Joint Industry Plan; Order Approving the National Market System Plan Governing the Consolidated Audit Trail

Federal RegisterNov 23, 2016

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79318; File No. 4-698]

Joint Industry Plan; Order Approving the National Market System Plan Governing the Consolidated Audit Trail

November 15, 2016.

SUPPLEMENTARY INFORMATION:

Table of Contents

Supplementary Information

I. Introduction

II. Background

III. Description of the Proposed Plan

1. LLC Agreement

2. Participants

3. Management

4. Initial Plan Processor Selection

5. Functions and Activities of the CAT System

6. Financial Matters

7. Amendments

8. Compliance Rule Applicable to Industry Members

9. Plan Appendices

10. Reporting Procedures

11. Timeliness of Data Reporting

12. Uniform Format

13. Symbology

14. CAT-Reporter-ID

15. Customer-ID

16. Order Allocation Information

17. Options Market Maker Quotes

18. Primary Market Transactions, Debt Securities and Futures

19. Error Rates

20. Retirement of Existing Trade and Order Data Rules and Systems

21. Regulatory Access

22. Upgrades and New Functionalities

23. Business Continuity and Disaster Recovery

24. Records and Accounting and Dissolution and Termination of the Company

25. Security of Data

26. Governing or Constituent Documents

27. Development and Implementation Phases

28. Written Understanding or Agreements Relating To Interpretation of, or Participation in, the Plan

29. Dispute Resolution

IV. Discussion and Commission Findings

A. Definitions, Effectiveness of Agreement, and Participation (Articles I, II, and III)

B. Management of the Company (Article IV)

1. Operating Committee

2. Advisory Committee

3. Officers of the Company

4. Additional Governance Provisions

C. Plan Processor Selection (Article V)

D. Functions and Activities of the CAT System (Article VI)

1. Data Recording and Reporting Requirements

2. Format

3. Reporting Timelines

4. Data Elements

5. Symbology

6. Security of CAT Data

7. Personally Identifiable Information

8. Implementation Schedule

9. Retirement of Existing Trade and Order Data Rules and Systems

10. Primary Market Transactions and Futures

11. Error Rate

12. Business Continuity and Disaster Recovery

13. Business Clock Synchronization and Timestamp Granularity

14. Upgrades and New Functionalities

15. Technical Specifications

E. Capital Accounts, Allocations of Income and Loss, and Distributions (Articles VII and VIII)

F. Funding of the Company (Article XI)

1. Funding Model Generally

2. Funding Model's Allocation of Costs

3. Message Traffic and Market Share Distinction

4. Transparency and Alternatives to the Funding Model

5. Miscellaneous

G. Dispute Resolution

H. Written Assessments, Audits and Reports

V. Economic Analysis

A. Introduction

B. Summary of Expected Economic Effects

C. Framework for Economic Analysis

1. Economic Framework

2. Existing Uncertainties

D. Baseline

1. Current State of Regulatory Activities

2. Current State of Trade and Order Data

E. Benefits

1. Improvements in Data Qualities

2. Improvements to Regulatory Activities

3. Other Provisions of the CAT NMS Plan

F. Costs

1. Analysis of Expected Costs

2. Aggregate Costs to Industry

3. Further Analysis of Costs

4. Expected Costs of Security Breaches

5. Second Order Effects

G. Efficiency, Competition, and Capital Formation

1. Competition

2. Efficiency

3. Capital Formation

4. Related Considerations Affecting Competition, Efficiency and Capital Formation

H. Alternatives

1. Timestamp Granularity

2. Error Rate

3. Error Correction Timeline

4. Requiring Listing Exchange Symbology

5. Clock Synchronization Logging Procedures

6. Data Accessibility Standards

7. Clock Synchronization Hours

8. Primary Market Transactions

9. Periodic Updates to Customer Information

10. Bulk Data Downloads by CAT Reporters

11. Alternatives to the CAT NMS Plan

12. Alternatives Discussed in the CAT NMS Plan

VI. Paperwork Reduction Act

A. Summary of Collection of Information Under Rule 613

1. Central Repository

2. Data Collection and Reporting

3. Collection and Retention of National Best Bid and National Best Offer, Last Sale Data and Transaction Reports

4. Surveillance

5. Participant Rule Filings

6. Document on Expansion to Other Securities

7. Written Assessment of Operation of the Consolidated Audit Trail

B. Proposed Use of Information

1. Central Repository

2. Data Collection and Reporting

3. Collection and Retention of NBBO, Last Sale Data and Transaction Reports

4. Surveillance

5. Document on Expansion to Other Securities

6. Written Assessment of Operation of the Consolidated Audit Trail

C. Respondents

1. National Securities Exchanges and National Securities Associations

2. Members of National Securities Exchanges and National Securities Association

D. Total Initial and Annual Reporting and Recordkeeping Burden

1. Burden on National Securities Exchanges and National Securities Associations

2. Burden on Members of National Securities Exchanges and National Securities Associations

E. Summary of Collection of Information Under the CAT NMS Plan, as Amended by the Commission

1. One-Time Reports

2. Non-Report Commission-Created Information Collections

F. Proposed Use of Information Under the CAT NMS Plan, as Amended by the Commission

1. Independent Audit of Expenses Incurred Prior to the Effective Date

2. Review of Clock Synchronization Standards

3. Coordinated Surveillance Report

4. Assessment of Industry Member Bulk Access to Reported Data

5. Assessment of Errors in Customer Information Fields

6. Report on Impact of Tiered Fees on Market Liquidity

7. Assessment of Material Systems Change on Error Rate

8. Financial Statements

9. Background Checks

G. Total Initial and Annual Reporting and Recordkeeping Burden of Information Collection Under the CAT NMS Plan, as Amended by the Commission

1. Burden on National Securities Exchanges and National Securities Associations

2. Request for Comment

H. Collection of Information Is Mandatory

I. Confidentiality

J. Recordkeeping Requirements

VII. Conclusion

I. Introduction

On February 27, 2015, pursuant to Section 11A of the Securities Exchange Act of 1934 (“Exchange Act” or “Act”)

and Rules 608 and 613 of Regulation NMS thereunder,

BATS Exchange, Inc. (n/k/a Bats BZX Exchange, Inc.), BATS-Y Exchange, Inc. (n/k/a Bats BYX Exchange, Inc.), BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc. (n/k/a Bats EDGA Exchange, Inc.), EDGX Exchange, Inc. (n/k/a Bats EDGX Exchange, Inc.), Financial Industry Regulatory Authority, Inc. (“FINRA”), International Securities Exchange, LLC, ISE Gemini, LLC, Miami International Securities Exchange LLC, NASDAQ OMX BX, Inc. (n/k/a NASDAQ BX, Inc.), NASDAQ OMX PHLX LLC (n/k/a NASDAQ PHLX LLC), The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. (collectively, “self-regulatory organizations”, “SROs” or “Participants”), filed with the Securities and Exchange Commission (“Commission” or “SEC”) a National Market System (“NMS”) Plan Governing the Consolidated Audit Trail (the “CAT NMS Plan,” “CAT Plan” or “Plan”).

The SROs filed amendments to the CAT NMS Plan on December 24, 2015, and on February 8, 2016.

The CAT NMS Plan, as amended, was published for comment in the

Federal Register

on May 17, 2016.

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

17 CFR 242.608.

See

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.

On December 24, 2015, the SROs submitted an Amendment to the CAT NMS Plan.

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.

The Commission voted to publish the February 9, 2016 version of the CAT NMS Plan for public comment on April 27, 2016, and this version of the Plan was published in the

Federal Register

on May 17, 2016.

See

Securities Exchange Act Release No. 77724, 81 FR 30614 (the “Notice”). Unless the context otherwise requires, the “CAT NMS Plan” shall refer to the February 27, 2015 CAT NMS Plan, as modified by the December 24, 2015 Amendment and published for comment on May 17, 2016. The Commission notes that the application of ISE Mercury, LLC (“ISE Mercury”) for registration as a national securities exchange was granted on January 29, 2016.

See

Securities Exchange Act Release No. 76998 (January 29, 2016), 81 FR 6066 (February 4, 2016). In addition, the application of the Investors Exchange LLC (“IEX”) for registration as a national securities exchange was granted on June 17, 2016.

See

Securities Exchange Act Release No. 78101 (June 17, 2016), 81 FR 41142 (June 23, 2016). ISE Mercury and IEX will become Participants in the CAT NMS Plan and are thus accounted for as Participants for purposes of this Order.

The Commission received 24 comment letters in response to the CAT NMS Plan.

On July 29, 2016, the Commission extended the deadline for Commission action on the CAT NMS Plan and designated November 10, 2016 as the new date by which the Commission would be required to take action.

On September 2, 2016, the Participants submitted a response to the comment letters that the Commission received in response to the CAT NMS Plan.

The Participants submitted additional response letters on September 23, 2016 and October 7, 2016.

On November 2 and 14, 2016, the Participants submitted additional letters.

This Order approves the CAT NMS Plan, with limited changes as described in detail below. The Commission concludes that the Plan, as amended, 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. A copy of the CAT NMS Plan, as adopted, is attached as Exhibit A hereto.

See

Letters to Brent J. Fields, Secretary, Commission, from Kathleen Weiss Hanley, Bolton-Perella Chair in Finance, Lehigh University, et al., dated July 12, 2016 (“Hanley Letter”); Courtney Doyle McGuinn, FIX Operations Director, FIX Trading Community, dated July 14, 2016 (“FIX Trading Letter”); Kelvin To, Founder and President, Data Boiler Technologies, LLC, dated July 15, 2016 (“Data Boiler Letter”); Richard Foster, Senior Vice President and Senior Counsel for Regulatory and Legal Affairs, Financial Services Roundtable, dated July 15, 2016 (“FSR Letter”); David T. Bellaire, Executive Vice President & General Counsel, Financial Services Institute, dated July 18, 2016 (“FSI Letter”); Stuart J. Kaswell, Executive Vice President & Managing Director, General Counsel, Managed Funds Association, dated July 18, 2016 (“MFA Letter”); David W. Blass, General Counsel, Investment Company Institute, dated July 18, 2016 (“ICI Letter”); Larry E. Thompson, Vice Chairman and General Counsel, Depository Trust & Clearing Corporation, dated July 18, 2016 (“DTCC Letter”); Manisha Kimmel, Chief Regulatory Officer, Wealth Management, Thomson Reuters, dated July 18, 2016 (“TR Letter”); Theodore R. Lazo, Managing Director and Associate General Counsel, and Ellen Greene, Managing Director, Financial Services Operations, Securities Industry and Financial Markets Association, dated July 18, 2016 (“SIFMA Letter”); Anonymous, received July 18, 2016 (“Anonymous Letter I”); Mary Lou Von Kaenel, Managing Director, Financial Information Forum, dated July 18, 2016 (“FIF Letter”); Marc R. Bryant, Senior Vice President, Deputy General Counsel, Fidelity Investments, dated July 18, 2016 (“Fidelity Letter”); Mark Husler, CEO, UnaVista, and Jonathan Jachym, Head of North America Regulatory Strategy & Government Relations, London Stock Exchange Group, dated July 18, 2016 (“UnaVista Letter”); Gary Stone, Chief Strategy Officer for Trading Solutions and Global Regulatory and Policy Group, Bloomberg, L.P., dated July 18, 2016 (“Bloomberg Letter”); Bonnie K. Wachtel, Wachtel Co Inc., dated July 18, 2016 (“Wachtel Letter”); Dennis M. Kelleher, President & CEO, Stephen W. Hall, Legal Director & Securities Specialist, Lev Bagramian, Senior Securities Policy Advisor, Better Markets, dated July 18, 2016 (“Better Markets Letter”); John A. McCarthy, General Counsel, KCG Holdings, Inc., dated July 20, 2016 (“KCG Letter”); Industry Members of the Development Advisory Group (“DAG”) (including Financial Information Forum, Securities Industry and Financial Markets Association and Securities Traders Association), dated July 20, 2016 (“DAG Letter”); Joanne Moffic-Silver, EVP, General Counsel & Corporate Secretary, Chicago Board Options Exchange, Incorporated, dated July 21, 2016 (“CBOE Letter”); Elizabeth K. King, NYSE Group, Inc., dated July 21, 2016 (“NYSE Letter”); James Toes, Securities President & CEO, Securities Traders Association, dated July 25, 2016 (“STA Letter”); Anonymous, received August 12, 2016 (“Anonymous Letter II”); Scott Garrett, Member of Congress, et al., dated October 14, 2016 (“Garrett Letter”).

