[Federal Register Volume 85, Number 80 (Friday, April 24, 2020)]
[Notices]
[Pages 23075-23083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08705]



[[Page 23075]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88702]


Order Granting Conditional Exemptive Relief, Pursuant to Section 
36 of the Securities Exchange Act of 1934 (``Exchange Act'') and Rule 
608(e) of Regulation NMS Under the Exchange Act, From Sections 6.4, 
6.7(a)(v) and 6.7(a)(vi) of the National Market System Plan Governing 
the Consolidated Audit Trail

April 20, 2020.

I. Introduction

    By letter dated February 19, 2020, BOX Exchange, LLC, Cboe BYX 
Exchange, Inc., Cboe BZX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe 
EDGA Exchange Inc., Cboe EDGX Exchange, Inc., Cboe Exchange, Inc., 
Financial Industry Regulatory Authority, Inc., Investors Exchange LLC, 
Long Term Stock Exchange, Inc., Miami International Securities Exchange 
LLC, MIAX Emerald, LLC; MIAX Pearl, LLC, Nasdaq BX, Inc., Nasdaq GEMX, 
LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, Nasdaq PHLX LLC, The NASDAQ 
Stock Market LLC, New York Stock Exchange LLC, NYSE American LLC, NYSE 
Arca, Inc., NYSE Chicago, Inc., and NYSE National, Inc. (collectively, 
the ``Participants'') to the National Market System Plan Governing the 
Consolidated Audit Trail (``CAT NMS Plan'' or ``Plan''),\1\ requested 
that the Securities and Exchange Commission (``Commission'' or ``SEC'') 
grant exemptive relief from certain requirements in the CAT NMS Plan 
pursuant to Section 36 of the Securities Exchange Act of 1934 
(``Exchange Act'') \2\ and Rule 608(e) of Regulation NMS under the 
Exchange Act.\3\ Specifically, the Participants seek exemptive relief 
from requirements in Sections 6.4, 6.7(a)(v) and 6.7(a)(vi) of the CAT 
NMS Plan related to Industry Member \4\ reporting of Industry Member 
Data \5\ to the Central Repository \6\ to allow for the implementation 
of phased reporting for Industry Members to the Consolidated Audit 
Trail (``CAT'') as described below.
---------------------------------------------------------------------------

    \1\ The CAT NMS Plan was published for comment in the Federal 
Register on May 17, 2016, and approved by the Commission, as 
modified, on November 15, 2016. See Securities Exchange Act Release 
Nos. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016) (``Notice of 
Filing of the CAT NMS Plan''); 79318 (November 15, 2016), 81 FR 
84696 (November 23, 2016) (``CAT NMS Plan Approval Order''). The CAT 
NMS Plan is Exhibit A of the CAT NMS Plan Approval Order. See CAT 
NMS Plan Approval Order, at 84943-85034.
    \2\ 15 U.S.C. 78mm(a)(1).
    \3\ 17 CFR 242.608(e).
    \4\ The CAT NMS Plan defines ``Industry Member'' as a member of 
a national securities exchange or a member of a national securities 
association. See CAT NMS Plan Approval Order, supra note 1, at 
84946, Ex. A, Section 1.1. The CAT NMS Plan defines ``Small Industry 
Member'' as an Industry Member that qualifies as a small broker-
dealer as defined in Rule 613. See id. at 84947, Ex. A, Section 1.1. 
Rule 613(a)(3)(v) uses the definition of ``small broker-dealer'' 
contained in Exchange Act Rule 0-10, ``Small entities under the 
Securities Exchange Act for purposes of the Regulatory Flexibility 
Act.'' Exchange Rule 0-10(c) defines a ``small broker-dealer'' as a 
broker or dealer that: (1) Had total capital (net worth plus 
subordinated liabilities) of less than $500,000 on the date in the 
prior fiscal year as of which its audited financial statements were 
prepared pursuant to 240.17a5(d) or, if not required to file such 
statements, a broker or dealer that had total capital (net worth 
plus subordinated liabilities) of less than $500,000 on the last 
business day of the preceding fiscal year (or in the time that it 
has been in business, if shorter); and (2) is not affiliated with 
any person (other than a natural person) that is not a small 
business or small organization as defined in this section. See 17 
CFR 242.613(a)(3)(v); see also 17 CFR 240.0-10(c). In a separate 
order, the Commission granted the Participants' request for 
exemptive relief from enforcing compliance with certain provisions 
of the CAT NMS Plan with respect to broker-dealers that do not 
qualify as Small Industry Members solely because they satisfy Rule 
0-10(i)(2) under the Exchange Act, and as a result, are deemed to be 
affiliated with an entity that is not a small business or a small 
organization (``Introducing Industry Member''). See Order Granting 
Limited Exemptive Relief, Pursuant to Section 36 of the Securities 
Exchange Act of 1934 (``Exchange Act'') and Rule 608(e) of 
Regulation NMS Under the Exchange Act, Related to Certain 
Introducing Brokers, From the Requirements of the National Market 
System Plan Governing the Consolidated Audit Trail, Securities 
Exchange Act Release No. 34-88703 (dated April 20, 2020). Under that 
Order, the Participants will be exempted from requiring compliance 
with the requirements of the CAT NMS Plan that apply to Large 
Industry Members with respect to Introducing Industry Members that 
meet the capital standard in Rule 0-10(c)(1) and that are Small 
Industry Non-OATS Reporters, provided that each Participant requires 
such Introducing Industry Members, through its Compliance Rule, to 
comply with the requirements of the CAT NMS Plan applicable to Small 
Industry Members.
    \5\ Industry Member Data is the data specified in Sections 
6.4(d)(i)-(ii) of the CAT NMS Plan, which includes customer 
information. See CAT NMS Plan Approval Order, supra note 1, at 
84961, Ex. A, Sections 6.4(d)(i)-(ii).
    \6\ See Letter from Michael Simon, Chair, CAT NMS Plan Operating 
Committee, to Vanessa Countryman, Secretary, Securities and Exchange 
Commission, dated February 19, 2020 (``February 19, 2020 Exemption 
Request''). Unless otherwise noted, capitalized terms are used as 
defined in Rule 613 or in the CAT NMS Plan. The Participants state 
that this letter amends and replaces in its entirety the original 
exemptive request letter submitted to the Commission on September 
26, 2019. See Letter from Michael Simon, Chair, CAT NMS Plan 
Operating Committee, to Vanessa Countryman, Secretary, Securities 
and Exchange Commission, dated September 26, 2019.
---------------------------------------------------------------------------

    Rule 608(c) of Regulation NMS under the Exchange Act requires that 
each self-regulatory organization (``SRO'') comply with and, absent 
reasonable justification or excuse, enforce compliance by its members 
with, the terms of any effective NMS plan of which it is a sponsor or a 
participant.\7\ Section 6.4 of the CAT NMS Plan, which governs data 
reporting and recording by Industry Members, provides that the 
requirements for Industry Members under that section shall become 
effective on the second anniversary of the Effective Date in the case 
of Industry Members other than Small Industry Members, or the third 
anniversary of the Effective Date in the case of Small Industry 
Members.\8\ Section 6.7(a)(v) of the CAT NMS Plan provides that each 
Participant, through its Compliance Rule,\9\ shall require its Industry 
Members (other than Small Industry Members) to report Industry Member 
Data to the Central Repository within two years after the Effective 
Date.\10\ Section 6.7(a)(vi) of the CAT NMS Plan provides that each 
Participant, through its Compliance Rule, shall require its Small 
Industry Members to report Industry Member Data to the Central 
Repository within three years after the Effective Date.\11\
---------------------------------------------------------------------------

