
[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9942-9954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02538]



[[Page 9942]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79933; File No. SR-NSX-2017-03]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change To Implement Compliance Rules 
Regarding the National Market System Plan Governing the Consolidated 
Audit Trail

February 2, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 30, 2017, National Stock Exchange, Inc. (``NSX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') a proposed rule change, as described in 
Items I and II below, which Items have been substantially prepared by 
the Exchange.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange originally filed this proposed rule change on 
January 17, 2017 under File No. SR-NSX-2017-02, and the Exchange 
subsequently withdrew that filing on January 30, 2017 and filed this 
proposed rule change.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to amend Chapter XIV of its rules to 
implement the compliance rule (``Compliance Rule'') regarding the 
National Market System Plan Governing the Consolidated Audit Trail. 
[sic] (the ``CAT NMS Plan'' or ``Plan'').\4\
---------------------------------------------------------------------------

    \4\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth herein or in the CAT NMS Plan.
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
Web site at www.nsx.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and statutory basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The Exchange has prepared summaries, set 
forth in Sections A, B, and C below, of the most significant parts of 
such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Bats BZX Exchange, Inc., Bats BYX Exchange, Inc., Bats EDGA 
Exchange, Inc., Bats EDGX Exchange, Inc. BOX Options Exchange LLC, C2 
Options Exchange, Incorporated, Chicago Board Options Exchange, 
Incorporated, Chicago Stock Exchange, Inc., Financial Industry 
Regulatory Authority, Inc. (``FINRA''), International Securities 
Exchange, LLC, Investors' Exchange LLC, ISE Gemini, LLC, ISE Mercury, 
LLC, Miami International Securities Exchange LLC, MIAX PEARL, LLC, 
NASDAQ BX, Inc. [sic] NASDAQ PHLX LLC) [sic], The NASDAQ Stock Market 
LLC, NSX, New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, 
Inc. (collectively, ``self-regulatory organizations'', ``SROs'' or 
``Participants''), filed with the Commission a National Market System 
(``NMS'') Plan Governing the Consolidated Audit Trail (the ``CAT NMS 
Plan,'' ``CAT Plan'' or ``Plan'').\5\ The SROs filed amendments to the 
CAT NMS Plan on December 24, 2015, and on February 8, 2016.\6\ The Plan 
was published for comment in the Federal Register on May 17, 2016,\7\ 
and approved by the Commission, as modified, on November 15, 2016.\8\
---------------------------------------------------------------------------

    \5\ See Letter from Participants to Brent J. Fields, Secretary, 
Commission, dated September 30, 2014 and letter from Participants to 
Brent J. Fields, Secretary, Commission, dated February 27, 2015. 
Pursuant to Rule 613, the SROs were required to file the CAT NMS 
Plan on or before April 28, 2013. At the SROs' request, the 
Commission granted exemptions to extend the deadline for filing the 
CAT NMS Plan to December 6, 2013, and then to September 30, 2014. 
See Securities Exchange Act Release Nos. 69060 (March 7, 2013), 78 
FR 15771 (March 12, 2013); 71018 (December 6, 2013), 78 FR 75669 
(December 12, 2013). The SROs filed the CAT NMS Plan on September 
30, 2014 (the ``Initial CAT NMS Plan''). See Letter from the SROs, 
to Brent J. Fields, Secretary, Commission, dated September 30, 2014. 
The CAT NMS Plan filed on February 27, 2015, was an amendment to and 
replacement of the Initial CAT NMS Plan.
    \6\ See Letter from Participants to Brent J. Fields, Secretary, 
Commission, dated December 23, 2015. On February 9, 2016, the 
Participants filed with the Commission an identical, but unmarked, 
version of the February 27, 2015 CAT NMS Plan, as modified by the 
December 24, 2015 Amendment, as well as a copy of the request for 
proposal issued by the Participants to solicit Bids from parties 
interested in serving as the Plan Processor for the consolidated 
audit trail. See Letter from Participants to Brent J. Fields, 
Secretary, Commission, dated February 8, 2016.
    \7\ Securities Exchange Act Release No. 77724 (Apr. 27, 2016), 
81 FR 30614 (May 17, 2016).
    \8\ Securities Exchange Act Release No. 79318 (Nov. 15, 2016), 
81 FR 84696 (Nov. 23, 2016) (``Approval Order'').
---------------------------------------------------------------------------

    The Plan is designed to create, implement and maintain a 
consolidated audit trail (``CAT'') that would capture customer and 
order event information for orders in NMS Securities and OTC Equity 
Securities, across all markets, from the time of order inception 
through routing, cancellation, modification, or execution in a single 
consolidated data source. Each Participant is required to enforce 
compliance by its Industry Members, as applicable, with the provisions 
of the Plan, by adopting a Compliance Rule applicable to their Industry 
Members.\9\ As is described more fully below, the Exchange is proposing 
to amend Chapter XIV of its rules, which is currently a ``reserved'' 
chapter, to adopt Rules 14.1 through 14.12; these rules set forth the 
Compliance Rule to require Industry Members to comply with the 
provisions of the CAT NMS Plan. The proposed rule change includes 
twelve proposed rules covering the following areas: (1) Definitions; 
(2) clock synchronization; (3) Industry Member Data reporting; (4) 
Customer information reporting; (5) Industry Member information 
reporting; (6) time stamps; (7) clock synchronization rule violations; 
(8) connectivity and data transmission; (9) development and testing; 
(10) recordkeeping; (11) timely, accurate and complete data; and (12) 
compliance dates. Each of these proposed rules is discussed in detail 
below.
---------------------------------------------------------------------------

    \9\ See Rule 613(g)(1).
---------------------------------------------------------------------------

(i) Definitions
    Proposed Rule 14.1 (Consolidated Audit Trail--Definitions) sets 
forth the definitions for the terms used in the Chapter XIV Rule 
Series. Each of the defined terms in Proposed Rule 14.1 is discussed in 
detail in this section.
(A) Account Effective Date
(I) Customer Information Approach
    SEC Rule 613 requires that numerous data elements be reported to 
the CAT to ensure there is sufficient information to create the 
lifecycle of an order, and provide regulators with sufficient detail 
about an order to perform their regulatory duties. Certain required 
elements are intended to ensure that the regulators can identify the 
Customers associated with orders. For example, Rule 613(c)(7)(i)(A) 
requires an Industry Member to report the ``Customer-IDs'' for each 
Customer for the original receipt or origination of an order.

[[Page 9943]]

``Customer-ID'' is defined in SEC 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.'' 
SEC Rule 613(c)(8) requires Industry Members to use the same Customer-
ID for each Customer. The SEC granted the Participants exemptive relief 
to permit the use of an alternative approach to the requirement that an 
Industry Member report a Customer-ID for every Customer upon original 
receipt or origination.\10\ The alternative approach is called the 
Customer Information Approach.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 77265 (March 1, 
2016), 81 FR 11856 (March 7, 2016) (``Exemption Order''). See also 
Letter from Participants to Brent J. Fields, Secretary, Commission, 
dated January 30, 2015 at 12 (``Exemptive Request Letter''); and CAT 
NMS Plan at Appendix C, Section A.1(a)(iii).
---------------------------------------------------------------------------

    Under the Customer Information Approach, the CAT NMS Plan would 
require each Industry Member to assign a unique Firm Designated ID to 
each Customer. As the Firm Designated ID, Industry Members would be 
permitted to use an account number or any other identifier defined by 
the firm, 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). Prior to their 
commencement of reporting to the CAT, Industry Members would submit an 
initial set of Customer information to the Central Repository, 
including the Firm Designated ID, Customer Identifying Information and 
Customer Account Information (which may include, as applicable, the 
Customer's name, address, date of birth, individual tax payer 
identifier number (``ITIN'')/social security number (``SSN''), 
individual's role in the account (e.g., primary holder, joint holder, 
guardian, trustee, person with power of attorney) and LEI and/or Larger 
[sic] Trader ID (``LTID'')). This process is referred to as the 
customer definition process.
    In accordance with the Customer Information Approach, Industry 
Members would be required to report only the Firm Designated ID for 
each new order submitted to the Central Repository, rather than the 
``Customer-ID'' with individual order events. Within the Central 
Repository, each Customer would be uniquely identified by identifiers 
or a combination of identifiers such as ITIN/SSN, date of birth, and as 
applicable, LEI and LTID. The Plan Processor would be required to use 
these unique identifiers to map orders to specific Customers across all 
Industry Members and Participants. To ensure information identifying a 
Customer is up to date, Industry Members would be required to submit to 
the Central Repository daily and periodic updates for reactivated 
accounts, newly established accounts, and revised Firm Designated IDs 
or associated reportable Customer information.
(II) Definition of Account Effective Date
    In connection with the Customer Information Approach, Industry 
Members would be required to report Customer Account Information to the 
Central Repository. ``Customer Account Information'' is defined in SEC 
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).'' Therefore, when reporting Customer 
Account Information, an Industry Member is required to report the date 
an account was opened. The Participants requested and received an 
exemption to allow an ``Account Effective Date'' to be reported in lieu 
of an account open date in certain limited circumstances. The 
definition of ``Account Effective Date'' as set forth in Paragraph (a) 
of proposed Rule 14.1 describes those limited circumstances in which an 
Industry Member may report an ``Account Effective Date'' rather than 
the account open date. The proposed definition is the same as the 
definition of ``Account Effective Date'' set forth in Section 1.1 of 
the CAT NMS Plan, provided, however, that specific dates have replaced 
the descriptions of those dates set forth in Section 1.1 of the Plan.
    Specifically, Paragraph (a)(1) defines ``Account Effective Date 
[sic] to mean, with regard to those circumstances in which an Industry 
Member has established a trading relationship with an institution but 
has not established an account with that institution: (1) When the 
trading relationship was established prior to November 15, 2018 for 
Industry Members other than Small Industry Members, or prior to 
November 15, 2019 for Small Industry Members, either (a) the date the 
relationship identifier was established within the Industry Member; (b) 
the date when trading began (i.e., the date the first order was 
received) using the relevant relationship identifier; or (c) if both 
dates are available, the earlier date will be used to the extent that 
the dates differ; or (2) when the trading relationship was established 
on or after November 15, 2018 for Industry Members other than Small 
Industry Members, or on or after November 15, 2019 for Small Industry 
Members, the date the Industry Member established the relationship 
identifier, which would be no later than the date the first order was 
received.
    Paragraph (a)(2) of Proposed Rule 14.1 states that an ``Account 
Effective Date'' means, where an Industry Member changes back office 
providers or clearing firms prior to November 15, 2018 for Industry 
Members other than Small Industry Members, or prior to November 15, 
2019 for Small Industry Members, the date an account was established at 
the relevant Industry Member, either directly or via transfer.
    Paragraph (a)(3) states that an ``Account Effective Date'' means, 
where an Industry Member acquires another Industry Member prior to 
November 15, 2018 for Industry Members other than Small Industry 
Members, or prior to November 15, 2019 for Small Industry Members, the 
date an account was established at the relevant Industry Member, either 
directly or via transfer.
    Paragraph (a)(4) states that ``Account Effective Date'' means, 
where there are multiple dates associated with an account established 
prior to November 15, 2018 for Industry Members other than Small 
Industry Members, or prior to November 15, 2019 for Small Industry 
Members, the earliest available date.
    Paragraph (a)(5) states that an ``Account Effective Date'' means, 
with regard to Industry Member proprietary accounts established prior 
to November 15, 2018 for Industry Members other than Small Industry 
Members, or prior to November 15, 2019 for Small Industry Members: (1) 
The date established for the account in the Industry Member or in a 
system of the Industry Member or (2) the date when proprietary trading 
began in the account (i.e., the date on which the first orders were 
submitted from the account). With regard to paragraphs (a)(2)-(5), the 
Account Effective Date will be no later than the date trading occurs at 
the Industry Member or in the Industry Member's system.
(B) Active Account
    Under the Customer Information Approach, Industry Members are 
required to report Customer Identifying Information and Customer 
Account Information for only those accounts that are active. This will 
alleviate the need for Industry Members to update such information for 
non-active accounts, but still ensure that the Central Repository will 
collect audit trail data for Customer accounts that have any Reportable 
Events. Accordingly, paragraph (b) of Proposed Rule 14.1 defines an 
``Active Account'' as an account that has had activity in Eligible 
Securities within the last six months. This is the same