See

Exhibit B for a citation key to the comment letters received by the Commission on the proposed CAT NMS Plan.

See

Securities Exchange Act Release No. 78441 (July 29, 2016), 81 FR 51527 (August 4, 2016).

See

Letter from Participants to Brent J. Fields, Secretary, Commission, dated September 2, 2016 (“Response Letter I”).

See

Letters from Participants to Brent J. Fields, Secretary, Commission, dated September 23, 2016 (“Response Letter II”) and October 7, 2016 (“Response Letter III”).

See

Letter from Participants to Brent J. Fields, Secretary, Commission, dated November 2, 2016 (“Participants' Letter I”); Letter from Participants to Brent J. Fields, Secretary, Commission, dated November 14, 2016 (“Participants' Letter II”).

II. Background

The Commission believes that the regulatory data infrastructure on which the SROs and the Commission currently must rely generally is outdated and inadequate to effectively oversee a complex, dispersed, and highly automated national market system. In performing their oversight responsibilities, regulators today must attempt to pull together disparate data from a variety of existing information systems lacking in completeness, accuracy, accessibility, and/or timeliness

—a model that neither

supports the efficient aggregation of data from multiple trading venues nor yields the type of complete and accurate market activity data needed for robust market oversight.

Completeness refers to whether a data source represents all market activity of interest to regulators, and whether the data is sufficiently detailed to provide the information regulators require. While current data sources provide the trade and order data required by existing rules and regulations, those sources generally do not provide all of the information of interest to regulators in one consolidated audit trail. Accuracy refers to whether the data about a particular order or trade is correct and reliable. Accessibility refers to how the data is

stored, how practical it is to assemble, aggregate, and process the data, and whether all appropriate regulators could acquire the data they need. Timeliness refers to when the data is available to regulators and how long it would take to process before it could be used for regulatory analysis.

See

Adopting Release,

infra

note 14, at 45727.

Currently, FINRA and the exchanges maintain their own separate audit trail systems for trading activity, which vary in scope, required data elements and format. In performing their market oversight responsibilities, SRO and Commission Staffs must rely heavily on data from these various SRO audit trails. However, each of these systems has shortcomings in completeness, accuracy, accessibility, or timeliness. Some of these shortcomings are a result of the disparate nature of the systems, which makes it impractical, for example, to follow orders through their entire lifecycle as they may be routed, aggregated, re-routed, and disaggregated across multiple markets. These systems also lack key information useful for regulatory oversight, such as the identity of the customers who originate orders, or that two sets of orders may have been originated by the same customer.

Although SRO and Commission Staffs also have access to sources of market activity data other than SRO audit trails, these sources likewise suffer from their own drawbacks.

The Commission notes that the SROs have taken steps in recent years to update their audit trail requirements. For example, NYSE, NYSE Amex LLC (n/k/a “NYSE MKT LLC”) (“NYSE Amex”), and NYSE ARCA, Inc. (“NYSE Arca”) have adopted audit trail rules that coordinate with FINRA's Order Audit Trail System (“OATS”) requirements.

See

Securities Exchange Act Release No. 65523 (October 7, 2011), 76 FR 64154 (October 17, 2011) (concerning NYSE); Securities Exchange Act Release No. 65524 (October 7, 2011), 76 FR 64151 (October 17, 2011) (concerning NYSE Amex); Securities Exchange Act Release No. 65544 (October 12, 2011), 76 FR 64406 (October 18, 2011) (concerning NYSE Arca). This allows the SROs to submit their data to FINRA pursuant to a Regulatory Service Agreement (“RSA”), which FINRA can then reformat and combine with OATS data. Despite these efforts, however, significant deficiencies remain.

See

Notice,

supra

note 5, at Section IV.D.2.b.

See

Notice,

supra

note 5, at Section IV.D.2.b (discussing the limitations of current trade and order data systems).

Recognizing these shortcomings, on July 11, 2012, the Commission adopted Rule 613 of Regulation NMS under the Act,

which requires the SROs to submit an NMS plan to create, implement, and maintain a consolidated audit trail (“CAT”) that would capture customer and order event information for orders in NMS securities, across all markets, from the time of order inception through routing, cancellation, modification, or execution in a single, consolidated data source.

Specifically, Rule 613 requires the Participants to “jointly file . . . a national market system plan to govern the creation, implementation, and maintenance of a consolidated audit trail and Central Repository.”

The purpose of the Plan, and the creation, implementation and maintenance of a comprehensive audit trail for the U.S. securities markets described therein, is to “substantially enhance the ability of the SROs and the Commission to oversee today's securities markets and fulfill their responsibilities under the federal securities laws.”

As contemplated by Rule 613, the CAT “will allow for the prompt and accurate recording of material information about all orders in NMS securities, including the identity of customers, as these orders are generated and then routed throughout the U.S. markets until execution, cancellation, or modification. This information will be consolidated and made readily available to regulators in a uniform electronic format.”

See

Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722 (August 1, 2012) (“Adopting Release”);

see also

Securities Exchange Act Release No. 62174 (May 26, 2010), 75 FR 32556 (June 8, 2010) (“Proposing Release”).

17 CFR 242.613(a)(1), (c)(1), (c)(7).

17 CFR 242.613(a)(1).

See

Adopting Release,

supra

note 14, at 45726.

Id.

The Plan also includes certain recording and reporting obligations for OTC Equity Securities.

The SROs filed the CAT NMS Plan pursuant to Rule 613,

as modified by exemptive relief granted by the Commission, pursuant to Rule 0-12 under the Act,

from certain requirements of Rule 613.

See supra

note 4.

17 CFR 240.0-12.

See

Securities Exchange Act Release No. 77265 (March 1, 2016), 81 FR 11856 (March 7, 2016) (“Exemption Order”); Letter from Participants to Brent J. Fields, Secretary, Commission, dated January 30, 2015 (“Exemptive Request Letter”). Specifically, the SROs requested exemptive relief from the Rule's requirements related to: (i) The reporting of Options Market Maker quotations, as required under Rule 613(c)(7)(ii) and (iv); (ii) the reporting and use of the Customer-ID under Rule 613(c)(7)(i)(A), (iv)(F), (viii)(B) and 613(c)(8); (iii) the reporting of the CAT-Reporter-ID, as required under Rule 613(c)(7)(i)(C), (ii)(D), (ii)(E), (iii)(D), (iii)(E), (iv)(F), (v)(F), (vi)(B), and (c)(8); (iv) the linking of executions to specific subaccount allocations, as required under Rule 613(c)(7)(vi)(A); and (v) the timestamp granularity requirement of Rule 613(d)(3) for certain manual order events subject to reporting under Rule 613(c)(7)(i)(E), (ii)(C), (iii)(C) and (iv)(C). On April 3, 2015, the SROs filed a supplement related to the requested exemption for Rule 613(c)(7)(vi)(A).

See

Letter from Robert Colby, FINRA, on behalf of the SROs, to Brent J. Fields, Secretary, Commission, dated April 3, 2015 (“April 2015 Supplement”). This supplement provided examples of how the proposed relief related to allocations would operate. On September 2, 2015, the SROs filed a second supplement to the Exemptive Request Letter.

See

Letter from the SROs to Brent J. Fields, Secretary, Commission, dated September 2, 2015 (“September 2015 Supplement”). This supplement to the Exemptive Request Letter further addressed the use of an “effective date” in lieu of a “date account opened.” Unless the context otherwise requires, the “Exemption Request” shall refer to the Exemptive Request Letter, as supplemented by the April 2015 Supplement and the September 2015 Supplement.

The CAT NMS Plan filed by the SROs incorporates the SROs' NMS plan approval process for reviewing, evaluating and ultimately selecting the Plan Processor,

as set forth in a separate NMS plan submitted by the SROs and approved by the Commission (the “Selection Plan”).

On February 26, 2013, the Participants published a request for proposal (“RFP”) soliciting Bids from parties interested in serving as the Plan Processor.

As of the publication date of this Order, the Participants, through the process described in the Selection Plan, have narrowed the pool of Bidders to three remaining Shortlisted Bidders.

As set forth in Section 1.1 of the CAT NMS Plan,

supra

note 5, the Plan Processor “means 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 [to] perform the CAT processing functions required by SEC Rule 613 and set forth in [the CAT NMS Plan].” All capitalized terms not otherwise defined herein shall have the meaning ascribed to them in Rule 613, the Adopting Release, or the CAT NMS Plan, as applicable.

See

Securities Exchange Act Release Nos. 70892 (November 15, 2013), 78 FR 69910 (November 21, 2013) (“Selection Plan Notice”); 75192 (June 17, 2015), 80 FR 36028 (June 23, 2015) (Order Approving Amendment No. 1 to the Selection Plan); 75980 (September 24, 2015), 80 FR 58796 (September 30, 2015) (Order Approving Amendment No. 2 to the Selection Plan); 77917 (May 25, 2016), 81 FR 35072 (June 1, 2016) (Notice of Filing and Immediate Effectiveness of Amendment No. 3 to the Selection Plan); 78477 (August 4, 2016), 81 FR 52917 (August 10, 2016) (Notice of Filing and Immediate Effectiveness of Amendment No. 4 to the Selection Plan);

see also

Securities Exchange Act Release Nos. 71596 (February 21, 2014), 79 FR 11152 (February 27, 2014) (“Selection Plan Approval Order”); 74223 (February 6, 2015), 80 FR 7654 (February 11, 2015) (Notice of Amendment No. 1 to the Selection Plan); 75193 (June 17, 2015), 80 FR 36006 (June 23, 2015) (Notice of Amendment No. 2 to the Selection Plan).

See

Notice,

supra

note 5, at 30885-30952 for a complete version of the Consolidated Audit Trail National Market System Plan Request for Proposal (issued February 26, 2013, version 3.0 updated March 4, 2014). Other materials related to the RFP are

available at

http://catnmsplan.com/process/

. Among other things, the RFP describes the technical, business, and operational requirements for CAT and outlines the information that must be submitted by Bidders in response to the RFP.

“Shortlisted Bidders” were selected by the Selection Committee through the voting and scoring processes described in Section 5.2 of the CAT NMS Plan.

See

CAT NMS Plan,

supra

note 5, at Section 1.1;

see also

Section III.4,

infra

(describing the selection of the Plan Processor).

The CAT NMS Plan also includes an economic analysis that, as required by Rule 613, was conducted by the SROs.

The Commission notes that, in the Adopting Release for Rule 613, the Commission considered the economic effects of the actions the SROs were required to undertake pursuant to Rule 613, specifically the requirement that the SROs develop an NMS plan, utilizing their own resources and undertaking their own research, that addresses the specific details, cost estimates, considerations, and other requirements of the Rule.

The Commission noted in the Adopting Release that Rule 613 provided the SROs with “flexibility in how they [chose] to meet the requirements of the adopted Rule,”

allowing the SROs to consider a number of different approaches in developing the CAT NMS Plan. The Commission also noted that “the costs and benefits of creating a consolidated audit trail, and the consideration of specific costs as related to specific benefits, is more appropriately analyzed once the SROs narrow the expanded array of choices they have under the adopted Rule and develop a detailed NMS plan.”

Accordingly, the Commission required the SROs to conduct an economic analysis and deferred the Commission's own economic analysis of the actual creation, implementation, and maintenance of the CAT until after submission of the required NMS plan. In accordance with this approach, the Commission included its preliminary analysis and conclusions regarding the economic effects of the CAT NMS Plan when it published the CAT NMS Plan for public comment.

See

Adopting Release,

supra

note 14, at 45726.