    \7\ 17 CFR 242.608(c).
    \8\ See CAT NMS Plan Approval Order, supra note 1, at 84960, Ex. 
A, Section 6.4. The Effective Date of the CAT NMS Plan was November 
15, 2016. See supra note 1. Therefore, two years after the Effective 
Date is November 15, 2018, and three years after the Effective Date 
is November 15, 2019.
    \9\ The CAT NMS Plan defines ``Compliance Rule'' as, with 
respect to a Participant, the rule(s) promulgated by such 
Participant as contemplated by Section 3.11 of the CAT NMS Plan. See 
CAT NMS Plan, supra note 1, at Section 1.1. Section 3.11, 
``Compliance Undertaking,'' requires each Participant to promulgate 
consistent rules requiring compliance by their respective Industry 
Members with the provisions of Rule 613 and the CAT NMS Plan. See 
CAT NMS Plan Approval Order, supra note 1, at 84945, 84950, Ex. A, 
Section 3.11. Between January 17, 2017 and February 2, 2017, each 
Participant filed a Compliance Rule reflecting the requirements in 
Section 6.7(a)(v) of the CAT NMS Plan that each Participant require 
its Industry Members (other than Small Industry Members) to report 
Industry Member Data to the Central Repository by November 15, 2018, 
and in Section 6.7(a)(vi) of the CAT NMS Plan that each Participant 
require its Small Industry Members to report Industry Member Data to 
the Central Repository by November 15, 2019. See Securities Exchange 
Act Release Nos. 80256 (March 15, 2017), 82 FR 14526 (March 21, 
2017) (``CAT Compliance Rule Joint Approval Order''); 80255 (March 
15, 2017), 82 FR 14563, (March 21, 2017) (``FINRA CAT Compliance 
Rule Approval Order'').
    \10\ See CAT NMS Plan Approval Order, supra note 1, at 84963, 
Ex. A, Section 6.7(a)(v). Section 1.1 of the CAT NMS Plan defines 
``Effective Date'' as ``the date of approval of this Agreement by 
the Commission.'' Id. at 84946, Ex. A, Section 1.1. The Effective 
Date of the CAT NMS Plan was November 15, 2016. Therefore, two years 
after the Effective Date is November 15, 2018.
    \11\ See CAT NMS Plan Approval Order, supra note 1, at 84963, 
Ex. A, Section 6.7(a)(vi). The Effective Date of the CAT NMS Plan 
was November 15, 2016. See id. at 84946, Ex. A, Section 1.1. 
Therefore, three years after the Effective Date is November 15, 
2019.
---------------------------------------------------------------------------

    For the reasons set forth below, this Order grants the 
Participants' request for exemptions from specified provisions of the 
CAT NMS Plan as set forth in the February 19, 2020 Exemption Request, 
subject to certain conditions.

[[Page 23076]]

II. Description

    The Participants state that under the CAT NMS Plan, the 
Participants are required, through their Compliance Rules, to require 
their Industry Members (other than Small Industry Members) (``Large 
Industry Members'') to commence reporting Industry Member Data to the 
Central Repository by November 15, 2018, and to require their Small 
Industry Members to commence reporting Industry Member Data to the 
Central Repository by November 15, 2019.\12\ As set forth in the 
February 19, 2020 Exemption Request, the Participants propose to 
implement phased reporting for Industry Member reporting to the CAT 
(``Phased Reporting'') in place of the CAT reporting schedule for 
Industry Members set forth in the CAT NMS Plan.\13\ The Participants 
state that Phased Reporting would have five phases, Phases 2a through 
2e, and further represent that the full scope of CAT Data \14\ required 
under the CAT NMS Plan will be available when all five phases of Phased 
Reporting are complete, subject to any applicable exemptive relief or 
amendments to the CAT NMS Plan.\15\ The Participants state that each 
phase of Phased Reporting is described in the Technical Specifications 
for Industry Members, which provide detailed guidance regarding the 
data to be reported for each phase.\16\ The Participants believe that 
Phased Reporting ``would facilitate significant Industry Member 
reporting as quickly as possible by leaving certain complex reporting 
requirements to later phases.'' \17\
---------------------------------------------------------------------------

    \12\ See February 19, 2020 Exemption Request at 2. The 
Participants state that Section 3.11 of the CAT NMS Plan requires 
the Participants to ``endeavor to promulgate consistent rules . . . 
requiring compliance by their respective Industry Members with the 
provisions of SEC Rule 613'' and the CAT NMS Plan. See id. at n.7
    \13\ See February 19, 2020 Exemption Request at 2. The 
Participants represent that they engaged in in-depth discussions 
with the industry and FINRA CAT, LLC, the Plan Processor, regarding 
the scope and timing of Industry Member reporting, prior to the 
exemption request. See id. The Participants plan to file revisions 
to their Compliance Rules consistent with the exemptive relief 
requested in the February 19, 2020 Exemption Request, including 
revisions to testing and related dates associated with Industry 
Member CAT reporting. See id.
    \14\ ``CAT Data'' means data derived from Participant Data, 
Industry Member Data, SIP Data, and such other data as the Operating 
Committee may designate as ``CAT Data'' from time to time. See 
Section 1.1 of the CAT NMS Plan.
    \15\ See February 19, 2020 Exemption Request at 2.
    \16\ See February 19, 2020 Exemption Request at 2 n.10. 
Specifically, the Participants state that Phases 2a-2e of the Phased 
Reporting are described in Table 1: Industry Specifications Phased 
Approach in the CAT Reporting Technical Specifications for Industry 
Members (version 2.2.1 r3) (Jan. 31, 2020); Table 1: Industry 
Specifications Phased Approach, CAT Reporting Technical 
Specifications for Industry Member (version 3.0.0) (Jan. 31, 2020); 
and Table 1: Industry Customer & Account Specifications Phased 
Approach, CAT Reporting Customer & Account Technical Specifications 
for Industry Members (Version 1.0) (Jan. 23, 2020) (collectively 
with amendments, ``Industry Member Technical Specifications''), each 
of which is available at www.catnmsplan.com.
    \17\ February 19, 2020 Exemption Request at 2.
---------------------------------------------------------------------------

A. Phase 2a Scope

    The Participants state that in the first phase of Phased Reporting 
(``Phase 2a''), Large Industry Members and Small Industry OATS 
Reporters \18\ would be required to report ``Phase 2a Industry Member 
Data'' to the Central Repository by April 20, 2020.\19\ The 
Participants state that Large Industry Members and Small Industry OATS 
Reporters would be required to submit data to the CAT for the same 
events and scenarios during Phase 2a.\20\
---------------------------------------------------------------------------

    \18\ ``Small Industry OATS Reporters'' are Industry Members that 
are currently required to record and report information to FINRA's 
Order Audit Trail System pursuant to applicable self-regulatory 
organization (``SRO'') rules. See February 19, 2020 Exemption 
Request at 3.
    \19\ See February 19, 2020 Exemption Request at 3. The 
Participants state that Small Industry Members that are not required 
to record and report information to FINRA's OATS pursuant to 
applicable SRO rules (``Small Industry Non-OATS Reporters'') would 
not be required to report Phase 2a Industry Member Data to the 
Central Repository until December 13, 2021, which is twenty months 
after Large Industry Members and Small Industry OATS Reporters would 
begin reporting. See February 19, 2020 Exemption Request at 3.
    \20\ See February 19, 2020 Exemption Request at 3.
---------------------------------------------------------------------------

    The Participants state that ``Phase 2a Industry Member Data'' would 
be Industry Member Data that is required to be reported to the Central 
Repository commencing in Phase 2a as set forth in the Industry Member 
Technical Specifications, and that Phase 2a Industry Member Data would 
include Industry Member Data solely related to Eligible Securities that 
are equities.\21\ Specifically, the Participants state that Phase 2a 
Industry Member Data would include all events and scenarios covered by 
OATS,\22\ which includes information related to the receipt or 
origination of orders, order transmittal, and order modifications, 
cancellations and executions.\23\ The Participants also state that 
Phase 2a Industry Member Data would include Reportable Events for:
---------------------------------------------------------------------------

    \21\ See February 19, 2020 Exemption Request at 3. The 
Participants state that the items required to be reported commencing 
in Phase 2a do not include the items required to be reported in 
Phase 2c or Phase 2d. While the following summarizes the categories 
of Industry Member Data to be reported for Phase 2a, the 
Participants state that the Industry Member Technical Specifications 
provide detailed guidance regarding the data to be reported for each 
Phase. See id. at 2-3. In addition, the Participants state that they 
plan to file revisions to their Compliance Rules consistent with the 
exemptive relief requested in the February 19, 2020 Exemption 
Request. See id.
    \22\ See FINRA Rule 7440.
    \23\ See February 19, 2020 Exemption Request at 3.
---------------------------------------------------------------------------

