
[Federal Register Volume 80, Number 120 (Tuesday, June 23, 2015)]
[Notices]
[Pages 36028-36030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15365]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75192; File No. 4-668]


Joint Industry Plan; Order Approving Amendment No. 1 to the 
National Market System Plan Governing the Process of Selecting a Plan 
Processor and Developing a Plan for the Consolidated Audit Trail by 
BATS Exchange, Inc., BATS-Y Exchange, Inc., BOX Options Exchange LLC, 
C2 Options Exchange, Incorporated, Chicago Board Options Exchange, 
Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX 
Exchange, Inc., Financial Industry Regulatory Authority, Inc., 
International Securities Exchange, LLC, ISE Gemini, LLC, Miami 
International Securities Exchange LLC, NASDAQ OMX BX, Inc., NASDAQ OMX 
PHLX LLC, The NASDAQ Stock Market LLC, National Stock Exchange, Inc., 
New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc.

June 17, 2015.

I. Introduction

    On December 12, 2014, BATS Exchange, Inc., BATS-Y Exchange, Inc., 
BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago 
Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., 
EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory 
Authority, Inc., International Securities Exchange, LLC, ISE Gemini, 
LLC, Miami International Securities Exchange LLC, NASDAQ OMX BX, Inc., 
NASDAQ OMX PHLX LLC, The NASDAQ Stock Market LLC, National Stock 
Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and NYSE 
Arca, Inc. (collectively, ``SROs'' or ``Participants'') filed with the 
Securities and Exchange Commission (``Commission'' or ``SEC'') pursuant 
to section 11A of the Securities Exchange Act of 1934 (``Act''),\1\ and 
Rule 608 thereunder,\2\ an amendment (``Amendment No. 1'') to the 
National Market System (``NMS'') Plan Governing the Process of 
Selecting a Plan Processor and Developing a Plan for the Consolidated 
Audit Trail (``Selection Plan'').\3\ Amendment No. 1 was published for 
comment in the Federal Register on February 11, 2015.\4\ The Commission 
received one comment letter \5\ and the SROs submitted a response to 
that comment letter.\6\ This order approves Amendment No. 1 to the 
Selection Plan.
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
    \3\ The Selection Plan is an NMS Plan approved by the Commission 
pursuant to Section 11A of the Act and Rule 608 thereunder. See 
Securities Exchange Act Release No. 71596 (Feb. 21, 2014), 79 FR 
11152 (Feb. 27, 2014) (``Order Approving Selection Plan''); see also 
Securities Exchange Act Release No. 70892 (Nov. 15, 2013), 78 FR 
69910 (Nov. 21, 2013) (``Notice of Selection Plan'').
    \4\ See Securities Exchange Act Release No. 74223 (Feb. 6, 
2015), 80 FR 7654 (``Notice of Amendment No. 1'').
    \5\ See letter to Brent J. Fields, Secretary, Commission, from 
Manisha Kimmel, Managing Director, Financial Information Forum 
(``FIF''), dated March 13, 2015 (``FIF Letter'').
    \6\ See letter to Brent J. Fields, Secretary, Commission, from 
the SROs, dated March 27, 2015 (``SRO Response Letter'').
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II. Background and Description of the Proposal

A. Background

    On July 11, 2012, the Commission adopted Rule 613 to require the 
SROs to jointly submit an NMS plan to create, implement, and maintain a 
consolidated audit trail (``CAT NMS Plan'').\7\ In response, the SROs 
engaged in a request for proposal (``RFP'') process to help them 
develop an NMS Plan proposal and to solicit bids (``Bids'') for the 
role of Plan Processor \8\ to build, operate, administer, and maintain 
the consolidated audit trail.\9\ The Selection Plan, which was approved 
by the Commission on February 21, 2014, sets forth the process by which 
the Participants will review, evaluate, and narrow down the Bids, and 
ultimately select the Plan Processor, following Commission approval of 
the CAT NMS Plan.\10\ Currently, the Participants have narrowed the 
universe of Bids received to a set of six ``Shortlisted Bidders.'' 
Under the Selection Plan, a Shortlisted Bidder is only eligible to 
revise its Bid following Commission approval of the CAT NMS Plan and 
approval of a majority of the Selection Committee.\11\ Additionally, 
the Participants are not permitted to narrow the set of