Id.

at 45725.

See

Adopting Release,

supra

note 14, at 45725.

III. Description of the Proposed Plan

The Commission notes that this Section III describes the CAT NMS Plan, as filed by the Participants pursuant to Rule 613 and modified by the Exemption Order,

that was published for public comment by the Commission.

Section IV, below, discusses the comments received as well as amendments that the Commission is making to the Plan in light of some of the comments; these amendments are marked against the proposed Plan in Exhibit A to this Order.

See

Exemption Order,

supra

note 21.

See

Notice,

supra

note 5.

1. LLC Agreement

The Participants propose to conduct the activities related to the CAT in a Delaware limited liability company pursuant to a limited liability company agreement, entitled the Limited Liability Company Agreement (“LLC Agreement”) of CAT NMS, LLC (“Company” or “CAT LLC”).

The Participants will jointly own on an equal basis the Company.

The Company will create, implement and maintain the CAT.

The LLC Agreement, itself, including its appendices, is the proposed Plan, which would be a national market system plan as defined in Rule 600(b)(43) of NMS.

Id.

See

CAT NMS Plan,

supra

note 5, at Section 3.2(d).

Id.

at Section 2.6.

See

Notice,

supra

note 5, at 30618.

2. Participants

Each national securities exchange and national securities association currently registered with the Commission would be a Participant in the Plan.

The names and addresses of each Participant are set forth in Exhibit A to the Plan.

Article III of the Plan provides that any entity approved by the Commission as a national securities exchange or national securities association under the Exchange Act after the Effective Date may become a Participant by submitting to the Company a completed application in the form provided by the Company and satisfying each of the following requirements: (1) Executing a counterpart of the LLC Agreement as then in effect; and (2) paying a fee to the Company in an amount determined by a Majority Vote

of the Operating Committee as fairly and reasonably compensating the Company and the Participants for costs incurred in creating, implementing and maintaining the CAT (including such costs incurred in evaluating and selecting the Initial Plan Processor

and any subsequent Plan Processor) and for costs the Company incurs in providing for the prospective Participant's participation in the Company, including after consideration of certain factors identified in Section 3.3(b) of the Agreement (“Participation Fee”).

Amendment of the Plan reflecting the admission of a new Participant will be effective only when: (1) It is approved by the SEC in accordance with Rule 608 or otherwise becomes effective pursuant to Rule 608; and (2) the prospective Participant pays the Participation Fee.

Id.

See

CAT NMS Plan,

supra

note 5, at Section 3.1.

“Majority Vote” means the affirmative vote of at least a majority of all of the members of the Operating Committee or any Subcommittee, as applicable, authorized to cast a vote with respect to a matter presented for a vote (whether or not such a member is present at any meeting at which a vote is taken) by the Operating Committee or any Subcommittee, as applicable (excluding, for the avoidance of doubt, any member of the Operating Committee or any Subcommittee, as applicable, that is recused or subject to a vote to recuse from such matter pursuant to Section 4.3(d) of the CAT NMS Plan).

See

CAT NMS Plan,

supra

note 5, at Section 1.1.

The “Initial Plan Processor” means the first Plan Processor selected by the Operating Committee in accordance with Rule 613, Section 6.1 and the Selection Plan.

See

CAT NMS Plan,

supra

note 5, at Section 1.1.

Id.

at Section 3.3(a).

Id.

at Section 3.3(a)-(b).

A number of factors are relevant to the determination of a Participation Fee.

Such factors are: (1) The portion of costs previously paid by the Company for the development, expansion and maintenance of the CAT which, under generally accepted accounting principles (“GAAP”), would have been treated as capital expenditures and would have been amortized over the five years preceding the admission of the prospective Participant; (2) an assessment of costs incurred and to be incurred by the Company for modifying the CAT or any part thereof to accommodate the prospective Participant, which costs are not otherwise required to be paid or reimbursed by the prospective Participant; (3) Participation Fees paid by other Participants admitted as such after the Effective Date; (4) elapsed time from the Effective Date to the anticipated date of admittance of the prospective Participant; and (5) such other factors, if any, as may be determined to be appropriate by the Operating Committee and approved by the Commission.

In the event that the Company and a prospective Participant do not agree on the amount of the Participation Fee, such amount will be subject to review by the SEC pursuant to Section 11A(b)(5) of the Exchange Act.

See

Notice,

supra

note 5, at 30618.

See

CAT NMS Plan,

supra

note 5, at Section 3.3(b).

Id.; see also

Exchange Act Section 11A(b)(2), 15 U.S.C. 78k-l(b)(5) (which provides that a prohibition or limitation on access to services by a registered securities information processor must be reviewed by the Commission upon application by an aggrieved person).

An applicant for participation in the Company may apply for limited access to the CAT System

for planning and testing purposes pending its admission as a Participant by submitting to the Company a completed Application for Limited Access to the CAT System in a

form provided by the Company, accompanied by payment of a deposit in the amount established by the Company, which will be applied or refunded as described in such application.

To be eligible to apply for such limited access, the applicant must have been approved by the SEC as a national securities exchange or national securities association under the Exchange Act but the applicant has not yet become a Participant of the Plan, or the SEC must have published such applicant's Form 1 Application or Form X-15AA-1 Application to become a national securities exchange or a national securities association, respectively.

“CAT System” means all data processing equipment, communications facilities, and other facilities, including equipment, utilized by the Company or any third parties acting on the Company's behalf in connection with operation of the CAT and any related information or relevant systems pursuant to the LLC Agreement.

See

CAT NMS Plan,

supra

note 5, at Section 1.1.

Id.

at Section 3.3(c).

Id.

All Company Interests will have the same rights, powers, preferences and privileges and be subject to the same restrictions, qualifications and limitations.

Once admitted, each Participant will be entitled to one vote on any matter presented to Participants for their consideration and to participate equally in any distribution made by the Company (other than a distribution made pursuant to Section 10.2 of the Plan).

Each Participant will have a Company Interest equal to that of each other Participant.

Id.

at Section 3.2(a).

Id.

at Sections 3.2(b), 10.2.

Id.

at Section 3.2(d).

Article III also describes a Participant's ability to Transfer a Company Interest. A Participant may only Transfer any Company Interest to a national securities exchange or national securities association that succeeds to the business of such Participant as a result of a merger or consolidation with such Participant or the Transfer of all or substantially all of the assets or equity of such Participant (“Permitted Transferee”).

A Participant may not Transfer any Company Interest to a Permitted Transferee unless: (1) Such Permitted Transferee executes a counterpart of the Plan; and (2) the amendment to the Plan reflecting the Transfer is approved by the SEC in accordance with Rule 608 or otherwise becomes effective pursuant to Rule 608.

Id.

at Section 3.4(b).

Id.

at Section 3.4(c).

In addition, Article III addresses the voluntary resignation and termination of participation in the Plan. Any Participant may voluntarily resign from the Company, and thereby withdraw from and terminate its right to any Company Interest, only if: (1) A Permitted Legal Basis

for such action exists; and (2) such Participant provides to the Company and each other Participant no less than thirty days prior to the effective date of such action written notice specifying such Permitted Legal Basis, including appropriate documentation evidencing the existence of such Permitted Legal Basis, and, to the extent applicable, evidence reasonably satisfactory to the Company and other Participants that any orders or approvals required from the SEC in connection with such action have been obtained.

A validly withdrawing Participant will have the rights and obligations discussed below with regard to termination of participation.

“Permitted Legal Basis” means the Participant has become exempt from, or otherwise has ceased to be subject to, Rule 613 or has arranged to comply with Rule 613 in some manner other than through participation in the LLC Agreement, in each instance subject to the approval of the Commission.

See

CAT NMS Plan,

supra

note 5, at Section 1.1.

Id.

at Section 3.6.

Id.

at Sections 3.6, 3.7.

A Participant's participation in the Company, and its right to any Company Interest, will terminate as of the earliest of: (1) The effective date specified in a valid resignation notice; (2) such time as such Participant is no longer registered as a national securities exchange or national securities association; or (3) the date of termination for failure to pay fees.

With regard to the payment of fees, each Participant is required to pay all fees or other amounts required to be paid under the Plan within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated) (the “Payment Date”).

If a Participant fails to make such a required payment by the Payment Date, any balance in the Participant's Capital Account will be applied to the outstanding balance.

If a balance still remains with respect to any such required payment, the Participant will pay interest on the outstanding balance from the Payment Date until such fee or amount is paid at a per annum rate equal to the lesser of: (1) The Prime Rate plus 300 basis points; or (2) the maximum rate permitted by applicable law.

If any such remaining outstanding balance is not paid within thirty days after the Payment Date, the Participants will file an amendment to the Plan requesting the termination of the participation in the Company of such Participant, and its right to any Company Interest, with the SEC.

Such amendment will be effective only when it is approved by the SEC in accordance with Rule 608 or otherwise becomes effective pursuant to Rule 608.

Id.

at Section 3.7(a).

Id.

at Section 3.7(b).

Id.

From and after the effective date of termination of a Participant's participation in the Company, profits and losses of the Company will cease to be allocated to the Capital Account of the Participant.

A terminated Participant will be entitled to receive the balance in its Capital Account as of the effective date of termination adjusted for profits and losses through that date, payable within ninety days of the effective date of termination, and will remain liable for its proportionate share of costs and expenses allocated to it for the period during which it was a Participant, for obligations under Section 3.8(c) regarding the return of amounts previously distributed (if required by a court of competent jurisdiction), for its indemnification obligations pursuant to Section 4.1, and for obligations under Section 9.6 regarding confidentiality, but it will have no other obligations under the Plan following the effective date of termination.

The Plan will be amended to reflect any termination of participation in the Company of a Participant, provided that such amendment will be effective only when it is approved by the SEC in accordance with Rule 608 or otherwise becomes effective pursuant to Rule 608.

Id.

at Section 3.7(c).

Id.

3. Management

Article IV of the Plan establishes the overall governance structure for the management of the Company. Specifically, the Participants propose that the Company be managed by an Operating Committee.

The Operating Committee will manage the Company except for situations in which the approval of the Participants is required by the Plan or by non-waivable provisions of applicable law.

See

CAT NMS Plan,

supra

note 5, at Article IV.

The Operating Committee will consist of one voting member representing each Participant and one alternate voting member representing each Participant who will have a right to vote only in the absence of the Participant's voting member of the Operating Committee.

Each of the voting and alternate voting members of the Operating Committee will be appointed by the Participant that he or she represents, will serve at the will of the Participant appointing such member and will be subject to the confidentiality obligations of the

Participant that he or she represents as set forth in Section 9.6.

One individual may serve as the voting member of the Operating Committee for multiple Affiliated Participants, and such individual will have the right to vote on behalf of each such Affiliated Participant.

Id.

at Section 4.2(a).

Id.

at Sections 4.2(a), 9.6.

Id.

at Section 4.2(a). An “Affiliated Participant” means any Participant controlling, controlled by, or under common control with another Participant.

Id.

at Section 1.1.

The Operating Committee will elect, by Majority Vote, one of its members to act as Chair for a term of two years.

No Person may serve as Chair for more than two successive full terms, and no Person then appointed to the Operating Committee by a Participant that then serves, or whose Affiliate then serves, as the Plan Processor will be eligible to serve as the Chair.

The Chair will preside at all meetings of the Operating Committee, designate a Person to act as Secretary, and perform such other duties and possess such other powers as the Operating Committee may from time to time prescribe.

The Chair will not be entitled to a tie-breaking vote at any meeting of the Operating Committee.

Id.

at Section 4.2(b).

Id.

Each of the members of the Operating Committee, including the Chair, will be authorized to cast one vote for each Participant that he or she represents on all matters voted upon by the Operating Committee.

Action of the Operating Committee will be authorized by Majority Vote (except under certain designated circumstances), subject to the approval of the SEC whenever such approval is required under the Exchange Act and the rules thereunder.

