
[Federal Register Volume 81, Number 44 (Monday, March 7, 2016)]
[Notices]
[Pages 11856-11870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04910]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77265]


Order Granting Exemptions From Certain Provisions of Rule 613 
Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934

March 1, 2016.

I. Introduction

    On July 11, 2012, the Securities and Exchange Commission 
(``Commission'' or ``SEC'') adopted Rule 613 under the Securities 
Exchange Act of 1934 (``Exchange Act'' or ``Act'') to require national 
securities exchanges and national securities associations (``self-
regulatory organizations'' or ``SROs'') to jointly submit a national 
market system (``NMS'') plan to create, implement, and maintain a 
consolidated order tracking system, or consolidated audit trail 
(``CAT''), with respect to the trading of NMS securities, that would 
capture customer and order event information for orders in NMS 
securities, across all markets, from the time of order inception 
through routing, cancellation, modification, or execution (``CAT NMS 
Plan'').\1\ Rule 613 required the SROs to file the CAT NMS Plan with 
the Commission on or before April 28, 2013. At the SROs' request, the 
Commission granted exemptions extending the deadline for the filing of 
the CAT NMS Plan to December 6, 2013,\2\ and then to September 30, 
2014.\3\ The SROs filed a CAT NMS Plan on September 30, 2014.\4\ On 
January 30, 2015, the SROs submitted the request for exemptive relief 
that is the subject of this Order.\5\ On February 27, 2015, the SROs 
filed the Amended and Restated CAT NMS Plan that assumes their request 
for exemptive relief would be granted.\6\ On April 3, 2015, the SROs 
filed a supplement to the Exemption Request.\7\ On September 2, 2015, 
the SROs filed a second supplement to the Exemption Request.\8\
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    \1\ See Securities Exchange Act Release No. 67457 (July 18, 
2012), 77 FR 45722 (August 1, 2012) (``Adopting Release'').
    \2\ See Securities Exchange Act Release No. 69060 (March 7, 
2013), 78 FR 15771 (March 12, 2013); see also Letter from Robert 
L.D. Colby, Executive Vice President and Chief Legal Officer, FINRA, 
to Elizabeth M. Murphy, Secretary, Commission, dated February 7, 
2013.
    \3\ See Securities Exchange Act Release No. 71018 (December 6, 
2013), 78 FR 75669 (December 12, 2013); see also Letter from Robert 
L.D. Colby, Executive Vice President and Chief Legal Officer, FINRA, 
to Elizabeth M. Murphy, Secretary, Commission, dated November 7, 
2013.
    \4\ See Letter from the SROs, to Brent J. Fields, Secretary, 
Commission, dated September 30, 2014.
    \5\ See Letter from Robert Colby, FINRA, on behalf of the SROs, 
to Brent J. Fields, Secretary, Commission, dated January 30, 2015 
(``Exemption Request Letter'').
    \6\ See Letter from the SROs, to Brent J. Fields, Secretary, 
Commission, dated February 27, 2015 (``Amended and Restated CAT NMS 
Plan''). On December 24, 2015, the SROs submitted an Amendment to 
the CAT NMS Plan. See Letter from SROs to Brent J. Fields, 
Secretary, Commission, dated December 23, 2015 (the ``Amendment''). 
On February 9, 2016, the SROs filed with the Commission an 
identical, but unmarked, version of the CAT NMS Plan, dated February 
27, 2015, as modified by the Amendment, as well as a copy of the 
request for proposal issued by the SROs to solicit bids from parties 
interested in serving as the Plan Processor for the consolidated 
audit trail. Unless the context otherwise requires, the ``CAT NMS 
Plan'' shall refer to the CAT NMS Plan, as modified by the 
Amendment.
    \7\ See Letter from Robert Colby, FINRA, on behalf of the SROs, 
to Brent J. Fields, Secretary, Commission, dated April 3, 2015 
(``April 2015 Supplement'').
    \8\ See Letter from the SROs to Brent J. Fields, Secretary, 
Commission, dated September 2, 2015 (``September 2015 Supplement''). 
Unless the context otherwise requires, the ``Exemption Request'' 
shall refer to the Exemptive Request Letter, as supplemented by the 
April 2015 Supplement and the September 2015 Supplement.
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    Rule 613 sets forth certain minimum requirements for the CAT NMS 
Plan that, among other things, relate to its operation and 
administration, data recording and reporting, clock synchronization and 
time stamps, the Central Repository, surveillance, compliance, and 
expansion to other securities and transactions.\9\ Rule 613 also 
requires the CAT NMS Plan to discuss a number of more specific 
``considerations,'' such as: The method by which data will be reported 
to the Central Repository; how and when it will be made available to 
regulators; the reliability and accuracy of the data; the security and 
confidentiality of the data; cost estimates and the impact on 
competition, efficiency and capital formation; the views solicited by 
the SROs from their members and other appropriate parties and how the 
SROs took those views into account; and alternative approaches 
considered by the SROs.\10\
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    \9\ 17 CFR 242.613(b)-(i). Unless otherwise noted or defined in 
this Order, capitalized terms are used as defined in Rule 613 or the 
CAT NMS Plan.
    \10\ 17 CFR 242.613(a)(1).
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    In connection with their preparation of the Amended and Restated 
CAT NMS Plan, including assessing the considerations and the views of 
their members and other market participants, the SROs reached the 
conclusion that additional flexibility in certain of the minimum 
requirements specified in Rule 613 would allow them to propose a more 
efficient and cost-effective approach without adversely affecting the 
reliability or accuracy of CAT Data, or its security and 
confidentiality. Accordingly, on January 30, 2015, the SROs filed an 
application, pursuant to Rule 0-12 under the Exchange Act,\11\ 
requesting that the Commission grant exemptions, pursuant to its 
authority under Section 36 of the Exchange Act,\12\ from the 
requirement to submit a CAT NMS Plan that meets certain reporting 
requirements specified in Rule 613(c) and (d) as described below.\13\ 
Specifically, the SROs' exemptive requests relate to: (1) The reporting 
of options market maker quotations, as required under Rule 
613(c)(7)(ii) and (iv); \14\ (2) the reporting and use of the Customer-
ID under Rule 613(c)(7)(i)(A), (iv)(F), (viii)(B) and 613(c)(8); \15\ 
(3) the reporting of the CAT-Reporter-ID, as required under Rule 
613(c)(7)(i)(C), (ii)(D), (ii)(E), (iii)(D), (iii)(E), (iv)(F), (v)(F), 
(vi)(B), and (c)(8); \16\ (4) the linking of executions to specific 
subaccount allocations, as required under Rule 613(c)(7)(vi)(A); \17\ 
and (5) the time stamp granularity requirement of Rule 613(d)(3) \18\ 
for certain manual order events subject to reporting under Rule 
613(c)(7)(i)(E), (ii)(C), (iii)(C) and (iv)(C).\19\
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    \11\ 17 CFR 240.0-12.
    \12\ 15 U.S.C. 78mm.
    \13\ See 17 CFR 242.613(c)(7), (c)(8), (d)(3); see also 
Exemption Request Letter, supra note 5.
    \14\ See 17 CFR 242.613(c)(7)(ii), (iv).
    \15\ See 17 CFR 242.613(c)(7)(i)(A), (iv)(F), (viii)(B), (c)(8).
    \16\ See 17 CFR 242.613(c)(7)(i)(C), (ii)(D), (ii)(E), (iii)(D), 
(iii)(E), (iv)(F), (v)(F), (vi)(B), and (c)(8).
    \17\ See 17 CFR 242.613(c)(7)(vi)(A).
    \18\ See 17 CFR 242.613(d)(3).
    \19\ See 17 CFR 242.613(c)(7)(i)(E), (ii)(C), (iii)(C) and 
(iv)(C).
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    Section 36 of the Exchange Act grants the Commission the authority, 
with certain limitations, to ``conditionally or unconditionally exempt 
any person, security, or transaction . . . from any provision or 
provisions of [the Act] or of any rule or regulation thereunder, to the 
extent that such exemption is necessary or appropriate in the public 
interest, and is consistent with the protection of investors.'' \20\ 
For the reasons set forth below, this Order grants the SROs' request 
for exemptions from the specified provisions of Rule 613.
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    \20\ 15 U.S.C. 78mm(a)(1).

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[[Page 11857]]

II. Description and Discussion of Exemption Request

    After reviewing the Exemption Request described below, the 
Commission believes that it is appropriate in the public interest and 
consistent with the protection of investors to grant the requested 
exemptive relief. As discussed more fully below, the Commission is 
persuaded to provide flexibility in the discrete areas discussed in the 
Exemption Request so that the alternative approaches can be included in 
the CAT NMS Plan and subject to notice and comment. Doing so could 
allow for more efficient and cost-effective approaches than otherwise 
would be permitted. The Commission at this stage is not deciding 
whether the proposed approaches detailed below are more efficient or 
effective than those in Rule 613.\21\ However, the Commission believes 
the proposed approaches should be within the permissible range of 
alternatives available to the SROs.
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    \21\ The Commission notes that the public will have an 
opportunity to comment on the alternative approaches discussed in 
the Exemption Request, and permitted by this Order, when the CAT NMS 
Plan is published for notice and comment. For this reason, the 
Commission did not separately publish this Order for public comment 
prior to its issuance today.
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    The Commission also believes granting the requested exemptive 
relief is consistent with the protection of investors. Doing so will 
provide the public an opportunity to consider and comment on whether 
these proposed alternative approaches would indeed be more efficient 
and cost-effective than those otherwise required by Rule 613, and 
whether such approaches would adversely affect the reliability or 
accuracy of CAT Data or otherwise undermine the goals of Rule 613. 
Moreover, if--as the SROs represent--efficiency gains and cost savings 
would result from including the proposed approaches in the CAT NMS Plan 
without adverse effects, then the resultant benefits could potentially 
flow to investors (e.g., lower broker-dealer reporting costs resulting 
in fewer costs passed on to Customers).
    The CAT NMS Plan has not yet been published for public comment. The 
Commission is not concluding at this time that a CAT NMS Plan 
incorporating the additional flexibility provided by the exemptive 
relief granted in this Order is necessary or appropriate in the public 
interest. That evaluation will be made only after the Commission 
considers the public comments, completes its economic analysis, and 
fully assesses the CAT NMS Plan. Instead, by granting the requested 
exemptive relief, the Commission only is providing the SROs more 
latitude in proposing a CAT NMS Plan, in certain discrete areas, as 
specifically proposed in the Exemption Request.

A. Options Market Maker Quotes

1. The SROs' Proposed Approach to Options Market Maker Quotes
    Rule 613(c)(7) provides that the CAT NMS Plan must require each 
national securities exchange, national securities association, and any 
member of such exchange or association (``CAT Reporter'') to record and 
electronically report to the Central Repository details for each order 
and each reportable event, including the routing and modification or 
cancellation of an order.\22\ Rule 613(j)(8) defines ``order'' to 
include ``any bid or offer;'' so that the details for each options 
market maker quotation must be reported to the Central Repository by 
both the options market maker and the exchange to which it routes its 
quote.\23\ In the Exemption Request, the SROs request an exemption from 
Rule 613(c)(7)(ii) and (iv) and propose an approach whereby only 
options exchanges--but not options market makers--would be required to 
report information to the Central Repository regarding options market 
maker quotations.\24\
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    \22\ See 17 CFR 242.613(c)(7).
    \23\ See 17 CFR 242.613(j)(8).
    \24\ See Exemption Request Letter, supra note 5, at 4-5.
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    The SROs do not believe that their proposed approach would have an 
adverse effect on the various ways in which, and purposes for which, 
regulators would use, access, and analyze CAT Data.\25\ The SROs 
believe that the information contemplated by Rule 613 to be submitted 
by options market makers, as a practical matter, would be largely 
identical to the information to be submitted by the options exchanges. 
For each quote received by an options exchange, the exchange would need 
to submit the CAT Order ID, the date and time the order is received, 
the CAT Reporter ID of the market maker and the exchange, and the 
material terms of the order.\26\ For each quote routed by a market 
maker, the market maker would need to submit the CAT Order ID, the date 
and time the order is routed, the CAT Reporter ID of the market maker 
and the exchange to which the order is routed, and the material terms 
of the order.\27\ The SROs note that the volume of options market maker 
quotes is larger than any other category of data to be reported to the 
CAT, generating approximately 18 billion daily records, and believe 
that requiring duplicative reporting of this already large amount of 
data would lead to a substantial increase in costs.\28\
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    \25\ See id. at 8; see also 17 CFR 242.613(a)(1)(ii) 
(consideration requiring discussion of the time and method by which 
the data in the Central Repository will be made available to 
regulators).
    \26\ See 17 CFR 242.613(c)(7)(iii).
    \27\ 17 CFR 242.613(c)(7)(ii). Rule 613(c)(7)(ii)(F) requires 
reporting of the identity and nature of the department or desk to 
which an order is routed internally at a broker-dealer. In the 
context of options market maker quoting, internal routing 
information is not applicable.
    \28\ See Exemption Request Letter, supra note 5, at 2. In the 
Exemption Request Letter, the SROs explain why options market makers 
generate a high volume of quotations. See id. at 5-6.
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    The one data element that would not be captured in the options 
market maker quoting data to be submitted by the options exchange is 
the time the market maker routes its quote, or any modification or 
cancellation thereof, to an exchange (``Quote Sent Time'').\29\ 
Accordingly, to ensure that regulators would receive all of the 
information contemplated by Rule 613(c)(7), the approach proposed by 
the SROs would require that (1) members report to the relevant options 
exchange the Quote Sent Time along with any quotation, or any 
modification or cancellation thereof; and (2) options exchanges submit 
the quotation data received from options market makers, including the 
Quote Sent Time, to the Central Repository without change.\30\
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    \29\ See 17 CFR 242.613(c)(7)(ii)(C).
    \30\ See id. at 3-4.
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    The SROs, in consultation with their members, Bidders and the 
Development Advisory Group (``DAG''),\31\ believe that the proposed 
approach is ``the most efficient and cost-effective way'' to meet the 
Commission's goals under Rule 613 and that the proposed approach would 
provide the Commission with options market maker quote data at a lower 
cost to market participants and at a lower cost to the CAT Plan 
Processor without compromising the goals of the CAT.\32\ In support, 
the SROs included a cost-benefit analysis of options data reporting 
approaches in the Exemption Request.\33\ The SROs argue in their cost-
benefit analysis that eliminating Rule 613(c)(7)'s requirement that 
both options market makers and options exchanges report nearly 
identical quotation data to the Central Repository has the potential 
effect of reducing the