[[Page 36029]]

Shortlisted Bidders prior to approval of the CAT NMS Plan, but must 
proceed with selection of the CAT Plan Processor from among the 
Shortlisted Bidders in a two-round voting process.\12\
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    \7\ Securities Exchange Act Release No. 67457 (July 18, 2012), 
77 FR 45722 (Aug. 1, 2012).
    \8\ Unless otherwise noted, capitalized terms are used as 
defined in Rule 613, in the Selection Plan, or in this Order.
    \9\ See Notice of Amendment No. 1, supra note 4, at 7655.
    \10\ See Order Approving Selection Plan, supra note 3.
    \11\ See id. at 11154. The Selection Committee is composed of 
one senior officer from each SRO and is charged with evaluating the 
Bids and selecting the Plan Processor. Id. at 11153.
    \12\ See id. at 11154.
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    As described in more detail below, Amendment No. 1 would revise the 
Selection Plan to allow the SROs to accept revised Bids prior to 
Commission approval of the CAT NMS Plan and allow the SROs to narrow 
the list of Shortlisted Bids prior to Commission approval of the CAT 
NMS Plan. The SROs believe that providing the Shortlisted Bidders with 
an additional opportunity (or opportunities) to revise their Bids prior 
to the approval of the CAT NMS Plan is critical to the timely and 
considered selection of the CAT Plan Processor, and more importantly, 
the adherence to the other timelines for the CAT NMS Plan set forth in 
Rule 613(a).\13\ The SROs state that since the time the Bidders 
submitted their Bids, the SROs have gathered and evaluated data and 
information from a variety of market participants, including Bidders, 
broker-dealers, vendors, regulators and others, and have made progress 
in developing an optimal solution and formalizing the solution in the 
proposed CAT NMS Plan and related technical documents.\14\ Given these 
developments, the SROs believe that Bidders should be permitted to 
revise their Bids using the new information provided in the proposed 
CAT NMS Plan and technical documents prior to approval of the CAT NMS 
Plan.\15\ The SROs also state that given the passage of time since the 
Bids were submitted, Bidders have indicated that new technological and 
other beneficial solutions are now available that may further improve 
the Bids, and, ultimately, the proposed solutions.\16\
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    \13\ See Notice of Amendment No. 1, supra note 4, at 7655.
    \14\ Id.
    \15\ Id.
    \16\ Id.
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    The SROs also explain that given the large amount of information 
they expect will be included in any revised Bids and the importance of 
appropriately analyzing such information, the SROs do not believe that 
two months will be sufficient to select the CAT Plan Processor from as 
many as six Shortlisted Bidders.\17\ However, the SROs believe that if 
the existing Shortlisted Bidders were able to revise their Bids, 
including the option to reflect any new technology or other relevant 
developments, the SROs could further narrow the list of Shortlisted 
Bidders to better facilitate the ultimate selection of the CAT Plan 
Processor within the time limits imposed by Rule 613 in an 
appropriately thoughtful and deliberative manner.\18\
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    \17\ Id.
    \18\ Id.
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B. Description of the Proposal