For example, the Plan specifically notes that a Majority Vote of the Operating Committee is required to: (1) Select the Chair; (2) select the members of the Advisory Committee (as described below); (3) interpret the Plan (unless otherwise noted therein); (4) approve any recommendation by the Chief Compliance Officer (“CCO”) pursuant to Section 6.2(a)(v)(A); (5) determine to hold an Executive Session of the Operating Committee; (6) determine the appropriate funding-related policies, procedures and practices consistent with Article XI; and (7) act upon any other matter specified elsewhere in the Plan (which includes the Appendices to the Plan) as requiring a vote, approval or other action of the Operating Committee (other than those matters expressly requiring a Supermajority Vote or a different vote of the Operating Committee).

Id.

at Section 4.3(a).

Id.

Article IV requires a Supermajority Vote

of the Operating Committee, subject to the approval of the SEC when required, for the following: (1) Selecting a Plan Processor, other than the Initial Plan Processor selected in accordance with Article V of the Plan; (2) terminating the Plan Processor without cause in accordance with Section 6.1(q); (3) approving the Plan Processor's appointment or removal of the Chief Information Security Officer (“CISO”), CCO, or any Independent Auditor in accordance with Section 6.1(b); (4) entering into, modifying or terminating any Material Contract (if the Material Contract is with a Participant or an Affiliate of a Participant, such Participant and Affiliated Participant will be recused from any vote); (5) making any Material Systems Change; (6) approving the initial Technical Specifications or any Material Amendment to the Technical Specifications proposed by the Plan Processor; (7) amending the Technical Specifications on its own motion; and (8) acting upon any other matter specified elsewhere in the Plan (which includes the Appendices to the Plan) as requiring a vote, approval or other action of the Operating Committee by a Supermajority Vote.

“Supermajority Vote” means the affirmative vote of at least two-thirds of all of the members of the Operating Committee or any Subcommittee, as applicable, authorized to cast a vote with respect to a matter presented for a vote (whether or not such a member is present at any meeting at which a vote is taken) by the Operating Committee or any Subcommittee, as applicable (excluding, for the avoidance of doubt, any member of the Operating Committee or any Subcommittee, as applicable, that is recused or subject to a vote to recuse from such matter pursuant to Section 4.3(d)); provided that if two-thirds of all of such members authorized to cast a vote is not a whole number then that number shall be rounded up to the nearest whole number.

Id.

at Section 1.1.

Id.

at Section 4.3(b).

A member of the Operating Committee or any Subcommittee thereof (as discussed below) shall recuse himself or herself from voting on any matter under consideration by the Operating Committee or such Subcommittee if such member determines that voting on such matter raises a Conflict of Interest.

In addition, if the members of the Operating Committee or any Subcommittee (excluding the member thereof proposed to be recused) determine by Supermajority Vote that any member voting on a matter under consideration by the Operating Committee or such Subcommittee raises a Conflict of Interest, such member shall be recused from voting on such matter.

No member of the Operating Committee or any Subcommittee will be automatically recused from voting on any matter except matters involving Material Contracts as discussed in the prior paragraph, as otherwise specified in the Plan, and as follows: (1) If a Participant is a Bidding Participant

whose Bid remains under consideration, members appointed to the Operating Committee or any Subcommittee by such Participant or any of its Affiliated Participants will be recused from any vote concerning: (a) Whether another Bidder may revise its Bid; (b) the selection of a Bidder; or (c) any contract to which such Participant or any of its Affiliates would be a party in its capacity as Plan Processor; and (2) if a Participant is then serving as Plan Processor, is an Affiliate of the Person then serving as Plan Processor, or is an Affiliate of an entity that is a Material Subcontractor to the Plan Processor, then in each case members appointed to the Operating Committee or any Subcommittee by such Participant or any of its Affiliated Participants shall be recused from any vote concerning: (a) The proposed removal of such Plan Processor; or (b) any contract between the Company and such Plan Processor.

Id.

at Section 4.3(d).

Id.

“Bidding Participant” means a Participant that: (a) Submits a Bid; (b) is an Affiliate of an entity that submits a Bid; or (c) is included, or is an Affiliate of an entity that is included, as a Material Subcontractor as part of a Bid.

Id.

at Section 1.1.

Id.

at Section 4.3(d).

Article IV also addresses meetings of the Operating Committee.

Meetings of the Operating Committee may be attended by each Participant's voting Representative and its alternate voting Representative and by a maximum of two nonvoting Representatives of each Participant, by members of the Advisory Committee, by the CCO, by other Representatives of the Company and the Plan Processor, by Representatives of the SEC and by such other Persons that the Operating Committee may invite to attend.

The Operating Committee, however, may, where appropriate, determine to meet in Executive Session during which only voting members of the Operating Committee will be present.

The Operating Committee,

however, may invite other Representatives of the Participants, of the Company, of the Plan Processor (including the CCO and the CISO) or the SEC, or such other Persons that the Operating Committee may invite to attend, to be present during an Executive Session.

Any determination of the Operating Committee to meet in an Executive Session will be made upon a Majority Vote and will be reflected in the minutes of the meeting.

In addition, any Person that is not a Participant but for which the SEC has published a Form 1 Application or Form X-15AA-1 to become a national securities exchange or national securities association, respectively, will be permitted to appoint one primary Representative and one alternate Representative to attend regularly scheduled Operating Committee meetings in the capacity of a non-voting observer, but will not be permitted to have any Representative attend a special meeting, emergency meeting or meeting held in Executive Session of the Operating Committee.

Article IV also addresses, among other things, different types of Operating Committee meetings (regular, special and emergency), frequency of such meetings, how to call such meetings, the location of the meetings, the role of the Chair, and notice regarding such meetings.

Id.

at Section 4.4.

Id.

at Section 4.4(a).

Id.

at Section 4.4(b).

The Operating Committee may, by Majority Vote, designate by resolution one or more Subcommittees it deems necessary or desirable in furtherance of the management of the business and affairs of the Company.

For any Subcommittee, any member of the Operating Committee who wants to serve thereon may so serve.

If Affiliated Participants have collectively appointed one member to the Operating Committee to represent them, then such Affiliated Participants may have only that member serve on the Subcommittee or may decide not to have only that collectively appointed member serve on the Subcommittee.

Such member may designate an individual other than himself or herself who is also an employee of the Participant or Affiliated Participants that appointed such member to serve on a Subcommittee in lieu of the particular member.

Subject to the requirements of the Plan and non-waivable provisions of Delaware law, a Subcommittee may exercise all the powers and authority of the Operating Committee in the management of the business and affairs of the Company as so specified in the resolution of the Operating Committee designating such Subcommittee.

Id.

at Section 4.12(a).

Id.

Article IV requires that the Operating Committee maintain a Compliance Subcommittee for the purpose of aiding the CCO as necessary, including with respect to issues involving: (1) The maintenance of the confidentiality of information submitted to the Plan Processor or Central Repository pursuant to Rule 613, applicable law, or the Plan by Participants and Industry Members; (2) the timeliness, accuracy, and completeness of information submitted pursuant to Rule 613, applicable law or the Plan by Participants and Industry Members; and (3) the manner and extent to which each Participant is meeting its obligations under Rule 613, Section 3.11, and as set forth elsewhere in the Plan and ensuring the consistency of the Plan's enforcement as to all Participants.

Id.

at Section 4.12(b).

Article IV also sets forth the requirements for the formation and functioning of an Advisory Committee, which will advise the Participants on the implementation, operation and administration of the Central Repository, including possible expansion of the Central Repository to other securities and other types of transactions.

Id.

at Section 4.13(a), (d).

Article IV describes the composition of the Advisory Committee. No member of the Advisory Committee may be employed by or affiliated with any Participant or any of its Affiliates or facilities.

The Operating Committee will select one member from representatives of each of the following categories to serve on the Advisory Committee on behalf of himself or herself individually and not on behalf of the entity for which the individual is then currently employed: (1) A broker-dealer with no more than 150 Registered Persons; (2) a broker-dealer with at least 151 and no more than 499 Registered Persons; (3) a broker-dealer with 500 or more Registered Persons; (4) a broker-dealer with a substantial wholesale customer base; (5) a broker-dealer that is approved by a national securities exchange: (a) To effect transactions on an exchange as a specialist, market maker or floor broker; or (b) to act as an institutional broker on an exchange; (6) a proprietary-trading broker-dealer; (7) a clearing firm; (8) an individual who maintains a securities account with a registered broker or dealer but who otherwise has no material business relationship with a broker or dealer or with a Participant; (9) a member of academia with expertise in the securities industry or any other industry relevant to the operation of the CAT System; (10) an institutional investor trading on behalf of a public entity or entities; (11) an institutional investor trading on behalf of a private entity or entities; and (12) an individual with significant and reputable regulatory expertise.

The individuals selected to represent categories (1) through (12) above must include, in the aggregate, representatives of no fewer than three broker-dealers that are active in the options business and representatives of no fewer than three broker-dealers that are active in the equities business.

In addition, upon a change in employment of any such Advisory Committee member, a Majority Vote of the Operating Committee will be required for such member to be eligible to continue to serve on the Advisory Committee.

Furthermore, the SEC's Chief Technology Officer (or the individual then currently employed in a comparable position providing equivalent services) will serve as an observer of the Advisory Committee (but not be a member).

The members of the Advisory Committee will have a term of three years.

Id.

at Section 4.13(b).

Id.

Four of the initial twelve members of the Advisory Committee will have an initial term of one year, and another four of the initial twelve members of the Advisory Committee will have an initial term of two years.

Id.

at Section 4.13(c).

Members of the Advisory Committee will have the right to attend meetings of the Operating Committee or any Subcommittee, to receive information concerning the operation of the Central Repository, and to submit their views to the Operating Committee or any Subcommittee on matters pursuant to the Plan prior to a decision by the Operating Committee on such matters.

100

A member of the Advisory Committee will not have a right to vote on any matter considered by the Operating Committee or any Subcommittee.

101

In addition, the Operating Committee or any Subcommittee may meet in Executive Session if the Operating Committee or Subcommittee determines by Majority Vote that such an Executive Session is advisable.

102

The Operating Committee may solicit and consider views of other stakeholders on the operation of the Central Repository in addition to those of the Advisory Committee.

103

Although members of the Advisory Committee

will have the right to receive information concerning the operation of the Central Repository, the Operating Committee retains the authority to determine the scope and content of information supplied to the Advisory Committee, which will be limited to that information that is necessary and appropriate for the Advisory Committee to fulfill its functions.

104

Any information received by members of the Advisory Committee will remain confidential unless otherwise specified by the Operating Committee.

105

100

Id.

at Section 4.13(d).

101

Id.

102

See

Notice,

supra

note 5, at 30621 n.54.

103

Id.

104

See

CAT NMS Plan,

supra

note 5, at Section 4.13(e).

105

Id.

Article IV also describes the appointment of Officers for the Company. Specifically, the CCO and the CISO, each of whom will be employed solely by the Plan Processor and neither of whom will be deemed or construed in any way to be an employee of the Company, will be Officers of the Company.

106

Neither such Officer will receive or be entitled to any compensation from the Company or any Participant by virtue of his or her service in such capacity (other than if a Participant is then serving as the Plan Processor, compensation paid to such Officer as an employee of such Participant).

107

Each such Officer will report directly to the Operating Committee.

108

The CCO will work on a regular and frequent basis with the Compliance Subcommittee and/or other Subcommittees as may be determined by the Operating Committee.

109

Except to the extent otherwise provided in the Plan, including Section 6.2, each such Officer will have such fiduciary and other duties with regard to the Plan Processor as imposed by the Plan Processor on such individual by virtue of his or her employment by the Plan Processor.

110

106

Id.

at Section 4.6(a).

107

Id.

108

Id.

109

Id.

110

Id.

at Sections 4.6(a), 6.2.

In addition, the Plan Processor will inform the Operating Committee of the individual who has direct management responsibility for the Plan Processor's performance of its obligations with respect to the CAT.

111

Subject to approval by the Operating Committee of such individual, the Operating Committee will appoint such individual as an Officer.

112

In addition, the Operating Committee by Supermajority Vote may appoint other Officers as it shall from time to time deem necessary.