[[Page 11858]]

projected capacity requirements and other technological requirements 
for the Central Repository, which would result in significant cost 
savings.\34\ The SROs estimate that requiring only options exchanges to 
report market maker quote information would reduce the size of data 
reported to CAT by 18 billion records per day.\35\ The SROs represent 
that those entities that responded to the SROs' Request for Proposal 
seeking to be the CAT Plan Processor (``Bidders'') indicated that the 
additional cost of dual reporting of options market maker quotes over 
five years would be between $2 million and $16 million for data storage 
and technical architecture.\36\ Further, the SROs state that if options 
market makers are required to report quotation information, options 
market makers would incur direct costs for additional hardware to store 
and process the information, as well as costs to develop and maintain 
the new systems.\37\
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    \31\ The DAG is an industry advisory group formed to advise the 
SROs on various aspects of the CAT and its development, including 
impact upon CAT participant firms and the broader industry.
    \32\ See Exemption Request Letter, supra note 5, at 6.
    \33\ Id. at 6-7.
    \34\ See id. at 7.
    \35\ Id.
    \36\ Id. at 2.
    \37\ Id. at 7.
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    The SROs represent in the Exemption Request that they solicited the 
views of their members and other appropriate parties to ensure that the 
SROs considered a variety of informed views.\38\ In particular, the 
SROs note that they and the industry discussed the results of a survey 
on options market makers reporting quotation information costs 
conducted by the Financial Information Forum (``FIF''), the Securities 
Industry and Financial Markets Association (``SIFMA''), and the 
Security Traders Association (``STA''). Based on survey responses, FIF, 
SIFMA, and STA estimated that over a five-year period it could cost 
between $307.6 million and $382 million for options market makers to 
comply with Rule 613(c)(7)'s reporting requirements.\39\ According to 
the SROs, the survey found that a disproportionate amount of this cost 
would fall on smaller market maker firms.\40\ FIF, SIFMA, and STA also 
noted that without an exemption, the industry could be subject to 
further indirect costs arising in connection with the infrastructure 
scaling required for the extra capacity necessary across processors, 
storage, network bandwidth, system performance, operations management 
in production, disaster recovery, development, and testing CAT systems 
to maintain the duplicative data.\41\
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    \38\ See id. at 6. Rule 613(a)(1)(xi) provides that the SROs' 
must discuss in the CAT NMS Plan the process by which the plan 
sponsors solicited views of their members and other appropriate 
parties regarding the creation, implementation, and maintenance of 
the consolidated audit trail, a summary of the views of such members 
and other parties, and how the plan sponsors took such views into 
account in preparing the national market system plan.
    \39\ See id. at 7. The SROs also note that SIFMA has stated that 
options market makers should not be required to report their quotes 
to the Central Repository due to the large volume of such quotes and 
the ability to obtain such quotation information from the options 
exchanges. Id. at 6. The estimate in the survey represents the cost 
for options market makers to fully comply with Rule 613(c)(7). 
However, the Commission notes that although the proposed approach 
eliminates the cost of such compliance, it adds the requirement to 
report Quote Sent Time.
    \40\ See id. at 7. The survey showed that smaller market maker 
firms would bear 33% of the implementation costs while only 
accounting for 6%-7% of the volume. Id.
    \41\ Id. The Commission notes that these items are not included 
in the estimates of costs of complying with Rule 613(c)(7) absent an 
exemption.
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    In their Exemption Request, the SROs represent that they do not 
believe that their proposed approach for reporting options market maker 
quotation information to the Central Repository would impact the 
reliability or accuracy of CAT Data,\42\ or its security and 
confidentiality.\43\ Further, the SROs believe that by eliminating 
unnecessary duplication of reported information, their proposed 
approach would have a positive effect on competition, efficiency, and 
capital formation.\44\ The SROs note that their proposed approach would 
provide regulators with the quote data necessary for the surveillance 
of options market makers and would not jeopardize the important goals 
of CAT.\45\ Finally, the SROs state that in the course of considering 
the requirements of Rule 613 as they relate to options market marker 
quotations, they considered three primary alternative approaches: (1) 
Complying with Rule 613 as written, (2) requiring options market makers 
to submit their Quote Sent Times directly to the Central Repository, 
and (3) the proposed approach, and found the proposed approach to be 
preferred.\46\
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    \42\ See id. at 7-8; see also 17 CFR 242.613(a)(1)(iii) 
(consideration requiring discussion of the reliability and accuracy 
of the proposed approach).
    \43\ See Exemption Request Letter, supra note 5, at 7-8; see 
also 17 CFR 242.613(a)(1)(iv) (consideration requiring discussion of 
the security and confidentiality issues of the proposed approach).
    \44\ See Exemption Request Letter, supra note 5, at 8; see also 
17 CFR 242.613(a)(1)(viii) (consideration requiring discussion of 
competition, efficiency, and capital formation).
    \45\ See Exemption Request Letter, supra note 5, at 6.
    \46\ See id. at 8; see also 17 CFR 242.613(a)(1)(xii) 
(consideration requiring discussion of alternatives considered).
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2. Discussion of the SROs' Proposed Approach to Options Market Maker 
Quotes
    The Commission has carefully considered the information provided by 
the SROs in support of the SROs' exemption request from Rule 
613(c)(7)(ii) and (iv) \47\ with respect to the reporting of options 
market maker quotes. The Commission believes it is appropriate to 
provide sufficient flexibility so as not to preclude the approach 
described by the SROs in the Exemption Request.
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    \47\ 17 CFR 242.613(c)(7)(ii) and (iv).
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    Based on the information provided by the SROs in the Exemption 
Request, the Commission is persuaded to grant exemptive relief to 
provide flexibility such that the alternative approach to collecting 
options market maker quotations described in the Exemption Request can 
be included in the CAT NMS Plan and subject to notice and comment. The 
SROs' describe an approach that could result in Options Market Maker 
quotation data, including Quote Sent Time, being reported to the 
Central Repository singly by the options exchanges rather than dually 
by both the options exchanges and Options Market Makers. To the extent 
the options exchanges would report the same data otherwise reported by 
Options Market Makers in an efficient, accurate and reliable manner, 
then the ability of the Commission and the SROs to access and use CAT 
Data should not be adversely affected. Moreover, the potentially lower 
cost associated with eliminating duplicative reporting and storage of 
such data represents a possible benefit.
    Therefore, the Commission finds it is appropriate in the public 
interest and consistent with the protection of investors to exempt the 
SROs from Rule 613(c)(7)(ii) and (iv). The Commission notes that the 
proposed approach described in the Exemption Request would require 
that: (1) Options market makers report to the relevant options exchange 
the Quote Sent Time along with any quotation, or any modification or 
cancellation thereof; and (2) the options exchange submits the 
quotation data received from options market makers, including the Quote 
Sent Time, to the Central Repository without change.

B. Customer ID

1. The SROs' Proposed Approach to Customer ID
i. Customer Information Approach
    Rule 613(c)(7)(i)(A) requires that for the original receipt or 
origination of an

[[Page 11859]]

order, a CAT Reporter report the ``Customer-ID(s) for each Customer.'' 
\48\ ``Customer-ID'' is defined in Rule 613(j)(5) to mean ``with 
respect to a customer, a code that uniquely and consistently identifies 
such customer for purposes of providing data to the central 
repository.'' \49\ Rule 613(c)(8) further requires that ``[a]ll plan 
sponsors and their members shall use the same Customer-ID and CAT-
Reporter-ID for each customer and broker-dealer.'' \50\ In the 
Exemption Request, the SROs request an exemption from the requirements 
in Rule 613(c)(7)(i)(A) and Rule 613(c)(8) that Customer-IDs be 
reported to the Central Repository upon the original receipt or 
origination of an order and propose using the ``Customer Information 
Approach.'' \51\
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    \48\ See 17 CFR 242.613(c)(7)(i)(A).
    \49\ See 17 CFR 242.613(j)(5).
    \50\ See 17 CFR 242.613(c)(8).
    \51\ Because the Plan Processor will still assign a Customer-ID 
to each Customer under the Customer Information Approach, the SROs 
are not requesting an exemption from Rule 613(j)(5).
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    The SROs state that they do not believe that the Customer 
Information Approach, described below, would have an adverse effect on 
the various ways in which, and purposes for which, regulators would 
use, access, and analyze the audit trail data reported under Rule 
613.\52\ In particular, the SROs do not believe that the Customer 
Information Approach will compromise the linking of order events, alter 
the time and method by which regulators may access the data, or limit 
the use of the CAT audit trail data because the unique nature of the 
existing identifiers to be used under the Customer Information Approach 
would allow the Plan Processor to create customer linkages with the 
same level of accuracy as the Customer-ID.\53\
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    \52\ See Exemption Request Letter, supra note 5, at 15.
    \53\ Id.
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    The SROs also note that the Bidders, each of whom incorporated the 
Customer Information Approach in its Bid, asserted that the Customer 
Information Approach, described below, would allow all events 
pertaining to an order to be reliably and accurately linked together in 
a manner that allows regulators efficient access to complete order 
information.\54\ Similarly, the SROs note that according to the 
Bidders, the Customer Information Approach would not impact the time 
and method by which linked data in the Central Repository would be made 
available to regulators.\55\ Further, the SROs believe that because the 
Plan Processor will create and maintain unique Customer-IDs upon 
receipt of data from CAT Reporters, regulators would still be able to 
access CAT Data through unique Customer-IDs.\56\
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    \54\ Id.
    \55\ Id. at 15-16.
    \56\ Id. at 16.
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    Under the Customer Information Approach, instead of requiring a 
universal Customer-ID for each Customer to be used for all orders, the 
CAT NMS Plan would require each broker-dealer to assign a unique firm-
designated identifier (``FDI'') to each trading account.\57\ Broker-
dealers would be permitted to use an account number or any other 
identifier defined by the firm as the FDI, provided each identifier is 
unique across the firm for each business date (i.e., a single firm may 
not have multiple separate customers with the same identifier on any 
given date). In addition, the CAT NMS Plan would require broker-dealers 
to submit an initial set of information identifying the Customer to the 
Central Repository, including, but not limited to, the account type, 
account effective date (as applicable), the Customer's name, address, 
date of birth, tax identification number or social security number, 
individual's role in the account (e.g., primary holder, joint holder, 
guardian, trustee, person with the power of attorney), Legal Entity 
Identifier (``LEI'') \58\ (if applicable), and Large Trader ID (if 
applicable).\59\ Using the FDI and the other information identifying 
the Customer that would be reported to the Central Repository, the Plan 
Processor would then assign a unique Customer-ID to each Customer.\60\ 
Under the Customer Information Approach and as set forth in the 
Exemption Request, upon original receipt or origination of an order, 
broker-dealers would only be required to report the FDI on each new 
order, rather than a Customer-ID as required by Rule 613(c)(7)(i)(A). 
In addition, under the Customer Information Approach, all broker-
dealers would not be reporting the same Customer-ID for the Customer, 
as would be required by Rule 613(c)(8). The Customer-ID generated by 
the Plan Processor would remain within the Central Repository; it would 
not be sent back to the broker-dealers.\61\
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    \57\ Id. at 9-10.
    \58\ The SROs further note in the Exemption Request where a 
validated LEI is available for a Customer or entity, it may obviate 
the need to report other identifier information (e.g., customer 
name, address, TIN). See id. at 10 n.28.
    \59\ See id. at 9-10. The Commission notes that the SROs have 
not requested an exemption from the requirement that the ``customer 
type'' (e.g., retail, mutual fund, broker-dealer proprietary) be 
reported to the Central Repository. See Rule 613(c)(viii)(B) and 
Rule 613(j)(4).
    \60\ See Exemption Request Letter, supra note 5, at 10.
    \61\ Id. Under Rule 613, broker-dealers would have to obtain a 
Customer-ID for each customer from the Central Repository. Then, 
when reporting the origination of an order to the Central 
Repository, the broker-dealer would have to include the Customer-ID 
in the report. See 17 CFR 242.613(c)(7)(i)(A).
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    To ensure that the data elements relating to the identity of every 
Customer in the Central Repository is complete and accurate, the SROs 
represent in their Exemption Request that broker-dealers would be 
required to submit to the Central Repository daily updates for 
reactivated accounts, newly established or revised FDIs, or reportable 
Customer identifying information.\62\ The SROs add that because 
reporting to the Central Repository is on an end-of-day basis, intra-
day changes to information could be captured as part of the daily 
updates to the information.\63\ In addition to daily updates, broker-
dealers would be required to submit periodic, full refreshes of 
Customer information to the Central Repository.\64\ The SROs represent 
that the scope of the ``full'' Customer information refresh would need 
to be defined to determine the extent to which inactive or otherwise 
terminated accounts would need to be reported.\65\ Daily updates would 
consist of new account information and changes to existing account 
data, such as changes to name or address information.\66\ Periodic full 
refreshes would require CAT Reporters to submit a complete dataset of 
all Customer Account Information, and would be used as a consistency 
check to help ensure completeness, consistency, and accuracy of 
information previously submitted to the account database.\67\
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    \62\ See Exemption Request Letter, supra note 5, at 10 & n.29.
    \63\ Id. at 10.
    \64\ Id.
    \65\ Id.
    \66\ Id.
    \67\ Id. The SROs also note that the specific formats in which 
information is provided to the Central Repository that must be 
submitted for the required Customer information would be developed 
by the CAT Plan Processor and approved by the SROs. Id. at 10.
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    The Exemption Request describes the process by which the SROs 
solicited views of their members and other appropriate parties 
regarding the Customer Information Approach.\68\ The SROs held 
technical committee meetings to discuss particular items related to the 
Customer Information Approach and sought the input of the