    The SROs propose to amend the Selection Plan to permit the 
Shortlisted Bidders to revise their Bids one or more times prior to 
Commission approval of the CAT NMS Plan if the Selection Committee 
determines, by majority vote, subject to the applicable recusal 
provisions, that such revisions are necessary and appropriate.\19\ 
Amendment No. 1 would not affect section VI.(D) of the Selection Plan, 
which states that, following approval of the CAT NMS Plan by the 
Commission, Shortlisted Bidders for the role of Plan Processor may be 
permitted to revise their Bids only upon approval by a majority of the 
Selection Committee, subject to certain recusal provisions in the 
Selection Plan.\20\
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    \19\ Id. at 7655, 57.
    \20\ See Order Approving Selection Plan, supra note 3, at 11154.
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    In Amendment No. 1, the Participants also propose to provide the 
Selection Committee discretion to narrow the set of Shortlisted Bids 
prior to Commission approval of the CAT NMS Plan. Specifically, 
Amendment No. 1 would authorize an additional round of voting \21\ to 
narrow the number of Shortlisted Bids, currently six, down to as few as 
three Bids. This round of voting, which could occur either before or 
after any revisions to Shortlisted Bids are accepted, would commence 
upon at least a two-thirds vote of the Selection Committee, and would 
proceed in a manner similar to the initial round of voting for 
determining the Shortlisted Bids.\22\ Proposed Amendment No. 1 includes 
a recusal provision providing that no SRO shall vote in the process 
narrowing the set of Shortlisted Bidders if a Bid submitted by or 
including the SRO or an Affiliate of the SRO is a Shortlisted Bid.\23\
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    \21\ This additional narrowing round would occur prior to the 
two-round voting process for selection of the CAT Plan Processor 
under Section VI.(E) of the Selection Plan. See id.
    \22\ See Notice of Amendment No. 1, supra note 4, at 7655, 57. 
In voting to narrow the list of of Shortlisted Bids, the voting 
representative from each SRO would choose a first, second, and third 
choice of Shortlisted Bid, with each choice receiving a weight of, 
respectively, three points, two points, and one point. The three 
Bids receiving the highest cumulative number of points would 
constitute the new set of Shortlisted Bids. The Amendment also 
provides for a tie-breaking process, which could result in more than 
three Shortlisted Bids continuing in the process for selection of 
the CAT Plan Processor.
    \23\ See id. The SROs have also submitted, and the Commission is 
currently considering, a second proposed amendment to the Selection 
Plan extending this recusal requirement to all selection voting 
rounds. See Securities Exchange Act Release No. 75193 (June 17, 
2015).
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III. Summary of Comment Letter and Response

    As noted above, the Commission received one comment letter from 
FIF. FIF, on behalf of its Consolidated Audit Trail Working Group, 
supports Amendment No. 1 but offers two recommendations.\24\ First, FIF 
recommends, in the interest of efficiency, that the Participants narrow 
the list of Bidders before any revision of Bids takes place. FIF 
believes that in view of the substantial efforts already undertaken by 
the Participants, there should be sufficient information for the 
Participants to take action and narrow the list of Bidders. FIF argues 
that it is unnecessary to require all six of the current Shortlisted 
Bidders to revise their Bids. Further, FIF argues that narrowing the 
list of Bidders prior to permitting the revision of Bids would reduce 
the amount of effort the SROs would need to expend in reviewing the 
revised Bids.
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    \24\ See FIF Letter, supra note 5.
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    Second, FIF recommends that once the Participants further narrow 
the list of Shortlisted Bidders, each of the remaining Bidders should 
receive detailed information on Order Audit Trail System (``OATS''), 
electronic blue sheets (``EBS''), and Large Trader so that Bidders can 
consider all of the required functionality to retire these systems in 
preparing their revised Bids. FIF notes that the retirement of these 
systems is critical to managing the cost of CAT's implementation, and 
additional information concerning the functionality required to retire 
these systems would aid in revising Bids. FIF believes that 
understanding the precise functional requirements for retiring OATS is 
critical and imperative for a level playing field among Bidders.
    The SROs considered FIF's recommendations, but declined to propose 
modifications to the Amendment.\25\ With regard to FIF's suggestion 
that the SROs narrow the list of Bidders before allowing any revisions 
to the Bids, the SROs state that one of the main purposes of the 
Amendment is to provide greater flexibility to the SROs to narrow the 
list of Bidders.\26\ The SROs, however, note that they recognize the 
value of a streamlined process for all

