Letter at 5. 165 17 CFR 242.608(b)(2)(i). 166 Rule 700(c)(ii) of the Commission’s Rules of Practice provides that ‘‘[t]he Commission, in its sole discretion, may determine whether any issues relevant to approval or disapproval would be facilitated by the opportunity for an oral presentation of views.’’ 17 CFR 201.700(c)(ii). PO 00000 164 See Frm 00145 Fmt 4703 Sfmt 4703 58847 more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/rules/ sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the Participants’ principal offices. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to File Number 4–698 (CAT Cost Savings Amendment) and should be submitted on or before August 9, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.167 J. Matthew DeLesDernier, Deputy Secretary. [FR Doc. 2024–15908 Filed 7–18–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meetings FEDERAL REGISTER CITATION OF PREVIOUS ANNOUNCEMENT: 89 FR 57457, July 15, 2024. PREVIOUSLY ANNOUNCED TIME AND DATE OF THE MEETING: Thursday, July 18, 2024 at 2:00 p.m. The Closed Meeting scheduled for Thursday, July 18, 2024, at 2:00 p.m., has been cancelled. CHANGES IN THE MEETING: CONTACT PERSON FOR MORE INFORMATION: For further information; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. Authority: 5 U.S.C. 552b. 167 17 E:\FR\FM\19JYN1.SGM CFR 200.30–3(a)(85). 19JYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 139 (Friday, July 19, 2024)]
[Notices]
[Pages 58838-58847]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15908]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100530; File No. 4-698]

Joint Industry Plan; Order Instituting Proceedings To Determine
Whether To Approve or Disapprove an Amendment to the National Market
System Plan Governing the Consolidated Audit Trail Regarding Cost
Savings Measures

July 15, 2024.

I. Introduction

In July 2012, the Securities and Exchange Commission (the
``Commission'' or ``SEC'') adopted Rule 613 of Regulation NMS, which
required national securities exchanges and national securities
associations (the ``Participants'') \1\ to jointly develop and submit
to the Commission a national market system (``NMS'') plan to create,
implement, and maintain a consolidated audit trail (the ``CAT'').\2\ On
November 15, 2016, the Commission approved the NMS plan required by
Rule 613 (the ``CAT NMS Plan'').\3\ On March 27, 2024,

[[Page 58839]]

and pursuant to Section 11A(a)(3) of the Securities Exchange Act of
1934 (the ``Exchange Act'') \4\ and Rule 608 of Regulation NMS
thereunder,\5\ the Participants filed with the Commission proposed
amendments to the CAT NMS Plan designed to implement certain costs
saving measures (the ``Proposed Cost Savings Amendments'').\6\ The
Proposed Cost Savings Amendments were published for comment in the
Federal Register on April 16, 2024.\7\
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\1\ The Participants include BOX Exchange LLC, Cboe BYX
Exchange, Inc., Cboe BZX Exchange, Inc., Cboe C2 Exchange, Inc.,
Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe Exchange,
Inc., The 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, Inc., 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.
\2\ See Securities Exchange Act Release No. 67457 (July 18,
2012), 77 FR 45722 (Aug. 1, 2012 (``Rule 613 Adopting Release''); 17
CFR 242.613.
\3\ See Securities Exchange Act Release No. 78318 (Nov. 15,
2016), 81 FR 84696 (Nov. 23, 2016) (``CAT NMS Plan Approval
Order''). The CAT NMS Plan is Exhibit A to the CAT NMS Plan Approval
Order. See CAT NMS Plan Approval Order, at 84943-85034. The CAT NMS
Plan, which is available at https://catnmsplan.com/about-cat/cat-nms-plan, functions as the limited liability company agreement of
the jointly owned limited liability company formed under Delaware
state law through which the Participants conduct the activities of
the CAT (the ``Company''). Each Participant is a member of the
Company and jointly owns the Company on an equal basis. The
Participants submitted to the Commission a proposed amendment to the
CAT NMS Plan on August 29, 2019, which they designated as effective
on filing. On August 29, 2019, the Participants replaced the CAT NMS
Plan in its entirety with the limited liability company agreement of
a new limited liability company, CAT LLC, which became the Company.
See Securities Exchange Act Release No. 87149 (Sept. 27, 2019), 84
FR 52905 (Oct. 3, 2019).
\4\ 15 U.S.C. 78k-1(a)(3).
\5\ 17 CFR 242.608.
\6\ See Letter from Brandon Becker, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman, Secretary, Commission, dated
March 27, 2024, available at https://catnmsplan.com/sites/default/files/2024-03/03.27.24-Proposed-CAT-NMS-Plan-Amendment-Cost-Savings-Amendment.pdf.
\7\ See Securities Exchange Act Release No. 99938 (Apr. 10,
2024), 89 FR 26983 (Apr. 16, 2024) (``Notice''). Comments received
in response to the Notice can be found on the Commission's website
at https://www.sec.gov/comments/4-698/4-698-d.htm.
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This order institutes proceedings, under Rule 608(b)(2)(i) of
Regulation NMS,\8\ to determine whether to disapprove the Proposed Cost
Savings Amendments or to approve the Proposed Cost Savings Amendments
with any changes or subject to any conditions the Commission deems
necessary or appropriate.
---------------------------------------------------------------------------

\8\ 17 CFR 242.608(b)(2)(i).
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II. Summary of Proposed Cost Savings Amendments ⁹
---------------------------------------------------------------------------

\9\ See Notice, supra note 7, for a full discussion of the
Proposed Cost Savings Amendments.
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The Participants proposed to implement the following measures: (A)
amendments that would change processing, query, and storage
requirements for Options Market Maker quotes in Listed Options
(``Option Market Maker Quotes''),\10\ (B) amendments that would permit
the Plan Processor \11\ to move raw unprocessed data and interim
operational copies of CAT Data \12\ older than 15 days to what the
Participants described as a more cost-effective storage tier; (C)
amendments that would permit the Plan Processor to provide an interim
CAT-Order-ID \13\ to regulatory users on an ``as requested'' basis,
rather than on a daily basis; and (D) amendments that would codify and
expand exemptive relief recently provided by the Commission related to
certain recordkeeping and data retention requirements for industry
testing data.\14\
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\10\ An ``Options Market Maker'' is ``a broker-dealer registered
with an exchange for the purpose of making markets in options
contracts on the exchange.'' See CAT NMS Plan, supra note 3, at
Section 1.1. A ``Listed Option'' is defined as having ``the meaning
set forth in Rule 600(b)(35) of Regulation NMS.'' See id. Rule
600(b)(35) has since been redesignated as Rule 600(b)(43), which
defines a ``Listed Option'' as ``any option traded on a registered
national securities exchange or automated facility of a national
securities association.'' 17 CFR 242.600(b)(43).
\11\ The ``Plan Processor'' is ``the Initial Plan Processor or
any other Person selected by the Operating Committee pursuant to SEC
Rule 613 and Sections 4.3(b)(i) and 6.1, and with regard to the
Initial Plan Processor, the Selection Plan, to perform the CAT
processing functions required by SEC Rule 613 and set forth in this
Agreement.'' See CAT NMS Plan, supra note 3, at Section 1.1.
\12\ ``CAT Data'' is ``data derived from Participant Data,
Industry Member Data, SIP Data, and such other data as the Operating
Committee may designate as `CAT Data' from time to time.'' See id.
\13\ The ``CAT-Order-ID'' is ``a unique order identifier or
series of unique order identifiers that allows the central
repository to efficiently and accurately link all reportable events
for an order, and all orders that result from the aggregation or
disaggregation of such order.'' See 17 CFR 242.613(j)(1); see also
CAT NMS Plan, supra note 3, at Section 1.1 (```CAT-Order-ID' has the
same meaning provided in SEC Rule 613(j)(1).'').
\14\ See Securities Exchange Act Release No. 99023 (Nov. 27,
2023), 88 FR 84026 (Dec. 1, 2023) (``Industry Test Data Exemptive
Relief Order'').
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The Participants represented that the Proposed Cost Savings
Amendments are expected to result in approximately $23 million in new
annual cost savings in the first year with limited impact on the
regulatory function of the CAT. The Participants further stated that
their cost and savings projections were estimates only and were based
on, among other factors: the current state and costs of CAT operations,
including the current number of national securities exchanges; current
CAT NMS Plan requirements; reporting by Participants, Industry Members
\15\ and market data providers; observed data rates and volumes;
current discounts, reservations, and cost savings plans; and associated
cloud fees. According to the Participants, actual future savings could
be more or less than their estimates due to changes in any of these
variables.
---------------------------------------------------------------------------