[[Page 11860]]

Bidders on the use of Customer-IDs.\69\ The SROs also had numerous 
discussions with the DAG, which, according to the SROs, strongly 
supports the Customer Information Approach.\70\ The SROs note that the 
DAG believes that the Customer Information Approach satisfies the 
Commission's goal of associating order information reported to the CAT 
with individual Customers, while minimizing the technological burden on 
broker-dealers and the associated costs by permitting broker-dealers to 
leverage existing methods of identifying Customers.\71\ In addition, 
the SROs note in the Exemption Request that the Customer Information 
Approach is consistent with the views expressed by industry 
associations such as FIF and SIFMA; both associations objected to the 
use of unique Customer identifiers and recommended that alternatives to 
this requirement be considered, including the use of existing 
identifiers.\72\
---------------------------------------------------------------------------

    \68\ See id. at 14.
    \69\ The SROs also note that the Request for Proposal (``RFP'') 
and supporting RFP concepts document included a description of the 
Customer Information Approach. Id.
    \70\ Id. at 14 (citing to the FIF CAT Working Group: FIF 
Response to CAT NMS Plan, November 2014 Letter at 3; SIFMA Industry 
Recommendations).
    \71\ The SROs also note in support of the Customer Information 
Approach that there are many instances in which multiple Customers 
may be stakeholders in an order. For example, if an investment club 
has twenty members with each member being an owner of a single 
account and where each member is authorized to provide the broker-
dealer with trading instructions for the club account, and the club 
places an order for that account with a broker-dealer, under Rule 
613 the broker-dealer would have an obligation to provide a unique 
Customer-ID on the related order report for each member of the 
investment club. The SROs represent that multiple Customer-IDs would 
significantly increase the data footprint and, in turn, the data 
storage costs. However, under the Customer Information Approach, the 
SROs state that such broker-dealer would simply provide on its order 
report an FDI for the account held by the investment club which the 
Plan Processor would use to identify each Customer with an ownership 
interest in that account. See id. at 14-15.
    \72\ See id. at 15.
---------------------------------------------------------------------------

    The SROs believe that the reliability and accuracy of the data 
reported to the Central Repository under the Customer Information 
Approach is the same as under the approach outlined in Rule 613 with 
regard to Customer-IDs because the identifiers used under the proposed 
Customer Information Approach are also unique identifiers.\73\ In some 
cases, the SROs believe that the Customer Information Approach may 
result in more accurate data because errors may be minimized since 
broker-dealers will not have to adjust their systems to capture and 
maintain the additional Customer-ID data element, and only a single 
entity will have to perform the mapping of firm-designated account 
information to Customer-ID.\74\ Thus, according to the SROs, the 
reliability and accuracy of the audit trail data reported under Rule 
613 would not be compromised during: (1) Its transmission and receipt 
from market participants; (2) data extraction, transformation, and 
loading at the Central Repository; (3) data maintenance and management 
at the Central Repository; or (4) use by regulators.\75\
---------------------------------------------------------------------------

    \73\ Id.
    \74\ Id.
    \75\ Id.
---------------------------------------------------------------------------

    The SROs believe that the Customer Information Approach would 
strengthen the security and confidentiality of the information reported 
to the Central Repository, thereby maintaining the efficacy of the 
Central Repository and the confidence of the market participants.\76\ 
The SROs note DAG members' concerns about potential data breaches, 
including the increased risk of identity theft, caused by the use of a 
single universal Customer-ID that is maintained across all CAT 
Reporters and all order events.\77\ The SROs also note that a universal 
identifier that is tied to personally identified information (``PII'') 
could create a substantial risk of misuse and of possible identify 
theft as the universal identifiers are passed between the Plan 
Processor and each CAT Reporter.\78\ The SROs further state that 
individual firms may not have consistent levels of data security, and 
the widespread use of Customer-IDs across multiple firms would mean 
that if a Customer-ID was compromised at one firm, it would be 
compromised at all firms, increasing the associated risk of identity 
theft and data privacy loss issues.\79\ The SROs note that this differs 
from the Customer Information Approach, where CAT Reporters would use 
existing identifiers that are not shared across firms and Customer-IDs 
would reside solely in the Central Repository, known only to the Plan 
Processor and regulatory staff of the Commission and SROs.\80\ 
Additionally, the SROs note that for CAT Reporters who report events in 
real-time, the risk and impact of a universal Customer-ID being stolen 
or misused would be magnified when compared to a FDI.\81\ According to 
the SROs, under the Customer Information Approach, the responsibility 
to secure information relating to every Customer would essentially lie 
with a single entity--the Plan Processor--instead of with all CAT 
Reporters, who may have varying degrees of technical sophistication and 
resources to maintain the security and confidentiality of CAT Data.\82\
---------------------------------------------------------------------------

    \76\ See id. at 16.
    \77\ Id.
    \78\ Id.
    \79\ Id.
    \80\ Id.
    \81\ Id.
    \82\ Id.
---------------------------------------------------------------------------

    The SROs also believe that the Customer Information Approach would 
be a more efficient and cost-effective method of identifying Customers 
and therefore would have a positive impact on competition, efficiency, 
and capital formation.\83\ Among other things, the SROs note that Rule 
613's Customer-ID requirement would necessitate significant 
infrastructure changes to existing broker-dealer business processes, 
which could inhibit smaller broker-dealers and make it more difficult 
for them to enter or compete in the market.\84\ The SROs also note that 
requiring each CAT Reporter to report a unique Customer-ID may hinder 
new customer onboarding times.\85\ The SROs state that the exemption 
would eliminate Rule 613's requirement that the Plan Processor 
distribute Customer-IDs to broker-dealers, increasing efficiency 
because a single entity--the Plan Processor--would be responsible for 
mapping, monitoring, and verifying the accuracy of the Customer-IDs and 
effecting corrections, rather than all CAT Reporters plus the Plan 
Processor.\86\ In addition, the SROs note that the DAG emphasized that 
the Customer Information Approach would significantly reduce the costs 
to broker-dealers by permitting them to leverage their current 
technology to report to the Central Repository.\87\
---------------------------------------------------------------------------

    \83\ Id.
    \84\ Id.
    \85\ The SROs explained that ``the customer onboarding process 
is often time-critical as new customers want to initiate business 
transactions immediately,'' and that under Rule 613's requirements, 
``new customers would have a longer wait time for a new account as 
broker-dealers would be required to submit new customer information 
to the CAT Plan Processor in order to receive a unique Customer-
ID.'' Id.
    \86\ Id. at 17.
    \87\ Id.
---------------------------------------------------------------------------

    In support of their request, the SROs also provide the costs to 
implement the Customer-ID requirement approach as set forth in Rule 613 
in their Exemption Request.\88\ The SROs note that industry members 
informed the SROs that the cost to implement the Customer-ID as 
required in Rule 613 for the top 250 broker-dealers that will be 
reporting to the CAT (``Top 3 Tiers of CAT Reporters'') would be at 
least $195 million.\89\ To establish this cost

[[Page 11861]]

estimate, the industry members considered the costs associated with 
activities required to implement the Customer-ID, as required in Rule 
613, including: (1) The analysis of the impact of implementation on 
broker-dealer systems; (2) the cost of capturing and storing the 
additional Customer data; (3) the implementation of workflow and system 
changes; (4) the maintenance and management of Customer-IDs; and (5) 
the education of staff.\90\ Industry members estimated that these 
activities would require on average 10 person months \91\ of business 
analysis, and a total implementation time of 30 person months at a 
staff cost of $1,200 per day, accounting for a per-firm cost of 
$780,120.\92\ The SROs believe that this cost estimate is conservative 
given that it only includes the costs for 250 broker-dealers (11% of 
the total broker-dealers that are expected to report to the Central 
Repository).\93\ The SROs believe that the Customer Information 
Approach would impose less costs than the Customer-ID approach but do 
not provide estimated costs of implementing the Customer Information 
Approach for comparison.\94\
---------------------------------------------------------------------------

    \88\ See id. at 17-18.
    \89\ See id. at 18.
    \90\ Id.
    \91\ The SROs represent that a person month is the amount of 
effort expended by one person working one month. See id. at 18 n.43.
    \92\ Industry members assumed 21.67 person days per person month 
(52 weeks * 5 work days per week, divided by 12 months): 30 person 
months * 21.67 person days/person month * $1,200 daily rate. See id. 
at 18 n.44.
    \93\ See id. at 18.
    \94\ The Commission notes that although the Exemption Request 
provided a cost-benefit analysis for compliance with the Customer-ID 
reporting requirement under Rule 613, it did not provide such an 
analysis for the proposed approaches described below in subsections 
II.B.1.ii (Modification and Cancellation) and II.B.1.iii (Effective 
Date vs. Account Opening Date).
---------------------------------------------------------------------------

    The SROs note that they considered a variety of possible 
alternative approaches to complying with Rule 613, in addition to the 
Customer Information Approach.\95\ For example, the SROs considered an 
approach that would have solely utilized account numbers, rather than 
account numbers and other unique identifying information, but concluded 
that relying solely on account numbers may raise issues regarding 
duplicate numbers under certain circumstances. After weighing the 
merits of these various approaches, the SROs concluded that the 
Customer Information Approach was the best option.\96\
---------------------------------------------------------------------------

    \95\ See Exemption Request Letter, supra note 5, at 18.
    \96\ See id.
---------------------------------------------------------------------------

ii. Modification and Cancellation
    Rule 613(c)(7)(iv)(F) requires that ``[t]he CAT-Reporter-ID of the 
broker-dealer or Customer-ID of the person giving the modification or 
cancellation instruction'' be reported to the Central Repository.\97\ 
In the Exemption Request, the SROs request an exemption from the 
requirement that CAT Reporters report the Customer-ID of the person 
giving the modification or cancellation instruction to the Central 
Repository so that CAT Reporters are instead allowed to report whether 
a modification or cancellation instruction was given by the Customer 
associated with the order, or was initiated by the broker-dealer or 
exchange associated with the order.\98\
---------------------------------------------------------------------------

    \97\ 17 CFR 242.613(c)(7)(iv)(F) (emphasis added).
    \98\ See Exemption Request Letter, supra note 5, at 12.
---------------------------------------------------------------------------

    According to the SROs, for regulatory purposes it is most critical 
to ascertain whether the modification or cancellation instruction was 
given by the Customer or was instead initiated by the broker-dealer or 
exchange, rather than capturing the specific person who gave the 
instruction.\99\ The SROs also note that because Rule 613 only requires 
the reporting of the Customer-ID upon order origination, the Central 
Repository will not have the identity of the specific Customer who 
originated an order for an account with multiple owners, but rather the 
identity of all account holders and persons authorized to give trading 
instructions for that account.\100\ Thus, according to the SROs, 
requiring the reporting of the individual person providing the 
modification or cancellation instruction would result in an 
inconsistent level of granularity between the Reportable Events of 
origination or receipt of an order, and the modification or 
cancellation of the order.\101\ The SROs note that SRO and Commission 
staff could, if needed, ascertain the specific individual who submitted 
a modification or cancellation instruction in an account with multiple 
authorized account holders by requesting this information from the 
broker-dealer in the same manner they would be able to for the original 
receipt or origination of an order.\102\
---------------------------------------------------------------------------