     Proprietary orders, including market maker orders, for 
Eligible Securities that are equities;
     electronic quotes in listed equity Eligible Securities 
(i.e., NMS stocks) sent to a national securities exchange or FINRA's 
Alternative Display Facility (``ADF'');
     electronic quotes in unlisted Eligible Securities (i.e., 
OTC Equity Securities) received by an Industry Member operating an 
interdealer quotation system (``IDQS''); and
     electronic quotes in unlisted Eligible Securities sent to 
an IDQS or other quotation system not operated by a Participant or 
Industry Member.\24\
---------------------------------------------------------------------------

    \24\ See February 19, 2020 Exemption Request at 3-4.
---------------------------------------------------------------------------

    According to the Participants, Phase 2a Industry Member Data would 
include Firm Designated IDs (``FDIDs''), which Industry Members must 
report to the CAT as required by Sections 6.3(d)(i)(A) and 
6.4(d)(ii)(C) of the CAT NMS Plan.\25\ The Participants state that in 
Phase 2a, Industry Members would be required to report all street side 
representative orders,\26\ including both agency and proprietary orders 
and mark such orders as representative orders, except in certain 
limited exceptions as described in the Industry Member Technical 
Specifications.\27\ The Participants state that in Phase 2a, Industry 
Members would be required to report the link between the street side 
representative order and the order being represented when: (1) The 
representative order was originated specifically to represent a single 
order received either from a customer or another broker-dealer; and (2) 
there is (a) an existing direct electronic link in the Industry 
Member's system between the order being represented and the 
representative order and (b) any resulting executions are immediately 
and automatically applied to the represented order in the Industry 
Member's system.\28\
---------------------------------------------------------------------------

    \25\ See February 19, 2020 Exemption Request at 4. Section 
6.3(d)(i)(A) of the CAT NMS Plan, as applied by Section 6.4(d)(i), 
requires Industry Members to submit the Firm Designated ID for the 
original receipt or origination of an order. Section 6.4(d)(ii)(C) 
of the CAT NMS Plan requires Industry Members to record and report 
to the Central Repository, for original receipt and origination of 
an order, the Firm Designated ID.
    \26\ See February 19, 2020 Exemption Request at 4. The 
Participants state that a representative order is an order 
originated in a firm owned or controlled account, including 
principal, agency average price and omnibus accounts, by an Industry 
Member for the purpose of working one or more customer or client 
orders. See id.
    \27\ See February 19, 2020 Exemption Request at 4.
    \28\ See February 19, 2020 Exemption Request at 4.

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

[[Page 23077]]

    The Participants state that Phase 2a Industry Member Data also 
would include the manual and Electronic Capture Time for Manual Order 
Events.\29\ The Participants state that specifically, for each 
Reportable Event in Section 6.3(d) of the CAT NMS Plan, Industry 
Members would be required to provide a timestamp pursuant to Section 
6.8(b) of the CAT NMS Plan.\30\ The Participants explain that 
accordingly, for Phase 2a, Industry Members would be required to 
provide both the manual and Electronic Capture Time for Manual Order 
Events.\31\ The Participants state that Industry Members would be 
required to report special handling instructions for the original 
receipt or origination of an order during Phase 2a.\32\ In addition, 
during Phase 2a, the Participants state that Industry Members will be 
required to report, when routing an order, whether the order was routed 
as an intermarket sweep order (``ISO'').\33\
---------------------------------------------------------------------------

    \29\ See February 19, 2020 Exemption Request at 4.
    \30\ See February 19, 2020 Exemption Request at 4. The 
Participants state that Section 6.8(b) of the CAT NMS Plan states 
that Industry Members shall be permitted to record and report: (i) 
Manual Order Events to the Central Repository in increments up to 
and including one second, provided that . . . Industry Members shall 
be 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 . . . Industry Member (``Electronic Capture Time'') 
in milliseconds.
    \31\ See February 19, 2020 Exemption Request at 5. The 
Participants state that Industry Members would be required to 
provide an Electronic Capture Time following the manual capture time 
only for new orders that are Manual Order Events and, in certain 
instances, routes that are Manual Order Events. The Participants 
state that the Electronic Capture Time would not be required for 
other Manual Order Events. See id. at n.14.
    \32\ See February 19, 2020 Exemption Request at 5.
    \33\ See February 19, 2020 Exemption Request at 5. The 
Participants state that Industry Members would be required to report 
special handling instructions on routes other than ISOs in Phase 2c, 
rather than Phase 2a. See id.
---------------------------------------------------------------------------

    The Participants state that in Phase 2a, Industry Members would not 
be required to report modifications of a previously routed order in 
certain limited instances.\34\ The Participants explain that 
specifically, if a trader or trading software modifies a previously 
routed order, the routing firm is not required to report the 
modification of an order route if the destination to which the order 
was routed is a CAT Reporter that is required to report the 
corresponding order activity.\35\ The Participants state that if, 
however, the order was modified by a Customer or other non-CAT 
Reporter, and subsequently the routing Industry Member sends a 
modification to the destination to which the order was originally 
routed, then the routing Industry Member must report the modification 
of the order route.\36\ In addition, the Participants state that in 
Phase 2a, Industry Members would not be required to report a 
cancellation of an order received from a Customer after the order has 
been executed.\37\
---------------------------------------------------------------------------

    \34\ See February 19, 2020 Exemption Request at 5.
    \35\ See February 19, 2020 Exemption Request at 5.
    \36\ See February 19, 2020 Exemption Request at 5. The 
Participants represent that this approach is comparable to the 
approach set forth in OATS Compliance FAQ 35. See id. at n.15.
    \37\ See February 19, 2020 Exemption Request at 5.
---------------------------------------------------------------------------

    For Phase 2a, Participants would require Small Industry OATS 
Reporters to begin reporting to the Central Repository at the same time 
as Large Industry Members.\38\ The Participants state that aligning the 
start of CAT reporting for Small Industry OATS Reporters with that of 
Large Industry Members under the Phased Reporting approach is designed 
to accelerate the retirement of OATS, and that having data from the 
Small Industry Members currently reporting to OATS available when Large 
Industry Members begin reporting would substantially facilitate a more 
expeditious retirement of OATS.\39\ The Participants further state that 
the retirement of OATS would lead to a significant cost savings for the 
industry by eliminating the need to maintain two duplicative reporting 
systems, as described in the CAT NMS Plan and as noted by the 
industry.\40\
---------------------------------------------------------------------------

    \38\ See February 19, 2020 Exemption Request at 5.
    \39\ See February 19, 2020 Exemption Request at 5.
    \40\ See February 19, 2020 Exemption Request at 6.
---------------------------------------------------------------------------

    In addition, the Participants state that commencing Phase 2a CAT 
reporting for Small Industry OATS Reporters and Large Industry Members 
simultaneously should not create significant burdens for Small Industry 
OATS Reporters because the additional year allotted to Small Industry 
Members under the CAT NMS Plan was intended to give Small Industry 
Members additional time to comply with the new reporting 
requirements.\41\ The Participants believe this contention is supported 
by language in the Rule 613 Adopting Release indicating that small 
broker-dealers were provided with an additional year to begin reporting 
because ``small broker-dealers, particularly those that operate manual 
systems, might be particularly impacted because of their more modest 
financial resources and may need additional time to upgrade to an 
electronic method of reporting audit trail data to the central 
repository.'' \42\ However, the Participants state that they do not 
believe that this concern applies to small broker-dealers that are OATS 
Reporters.\43\ The Participants explain that while their proposed 
exemption would accelerate CAT reporting obligations for approximately 
230 Small Industry Members, 220 of those firms already report to OATS 
through clearing firms or other third-party providers, all of which 
will begin reporting to the CAT at the same time as Large Industry 
Members.\44\ As a result, the Participants believe that (1) additional 
technical requirements or costs to accelerate reporting requirements 
for these firms should be limited, and (2) that this change would allow 
introducing and clearing firms to avoid the costs associated with 
maintaining two systems during the additional transition year otherwise 
provided to Small Industry Members.\45\ Of the ten Small Industry 
Members that report to OATS on their own behalf, the Participants state 
that eight have very few reportable events and, consequently, the 
Participants believe that these Industry Members would not have 
significant burdens reporting to the CAT rather than continuing to 
report to OATS.\46\
---------------------------------------------------------------------------