\15\ ``Industry Member'' means ``a member of a national
securities exchange or a member of a national securities
association.'' See CAT NMS Plan, supra note 3, at Section 1.1.
---------------------------------------------------------------------------

A. Processing, Query, and Storage Requirements for Options Market Maker
Quotes

Section 6.3(d) of the CAT NMS Plan currently requires each
Participant to record and electronically report to the Central
Repository details for each Order and each Reportable Event, including
all Options Market Maker Quotes and related Reportable Events.\16\ With
respect to the reporting obligations of an Options Market Maker with
regard to its quotes in Listed Options, Section 6.4(d)(iii) of the CAT
NMS Plan states that Reportable Events required pursuant to Section
6.3(d)(ii) and (iv) shall be reported to the Central Repository by an
Options Exchange in lieu of the reporting of such information by the
Options Market Maker.\17\ Section 6.4(d)(iii) of the CAT NMS Plan also
requires Options Market Makers to report to an Options Exchange the
time at which a quote in a Listed Option is sent to the Options
Exchange (and, if applicable, any subsequent quote modifications and/or
cancellation time when such modification or cancellation is originated
by the Options Market Maker), pursuant to compliance rules established
by the Options Exchanges.\18\ Such time information must be reported to
the Central Repository by the Options Exchange in lieu of reporting by
the Options Market Maker.\19\
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\16\ See Notice, supra note 7, at 26985. An Order includes ``(i)
[a]ny order received by a member of a national securities exchange
or national securities association from any person; (ii) [a]ny order
originated by a member of a national securities exchange or national
securities association; or (iii) [a]ny bid or offer.'' See 17 CFR
242.613(j)(8); see also CAT NMS Plan, supra note 3, at Section 1.1
(```Order' or `order' has, with respect to Eligible Securities, the
meaning set forth in SEC Rule 613(j)(8).''). A ``Reportable Event''
includes, but is not limited to, ``the original receipt or
origination, modification, cancellation, routing, execution (in
whole or in part) and allocation of an order, and receipt of a
routed order.'' See CAT NMS Plan, supra note 3, at Section 1.1.
\17\ See Notice, supra note 7, at 26985.
\18\ Id.
\19\ Id.; see also CAT NMS Plan, supra note 3, at Section
6.4(d)(iii).
---------------------------------------------------------------------------

The CAT NMS Plan requires all CAT Data reported to the Central
Repository to be processed and assembled to create the complete
lifecycle of each Reportable Event.\20\ Appendix D, Section 3 of the
CAT NMS Plan states that the Plan Processor must use a ``daisy chain
approach,'' in which ``a series of unique order identifiers, assigned
to all order events handled by CAT Reporters[,] are linked together by
the Central Repository and assigned a single CAT-generated CAT-Order-ID
that is associated with each individual order event and used to create
the

[[Page 58840]]

complete lifecycle of an order.'' \21\ Timelines for data processing
and data availability are described in Section 6.1 and Section 6.2 of
Appendix D of the CAT NMS Plan.\22\ The CAT NMS Plan further provides
that regulators will have access to processed CAT Data through an
online targeted query tool and through user-defined direct queries and
bulk extract tools described in Section 8.1 and Section 8.2 of Appendix
D of the CAT NMS Plan.\23\
---------------------------------------------------------------------------

\20\ See Notice, supra note 7, at 26985.
\21\ See also id.
\22\ Id.
\23\ Id.
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The Participants proposed to amend certain processing, query, and
storage requirements that would otherwise apply to Options Market Maker
Quotes. Specifically, proposed Section 3.4 of Appendix D would state
that Options Market Maker Quotes in Listed Options would undergo
ingestion only and such unlinked data would be made available to
regulators by T+1 at 12:00 p.m. Eastern Time.\24\ Under proposed
Section 3.4 of Appendix D, Options Market Maker Quotes would not be
subject to any requirement to link and create an order lifecycle and
would not undergo any validation, feedback, linkage, or enrichment
processing.\25\ Options Market Maker Quotes in Listed Options would be
accessible through BDSQL and Direct Read interfaces only under proposed
Section 3.4 of Appendix D and would not be accessible through the
online targeted query tool.\26\ In addition, the Participants proposed
to make conforming changes to certain provisions of Appendix D to
include cross-references to proposed Section 3.4.\27\
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\24\ Id.
\25\ Id.
\26\ Id.
\27\ Id.
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Under these proposed provisions, the Participants explained that
Options Exchanges would continue to report Options Market Maker Quotes
in the same manner they do today, but that the Plan Processor would
only ingest and store such data.\28\ The Participants stated that the
Plan Processor would no longer be required to create any lifecycle
linkages for Options Market Maker Quotes \29\ and that Options Market
Maker Quotes would no longer be subject to Plan Processor enrichments
(e.g., next event timestamp, lifecycle sequence number, CAT-Lifecycle-
ID).\30\ However, the Participants represented that, upon request, the
Plan Processor would provide regulators with the code required to
derive such enrichments from the unprocessed data.\31\ While unlinked
data would remain accessible to regulators by T+1 at 12:00 p.m. Eastern
Time, the Participants stated that elimination of linkage and feedback
processes would remove Options Market Maker Quotes from Options Market
Replay, OLA Viewer, and All-Related Lifecycle Event queries.\32\ The
Participants also stated that Options Market Maker Quotes would no
longer be accessible via DIVER, a CAT query tool, but would remain
accessible through BDSQL and Direct Read interfaces.\33\ According to
the Participants, executions that result from Options Market Maker
Quotes would identify the ``quoteId'' of the quote that resulted in an
execution, but would appear as orphaned lifecycle events.\34\
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\28\ Id. at 26984.
\29\ Id. at 26984 n.15.
\30\ Id. at 26984.
\31\ Id.
\32\ Id.
\33\ Id.
\34\ Id.
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The Participants estimated that the costs related to creating
lifecycles for Options Market Maker Quotes were $30 million in
2023.\35\ The Participants represented that Options Market Maker Quotes
are the single largest data source for the CAT, comprising
approximately 98% of all options exchange events and approximately 75%
of all transaction volume stored in the CAT.\36\ However, the
Participants explained that creating lifecycles for this data is less
compute intensive than other processing tasks; because the vast
majority of Options Market Maker Quote lifecycles consist of just two
events--the quote and its subsequent cancellation--the number of quotes
that result in an execution is extremely low.\37\
---------------------------------------------------------------------------

\35\ Id.
\36\ Id.
\37\ Id.
---------------------------------------------------------------------------

The Participants also stated that they had already begun to
implement certain measures to reduce the costs associated with
lifecycle linkages for Options Market Maker Quotes, pursuant to
exemptive relief issued by the Commission in November 2023.\38\ The
Participants stated that this exemptive relief allows the Plan
Processor to create lifecycle linkages for Options Market Maker Quotes
only once by T+2 at 8 a.m. Eastern Time (as opposed to requiring both
an interim lifecycle by T+1 at 9 p.m. Eastern Time and a final
lifecycle by T+5 at 8 a.m. Eastern Time).\39\ The Participants expected
the above-described ``single pass'' approach to generating lifecycles
for options quotes to result in annual savings of approximately $5.4
million upon implementation in April 2024.\40\
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\38\ See Securities Exchange Act Release No. 98848 (Nov. 2,
2023), 88 FR 77128 (Nov. 8, 2023) (``November 2023 Exemptive Relief
Order'').
\39\ See Notice, supra note 7, at 26984 n.15 (citing November
2023 Exemptive Relief Order). To the extent the Proposed Cost
Savings Amendments are approved, the Participants stated that Plan
Processor would no longer be required to create any lifecycle
linkages for Options Market Maker Quotes. See id. at 26984.
\40\ Id. at 26984.
---------------------------------------------------------------------------