    \99\ Id.
    \100\ Id.
    \101\ Id.
    \102\ See id. at 12-13.
---------------------------------------------------------------------------

iii. Effective Date vs. Account Opening Date
    Rule 613(c)(7)(viii)(B) requires broker-dealers to report to the 
Central Repository ``Customer Account Information.'' \103\ The term 
``Customer Account Information'' is defined in Rule 613(j)(4) to 
``include, but not be limited to, account number, account type, 
customer type, date account opened, and large trader identifier (if 
applicable).'' \104\ In the Exemption Request and in the September 2015 
Supplement,\105\ the SROs request an exemption from the requirement in 
Rule 613(c)(7)(viii)(B) to report the ``date [the] account [was] 
opened'' and instead propose that an ``effective date'' \106\ be 
reported in lieu of an account open date in certain limited 
circumstances, described below.\107\
---------------------------------------------------------------------------

    \103\ 17 CFR 242.613(c)(7)(viii)(B).
    \104\ 17 CFR 242.613(j)(4).
    \105\ See September 2015 Supplement, supra note 8, at 4.
    \106\ The term ``effective date'' herein has the same meaning 
set forth in the September 2015 Supplement. See infra, notes 118-119 
and accompanying text, 129-131 and accompanying text. The September 
2015 Supplement states that to the extent there are any 
inconsistencies between it and the Exemption Request Letter 
regarding the use of an ``effective date'' in lieu of the ``date 
account opened,'' the terms of the September 2015 Supplement shall 
control. September 2015 Supplement, supra note 8, at 1.
    \107\ See Exemption Request Letter, supra note 5, at 11; 
September 2015 Supplement, supra note 8, at 4. The SROs note that 
this request for an exemption is limited to the requirements of Rule 
613(c)(7)(viii)(B) noted herein, and does not pertain to other 
requirements of the Act, the rules thereunder, or SRO rules 
requiring account opening date, account number or account type 
information. September 2015 Supplement, supra note 8, at 4 n.6.
---------------------------------------------------------------------------

    The first circumstance for which the SROs propose to permit 
reporting of an effective date in lieu of an account open date is where 
a relationship identifier--rather than a parent account--has been 
established for an institutional Customer relationship.\108\ The SROs 
explain that when a trading relationship is established at a broker-
dealer for an institutional Customer, the broker-dealer typically 
creates a parent account, under which additional subaccounts are 
created.\109\ However, according to the SROs, in some cases the broker-
dealer establishes the parent relationship for an institutional 
Customer using a relationship identifier as opposed to an actual parent 
account.\110\ According to the SROs, the relationship identifier could 
be any of a variety of identifiers, such as the LEI or a short name for 
the relevant institution.\111\ This relationship identifier is 
established prior to any trading for the institutional Customer.\112\ 
The SROs state that if a relationship identifier has been established 
rather than a parent account,

[[Page 11862]]

and an order is placed on behalf of the institutional Customer, any 
executed trades will be kept in a firm account (e.g., a facilitation or 
average price account) until they are allocated to the proper 
``subaccount(s),'' i.e., the accounts associated with the parent 
relationship identifier connecting them to the institutional 
Customer.\113\
---------------------------------------------------------------------------

    \108\ September 2015 Supplement, supra note 8, at 4-5.
    \109\ Id. at 5.
    \110\ Id.
    \111\ Id.
    \112\ Id. The SROs state that a relationship identifier is 
typically established when the relationship is entered into a firm's 
system(s) (e.g., a trading system, a reference data system, etc.) 
but note that the practice may vary across the industry, as some 
firms may create relationship identifiers during the onboarding 
process. Id.
    \113\ Id. The SROs explain that the order would originate from a 
parent relationship using the relationship identifier, rather than 
the subaccount that ultimately will receive the allocation. Id. 
According to the SROs, subaccounts may be established before or 
simultaneously with order origination; even when a subaccount exists 
before the order is transmitted, there may be multiple subaccounts 
for a given institutional relationship and the broker-dealer may not 
know which subaccount will receive the allocation for a trade at the 
time of order origination. Id. Also, the SROs state that a 
subaccount receiving the allocation may not exist at the time of 
order origination, and provide an example where two subaccounts may 
exist prior to order origination, but a third subaccount that may 
receive an allocation may be added after the order is submitted. Id. 
The SROs note that information about allocations to subaccounts will 
be submitted with Allocation Reports. Id.; see infra notes 213-217 
and accompanying text.
---------------------------------------------------------------------------

    The SROs explain that, in the above circumstance, no account open 
date is available for the parent relationship because there is no 
parent account.\114\ For the same reason, no account number or account 
type is available.\115\ Further, the SROs state that historically, 
broker-dealers have not maintained the date such relationships began in 
a uniform manner; some broker-dealers have maintained the date the 
relationship was first established in the broker dealer's system, 
whereas others may have maintained the date trading began using the 
relationship identifier.\116\
---------------------------------------------------------------------------

    \114\ September 2015 Supplement, supra note 8, at 5.
    \115\ Id. at 6.
    \116\ Id. at 5.
---------------------------------------------------------------------------

    Thus, the SROs propose in the above circumstance to permit broker-
dealer CAT Reporters to report the effective date of the relationship 
identifier in lieu of an account open date. Where such institutional 
Customer relationships were established before CAT's 
implementation,\117\ the effective date would be either (i) the date 
the broker-dealer established the relationship identifier, or (ii) the 
date when trading began--i.e., the date the first order is received--
using the relevant relationship identifier.\118\ Where such 
relationships were established after CAT's implementation, the 
effective date would be the date the broker-dealer established the 
relationship identifier and would be no later than the date the first 
order was received; the SROs further state that a uniform definition of 
effective date would be included in the CAT technical specifications to 
ensure consistent usage by all CAT Reporters going forward.\119\ For 
such relationships established before or after CAT's implementation, 
the SROs additionally request an exemption from Rule 
613(c)(7)(viii)(B)'s requirement to report the ``account number'' and 
``account type'' \120\ and instead propose permitting broker-dealers to 
report the relationship identifier in place of the account number, and 
identify the ``type'' as a ``relationship'' in place of the account 
type.\121\ The SROs do not request exemptive relief concerning 
reporting of the account open date of the subaccount(s) associated with 
the parent relationship identifier, as account open dates would be 
available for such subaccounts.\122\
---------------------------------------------------------------------------

    \117\ In this subsection, CAT ``implementation'' refers to the 
implementation date of the CAT NMS Plan applicable to the relevant 
CAT Reporter, as set forth in Rule 613(a)(3)(v) and (vi). See id.
    \118\ Id. at 6.
    \119\ Id.
    \120\ See supra notes 103-104 and accompanying text and 115 and 
accompanying text.
    \121\ September 2015 Supplement, supra note 8, at 6.
    \122\ See id. at 5. However, if there were an applicable legacy 
system data issue with the relevant subaccount, as described below, 
then an exemption may apply.
---------------------------------------------------------------------------

    The second circumstance for which the SROs propose to permit 
reporting of an effective date in lieu of an account open date is where 
particular legacy system data issues may prevent a broker-dealer from 
providing an account open date for any type of account (i.e., 
institutional, proprietary or retail) established before CAT's 
implementation.\123\ According to the SROs, those legacy system data 
issues may arise because:
---------------------------------------------------------------------------

    \123\ Id. at 6-8. The SROs note that they have identified these 
legacy system data issues based on discussions with the DAG and 
understand that the term ``account opening date'' has not been 
clearly defined as a historical matter. Id. at 6-7. The SROs further 
note that given the lack of guidance on the definition of account 
opening date, as well as systems issues, a broker-dealer may not 
have an account opening date, and/or may have used an alternative 
date to indicate when an account was established. Id. at 7.
---------------------------------------------------------------------------

    (1) A broker-dealer has switched back office providers or clearing 
firms and the new back office/clearing firm system identifies the 
account open date as the date the account was opened on the new system; 
\124\
---------------------------------------------------------------------------

    \124\ The SROs state that the manner in which accounts are 
transferred from one system to another may impact the account 
opening date field. Id. at 7.
---------------------------------------------------------------------------

    (2) A broker-dealer is acquired and the account open date becomes 
the date that an account was opened on the post-merger back office/
clearing firm system;
    (3) Certain broker-dealers maintain multiple dates associated 
without accounts in their systems and do not designate in a consistent 
manner which date constitutes the account open date, as the parameters 
of each date are determined by the individual broker-dealer; \125\ or
---------------------------------------------------------------------------

    \125\ The SROs note that such variation among broker-dealers 
also occurs with respect to the account status change date (i.e., 
the effective date of when accounts are established for trading). 
Id. at 7.
---------------------------------------------------------------------------

    (4) No account open date exists for a proprietary account of a 
broker-dealer.\126\
---------------------------------------------------------------------------

    \126\ The SROs state that, historically, the account opening 
date was not required for a broker-dealer's proprietary accounts, if 
it was not available. Id. The SROs further note that according to 
regulatory guidance regarding Blue Sheet submissions, the ``date 
account opened'' should be provided for proprietary accounts ``if it 
is known''; otherwise the field should be left blank. Id.
---------------------------------------------------------------------------

    Thus, for accounts established before CAT's implementation, the 
SROs propose that when legacy systems data issues arise due to one of 
the four reasons above and no account open date is available, broker-
dealers would be permitted to report an effective date in lieu of an 
account open date.\127\ When the legacy systems data issues and lack of 
account open date are attributable to above reasons (1) or (2), the 
effective date would be the date the account was established, either 
directly or via a system transfer, \128\ at the relevant broker-
dealer.\129\ When the legacy systems data issues and lack of account 
open date are attributable to above reason (3), the effective date 
would be the earliest available date.\130\ When the legacy systems data 
issues and lack of account open date are attributable to above reason 
(4), the effective date would be (i) the date established for the 
proprietary account in the broker-dealer or its system(s), or (ii) the 
date when proprietary trading began in the account, i.e. the date on 
which the first orders were submitted from the account.\131\
---------------------------------------------------------------------------

    \127\ Id. at 8.
    \128\ The SROs note that such system transfer could occur, for 
example, using ``ACATS.'' Id. ``ACATS'' is the Automated Customer 
Account Transfer Service, a system that automates and standardizes 
procedures for the transfer of assets in a customer account from one 
brokerage firm and/or bank to another. See http://www.dtcc.com/clearing-services/clearing-services/acats.aspx.
    \129\ September 2015 Supplement, supra note 8, at 8.
    \130\ Id.
    \131\ Id. The SROs note that in all cases, the effective date 
would be a date no later than the date proprietary trading occurs at 
the broker-dealer or in its system. Id.
---------------------------------------------------------------------------

    The SROs note that they do not seek exemptive relief concerning 
legacy systems data issues where a ``date account opened'' is 
available.\132\

[[Page 11863]]

Moreover, because these are legacy system data issues, the SROs do not 
seek exemptive relief with respect to such issues for accounts 
established after CAT's implementation, as the SROs understand that 
after CAT's implementation, CAT Reporters will report the account open 
date as required under Rule 613(c)(7)(viii)(B) in such 
circumstances.\133\
---------------------------------------------------------------------------

    \132\ Id. The SROs provide an example where an account is 
transferred to a new broker-dealer and is deemed to be a new 
account. The SROs state that in such a case, the account opening 
date and the date the account was established at the relevant 
broker-dealer are the same, and no exemptive relief would be 
necessary. Id.
    \133\ Id. at 8-9.
---------------------------------------------------------------------------

2. Discussion of the SROs' Proposed Approach to Customer ID
    The Commission has carefully considered the information provided by 
the SROs in support of their request for exemptions from Rule 
613(c)(7)(i)(A); \134\ 613(c)(7)(iv)(F); \135\ 613(c)(7)(viii)(B); 
\136\ and 613(c)(8) applicable to the reporting of Customer-IDs.\137\ 
The Commission believes that it is appropriate to provide sufficient 
flexibility so as to not preclude the approach described by the SROs in 
the Exemption Request.
---------------------------------------------------------------------------

    \134\ 17 CFR 242.613(c)(7)(A).
    \135\ 17 CFR 242.613(c)(7)(iv)(F).
    \136\ 17 CFR 242.613(c)(7)(viii)(B).
    \137\ 17 CFR 242.613(c)(8).
---------------------------------------------------------------------------

    Based on the information provided by the SROs in the Exemption 
Request, the Commission is persuaded to grant exemptive relief to 
provide flexibility such that the proposed approach described in the 
Exemption Request can be included in the CAT NMS Plan and subject to 
notice and comment. Specifically, the SROs describe a Customer 
Information Approach that could result in the linking, within the 
Central Repository, of FDIs to the appropriate Customer-ID and, 
ultimately, to the Customer. To the extent such data is linked in an 
efficient, accurate, reliable, and secure manner, the ability of the 
Commission and the SROs to access and use CAT Data should not be 
adversely affected. Additionally, the potentially lower cost of 
allowing broker-dealers to leverage their existing methods of 
identifying Customers represents a possible benefit. With respect to 
the reporting of the Customer providing the modification or 
cancellation instruction, and not the individual person doing so, the 
Commission recognizes that requiring the reporting of the individual 
person providing the modification or cancellation instruction would 
result in an inconsistent level of granularity between the Reportable 
Events of origination or receipt of an order, and the modification or 
cancellation of the order. With respect to reporting the account 
effective date in lieu of the account open date in the two particular 
circumstances described above (and lack of an ``account number'' and 
``account type'' in the first of those circumstances \138\), the 
Commission believes that the SROs' proposed approach may not 
meaningfully impact the quality or usefulness of the information 
available to regulators.
---------------------------------------------------------------------------