[[Page 9944]]

definition as set forth in Section 1.1 of the CAT NMS Plan.
(C) Allocation Report
(I) Allocation Report Approach
    SEC Rule 613(c)(7)(vi)(A) requires each Industry Member to record 
and report to the Central Repository ``the account number for any 
subaccounts to which the execution is allocated (in whole or in 
part).'' The Participants requested and received from the SEC exemptive 
relief from SEC Rule 613 for an alternative to this approach 
(``Allocation Report Approach''). The Allocation Report Approach would 
permit Industry Members to record and report to the Central Repository 
an Allocation Report that includes, among other things, the Firm 
Designated ID for any account(s) to which executed shares are allocated 
when an execution is allocated in whole or part in lieu of requiring 
the reporting of the account number for any subaccount to which an 
execution is allocated, as is required by SEC Rule 613.\11\ Under SEC 
Rule 613, regulators would be able to link the subaccount to which an 
allocation was made to a specific order. In contrast, under the 
Allocation Report Approach, regulators would only be able to link an 
allocation to the account to which it was made, and not to a specific 
order.
---------------------------------------------------------------------------

    \11\ See Exemptive Request Letter at 26-27; and Exemption Order.
---------------------------------------------------------------------------

(II) Definition of Allocation Report
    To assist in implementing the Allocation Report Approach, paragraph 
(c) of Proposed Rule 14.1 defines an ``Allocation Report.'' 
Specifically, an ``Allocation Report'' means a report made to the 
Central Repository by an Industry Member that identifies the Firm 
Designated ID for any account(s), including subaccount(s), to which 
executed shares are allocated and provides the security that has been 
allocated, the identifier of the firm reporting the allocation, the 
price per share of shares allocated, the side of shares allocated, the 
number of shares allocated to each account, and the time of the 
allocation; provided, for the avoidance of doubt, any such Allocation 
Report shall not be required to be linked to particular orders or 
executions. This is the same definition as set forth in Section 1.1 of 
the CAT NMS Plan.
(D) Business Clock
    To create the required audit trail, Industry Members are required 
to record the date and time of various Reportable Events to the Central 
Repository. Industry Members will use ``Business Clocks'' to record 
such dates and times. Accordingly, paragraph (d) of Proposed Rule 14.1 
defines the term ``Business Clock'' as a clock used to record the date 
and time of any Reportable Event required to be reported under the 
Rules in Chapter XIV. This is the same definition as set forth in 
Section 1.1 of the CAT NMS Plan, except the Exchange proposes to 
replace the phrase ``under SEC Rule 613'' at the end of the definition 
in Section 1.1 of the Plan with the phrase ``under this Rule Series.'' 
This change is intended to recognize that the Industry Members' 
obligations with regard to the CAT are set forth in this [sic] Rules 
contained in Chapter XIV.
(E) CAT
    Paragraph (e) of Proposed Rule 14.1 defines the term ``CAT'' to 
mean the consolidated audit trail contemplated by SEC Rule 613. This is 
the same definition as set forth in Section 1.1 of the CAT NMS Plan.
(F) CAT NMS Plan
    Paragraph (f) of Proposed Rule 14.1 defines the term ``CAT NMS 
Plan'' to mean the National Market System Plan Governing the 
Consolidated Audit Trail, as amended from time to time.
(G) CAT-Order-ID
(I) Daisy Chain Approach
    Under the CAT NMS Plan, the Daisy Chain Approach is used to link 
and reconstruct the complete lifecycle of each Reportable Event in CAT. 
According to this Approach, Industry Members assign their own 
identifiers to each order event. Within the Central Repository, the 
Plan Processor later replaces the identifier provided by the Industry 
Member for each Reportable Event with a single identifier, called the 
CAT Order-ID, for all order events pertaining to the same order. This 
CAT Order-ID is used to link the Reportable Events related to the same 
order.
(II) Definition of CAT-Order-ID
    To implement the Daisy Chain Approach, Paragraph (g) of Proposed 
Rule 14.1 defines the term ``CAT-Order-ID.'' The term ``CAT-Order-ID'' 
is defined to mean a unique order identifier or series of unique order 
identifiers that allows the Central Repository to efficiently and 
accurately link all Reportable Events for an order, and all orders that 
result from the aggregation or disaggregation of such order. This is 
the same definition as set forth in SEC Rule 613(j)(1), and Section 1.1 
of the CAT NMS Plan defines ``CAT-Order-ID'' by reference to SEC Rule 
613(j)(1).
(H) CAT Reporting Agent
    The CAT NMS Plan permits an Industry Member to use a third party, 
such as a vendor, to report the required data to the Central Repository 
on behalf of the Industry Member.\12\ Such a third party, referred to 
in the Chapter XIV Rule Series as a ``CAT Reporting Agent,'' would be 
one type of a Data Submitter, that is, a party that submits data to the 
Central Repository. Paragraph (h) of proposed Rule 14.1 defines the 
term ``CAT Reporting Agent'' to mean a Data Submitter that is a third 
party that enters into an agreement with an Industry Member pursuant to 
which the CAT Reporting Agent agrees to fulfill such Industry Member's 
reporting obligations under the rules set forth in Chapter XIV.
---------------------------------------------------------------------------

    \12\ Appendix C, Section A.1(a) of the CAT NMS Plan.
---------------------------------------------------------------------------

    This definition is based on FINRA's definition of a ``Reporting 
Agent'' as set forth in FINRA's rule related to its Order Audit Trail 
System (``OATS''). Specifically, FINRA Rule 7410(n) defines a 
``Reporting Agent'' as a third party that enters into any agreement 
with a member pursuant to which the Reporting Agent agrees to fulfill 
such member's obligations under Rule 7450. The Reporting Agent for OATS 
fulfills a similar role to the CAT Reporting Agent.
(I) Central Repository
    Paragraph (i) of Proposed Rule 14.1 defines the term ``Central 
Repository'' to mean the repository responsible for the receipt, 
consolidation, and retention of all information reported to the CAT 
pursuant to SEC Rule 613 and the CAT NMS Plan. This is the same 
definition as set forth in Section 1.1 of the CAT NMS Plan, except the 
Exchange uses the phrase ``CAT NMS Plan'' in place of the phrase ``this 
Agreement.''
(J) Compliance Threshold
    Paragraph (j) of Proposed Rule 14.1 defines the term ``Compliance 
Threshold'' as having the meaning set forth in Proposed Rule 14.11(d). 
This definition has the same substantive meaning as the definition set 
forth in Section 1.1 of the CAT NMS Plan. As discussed in detail below 
with regard to Proposed Rule 14.11(d), each Industry Member is required 
to meet a separate compliance threshold which will be an Industry 
Member-specific rate that may be used as the basis for further review 
or investigation into the Industry Member's performance with regard to 
the CAT. This Industry Member-specific rate is the ``Compliance 
Threshold.''