The Participants estimated that the Proposed Cost Savings Amendment
would result in approximately $20 million in additional annual cost
savings in the first year, such that the cost impact of Options Market
Maker Quotes on the CAT would be reduced from approximately $24.4
million (inclusive of anticipated savings resulting from the
implementation of the options quotes ``single pass'' proposal
referenced above) to approximately $4.0 million annually.\41\ They
stated there would be limited regulatory impact.\42\ The Participants
stated that the vast majority of Options Market Maker Quote lifecycles
do not involve any execution or allocation and usage data demonstrates
that such data is very rarely accessed by regulators. The Participants
also stated that regulators would still have access to unlinked Options
Market Maker Quotes data by T+1 at 12:00 p.m. Eastern Time under the
Proposed Cost Savings Amendments and stated that regulatory users would
be able to derive the currently available data enrichments if
needed.\43\
---------------------------------------------------------------------------

\41\ See id. at 26984-85. The Participants stated that their
cost savings estimates assumed an approximate 65% reduction in
compute runtime associated with options exchange events and an
approximate 80% reduction in storage footprint through the
elimination of versioned options quote data (e.g., interim, final,
DIVER-optimized, OLA copies). See id. at 26985 n.19.
\42\ See id. at 26984-85.
\43\ See id.
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B. Storage for Raw Unprocessed Data and Interim Operational Copies of
CAT Data Older Than 15 Days

The CAT NMS Plan requires CAT Data to be ``directly available and
searchable electronically without manual intervention for at least six
years'' \44\ and within certain query tool response times.\45\ These
requirements apply not only to the final corrected data version that is
delivered to regulators by T+5 at 8 a.m. Eastern

[[Page 58841]]

Time, but also to raw unprocessed data and various types of interim
operational data, as well as to copies of all submission and feedback
files provided to CAT Reporters as part of the correction process
(collectively, ``Operational Data'').\46\ Specifically, with respect to
raw unprocessed data and interim operational copies of data created
between T+1 and T+5, Section 6.2 of Appendix D of the CAT NMS Plan
provides that, prior to 12:00 p.m. Eastern Time on T+1, raw unprocessed
data that has been ingested by the Plan Processor must be available to
Participants' regulatory staff and the SEC, and between 12:00 p.m.
Eastern Time on T+1 and T+5, access to all iterations of processed data
must be available to Participants' regulatory staff and the SEC.\47\
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\44\ See CAT NMS Plan, supra note 3, at Section 6.5(b)(i) and
Appendix D, Section 1.4; see also Notice, supra note 7, at 26986.
\45\ See, e.g., CAT NMS Plan, supra note 3, at Appendix D,
Section 8.1 and 8.2; see also Notice, supra note 7, at 26986. The
Participants explained that the Commission had granted conditional
exemptive relief from certain performance requirements related to
the online targeted query tool. See Notice, supra note 7, at 26986;
see also November 2023 Exemptive Relief Order, supra note 38.
\46\ See Notice, supra note 7, at 26986.
\47\ Id.; CAT NMS Plan, supra note 3, at Appendix D, Section
6.2.
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Currently, the Participants explained that interim operational data
is supplanted in all CAT query tools by the final version of corrected
data that is made available at T+5 at 8:00 a.m. Eastern Time.\48\
However, they stated that such data remains available to regulators
after T+5 ``without manual intervention'' via the use of CAT data
management APIs.\49\ Because the Participants believed that regulators
generally access the latest, corrected version of CAT data, the
Participants believed that interim operational data generally does not
provide any regulatory value after the final corrected data version is
delivered by T+5 at 8 a.m. Eastern Time.\50\
---------------------------------------------------------------------------

\48\ See Notice, supra note 7, at 26986.
\49\ Id.
\50\ Id. According to the Participants, after four years of
operation, the Plan Processor has not seen any regulatory usage of
this interim operational data. Id.
---------------------------------------------------------------------------

The Participants stated that cost savings could be achieved by
archiving Operational Data older than 15 days to a more cost-effective
storage tier that is optimized for infrequent access. Specifically, the
Participants proposed to add new Section 6.3 to Appendix D of the CAT
NMS Plan that would state that certain types of data may be retained in
an archive storage tier, in which case they would be made available
upon request by Participant regulatory staff or the SEC to the CAT Help
Desk.\51\ These types of data would include:
---------------------------------------------------------------------------

\51\ Id. at 26987.
---------------------------------------------------------------------------

``All raw unprocessed data (i.e., as submitted data) and
interim operational data older than 15 days. Interim operational data
includes all processed, validated and unlinked data made available to
regulators by T+1 at 12:00 p.m. ET, and all iterations of processed
data made available to regulators between T+1 and T+5, but excludes the
final version of corrected data that is made available at T+5 at 8:00
a.m. ET.
All submission and feedback files older than 15 days.''
\52\
---------------------------------------------------------------------------

\52\ Id. at 26987. Exhibit A of the Proposed Cost Savings
Amendments sets forth a different version of this rule text, which
states, in relevant part, that ``[a]ll interim raw unprocessed data
(i.e., as submitted data) and operational data older than 15.
Interim operational data includes all processed, validated and
unlinked data and made available to regulators by T+1 at 12:00 p.m.
ET, and all iterations of processed data made available to
regulators between T+1 and T+5, but excludes the final version of
corrected data that is made available at T+5 at 8:00 a.m. ET.'' Id.
at 26996. The Participants do not indicate which version of this
rule text is meant to govern.
---------------------------------------------------------------------------

Operational Data not older than 15 days, as well as all final,
corrected data, would remain accessible ``without manual intervention''
within required query tool response times.\53\ In addition, the
Participants proposed to add references to proposed Section 6.3 of
Appendix D to Section 6.5(d)(i) and Section 1.4 of Appendix D of the
CAT NMS Plan.\54\
---------------------------------------------------------------------------

\53\ Id. at 26986.
\54\ Id. at 26987. Although the Participants indicated that this
was their intent, they did not add this phrase to Section 6.5(d)(i)
in Exhibit A of the Proposed Cost Savings Amendments. Id. at 26996.
The Participants do not indicate which version of this rule text is
meant to govern.
---------------------------------------------------------------------------

Under proposed Section 6.3 of Appendix D, archived data would not
be directly available and searchable electronically without manual
intervention and would not be subject to any query tool performance
requirements until restored to an accessible storage tier.\55\ The
Participants explained that archived data would be restored generally
within several hours or business days of a request to the CAT Help Desk
that is maintained pursuant to Section 10.3 of Appendix D of the CAT
NMS Plan, depending on the volume and size of the date range of the
requested data restore. For example, a request to restore a single day
of data may take less than 24 hours, whereas a request to restore a
year's worth of data may take several days.\56\ The Participants
further represented that the Plan Processor would develop policies and
procedures to ensure the confidentiality of any regulator requests to
obtain Operational Data.\57\
---------------------------------------------------------------------------

\55\ Id. at 26987.
\56\ Id. at 26986. The Participants reasoned that, when the
Commission adopted the CAT NMS Plan, it noted that ``[m]ost current
data sources do not provide direct access to most regulators, and
data requests can take as long as weeks or even months to process.''
See id. (citing CAT NMS Plan Approval Order, supra note 3, at 84833
and Rule 613 Adopting Release, supra note 2, at 45729).
\57\ Id.
---------------------------------------------------------------------------

Accordingly, the Participants believed that the anticipated savings
associated with optimizing storage costs, which they estimated as
approximately $1 million in annual costs, outweigh the impact on
regulatory access to CAT Data.