    \138\ See supra notes 115 and accompanying text, 120-121 and 
accompanying text.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest and consistent with the protection of investors to 
exempt the SROs from Rule 613(c)(7)(i)(A), (c)(7)(iv)(F), 
(c)(7)(viii)(B), and (c)(8). The Commission notes that the proposed 
Customer Information Approach described in the Exemption Request would 
require that: (1) For the original receipt or origination of an order, 
broker-dealers report an FDI for the Customer, rather than a Customer-
ID, and that each FDI is unique across the firm for each business date; 
(2) broker-dealers submit an initial set of information to the Central 
Repository identifying the Customer, including the account type, 
account effective date, Customer's name, address, date of birth, tax 
identification number or social security number, an individual's role 
in the account (e.g., primary holder, joint holder, guardian, trustee, 
person with the power of attorney), LEI (if applicable), and Large 
Trader ID (if applicable); (3) there be a secure method and process for 
ensuring that broker-dealers provide daily or periodic updates--as 
described above--to the information used to identify a Customer to 
assure that the information is complete and accurate; and (4) the Plan 
Processor is able to efficiently, accurately and reliably assign and 
track a unique Customer-ID to each Customer, based on the FDI and other 
information identifying the Customer reported by a broker-dealer, and 
link reported FDIs to the appropriate Customer-IDs.
    The Commission additionally notes that, with respect to reporting 
on modification or cancellation instructions, the proposed approach 
described in the Exemption Request would require that: (1) CAT 
Reporters report whether a modification or cancellation instruction was 
given by the Customer associated with the order, or was initiated by 
the broker-dealer or exchange associated with the order; and (2) SRO 
and Commission regulatory staff have the ability to identify the 
Customer, broker-dealer or exchange that modified or cancelled the 
order.
    The Commission further notes that the proposed approach allowing 
CAT Reporters to report an effective date \139\ in lieu of an account 
open date as described in the Exemption Request and in the September 
2015 Supplement would be limited to the following two circumstances 
where no account open date is available: First, where a relationship 
identifier has been established for an institutional Customer 
relationship rather than a parent account,\140\ and second, where 
legacy system data issues prevent a broker-dealer from providing an 
account open date, for any type of account established before \141\ 
CAT's implementation, for one of the four specific reasons \142\ 
detailed above. The Commission also notes that the proposed approach 
would require that the effective dates reported in these two 
circumstances would be those specifically described above and in the 
September 2015 Supplement.\143\
---------------------------------------------------------------------------

    \139\ See supra notes 106, 118-119 and accompanying text, 129-
131 and accompanying text.
    \140\ The Commission notes that the proposed approach would also 
require reporting of the relationship identifier in place of the 
account number, and identification of the ``type'' as a 
``relationship'' in place of the account type. See supra notes 113 
and accompanying text, 120-121 and accompanying text. The Commission 
additionally notes that no exemptive relief is requested or granted 
concerning reporting of the account open date of the 
``subaccount(s)'' associated with the parent relationship 
identifier. See supra note 120 and accompanying text.
    \141\ The Commission notes that no exemptive relief is requested 
or granted concerning legacy systems data issues for accounts 
established after CAT's implementation. See supra note 133 and 
accompanying text.
    \142\ See supra notes 124-126 and accompanying text.
    \143\ See supra notes 118-119 and accompanying text, 129-131 and 
accompanying text.
---------------------------------------------------------------------------

C. CAT Reporter ID

1. The SROs' Proposed Approach to CAT Reporter ID
    A CAT-Reporter-ID is ``a code that uniquely and consistently 
identifies [a CAT Reporter] for purposes of providing data to the 
central repository.'' \144\ Subparagraphs (c)(7)(i)(C), (ii)(D), 
(ii)(E), (iii)(D), (iii)(E), (iv)(F), (v)(F), (vi)(B), and (c)(8) of 
Rule 613 provide that the CAT NMS Plan must require CAT Reporters to 
report CAT-Reporter-IDs to the Central Repository for orders and 
certain Reportable Events.\145\ Specifically, these provisions provide 
that the CAT NMS Plan must require reporting of CAT-Reporter-IDs of: 
The broker-dealer receiving or originating an

[[Page 11864]]

order; \146\ the broker-dealer or national securities exchange from 
which (or to which) an order is being routed; \147\ the broker-dealer 
or national securities exchange receiving (or routing) a routed order; 
\148\ the broker-dealer, if applicable, giving a modification or 
cancellation instruction, if an order is modified or cancelled; \149\ 
the national securities exchange or broker-dealer executing an order, 
if an order is executed; \150\ and the clearing broker or prime broker, 
if applicable, if an order is executed.\151\ Additionally, Rule 
613(c)(8) requires that CAT Reporters use the same CAT-Reporter-ID for 
each broker-dealer.\152\ In the Exemption Request, the SROs request an 
exemption from the requirements in the above-noted provisions that 
broker-dealer CAT-Reporter-IDs be reported to the Central Repository on 
orders and Reportable Events and instead propose using the ``Existing 
Identifier Approach.'' \153\
---------------------------------------------------------------------------

    \144\ 17 CFR 242.613(j)(2).
    \145\ 17 CFR 242.613(c)(7)(i)(C), (ii)(D), (ii)(E), (iii)(D), 
(iii)(E), (iv)(F), (v)(F), (vi)(B), and (c)(8).
    \146\ 17 CFR 242.613(c)(7)(i)(C).
    \147\ 17 CFR 242.613(c)(7)(ii)(D) and (E). If the order is 
routed to a national securities association, then the CAT-Reporter-
ID of that national securities association must be reported. 17 CFR 
242.613(c)(7)(ii)(E).
    \148\ 17 CFR 242.613(c)(7)(iii)(D) and (E). If a national 
securities association receives the routed order, then the CAT-
Reporter-ID of that national securities association must be 
reported. 17 CFR 242.613(c)(7)(iii)(D).
    \149\ 17 CFR 242.613(c)(7)(iv)(F).
    \150\ 17 CFR 242.613(c)(7)(v)(F).
    \151\ 17 CFR 242.613(c)(7)(vi)(B).
    \152\ 17 CFR 242.613(c)(8).
    \153\ See Exemption Request Letter, supra note 5, at 19.
---------------------------------------------------------------------------

    The SROs state that they do not believe the Existing Identifier 
Approach, described below, would negatively impact regulators' access, 
use, and analysis of CAT Data, and that it could even allow 
``additional levels of granularity compared to the CAT-Reporter-ID 
approach . . . without imposing additional requirements and associated 
costs on both CAT Reporters and the CAT Plan Processor.'' \154\ The 
SROs believe that the Existing Identifier Approach could collect 
information of more use to regulators than the approach mandated by 
Rule 613 through the reporting of MPIDs that identify not just a 
broker-dealer, but departments, businesses, or trading desks within a 
broker-dealer.\155\ Additionally, the SROs note that many SRO 
surveillances ``run off of these existing identifiers . . . and 
inclusion of these identifiers will help facilitate the retirement of 
the OATS system because regulators would have access to such 
identifiers through the CAT.'' \156\ The SROs also assert that the 
Existing Identifier Approach would ``increase linkage capabilities,'' 
explaining that ``firms have a greater ability to uniquely identify 
firms within a single Existing Identifier than across an entire large 
firm with multiple desks and departments.'' \157\
---------------------------------------------------------------------------

    \154\ Id. at 23.
    \155\ See id. at 23, 26.
    \156\ Id. at 23.
    \157\ Id. at 25.
---------------------------------------------------------------------------

    Under the Existing Identifier Approach, instead of reporting a 
universal CAT-Reporter-ID for each broker dealer to be used across all 
SROs for orders and Reportable Events, as described above, a broker-
dealer would be permitted to report its existing SRO-assigned market 
participant identifier (``MPID'') used by the relevant SRO specifically 
for transactions occurring at that SRO (e.g., FINRA MPID, Nasdaq MPID, 
NYSE Mnemonic, CBOE User Acronym, and CHX Acronym) when reporting 
information to the Central Repository.\158\ Similarly, an exchange 
would report the MPIDs used by the broker-dealers on that exchange or 
its systems, in lieu of reporting universal CAT-Reporter-IDs for 
broker-dealers. Over-the-counter (``OTC'') orders and Reportable Events 
would be reported with broker-dealers' FINRA MPIDs.\159\
---------------------------------------------------------------------------

    \158\ Id. at 19-20.
    \159\ The SROs explain that this is how broker-dealers currently 
report order information to FINRA's ``Order Audit Trail System'' and 
report OTC trades to a FINRA trade reporting facility. Id. at 20.
---------------------------------------------------------------------------

    According to the SROs, the Existing Identifier Approach would allow 
regulators to identify the broker-dealer associated with order 
information or a Reportable Event by linking those orders and 
Reportable Events to MPIDs, which in turn would be linked to a 
corresponding CAT-Reporter-ID generated by the Central Repository for 
internal use, and ultimately linked to the responsible broker-
dealer.\160\ This would ensure that each Reportable Event would be 
linked to the broker-dealer associated with the event, as required by 
Rule 613.\161\ To accomplish this linkage, the Plan Processor would 
create and maintain a database in the Central Repository that would map 
the MPIDs to the appropriate CAT-Reporter-ID and broker-dealer.\162\ A 
broker-dealer would be required to provide information to identify 
itself (e.g., its CRD number or LEI) to the Central Repository \163\ 
and each SRO would be required to submit all of the MPIDs used by its 
members on the SRO to the Central Repository on a daily basis.\164\ The 
Central Repository would match these reported MPIDs with the associated 
broker-dealer CAT-Reporter-IDs using the CAT-Reporter-ID database.\165\ 
When reporting its own CAT-Reporter-ID to the Central Repository, an 
SRO would use the one assigned to it by the Plan Processor.\166\
---------------------------------------------------------------------------

    \160\ Id. at 20-21. The SROs explain that the CAT-Reporter-ID 
generated by the Central Repository for each CAT Reporter would be 
linked to SRO-assigned identifiers reported on orders and Reportable 
Events. Regulators could access information on the CAT Reporter 
based on either the CAT-Reporter-ID or by another identifier--for 
example, a market participant identifier used by an ATS that is 
operated by the CAT Reporter. Id. at 20.
    \161\ Id. at 19-20.
    \162\ Id. at 20.
    \163\ Id. at 19.
    \164\ Id. at 20.
    \165\ Id.
    \166\ Id. at 20 n.53.
---------------------------------------------------------------------------

    The Exemption Request describes the process by which the SROs 
solicited the views of their members and other appropriate parties 
regarding the Existing Identifier Approach.\167\ The SROs requested the 
Bidders' and the DAG's input on the use of CAT-Reporter-IDs and note 
that the Bidders proposed system functionality was consistent with the 
Existing Identifier Approach and the Bidders did not indicate that it 
would be more costly or burdensome than Rule 613's CAT-Reporter-ID 
approach.\168\ The SROs also indicate that the DAG members recommended 
using existing MPIDs for CAT-Reporter-IDs, rather than new 
identifiers.\169\ The SROs state that they and the DAG believe the 
proposed approach would reduce their costs of complying with Rule 613, 
specifically by ``minimizing the effect on current real-time business 
processes, practices, and data flows'' and that the proposed approach 
``may facilitate the ability of the CAT Reporters to report information 
to the Central Repository by reducing the number of systems changes 
necessary to report to the Central Repository by adopting a new 
identifier.'' \170\
---------------------------------------------------------------------------

    \167\ Id. at 22.
    \168\ Id.
    \169\ Id. According to the SROs, SIFMA recommends use of the LEI 
as the CAT-Reporter-ID. See id. at 22. SIFMA also recommends that 
the Existing Identifier Approach only be used when a CAT Reporter 
does not have an LEI. Id.
    \170\ Id. at 24.
---------------------------------------------------------------------------

    The SROs believe the reliability and accuracy of CAT Data under the 
proposed Existing Identifier Approach would not change from the 
approach mandated by Rule 613 and would not negatively impact ``the 
accuracy with which the CAT Plan Processor would be able to link 
transactions.'' \171\ The SROs represent that the Bidders believe the 
Existing Identifier Approach could result in fewer errors and would 
result in reliable and accurate linkage of order information, allowing 
regulators to

[[Page 11865]]

submit queries and run surveillance analyses using the CAT-Reporter-
ID.\172\ The SROs note that the Bidders did not indicate that use of 
the Existing Identifier Approach would compromise the reliability and 
accuracy of CAT Data during: (1) Its transmission and receipt from 
market participants; (2) data extraction, transformation and loading at 
the Central Repository; (3) data maintenance and management at the 
Central Repository; or (4) use by regulators.\173\
---------------------------------------------------------------------------

    \171\ Id. at 22, 23.
    \172\ Id.
    \173\ Id. at 23.
---------------------------------------------------------------------------

    The SROs also believe that the proposed approach would not 
adversely impact the security and confidentiality of the information 
reported to the Central Repository.\174\ They state that none of the 
Bidders have indicated that the Existing Identifier Approach would 
create new or different security or confidentiality concerns when 
compared with the CAT-Reporter-ID approach mandated by Rule 613.\175\
---------------------------------------------------------------------------