113

Any Officer appointed pursuant to Section 4.6(b) will have only such duties and responsibilities as set forth in the Plan, or as the Operating Committee shall from time to time expressly determine.

114

No such Officer shall have any authority to bind the Company (which authority is vested solely in the Operating Committee) or be an employee of the Company, unless in each case the Operating Committee, by Supermajority Vote, expressly determines otherwise.

115

No person subject to a “statutory disqualification” (as defined in Section 3(a)(39) of the Exchange Act) may serve as an Officer.

116

It is the intent of the Participants that the Company have no employees.

117

111

Id.

at Section 4.6(b).

112

Id.

113

Id.

114

Id.

115

Id.

116

Id.

The Plan uses the term “statutory disqualification” as defined in Section 3(a)(39) of the Exchange Act, which addresses disqualification from membership or participation in, or association with a member of, an SRO. While Officers of the Plan are not persons associated with a member of an SRO, the Commission interprets this provision of the Plan to mean that no person that is subject to one of the statutory disqualifications set forth in Sections 3(a)(39)(A) through (F) of the Exchange Act may serve as Officer.

117

See

CAT NMS Plan,

supra

note 5, at Section 4.6(b).

4. Initial Plan Processor Selection

Article V of the Plan sets forth the process for the Participants' evaluation of Bids and the selection process for narrowing down the Bids and choosing the Initial Plan Processor.

118

The initial steps in the evaluation and selection process were and will be performed pursuant to the Selection Plan; the final two rounds of evaluation and voting, as well as the final selection of the Initial Plan Processor, will be performed pursuant to the Plan.

119

118

The Plan Processor selection process set forth in the CAT NMS Plan is identical to the post-CAT NMS Plan approval selection process set forth in the Selection Plan.

See

Selection Plan,

supra

note 23.

119

By its terms, the Selection Plan will terminate upon Commission approval of the Plan.

Id.

As discussed above, the Selection Committee has selected the Shortlisted Bids pursuant to the Selection Plan. After reviewing the Shortlisted Bids, the Participants have identified the optimal proposed solutions for the CAT and, to the extent possible, included such solutions in the Plan.

120

The Selection Committee will determine, by majority vote, whether Shortlisted Bidders will have the opportunity to revise their Bids.

121

To reduce potential conflicts of interest, no Bidding Participant may vote on whether a Shortlisted Bidder will be permitted to revise its Bid if a Bid submitted by or including the Participant or an Affiliate of the Participant is a Shortlisted Bid.

122

The Selection Committee will review and evaluate all Shortlisted Bids, including any permitted revisions submitted by Shortlisted Bidders.

123

In performing this review and evaluation, the Selection Committee may consult with the Advisory Committee and such other Persons as the Selection Committee deems appropriate, which may include the DAG until the Advisory Committee is formed.

124

120

As noted above, the Participants stated their belief that certain exemptive relief is necessary to include in the Plan all of the provisions the Participants believe are part of the optimal solution for the CAT. The Commission notes that the request for exemptive relief was granted on March 1, 2016.

See

Exemption Order,

supra

note 21.

121

See

CAT NMS Plan,

supra

note 5, at Section 5.2(c)(ii).

122

Id.

at Section 5.1(b)(ii).

123

Id.

124

Id.

After receipt of any permitted revisions, the Selection Committee will select the Initial Plan Processor from the Shortlisted Bids in two rounds of voting where each Participant has one vote via its Voting Senior Officer in each round.

125

No Bidding Participant, however, will be entitled to vote in any round if the Participant's Bid, a Bid submitted by an Affiliate of the Participant, or a Bid including the Participant or an Affiliate of the Participant is considered in such round.

126

In the first round, each Voting Senior Officer, subject to the recusal provision in Section 5.2(e)(ii), will select a first and second choice, with the first choice receiving two points and the second choice receiving one point.

127

The two Shortlisted Bids receiving the highest cumulative scores in the first round will advance to the second round.

128

In the event of a tie, the tie will be broken by assigning one point per vote to the tied Shortlisted Bids, and the Shortlisted Bid with the most votes will advance.

129

If this procedure fails to break the tie, a revote will be taken on the tied Bids with each vote

receiving one point.

130

If the tie persists, the Participants will identify areas for discussion, and revotes will be taken until the tie is broken.

131

125

See

Notice,

supra

note 5, at 30623. If the proposed amendment to the Selection Plan is approved, the Selection Committee may determine to narrow the number of Shortlisted Bids prior to the two rounds of voting.

Id.

at 30623 n.58.

126

This recusal provision is included in the Plan, as well as in an amendment to the Selection Plan.

See

Order Approving Amendment No. 2 to the Selection Plan,

supra

note 23.

127

See

CAT NMS Plan,

supra

note 5, at Section 5.2(e)(iii)(A).

128

Id.

at Section 5.2(e)(iii)(C). Each round of voting throughout the Plan is independent of other rounds.

See

Notice,

supra

note 5, at 30623 n.60.

129

See

CAT NMS Plan,

supra

note 5, at Section 5.2(e)(iii)(D).

130

Id.

131

Id.

Once two Shortlisted Bids have been chosen, the Voting Senior Officers of the Participants (other than those subject to recusal) will vote for a single Shortlisted Bid from the final two to determine the Initial Plan Processor.

132

If the tie persists, the Participants will identify areas for discussion and, following these discussions, revotes will be taken until the tie is broken.

133

As set forth in Article VI of the Plan, following the selection of the Initial Plan Processor, the Participants will file with the Commission a statement identifying the Initial Plan Processor and including the information required by Rule 608.

134

132

Id.

at Section 5.2(e)(iii)(E).

133

Id.

134

Id.

at Section 6.7(a)(i).

5. Functions and Activities of the CAT System

a. Plan Processor

Article VI describes the responsibilities of the selected Plan Processor. The Company, under the direction of the Operating Committee, will enter into one or more agreements with the Plan Processor obligating the Plan Processor to perform the functions and duties contemplated by the Plan to be performed by the Plan Processor, as well as such other functions and duties the Operating Committee deems necessary or appropriate.

135

Id.

at Section 6.1(a).

As set forth in the Plan, the Plan Processor is required to develop and, with the prior approval of the Operating Committee, implement policies, procedures, and control structures related to the CAT System that are consistent with Rule 613(e)(4), Appendix C and Appendix D.

136

The Plan Processor will: (1) Comply with applicable provisions of 15 U.S. Code § 78u-6 (Securities Whistleblower Incentives and Protection) and the recordkeeping requirements of Rule 613(e)(8); (2) consistent with Appendix D, Central Repository Requirements, ensure the effective management and operation of the Central Repository; (3) consistent with Appendix D, Data Management, ensure the accuracy of the consolidation of the CAT Data

137

reported to the Central Repository; and (4) consistent with Appendix D, Upgrade Process and Development of New Functionality, design and implement appropriate policies and procedures governing the determination to develop new functionality for the CAT including, among other requirements, a mechanism by which changes can be suggested by Advisory Committee members, Participants, or the Commission.

138

Such policies and procedures also shall: (1) Provide for the escalation of reviews of proposed technological changes and upgrades to the Operating Committee; and (2) address the handling of surveillance, including coordinated, Rule 17d-2 under the Exchange Act or Regulatory Surveillance Agreement(s) (“RSA”) surveillance queries and requests for data.

139

Any policy, procedure or standard (and any material modification or amendment thereto) applicable primarily to the performance of the Plan Processor's duties as the Plan Processor (excluding any policies, procedures or standards generally applicable to the Plan Processor's operations and employees) will become effective only upon approval by the Operating Committee.

140

The Plan Processor also will, subject to the prior approval of the Operating Committee, establish appropriate procedures for escalation of matters to the Operating Committee.

141

In addition to other policies, procedures and standards generally applicable to the Plan Processor's employees and contractors, the Plan Processor will have hiring standards and will conduct and enforce background checks (

e.g.,

fingerprint-based) for all of its employees and contractors to ensure the protection, safeguarding and security of the facilities, systems, networks, equipment and data of the CAT System, and will have an insider and external threat policy to detect, monitor and remedy cyber and other threats.

142

136

Id.

at Section 6.1(d).

137

“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.

Id.

at Section 1.1.

138

Id.

at Section 6.1(d).

139

Id.

140

Id.

at Section 6.1(e).

141

Id.

at Section 6.1(f).

142

Id.

at Section 6.1(g).

The Plan Processor will enter into appropriate Service Level Agreements (“SLAs”) governing the performance of the Central Repository, as generally described in Appendix D, Functionality of the CAT System, with the prior approval of the Operating Committee.

143

The Plan Processor in conjunction with the Operating Committee will regularly review and, as necessary, update the SLAs, in accordance with the terms of the SLAs.

144

As further contemplated in Appendix C, System Service Level Agreements (SLAs), and in Appendix D, System SLAs, the Plan Processor may enter into appropriate service level agreements with third parties applicable to the Plan Processor's functions related to the CAT System (“Other SLAs”), with the prior approval of the Operating Committee.

145

The CCO and/or the Independent Auditor will, in conjunction with the Plan Processor, and as necessary the Operating Committee, regularly review and, as necessary, update the Other SLAs, in accordance with the terms of the applicable Other SLA.

146

In addition, the Plan Processor: (1) Will, on an ongoing basis and consistent with any applicable policies and procedures, evaluate and implement potential system changes and upgrades to maintain and improve the normal day-to-day operating function of the CAT System;

147

(2) in consultation with the Operating Committee, will, on an as needed basis and consistent with any applicable operational and escalation policies and procedures, implement such material system changes and upgrades as may be required to ensure effective functioning of the CAT System;

148

and (3) in consultation with the Operating Committee, will, on an as needed basis, implement system changes and upgrades to the CAT System to ensure compliance with applicable laws, regulations or rules (including those promulgated by the SEC or any Participant).

149

Furthermore, the Plan Processor will develop and, with the prior approval of the Operating Committee, implement a securities trading policy, as well as necessary procedures, control structures and tools to enforce this policy.

150

143

Id.

at Section 6.1(h).

144

Id.

145

Id.

146

Id.

147

Id.

at Section 6.1(i).

148

Id.

at Section 6.1(j).

149

Id.

at Section 6.1(k).

150

Id.

at Section 6.1(l).

In addition, the Plan Processor will provide the Operating Committee regular reports on the CAT System's operation and maintenance.

151

Furthermore, upon request of the Operating Committee or any Subcommittee, the Plan Processor will attend any meetings of the Operating Committee or such Subcommittee.

152

151

Id.

at Section 6.1(o).

152

Id.

at Section 6.1(p).

The Plan Processor may appoint such officers of the Plan Processor as it deems necessary and appropriate to perform its functions under the Plan and Rule 613.

153

The Plan Processor, however, will be required to appoint, at a

minimum, the CCO, the CISO, and the Independent Auditor.

154

The Operating Committee, by Supermajority Vote, will approve any appointment or removal of the CCO, CISO, or the Independent Auditor.

155

153

Id.

at Section 6.1(b).

154

Id.

155

Id.

In addition to a CCO, the Plan Processor will designate at least one other employee (in addition to the person then serving as CCO), which employee the Operating Committee has previously approved, to serve temporarily as the CCO if the employee then serving as the CCO becomes unavailable or unable to serve in such capacity (including by reason of injury or illness).

156

Any person designated to serve as the CCO (including to serve temporarily) will be appropriately qualified to serve in such capacity based on the duties and responsibilities assigned to the CCO and will dedicate such person's entire working time to such service (or temporary service) except for any time required to attend to any incidental administrative matters related to such person's employment with the Plan Processor that do not detract in any material respect from such person's service as the CCO.

157

Article VI sets forth various responsibilities of the CCO. With respect to all of his or her duties and responsibilities in such capacity (including those as set forth in the Plan), the CCO will be directly responsible and will directly report to the Operating Committee, notwithstanding that she or he is employed by the Plan Processor.

158

The Plan Processor, subject to the oversight of the Operating Committee, will ensure that the CCO has appropriate resources to fulfill his or her obligations under the Plan and Rule 613.