C. Provision of an Interim CAT-Order-ID on an ``As Requested'' Basis

Appendix D, Section 6.1 of the CAT NMS Plan states that ``Noon
Eastern Time T+1 (transaction date + one day)'' is the deadline for
``initial data validation, lifecycle linkages and communication of
errors to CAT Reporters.'' \58\ Appendix D, Section 3 of the CAT NMS
Plan further requires that the Plan Processor must use a ``daisy chain
approach,'' in which ``a series of unique order identifiers, assigned
to all order events handled by CAT Reporters[,] are linked together by
the Central Repository and assigned a single CAT-generated CAT-Order-ID
that is associated with each individual order event and used to create
the complete lifecycle of an order.'' \59\
---------------------------------------------------------------------------

\58\ Id. at 26987.
\59\ Id.
---------------------------------------------------------------------------

The Participants explained that they provide a final CAT-Order-ID
at T+5 at 8 a.m. Eastern Time, pursuant to the following timeline:

T+1 @8 a.m. ET: Initial submissions due
T+1 @12 p.m. ET: Initial data validation, communication of errors to
CAT Reporters; unlinked data available to regulators
T+1 @9 p.m. ET: Interim CAT-Order-ID available \60\
---------------------------------------------------------------------------

\60\ The Participants further stated that, pursuant to the
November 2023 Exemptive Relief Order, the Plan Processor assigns an
interim CAT-Order-ID by T+1 at 9 p.m. Eastern Time, rather than by
the T+1 at noon Eastern Time deadline set forth in the CAT NMS Plan.
See Notice, supra note 7, at 26987; see also November 2023 Exemptive
Relief Order, supra note 38. The Participants stated that the
November 2023 Exemptive Relief Order provides that the Plan
Processor will no longer be required to provide an interim CAT-
Order-ID for Options Quotes once it has developed and implemented
the functionality to provide a final CAT-Order-ID and lifecycle
linkage for Options Quotes by T+2 at 8 a.m. Eastern Time, including
all enrichments currently provided for such order events at T+5 at 8
a.m. Eastern Time. When late or corrected data is received for
Options Quotes between T+1 at 8 a.m. Eastern Time and T+4 at 8 a.m.
Eastern Time, the Participants stated that the Plan Processor must
run, on an ad hoc basis, a second processing cycle such that
lifecycle linkage and all enrichments currently provided for such
order events are performed by T+5 at 8 a.m. Eastern Time. See
Notice, supra note 7, at 26987 n.27. To the extent the proposed
amendments are approved, the Participants stated that the Plan
Processor would no longer be required to create any lifecycle
linkages for Options Market Maker Quotes. See id.

---------------------------------------------------------------------------

[[Page 58842]]

T+3 @8 a.m. ET: Resubmission of corrected data
T+4 @8 a.m. ET: Final lifecycle assembly begins, reprocessing of
late submissions and corrections
T+5 @8 a.m. ET: Corrected data available to Participant regulatory
staff and the SEC

The Participants proposed to amend Section 6.1 of Appendix D of the
CAT NMS Plan to require the Plan Processor to provide an interim CAT-
Order-ID on an ``as requested'' basis, rather than on a regular ongoing
basis, where there is an immediate regulatory need (for example, in the
case of a major market event), upon request of a senior officer of the
Division of Trading and Markets, the Division of Enforcement, or the
Division of Examinations to CAT LLC.\61\ In such cases, proposed
Section 6.1 of Appendix D states that the Plan Processor would be
directed to create an interim CAT-Order-ID and make it available to
regulators by T+1 at 9 p.m. ET if the request is received prior to T+1
at 8 a.m. ET, or generally within 14 hours of receiving the request if
such request was received after T+1 at 8 a.m. ET.\62\ Other conforming
changes to Section 6.1 of Appendix D were also proposed.\63\
---------------------------------------------------------------------------

\61\ See Notice, supra note 7, at 26988.
\62\ Id.
\63\ Id.
---------------------------------------------------------------------------

The Participants clarified that, subject to the proposed amendments
described above with respect to Options Market Maker Quotes, there
would be no change to any other aspect of the CAT NMS Plan requirements
for the processing of data, error feedback, and final delivery of data
to regulators by T+5 at 8 a.m. ET, and no impact to Industry Members.
Prior to 12:00 p.m. ET on T+1, regulators would continue to have access
to raw unprocessed data that has been ingested by the Plan Processor,
and between 12:00 p.m. on T+1 and T+5, regulators would continue to
have access to all iterations of unlinked, processed data.\64\ The
Participants believed that the Proposed Cost Savings Amendments would
preserve the SEC's ability to obtain an interim CAT-Order-ID on an as
needed basis, while avoiding the substantial cost of delivering an
interim CAT-Order-ID on a regular ongoing basis.\65\
---------------------------------------------------------------------------

\64\ Id. at 26987.
\65\ Id.
---------------------------------------------------------------------------

The Participants therefore stated that the anticipated savings
associated with this change would substantially outweigh the minimal
regulatory impact.\66\ According to the Participants, the Proposed Cost
Savings Amendments would result in approximately $2 million in annual
compute savings.\67\ They further stated that the estimated cost of an
ad hoc interim CAT-Order-ID delivery is approximately $10,000 to
$12,000 per request, based on current data volumes,\68\ and represented
that CAT LLC would add a separate line item to its budget to reflect
costs related to any SEC requests to generate an interim CAT-Order-
ID.\69\
---------------------------------------------------------------------------

\66\ Id.
\67\ Id. The Participants explained that the average typical
daily compute costs for interim lifecycle processing is estimated to
be approximately $8,000/day to $10,000/day for a typical day based
on current data volumes (including savings attributable to the daily
ODCR and Compute Savings Plans), which totals approximately $2
million per year based on 252 trading days per year. Id. at 26988
n.28.
\68\ According to the Participants, this cost savings estimate
was calculated assuming the Plan Processor implements functionality
to provide a final CAT-Order-ID and lifecycle linkage for options
quotes by T+2 at 8 a.m. Eastern Time (in lieu of T+5 at 8 a.m.
Eastern Time), which the Participants stated was expected in April
2024. Id. at 26987 n.24.
\69\ Id. at 26987. The Participants noted, however, that they
were unable to predict the number of authorized ad hoc runs per year
that would be requested by the Commission. Id. at 26988 n.29.
---------------------------------------------------------------------------

D. Codification and Expansion of Exemptive Relief Permitting Deletion
of Industry Test Data Older Than Three Months

According to the Participants, Industry Members and Participants
submit data to the CAT pursuant to required and voluntary testing,
feedback files related to such data, and output files that hold the
detailed transactions, referred to herein as ``Industry Test Data.''
\70\ Under Section 1.2 of Appendix D of the CAT NMS Plan, such Industry
Test Data must be saved for three months.\71\ Separate from this
specific three-month retention requirement, Rule 17a-1 under the
Exchange Act requires every national securities exchange and national
securities association to keep and preserve at least one copy of all
documents, including all correspondence, memoranda, papers, books,
notices, accounts, and other such records as shall be made or received
by it in the course of its business as such and in the conduct of its
self-regulatory activity, and to keep all such documents for a period
of not less than five years, the first two years in an easily
accessible place, subject to the destruction and disposition provisions
of Rule 17a-6 under the Exchange Act.\72\ Section 9.1 of the CAT NMS
Plan, the general recordkeeping provision for the CAT NMS Plan, also
states, in relevant part, that the Company shall maintain complete and
accurate books and records of the Company in accordance with SEC Rule
17a-1.\73\
---------------------------------------------------------------------------

\70\ Separately, the Participants stated that CAT LLC, through
the Plan Processor, also retains ``[o]perational metrics associated
with industry testing (including but not limited to testing results,
firms who participated, and amount of data reported and linked)''
for six years, in accordance with the CAT NMS Plan. See Notice,
supra note 7, at 26988 n.30; see also CAT NMS Plan, supra note 3, at
Appendix D, Section 1.2. The Participants explained that the
proposed amendments do not affect such operational metrics. See
Notice, supra note 7, at 26988 n.30.
\71\ Id. at 26988.
\72\ See 17 CFR 240.17a-1(a)-(b) and 17 CFR 240.17a-6; see also
Notice, supra note 7, at 26988. The Participants explained that the
CAT is a facility of each of the Participants to the CAT NMS Plan.
See Notice, supra note 7, at 26988.
\73\ See id. at 26988-89.
---------------------------------------------------------------------------

The Participants explained that, on June 2, 2023, CAT LLC requested
exemptive relief from Rule 17a-1 under the Exchange Act and certain
provisions of the CAT NMS Plan relating to the retention of Industry
Test Data beyond three months.\74\ On November 27, 2023, the
Participants stated that the Commission granted the requested
relief.\75\ The Participants stated that their request for exemptive
relief and the Industry Test Data Exemptive Relief Order apply only to
Industry Test Data related to the CAT order and transaction system, not
to the customer account and information system (``CAIS'').\76\
---------------------------------------------------------------------------

\74\ See Notice, supra note 7, at 26988; see also Letter from
Brandon Becker, CAT NMS Plan Operating Committee Chair, to Vanessa
Countryman, Secretary, Commission, dated June 2, 2023, https://catnmsplan.com/sites/default/files/2023-06/06.02.23-Exemptive-Request-Test-Data-Retention.pdf. As noted in the exemptive request,
CAT LLC does not believe that Industry Test Data constitutes
documents covered by Rule 17a-1 under the Exchange Act and adheres
to its view that the specific three-month period for Industry Test
Data supersedes the more general, longer retention periods in the
CAT NMS Plan, but submitted the exemptive request to obtain
regulatory clarity in light of the SEC staff's comments that the
longer retention periods set forth in Rule 17a-1 under the Exchange
Act and the CAT NMS Plan may apply to Industry Test Data.
\75\ See Notice, supra note 7, at 26988; see also Industry Test
Data Exemptive Relief Order, supra note 14.
\76\ See Notice, supra note 7, at 26988.
---------------------------------------------------------------------------

The Participants proposed to amend Section 1.2 of Appendix D of the
CAT NMS Plan to clarify that test data (whether related to the CAT
order and transaction system or to the CAIS may be deleted by the Plan
Processor after three months.\77\ Proposed Section 1.2 of Appendix D
would continue to state that operational metrics associated with
industry testing (including but not limited to testing results, firms
who participated, and amount of data reported and linked) must be
stored for the same duration as the CAT production data.'' \78\
---------------------------------------------------------------------------

\77\ Id. at 26989.
\78\ See id.