    \174\ Id.
    \175\ Id.
---------------------------------------------------------------------------

    The SROs also believe that the Existing Identifier Approach would 
have a positive impact on competition, efficiency and capital formation 
by reducing costs, technology, and other burdens on CAT Reporters while 
still meeting the Commission's goals for the CAT.\176\
---------------------------------------------------------------------------

    \176\ Id. at 24.
---------------------------------------------------------------------------

    The SROs set forth various reasons the Existing Identifier Approach 
would be an efficient and cost-effective way to identify each CAT 
Reporter responsible for an order or Reportable Event.\177\ The SROs 
believe it would reduce the cost and implementation burdens on the SROs 
and broker-dealers to comply with Rule 613,\178\ as it would allow them 
to continue using their current business practices and data flows 
instead of building new infrastructure to support the CAT-Reporter-ID 
requirement.\179\ The SROs believe Rule 613's approach, by comparison, 
would require many changes to the operation of broker-dealers and would 
impose ``several potential technical implementation difficulties for 
the CAT Reporters and the CAT Plan Processor'' by necessitating the 
adoption of infrastructure to comply with the recording, reporting, 
gathering, and maintenance of CAT-Reporter-IDs.\180\ The SROs note that 
broker-dealers with multiple MPIDs would be required under Rule 613's 
approach to consolidate them into one CAT-Reporter-ID, necessitating 
``substantial system and process updates'' by the broker-dealers and 
SROs.\181\ Additionally, the SROs explain that some broker-dealers 
generate order identifiers that are tied to the specific MPIDs used by 
their trading desks. For these firms, to consolidate all of a broker-
dealer's MPIDs into one CAT-Reporter-ID would complicate the generation 
of order identifiers and require significant changes to these broker-
dealers' systems.\182\ The SROs believe that the Existing Identifier 
Approach would ``minimize the effect on current real-time business 
processes, practices and data flows,'' and ``reduc[e] the systems 
changes necessary for broker-dealers to begin reporting information to 
the Central Repository'' by requiring an existing identifier be 
reported, rather than a new identifier (i.e., the CAT-Reporter-
ID).\183\
---------------------------------------------------------------------------

    \177\ Id.
    \178\ Id. at 21, 24.
    \179\ Id. at 24.
    \180\ Id. at 26.
    \181\ Id. at 24.
    \182\ Id.
    \183\ Id. at 19.
---------------------------------------------------------------------------

    In support of their request, the SROs provide cost information in 
the Exemption Request for implementing the CAT-Reporter-ID requirement 
mandated by Rule 613.\184\ The SROs note that industry members 
estimated that the cost for the Top 3 Tiers of CAT Reporters to 
implement the CAT-Reporter-ID as required by Rule 613 would be $78 
million, or $312,048 per firm.\185\ The SROs state that the industry 
members established this cost estimate by considering the costs of the 
activities required to implement the CAT-Reporter-ID requirement, which 
include: (1) The analysis of the impact of implementation on broker-
dealer processes if broker-dealers maintained the current 
identification mechanisms; (2) the required changes to FIX messaging 
and matching engines; (3) the required changes to trading center order 
entry specifications; (4) the cost of capturing and storing the 
additional CAT-Reporter-IDs; and (5) the increase in CAT error 
processing costs as a result of the change.\186\ The SROs state that 
these activities would require, on average, an estimated 4 person 
months of business analysis, and a total implementation time of 12 
person months, at a staff cost of $1,200 per day, accounting for a per 
firm cost of $312,048.\187\ The SROs represent that this cost estimate 
only includes the costs for 11% of the broker-dealers that will be 
reporting to CAT.\188\
---------------------------------------------------------------------------

    \184\ See id. at 24-25.
    \185\ Id. at 25.
    \186\ Id. at 24-25.
    \187\ Id. at 25.
    \188\ Id.
---------------------------------------------------------------------------

    The SROs also state that industry members estimated that the cost 
for the Top 3 Tiers of CAT Reporters to implement the CAT-Reporter-ID 
requirement, ``if it is required to be supplied on every route and 
destination interface used by the broker-dealers,'' is $244 million, or 
$975,150 per firm.\189\ The industry members considered the costs of 
the following activities to implement the CAT-Reporter-ID: (1) The 
analysis of the impact of implementation on the routing and trading 
infrastructure for each execution; (2) the required changes to FIX 
messaging and matching engines; (3) the required changes to trading 
center order entry specifications; (4) the cost of capturing and 
storing the additional CAT-Reporter-IDs; and (5) the increase in 
Central Repository error processing costs as a result of this 
change.\190\ The SROs state that these activities would require an 
estimated 12.5 person months of business analysis and a total 
implementation time of 37.5 person months, at a staff cost of $1,200 
per day, resulting in a per-firm cost of $975,150.\191\ The SROs 
represent that this cost estimate only includes the costs for 11% of 
the broker-dealers that will be reporting to CAT.\192\ Based on these 
estimates, the SROs believe the overall cost for the Existing 
Identifier Approach would be less than Rule 613's approach, but do not 
provide estimated costs of implementing the Existing Identifier 
Approach for comparison.\193\ The SROs also believe that, based on the 
extent of the changes needed to comply with the approach required by 
Rule 613, and the number of broker-dealers that would need to make 
these changes, there would be a significant cost savings associated 
with using the Existing Identifier Approach.\194\
---------------------------------------------------------------------------

    \189\ Id.
    \190\ Id.
    \191\ Id.
    \192\ Id.
    \193\ See id.
    \194\ Id. at 24, 25. The SROs note that, in addition to the 
Existing Identifier Approach, they also considered SIFMA's 
alternative LEI approach to complying with Rule 613, but that not 
all industry participants use LEIs, so these firms would need to 
obtain an LEI if SIFMA's approach were adopted. Id. at 25. After 
weighing the merits of that approach, the SROs concluded that the 
Existing Identifier Approach was the best among the available 
options. Id. at 26.
---------------------------------------------------------------------------

2. Discussion of the SROs' Proposed Approach to CAT Reporter ID
    The Commission has carefully considered the information provided by 
the SROs in support of their request for exemptions from Rule 
613(c)(7)(i)(C), (c)(7)(ii)(D), (c)(7)(ii)(E), (c)(7)(iii)(D), 
(c)(7)(iii)(E), (c)(7)(iv)(F), (c)(7)(v)(F),

[[Page 11866]]

(c)(7)(vi)(B), and (c)(8) \195\ applicable to the reporting of broker-
dealer CAT-Reporter-IDs. The Commission believes it is appropriate to 
provide sufficient flexibility so as not to preclude the approach 
described by the SROs in the Exemption Request.
---------------------------------------------------------------------------

    \195\ 17 CFR 242.613(c)(7)(i)(C), (c)(7)(ii)(D), (c)(7)(ii)(E), 
(c)(7)(iii)(D), (c)(7)(iii)(E), (c)(7)(iv)(F), (c)(7)(v)(F), 
(c)(7)(vi)(B), and (c)(8). The SROs requested exemptions from these 
provisions with respect to the obligation to report broker-dealer 
(and clearing and prime broker, as applicable) CAT-Reporter-IDs.
---------------------------------------------------------------------------

    Based on the information provided by the SROs in the Exemption 
Request, the Commission is persuaded to grant exemptive relief to 
provide flexibility such that the Existing Identifier Approach 
described in the Exemption Request can be included in the CAT NMS Plan 
and subject to notice and comment. The SROs describe an approach that 
could result in the linking, within the Central Repository, of all 
broker-dealer MPIDs to the appropriate CAT-Reporter-ID and, ultimately, 
to the broker-dealer. To the extent such data is linked in an 
efficient, accurate and reliable manner, the ability of the Commission 
and the SROs to access and use CAT Data should not be adversely 
affected. Moreover, the additional granularity that could result from 
reporting MPIDs potentially identifying not just broker-dealers, but 
also their internal departments, businesses, or trading desks, 
represents a possible regulatory benefit. Additionally, the potentially 
lower cost resulting from CAT Reporters using their existing business 
processes and data flows to report broker-dealer MPIDs rather than 
reporting new broker-dealer CAT-Reporter-IDs using new systems and 
infrastructure represents a possible benefit.
    Therefore, the Commission finds that it is appropriate in the 
public interest and consistent with the protection of investors to 
exempt the SROs from Rule 613(c)(7)(i)(C), (c)(7)(ii)(D), 
(c)(7)(ii)(E), (c)(7)(iii)(D), (c)(7)(iii)(E), (c)(7)(iv)(F), 
(c)(7)(v)(F), (c)(7)(vi)(B), and (c)(8),\196\ as those provisions apply 
to the reporting of broker-dealer CAT-Reporter-IDs. The Commission 
notes that the proposed approach described in the Exemption Request 
would require that: (1) Broker-dealers report their existing SRO-
assigned MPID(s) in lieu of reporting CAT-Reporter IDs as specified in 
Rule 613; (2) broker-dealers separately report information to identify 
themselves to the Central Repository; (3) each SRO submits the MPIDs 
used by its members to the Central Repository on a daily basis; (4) the 
Central Repository uses the information provided by the SROs to 
generate a CAT-Reporter-ID for each broker-dealer; (5) the Central 
Repository links all broker-dealer MPIDs to the appropriate CAT-
Reporter-ID; and (6) the Plan Processor creates and maintains a 
database tracking all MPIDs to the appropriate CAT-Reporter-ID and, 
ultimately, to the broker-dealer.
---------------------------------------------------------------------------

    \196\ 17 CFR 242.613(c)(7)(i)(C), (c)(7)(ii)(D), (c)(7)(ii)(E), 
(c)(7)(iii)(D), (c)(7)(iii)(E), (c)(7)(iv)(F), (c)(7)(v)(F), 
(c)(7)(vi)(B), and (c)(8).
---------------------------------------------------------------------------

D. Linking Order Executions to Allocations

1. The SROs' Proposed Approach to Linking Order Executions to 
Allocations
    Rule 613(c)(7)(vi)(A) provides that the CAT NMS Plan must require 
each CAT Reporter to record and report to the Central Repository ``the 
account number for any subaccounts to which the execution is allocated 
(in whole or part).'' \197\ This information would allow regulators to 
link the subaccount to which an allocation was made to the original 
order placed, and its execution. In the Exemption Request and an 
accompanying supplement,\198\ the SROs request an exemption from Rule 
613(c)(7)(vi)(A) and propose an approach where CAT Reporters would 
instead submit information to the Central Repository that would allow 
regulators to link subaccount information to the Customer that 
submitted the original order.\199\
---------------------------------------------------------------------------

    \197\ See 17 CFR 242.613(c)(7)(vi)(A).
    \198\ See April 2015 Supplement, supra note 7.
    \199\ See Exemption Request Letter, supra note 5, at 28-29.
---------------------------------------------------------------------------

    The SROs do not believe that their proposed approach, described 
below, would affect the various ways in which, and purposes for which, 
regulators would use, access, and analyze CAT Data.\200\ The SROs 
represent that their proposed approach would still provide regulators 
with the ability to associate allocations with the Customers that 
received allocations and would provide regulators with the information 
that they require without imposing undue burden on the industry.\201\ 
The SROs also do not believe that this approach would compromise the 
linking of order events, alter the time and method by which regulators 
may access the data, or limit the use of the data as described in the 
use cases contained in the Adopting Release for Rule 613.\202\ 
Moreover, the SROs state that they, along with the industry, believe 
that linking allocations to specific executions, as mandated by Rule 
613, would be artificial and any perceived benefits would not be of 
value to regulators.\203\
---------------------------------------------------------------------------

    \200\ See 17 CFR 242.613(a)(1)(ii) (consideration requiring 
discussion of the time and method by which the data in the Central 
Repository will be made available to regulators); see also Exemption 
Request Letter, supra note 5, at 30.
    \201\ See Exemption Request Letter, supra note 5, at 30.
    \202\ Id.; see also Securities Exchange Act Release No. 67457 
(July 6, 2012), FR 77 45722, 45798-99 (August 1, 2012).
    \203\ See Exemption Request Letter, supra note 5, at 30.
---------------------------------------------------------------------------

    The SROs believe that reporting the account number for any 
subaccounts to which an execution is allocated raises significant 
practical problems, and would be burdensome, for CAT Reporters.\204\ 
The SROs explain that generally broker-dealers' front-office systems 
handle order and execution processes and middle- or back-office systems 
handle allocation processes and that these systems operate 
independently of each other.\205\ The SROs believe that creating 
linkages between the execution and allocation processes by means of an 
order identifier would require extensive re-engineering of broker-
dealer front-, middle-, and back-office systems, and that such re-
engineering would be very costly and time consuming.\206\ The SROs 
believe that their proposed approach would significantly reduce the 
burden on CAT Reporters to comply with the Rule 613 reporting 
requirements.\207\
---------------------------------------------------------------------------

    \204\ See id. at 27.
    \205\ Id. The middle- and back-office systems generally only 
provided final execution information on an aggregate, average price 
basis from the front-office systems. Id.
    \206\ Id.
    \207\ See id. at 29.
---------------------------------------------------------------------------