159

The compensation (including base salary and bonus) of the CCO will be payable by the Plan Processor, but be subject to review and approval by the Operating Committee.

160

The Operating Committee will render the CCO's annual performance review.

161

156

Id.

157

Id.

158

Id.

at Section 6.2(a)(iii).

159

Id.

at Section 6.2(a)(ii).

160

Id.

at Section 6.2(a)(iv).

161

Id.

at Section 6.2(b)(i).

In addition to a CISO, the Plan Processor will designate at least one other employee (in addition to the person then serving as CISO), which employee the Operating Committee has previously approved, to serve temporarily as the CISO if the employee then serving as the CISO becomes unavailable or unable to serve in such capacity (including by reason of injury or illness).

162

Any person designated to serve as the CISO (including to serve temporarily) will be appropriately qualified to serve in such capacity based on the duties and responsibilities assigned to the CISO under the Plan and will dedicate such person's entire working time to such service (or temporary service) except for any time required to attend to any incidental administrative matters related to such person's employment with the Plan Processor that do not detract in any material respect from such person's service as the CISO.

163

162

Id.

163

Id.

The Plan Processor, subject to the oversight of the Operating Committee, will ensure that the CISO has appropriate resources to fulfill the obligations of the CISO set forth in Rule 613 and in the Plan, including providing appropriate responses to questions posed by the Participants and the SEC.

164

In performing such obligations, the CISO will be directly responsible and directly report to the Operating Committee, notwithstanding that he or she is employed by the Plan Processor.

165

The compensation (including base salary and bonus) of the CISO will be payable by the Plan Processor, but be subject to review and approval by the Operating Committee, and the Operating Committee will render the CISO's annual performance review.

166

Consistent with Appendices C and D, the CISO will be responsible for creating and enforcing appropriate policies, procedures, standards, control structures and real-time tools to monitor and address data security issues for the Plan Processor and the Central Repository, as described in the Plan.

167

At regular intervals, to the extent that such information is available to the Company, the CISO will report to the Operating Committee the activities of the Financial Services Information Sharing and Analysis Center (“FS-ISAC”) or comparable bodies to the extent that the Company has joined FS-ISAC or other comparable body.

168

164

Id.

at Section 6.2(b)(ii).

165

Id.

at Section 6.2(b)(iii).

166

Id.

at Section 6.2(b)(iv).

167

Id.

at Section 6.2(b)(v).

168

Id.

at Section 6.2(b)(vi).

The Plan Processor will afford to the Participants and the Commission such access to the Representatives of the Plan Processor as any Participant or the Commission may reasonably request solely for the purpose of performing such Person's regulatory and oversight responsibilities pursuant to the federal securities laws, rules, and regulations or any contractual obligations.

169

The Plan Processor will direct such Representatives to reasonably cooperate with any inquiry, investigation, or proceeding conducted by or on behalf of any Participant or the Commission related to such purpose.

170

169

Id.

at Section 6.1(u).

170

Id.

The Operating Committee will review the Plan Processor's performance under the Plan at least once each year, or more often than once each year upon the request of two or more Participants that are not Affiliated Participants.

171

The Operating Committee will notify the SEC of any determination made by the Operating Committee concerning the continuing engagement of the Plan Processor as a result of the Operating Committee's review of the Plan Processor and will provide the SEC with a copy of any reports that may be prepared in connection therewith.

172

171

Id.

at Section 6.1(n).

172

Id.

The Operating Committee, by Supermajority Vote, may remove the Plan Processor from such position at any time.

173

However, the Operating Committee, by Majority Vote, may remove the Plan Processor from such position at any time if it determines that the Plan Processor has failed to perform its functions in a reasonably acceptable manner in accordance with the provisions of the Plan or that the Plan Processor's expenses have become excessive and are not justified.

174

In making such a determination, the Operating Committee will consider, among other factors: (1) The reasonableness of the Plan Processor's response to requests from Participants or the Company for technological changes or enhancements; (2) results of any assessments performed pursuant to Section 6.6; (3) the timeliness of preventative and corrective information technology system maintenance for reliable and secure operations; (4) compliance with requirements of Appendix D; and (5) such other factors related to experience, technological capability, quality and reliability of service, costs, back-up facilities, failure to meet service level agreement(s) and regulatory considerations as the Operating Committee may determine to be appropriate.

175

173

Id.

at Section 6.1(q).

174

Id.

at Section 6.1(r).

175

Id.

In addition, the Plan Processor may resign upon two year's (or such other shorter period as may be determined by the Operating Committee by

Supermajority Vote) prior written notice.

176

The Operating Committee will fill any vacancy in the Plan Processor position by Supermajority Vote, and will establish a Plan Processor Selection Subcommittee to evaluate and review Bids and make a recommendation to the Operating Committee with respect to the selection of the successor Plan Processor.

177

176

Id.

at Section 6.1(s).

177

Id.

at Section 6.1(t).

b. Central Repository

The Central Repository, under the oversight of the Plan Processor, and consistent with Appendix D, Central Repository Requirements, will receive, consolidate, and retain all CAT Data.

178

The Central Repository will collect (from a Securities Information Processor (“SIP”) or pursuant to an NMS plan) and retain on a current and continuing basis, in a format compatible with the Participant Data and Industry Member Data, all data, including the following: (1) Information, including the size and quote condition, on quotes, including the National Best Bid and National Best Offer for each NMS Security;

179

(2) Last Sale Reports and transaction reports reported pursuant to an effective transaction reporting plan filed with the SEC pursuant to, and meeting the requirements of, Rules 601 and 608;

180

(3) trading halts, Limit Up-Limit Down price bands and LULD indicators;

181

and (4) summary data or reports described in the specifications for each of the SIPs and disseminated by the respective SIP.

182

178

Id.

at Section 6.5(a)(i).

179

Id.

at Section 6.5(a)(ii)(A).

180

Id.

at Section 6.5(a)(ii)(B).

181

Id.

at Section 6.5(a)(ii)(C).

182

Id.

at Section 6.5(a)(ii)(D).

Consistent with Appendix D, Data Retention Requirements, the Central Repository will retain the information collected pursuant to paragraphs (c)(7) and (e)(7) of Rule 613 in a convenient and usable standard electronic data format that is directly available and searchable electronically without any manual intervention by the Plan Processor for a period of not less than six years. Such data, when available to the Participants' regulatory Staff and the SEC, will be linked.

183

In addition, the Plan Processor will implement and comply with the records retention policy contemplated by Section 6.1(d)(i).

184

183

Id.

at Section 6.5(b)(i).

184

Id.

at Section 6.5(b)(ii).

Consistent with Appendix D, Data Access, the Plan Processor will provide Participants and the SEC access to the Central Repository (including all systems operated by the Central Repository), and access to and use of the CAT Data stored in the Central Repository, solely for the purpose of performing their respective regulatory and oversight responsibilities pursuant to the federal securities laws, rules and regulations or any contractual obligations.

185

The Plan Processor will create and maintain a method of access to the CAT Data stored in the Central Repository that includes the ability to run searches and generate reports.

186

The method in which the CAT Data is stored in the Central Repository will allow the ability to return results of queries that are complex in nature, including market reconstructions and the status of order books at varying time intervals.

187

The Plan Processor will, at least annually and at such earlier time promptly following a request by the Operating Committee, certify to the Operating Committee that only the Participants and the SEC have access to the Central Repository (other than access provided to any Industry Member for the purpose of correcting CAT Data previously reported to the Central Repository by such Industry Member).

188

185

Id.

at Section 6.5(c)(i).

186

Id.

at Section 6.5(c)(ii).

187

Id.

at Section 6.5(c)(ii).

188

Id.

at Section 6.5(c)(iii);

see also

Financial Information Forum, FIF Clock Offset Survey Preliminary Report (February 17, 2015),

available at

http://www.catnmsplan.com/industryfeedback/p602479.pdf

and

http://catnmsplan.com/web/groups/catnms/@catnms/documents/appsupportdocs/p602479.pdf

(“FIF Clock Offset Survey”).

248

See

CAT NMS Plan,

supra

note 5, at Section 6.8(a)(ii).

249

Id.

at Section 6.8(a)(iii).

250

Id.

251

Id.

252

Id.

at Section 6.8(c).

Appendix C discusses mechanisms to ensure compliance with the 50 millisecond clock offset tolerance.

253

The Participants anticipate that they and Industry Members will adopt policies and procedures to verify the required clock synchronization each trading day before the market opens, as well as periodically throughout the trading day.

254

The Participants also anticipate that they and Industry Members will document their clock synchronization procedures and maintain a log recording the time of each clock synchronization performed, and the result of such synchronization, specifically identifying any synchronization revealing any clock offset between the Participant's or Industry Member's Business Clock and the time maintained by the NIST exceeding 50 milliseconds.

255

The CAT NMS Plan states that once both large and small broker-dealers begin reporting to the Central Repository, and as clock synchronization technology matures further, the Participants will assess, in accordance with Rule 613, tightening the CAT's clock synchronization standards to reflect changes in industry standards.

256

253

See id.

at Appendix C, Section A.3(c).

254

See id.

255

See id.

It was noted that such a log would include results for a period of not less than five years ending on the then current date.

Id.

256

See id.

at Appendix C, Section D.12(p).

Each Participant shall, and through its Compliance Rule require its Industry Members to, report information required by Rule 613 and the Plan to the Central Repository in milliseconds.

257

To the extent that any Participant utilizes timestamps in increments finer than the minimum required by the Plan, the Participant is required to make reports to the Central Repository utilizing such finer increment when reporting CAT Data to the Central Repository so that all Reportable Events reported to the Central Repository could be adequately sequenced. Each Participant will, through its Compliance Rule: (1) Require that, to the extent that its Industry Members utilize timestamps in increments finer than the minimum required in the Plan, such Industry Members will utilize such finer increment when reporting CAT Data to the Central Repository; and (2) 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 and the Plan.

258

Notwithstanding the preceding sentences, each Participant and Industry Member will be permitted to record and report Manual Order Events to the Central Repository in increments up to and including one second, provided that Participants and Industry Members will 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 Participant or Industry Member (“Electronic Capture Time”) in milliseconds.

259

In conjunction with Participants' and other appropriate Industry Member advisory groups, the CCO will annually evaluate and make a recommendation to the Operating Committee as to whether industry standards have evolved such that the required synchronization should be shortened or the required timestamp should be in finer increments.

260

The Operating Committee will make determinations regarding the need to revise the synchronization and timestamp requirements.

261

257

See id.

at Section 6.8(b).

258

Id.

at Section 6.8(b).

259

Id.

260

Id.

at Section 6.8(c).

261

Id.

at Sections 6.8(a)(ii)(C), 6.8(a)(iii).

g. Technical Specifications

Section 6.9 of the Plan establishes the requirements involving the Plan Processor's Technical Specifications. The Plan Processor will publish Technical Specifications that are at a minimum consistent with Appendices C and D, and updates thereto as needed, providing detailed instructions regarding the submission of CAT Data by Participants and Industry Members to the Plan Processor for entry into the Central Repository.

262

The Technical Specifications will be made available on a publicly available Web site to be developed and maintained by the Plan Processor.

263

The initial Technical Specifications and any Material Amendments thereto will require the approval of the Operating Committee by Supermajority Vote.

264

262

Id.

at Section 6.9(a).

263

Id.

264

Id.

The Technical Specifications will include a detailed description of the following: (1) The specifications for the layout of files and records submitted to the Central Repository; (2) the process for the release of new data format specification changes; (3) the process for industry testing for any changes to data format specifications; (4) the procedures for obtaining feedback about and submitting corrections to information submitted to the Central Repository; (5) each data element, including permitted values, in any type of report submitted to the Central Repository; (6) any error messages generated by the Plan Processor in the course of validating the data; (7) the process for file submissions (and re-submissions for corrected files); (8) the storage and access requirements for all files submitted; (9) metadata requirements for all files submitted to the CAT System; (10) any required secure network connectivity; (11) data security standards, which will, at a minimum: (a) Satisfy all applicable regulations regarding database security, including provisions of Regulation Systems Compliance and Integrity under the Exchange Act (“Reg SCI”); (b) to the extent not otherwise provided for under the Plan (including Appendix C thereto), set forth such provisions as may be necessary or appropriate to comply with Rule 613(e)(4); and (c) comply with industry best practices; and (12) any other items reasonably deemed appropriate by the Plan Processor and approved by the Operating Committee.