---------------------------------------------------------------------------

[[Page 58843]]

Prior to the issuance of the Industry Test Data Exemptive Relief
Order, the Participants explained that the Plan Processor had been
retaining Industry Test Data beyond the three-month period prescribed
by Appendix D of the CAT NMS Plan; they stated that eliminating
Industry Test Data older than three months as permitted by the
exemptive order is expected to achieve approximately $1 million per
year in savings. According to the Participants, the Proposed Cost
Savings Amendments would not generate additional cost savings beyond
those achievable pursuant to the Industry Test Data Exemptive Relief
Order.

III. Summary of Comments

The Commission received four comment letters in connection with the
Proposed Cost Savings Amendments.\79\ All commenters, CAT LLC, Nasdaq,
Inc., the Financial Information Forum (``FIF'') and the Securities
Industry and Financial Markets Association (``SIFMA'') supported the
Proposed Cost Savings Amendments. CAT LLC and Nasdaq urged the
Commission to approve the Proposed Cost Savings Amendments and all
commenters stated that further steps should be taken to reduce costs
associated with the CAT.
---------------------------------------------------------------------------

\79\ See Letter from Howard Meyerson, Managing Director,
Financial Information Forum, to Secretary, Commission, dated May 7,
2024, available at https://www.sec.gov/comments/4-698/4698-467591-1256394.pdf (``FIF Letter''); Letter from Ellen Greene, Managing
Director, Equities and Options Market Structure, and Joseph
Corcoran, Managing Director, Associate General Counsel, The
Securities Industry and Financial Markets Association, to Vanessa
Countryman, Secretary, Commission, dated May 31, 2024, available at
https://www.sec.gov/comments/4-698/4698-479631-1372454.pdf (``SIFMA
Letter''); Letter from Jeffrey S. Davis, Senior Vice President,
Principal Deputy General Counsel, Nasdaq, Inc. to Vanessa
Countryman, Secretary, Commission, dated July 1, 2024, available at
https://www.sec.gov/comments/4-698/4698-487351-1391254.pdf (``Nasdaq
Letter''); See Letter from Brandon Becker, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman, Secretary, Commission, dated
July 8, 2024, available at https://www.sec.gov/comments/4-698/4-698-d.htm (``SRO Letter'').
---------------------------------------------------------------------------

A. Processing, Query, and Storage Requirements for Options Market Maker
Quotes

All commenters supported this aspect of the Proposed Cost Savings
Amendments. FIF and CAT LLC supported this proposed change because as
the Participants had stated in the Proposed Cost Savings Amendments
``the vast majority of Options Market Maker Quote lifecycles do not
involve any execution or allocation and usage data demonstrates that
such data is very rarely accessed by regulators.'' \80\ FIF further
supported ``eliminating Options Market Maker Quotes from CAT''
altogether and requested that the Commission and the Participants
``conduct'' and make public ``a cost-benefit analysis of maintaining
Options Market Maker Quotes in CAT vs. removing them from CAT.'' \81\
---------------------------------------------------------------------------

\80\ See FIF Letter at 2; SRO Letter at 2 and 5 (citing Notice,
supra note 7).
\81\ FIF Letter at 2.
---------------------------------------------------------------------------

CAT LLC stated that eliminating optimizations that are currently
required to make Options Market Maker Quotes accessible to regulatory
users via DIVER would result in significant savings.\82\ CAT LLC stated
that the ``Plan Processor estimates that the continued optimization of
Options Market Maker Quotes to make them available via DIVER would cost
approximately $2.8 million per year. According to CAT LLC, this
estimate consists of approximately (i) $2.2 million per year in compute
costs for producing the DIVER-specific hash partition copy of Options
Market Maker Quotes, and (ii) $600,000 per year in storage costs for
one year's worth of DIVER-specific copies of Options Market Maker
Quotes.'' CAT LLC further stated that it ``does not believe such costs
are justified given the multiple additional and less costly alternative
means that exist for regulatory users to access such data.'' \83\ CAT
LLC stated that although Options Market Maker Quotes would no longer be
accessible via DIVER, Options Market Maker Quotes would remain
accessible through BDSQL and Direct Read interfaces, which represent
more cost-efficient methods of providing access to the data.\84\ CAT
LLC also stated that the ``regulatory groups of each of the
Participants have indicated that they are able to conduct their
regulatory programs accessing Options Market Maker Quotations via BDSQL
and/or Direct Read.'' \85\
---------------------------------------------------------------------------

\82\ See SRO Letter at 5.
\83\ Id.
\84\ Id.
\85\ Id.
---------------------------------------------------------------------------

Further, CAT LLC stated that the Proposed Cost Savings Amendments
will eliminate the following Plan Processor enrichments: ``(i) derived
next event timestamp; (ii) lifecycle sequence number; and (iii) the CAT
Lifecycle ID (collectively, the ``Eliminated Enrichments'').'' \86\ CAT
LLC stated that only one Participant has used any of the three
Eliminated Enrichments in connection with Options Market Maker Quotes,
but that the Plan Processor will provide the existing code and/or logic
required to derive the Eliminated Enrichments to the SEC and
Participant regulators upon request.\87\ This logic would include
written technical requirements explaining how regulators can generate
the Eliminated Enrichments themselves, and CAT LLC stated that it
``believes that regulators have demonstrated the technical ability to
integrate this code into their own environments and to process data
sets of this size in their regulatory and surveillance activities to
date.'' \88\ Following approval of the Cost Savings Amendments, CAT LLC
stated that the Plan Processor will not maintain the code or logic, but
it will maintain a copy of each so that they may be provided to any
regulators that might request them in the future.\89\
---------------------------------------------------------------------------

\86\ Id.
\87\ Id.
\88\ See SRO Letter at 6.
\89\ Id.
---------------------------------------------------------------------------

CAT LLC clarified that only market maker quotes that are reported
to CAT as quote events would be affected by the Proposed Cost Savings
Amendments, and that market maker quotes reported to CAT as order
events will not be impacted by this proposal and will continue to
receive all enrichments and be fully available to regulatory users in
DIVER.\90\ CAT LLC stated that market maker quotes that are reported as
quote events are ``primarily responsible for driving CAT operating
costs. For example, over the last year, there has been an average of
approximately 214 billion market maker quotes reported as quote events
each day compared to an average of approximately 13 billion market
maker quotes reported as order events each day.'' \91\ Additionally,
CAT LLC stated that (i) quote events are clearly identifiable as quotes
while it would be difficult for the Plan Processor to discern which
order events represent market maker quotes, and (ii) the Eliminated
Enrichments are not required to determine the correct sequence of
events for quotes like they are for orders.\92\
---------------------------------------------------------------------------

\90\ Id. at 7.
\91\ Id.
\92\ Id.
---------------------------------------------------------------------------

SIFMA also supported this aspect of the Proposed Cost Savings
Amendments, stating that the ``enormity of this data set . . . has
created costs and challenges far beyond those envisioned when CAT was
approved.'' \93\ SIFMA explained that the ``quote-to-trade ratio in
listed options markets is so large that the operational costs of
linking quotes to trades is an unreasonable burden'' that had not been
supported by a cost-benefit analysis.\94\ Moreover, SIFMA noted that
``the ratio