    The SROs take the position that, although the ultimate allocation 
of shares executed that result from an aggregated order may be useful 
for regulatory purposes, tying allocations to each individual execution 
is of little regulatory benefit.\208\ The SROs explain that the 
subaccount account information required to be reported to the Central 
Repository pursuant to Rule 613(c)(7)(vi)(A) would show an artificial 
relationship between any one execution and one allocation.\209\ 
According to the SROs, when a large order is submitted by a broker-
dealer, that order is likely to be filled, or partially filled, though 
several smaller executions with different contra-side parties.\210\ 
Those executions are then aggregated and an average price is determined 
for the fill of the original order placed.\211\ Subaccount allocations 
are then made using the aggregated execution on an average price basis, 
so it is not always

[[Page 11867]]

possible to associate one allocation with one execution.\212\
---------------------------------------------------------------------------

    \208\ See id. at 28.
    \209\ Id.
    \210\ Id.
    \211\ Id.
    \212\ Id.
---------------------------------------------------------------------------

    To ensure that regulators would receive meaningful information 
regarding subaccount allocations, the SROs propose to require CAT 
Reporters to send an Allocation Report following each execution to the 
Central Repository as part of the information required pursuant to 
613(c)(7)(vi).\213\ The Allocation Report, which would be processed and 
validated in the same manner as any other order lifecycle report, would 
include, at a minimum, the following information: (1) the number of 
shares allocated; (2) the FDI \214\ of any accounts or subaccounts (as 
applicable) to which the shares are allocated; (3) the time of 
allocation; (4) the identifier of the firm reporting the allocation, 
(5) the security; (6) the price per share; and (7) the side of the 
order (buy/sell).\215\ There would not be a direct link in the Central 
Repository between the subaccounts to which an execution is allocated 
and the execution itself. However, CAT Reporters would be required to 
report each allocation to the Central Repository on an Allocation 
Report, and the FDI of the relevant subaccount provided to the Central 
Repository as part of the Allocation Report could be used by the 
Central Repository to link the subaccount holder to those with 
authority to trade on behalf of the account.\216\ Further, the 
Allocation Reports used in conjunction with order lifecycle information 
in the CAT would assist regulators in identifying, through additional 
investigation, the probable group of orders that led to 
allocations.\217\
---------------------------------------------------------------------------

    \213\ See id. at 26.
    \214\ See Section II.B.1, supra (defining ``FDI'' as firm-
designated identifier). The FDI would be associated with all 
Customer-identifying information, including account number. See 
Exemption Request Letter, supra note 5, at 28.
    The Exemption Request uses the term ``firm-designated 
identifier'' when referring to the FDI assigned to a Customer 
account at a broker-dealer and uses the term ``Firm Designated ID'' 
when referring to the FDI of a subaccount. See Exemption Request 
Letter, supra note 5, at 9-10, 26-27. To avoid confusion, this Order 
uses ``FDI'' interchangeably and specifies with separate language 
the type of account being referenced.
    \215\ See id. at 26-27; April 2015 Supplement, supra note 7, at 
2.
    \216\ Exemption Request Letter, supra note 5, at 28-29.
    \217\ See April 2015 Supplement, supra note 7, at 2.
---------------------------------------------------------------------------

    In support of their exemption request, the SROs include a cost-
benefit analysis in the Exemption Request. The SROs believe that the 
reporting requirements of Rule 613(c)(7)(vi)(A) would impose 
significant costs on the industry,\218\ and that linkages between 
executions and allocations could show artificial relationships.\219\ 
The SROs believe, however, that the approach proposed in the Exemption 
Request is an efficient and cost-effective way to report 
allocations.\220\ In particular, the SROs believe that this approach 
would impose less of a cost burden on broker-dealers than the approach 
required by Rule 613.\221\ The SROs explain that in communications with 
the industry, the DAG emphasized that this approach would reduce their 
costs for complying with Rule 613 by allowing broker-dealers to 
leverage existing business practices, processes, and data flows, 
thereby minimizing the effect on current business processes, practices, 
and data flows.\222\ The SROs argue that given the number of affected 
broker-dealers and the extent of the technology and business process 
changes needed for the approach outlined in Rule 613, the cost savings 
of this approach are significant.\223\
---------------------------------------------------------------------------

    \218\ See Exemption Request Letter, supra note 5, at 31.
    \219\ See id. at 30.
    \220\ Id. at 31.
    \221\ Id.
    \222\ Id.
    \223\ Id.
---------------------------------------------------------------------------

    The SROs note that industry members informed them that the cost for 
the Top 3 Tiers of CAT Reporters to link allocations to executions, as 
required by Rule 613(c)(7)(vi)(A) would be $525 million.\224\ To 
establish this cost estimate, the SROs explain that industry members 
considered the costs associated with various activities required to 
link allocations to executions including: (1) The analysis of the 
impact of implementation on the broker-dealers processes and systems; 
(2) the potential changes to buy-side allocation messages to include 
related executions; (3) the workflow changes to accommodate order 
bunching at order entry and post-trade bunched order processing; and 
(4) the integration of the front- and back-office systems that are used 
to disseminate execution information with the allocation systems.\225\ 
Industry members indicated that these activities would cost 3.5 times 
the median cost of $600,000 that was paid by the top 250 CAT Reporters 
when implementing the first phase of the Large Trader Reporting 
requirements.\226\ Industry members used the multiplier to account for 
the significant changes that would be made to the front- and back-
office systems as part of this implementation as well as to address the 
fact that the first phase of Large Trader Reporting focused on just 
proprietary trading and direct access, and many issues were not 
addressed during this implementation, including average price 
processing issues.\227\ Based on these estimates, the SROs believe that 
the overall cost for the proposed approach would be less than the 
approach outlined in Rule 613 but do not provide estimated costs of 
implementing the proposed approach for comparison.\228\
---------------------------------------------------------------------------

    \224\ Id.
    \225\ Id.
    \226\ Id.
    \227\ Id.
    \228\ Id.
---------------------------------------------------------------------------

    The SROs discuss the proposed approach's impact on reliability and 
accuracy of data reported to the Central Repository.\229\ The SROs 
explain that complying with the requirements of Rule 613(c)(7)(vi)(A) 
would require additional system and process changes which could 
potentially impact the reliability and accuracy of CAT Data.\230\ The 
SROs argue that because the proposed approach leverages existing 
business processes instead of creating new workflows, it could help 
improve the reliability and accuracy of CAT Data as well as reduce the 
time CAT Reporters need to comply with the CAT reporting 
requirements.\231\ Further, the SROs state that CAT Data throughout an 
order's lifecycle would be more reliable and accurate under the 
proposed approach than under the approach outlined in Rule 613.\232\
---------------------------------------------------------------------------

    \229\ See 17 CFR 242.613(a)(1)(iii) (consideration requiring 
discussion of the reliability and accuracy of the proposed 
approach).
    \230\ See Exemption Request Letter, supra note 5, at 30.
    \231\ Id.
    \232\ Id.
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    The SROs represent that Bidders did not indicate that the 
reliability and accuracy of CAT Data under the proposed approach would 
be compromised during: (1) Its transmission and receipt from market 
participants; (2) data extraction, transformation, and loading at the 
Central Repository; (3) data maintenance and management at the Central 
Repository; or (4) use by regulators.\233\
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    \233\ Id.
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    The SROs also state that the proposed approach would have a 
positive effect on competition, efficiency, and capital formation.\234\ 
In this regard, the SROs believe that the proposed approach would 
minimize the cost, technology, and other burdens on the broker-dealers 
and the SROs.\235\ The SROs argue that

[[Page 11868]]

not using the proposed approach could potentially increase barriers to 
entry due to high infrastructure set-up costs, which would be required 
to establish linkages between the front-, middle-, and back-offices 
necessary to comply with the requirements of Rule 613.\236\
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    \234\ See 17 CFR 242.613(a)(1)(viii) (consideration requiring 
discussion of competition, efficiency, and capital formation).
    \235\ See Exemption Request Letter, supra note 5, at 30-31.
    \236\ See id. at 30-31.
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    The SROs also describe the alternatives they considered in 
proposing this approach.\237\ Specifically, they state that in the 
course of considering the requirements of Rule 613 as they relate to 
the linking of allocations to executions, the SROs evaluated two 
primary approaches: (1) Compliance with Rule 613 as written; and (2) 
use of the proposed approach.\238\ After analyzing the merits of these 
approaches, the SROs concluded that the proposed approach was the best 
among the options considered, for the reasons discussed above.\239\
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    \237\ See 17 CFR 242.613(a)(1)(xii) (consideration requiring 
discussion of alternatives considered).
    \238\ See Exemption Request Letter, supra note 5, at 31.
    \239\ Id.
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2. Discussion of the SROs' Proposed Approach to Linking Order 
Executions to Allocations
    The Commission has carefully considered the information provided by 
the SROs in support of their request for an exemption from Rule 
613(c)(7)(vi)(A), which requires that the CAT NMS Plan require each CAT 
Reporter to record and report the account number for any subaccounts to 
which an execution is allocated.\240\ The Commission believes that it 
is appropriate to provide sufficient flexibility so as not to preclude 
the approach described by the SROs in the Exemption Request and April 
2015 Supplement.
---------------------------------------------------------------------------

    \240\ 17 CFR 242.613(c)(7)(vi)(A).
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    Based on the information provided by the SROs in the Exemption 
Request and April 2015 Supplement, the Commission is persuaded to grant 
exemptive relief to provide flexibility such that the alternative 
approach for providing subaccount allocation information described in 
the Exemption Request and April 2015 Supplement can be included in the 
CAT NMS Plan and subject to notice and comment. The SROs describe an 
approach whereby CAT Reporters would not be required to report account 
numbers of subaccounts to which executions are allocated but instead 
would have to submit Allocation Reports containing, among other 
information, the FDIs of any accounts or subaccounts to which shares 
are allocated. To the extent the Central Repository is able to 
efficiently, accurately, and reliably link the subaccount holder to 
those with authority to trade on behalf of the account, the ability of 
the Commission and the SROs to access and use such data should not be 
significantly affected in many instances.\241\ Also, by leveraging 
existing broker-dealer processes, the proposed approach could 
potentially reduce the time CAT Reporters need to comply with CAT 
reporting requirements. Further, the potentially lower cost resulting 
from allowing broker-dealer CAT Reporters to use their existing 
business processes represents a possible benefit.
---------------------------------------------------------------------------

    \241\ However, the Commission notes that in other instances 
where regulators need to further link the subaccount holder to the 
execution that resulted in the allocation, additional effort would 
be required to accurately and reliably obtain such information.
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    Therefore, the Commission finds it is appropriate in the public 
interest and consistent with the protection of investors to exempt the 
SROs from Rule 613(c)(7)(vi)(A). The Commission notes that the proposed 
approach described in the Exemption Request and April 2015 Supplement 
would require that: (1) CAT Reporters submit an Allocation Report to 
the Central Repository--which shall be processed and validated in the 
same manner as any other order lifecycle report--as part of the 
information required pursuant to 613(c)(7)(vi); (2) the Allocation 
Report contain, at a minimum, the number of shares allocated, the FDI 
of the account or subaccount (as applicable) to which the shares are 
allocated, the time of allocation, the identifier of the firm reporting 
the allocation, as well as the security, price per share, and the side 
of the order (buy/sell); and (3) the Central Repository be able to link 
the subaccount holder to those with authority to trade on behalf of the 
account.