265

Id.

at Section 6.9(b).

Amendments to the Technical Specifications may be made only in accordance with Section 6.9(c).

266

The process for amending the Technical Specifications varies depending on whether the change is material. An amendment will be deemed “material” if it would require a Participant or an Industry Member to engage in significant changes to the coding necessary to submit information to the Central Repository pursuant to the Plan, or if it is required to safeguard the security or confidentiality of the CAT Data.

267

Except for Material Amendments to the Technical Specifications, the Plan Processor will have the sole discretion to amend and publish interpretations regarding the Technical Specifications; however, all non-Material Amendments made to the Technical Specifications and all published interpretations will be provided to the Operating Committee in writing at least ten days before being published.

268

Such non-Material Amendments and published interpretations will be deemed approved ten days following provision to the Operating Committee unless two or more unaffiliated Participants call for a vote to be taken on the proposed amendment or interpretation.

269

If an amendment or interpretation is called for a vote by two or more unaffiliated Participants, the proposed amendment must be approved by Majority Vote of the Operating Committee.

270

Once a non-Material Amendment has been approved or deemed approved by the Operating Committee, the Plan Processor will be responsible for determining the specific changes to the Central Repository and providing technical documentation of those changes, including an implementation timeline.

271

266

Id.

at Section 6.9(c).

267

Id.

268

Id.

at Section 6.9(c)(i).

269

Id.

270

Id.

271

Id.

Material Amendments to the Technical Specifications require approval of the Operating Committee by Supermajority Vote.

272

The Operating Committee, by Supermajority Vote, may amend the Technical Specifications on its own motion.

273

272

Id.

at Section 6.9(c)(ii).

273

Id.

at Section 6.9(c)(iii).

h. Surveillance

Surveillance requirements are described in Section 6.10. Using the tools provided for in Appendix D, Functionality of the CAT System, each Participant will develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository.

274

Unless otherwise ordered by the SEC, within fourteen months after the Effective Date, each Participant must initially implement a new or enhanced surveillance system(s) as required by Rule 613 and Section 6.10(a) of the Plan.

275

Participants may, but are not required to, coordinate surveillance efforts through the use of regulatory services agreements and agreements adopted pursuant to Rule 17d-2 under the Exchange Act.

276

274

See

CAT NMS Plan,

supra

note 5, at Section 6.10(a).

275

Id.

276

Id.

at Section 6.10(b).

Consistent with Appendix D, Functionality of the CAT System, the Plan Processor will provide Participants and the SEC with access to all CAT Data stored in the Central Repository. Regulators will have access to processed CAT Data through two different methods: (1) An online targeted query tool; and (2) user-defined direct queries and bulk extracts.

277

The online targeted query tool will provide authorized users with the ability to retrieve CAT Data via an online query screen that includes the ability to choose from a variety of pre-defined selection criteria.

278

Targeted queries must include date(s) and/or time range(s), as well as one or more of a variety of fields.

279

The user-defined direct queries and bulk extracts will provide authorized users with the ability to retrieve CAT Data via a query tool or language that allows users to query all available attributes and data sources.

280

277

Id.

at Section 6.10(c)(i).

278

Id.

at Section 6.10(c)(i)(A).

279

Id.

280

Id.

at Section 6.10(c)(i)(B).

Extraction of CAT Data will be consistent with all permission rights granted by the Plan Processor.

281

All CAT Data returned will be encrypted, and PII data

282

will be masked unless users have permission to view the PII contained in the CAT Data that has been requested.

283

281

Id.

at Section 6.10(c)(ii).

282

The proposed CAT NMS Plan defines PII as “personally identifiable information, including a social security number or tax identifier number or similar information.”

Id.

at Section 1.1.

283

Id.

at Section 6.10(c)(ii).

The Plan Processor will implement an automated mechanism to monitor direct query usage.

284

Such monitoring will

include automated alerts to notify the Plan Processor of potential issues with bottlenecks or excessively long queues for queries or CAT Data extractions.

285

The Plan Processor will provide the Operating Committee or its designee(s) details as to how the monitoring will be accomplished and the metrics that will be used to trigger alerts.

286

284

Id.

at Section 6.10(c)(iii) (providing that “[s]uch monitoring shall include automated alerts to notify the Plan Processor of potential issues with bottlenecks or excessively long queues for queries or CAT Data extractions. The Plan Processor shall provide the Operating Committee or its designee(s)

details as to how the monitoring will be accomplished and the metrics that will be used to trigger alerts”).

285

Id.

286

Id.

The Plan Processor will reasonably assist regulatory Staff (including those of Participants) with creating queries.

287

Without limiting the manner in which regulatory Staff (including those of Participants) may submit queries, the Plan Processor will submit queries on behalf of regulatory Staff (including those of Participants) as reasonably requested.

288

The Plan Processor will staff a CAT help desk, as described in Appendix D, CAT Help Desk, to provide technical expertise to assist regulatory Staff (including those of Participants) with questions about the content and structure of the CAT Data.

289

287

Id.

at 6.10(c)(iv).

288

Id.

at Section 6.10(c)(v).

289

Id.

at Section 6.10(c)(vi).

i. Information Security Program

As set forth in Section 6.12, the Plan Processor is required to develop and maintain a comprehensive information security program for the Central Repository that contains, at a minimum, the specific requirements detailed in Appendix D, Data Security. The information security program must be approved and reviewed at least annually by the Operating Committee.

290

Id.

at Section 6.12.

6. Financial Matters

Articles VII and VIII of the Plan address certain financial matters related to the Company. In particular, the Plan states that, subject to certain special allocations provided for in Section 8.2, any net profit or net loss will be allocated among the Participants equally.

291

In addition, subject to Section 10.2, cash and property of the Company will not be distributed to the Participants unless the Operating Committee approves by Supermajority Vote a distribution after fully considering the reason that such distribution must or should be made to the Participants, including the circumstances contemplated under Section 8.3, Section 8.6, and Section 9.3.

292

To the extent a distribution is made, all Participants will participate equally in any such distribution except as otherwise provided in Section 10.2.

293

291

Id.

at Section 8.1.

292

Id.

at Section 8.5(a).

293

Id.

Article XI addresses the funding of the Company. On an annual basis the Operating Committee will approve an operating budget for the Company.

294

The budget will include the projected costs of the Company, including the costs of developing and operating the CAT System for the upcoming year, and the sources of all revenues to cover such costs, as well as the funding of any reserve that the Operating Committee reasonably deems appropriate for prudent operation of the Company.

295

294

Id.

at Section 11.1(a).

295

Id.

Subject to certain funding principles set forth in Article XI, the Operating Committee will have discretion to establish funding for the Company, including: (1) Establishing fees that the Participants will pay; and (2) establishing fees for Industry Members that will be implemented by Participants.

296

In establishing the funding of the Company, the Operating Committee will seek to: (1) Create transparent, predictable revenue streams for the Company that are aligned with the anticipated costs to build, operate and administer the CAT and the other costs of the Company; (2) establish an allocation of the Company's related costs among Participants and Industry Members that is consistent with the Exchange Act, taking into account the timeline for implementation of the CAT and distinctions in the securities trading operations of Participants and Industry Members and their relative impact upon Company resources and operations; (3) establish a tiered fee structure in which the fees charged to: (a) CAT Reporters that are Execution Venues, including Alternative Trading Systems (“ATSs”), are based upon the level of market share, (b) Industry Members' non-ATS activities are based upon message traffic, and (c) the CAT Reporters with the most CAT-related activity (measured by market share and/or message traffic, as applicable) are generally comparable (where, for these comparability purposes, the tiered fee structure takes into consideration affiliations between or among CAT Reporters, whether Execution Venues and/or Industry Members); (4) provide for ease of billing and other administrative functions; (5) avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality; and (6) build financial stability to support the Company as a going concern.

297

The Participants will file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves, and such fees will be labeled as “Consolidated Audit Trail Funding Fees.”

298

296

Id.

at Section 11.1(b).

297

Id.

at Section 11.2.

298

Id.

at Section 11.1(b).

To fund the development and implementation of the CAT, the Company will time the imposition and collection of all fees on Participants and Industry Members in a manner reasonably related to the timing when the Company expects to incur such development and implementation costs.

299

In determining fees for Participants and Industry Members, the Operating Committee shall take into account fees, costs and expenses (including legal and consulting fees and expenses) incurred by the Participants on behalf of the Company prior to the Effective Date in connection with the creation and implementation of the CAT, and such fees, costs and expenses shall be fairly and reasonably shared among the Participants and Industry Members.

300

Consistent with Article XI, the Operating Committee will adopt policies, procedures, and practices regarding the budget and budgeting process, assignment of tiers, resolution of disputes, billing and collection of fees, and other related matters.

301

As a part of its regular review of fees for the CAT, the Operating Committee will have the right to change the tier assigned to any particular Person pursuant to this Article XI.

302

Any such changes will be effective upon reasonable notice to such Person.

303

299

Id.

at Section 11.1(c).

300

Id.

301

Id.

at Section 11.1(d).

302

The Commission notes that Section 11.1(b) of the CAT NMS Plan states that the Participants would file fees for Industry Members approved by the Operating Committee with the Commission. The Operating Committee may only change the tier to which a Person is assigned in accordance with a fee schedule filed with the Commission.

303

See

CAT NMS Plan,

supra

note 5, at Section 11.1(d).

The Operating Committee will establish fixed fees to be payable by Execution Venues as follows. Each Execution Venue that executes transactions, or, in the case of a national securities association, has trades reported by its members to its trade reporting facility or facilities for reporting transactions effected otherwise than on an exchange, in NMS Stocks or OTC Equity Securities will pay a fixed fee depending on the market share of that Execution Venue in NMS

Stocks and OTC Equity Securities.

304

The Operating Committee will establish at least two and no more than five tiers of fixed fees, based on an Execution Venue's NMS Stocks and OTC Equity Securities market share.

305

For these purposes, market share will be calculated by share volume.

306

In addition, each Execution Venue that executes transactions in Listed Options will pay a fixed fee depending on the Listed Options market share of that Execution Venue.

307

The Operating Committee will establish at least two and no more than five tiers of fixed fees, based on an Execution Venue's Listed Options market share, with market share calculated by contract volume.

308

Changes to the number of tiers after approval of the Plan would require a Supermajority Vote of the Operating Committee and Commission approval under Section 19(b) of the Exchange Act, as would the establishment of the initial fee schedule and any changes to the fee schedule within the tier structure.

309

304

Id.

at Section 11.3(a)(i).

305

Id.

306

Id.

307

Id.

at Section 11.3(a)(ii).

308

Id.

309

The Commission notes that the Participants could choose to submit the proposed fee schedule to the Commission as individual SROs pursuant to Rule 19b-4 or jointly as Participants to an NMS plan pursuant to Rule 608 of Regulation NMS. Because the proposed fee schedule would establish fees, whether the Participants individually file it pursuant to Section 19(b)(3)(A)(ii) of the Act, or jointly file it pursuant to Rule 608(b)(3)(i) of Regulation NMS, the proposed fee schedule could take effect upon filing with the Commission.

See

15 U.S.C. 78s(b)(3)(A)(ii); 17 CFR 242.608(b)(3)(i);

see also

Section IV.F,

infra.

The Operating Committee also will establish fixed fees payable by Industry Members, based on the message traffic generated by such Industry Member.

310

The Operating Committee will establish at least five and no more than nine tiers of fixed fees, based on message traffic.

311

For the avoidance of doubt, the fixed fees payable by Industry Members pursuant to this paragraph will, in addition to any other applicable message traffic, include message traffic generated by: (1) An ATS that does not execute orders that is sponsored by such Industry Member; and (2) routing orders to and from any ATS system sponsored by such Industry Member.