[[Page 58844]]

keeps increasing, with [its] member data showing the most recent peak
of 32,000 quotes per trade in the U.S. options market in December
2023,'' a ratio that they stated was ``nearly 4 times greater than the
ratio described'' in the CAT NMS Plan Approval Order.\95\ SIFMA further
expressed concern that there were no forces to ``constrain the increase
in this ratio'' and stated that ``certain SEC market structure
initiatives might only accelerate the increase.'' \96\ Given the
``extremely small number of quotes'' with a ``corresponding trade,''
SIFMA did not believe it was reasonable to spend so much on processing
and storage costs for Options Market Maker Quotes, especially if such
data would continue to be reported to the CAT and if ``the SEC or a
Participant can use the quote data as part of its surveillance or
investigation patterns, albeit with the need to perform some additional
computations.'' \97\
---------------------------------------------------------------------------

\93\ SIFMA Letter at 2.
\94\ Id. at 2-3.
\95\ Id. at 2 (citing CAT NMS Plan Approval Order, supra note 3,
at 84750).
\96\ Id. For example, SIFMA explained that the Commission's
recent ``tick size proposal has the potential to significantly
expand the amount of quoting activity in the equities and listed
options markets.'' Id. at 2 n.7.
\97\ Id. at 2-3.
---------------------------------------------------------------------------

Additionally, Nasdaq supported this proposed change and stated that
Options Market Maker Quotes ``are the single largest data source for
the CAT and the cost impact of storing and processing Options Market
Maker Quotes remains a significant percentage of overall CAT costs.''
\98\ Nasdaq further stated that if the proposed amendment is adopted,
CAT is expected to save $20 million related to options quotes.\99\
---------------------------------------------------------------------------

\98\ See Nasdaq Letter at 2.
\99\ Id.
---------------------------------------------------------------------------

CAT LLC reiterated the $20 million annual savings and stated that
``this number is based on an estimated 65 percent reduction in compute
runtime associated with Options Exchange events, and an estimated 80
percent reduction in storage footprint through the elimination of
versioned quote data (e.g., T+2 8AM version, Final, DIVER, and OLA
copies).'' \100\ CAT LLC further stated that the cost savings estimates
reflect the Plan Processor's knowledge of current conditions and other
factors, and that the estimated cost savings could change based on
available AWS offerings or other variables.\101\ Further, CAT LLC
clarified that the Plan Processor would continue to perform ingestion
validation on Options Market Maker Quotes, but would stop performing
linkage validation.\102\
---------------------------------------------------------------------------

\100\ See SRO Letter at 3.
\101\ Id.
\102\ Id. at 4.
---------------------------------------------------------------------------

B. Storage for Raw Unprocessed Data and Interim Operational Copies of
CAT Data Older Than 15 Days

All commenters supported this aspect of the Proposed Cost Savings
Amendments.\103\ SIFMA further stated the Commission should consider
``whether its recordkeeping requirements are appropriate'' and
recommended that the SEC ``embark on a more comprehensive undertaking
about what other data can be moved to more cost-effective storage
solutions.'' \104\
---------------------------------------------------------------------------

\103\ See, e.g., FIF Letter at 3; SIFMA Letter at 3; Nasdaq
Letter at 2; SRO Letter at 2-7.
\104\ SIFMA Letter at 3.
---------------------------------------------------------------------------

FIF also stated that ``further steps can be taken.'' \105\ For
instance, FIF stated that, ``[i]f the Operational Data does not provide
any value to CAT Reporters \106\ or to regulators after T+5, there is
no reason to store this data after T+5.'' \107\ Conversely, if the
Commission and the Participants issued a public report that ``explains
the regulatory value of maintaining this Operational Data,'' FIF stated
that it would ``agree with the proposal . . . to move the Operational
Data to a more cost-effective storage tier.'' \108\ FIF further
requested that the Commission and the Participants ``publish an
analysis as to whether this data could be stored in tiers within AWS
S3, such as Glacier or Glacier Deep Archive, that could be more cost
effective than the AWS S3 Intelligent Tier, as proposed in the
Participant filing.'' \109\
---------------------------------------------------------------------------

\105\ FIF Letter at 3.
\106\ ``CAT Reporter'' means ``each national securities
exchange, national securities association and Industry Member that
is required to record and report information to the Central
Repository pursuant to SEC Rule 613(c).'' See CAT NMS Plan, supra
note 3, at Section 1.1.
\107\ FIF Letter at 3.
\108\ Id.
\109\ Id.
---------------------------------------------------------------------------

In addition, FIF stated that ``enhanced transparency regarding the
operation of the CAT system is necessary and appropriate'' and
expressed concern that ``there could be other requirements that the
Commission is imposing on the . . . Participants that either do not
provide regulatory value or are beyond the scope of CAT.'' \110\ FIF
requested that the Commission ``provide clarification'' as to why
Industry Members and their customers should be ``required to incur
costs for storage of data that has no regulatory value.'' \111\
---------------------------------------------------------------------------

\110\ Id. at 3-4.
\111\ Id.
---------------------------------------------------------------------------

With regard to additional information requested on the cost
calculations for moving Operational Data older than 15 days to a
different storage tier, CAT LLC explained that their $1 million per
year savings estimate is ``based on current storage tier pricing
differentials and a 1:1:8 ratio of the data between the three S3
storage tiers. Operational Data older than 15 days is currently stored
at the `S3-FA' storage tier. AWS cloud offers three storage tiers that
are cheaper than the S3-FA storage tier, including Glacier Deep
Archive. Moving Operational Data older than 15 days from S3-FA to
Glacier Deep Archive, as contemplated in the Cost Savings Amendments,
would result in storage savings of more than 90 percent the cost of
continuing to store such data in the S3-FA storage tier, representing
cost savings of approximately $1 million per year.'' \112\ CAT LLC
further explained the storage tier pricing ratio of 1:1:8 and stated
that specific to storage cost estimates, S3 Intelligent Tier storage
fees are allocated at a ratio of 1 (S3 Frequent Access): 1 (S3
Infrequent Access): 8 (S3 Archive Instant Access).\113\ CAT LLC stated
that ``this ratio describes the current percentage distribution of data
files between storage tiers, which is driven by regulatory usage.''
\114\ Data files that are either new or that have recently been read by
regulatory users are stored in S3 Frequent Access, and less frequently
used files are moved to other S3 storage tiers based on usage. The Plan
Processor's storage cost model is based on a 1:1:8 ratio across the S3
storage tiers, in accordance with current observed regulatory usage. If
regulatory users begin to read older data files more frequently, then
those files would be moved up to S3 Frequent Access, and the 1:1:8
ratio between the S3 storage tiers would change.\115\ Because each S3
storage tier has its own cost-per-petabyte of data, any change in the
1:1:8 ratio based on regulatory usage would affect storage costs.\116\
---------------------------------------------------------------------------

\112\ SRO Letter at 3-4.
\113\ See SRO Letter at 3.
\114\ Id.
\115\ Id.
\116\ Id.
---------------------------------------------------------------------------

CAT LLC further stated that after moving raw unprocessed data and
interim operational data older than 15 days to a more cost-effective
storage tier, retrieving such data for regulators would require some
``manual intervention'' by the Plan Processor.\117\ CAT LLC noted that
the Commission sought clarification on this ``manual intervention'', as
this data is currently available ``without manual intervention'' in
accordance with the CAT NMS Plan via the use of CAT data

[[Page 58845]]

management APIs.\118\ CAT LLC stated that during the four year
operation of the CAT, the Plan Processor had not observed any
regulatory usage of the data in question,\119\ thus CAT LLC reiterated
its proposal that upon request to the CAT Help Desk, the Plan Processor
would restore archived data to an accessible storage tier so that it is
available to and searchable by regulatory users directly.\120\
---------------------------------------------------------------------------

\117\ See SRO Letter at 7.
\118\ Id.
\119\ Id.
\120\ Id.
---------------------------------------------------------------------------