[[Page 36030]]

parties and intend to consider this factor, among others, in 
determining when to narrow the list of Shortlisted Bidders.\27\
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    \25\ See SRO Response Letter, supra note 6, at 3.
    \26\ Id. at 2.
    \27\ Id.
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    The SROs concur with FIF in the significance of retiring 
overlapping and redundant systems, but do not see this as linked to the 
proposed amendment to the Selection Plan. The SROs reiterate their 
commitment to the retirement of systems as provided in the CAT NMS 
Plan,\28\ noting that the Plan describes the major data attributes that 
will be required to retire such systems. Going forward, as additional 
technical specifications are developed in accordance with milestones 
included in the CAT NMS Plan, the SROs will provide this information to 
Bidders.
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    \28\ Rule 613(a)(viii) requires ``a plan to eliminate existing 
audit trail rules and systems (or components thereof) that will be 
rendered duplicative by the consolidated audit trail, including 
identification of such audit trail rules and systems (or components 
thereof); to the extent that any existing audit trail rules or 
systems provide information that is not rendered duplicative by the 
consolidated audit trail, an analysis of whether collection of such 
information continues to be appropriate and, if so, whether such 
information could instead be incorporated into the consolidated 
audit trail; the steps the plan sponsors propose to take to seek 
Commission approval for the elimination of such audit trail rules 
and systems (or components thereof); and a timetable for such 
elimination, including a description of how the plan sponsors 
propose to phase in the consolidated audit trail and phase out such 
existing audit trail rules and systems (or components thereof)[.]'' 
17 CFR 242.613(a)(viii).
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IV. Discussion

    After careful review of Amendment No. 1, the comment received, and 
the SROs' response, the Commission finds that Amendment No. 1 is 
necessary or appropriate in the public interest, for the protection of 
investors and the maintenance of fair and orderly markets, and to 
remove impediments to, and perfect the mechanisms of, a national market 
system. The Commission believes Amendment No. 1 would provide the SROs 
with additional flexibility with respect to the process of reviewing 
Shortlisted Bids and selecting the CAT Plan Processor. Such additional 
flexibility is aimed at allowing the SROs to be more efficient in 
selecting the CAT Plan Processor, which is particularly important given 
additional deadlines contained in Rule 613(a)(3).\29\ The Commission 
believes that the SROs' explanation that they prefer to retain 
flexibility in the process to select the Plan Processor, without any 
additional conditions or restrictions, in response to FIF's suggestion 
that they narrow the list of Bidders before allowing Bidders to revise 
their Bids, is reasonable. Permitting the SROs to accept revised Bids 
prior to Commission approval of the CAT NMS Plan, and to narrow the 
number of Shortlisted Bids prior to Commission approval of the CAT NMS 
Plan,\30\ will allow the SROs to position themselves to avoid any 
delays in selecting the CAT Plan Processor,\31\ thus removing any 
impediments to meeting the additional deadlines set forth in Rule 
613(a)(3).\32\
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    \29\ 17 CFR 242.613(a)(3).
    \30\ See Notice of Amendment No. 1, supra note 4, at 7655, 57.
    \31\ Rule 613(a)(3)(i) requires the Participants to select the 
CAT Plan Processor within two months after effectiveness of the CAT 
NMS Plan. 17 CFR 242.613(a)(3)(i).
    \32\ See, e.g., Rule 613(a)(3)(iii), which requires Participants 
to begin providing data to the central repository within one year 
after effectiveness of the CAT NMS Plan.
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    Regarding FIF's recommendation that, prior to any Bid revisions, 
the SROs provide Bidders with detailed functional requirements 
concerning OATS, EBS, and Large Trader to facilitate retirement of 
those systems, the Commission notes that the SROs' Response Letter 
outlines the steps taken to date by the SROs to furnish pertinent 
information to assist in eliminating redundant systems and contains 
commitments to supplement that material in the future as outlined in 
the CAT NMS Plan.

IV. Conclusion

    For the reasons discussed above, the Commission finds that 
Amendment No. 1 is necessary or appropriate in the public interest, for 
the protection of investors and the maintenance of fair and orderly 
markets, and to remove impediments to, and perfect the mechanisms of, a 
national market system, or otherwise in furtherance of the purposes of 
the Act.
    It is therefore ordered, pursuant to section 11A of the Act,\33\ 
and the rules thereunder, that Amendment No. 1 to the Selection Plan 
be, and it hereby is, approved.
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    \33\ 15 U.S.C. 78k-1.

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2015-15365 Filed 6-22-15; 8:45 am]
 BILLING CODE 8011-01-P