E. Time Stamp Granularity

1. The SROs' Proposed Approach to Time Stamp Granularity
    Rule 613(c)(7) requires CAT Reporters to record and report the time 
of each Reportable Event.\242\ In the Exemption Request, the SROs seek 
an exemption from the requirement in Rule 613(d)(3) that for ``Manual 
Order Events'' each CAT Reporter record and report details for 
Reportable Events with time stamps that ``reflect current industry 
standards and be at least to the millisecond'' \243\ and instead 
propose requiring: (1) Each CAT Reporter to record and report Manual 
Order Event time stamps to the second; \244\ (2) the CAT NMS Plan to 
require that Manual Order Events be identified as such when reported to 
the CAT; \245\ and (3) CAT Reporters to report in millisecond time 
stamp increments when a Manual Order Event is captured electronically 
in the relevant order handling and execution system of the CAT Reporter 
(``Electronic Capture'').\246\ As proposed by the SROs, ``Manual Order 
Events'' would be defined to mean ``the non-electronic communication of 
order-related information for which CAT Reporters must record and 
report the time of the event under Rule 613.'' \247\
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    \242\ Rule 613(c)(7)(i)(E) requires that CAT Reporters report 
the ``[t]ime of order receipt or origination'' when reporting order 
receipt or origination information to the Central Repository. When 
reporting the routing of an order, Rule 613(c)(7)(ii)(C) requires 
CAT Reporters to record and report the ``[t]ime at which the order 
is routed.'' When reporting the receipt of an order that has been 
routed, Rule 613(c)(7)(iii)(C) requires CAT Reporters to record and 
report the ``[t]ime at which the order is received.'' When reporting 
the modification or cancellation of an order, Rule 613(c)(7)(iv)(C) 
further requires CAT Reporters to record and report the ``[t]ime the 
modification or cancellation is received or originated.''
    \243\ 17 CFR 242.613(d)(3).
    \244\ See Exemption Request Letter, supra note 5, at 37.
    \245\ See id. at 34.
    \246\ See id.
    \247\ See id. at 32-33.
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    The SROs do not believe that their proposed approach would have an 
adverse effect on the various ways in which, and purposes for which, 
regulators would use, access, and analyze CAT Data,\248\ and in 
particular, do not believe that their approach will compromise the 
linking of Reportable Events, alter the time and method by which 
regulators may access the data, or limit the use of CAT Data.\249\
---------------------------------------------------------------------------

    \248\ Id. at 36. The SROs take the position that because the 
recording of Manual Order Events is inherently imprecise, time 
stamps reported in increments finer than the inherent precision of 
the action will not likely contribute any data useful to regulators. 
Id. at 35. The SROs also believe that permitting one-second time 
stamps for Manual Order Events would preserve the sequential 
recording of Manual Order Events, and will not hinder the ability of 
regulators to determine the sequence of Manual Order Events. Id.
    \249\ See id. at 36.
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    The SROs take the position that, while time stamp granularity to 
the millisecond reflects current industry standards with respect to 
electronically-processed events,\250\ based on industry feedback 
received through the DAG, established industry practice with respect to 
Manual Order Events is to capture manual time stamps with granularity 
at the level of one second.\251\ The SROs believe that time stamps 
finer than a second cannot be captured with precision for manual 
processes which, by their nature, take one second or

[[Page 11869]]

longer to perform.\252\ In this regard, the SROs note that a time stamp 
process for Manual Order Events would be inherently imprecise due to 
the nature of the manual recording process.\253\ The SROs hence believe 
that such an approach would result in little additional benefit, and, 
in fact, could result in adverse consequences such as creating a false 
sense of precision for data that is inherently imprecise, while 
imposing additional costs on CAT Reporters.\254\ For Manual Order 
Events that have an Electronic Capture time stamp, however, the SROs' 
proposed approach would require that such Electronic Capture time 
stamps be consistent with Rule 613(d)(3), and thus be at least to the 
millisecond.\255\ The SROs conclude that adding the Electronic Capture 
time stamp would be beneficial for the reconstructing of the order 
handling process once Manual Order Events are entered into an 
electronic system.\256\
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    \250\ See id. at 32.
    \251\ Id.
    \252\ Id.
    \253\ See id. at 33.
    \254\ Id.
    \255\ Id.
    \256\ Id.
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    In the Exemption Request, the SROs provide examples of how CAT 
Reporters would record and report a Manual Order Event if the exemption 
is granted.\257\ For example, if an investment advisor or broker 
received a telephone order from a Customer, the investment advisor or 
broker would either manually generate an order ticket with a time 
stamping device or manually input an order into an electronic system, 
including all order details and the time of order receipt, which may be 
generated through a time stamping mechanism on the order entry 
screen.\258\ Under their proposed approach, the SROs represent that if 
a Manual Order Event were recorded manually, such event would be 
recorded with time stamp granularity at least to the second, but if 
such Manual Order Event were subsequently processed and captured 
electronically, that such electronic capture would be recorded with 
time stamp granularity at least to the millisecond.\259\
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    \257\ See id. at 32-33 and Appendix A.
    \258\ The SROs note in their Exemption Request that the list of 
examples that they provide is not intended to be an exhaustive list 
of the circumstances where a Manual Order Event occurs. See id. at 
33 n.77.
    \259\ See id.
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    In support of their Exemption Request, the SROs considered their 
own experiences regarding time stamp requirements, and evaluated the 
various operational and technical issues related to the implementation 
of the time stamp granularity requirements of Rule 613 with regard to 
Manual Order Events.\260\ In addition, as contemplated by Rule 
613(a)(1)(xi), the SROs solicited the views of their members and other 
market participants.\261\ In particular, the SROs consulted with the 
DAG, which strongly supports requiring a time stamp granularity of one 
second for Manual Order Events.\262\ The SROs represent that they did 
not find any company that currently produces a manual time stamping 
device that records time to the millisecond.\263\ With no known company 
producing such a device, the SROs state that the cost of adopting such 
technology is difficult to predict.\264\ Nevertheless, the SROs believe 
that compliance with the millisecond time stamp requirements of Rule 
613 for Manual Order Events would result in added costs to the 
industry, as there may be a need to upgrade databases, internal 
messaging applications/protocols, data warehouses, and reporting 
applications to enable the reporting of such time stamps to the Central 
Repository.\265\ The SROs further represent that firms will face 
significant costs regarding time and resources to implement the 
millisecond time stamp policy across multiple systems because although 
many systems currently have granularity to the millisecond, some front-
office systems only have granularity to the second.\266\ Moreover, the 
SROs believe that such costs would be incurred only to adopt a time 
stamp process that would be inherently imprecise, due to the nature of 
the manual recording process.\267\
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    \260\ See id. at 35.
    \261\ 17 CFR 242.613(a)(1)(xi).
    \262\ See Exemption Request Letter, supra note 5, at 35.
    \263\ The SROs represented that they contacted three companies 
that manufacture time stamp devices, and each company confirmed that 
it did not currently produce any products that could record a time 
stamp to the millisecond for Manual Order Events. See id. at 33 
n.80.
    \264\ Id. at 33.
    \265\ Id.
    \266\ Id. (citing to FIF's ``Response to Selected Topics of NMS 
Plan Document'' (June 2013)).
    \267\ Id.
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    In the Exemption Request, the SROs represent that their proposed 
approach of one-second time stamp granularity for Manual Order Events 
would not negatively impact the reliability or accuracy of CAT 
Data,\268\ or its security and confidentiality. Moreover, the SROs 
represent that the proposed approach for Manual Order Event time stamps 
would have a positive effect on competition, efficiency, and capital 
formation; the SROs represent that in this regard their approach would 
satisfy the Commission's regulatory goals for the CAT and would do so 
in a manner that minimizes cost, technology, and other burdens on CAT 
Reporters.\269\
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    \268\ Id. at 35-36. The SROs do not believe that one-second 
granularity for Manual Order Events would affect the reliability or 
accuracy of data during (1) its transmission and receipt from market 
participants; (2) extraction, transformation, and loading at the 
Central Repository; (3) maintenance and management at the Central 
Repository; or (4) use by regulators. Id.
    \269\ Id. at 36.
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    Finally, the SROs represent that they considered various 
alternatives to requiring a one-second time stamp granularity for 
Manual Order Events, including: (1) Requiring a millisecond time stamp 
as required by Rule 613; (2) the proposed approach, requiring a manual 
time stamp granularity of one second; and (3) requiring a manual time 
stamp of greater than one second.\270\ After weighing the merits of 
these various approaches,\271\ the SROs conclude that a time stamp 
granularity of one second for Manual Order Events is the preferred 
approach because it is consistent with current established industry 
practice standards and would allow for sequencing without compromising 
the integrity of the data.\272\
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    \270\ Id. at 37.
    \271\ In the Exemption Request Letter, the SROs note cost 
information that they considered regarding various time stamping 
clocks for Manual Order Events, including an estimated minimum total 
cost to the industry of approximately $10,500,000 for purchasing an 
advanced OATS compliance clock with granularity to the second and 
Network Time Protocol time synchronization, where the retail cost of 
each such clock is approximately $1,050. The SROs consider this a 
conservative estimate for their analysis because the development of 
a clock that captures time stamps in milliseconds, they believe, 
would be more expensive (though they do not provide a dollar 
estimate for comparison). The SROs add that the clock drift of the 
stamping mechanism would likely be more pronounced at the 
millisecond level of granularity. The SROs also note that the 
manufacturing firms they contacted, see supra note 263, indicated 
that manual time stamping at the millisecond level of granularity 
would be inherently imprecise, as it takes approximately 400-500 
milliseconds for a human being to recognize visual stimuli and 
initiate a response, and due to the time required for a person to 
actually record a time stamp. The SROs conclude that the cost for 
reporting time stamps for Manual Order Events in milliseconds 
outweighs the benefits. Id. at 36-37.
    \272\ Id. at 37.
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2. Discussion of the SROs' Proposed Approach to Time Stamp Granularity
    The Commission has carefully considered the information provided by 
the SROs in support of their request for exemptions from Rule 
613(c)(7)(i)(E), 613(c)(7)(ii)(C), 613(c)(7)(iii)(C), 613(c)(7)(iv)(C), 
and 613(d)(3), as applicable to the recording and

[[Page 11870]]

reporting of Manual Order Events.\273\ The Commission believes that it 
is appropriate to provide sufficient flexibility so as not to preclude 
the approach described by the SROs in the Exemption Request.
---------------------------------------------------------------------------

    \273\ 17 CFR 242.613(c)(7)(i)(E), (c)(7)(ii)(C), (c)(7)(iii)(C), 
(c)(7)(iv)(C), and (d)(3).
---------------------------------------------------------------------------

    Based on the information provided by the SROs in the Exemption 
Request, the Commission is persuaded to grant exemptive relief to 
provide flexibility such that the alternative approach to increment 
time stamps for capturing Manual Order Events described in the 
Exemption Request can be included in the CAT NMS Plan and subject to 
notice and comment. The Commission notes that the time stamp process 
for Manual Order Events may likely be inherently imprecise due to the 
nature of the manual recording process.
    Therefore, the Commission finds that it is appropriate in the 
public interest and consistent with the protection of investors to 
exempt the SROs from Rule 613(c)(7)(i)(E), 613(c)(7)(ii)(C), 
613(c)(7)(iii)(C), 613(c)(7)(iv)(C), and 613(d)(3).\274\ The Commission 
notes that the proposed approach described in the Exemption Request 
would require that: (1) Manual Order Events be recorded and reported 
with granularity to the second, with the exception for system outages 
that prevent a floor broker from systemizing an order, in which case 
the requirement for recording of the manual time stamp will be made 
within a reasonable time frame basis after the fact; (2) Manual Order 
Events be identified as such in the CAT; and (3) the Electronic Capture 
of Manual Order Events be recorded and reported to the 
millisecond.\275\
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    \274\ 17 CFR 242.613(c)(7)(i)(E), (c)(7)(ii)(C), (c)(7)(iii)(C), 
(c)(7)(iv)(C), and (d)(3).
    \275\ See Exemption Request Letter, supra note 5, at 34 
(defining ``Electronic Capture'' as when a Manual Order Event is 
captured electronically in the relevant order handling and execution 
system of the CAT Reporter).
---------------------------------------------------------------------------

III. Conclusion

    Section 36 of the Exchange Act \276\ authorizes the Commission, by 
rule, regulation, or order, to exempt, either conditionally or 
unconditionally, any person, security, or transaction, or any class or 
classes of persons, securities, or transactions, from any provision or 
provisions of the Exchange Act or any rule or regulation thereunder, to 
the extent that such exemption is necessary or appropriate in the 
public interest, and is consistent with the protection of investors. 
For the reasons discussed throughout this Order, the Commission is 
granting the relief requested in the Exemption Request.
---------------------------------------------------------------------------

    \276\ 15 U.S.C. 78mm.
---------------------------------------------------------------------------

    It is hereby ordered, pursuant to Section 36 of the Exchange Act 
\277\ and with respect to the proposed approaches specifically 
described above, that the SROs are exempted from the following 
provisions of Rule 613: (1) for the reporting of options market maker 
quotations, Rule 613(c)(7)(ii) and (iv); \278\ (2) for the reporting 
and use of the Customer-ID, Rule 613(c)(7)(i)(A), (iv)(F), (viii)(B) 
and (c)(8); \279\ (3) for the reporting of the CAT-Reporter-ID with 
respect to broker-dealer CAT Reporters, Rule 613(c)(7)(i)(C), (ii)(D), 
(ii)(E), (iii)(D), (iii)(E), (iv)(F), (v)(F), (vi)(B), and (c)(8); 
\280\ (4) for the linking of executions to specific subaccount 
allocations, Rule 613(c)(7)(vi)(A); \281\ and (5) for time stamp 
granularity, Rule 613(c)(7)(i)(E), (ii)(C), (iii)(C), (iv)(C), and 
(d)(3).\282\
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    \277\ Id.
    \278\ 17 CFR 242.613(c)(7)(ii); 17 CFR 242.613(c)(7)(iv).
    \279\ 17 CFR 242.613(c)(7)(i)(A); 17 CFR 242.613(c)(7)(iv)(F); 
17 CFR 242.613(c)(7)(viii)(B); 17 CFR 242.613(c)(8).
    \280\ 17 CFR 242.613(c)(7)(i)(C); 17 CFR 242.613(c)(7)(ii)(D); 
17 CFR 242.613(c)(7)(ii)(E); 17 CFR 242.613(c)(7)(iii)(D); 17 CFR 
242.613(c)(7)(iii)(E); 17 CFR 242.613(c)(7)(iv)(F); 17 CFR 
242.613(c)(7)(v)(F); 17 CFR 242.613(c)(7)(vi)(B); and 17 CFR 
242.613(c)(8).
    \281\ 17 CFR 242.613(c)(7)(iv)(A).
    \282\ 17 CFR 242.613(c)(7)(i)(E), (c)(7)(ii)(C), (c)(7)(iii)(C), 
(c)(7)(iv)(C), and (d)(3).

    By the Commission.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04910 Filed 3-4-16; 8:45 am]
 BILLING CODE 8011-01-P