C. Provision of an Interim CAT-Order-ID on an ``As Requested'' Basis

All commenters supported this aspect of the Proposed Cost Savings
Amendments. Nasdaq stated that this proposal could save ``$2[sic] by
changing the availability of the interim CAT-Order-ID from a daily
basis to an as requested basis.'' \121\ CAT LLC stated that by
multiplying the ``$8,000 to $10,000 cost per day by 252 trading days
per year,'' the ``Plan Processor estimates that it costs approximately
$2 million per year to generate an interim CAT-Order-ID on a daily
basis.'' \122\ The Proposed Cost Savings Amendments would change this
from an ongoing daily expense to an ``as requested'' expense, which the
Plan Processor estimates would cost between $10,000 and $12,000 per
request.\123\ CAT LLC stated that this estimate is ``based on on-demand
AWS rates for a typical day with average data volumes, less Options
Market Maker Quotes data volume and its associated storage needs.''
\124\ CAT LLC noted that the Plan Processor did not estimate the number
of requests that it may receive from regulators each year to generate
an interim CAT-Order-ID, so the estimated $2 million in annual savings
would decrease depending on number of requests received from
regulators.\125\
---------------------------------------------------------------------------

\121\ See Nasdaq Letter at 2.
\122\ See SRO Letter at 4.
\123\ Id.
\124\ Id.
\125\ Id.
---------------------------------------------------------------------------

FIF agreed with the Participants that ``the substantial cost of
delivering an interim CAT-Order-ID on a continuous basis outweighs any
regulatory benefit.'' \126\ FIF also requested that the Commission and
the Participants ``publish a cost-benefit analysis of the current and
proposed mandates relating to the assignment of an interim CAT-Order-
ID,'' including an analysis of why assignment of an interim CAT-Order-
ID would be appropriate even on an ``as requested'' basis.\127\
---------------------------------------------------------------------------

\126\ FIF Letter at 4 (citing Notice, supra note 7); see also
SIFMA Letter at 4 (``This is yet another illustration of incurring
costs without a corresponding regulatory benefit.'').
\127\ FIF Letter at 4.
---------------------------------------------------------------------------

SIFMA stated that the Participants had proposed to ``provide an
interim CAT-Order-ID on an as needed basis and in doing so would
realize substantial cost savings.'' \128\ SIFMA therefore stated that
the proposed changes were ``essential and long overdue'' and stated
that ``[d]ecisions made by the SEC years ago about what it thought it
needed in terms of the timeliness and availability of interim data must
be re-examined by the SEC in light of its real-world experience and its
understanding of the incremental costs to provide such data.'' \129\
---------------------------------------------------------------------------

\128\ SIFMA Letter at 3.
\129\ Id. at 3-4.
---------------------------------------------------------------------------

D. Codification and Expansion of Exemptive Relief Permitting Deletion
of Industry Test Data Older Than Three Months

Two commenters supported this aspect of the Proposed Cost Savings
Amendments. SIFMA stated that it supported this change, ``as it
incorporates into the [CAT NMS] Plan previously-granted relief as well
as applies that relief to test data used in connection with the CAT
CAIS.'' \130\ FIF stated that it supported this change ``because
storage of test data in CAT is not relevant for regulatory
surveillance.'' \131\ FIF further stated that it supported ``deletion
of all test data after one week'' and requested that the Commission and
the Participants ``publish a cost-benefit analysis of any mandate to
retain test data beyond one week,'' which analysis should ``identify
any use cases that would involve access to test data beyond one week,
including the regulatory purpose.'' \132\
---------------------------------------------------------------------------

\130\ Id. at 4.
\131\ FIF Letter at 5.
\132\ FIF Letter at 5.
---------------------------------------------------------------------------

E. Additional Information on the Participants' Proposed Cost Savings
Amendments

In response to the Commission staff's request for additional
details regarding their cost savings calculations, CAT LLC stated that
``all cost and savings projections necessarily are good faith estimates
based on current information and reflect the current state and costs of
CAT operations, including the current number of exchanges.'' \133\ CAT
LLC also stated that ``it would be unduly burdensome and not
necessarily meaningful to require CAT LLC and the Plan Processor to
provide separate cost estimates attributable to each interdependent
subcomponent of a particular proposal . . . All of the cost savings
estimates for the Cost Savings Amendments are based on, among other
factors: current CAT NMS Plan requirements; reporting by Participants,
Industry Members, and market data providers; observed data rates and
volumes; current storage and compute pricing discounts, compute
reservations, and cost savings plans (i.e., including savings
attributable to the daily On-Demand Capacity Reservations and Compute
Savings Plans); and associated cloud fees. Actual future savings could
be more or less than estimated due to changes in any of these
variables.'' \134\
---------------------------------------------------------------------------

\133\ See SRO Letter at 2.
\134\ Id. at 2-3.
---------------------------------------------------------------------------

F. Other Comments

All commenters requested that additional steps be taken to further
manage and reduce CAT operating costs.\135\ For instance, SIFMA
suggested that the Commission and the Participants should ``assess
their own CAT usage patterns and needs to identify further cost saving
measures.'' \136\ SIFMA stated that the CAT ``should be operated to
meet the reasonable and legitimate needs of regulators, and not as a
monolith to address any regulatory use case regardless of the costs.''
\137\ SIFMA also stated that the Participants and the Commission could
``provide Industry Members with a more meaningful opportunity to
contribute their experience and expertise to the CAT's budget setting
and cost savings processes.'' \138\ Specifically, SIFMA recommended
that the Participants establish a separate working group that includes
Industry Members to focus on ways the CAT system can be made more
efficient from a cost perspective while still achieving its goals.\139\
``Without more direct involvement by Industry Members in the CAT
budgeting process,'' SIFMA stated that ``there is an insufficient
structural framework and incentives to bring CAT costs under control.''
\140\
---------------------------------------------------------------------------

\135\ See, e.g., FIF Letter at 2; SIFMA Letter at 1; Nasdaq
Letter at 2.
\136\ See, e.g., SIFMA Letter at 2.
\137\ Id.
\138\ See, e.g., SIFMA Letter at 1.
\139\ Id.
\140\ Id.
---------------------------------------------------------------------------

FIF expressed similar concerns.\141\ FIF stated that it was
important for the

[[Page 58846]]

Commission to ``provide transparency about any proposed CAT processing
changes and the associated costs of those changes.'' \142\ FIF stated
that the Commission ``should not impose CAT reporting requirements that
are beyond the scope of Commission Rule 613 and the CAT NMS Plan'' and
that ``[p]roposed changes to current CAT processing or reporting
requirements that could involve further significant increases in CAT
operating costs should be subject to an appropriate cost-benefit
analysis that is included as part of a CAT NMS Plan amendment.'' \143\
---------------------------------------------------------------------------

\141\ These concerns were also set forth in a previous comment
letter to the Commission that was jointly submitted by SIFMA and
FIF. See FIF Letter, at 5 n.19; see also Letter from Joseph
Corcoran, Managing Director, Associate General Counsel, and Ellen
Greene, Managing Director, Equities & Options Market Structure,
SIFMA, and Howard Meyerson, Managing Director, FIF, to Secretary,
Commission, dated July 31, 2023, available at https://www.sec.gov/comments/4-698/4698-238359-498762.pdf.
\142\ FIF Letter at 5.
\143\ Id.
---------------------------------------------------------------------------

The SRO Letter and Nasdaq Letter reiterated the Participants'
points in the Proposed Cost Savings Amendments regarding the impact on
regulatory usage by stating that the proposals would have a minimal
impact on regulatory usage and that the Participants believe that the
expected savings substantially outweigh the minimal regulatory impact
of the proposed changes.\144\ Both commenters further stated that they
note that SIFMA and FIF are in support of the Proposed Cost Savings
Amendments.\145\
---------------------------------------------------------------------------

\144\ See Nasdaq Letter at 2; SRO Letter at 2.
\145\ See Nasdaq Letter at 2; SRO Letter at 8.
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Amendment

The Commission is instituting proceedings pursuant to Rule
608(b)(2)(i) of Regulation NMS,\146\ and Rules 700 and 701 of the
Commission's Rules of Practice,\147\ to determine whether to disapprove
the Proposed Cost Savings Amendments or to approve the Proposed Cost
Savings Amendments with any changes or subject to any conditions the
Commission deems necessary or appropriate. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, the Commission seeks and
encourages interested persons to provide additional comment on the
Proposed Cost Savings Amendments to inform the Commission's analysis.
---------------------------------------------------------------------------

\146\ 17 CFR 242.608(b)(2)(i).
\147\ 17 CFR 201.700; 17 CFR 201.701.
---------------------------------------------------------------------------