    \41\ See February 19, 2020 Exemption Request at 6.
    \42\ See February 19, 2020 Exemption Request at 6; see also 
Securities Exchange Act Rel. No. 67457 (July 18, 2012), 77 FR 45722, 
45749 (August 1, 2012) (``Rule 613 Adopting Release'').
    \43\ See February 19, 2020 Exemption Request at 6.
    \44\ See February 19, 2020 Exemption Request at 6.
    \45\ See February 19, 2020 Exemption Request at 6.
    \46\ See February 19, 2020 Exemption Request at 6. The 
Participants state that in one recent month, five of the ten firms 
submitted fewer than 100 reports during the month, with four 
submitting fewer than 50. See id. at n.19.
---------------------------------------------------------------------------

    The Participants also believe that Phase 2a will serve as a 
substantial step forward for CAT reporting because it will cover not 
only all OATS events and scenarios from all OATS reporters, but will 
also include a variety of data not covered by OATS or other SRO 
systems.\47\ In addition, the Participants state that Large Industry 
Members and Small Industry OATS Reporters would be required to report 
the FDID during Phase 2a, and that the FDID will allow regulators to 
identify that the same account is trading within a single broker-
dealer.\48\ Furthermore, the Participants state that during Phase 2a, 
certain linkages between street side representative orders and the 
related customer order will be enabled, which will provide significant 
benefits to regulators using the data, and that these

[[Page 23078]]

linkages are not required under the OATS rules.\49\
---------------------------------------------------------------------------

    \47\ See February 19, 2020 Exemption Request at 6. For example, 
the Participants state that during Phase 2a, Large Industry Members 
and Small Industry OATS Reporters will be required to report all 
proprietary orders, including market maker orders, whereas market 
making and representative proprietary orders are not required to be 
captured under the OATS rules. See id.
    \48\ See February 19, 2020 Exemption Request at 7. The 
Participants state that when the Customer information reporting 
begins, the Firm Designated ID will be used to link accounts to 
specific customers. See id. at n.20.
    \49\ See February 19, 2020 Exemption Request at 7.
---------------------------------------------------------------------------

    In regard to Small Industry Non-OATS Reporters, the Participants do 
not propose to require these reporters to commence CAT reporting at the 
same time as Large Industry Members on April 20, 2020.\50\ Instead, the 
Participants propose to require Small Industry Non-OATS Reporters to 
begin reporting Phase 2a Industry Member Data by December 13, 2021, 
twenty months after Large Industry Members and Small Industry OATS 
Reporters begin reporting Phase 2a Industry Member Data to the Central 
Repository.\51\ The Participants determined not to accelerate Phase 2a 
CAT reporting for Small Industry Non-OATS Reporters because unlike 
Small Industry OATS Reporters, the burdens of CAT reporting are 
significantly greater for those firms that are not currently reporting 
to OATS.\52\ In addition, because Small Industry Non-OATS Reporters do 
not report to OATS, the Participants state that accelerating their 
reporting would not have any effect on the retirement of OATS.\53\
---------------------------------------------------------------------------

    \50\ See February 19, 2020 Exemption Request at 7.
    \51\ See February 19, 2020 Exemption Request at 7.
    \52\ See February 19, 2020 Exemption Request at 7.
    \53\ See February 19, 2020 Exemption Request at 7.
---------------------------------------------------------------------------

B. Phase 2b Scope

    The Participants state that in the second phase of Phased Reporting 
(``Phase 2b''), Large Industry Members would be required to report to 
the Central Repository ``Phase 2b Industry Member Data'' by May 18, 
2020.\54\ Small Industry Members, however, would not be required to 
report Phase 2b Industry Member Data to the Central Repository until 
December 13, 2021, which is nineteen months after Large Industry 
Members begin reporting such data to the Central Repository.\55\
---------------------------------------------------------------------------

    \54\ See February 19, 2020 Exemption Request at 7.
    \55\ See February 19, 2020 Exemption Request at 7.
---------------------------------------------------------------------------

    The Participants state that ``Phase 2b Industry Member Data'' would 
be Industry Member Data required to be reported to the Central 
Repository commencing in Phase 2b as set forth in the Industry Member 
Technical Specifications.\56\ Specifically, the Participants state that 
Phase 2b Industry Member Data would include Industry Member Data 
related to Eligible Securities that are options and related to simple 
electronic option orders, excluding electronic paired option 
orders.\57\ The Participants explain that a simple electronic option 
order is an order to buy or sell a single option that is not related to 
or dependent on any other transaction for pricing and timing of 
execution that is either received or routed electronically by an 
Industry Member.\58\ The Participants state that electronic receipt of 
an order is defined as the initial receipt of an order by an Industry 
Member in electronic form in standard format directly into an order 
handling or execution system.\59\ The Participants state that 
electronic routing of an order is the routing of an order via 
electronic medium in standard format from one Industry Member's order 
handling or execution system to an exchange or another Industry 
Member.\60\ The Participants further explain that an electronic paired 
option order is an electronic option order that contains both the buy 
and sell side that is routed to another Industry Member or exchange for 
crossing and/or price improvement as a single transaction on an 
exchange.\61\ The Participants add that responses to auctions of simple 
orders and paired simple orders would be reportable in Phase 2b.\62\
---------------------------------------------------------------------------

    \56\ See February 19, 2020 Exemption Request at 7. The 
Participants state that while the following summarizes the 
categories of Industry Member Data to be reported for Phase 2b, the 
Industry Member Technical Specifications provide detailed guidance 
regarding the data to be reported for each Phase. See id. at 7, 2-3.
    \57\ See February 19, 2020 Exemption Request at 7. The 
Participants state that the items required to be reported in Phase 
2b do not include the items required to be reported in Phase 2d, as 
discussed below. See id. at n.21.
    \58\ See February 19, 2020 Exemption Request a 7-8.
    \59\ See February 19, 2020 Exemption Request at 8.
    \60\ See February 19, 2020 Exemption Request at 8.
    \61\ See February 19, 2020 Exemption Request at 8.
    \62\ See February 19, 2020 Exemption Request at 8.
---------------------------------------------------------------------------

    Furthermore, the Participants state that combined orders in options 
would be treated in Phase 2b in the same way as equity representative 
orders are treated in Phase 2a.\63\ The Participants state that a 
combined order would mean, as permitted by SRO rules, a single, simple 
order in Listed Options created by combining individual, simple orders 
in Listed Options from a customer with the same exchange origin code 
before routing to an exchange.\64\ The Participants state that during 
Phase 2b, the single combined order sent to an exchange must be 
reported and marked as a combined order, but the linkage to the 
underlying orders is not required to be reported until Phase 2d.\65\
---------------------------------------------------------------------------

    \63\ See February 19, 2020 Exemption Request at 8.
    \64\ See February 19, 2020 Exemption Request at 8.
    \65\ See February 19, 2020 Exemption Request at 8.
---------------------------------------------------------------------------

C. Phase 2c Scope

    The Participants state that in the third phase of Phased Reporting 
(``Phase 2c''), Large Industry Members would be required to report to 
the Central Repository ``Phase 2c Industry Member Data'' by April 26, 
2021.\66\ Small Industry Members would be required to report to the 
Central Repository ``Phase 2c Industry Member Data'' by December 13, 
2021, which is seven months after Large Industry Members begin 
reporting such data to the Central Repository.\67\
---------------------------------------------------------------------------

    \66\ See February 19, 2020 Exemption Request at 8.
    \67\ See February 19, 2020 Exemption Request at 8.
---------------------------------------------------------------------------