[[Page 9945]]

(K) Customer
    Industry Members are required to submit to the Central Repository 
certain information related to their Customers, including Customer 
Identifying Information and Customer Account Information, as well as 
data related to their Customer's Reportable Events. Accordingly, 
Paragraph (k) of Proposed Rule 14.1 proposes to define the term 
``Customer.'' Specifically, the term ``Customer'' would be defined to 
mean: (1) The account holder(s) of the account at an Industry Member 
originating the order; and (2) any person from whom the Industry Member 
is authorized to accept trading instructions for such account, if 
different from the account holder(s). This is the same definition as 
set forth in SEC Rule 613(j)(3), except the Exchange proposes to 
replace the references to a registered broker-dealer or broker-dealer 
with a reference to an Industry Member for consistency of terms used in 
the Chapter XIV Rule Series. The Exchange also notes that Section 1.1 
of the CAT NMS Plan defines ``Customer'' by reference to SEC Rule 
613(j)(3).
(L) Customer Account Information
    As discussed above, under the Customer Information Approach, 
Industry Members are required to report Customer Account Information to 
the Central Repository as part of the customer definition process. 
Accordingly, the Exchange proposes to define the term ``Customer 
Account Information'' to clarify what customer information would need 
to be reported to the Central Repository.
    Paragraph (l) of proposed Rule 14.1 defines the term ``Customer 
Account Information'' to include, in part, account number, account 
type, customer type, date account opened, and large trader identifier 
(if applicable). Proposed Rule 14.1(l), however, provides an 
alternative definition of ``Customer Account Information'' in two 
limited circumstances. First, in those circumstances in which an 
Industry Member has established a trading relationship with an 
institution but has not established an account with that institution, 
the Industry Member will: (1) Provide the Account Effective Date in 
lieu of the ``date account opened''; (2) provide the relationship 
identifier in lieu of the ``account number''; and (3) identify the 
``account type'' as a ``relationship.'' Second, in those circumstances 
in which the relevant account was established prior to November 15, 
2018 for Industry Members other than Small Industry Members, or prior 
to November 15, 2019 for Small Industry Members, and no ``date account 
opened'' is available for the account, the Industry Member will provide 
the Account Effective Date in the following circumstances: (1) Where an 
Industry Member changes back office providers or clearing firms and the 
date account opened is changed to the date the account was opened on 
the new back office/clearing firm system; (2) where an Industry Member 
acquires another Industry Member and the date account opened is changed 
to the date the account was opened on the post-merger back office/
clearing firm system; (3) where there are multiple dates associated 
with an account in an Industry Member's system, and the parameters of 
each date are determined by the individual Industry Member; and (4) 
where the relevant account is an Industry Member proprietary account. 
The proposed definition is the same as the definition of ``Customer 
Account Information'' set forth in Section 1.1 of the CAT NMS Plan, 
provided, however, that specific dates have replaced the descriptions 
of those dates set forth in Section 1.1 of the Plan.
(M) Customer Identifying Information
    As discussed above, under the Customer Information Approach, 
Industry Members are required to report Customer Identifying 
Information to the Central Repository as part of the customer 
definition process. Accordingly, the Exchange proposes to define the 
term ``Customer Account Information'' to clarify what Customer 
information would need to be reported to the Central Repository.
    Paragraph (m) of Proposed Rule 14.1 defines the term ``Customer 
Identifying Information'' to mean information of sufficient detail to 
identify a Customer. With respect to individuals, ``Customer 
Identifying Information'' includes, but is not limited to: Name, 
address, date of birth, individual tax payer identification number 
(``ITIN'')/social security number (``SSN''), individual's role in the 
account (e.g., primary holder, joint holder, guardian, trustee, person 
with the power of attorney). With respect to legal entities, ``Customer 
Identifying Information'' includes, but is not limited to, name, 
address, Employer Identification Number (``EIN'')/Legal Entity 
Identifier (``LEI'') or other comparable common entity identifier, if 
applicable. The definition further notes that an Industry Member that 
has an LEI for a Customer must submit the Customer's LEI in addition to 
other information of sufficient detail to identify the Customer. This 
is the same definition as set forth in Section 1.1 of the CAT NMS Plan.
(N) Data Submitter
    The CAT NMS Plan uses the term ``Data Submitter'' to refer to any 
person that reports data to the Central Repository.\13\ Such Data 
Submitters may include those entities that are required to submit data 
to the Central Repository (e.g., national securities exchanges, 
national securities associations and Industry Members), third-parties 
that may submit data to the CAT on behalf of CAT Reporters (i.e., CAT 
Reporting Agents), and outside parties that are not required to submit 
data to the CAT but from which the CAT may receive data (e.g., 
securities information processors (``SIPs'')). To include this term in 
the Chapter XIV Rule Series, the Exchange proposes to define ``Data 
Submitter'' in paragraph (n) of Proposed Rule 14.1. Specifically, 
paragraph (n) of Proposed Rule 14.1 defines a ``Data Submitter'' to 
mean any person that reports data to the Central Repository, including 
national securities exchanges, national securities associations, 
broker-dealers, the SIPs for the CQS, CTA, UTP and Plan for Reporting 
of Consolidated Options Last Sale Reports and Quotation Information 
(``OPRA'') Plans, and certain other vendors or third parties that may 
submit data to the Central Repository on behalf of Industry Members.
---------------------------------------------------------------------------

    \13\ Appendix C, Section A.1(a) of the CAT NMS Plan.
---------------------------------------------------------------------------

(O) Eligible Security
    The reporting requirements of the Chapter XIV Rule Series only 
apply to Reportable Events in Eligible Securities. Currently, an 
Eligible Security includes NMS Securities and OTC Equity Securities. 
Accordingly, paragraph (o) of Proposed Rule 14.1 defines the term 
``Eligible Security'' to include: (1) All NMS Securities; and (2) all 
OTC Equity Securities. The terms ``NMS Securities'' and ``OTC Equity 
Securities'' are defined, in turn, below. This is the same definition 
as set forth in Section 1.1 of the CAT NMS Plan.
(P) Error Rate
(I) Maximum Error Rate
    Under the CAT NMS Plan, the Operating Committee sets the maximum 
Error Rate that the Central Repository would tolerate from an Industry 
Member reporting data to the Central Repository.\14\ The Operating 
Committee reviews and resets the maximum Error Rate, at least 
annually.\15\ If an Industry Member reports CAT data to the Central 
Repository with errors such that their error percentage exceeds the 
maximum

[[Page 9946]]

Error Rate, then such Industry Member would not be in compliance with 
the CAT NMS Plan or Rule 613.\16\ As such, the Exchange or the SEC 
``[sic] may take appropriate action against an Industry Member for 
failing to comply with its CAT reporting obligations.\17\ The CAT NMS 
Plan sets the initial Error Rate at 5%.\18\ It is anticipated that the 
maximum Error Rate will be reviewed and lowered by the Operating 
Committee once Industry Members begin to report to the Central 
Repository.\19\
---------------------------------------------------------------------------

    \14\ Section 6.5(d)(i) of the CAT NMS Plan.
    \15\ Appendix C, Section A.3(b) of the CAT NMS Plan.
    \16\ Appendix C, Section A.3(b) of the CAT NMS Plan; Rule 
613(g)-(h).
    \17\ Appendix C, Section A.3(b) of the CAT NMS Plan.
    \18\ Section 6.5(d)(i) of the CAT NMS Plan.
    \19\ Appendix C, Section A.3(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    The CAT NMS Plan requires the Plan Processor to: (1) Measure and 
report errors every business day; (2) provide Industry Members daily 
statistics and error reports as they become available, including a 
description of such errors; (3) provide monthly reports to Industry 
Members that detail an Industry Member's performance and comparison 
statistics; (4) define educational and support programs for Industry 
Members to minimize Error Rates; and (5) identify, daily, all Industry 
Members exceeding the maximum allowable Error Rate. To timely correct 
data-submitted errors to the Central Repository, the CAT NMS Plan 
requires that the Central Repository receive and process error 
corrections at all times. Further, the CAT NMS Plan requires that 
Industry Members be able to submit error corrections to the Central 
Repository through a web-interface or via bulk uploads or file 
submissions, and that the Plan Processor, subject to the Operating 
Committee's approval, support the bulk replacement of records and the 
reprocessing of such records. The Participants, furthermore, require 
that the Plan Processor identify Industry Member data submission errors 
based on the Plan Processor's validation processes.\20\
---------------------------------------------------------------------------

    \20\ Approval Order at 84718.
---------------------------------------------------------------------------

(II) Definition of Error Rate
    To implement the requirements of the CAT NMS Plan related to the 
Error Rate, the Exchange proposes to define the term ``Error Rate'' in 
Proposed Rule 14.1. Paragraph (p) of Proposed Rule 14.1 defines the 
term ``Error Rate'' to mean the percentage of Reportable Events 
collected by the Central Repository in which the data reported does not 
fully and accurately reflect the order event that occurred in the 
market. This is the same definition as set forth in SEC Rule 613(j)(6), 
and Section 1.1 of the CAT NMS Plan defines ``Error Rate'' by reference 
to SEC Rule 613(j)(6).
(Q) Firm Designated ID
    As discussed above, under the Customer Information Approach, the 
CAT NMS Plan would require each Industry Member to assign a unique Firm 
Designated ID to each Customer. Industry Members would be permitted to 
use as the Firm Designated ID an account number or any other identifier 
defined by the firm, 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). 
Industry Members would be required to report only the Firm Designated 
ID for each new order submitted to the Central Repository, rather than 
the ``Customer-ID'' with individual order events. Accordingly, the 
Exchange proposes to define the term ``Firm Designated ID'' in Proposed 
Rule 14.1.
    Specifically, paragraph (q) of Proposed Rule 14.1 defines the term 
``Firm Designated ID'' to mean a unique identifier for each trading 
account designated by Industry Members for purposes of providing data 
to the Central Repository, where each such identifier is unique among 
all identifiers from any given Industry Member for each business date. 
This is the same definition as set forth in Section 1.1 of the CAT NMS 
Plan. Industry Members would be permitted to use an account number or 
any other identifier defined by the firm, 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).
(R) Industry Member
    Paragraph (r) of Proposed Rule 14.1 defines the term ``Industry 
Member'' to mean a member of a national securities exchange or a member 
of a national securities association.'' This is the same definition as 
set forth in Section 1.1 of the CAT NMS Plan.
(S) Industry Member Data
    Paragraph (s) of Proposed Rule 14.1 states that the term ``Industry 
Member Data'' has the meaning set forth in Rule 14.3(a)(2). This 
definition has the same substantive meaning as the definition set forth 
in Section 1.1 of the CAT NMS Plan. The definition of ``Industry Member 
Data'' is discussed more fully in the discussion below regarding 
Proposed Rule 14.3(a)(2).
(T) Initial Plan Processor
    Paragraph (t) of Proposed Rule 14.1 defines the term ``Initial Plan 
Processor'' to mean the first Plan Processor selected by the Operating 
Committee in accordance with SEC Rule 613, Section 6.1 of the CAT NMS 
Plan and the National Market System Plan Governing the Process for 
Selecting a Plan Processor and Developing a Plan for the Consolidated 
Audit Trail. This is the same definition as set forth in Section 1.1 of 
the CAT NMS Plan, although the proposed definition uses the full name 
of the ``Selection Plan.''
(U) Listed Option or Option
    The CAT NMS Plan and this Chapter XIV Rule Series apply to Eligible 
Securities, which includes NMS Securities, which, in turn, includes 
Listed Options. Certain requirements of the Chapter XIV Rule Series 
apply specifically to Listed Options. Accordingly, Paragraph (u) of 
Proposed Rule 14.1 defines the term ``Listed Option'' or ``Option.'' 
Specifically, paragraph (u) of Proposed Rule 14.1 states that the term 
``Listed Option'' or ``Option'' has the meaning set forth in SEC Rule 
600(b)(35) of Regulation NMS. SEC Rule 600(b)(35), in turn, defines a 
listed option as ``any option traded on a registered national 
securities exchange or automated facility of a national securities 
association.'' The Exchange notes that the proposed definition of 
``Listed Option'' is the same definition as the definition set forth in 
Section 1.1 of the CAT NMS Plan.
(V) Manual Order Event
(I) Manual Order Event Approach
    The CAT NMS Plan sets forth clock synchronization and timestamp 
requirements for Industry Members which reflect exemptions for Manual 
Order Events granted by the Commission.\21\ Specifically, the Plan 
requires Industry Members to record and report the time of each 
Reportable Event using timestamps reflecting current industry standards 
(which must be at least to the millisecond) or, if an Industry Member's 
order handling or execution system uses timestamps in increments finer 
than milliseconds, such finer increments, when reporting to the Central 
Repository. For Manual Order Events, however, the Plan provides that 
such events must be recorded in increments up to and including one 
second, provided that Industry Members record and report the time the 
event is captured electronically in an order handling and execution