Rule 608(b)(2) of Regulation NMS provides that the Commission
``shall approve a national market system plan or proposed amendment to
an effective national market system plan, with such changes or subject
to such conditions as the Commission may deem necessary or appropriate,
if it finds that such plan or amendment is necessary or appropriate in
the public interest, for the protection of investors and the
maintenance of fair and orderly markets, to remove impediments to, and
perfect the mechanisms of, a national market system, or otherwise in
furtherance of the purposes of the [Exchange] Act.'' \148\ Rule
608(b)(2) further provides that the Commission shall disapprove a
national market system plan or proposed amendment if it does not make
such a finding.\149\ In the Notice, the Commission sought comment on
the Proposed Cost Savings Amendments, including whether the Proposed
Cost Savings Amendments are consistent with the Exchange Act.\150\ In
this order, pursuant to Rule 608(b)(2)(i) of Regulation NMS,\151\ the
Commission is providing notice of the grounds for disapproval under
consideration:
---------------------------------------------------------------------------

\148\ 17 CFR 242.608(b)(2).
\149\ Id.
\150\ See Notice, supra note 7, at 26997-98.
\151\ 17 CFR 242.608(b)(2)(i).
---------------------------------------------------------------------------

Whether, consistent with Rule 608 of Regulation NMS, the
Participants have demonstrated how the Proposed Cost Savings Amendments
are necessary or appropriate in the public interest, for the protection
of investors and the maintenance of fair and orderly markets, to remove
impediments to, and perfect the mechanisms of, a national market
system, or otherwise in furtherance of the purposes of the Exchange
Act; \152\
---------------------------------------------------------------------------

\152\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

Whether the Participants have demonstrated how the
Proposed Cost Savings Amendments are consistent with Section 6(b)(5)
\153\ and Section 15A(b)(6) \154\ of the Exchange Act, which require
that the rules of a national securities exchange or national securities
association be ``designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public
interest'';
---------------------------------------------------------------------------

\153\ 15 U.S.C. 78f(b)(5).
\154\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

Whether the Participants have demonstrated how the
Proposed Cost Savings Amendments are consistent with Section 11A of the
Exchange Act,\155\ which directs the Commission, ``having due regard
for the public interest, the protection of investors, and the
maintenance of fair and orderly markets, to use its authority under
this chapter to facilitate the establishment of a national market
system . . . in accordance with the findings and to carry out the
objectives'' expressed by Congress, including, among other things, that
``[i]t is in the public interest and appropriate for the protection of
investors and the maintenance of fair and orderly markets to assure . .
. (i) economically efficient execution of securities transactions;
[and] (ii) fair competition among brokers and dealers, among exchange
markets, and between exchange markets and markets other than exchange
markets,'' as well as ``to authorize or require self-regulatory
organizations to act jointly with respect to matters as to which they
share authority under this chapter in planning, developing, operating,
or regulating a national market system (or a subsystem thereof) or on
or more facilities thereof'';
---------------------------------------------------------------------------

\155\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

Whether the Participants have demonstrated how the
Proposed Cost Savings Amendments are consistent with Section 17 of the
Exchange Act \156\ and Rules 17a-1 and 17a-4,\157\ which set forth
requirements for national securities exchanges, national securities
associations, brokers, and dealers related to making, keeping,
furnishing, and disseminating records;
---------------------------------------------------------------------------

\156\ 15 U.S.C. 78q.
\157\ 17 CFR 240.17a-1.
---------------------------------------------------------------------------

Whether and if so how, the Proposed Cost Savings
Amendments would affect efficiency, competition, or capital formation,
which analysis is required by Rule 613 under the Exchange Act; \158\
and
---------------------------------------------------------------------------

\158\ 17 CFR 242.613(a)(5).
---------------------------------------------------------------------------

Whether modifications to the Proposed Cost Savings
Amendments, or conditions to its approval, would be necessary or
appropriate in the public interest, for the protection of investors and
the maintenance of orderly markets, to remove impediments to, and
perfect the mechanisms of, a national market system, or otherwise in
furtherance of the Exchange Act.\159\
---------------------------------------------------------------------------

\159\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

Under the Commission's Rules of Practice, the ``burden to
demonstrate that a NMS plan filing is consistent with the Exchange Act
and the rules and regulations issued thereunder . . . is on the plan
participants that filed the NMS plan filing.'' \160\ The description of
the NMS plan filing, its purpose and operation, its effect, and a legal
analysis of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an

[[Page 58847]]

affirmative Commission finding.\161\ Any failure of the plan
participants that filed the NMS plan filing to provide such detail and
specificity may result in the Commission not having a sufficient basis
to make an affirmative finding that the NMS plan filing is consistent
with the Exchange Act and the applicable rules and regulations
thereunder.\162\
---------------------------------------------------------------------------

\160\ 17 CFR 201.701(b)(3)(ii).
\161\ Id.
\162\ Id.
---------------------------------------------------------------------------

V. Commission's Solicitation of Comments

The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the Proposed Cost Savings Amendments. In particular, the
Commission invites the written views of interested persons concerning
whether the Proposed Cost Savings Amendments are consistent with the
Exchange Act, the rules and regulations thereunder, or any other
provisions of the CAT NMS Plan. The Commission asks that commenters
address the sufficiency and merit of the Participants' statements in
support of the Proposed Cost Savings Amendments, in addition to any
other comments they may wish to submit about the proposed rule changes.
To consider the impact of the Proposed Cost Savings Amendments on
efficiency, competition, and capital formation,\163\ the Commission
requests additional information. In particular:
---------------------------------------------------------------------------

\163\ The Commission is required to consider the impact of
amendments to the CAT NMS Plan on efficiency, competition, and
capital formation. See 17 CFR 242.613(a)(5).
---------------------------------------------------------------------------

To understand the effect of the Proposed Cost Savings
Amendments on the operational efficiency of the Central Repository (and
the follow-on effects on market efficiency, competition, and capital
formation), the Commission requests additional details and underlying
calculations used to estimate the cost savings as well as information
on the costs to the Plan Processor of implementing each element of each
of the proposed amendments (e.g., some amendments would require coding
changes, which would impose costs). The Commission also requests more
specific information on data processes, such as processes for
identifying and tracking linkage-related errors without the use of an
interim CAT-Order-ID, that inform on how the Proposed Cost Savings
Amendments affect operational efficiency.
To understand the effect of the Proposed Cost Savings
Amendments on regulatory efficiency (and follow-on effects on investor
protection and capital formation), in addition to the three
``Eliminated Enhancements'' discussed in the SRO Letter,\164\ the
Commission requests more information on data elements--namely, a list
of fields and variables for various event types in current CAT Data--
that would no longer be directly available, would only be available
indirectly (via notifications or making of requests to the Plan
Processor or other entities), or would be available on a delay relative
to today. The Commission also requests information on existing
substitutes for such data elements (e.g., substitutes for interim CAT-
Order-ID), and on how these substitutes could be used by data users to
alleviate any reductions in regulatory efficiency.
---------------------------------------------------------------------------

\164\ See SRO Letter at 5.
---------------------------------------------------------------------------

Although there do not appear to be any issues relevant to approval
or disapproval that would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 608(b)(2)(i) of Regulation NMS,\165\ any request for an
opportunity to make an oral presentation.\166\
---------------------------------------------------------------------------

\165\ 17 CFR 242.608(b)(2)(i).
\166\ Rule 700(c)(ii) of the Commission's Rules of Practice
provides that ``[t]he Commission, in its sole discretion, may
determine whether any issues relevant to approval or disapproval
would be facilitated by the opportunity for an oral presentation of
views.'' 17 CFR 201.700(c)(ii).
---------------------------------------------------------------------------

Interested persons are invited to submit written data, views, and
arguments regarding whether the Proposed Cost Savings Amendments should
be approved or disapproved by August 9, 2024. Any person who wishes to
file a rebuttal to any other person's submission must file that
rebuttal by August 23, 2024. 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 4-698 (CAT Cost Savings Amendment) 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 4-698 (CAT Cost Savings
Amendment). 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 also will be
available for inspection and copying at the Participants' principal
offices. Do not include personal identifiable information in
submissions; you should submit only information that you wish to make
available publicly. We may redact in part or withhold entirely from
publication submitted material that is obscene or subject to copyright
protection. All submissions should refer to File Number 4-698 (CAT Cost
Savings Amendment) and should be submitted on or before August 9, 2024.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\167\
---------------------------------------------------------------------------

\167\ 17 CFR 200.30-3(a)(85).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15908 Filed 7-18-24; 8:45 am]
BILLING CODE 8011-01-P

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