    The Participants state that ``Phase 2c Industry Member Data'' would 
be Industry Member Data related to Eligible Securities that are 
equities other than Phase 2a Industry Member Data, Phase 2d Industry 
Member Data, or Phase 2e Industry Member Data.\68\ Specifically, the 
Participants state that Phase 2c Industry Member Data would include 
Industry Member Data that is related to Eligible Securities that are 
equities and that is related to: (1) Allocation Reports as required to 
be recorded and reported to the Central Repository pursuant to Section 
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible 
Securities sent to an IDQS operated by a CAT Reporter (reportable by 
the Industry Member sending the quotes) (except for quotes reportable 
in Phase 2d, as discussed below); (3) electronic quotes in listed 
equity Eligible Securities (i.e., NMS stocks) that are not sent to a 
national securities exchange or FINRA's Alternative Display Facility; 
(4) reporting changes to client instructions regarding modifications to 
algorithms; (5) marking as a representative order any order originated 
to work a customer order in price guarantee scenarios, such as a 
guaranteed VWAP; (6) flagging rejected external routes to indicate a 
route was not accepted by the receiving destination; (7) linkage of 
duplicate electronic messages related to a Manual Order Event between 
the electronic event and the original manual route; (8) special 
handling instructions on order route reports (other than the ISO, which 
is required to be reported in Phase 2a); (9) quote identifier on trade 
events; (10) reporting of large trader identifiers \69\ (``LTID'') (if 
applicable) for accounts with Reportable Events that are reportable to 
CAT as of and including Phase 2c; \70\ (11) reporting of date

[[Page 23079]]

account opened or Account Effective Date \71\ (as applicable) for 
accounts and reporting of a flag indicating the Firm Designated ID type 
as account or relationship; (12) order effective time for orders that 
are received by an Industry Member and do not become effective until a 
later time; (13) the modification or cancellation of an internal route 
of an order; and (14) linkages to the customer orders(s) being 
represented for representative order scenarios, including agency 
average price trades, net trades, aggregated orders, and disconnected 
Order Management System (``OMS'')--Execution Management System 
(``EMS'') scenarios, as required in the Industry Member Technical 
Specifications.\72\
---------------------------------------------------------------------------

    \68\ See February 19, 2020 Exemption Request at 8. The 
Participants state that while the following summarizes the 
categories of Industry Member Data to be reported for Phase 2c, the 
Industry Member Technical Specifications provide detailed guidance 
regarding the data to be reported for each Phase. See id. at 8, 2-3.
    \69\ See definition of ``Customer Account Information'' in 
Section 1.1 of the CAT NMS Plan. See also Rule 13h-1 under the 
Exchange Act.
    \70\ The CAT NMS Plan requires LTID to be reported to the CAT as 
part of Customer Account Information. As set forth in the February 
19, 2020 Exemption Request, the Participants propose to require the 
reporting of LTID to the CAT in Phases 2c and 2d, instead of with 
the rest of Customer Account Information in Phase 2e, which 
potentially could result in an earlier elimination of broker-dealer 
recordkeeping, reporting and monitoring requirements of the Large 
Trader Rule. See February 19, 2020 Exemption Request at 9-11.
    \71\ See definition of ``Customer Account Information'' and 
``Account Effective Date'' in Section 1.1 of the CAT NMS Plan.
    \72\ See February 19, 2020 Exemption Request at 8-9. The 
Participants state that in Phase 2c, for any scenarios that involve 
orders originated in different systems that are not directly linked, 
such as a customer order originated in an OMS and represented by a 
principal order originated in an EMS that is not linked to the OMS, 
marking and linkages must be reported as required in the Industry 
Member Technical Specifications. See id. at n.24.
---------------------------------------------------------------------------

    The Participants state that Phase 2c Industry Member Data also 
includes electronic quotes that are provided by or received in a CAT 
Reporter's order/quote handling or execution systems in Eligible 
Securities that are equities and are provided by an Industry Member to 
other market participants off a national securities exchange under the 
following conditions: (1) An equity bid or offer is displayed publicly 
or has been communicated (a) for listed securities to the Alternative 
Display Facility (ADF) operated by FINRA; or (b) for unlisted equity 
securities to an ``inter-dealer quotation system'' as defined in FINRA 
Rule 6420(c); or (2) an equity bid or offer which is accessible 
electronically by customers or other market participants and is 
immediately actionable for execution or routing; i.e., no further 
manual or electronic action is required by the responder providing the 
quote in order to execute or cause a trade to be executed).\73\ The 
Participants state that with respect to OTC Equity Securities, OTC 
Equity Securities quotes sent by an Industry Member to an IDQS operated 
by an Industry Member CAT Reporter (other than such an IDQS that does 
not match and execute orders) are reportable by the Industry Member 
sending them in Phase 2c.\74\ The Participants explain that 
accordingly, any response to a request for quote or other form of 
solicitation response provided in a standard electronic format (e.g., 
FIX) that meets this quote definition (i.e., an equity bid or offer 
which is accessible electronically by customers or other market 
participants and is immediately actionable for execution or routing) 
would be reportable in Phase 2c.\75\
---------------------------------------------------------------------------

    \73\ See February 19, 2020 Exemption Request at 9.
    \74\ See February 19, 2020 Exemption Request at 9.
    \75\ See February 19, 2020 Exemption Request at 9.
---------------------------------------------------------------------------

D. Phase 2d Scope

    The Participants state that in the fourth phase of Phased Reporting 
(``Phase 2d''), Large Industry Members and Small Industry Members would 
be required to report to the Central Repository ``Phase 2d Industry 
Member Data'' by December 13, 2021.\76\ The Participants state that the 
full scope of CAT Data other than Phase 2e Industry Member Data will be 
required to be reported to the CAT when Phase 2d has been implemented, 
subject to any applicable exemptive relief or amendments to the CAT NMS 
Plan.\77\
---------------------------------------------------------------------------

    \76\ See February 19, 2020 Exemption Request at 9.
    \77\ See February 19, 2020 Exemption Request at 10.
---------------------------------------------------------------------------

    The Participants state that ``Phase 2d Industry Member Data'' is 
Industry Member Data that is related to Eligible Securities that are 
options other than Phase 2b Industry Member Data, Industry Member Data 
that is related to Eligible Securities that are equities other than 
Phase 2a Industry Member Data or Phase 2c Industry Member Data, and 
Industry Member Data other than Phase 2e Industry Member Data.\78\
---------------------------------------------------------------------------

    \78\ See February 19, 2020 Exemption Request at 9-10. The 
Participants state that reporting information regarding the 
modification or cancellation of a route is necessary to create the 
full lifecycle of an order. Accordingly, the reporting of 
information related to the modification or cancellation of a route 
(similar to the data required for the routing of an order and 
modification and cancellation of an order) is required pursuant to 
Sections 6.3(d)(ii) and (iv) of the CAT NMS Plan. See id. at 10 
n.25. The Participants state that while the following summarizes the 
categories of Industry Member Data to be reported for Phase 2d, the 
Industry Member Technical Specifications provide detailed guidance 
regarding the data to be reported for each Phase. See id. at 10, 2-
3.
---------------------------------------------------------------------------

    The Participants state that Phase 2d Industry Member Data includes 
with respect to the Eligible Securities that are options: (1) Simple 
manual orders; (2) electronic and manual paired orders; (3) all complex 
orders with linkages to all CAT-reportable legs; (4) LTIDs (if 
applicable) for accounts with Reportable Events for Phase 2d; (5) date 
account opened or Account Effective Date (as applicable) for accounts 
with an LTID and flag indicating the Firm Designated ID type as account 
or relationship for such accounts; (6) Allocation Reports as required 
to be recorded and reported to the Central Repository pursuant to 
Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan; (7) the modification or 
cancellation of an internal route of an order; and (8) linkage between 
a combined order and the original customer orders.\79\ The Participants 
state that Phase 2d Industry Member Data also would include electronic 
quotes that are provided by or received in a CAT Reporter's order/quote 
handling or execution systems in Eligible Securities that are options 
and are provided by an Industry Member to other market participants off 
a national securities exchange under the following conditions: A listed 
option bid or offer which is accessible electronically by customers or 
other market participants and is immediately actionable (i.e., no 
further action is required by the responder providing the quote in 
order to execute or cause a trade to be executed).\80\ The Participants 
state that accordingly, any response to a request for quote or other 
form of solicitation response provided in standard electronic format 
(e.g., FIX) that meets this definition would be reportable in Phase 2d 
for options.\81\
---------------------------------------------------------------------------

    \79\ See February 19, 2020 Exemption Request at 10.
    \80\ See February 19, 2020 Exemption Request at 10.
    \81\ See February 19, 2020 Exemption Request at 10.
---------------------------------------------------------------------------