[[Page 9947]]

system (``Electronic Capture Time'') in milliseconds. In addition, 
Industry Members are required to synchronize their respective Business 
Clocks (other than such Business Clocks used solely for Manual Order 
Events) at a minimum to within 50 milliseconds of the time maintained 
by the National Institute of Standards and Technology (``NIST''), and 
maintain such a synchronization. Industry Members are required to 
synchronize their Business Clocks used solely for Manual Order Events, 
however, at a minimum to within one second of the time maintained by 
the NIST.
---------------------------------------------------------------------------

    \21\ See Exemption Order.
---------------------------------------------------------------------------

(II) Definition of Manual Order Event
    In order to clarify what a Manual Order Event is for clock 
synchronization and time stamp purposes, the Exchange proposes to 
define the term ``Manual Order Event'' in Proposed Rule 14.1. 
Specifically, paragraph (v) of Proposed Rule 14.1 defines the term 
``Manual Order Event'' to mean a non-electronic communication of order-
related information for which Industry Members must record and report 
the time of the event. This is the same definition as set forth in 
Section 1.1 of the CAT NMS Plan.
(W) Material Terms of the Order
    Proposed Rule 14.3 requires Industry Members to record and report 
to the Central Repository Material Terms of the Order with certain 
Reportable Events (e.g., for the original receipt or origination of an 
order, for the routing of an order). Accordingly, the Exchange proposes 
to define the term ``Material Terms of the Order'' in Proposed Rule 
14.1. Specifically, paragraph (w) of Proposed Rule 14.1 defines the 
term ``Material Terms of the Order'' to include: The NMS Security or 
OTC Equity Security symbol; security type; price (if applicable); size 
(displayed and non-displayed); side (buy/sell); order type; if a sell 
order, whether the order is long, short, short exempt; open/close 
indicator (except on transactions in equities); time in force (if 
applicable); if the order is for a Listed Option, option type (put/
call), option symbol or root symbol, underlying symbol, strike price, 
expiration date, and open/close (except on market maker quotations); 
and any special handling instructions. This is the same definition as 
set forth in Section 1.1 of the CAT NMS Plan.
(X) NMS Security
    NMS Securities are one of the types of Eligible Securities for the 
CAT. Therefore, the Exchange proposes to define the term ``NMS 
Security'' in Proposed Rule 14.1. Specifically, paragraph (x) of 
proposed Rule 14.1 defines the term ``NMS Security'' to mean any 
security or class of securities for which transaction reports are 
collected, processed, and made available pursuant to an effective 
transaction reporting plan, or an effective national market system plan 
for reporting transactions in Listed Options. This is the same 
definition as set forth in Section 1.1 of the CAT NMS Plan.
(Y) NMS Stock
    Under the CAT NMS Plan, the Operating Committee may establish 
different Trading Days for NMS Stocks (as defined in SEC Rule 
600(b)(47)), Listed Options, OTC Equity Securities, and any other 
securities that are included as Eligible Securities from time to time. 
Accordingly, the Exchange proposes to define the term ``NMS Stock'' in 
Paragraph (y) of Proposed Rule 14.1 to mean any NMS Security other than 
an option. This is the same definition as set forth in SEC Rule 
600(b)(47) of Regulation NMS.
(Z) Operating Committee
    Paragraph (z) of Proposed Rule 14.1 defines the term ``Operating 
Committee'' to mean the governing body of the CAT NMS, LLC designated 
as such and described in Article IV of the CAT NMS Plan. This is the 
same definition as set forth in Section 1.1 of the CAT NMS Plan, except 
the Exchange proposes to use the phrase ``CAT NMS LLC'' in place of the 
phrase ``the Company'' for clarity.
(AA) Options Market Maker
(I) Options Market Maker Quote Exemption
    Rule 613(c)(7) provides that the CAT NMS Plan must require each 
Industry Member 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. SEC Rule 
613(j)(8) defines ``order'' to include ``any bid or offer.'' Therefore, 
under Rule 613, the details for each Options Market Maker quotation 
must be reported to the Central Repository by both the Options Market 
Maker and the options exchange to which it routes its quote.
    The Participants, however, requested and received exemptive relief 
from Rule 613 so that the CAT NMS Plan may permit Options Market Maker 
quotes to be reported to the Central Repository by the relevant options 
exchange in lieu of requiring that such reporting be done by both the 
options exchange and the Options Market Maker, as is required by SEC 
Rule 613.\22\ In accordance with the exemptive relief, Options Market 
Makers would be required to report to the options exchange the time at 
which a quote in a Listed Option is sent to the options exchange. Such 
time information also will be reported to the Central Repository by the 
options exchange in lieu of reporting by the Options Market Maker.
---------------------------------------------------------------------------

    \22\ See Exemptive Request Letter at 2, and Exemption Order.
---------------------------------------------------------------------------

(II) Definition of Options Market Maker
    To implement the requirements related to Option Market Maker 
quotes, the Exchange proposes to define the term ``Options Market 
Maker'' in Proposed Rule 14.1. Specifically, paragraph (aa) of Proposed 
Rule 14.1 defines the term ``Options Market Maker'' to mean a broker-
dealer registered with an exchange for the purpose of making markets in 
options contracts traded on such exchange. This is the same definition 
as set forth in Section 1.1 of the CAT NMS Plan.
(BB) Order
    The Chapter XIV Rule Series requires each Industry Member to record 
and electronically report to the Central Repository certain details for 
each order. Accordingly, the Exchange proposes to define the term 
``Order'' in Proposed Rule 14.1. Specifically, paragraph (bb) of 
Proposed Rule 14.1 defines the term ``Order'', with respect to Eligible 
Securities, to include: (1) Any order received by an Industry Member 
from any person; (2) any order originated by an Industry Member; or (3) 
any bid or offer. This is the same definition as set forth in Rule 
613(j)(8), except the Exchange proposes to replace the phrase ``member 
of a national securities exchange or national securities association'' 
with the term ``Industry Member.'' The Exchange notes that Section 1.1 
of the CAT NMS Plan defines ``Order'' by reference to SEC Rule 
613(j)(8).
(CC) OTC Equity Security
    OTC Equity Securities are one of the types of Eligible Securities 
for the CAT. Therefore, the Exchange proposes to define the term ``OTC 
Equity Security'' in Proposed Rule 14.1. Specifically, paragraph (cc) 
of proposed Rule 14.1 defines the term ``OTC Equity Security'' to mean 
any equity security, other than an NMS Security, subject to prompt last 
sale reporting rules of a registered national securities association 
and reported to one of such association's equity trade reporting 
facilities. This is

[[Page 9948]]

the same definition as set forth in Section 1.1 of the CAT NMS Plan.
(DD) Participant
    Paragraph (dd) of Proposed Rule 14.1 defines the term 
``Participant'' to mean each Person identified as such in Exhibit A of 
the CAT NMS Plan, as amended, in such Person's capacity as a 
Participant in CAT NMS, LLC. This is the same definition in substance 
as set forth in Section 1.1 of the CAT NMS Plan.
(EE) Person
    Paragraph (ee) of proposed Rule 14.1 defines the term ``Person'' to 
mean any individual, partnership, limited liability company, 
corporation, joint venture, trust, business trust, cooperative or 
association and any heirs, executors, administrators, legal 
representatives, successors and assigns of such Person where the 
context so permits. This is the same definition as set forth in Section 
1.1 of the CAT NMS Plan.
(FF) Plan Processor
    Paragraph (ff) of proposed Rule 14.1 defines the term ``Plan 
Processor'' to mean the Initial Plan Processor or any other Person 
selected by the Operating Committee pursuant to SEC Rule 613 and 
Sections 4.3(b)(i) and 6.1 of the CAT NMS Plan, and with regard to the 
Initial Plan Processor, the National Market System Plan Governing the 
Process for Selecting a Plan Processor and Developing a Plan for the 
Consolidated Audit Trail, to perform the CAT processing functions 
required by SEC Rule 613 and set forth in the CAT NMS Plan.
(GG) Received Industry Member Data
    Paragraph (gg) of proposed Rule 14.1 states that the term 
``Received Industry Member Data'' has the meaning set forth in Rule 
14.3(a)(2). This definition has the same substantive meaning as the 
definition set forth in Section 1.1 of the CAT NMS Plan. The definition 
of ``Received Industry Member Data'' is discussed more fully in the 
discussion below regarding Proposed Rule 14.3(a)(2).
(HH) Recorded Industry Member Data
    Paragraph (hh) of proposed Rule 14.1 states that the term 
``Recorded Industry Member Data'' has the meaning set forth in Rule 
14.3(a)(1). This definition has the same substantive meaning as the 
definition set forth in Section 1.1 of the CAT NMS Plan. The definition 
of ``Recorded Industry Member Data'' is discussed more fully in the 
discussion below regarding Proposed Rule 14.3(a)(1).
(II) Reportable Event
    Proposed Rules 14.1 through 14.12 require each Industry Member to 
record and electronically report to the Central Repository certain 
details for each Reportable Event. To clarify these requirements, the 
Exchange proposes to define the term ``Reportable Event'' in Proposed 
Rule 14.1. Specifically, paragraph (ii) of Proposed Rule 14.1 states 
that the term ``Reportable Event'' includes, but is not limited to, the 
original receipt or origination, modification, cancellation, routing, 
execution (in whole or in part) and allocation of an order, and receipt 
of a routed order. This is the same definition as set forth in Section 
1.1 of the CAT NMS Plan.
(JJ) SRO
    Paragraph (jj) of proposed Rule 14.1 defines the term ``SRO'' to 
mean any self-regulatory organization within the meaning of Section 
3(a)(26) of the Exchange Act. This is the same definition as set forth 
in Section 1.1 of the CAT NMS Plan.
(KK) SRO-Assigned Market Participant Identifier
(I) Existing Identifier Approach
    The Participants requested and received exemptive relief from Rule 
613 so that the CAT NMS Plan may permit the Existing Identifier 
Approach, which would allow an Industry Member to report an existing 
SRO-Assigned Market Participant Identifier in lieu of requiring the 
reporting of a universal CAT-Reporter-ID (that is, a code that uniquely 
and consistently identifies an Industry Member for purposes of 
providing data to the Central Repository).\23\ The CAT NMS Plan 
reflects the ``Existing Identifier Approach'' for purposes of 
identifying each Industry Member associated with an order or Reportable 
Event. Under the Existing Identifier Approach, Industry Members are 
required to record and report to the Central Repository an SRO-Assigned 
Market Participant Identifier for orders and certain Reportable Events 
to be used by the Central Repository to assign a unique CAT-Reporter-ID 
to identify Industry Members.
---------------------------------------------------------------------------

    \23\ See Exemptive Request Letter at 19, and Exemption Order.
---------------------------------------------------------------------------

    For the Central Repository to link the SRO-Assigned Market 
Participant Identifier to the CAT-Reporter-ID, each SRO will submit to 
the Central Repository, on a daily basis, all SRO-Assigned Market 
Participant Identifiers used by its Industry Members, as well as 
information to identify each such industry member [sic], including CRD 
number or [sic] \24\ LEI, if the SRO has collected such LEI of the 
industry member [sic]. Additionally, each Industry Member is required 
to submit to the Central Repository the CRD number of the industry 
member [sic] as well as the LEI of the industry member [sic], if the 
industry member [sic] has an LEI. The Plan Processor will use this 
information to assign a CAT-Reporter-ID to each Industry Member for 
internal use within the Central Repository.
---------------------------------------------------------------------------

    \24\ The Commission notes that the SRO must submit to the 
Central Repository the CRD number as well as the LEI of each such 
Industry Member, if the SRO has collected the LEI of the Industry 
Member.
---------------------------------------------------------------------------

(II) Definition of SRO-Assigned Market Participant Identifier
    To implement the Existing Identifier Approach, the Exchange 
proposes to define the term ``SRO-Assigned Market Participant'' in 
Proposed Rule 14.1. Specifically, paragraph (kk) of proposed Rule 14.1 
defines the term ``SRO-Assigned Market Participant Identifier'' to mean 
an identifier assigned to an Industry Member by an SRO or an identifier 
used by a Participant. This is the same definition as set forth in 
Section 1.1 of the CAT NMS Plan. For example, an Industry Member would 
be permitted to use any existing SRO-Assigned Market Participant 
Identifier (e.g., FINRA MPID, NASDAQ MPID, NYSE Mnemonic, CBOE User 
Acronym and CHX Acronym) when reporting order information to the 
Central Repository.
(LL) Small Industry Member
    The requirements of the proposed rules 14.1 through 14.12 differ to 
some extent for Small Industry Members versus Industry Members other 
than Small Industry Members. For example, the compliance dates for 
reporting data to the CAT are different for Small Industry Members 
versus other Industry Members. Accordingly, to clarify the requirements 
that apply to which Industry Members, the Exchange proposes to define 
the term ``Small Industry Member'' in Proposed Rule 14.1. Specifically, 
paragraph (ll) of proposed Rule 14.1 defines the term ``Small Industry 
Member'' to mean an Industry Member that qualifies as a small broker-
dealer as defined in Rule 0-10(c) under the Securities Exchange Act of 
1934, as amended. This is the same in substance as the definition of 
``Small Industry Member'' as set forth in Section 1.1 of the CAT NMS 
Plan. Specifically, Section 1.1 of the CAT NMS Plan defines a ``Small 
Industry Member'' as ``an Industry Member that

[[Page 9949]]

qualifies as a small broker-dealer as defined in SEC Rule 613.'' The 
definition of a small broker-dealer under SEC Rule 613, in turn, is a 
small broker-dealer as defined in SEC Rule 0-10(c).
(MM) Trading Day
    Proposed Rule 14.3(b) establishes the deadlines for reporting 
certain data to the Central Repository using the term ``Trading Day.'' 
Accordingly, the Exchange proposes to define the term ``Trading Day'' 
in proposed Rule 14.1. Specifically, Paragraph (mm) of proposed Rule 
14.1 states that the term ``Trading Day'' shall have the meaning as is 
determined by the Operating Committee. For the avoidance of doubt, the 
Operating Committee may establish different Trading Days for NMS Stocks 
(as defined in SEC Rule 600(b)(47), Listed Options, OTC Equity 
Securities, and any other securities that are included as Eligible 
Securities from time to time.
(ii) Clock Synchronization
    Rule 613(d)(1) under Regulation NMS requires Industry Members to 
synchronize their Business Clocks to the time maintained by NIST, 
consistent with industry standards. To comply with this provision, 
Section 6.8 of the Plan sets forth the clock synchronization 
requirements for Industry Members.\25\ To implement these provisions 
with regard to its Industry Members, the Exchange proposes Rule 14.2 
(Consolidated Audit Trail--Clock Synchronization) to require its 
Industry Members to comply with the clock synchronization requirements 
of the Plan.
---------------------------------------------------------------------------

    \25\ In addition, Section 6.7(a)(ii) of the Plan sets forth the 
timeline for CAT Reporters to comply with the clock synchronization 
requirements.
---------------------------------------------------------------------------

    Paragraph (a) of proposed Rule 14.2 sets forth the manner in which 
Industry Members must synchronize their Business Clocks. Paragraph 
(a)(1) of Proposed Rule 14.2 requires each Industry Member to 
synchronize its Business Clocks, other than such Business Clocks used 
solely for Manual Order Events or used solely for the time of 
allocation on Allocation Reports, at a minimum to within a fifty (50) 
millisecond tolerance of the time maintained by the NIST atomic clock, 
and maintain such synchronization. This is the same requirement as set 
forth in Section 6.8(a)(ii)(A) of the CAT NMS Plan.
    Paragraph (a)(2) of proposed Rule 14.2 requires each Industry 
Member to synchronize (1) its Business Clocks used solely for Manual 
Order Events and (2) its Business Clocks used solely for the time of 
allocation on Allocation Reports at a minimum to within a one second 
tolerance of the time maintained by the NIST atomic clock, and maintain 
such synchronization. This is the same requirement as set forth in 
Section 6.8(a)(iii) and (iv) of the CAT NMS Plan.
    Paragraph (a)(3) of proposed Rule 14.2 clarifies that the tolerance 
described in paragraphs (a)(1) and (2) of the proposed Rule 14.2 
includes all of the following: (1) The time difference between the NIST 
atomic clock and the Industry Member's Business Clock; (2) the 
transmission delay from the source; and (3) the amount of drift of the 
Industry Member's Business Clock. This description of the clock 
synchronization tolerance is the same as set forth in paragraph (b) of 
FINRA Rule 4590 (Synchronization of Member Business Clocks).
    Paragraph (a)(4) of proposed Rule 14.2 requires Industry Members to 
synchronize their Business Clocks every business day before market open 
to ensure that timestamps for Reportable Events are accurate. In 
addition, to maintain clock synchronization, Business Clocks must be 
checked against the NIST atomic clock and re-synchronized, as 
necessary, throughout the day. This description of the required 
frequency of clock synchronization is the same as set forth in 
paragraph (c) of FINRA Rule 4590 (Synchronization of Member Business 
Clocks).
    Paragraph (b) of Proposed Rule 14.2 sets forth documentation 
requirements with regard to clock synchronization. Specifically, 
paragraph (b) requires Industry Members to document and maintain their 
synchronization procedures for their Business Clocks. The Proposed Rule 
requires Industry Members to keep a log of the times when they 
synchronize their Business Clocks and the results of the 
synchronization process. This log is required to include notice of any 
time a Business Clock drifts more than the applicable tolerance 
specified in paragraph (a) of the Proposed Rule. Such logs must include 
results for a period of not less than five years ending on the then 
current date, or for the entire period for which the Industry Member 
has been required to comply with this Rule if less than five years. 
These documentation requirements are the same as those set forth in the 
``Sequencing Orders and Clock Synchronization'' section of Appendix C 
of the CAT NMS Plan. Moreover, these documentation requirements 
regarding clock synchronization are comparable to those set forth in 
Supplementary Material .01 of FINRA Rule 4590 (Synchronization of 
Member Business Clocks).
    Paragraph (c) of proposed Rule 14.2 sets forth certification 
requirements with regard to clock synchronization. Specifically, 
paragraph (c) of proposed Rule 14.2 requires each Industry Member to 
periodically certify to the Exchange that its Business Clocks satisfy 
the synchronization requirements set forth in paragraph (a) of Proposed 
Rule 14.2, in accordance with the certification schedule established by 
the Operating Committee pursuant to the CAT NMS Plan. This requirement 
is the same requirement as set forth in Section 6.8(a)(ii)(B), (iii) 
and (iv) of the CAT NMS Plan. The Exchange intends to announce to its 
Industry Members the certification schedule established by the 
Operating Committee via an Information Circular.
    Paragraph (d) of Proposed Rule 14.2 establishes further reporting 
requirements with regard to clock synchronization. Paragraph (d) of 
Proposed Rule 14.2 requires Industry Members to report to the Plan 
Processor and to the Exchange violations of paragraph (a) of this Rule 
pursuant to the thresholds set by the Operating Committee pursuant to 
the CAT NMS Plan. This requirement is the same requirement as set forth 
in Section 6.8(a)(ii)(C), (iii) and (iv) of the CAT NMS Plan. The 
Exchange intends to announce to its Industry Members the relevant 
thresholds established by the Operating Committee via an Information 
Circular.
(iii) Industry Member Data Reporting
    Rule 613(c) under Regulation NMS requires the CAT NMS Plan to set 
forth certain provisions requiring Industry Members to record and 
report data to the CAT. To comply with this provision, Section 6.4 of 
the CAT NMS Plan sets forth the data reporting requirements for 
Industry Members. To implement these provisions with regard to its 
Industry Members, the Exchange proposes Rule 14.3 (Consolidated Audit 
Trail--Industry Member Data Reporting) to require its Industry Members 
to comply with the Industry Member Data reporting requirements of the 
Plan. Proposed Rule 14.3 has six [sic] sections covering: (1) Recording 
and reporting Industry Member Data, (2) timing of the recording and 
reporting, (3) the applicable securities cover [sic] by the recording 
and reporting requirements, (4) format, [sic] (5) the security 
symbology to be used in the recording and reporting, and (6) error 
correction requirements, each of which is described below.