    The Participants state that Phase 2d Industry Member Data also 
would include with respect to Eligible Securities that are options or 
equities (1) receipt time of cancellation and modification instructions 
through Order Cancel Request and Order Modification Request events; (2) 
modifications of previously routed orders in certain instances; and (3) 
OTC Equity Securities quotes sent by an Industry Member to an IDQS 
operated by an Industry Member CAT Reporter that does not match and 
execute orders. In addition, the Participants state that subject to any 
exemptive or other relief, Phase 2d Industry Member Data will include 
verbal or manual quotes on an exchange floor or in the over-the-counter 
market, where verbal quotes and manual quotes are defined as bids or 
offers in Eligible Securities provided verbally or that are provided or 
received other than via a CAT Reporter's order handling and execution 
system (e.g., quotations

[[Page 23080]]

provided via email or instant messaging).\82\
---------------------------------------------------------------------------

    \82\ See February 19, 2020 Exemption Request at 10.
---------------------------------------------------------------------------

E. Phase 2e Scope

    The Participants state that in the fifth phase of Phased Reporting 
(``Phase 2e''), both Large Industry Members and Small Industry Members 
would be required to report to the Central Repository ``Phase 2e 
Industry Member Data'' by July 11, 2022.\83\ The Participants state 
that ``Phase 2e Industry Member Data'' includes Customer Account 
Information and Customer Identifying Information, other than LTIDs, 
date account opened/Account Effective Date and Firm Designated ID type 
flag previously reported to the CAT.\84\ The Participants state that 
LTIDs and Account Effective Date are both provided in Phases 2c and 2d 
in certain circumstances, as discussed above.\85\ The Participants 
state that the terms ``Customer Account Information'' and ``Customer 
Identifying Information'' are defined in Section 1.1 of the CAT NMS 
Plan.\86\ The Participants represent that the full scope of CAT Data 
will be required to be reported to the CAT when Phase 2e has been 
implemented, subject to any applicable exemptive relief or amendments 
to the CAT NMS Plan.\87\
---------------------------------------------------------------------------

    \83\ See February 19, 2020 Exemption Request at 11; see supra 
note 16.
    \84\ See February 19, 2020 Exemption Request at 11.
    \85\ See February 19, 2020 Exemption Request at 11.
    \86\ See February 19, 2020 Exemption Request at 11. The term 
``Customer Account Information'' includes account numbers, and the 
term ``Customer Identifying Information'' includes, with respect to 
individuals, dates of birth and individual tax payer identification 
numbers and social security numbers (collectively, ``SSNs''). See 
Section 1.1 of the CAT NMS Plan. The Participants state that they 
requested exemptive relief from the requirements for the 
Participants to require their members to provide dates of birth, 
account numbers and social security numbers for individuals to the 
CAT. See Letter from Michael Simon, CAT NMS Plan Operating Committee 
Chair, to Vanessa Countryman, SEC, Request for Exemptive Relief from 
Certain Provisions of the CAT NMS Plan related to Social Security 
Numbers, Dates of Birth and Account Numbers (Jan. 29, 2020). On 
March 17, 2020, the Commission granted conditional exemptive relief 
to allow for an alternative approach to generating a CAT Customer ID 
without requiring Industry Members to report individual social 
security numbers or tax payer identification numbers and (2) to 
allow for an alternative approach that exempts the reporting of 
dates of birth and account numbers associated with natural person 
retail Customers to the CAT, and instead will require Industry 
Members to report the year of birth associated with natural person 
retail Customers and the FDID for each trading account associated 
with the Customer. See Securities Exchange Act Release No. 88393, 85 
FR 16152, 16152 (March 20, 2020).
    \87\ See February 19, 2020 Exemption Request at 11.
---------------------------------------------------------------------------

F. Industry Member Testing Requirements

    The Participants state that the CAT NMS Plan sets forth certain 
timelines for testing for various aspects of the implementation of 
Industry Member reporting to the CAT.\88\ The Participants elaborate 
that specifically, Section 10 of Appendix C of the CAT NMS Plan sets 
forth testing timelines for Large and Small Industry Members involving, 
in relevant part, the publication and implementation of the methods for 
providing information to the Customer-ID database, the submission of 
order and market maker quote data to Central Repository, and the 
linkage of the lifecycle of order events.\89\ Given the Participants' 
proposal to shift from two specified dates for the commencement of CAT 
reporting for Large and Small Industry Members to Phased Reporting, 
which features varying commencement dates according to each Phase for 
Large Industry Members, Small Industry OATS Reporters, and Small 
Industry Non-OATS Reporters, as described above, the Participants 
recognize that the testing milestones set forth in Appendix C of the 
CAT NMS Plan do not easily correspond to Phased Reporting.\90\ 
Accordingly, the Participants propose to replace the Industry Member 
testing milestones in Appendix C with the following testing 
milestones.\91\ The Participants represent that in each case, the 
proposed testing timeline would provide ample testing time for Industry 
Members.\92\ The proposed testing timeline is as follows:
---------------------------------------------------------------------------

    \88\ See February 19, 2020 Exemption Request at 11.
    \89\ See February 19, 2020 Exemption Request at 11.
    \90\ See February 19, 2020 Exemption Request at 11.
    \91\ See February 19, 2020 Exemption Request at 11. The 
Participants state that each of the testing milestones has been set 
forth in the updated master plan provided to the SEC. See id. The 
Division of Trading and Markets requested a master plan from the 
Participants detailing all the material steps necessary to fully 
implement both Participant and Industry Member reporting as part of 
completing the CAT, among other items. See Securities Exchange Act 
Release No. 86901, 84 FR 48458, 48460 (September 13, 2019) 
(``Proposed Transparency and Financial Accountability Amendments'').
    \92\ See February 19, 2020 Exemption Request at 11. See Section 
10.1, Appendix D of the CAT NMS Plan.
---------------------------------------------------------------------------

     Industry Member file submission and data integrity testing 
for Phases 2a and 2b begins in December 2019;
     Industry Member testing of the Reporter Portal, including 
data integrity error correction tools and data submissions, begins in 
February 2020;
     The Industry Member test environment will be open with 
intra-firm linkage validations to Industry Members for both Phases 2a 
and 2b in April 2020;
     The Industry Member test environment will be open to 
Industry Members with inter-firm linkage validations for both Phases 2a 
and 2b in July 2020;
     The Industry Member test environment will be open to 
Industry Members with Phase 2c functionality (full representative order 
linkages) in January 2021;
     The Industry Member test environment will be open to 
Industry Members with Phase 2d functionality (manual options orders, 
complex options orders, and options allocations) in June 2021;
     Participant exchanges that support options market making 
quoting will begin accepting Quote Sent Time on quotes from Industry 
Members no later than April 2020;
     The Industry Member test environment (customer and account 
information) will be open to Industry Members in January 2022.\93\
---------------------------------------------------------------------------

    \93\ See February 19, 2020 Exemption Request at 11-12.
---------------------------------------------------------------------------

III. Request for Relief

    In order to allow for the implementation of Phased Reporting, the 
Participants request, in the February 19, 2020 Exemption Request, that 
the Commission grant each Participant exemptive relief from the 
requirement in Section 6.4 of the CAT NMS Plan that ``[t]he 
requirements for Industry Members under this Section 6.4 shall become 
effective on the second anniversary of the Effective Date in the case 
of Industry Members other than Small Industry Members, or the third 
anniversary of the Effective Date in the case of Small Industry 
Members'' (i.e., November 15, 2018 and November 15, 2019, 
respectively).\94\ The Participants also request that the Commission 
grant each Participant exemptive relief from the requirement in Section 
6.7(a)(v) of the CAT NMS Plan for each Participant, through its 
Compliance Rule, to require its Industry Members (other than Small 
Industry Members) to report to the Central Repository Industry Member 
Data within two 2 years after the Effective Date (i.e., by November 15, 
2018); and the requirement in Section 6.7(a)(vi) of the CAT NMS Plan 
for each Participant, through its Compliance Rule, to require its Small 
Industry Members to report to the Central Repository Industry Member 
Data

[[Page 23081]]

within three 3 years after the Effective Date (i.e., by November 15, 
2019).\95\
---------------------------------------------------------------------------

    \94\ See February 19, 2020 Exemption Request at 12.
    \95\ See February 19, 2020 Exemption Request at 12.
---------------------------------------------------------------------------

    In support of their request for an exemption, the Participants 
state that Industry Members have expressed concern about being out of 
compliance with the reporting deadlines as currently set forth in the 
Compliance Rules, and have indicated that there is a need for formal 
guidance as to the revised CAT reporting schedule for Industry 
Members.\96\ The Participants state that such certainty would assist 
Industry Members in their efforts to ensure compliance with the 
regulatory requirements related to the CAT.\97\ The Participants state 
that the full scope of CAT Data will be required to be reported when 
all five phases of Phased Reporting have been implemented, subject to 
any applicable exemptive relief or amendments to the CAT NMS Plan.\98\
---------------------------------------------------------------------------

    \96\ See February 19, 2020 Exemption Request at 2. The 
Participants state that they plan to file revisions to their 
Compliance Rules consistent with the exemptive relief requested in 
the February 19, 2020 Exemption Request, including revisions to 
testing and related dates associated with Industry Member CAT 
reporting. See id.
    \97\ See February 19, 2020 Exemption Request at 2.
    \98\ See February 19, 2020 Exemption Request at 13.
---------------------------------------------------------------------------

    The Participants also state that, as a condition to the exemption, 
each Participant would implement the Phased Reporting described above 
through its Compliance Rule by requiring:
     For Phase 2a Industry Member Data: Its Large Industry 
Members and its Small Industry OATS Reporters to commence reporting to 
the Central Repository Phase 2a Industry Member Data by April 20, 2020, 
and its Small Industry Non-OATS Reporters to commence reporting to the 
Central Repository Phase 2a Industry Member Data by December 13, 2021;
     For Phase 2b Industry Member Data: Its Large Industry 
Members to commence reporting to the Central Repository Phase 2b 
Industry Member Data by May 18, 2020, and its Small Industry Members to 
commence reporting to the Central Repository Phase 2b Industry Member 
Data by December 13, 2021;
     For Phase 2c Industry Member Data: Its Large Industry 
Members to commence reporting to the Central Repository Phase 2c 
Industry Member Data by April 26, 2021, and its Small Industry Members 
to commence reporting to the Central Repository Phase 2c Industry 
Member Data by December 13, 2021;
     For Phase 2d Industry Member Data: Its Large Industry 
Members and Small Industry Members to commence reporting to the Central 
Repository Phase 2d Industry Member Data by December 13, 2021; and
     For Phase 2e Industry Member Data: Its Large Industry 
Members and Small Industry Members to commence reporting to the Central 
Repository Phase 2e Industry Member Data by July 11, 2022.\99\
---------------------------------------------------------------------------

    \99\ See February 19, 2020 Exemption Request at 12-13.
---------------------------------------------------------------------------

    The Participants also state that, as a further condition to the 
exemption, each Participant would implement the testing timelines 
described above through its Compliance Rule by requiring the following:
     Industry Member file submission and data integrity testing 
for Phases 2a and 2b to begin in December 2019.
     Industry Member testing of the Reporter Portal, including 
data integrity error correction tools and data submissions, to begin in 
February 2020.
     The Industry Member test environment will be open with 
intra-firm linkage validations to Industry Members for both Phases 2a 
and 2b in April 2020.
     The Industry Member test environment will be open to 
Industry Members with inter-firm linkage validations for both Phases 2a 
and 2b in July 2020.
     The Industry Member test environment will be open to 
Industry Members with Phase 2c functionality (full representative order 
linkages) in January 2021.
     The Industry Member test environment will be open to 
Industry Members with Phase 2d functionality (manual options orders, 
complex options orders, and options allocations) in June 2021.
     Participant exchanges that support options market making 
quoting will begin accepting Quote Sent Time on quotes from Industry 
Members no later than April 2020.
     The Industry Member test environment (customer and account 
information) will be open to Industry Members in January 2022.\100\
---------------------------------------------------------------------------

    \100\ See February 19, 2020 Exemption Request at 13.
---------------------------------------------------------------------------

IV. Discussion

    Section 36 of the Exchange Act grants the Commission the authority, 
with certain limitations, to ``conditionally or unconditionally exempt 
any person, security, or transaction . . . from any provision or 
provisions of [the Exchange Act] or of any rule or regulation 
thereunder, to the extent that such exemption is necessary or 
appropriate in the public interest, and is consistent with the 
protection of investors.'' \101\ Rule 608(e) of Regulation NMS under 
the Exchange Act authorizes the Commission to exempt, either 
unconditionally or on specified terms and conditions, any self-
regulatory organization, member thereof, or specified security, from 
the provisions of the rule if the Commission determines that such 
exemption is consistent with the public interest, the protection of 
investors, the maintenance of fair and orderly markets and the removal 
of impediments to, and perfection of the mechanisms of, a national 
market system.\102\
---------------------------------------------------------------------------

    \101\ 15 U.S.C. 78mm(a)(1).
    \102\ 17 CFR 242.608(e).
---------------------------------------------------------------------------

    The Commission believes that exemptive relief pursuant to Section 
36 of the Exchange Act to allow for the implementation of Phased 
Reporting for Industry Members is appropriate in the public interest, 
and is consistent with the protection of investors and that, pursuant 
to Rule 608(e), such relief is consistent with the public interest, the 
protection of investors, the maintenance of fair and orderly markets 
and the removal of impediments to, and perfection of the mechanisms of, 
a national market system. In accordance with the CAT NMS Plan, the 
Participants adopted Compliance Rules to require their Industry Members 
to commence reporting Industry Member Data by November 15, 2018 for 
Large Industry Members, and November 15, 2019 for Small Industry 
Members, respectively.\103\ Industry Members, however, have not been 
able to commence reporting Industry Member Data to the CAT because 
there has not been a system in place capable of accepting the required 
Industry Member Data.
---------------------------------------------------------------------------

    \103\ See FINRA CAT Compliance Rule Approval Order, supra note 
9; CAT Compliance Rule Joint Approval Order, supra note 9.
---------------------------------------------------------------------------

    Allowing the Participants to revise the Industry Member CAT 
reporting requirements in the Compliance Rules to be consistent with 
Phased Reporting as described in this Order will facilitate an 
incremental approach to CAT implementation. Such an approach could 
contribute to more efficient development of the overall CAT system, 
which has been subject to delays, and could provide certainty to 
Industry Members as they implement their regulatory data collection 
systems and make any necessary adjustments.
    Although the Participants proposed in the February 19, 2020 
Exemption

[[Page 23082]]

Request that Phase 2a reporting would commence on April 20, 2020 and 
Phase 2b reporting would commence on May 18, 2020,\104\ in light of 
COVID-19 and the Participants' subsequent March 19, 2020 No Action 
Request,\105\ the Commission believes that the Participants should be 
granted an exemption from the CAT NMS Plan so that the Compliance Rules 
may require Phase 2a reporting to commence on June 22, 2020 and Phase 
2b reporting to commence on July 20, 2020, provided that Industry 
Members who elect to report to the CAT prior to such dates be permitted 
to report to the CAT as early as April 20, 2020 for Phase 2a reporting 
and as early as May 18, 2020 for Phase 2b reporting. The Participants 
represented in their March 19, 2020 No Action Request that the CAT will 
be ready to accept CAT reports from Industry Members as of April 20, 
2020 \106\ and that the Participants understand that the Plan Processor 
for the CAT will be able to meet its upcoming system build and 
production dates.\107\
---------------------------------------------------------------------------