[[Page 9950]]

(A) Recording and Reporting Industry Member Data
    Paragraph (a) of proposed Rule 14.3 describes the recording and 
reporting of Industry Member Data to the Central Repository. Paragraph 
(a) consists of paragraphs (a)(1)-(a)(3), which cover Recorded Industry 
Member Data, Received Industry Member Data and Options Market Maker 
data, respectively. Paragraphs (a)(1)-(a)(3) of Proposed Rule 14.3 set 
forth the recording and reporting requirements required in Section 
6.4(d)(i)-(iii) of the CAT NMS Plan, respectively.
    Paragraph (a)(1) requires, subject to paragraph (a)(3) regarding 
Options Market Makers, each Industry Member to record and 
electronically report to the Central Repository the following details 
for each order and each Reportable Event, as applicable (``Recorded 
Industry Member Data'') in the manner prescribed by the Operating 
Committee pursuant to the CAT NMS Plan:
     For original receipt or origination of an order: (1) Firm 
Designated ID(s) for each Customer; (2) CAT-Order-ID; (3) SRO-Assigned 
Market Participant Identifier of the Industry Member receiving or 
originating the order; (4) date of order receipt or origination; (5) 
time of order receipt or origination (using timestamps pursuant to 
Proposed Rule 14.6); and (6) Material Terms of the Order;
     for the routing of an order: (1) CAT-Order-ID; (2) date on 
which the order is routed; (3) time at which the order is routed (using 
timestamps pursuant to Proposed Rule 14.6); (4) SRO-Assigned Market 
Participant Identifier of the Industry Member routing the order; (5) 
SRO-Assigned Market Participant Identifier of the Industry Member or 
Participant to which the order is being routed; (6) if routed 
internally at the Industry Member, the identity and nature of the 
department or desk to which the order is routed; and (7) Material Terms 
of the Order;
     for the receipt of an order that has been routed, the 
following information: (1) CAT-Order-ID; (2) date on which the order is 
received; (3) time at which the order is received (using timestamps 
pursuant to Proposed Rule 14.6); (4) SRO-Assigned Market Participant 
Identifier of the Industry Member receiving the order; (5) SRO-Assigned 
Market Participant Identifier of the Industry Member or Participant 
routing the order; and (6) Material Terms of the Order;
     if the order is modified or cancelled: (1) CAT-Order-ID; 
(2) date the modification or cancellation is received or originated; 
(3) time at which the modification or cancellation is received or 
originated (using timestamps pursuant to Proposed Rule 14.6); (4) price 
and remaining size of the order, if modified; (5) other changes in the 
Material Terms of the Order, if modified; and (6) whether the 
modification or cancellation instruction was given by the Customer or 
was initiated by the Industry Member;
     if the order is executed, in whole or in part: (1) CAT-
Order-ID; (2) date of execution; (3) time of execution (using 
timestamps pursuant to Proposed Rule 14.6; (4) execution capacity 
(principal, agency or riskless principal); (5) execution price and 
size; (6) SRO-Assigned Market Participant Identifier of the Industry 
Member executing the order; (7) whether the execution was reported 
pursuant to an effective transaction reporting plan or the Plan for 
Reporting of Consolidated Options Last Sale Reports and Quotation 
Information; and
     other information or additional events as may be 
prescribed pursuant to the CAT NMS Plan.
    Paragraph (a)(2) of proposed Rule 14.3 requires, subject to 
paragraph (a)(3) regarding Options Market Makers, each Industry Member 
to record and report to the Central Repository the following, as 
applicable (``Received Industry Member Data'' and collectively with the 
information referred to in Rule 14.3(a)(1) ``Industry Member Data'')) 
in the manner prescribed by the Operating Committee pursuant to the CAT 
NMS Plan:
     If the order is executed, in whole or in part: (1) An 
Allocation Report; (2) SRO-Assigned Market Participant Identifier of 
the clearing broker or prime broker, if applicable; and (3) CAT-Order-
ID of any contra-side order(s);
     if the trade is cancelled, a cancelled trade indicator; 
and
     for original receipt or origination of an order, the Firm 
Designated ID for the relevant Customer, and in accordance with 
Proposed Rule 14.4, Customer Account Information and Customer 
Identifying Information for the relevant Customer.
    Paragraph (a)(3) of proposed Rule 14.3 states that each Industry 
Member that is an Options Market Maker is not required to report to the 
Central Repository the Industry Member Data regarding the routing, 
modification or cancellation of its quotes in Listed Options. Each 
Industry Member that is an Options Market Maker, however, is required 
to report to the Exchange the time at which its quote in a Listed 
Option is sent to the Exchange (and, if applicable, any subsequent 
quote modification time and/or cancellation time when such modification 
or cancellation is originated by the Options Market Maker). This 
paragraph implements the Options Market Maker Quote Exemption, as 
discussed above.
(B) Timing of Recording and Reporting
    Paragraph (b) of proposed Rule 14.3 describes the requirements 
related to the timing of recording and reporting of Industry Member 
Data. Paragraphs (b)(1)-(b)(3) of proposed Rule 14.3 set forth the 
requirements related to the timing of the recording and reporting 
requirements required in Section 6.4(b)(i)-(ii) of the CAT NMS Plan.
    Paragraph (b)(1) of proposed Rule 14.3 requires each Industry 
Member to record Recorded Industry Member Data contemporaneously with 
the applicable Reportable Event. Paragraph (b)(2) of Proposed Rule 14.3 
requires each Industry Member to report: (1) Recorded Industry Member 
Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading 
Day following the day the Industry Member records such Recorded 
Industry Member Data; and (2) Received Industry Member Data to the 
Central Repository by 8:00 a.m. Eastern Time on the Trading Day 
following the day the Industry Member receives such Received Industry 
Member Data. Paragraph (b)(3) states that Industry Members may, but are 
not required to, voluntarily report Industry Member Data prior to the 
applicable 8:00 a.m. Eastern Time deadline.
(C) Applicable Securities
    Paragraph (c) of proposed Rule 14.3 describes the securities to 
which the recording and reporting requirements of proposed Rule 14.3 
apply. Paragraphs (c)(1) and (c)(2) of proposed Rule 14.3 set forth the 
description of applicable securities as set forth in Section 6.4(c)(i) 
and (ii) of the CAT NMS Plan, respectively. Paragraph (c)(1) of 
proposed Rule 14.3 requires each Industry Member to record and report 
to the Central Repository the Industry Member Data as set forth in 
paragraph (a) of proposed Rule 14.3 for each NMS Security registered or 
listed for trading on such exchange or admitted to unlisted trading 
privileges on such exchange. Paragraph (c)(2) of proposed Rule 14.3 
requires each Industry Member to record and report to the Central 
Repository the Industry Member Data as set forth in paragraph (a) of 
this Proposed Rule 14.3 for each Eligible Security for which 
transaction reports are required to be submitted to FINRA.
(D) Security Symbology
    Paragraph (d) of proposed Rule 14.3 describes the security 
symbology that

[[Page 9951]]

Industry Members are required to use when reporting Industry Member 
Data to the Central Repository. Paragraph (d)(1) of proposed Rule 14.3 
requires, for each exchange-listed Eligible Security, each Industry 
Member to report Industry Member Data to the Central Repository using 
the symbology format of the exchange listing the security. This 
requirement implements the requirement set forth in Section 2 of 
Appendix D of the CAT NMS Plan to use the listing exchange symbology 
when reporting data to the Central Repository for exchange-listed 
Eligible Securities.
    For each Eligible Security that is not exchange-listed, however, 
there is no listing exchange to provide the symbology format. Moreover, 
to date, the requisite symbology format has not been determined. 
Therefore, Paragraph (d)(2) of proposed Rule 14.3 requires, for each 
Eligible Security that is not exchange-listed, each Industry Member to 
report Industry Member Data to the Central Repository using such 
symbology format as approved by the Operating Committee pursuant to the 
CAT NMS Plan. The Exchange intends to announce to its Industry Members 
the relevant symbology formats established by the Operating Committee 
via an Information Circular.
(E) Error Correction
    To ensure that the CAT contains accurate data, the CAT NMS Plan 
requires Industry Members to correct erroneous data submitted to the 
Central Repository. Therefore, the Exchange proposes to adopt paragraph 
(e) of proposed Rule 14.3, which addresses the correction of erroneous 
data reported to the Central Repository. Paragraph (e) of proposed Rule 
14.3 requires, for each Industry Member for which errors in Industry 
Member Data submitted to the Central Repository have been identified by 
the Plan Processor or otherwise, that such Industry Member submit 
corrected Industry Member Data to the Central Repository by 8:00 a.m. 
Eastern Time on T+3. This requirement implements the error correction 
requirement set forth in Section 6 of Appendix D of the CAT NMS Plan.
(iv) Customer Information Reporting
    Section 6.4(d)(iv) of the CAT NMS Plan requires Industry Members to 
submit to the Central Repository certain information related to their 
Customers in accordance with the Customer Information Approach 
discussed above. The Exchange proposes Rule 14.4 (Consolidated Audit 
Trail--Customer Information Reporting) to implement this provision of 
the CAT NMS Plan with regard to its Industry Members. Specifically, 
paragraph (a) of proposed Rule 14.4 requires each Industry Member to 
submit to the Central Repository the Firm Designated ID, Customer 
Account Information and Customer Identifying Information for each of 
its Customers with an Active Account prior to such Industry Member's 
commencement of reporting to the Central Repository and in accordance 
with the deadlines set forth in Rule 14.9.
    Paragraph (b) of proposed Rule 14.4 requires each Industry Member 
to submit to the Central Repository on a daily basis any updates, 
additions or other changes to the Firm Designated ID, Customer Account 
Information and Customer Identifying Information for each of its 
Customers with an Active Account.
    Paragraph (c) of proposed Rule 14.4 requires each Industry Member, 
on a periodic basis as designated by the Plan Processor and approved by 
the Operating Committee, to submit to the Central Repository a complete 
set of Firm Designated IDs, Customer Account Information and Customer 
Identifying Information for each of its Customers with an Active 
Account. This periodic refresh is intended to ensure that the Central 
Repository has the most current information identifying a Customer. The 
Exchange intends to announce to its Industry Members when such a 
periodic refresh is required by the Plan Processor and the Operating 
Committee via an Information Circular.
    Finally, paragraph (d) of proposed Rule 14.4 addresses the 
correction of erroneous Customer data reported to the Central 
Repository to ensure an accurate audit trail. Paragraph (d) requires, 
for each Industry Member for which errors in Firm Designated ID, 
Customer Account Information and Customer Identifying Information for 
each of its Customers with an Active Account submitted to the Central 
Repository have been identified by the Plan Processor or otherwise, 
such Member to submit corrected data to the Central Repository by 5:00 
p.m. Eastern Time on T+3. This requirement implements the error 
correction requirement set forth in Appendix C of the CAT NMS Plan.
(v) Industry Member Information Reporting
    Section 6.4(d)(vi) of the CAT NMS Plan requires Industry Members to 
submit to the Central Repository, on a daily basis [sic],\26\ 
information sufficient to identify such Industry Member, including CRD 
number and LEI, if such LEI has been obtained, in accordance with the 
Existing Identifier Approach discussed above. The Exchange proposes 
Rule 14.5 (Consolidated Audit Trail--Industry Member Information 
Reporting) to implement this provision of the CAT NMS Plan with regard 
to its Industry Members. Specifically, proposed Rule 14.5 requires each 
Industry Member to submit to the Central Repository, information 
sufficient to identify such Industry Member, including CRD number and 
LEI, if such LEI has been obtained, prior to such Industry Member's 
commencement of reporting to the Central Repository and in accordance 
with the deadlines set forth in Rule 14.9, and keep such information up 
to date as necessary.
---------------------------------------------------------------------------

    \26\ The Commission notes that Section 6.4(d)(vi) of the CAT NMS 
Plan does not specify a submission frequency.
---------------------------------------------------------------------------

(vi) Time Stamps
    Rule 613(d)(3) under Regulation NMS sets forth requirements for 
time stamps used by CAT Reporters in recording and reporting data to 
the CAT.\27\ To comply with this provision, Section 6.8(b) of the Plan 
sets forth time stamp requirements for Industry Members. To implement 
this provision with regard to its Industry Members, the Exchange 
proposes new Rule 14.6 (Consolidated Audit Trail--Time Stamps) to 
require its Industry Members to comply with the time stamp requirements 
of the Plan.
---------------------------------------------------------------------------

    \27\ 17 CFR 242.613(d)(3).
---------------------------------------------------------------------------

    Paragraph (a) of proposed Rule 14.6 sets forth the time stamp 
increments to be used by Industry Members in their CAT reporting. 
Paragraph (a)(1) of proposed Rule 14.6 requires each Industry Member to 
record and report Industry Member Data to the Central Repository with 
time stamps in milliseconds, subject to paragraphs (a)(2) and (b) of 
proposed Rule 14.6. To the extent that any Industry Member's order 
handling or execution systems utilize time stamps in increments finer 
than milliseconds, paragraph (a)(2) of Proposed Rule 14.6 requires such 
Industry Member to record and report Industry Member Data to the 
Central Repository with time stamps in such finer increment, subject to 
paragraph (b) of Proposed Rule 14.6 regarding Manual Order Events and 
Allocation Reports.
    Paragraph (b) of proposed Rule 14.6 sets forth the permissible time 
stamp increments for Manual Order Events and Allocation Reports. 
Specifically, paragraph (b)(1) of proposed Rule 14.6

[[Page 9952]]

permits each Industry Member to record and report Manual Order Events 
to the Central Repository in increments up to and including one second, 
provided that each Industry Member is required to record and report the 
time when a Manual Order Event has been captured electronically in an 
order handling and execution system of such Member (``Electronic 
Capture Time'') in milliseconds. In addition, paragraph (b)(2) of 
proposed Rule 14.6 permits each Industry Member to record and report 
the time of Allocation Reports in increments up to and including one 
second.
(vii) Clock Synchronization Rule Violations
    Proposed Rule 14.7 (Consolidated Audit Trail--Clock Synchronization 
Rule Violations [sic]) describes potential violations of the clock 
synchronization time period requirements set forth in the Chapter XIV 
Rule Series. Proposed Rule 14.7 states that an Industry Member that 
engages in a pattern or practice of reporting Reportable Events outside 
of the required clock synchronization time period as set forth in this 
Rule Series without reasonable justification or exceptional 
circumstances may be considered in violation of this Rule. This 
provision implements the requirements of Section 6.8 of the CAT NMS 
Plan which requires the Compliance Rule to provide that a pattern or 
practice of reporting events outside of the required clock 
synchronization time period without reasonable justification or 
exceptional circumstances may be considered a violation of SEC Rule 613 
or the CAT NMS Plan.
(viii) Connectivity and Data Transmission
    Proposed Rule 14.8 (Consolidated Audit Trail--Connectivity and Data 
Transmission) addresses connectivity and data transmission requirements 
related to the CAT. Paragraph (a) of Proposed Rule 14.8 describes the 
format(s) for reporting Industry Member Data to the Central Repository, 
thereby implementing the formatting requirements as set forth in 
Section 6.4(a) of the CAT NMS Plan. Specifically, paragraph (a) of 
proposed Rule 14.8 requires each Industry Member to transmit data as 
required under the CAT NMS Plan to the Central Repository utilizing 
such format(s) as may be provided by the Plan Processor and approved by 
the Operating Committee.
    Paragraph (b) of proposed Rule 14.8 addresses connectivity 
requirements related to the CAT. Paragraph (b) of proposed Rule 14.8 
requires each Industry Member to connect to the Central Repository 
using a secure method(s), including, but not limited to, private 
line(s) and virtual private network connection(s). This provision 
implements the connectivity requirements set forth in Section 4 of 
Appendix D to the CAT NMS Plan.
    Paragraph (c) permits Industry Members to use CAT Reporting Agents 
to fulfill their data reporting obligations related to the CAT. 
Paragraph (c) is based on FINRA Rule 7450(c), which permits OATS 
Reporting Members to enter into agreements with Reporting Agents to 
fulfill the OATS obligations of the OATS Reporting Member. 
Specifically, Paragraph (c)(1) of proposed Rule 14.8 states that any 
Industry Member may enter into an agreement with a CAT Reporting Agent 
pursuant to which the CAT Reporting Agent agrees to fulfill the 
obligations of such Industry Member under the Chapter XIV Rule Series. 
Any such agreement must be evidenced in writing, which specifies the 
respective functions and responsibilities of each party to the 
agreement that are required to effect full compliance with the 
requirements of the Chapter XIV Rule Series. The Exchange notes that, 
currently, no standardized form agreement for CAT Reporting Agent 
arrangements has been adopted. Paragraph (c)(2) of proposed Rule 14.8 
requires that all written documents evidencing an agreement with a CAT 
Reporting Agent be maintained by each party to the agreement. Paragraph 
(c)(3) states that each Industry Member remains primarily responsible 
for compliance with the requirements of the Chapter XIV Rule Series, 
notwithstanding the existence of an agreement described in paragraph 
(c) of proposed Rule 14.8.
(ix) Development and Testing
    The Exchange proposes Rule 14.9 (Consolidated Audit Trail--
Development and Testing) to address requirements for Industry Members 
related to CAT development and testing. Paragraph (a) of Proposed Rule 
14.9 sets forth the testing requirements and deadlines for Industry 
Members to develop and commence reporting to the Central Repository. 
These requirements are set forth in Appendix C to the CAT NMS Plan. 
Paragraph (a)(1) sets forth the deadlines related to connectivity and 
acceptance testing. Industry Members (other than Small Industry 
Members) are required to begin connectivity and acceptance testing with 
the Central Repository no later than August 15, 2018, and Small 
Industry Members are required to begin connectivity and acceptance 
testing with the Central Repository no later than August 15, 2019.
    Paragraph (a)(2) sets forth the deadlines related to reporting 
Customer and Industry Member information. Paragraph (a)(2)(i) requires 
Industry Members (other than Small Industry Members) to begin reporting 
Customer and Industry Member information, as required by Rules 14.4(a) 
and 14.5, respectively, to the Central Repository for processing no 
later than October 15, 2018. Paragraph (a)(2)(ii) requires Small 
Industry Members to begin reporting Customer and Industry Member 
information, as required by Rules 14.4(a) and 14.5, respectively, to 
the Central Repository for processing no later than October 15, 2019.
    Paragraph (a)(3) sets forth the deadlines related to the submission 
of order data. Under paragraph (a)(3)(i), Industry Members (other than 
Small Industry Members) are permitted, but not required, to submit 
order data for testing purposes beginning no later than May 15, 2018. 
In addition, Industry Members (other than Small Industry Members) are 
required to participate in the coordinated and structured testing of 
order submission, which will begin no later than August 15, 2018. Under 
paragraph (a)(3)(ii), Small Industry Members are permitted, but not 
required, to submit order data for testing purposes beginning no later 
than May 15, 2019. In addition, Small Industry Members are required to 
participate in the coordinated and structured testing of order 
submission, which will begin no later than August 15, 2019. Paragraph 
(a)(4) states that Industry Members are permitted, but not required to, 
submit Quote Sent Times on Options Market Maker quotes, beginning no 
later than October 15, 2018.
    Paragraph (b) of Proposed Rule 14.9 implements the requirement 
under the CAT NMS Plan that Industry Members participate in required 
industry testing with the Central Repository.\28\ Specifically, 
proposed Rule 14.9 requires that each Industry Member participate in 
testing related to the Central Repository, including any industry-wide 
disaster recovery testing, pursuant to the schedule established 
pursuant to the CAT NMS Plan. The Exchange intends to announce to its 
Industry Members the schedule established pursuant to the CAT NMS Plan 
via an Information Circular.
---------------------------------------------------------------------------