    \104\ See February 19, 2020 Exemption Request at 3, 7.
    \105\ On March 19, 2020 the Participants requested additional 
time for Industry Members to prepare for the commencement of 
reporting and stated that Phase 2a and Phase 2b reporting would 
commence on June 22, 2020 and July 20, 2020, respectively. The 
Participants stated that industry groups have requested extensions 
of CAT implementation dates for at least 60 days. See Letter from 
Michael Simon, Chair, CAT NMS Plan Operating Committee, to Brett 
Redfearn, Director, Division of Trading and Markets, U.S. Securities 
and Exchange Commission, dated March 19, 2020 (``March 19, 2020 No 
Action Request'') available at https://www.catnmsplan.com/sites/default/files/2020-03/Plan%20Participant%27s%20Request%20for%20No%20Action%20Relief.pdf; 
see also Letter from Christopher Bok, Esq., Director, Financial 
Information Forum, to Michael Simon, Chair, CAT NMS Plan Operating 
Committee, dated March 16, 2020 available at https://fif.com/comment-letters/category/?download=2129:fif-request-for-immediate-phase-2a-and-phase-2b-relief (requesting an immediate pause of at 
least 60 days from near term CAT Phase 2a and Phase 2b milestones in 
response to COVID-19, one of the effects of which would be to shift 
the Phase 2a and Phase 2b compliance dates to June 22, 2020 and July 
20, 2020, respectively).
    \106\ See March 19, 2020 No Action Request at 1.
    \107\ See id. at 2.
---------------------------------------------------------------------------

    The Commission believes that separating the reporting dates for 
OATS reporting firms from those that have no OATS reporting obligations 
is appropriate because firms that do not currently report to OATS will 
face a different range of costs and tasks to implement and maintain CAT 
reporting, since these firms are likely to have little to no regulatory 
data reporting infrastructure in place.\108\ Unlike these firms, Small 
Industry OATS Reporters already have regulatory data reporting 
infrastructure in place to support OATS reporting, and because Phase 2a 
reporting would include all events and scenarios covered by OATS,\109\ 
the Commission believes that it should be less costly for Small 
Industry OATS Reporters to comply with the Large Industry Member 
reporting deadline than it would be for Small Industry Non-OATS 
Reporters. In addition, Small Industry OATS Reporters, as Small 
Industry Members, have had notice that they were going to be required 
to start reporting to the CAT on November 15, 2019 since the CAT NMS 
Plan was approved on November 15, 2016.\110\ Therefore, the Phase 2a 
start date associated with accelerating the CAT reporting obligations 
for Small Industry OATS Reporters so that they report on the same date 
as Large Industry Members would still serve to extend their reporting 
deadline by seven months beyond the compliance date in the CAT NMS 
Plan. Moreover, while this exemption allows the Participants' 
Compliance Rules to require the CAT reporting date for Small Industry 
OATS Reporters to be the same as that for Large Industry Members in 
Phase 2a, the reporting deadline for Small Industry OATS Reporters 
would remain the same as for Small Industry Non-OATS Reporters for 
Phases 2b, 2c, and 2d--i.e., Small Industry Members would not be 
required to report Industry Member Data associated with Phases 2b, 2c, 
and 2d until December 13, 2021. Thus, all Small Industry Members could 
gain an additional 24 months beyond the compliance date in the CAT NMS 
Plan to prepare for CAT Reporting for Phases 2b, 2c, and 2d via the 
Phased Reporting schedule.
---------------------------------------------------------------------------

    \108\ See CAT NMS Plan Approval Order, supra note 1, at 84860.
    \109\ See February 19, 2020 Exemption Request at 3.
    \110\ The Effective Date of the CAT NMS Plan was November 15, 
2016. See supra note 1. Section 6.4 of the CAT NMS Plan, which 
governs data reporting and recording by Industry Members, provides 
that the requirements for Industry Members under that section shall 
become effective on the third anniversary of the Effective Date in 
the case of Small Industry Members. See id. Therefore, November 15, 
2019 is three years after the Effective Date of the CAT NMS Plan.
---------------------------------------------------------------------------

    The Commission's exemption is limited to Sections 6.4, 6.7(a)(v) 
and 6.7(a)(vi) of the CAT NMS Plan related to Industry Member reporting 
of Industry Member Data to the Central Repository. The Commission's 
exemption does not extend to any other dates or obligations in the CAT 
NMS Plan. In addition, even though the Commission is permitting the 
start dates for Phase 2a and Phase 2b Industry Member reporting to be 
extended compared to what was in the February 19, 2020 Exemption 
Request as discussed above,\111\ the exemption is conditioned upon the 
Participants complying with all other dates that are a part of Phased 
Reporting, as announced in the published timeline that has already been 
communicated to broker-dealers, given that Industry Member reporting 
was required to begin over a year ago per the CAT NMS Plan.\112\ The 
Commission believes it is appropriate to impose such a condition 
because the Participants have stated that FINRA CAT has been very clear 
that it will be prepared to accept data from any Industry Member that 
has completed onboarding and certification testing by April 20, 2020 
for Phase 2a reporting, and will similarly be ready by May 18, 2020 for 
Phase 2b reporting as described on www.catnmsplan.com.\113\
---------------------------------------------------------------------------

    \111\ See supra note 104.
    \112\ See CAT NMS Plan website, Timeline, https://catnmsplan.com/timelines/ (last visited March 26, 2020). For 
example, for Phases 2a and 2b, Industry Members must comply with the 
full functionality associated with Production Environment Go-Live 
for intrafirm linkage validations (Release 2--Intrafirm Linkage) on 
July 27, 2020, and August 24, 2020, respectively, and Industry 
Members must comply with the full functionality associated with 
Production Environment Go-Live for firm-to-firm linkage validations 
(Release 3--Interfirm Linkage) on October 26, 2020, and January 4, 
2021, respectively. See id.
     Industry Members were required to start reporting to the CAT on 
November 15, 2018, according to Section 6.4 of the CAT NMS Plan, 
which governs data reporting and recording by Industry Members. See 
supra note 8.
    \113\ On March 27, 2020, the Participants submitted a letter to 
further the discussion regarding the timeline for Industry Member 
reporting. See Letter from Michael Simon, Chair, CAT NMS Plan 
Operating Committee, to Brett Redfearn, Director, Division of 
Trading and Markets, U.S. Securities and Exchange Commission, dated 
March 27, 2020 available at https://www.catnmsplan.com/sites/default/files/2020-03/03.27.20-%20Participant%27s%20Relief%20Request.pdf. The Participants stated 
that the reporting dates included in the February 19, 2020 Exemption 
Request remain operable from the Participants' and Plan Processor's 
perspective and provide a clear path for Industry Members that have 
completed certification testing and are prepared to meet those 
deadlines. See id. at 1-2. The Participants also stated that the 
Participants and FINRA CAT have been communicating to the industry 
since last fall that the CAT system will be ready to receive 
Industry Member Data on April 20, 2020, and that this date remains 
operative from the perspective of both FINRA CAT and the 
Participants. See id. at 1.
---------------------------------------------------------------------------

    Based on the foregoing, the Commission is granting this conditional 
exemptive relief from Sections 6.4, 6.7(a)(v) and 6.7(a)(vi) of the CAT 
NMS Plan related to Industry Member reporting of Industry Member Data 
to the Central Repository to allow for the implementation of Phased 
Reporting for Industry Members to the CAT. This order granting 
exemptive relief is conditioned upon each Participant implementing the 
Phased Reporting

[[Page 23083]]

described above, in a manner consistent with the February 19, 2020 
Exemption Request, including each of the representations made in the 
February 19, 2020 Exemption Request, as modified by the discussion in 
Section IV of this Order. As noted above, the Participants have 
represented in their February 19, 2020 Exemption Request that the full 
scope of CAT Data required under the CAT NMS Plan will be available 
when all five phases of Phased Reporting are complete, subject to any 
applicable exemptive relief or amendments to the CAT NMS Plan.\114\
---------------------------------------------------------------------------

    \114\ See February 19, 2020 Exemption Request at 2.
---------------------------------------------------------------------------

    Accordingly, it is hereby ordered, pursuant to Section 36 of the 
Exchange Act \115\ and Rule 608(e) of Regulation NMS,\116\ that the 
Commission grants the Participants' request for exemptive relief, as 
set forth in the February 19, 2020 Exemption Request from the 
requirements in Sections 6.4, 6.7(a)(v) and 6.7(a)(vi) of the CAT NMS 
Plan related to Industry Member reporting of Industry Member Data to 
the Central Repository to allow for the implementation of Phased 
Reporting, subject to the conditions described above.
---------------------------------------------------------------------------

    \115\ 15 U.S.C. 78mm(a)(1).
    \116\ 17 CFR 242.608(e).

    By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-08705 Filed 4-23-20; 8:45 am]
 BILLING CODE 8011-01-P