    \28\ Adopting Release [sic] at 84725.

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

[[Page 9953]]

(x) Recordkeeping
    Proposed Rule 14.10 (Consolidated Audit Trail--Recordkeeping) sets 
forth the recordkeeping obligations related to the CAT for Industry 
Members. Proposed Rule 14.10 requires each Industry Member to maintain 
and preserve records of the information required to be recorded under 
the Chapter XIV Rule Series for the period of time and accessibility 
specified in SEC Rule 17a-4(b). The records required to be maintained 
and preserved under the Chapter XIV Rule Series may be immediately 
produced or reproduced on ``micrographic media'' as defined in SEC Rule 
17a-4(f)(1)(i) or by means of ``electronic storage media'' as defined 
in SEC Rule 17a-4(f)(1)(ii) that meet the conditions set forth in SEC 
Rule 17a-4(f) and be maintained and preserved for the required time in 
that form. Proposed Rule 14.10 is based on FINRA Rule 7440(a)(5), which 
sets forth the recordkeeping requirements related to OATS.
(xi) Timely, Accurate and Complete Data
    SEC Rule 613 and the CAT NMS Plan emphasize the importance of the 
timeliness, accuracy, completeness and integrity of the data submitted 
to the CAT.\29\ Accordingly, proposed Rule 14.11 (Consolidated Audit 
Trail--Timely, Accurate and Complete Data) implements this requirement 
with regard to Industry Members. Paragraph (a) of proposed Rule 14.11 
requires that Industry Members record and report data to the Central 
Repository as required by the Chapter XIV Rule Series in a manner that 
ensures the timeliness, accuracy, integrity and completeness of such 
data.
---------------------------------------------------------------------------

    \29\ See Rule 613(e)(4)(i)(D)(ii); and Section 6.5(d) of the CAT 
NMS Plan.
---------------------------------------------------------------------------

    In addition, without limiting the general requirement as set forth 
in paragraph (a), paragraph (b) of proposed Rule 14.11 requires 
Industry Members to accurately provide the LEIs in their records as 
required by the Chapter XIV Rule Series and states that Industry 
Members may not knowingly submit inaccurate LEIs to the Central 
Repository. Paragraph (b) notes, however, that this requirement does 
not impose any additional due diligence obligations on Industry Members 
with regard to LEIs for CAT purposes. Accordingly, this provision does 
not impose any due diligence obligations beyond those that may exist 
today with respect to information associated with an LEI. Although 
Industry Members will not be required to perform additional due 
diligence with regard to the LEIs for CAT purposes, Industry Members 
will be required to accurately provide the LEIs in their records and 
may not knowingly submit inaccurate LEIs to the CAT. Paragraph (b) is 
consistent with the SEC's statements in the Approval Order for the CAT 
NMS Plan regarding an Industry Member's obligations regarding LEIs.\30\
---------------------------------------------------------------------------

    \30\ Approval Order at 84745.
---------------------------------------------------------------------------

    Paragraph (c) states that, if an Industry Member reports data to 
the Central Repository with errors such that its error percentage 
exceeds the maximum Error Rate established by the Operating Committee 
pursuant to the CAT NMS Plan, then such Industry Member would not be in 
compliance with the Chapter XIV Rule Series. As discussed above, the 
initial maximum Error Rate is 5%, although the Error Rate is expected 
to be reduced over time. The Exchange intends to announce to its 
Industry Members changes to the Error Rate established pursuant to the 
CAT NMS Plan via an Information Circular.
    Furthermore, paragraph (d) of proposed Rule 14.11 addresses 
Compliance Thresholds related to reporting data to the CAT. Proposed 
Rule 14.11 states that each Industry Member is required to meet a 
separate compliance threshold which will be an Industry Member-specific 
rate that may be used as the basis for further review or investigation 
into the Industry Member's performance with regard to the CAT (the 
``Compliance Thresholds''). Compliance Thresholds will compare an 
Industry Member's error rate to the aggregate Error Rate over a period 
of time to be defined by the Operating Committee. Compliance Thresholds 
will be set by the Operating Committee, and will be calculated at 
intervals to be set by the Operating Committee.\31\ Compliance 
Thresholds will include compliance with the data reporting and clock 
synchronization requirements. Proposed Rule 14.11 states that an 
Industry Member's performance with respect to its Compliance Threshold 
will not signify, as a matter of law, that such Industry Member has 
violated this Proposed Rule Series.
---------------------------------------------------------------------------

    \31\ Appendix C of the CAT NMS Plan.
---------------------------------------------------------------------------

(xi) Compliance Dates
    Proposed Rule 14.12 (Consolidated Audi [sic] Trail--Compliance 
Dates) sets forth the compliance dates for the various provisions of 
the rules contained in Chapter XIV. Proposed paragraph (a) specifies 
that paragraphs (b) and (c) of proposed Rule 14.12 set forth the 
additional details with respect to the compliance dates of the Rules in 
Chapter XIV. Furthermore, paragraph (a) specifies that, unless 
otherwise noted, the Rules set forth in Chapter XIV are fully effective 
and ETP Holders must comply with their terms.
    Paragraph (b) of Proposed Rule 14.12 establishes the compliance 
dates for the clock synchronization requirements as set forth in 
proposed Rule 14.2. Paragraph (b)(1) states that each Industry Member 
shall comply with Rule 14.2 with regard to Business Clocks that capture 
time in milliseconds commencing on or before March 15, 2017. Paragraph 
(b)(2) states that each Industry Member shall comply with Rule 14.2 
with regard to Business Clocks that do not capture time in milliseconds 
commencing on or before February 19, 2018. The compliance date set 
forth in paragraph (b)(1) reflects the exemptive relief requested by 
the Participants with regard to the clock synchronization requirements 
related to Business Clocks that do not capture time in 
milliseconds.\32\
---------------------------------------------------------------------------

    \32\ See Letter from Participants to Brent J. Fields, Secretary, 
Commission, dated January 17, 2017 requesting exemptive relief from 
SEC Rule 613(a)(3)(iii) and Section 6.7(a)(ii) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Paragraph (c) of proposed Rule 14.12 establishes the compliance 
dates for the data recording and reporting requirements for Industry 
Members. Paragraph (c)(1) requires each Industry Member (other than 
Small Industry Members) to record and report the Industry Member Data 
to the Central Repository by November 15, 2018. Paragraph (c)(2) 
requires that each Industry Member that is a Small Industry Member to 
record and report the Industry Member Data to the Central Repository by 
November 15, 2019. Such compliance dates are consistent with the 
compliance dates set forth in SEC Rule 613(a)(3)(v) and (vi), and 
Section 6.7(a)(v) and (vi) of the CAT NMS Plan.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b)(5) of the Act,\33\ which require, 
among other things, that the rules of the Exchange must be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest, and Section 6(b)(8) of the Act,\34\ 
which requires that the Exchange's rules not impose any burden on 
competition that

[[Page 9954]]

is not necessary or appropriate in furtherance of the purposes of the 
Act.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78f(b)(6) [sic].
    \34\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Exchange believes that this proposal is consistent with the Act 
because it implements, interprets or clarifies the provisions of the 
Plan, and is designed to assist SRO and its Industry Members in meeting 
regulatory obligations pursuant to the Plan. In approving the Plan, the 
SEC noted that the Plan ``is necessary and appropriate in the public 
interest, for the protection of investors and the maintenance of fair 
and orderly markets, to remove impediments to, and perfect the 
mechanism of a national market system, or is otherwise in furtherance 
of the purposes of the Act.'' \35\ To the extent that this proposal 
implements, interprets or clarifies the Plan and applies specific 
requirements to Industry Members, the Exchange believes that this 
proposal furthers the objectives of the Plan, as identified by the SEC, 
and is therefore consistent with the Act.
---------------------------------------------------------------------------

    \35\ Approval Order at 84697.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that the proposed rule change implements provisions of the CAT 
NMS Plan, and is designed to assist the Exchange in meeting its 
regulatory obligations pursuant to the Plan. The Exchange also notes 
that the proposed rule change implementing provisions of the CAT NMS 
Plan will apply equally to all firms that trade NMS Securities and OTC 
Equity Securities. In addition, all national securities exchanges and 
FINRA are proposing the same rules. Therefore, this rule filing does 
not present any competitive issues and, therefore, it does not impose a 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Market Participants or Others

    The Exchange has not solicited or received any comments on the 
proposed rule change from market participants or others.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NSX-2017-03 on the subject line.
Paper Comments
     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NSX-2017-03. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NSX-2017-03 and should be 
submitted on or before March 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-02538 Filed 2-7-17; 8:45 am]
 BILLING CODE 8011-01-P