312

310

See

CAT NMS Plan,

supra

note 5, at Section 11.3(b).

311

Id.

312

Id.

Furthermore, the Operating Committee may establish any other fees ancillary to the operation of the CAT that it reasonably determines appropriate, including: fees for the late or inaccurate reporting of information to the CAT; fees for correcting submitted information; and fees based on access and use of the CAT for regulatory and oversight purposes (and not including any reporting obligations).

313

As it relates to fees that the Operating Committee may impose for access and use of the CAT for regulatory and oversight purposes, the Commission interprets the provisions in the Plan relating to the collection of fees as applying only to Participants and Industry Members, and thus the Commission would not be subject to such fees.

See

Section IV.F,

infra,

for further discussion regarding the funding of the Company.

The Company will make publicly available a schedule of effective fees and charges adopted pursuant to the Plan as in effect from time to time.

314

Such schedule will be developed after the Plan Processor is selected.

315

The Operating Committee will review the fee schedule on at least an annual basis and will make any changes to such fee schedule that it deems appropriate.

316

The Operating Committee is authorized to review the fee schedule on a more regular basis, but will not make any changes on more than a semi-annual basis unless, pursuant to a Supermajority Vote, the Operating Committee concludes that such change is necessary for the adequate funding of the Company.

317

314

See

CAT NMS Plan,

supra

note 5, at Section 11.3(d).

315

Id.

316

Id.; see also

supra

note 309.

317

Id.

The Operating Committee will establish a system for the collection of fees authorized under the Plan.

318

The Operating Committee may include such collection responsibility as a function of the Plan Processor or another administrator.

319

Alternatively, the Operating Committee may use the facilities of a clearing agency registered under Section 17A of the Exchange Act to provide for the collection of such fees.

320

318

Id.

at Section 11.4.

319

Id.

320

Id.

Each Participant will require each Industry Member to pay all applicable fees authorized under Article XI within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated).

321

If an Industry Member fails to pay any such fee when due, such Industry Member will pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (1) The Prime Rate plus 300 basis points; or (2) the maximum rate permitted by applicable law.

322

Each Participant will pay all applicable fees authorized under Article XI as required by Section 3.7(b).

323

321

Id.

322

Id.

323

Id.

Disputes with respect to fees the Company charges Participants pursuant to Article XI will be determined by the Operating Committee or a Subcommittee designated by the Operating Committee.

324

Decisions by the Operating Committee on such matters shall be binding on Participants, without prejudice to the rights of any Participant to seek redress from the SEC pursuant to SEC Rule 608 or in any other appropriate forum.

325

The Participants will adopt rules requiring that disputes with respect to fees charged to Industry Members pursuant to Article XI be determined by the Operating Committee or a Subcommittee.

326

Decisions by the Operating Committee or Subcommittee on such matters will be binding on Industry Members, without prejudice to the rights of any Industry Member to seek redress from the SEC pursuant to SEC Rule 608 or in any other appropriate forum.

327

324

Id.

at Section 11.5.

325

Id.

326

Id.

327

Id.

7. Amendments

Section 12.3 of the CAT NMS Plan, which governs amendments to the Plan, states that, except with respect to the addition of new Participants (Section 3.3), the transfer of Company Interest (Section 3.4), the termination of a Participant's participation in the Plan (Section 3.7), amendments to the Selection Plan (Section 5.3 [sic]) and special allocations (Section 8.2), any change to the Plan requires a written amendment authorized by the affirmative vote of not less than two-thirds of all of the Participants, or with respect to Section 3.8 by the affirmative vote of all the Participants.

328

Such proposed amendment must be approved by the Commission pursuant to Rule 608 or otherwise becomes effective under Rule 608.

329

Notwithstanding the foregoing, to the extent that the Commission grants exemptive relief applicable to any provision of the LLC Agreement, Participants and Industry Members will be entitled to comply with such provision pursuant to the terms of the exemptive relief so granted at the time such relief is granted irrespective of whether the LLC Agreement has been amended.

330

328

Id.

at Section 12.3.

329

Id.

330

Id.

8. Compliance Rule Applicable to Industry Members

Under Article III, each Participant agrees to comply with and enforce compliance by its Industry Members with the provisions of Rule 613 and the Plan, as applicable, to the Participant and its Industry Members.

331

Accordingly, the Participants will endeavor to promulgate consistent rules (after taking into account circumstances and considerations that may impact Participants differently) requiring compliance by their respective Industry Members with the provisions of Rule 613 and the Plan.

332

331

Id.

at Section 3.11.

332

Id.

9. Plan Appendices

The Plan includes three appendices.

333

Appendix A provides the Consolidated Audit Trail National Market System Plan Request for Proposal, as issued February 26, 2013 and subsequently updated. In addition, Rule 613(a)(1) requires that the Plan discuss twelve considerations that explain the choices made by the Participants to meet the requirements specified in Rule 613 for the CAT. In accordance with this requirement, the Participants have addressed each of the twelve considerations in Appendix C. Finally, Appendix D describes the technical requirements for the Plan Processor.

333

Appendix B is reserved for future use.

As mentioned, Appendix C discusses the various “considerations” regarding how the Participants propose to develop and implement the CAT required to be discussed by Rule 613.

334

These considerations, include: (i) The reporting of data to the Central Repository, including the sources of the data and the manner in which the Central Repository will receive, extract, transform, load, and retain the data; (ii) the time and method by which the data in the Central Repository will be made available to regulators; (iii) the reliability and accuracy of the data reported to and maintained by the Central Repository throughout its lifecycle; (iv) the security and confidentiality of the information reported to the Central Repository; (v) the flexibility and scalability of the systems used by the Central Repository to collect, consolidate and store CAT Data; (vi) the feasibility, benefits and costs of broker-dealers reporting certain information to the CAT in a timely manner; (vii) an analysis of expected benefits and estimated costs for creating, implementing, and maintaining the CAT pursuant to the proposed CAT NMS Plan; (viii) an analysis of the proposed CAT NMS Plan's impact on competition, efficiency, and capital formation; (ix) a plan to eliminate rules and systems that will be rendered duplicative by the CAT; (x) objective milestones to assess progress toward the implementation of the proposed CAT NMS Plan; (xi) the process by which Participants solicited views of members and other parties regarding creation, implementation, and maintenance of CAT and a summary of these views and how the Participants took them into account in preparing the CAT NMS Plan; and (xii) a discussion of reasonable alternative approaches that the Participants considered to create, implement, and maintain the CAT.

335

334

17 CFR 242.613(a).

335

See

CAT NMS Plan,

supra

note 5, at Appendix C, Sections A.1-6, B.7-8, C.9-10.

The technical requirements discussed in Appendix D to the CAT NMS Plan, CAT NMS Plan Processor Requirements, include an outline of minimum functional and technical requirements established by the Participants of the CAT NMS Plan for the Plan Processor. Appendix D provides the Plan Processor with details and guidelines for compliance with the requirements contained in Article VI that are not expressly stated therein.

Appendix D also outlines technical architecture, capacity and data retention requirements for the Central Repository,

336

as well as describes the types of data that would be reported to the Central Repository and the sources of such information.

337

The Appendix outlines specific requirements relating to reporting data, linking data, validating and processing data and timing for availability to regulators.

338

Appendix D further discusses how regulators would be able to access and use the data.

339

It also provides requirements related to data security, and specific requirements governing how Customer and Customer Account Information must be captured and stored, separate from transactional data.

340

Appendix D outlines requirements for the Plan Processor's disaster recovery and business continuity plans.

341

Finally, Appendix D describes plans for technical, operational, and business support to CAT Reporters for all aspects of reporting, and describes how upgrades and new functionality would be incorporated.

342

336

Id.

at Appendix D, Sections 1.1, 1.3-1.4.

337

Id.

at Appendix D, Section 2.1.

338

Id.

at Appendix D, Sections 3, 6.1-6.2, 7.2.

339

Id.

at Appendix D, Section 8.1.

340

Id.

at Appendix D, Sections 4.1, 9.1.

341

Id.

at Appendix D, Sections 5.3-5.4.

342

Id.

at Appendix D, Sections 10, 11.

10. Reporting Procedures

The CAT NMS Plan requires CAT Reporters to comply with specific reporting procedures when reporting CAT Data to the Central Repository.

343

Specifically, CAT Reporters must format CAT Data to comply with the format specifications approved by the Operating Committee.

344

CAT Reporters must record CAT Data contemporaneously with the applicable Reportable Event

345

and report such data to the Central Repository by 8:00 a.m. ET on the next Trading Day.

346

The obligation to report CAT Data applies to “each NMS Security registered or listed for trading on [a national securities] exchange or admitted to unlisted trading privileges on such exchange,” and “each Eligible Security for which transaction reports are required to be submitted to such [national securities] association.”

347

Further, the Participants are required to adopt Compliance Rules

348

that require Industry Members, subject to their SRO jurisdiction, to report CAT Data.

349

343

Id.

at Sections 6.3-6.4; Appendix D, at Section 2.1.

344

Id.

at Sections 6.3(a), 6.4(a). The CAT NMS Plan also requires that the Operating Committee-approved format must be a format specified by the Plan Processor and Rule 613 compliant.

345

Id.

at Sections 6.3(b)(i), 6.4(b)(i).

346

Id.

at Sections 6.3(b)(ii); 6.4(b)(ii); Appendix C, Section A.1(a)(ii). Participants may voluntarily report CAT Data prior to the 8:00 a.m. ET deadline.

Id.

The CAT NMS Plan defines “Trading Day” as the date “as is determined by the Operating Committee.” The CAT NMS Plan also provides that “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.”)

Id.

at Section 1.1.

347

See

CAT NMS Plan,

supra

note 5, at Sections 6.3(c)(i)-(ii), 6.4(c)(i)-(ii).

348

The CAT NMS Plan defines the “Compliance Rule” to mean “with respect to a Participant, the rules promulgated by such Participant as contemplated by Section 3.11.”

Id.

at Section 1.1. Section 3.11 of the CAT NMS Plan provides that “each Participant shall comply with and enforce compliance, as required by SEC Rule 608(c), by its Industry Members with the provisions of SEC Rule 613 and of [the LLC Agreement], as applicable, to the Participant and its Industry Members. The Participants shall endeavor to promulgate consistent rules (after taking into account circumstances and considerations that may impact Participants differently) requiring compliance by their respective Industry Members with the provisions of SEC Rule 613 and [the LLC Agreement].”

Id.

at Section 3.11.

349

See id.

at Section 6.4(c)(i)-(ii).

The CAT NMS Plan requires specific data elements of CAT Data that must be recorded and reported to the Central Repository upon: (i) “original receipt or

origination of an order,”

350

(ii) “routing of an order,”

351

and (iii) “receipt of an order that has been routed.”

352

Additionally, the CAT NMS Plan requires that a CAT Reporter must record and report data related to an “order [that] is modified or cancelled,”

353

and an “order [that] is executed, in whole or in part,”

354

as well as “other information or additional events as may be prescribed in Appendix D, Reporting and Linkage Requirements.”

355

The CAT NMS Plan also requires Industry Member CAT Reporters to report additional data elements for (i) an “order [that] is executed, in whole or in part,”

356

(ii) a “trade [that] is cancelled,”

357

or (iii) “original receipt or origination of an order.”

358

Further, each Participant shall, through Compliance Rules, require Industry Members to record and report to the Central Repository information or additional events as may be prescribed to accurately reflect the complete lifecycle of each Reportable Event.

359

350

For “original receipt or origination of an order,” the CAT NMS Plan specifies the following data elements: (i) Firm Designated ID(s) for each Customer; (ii) CAT-Order-ID; (iii) SRO-Assigned Market Participant Identifier of the Industry Member receiving or originating the order; (iv) date of order receipt or origination; (v) time of order receipt or origination (using timestamps pursuant to Section 6.8 of the CAT NMS Plan); and (vi) Material Terms of the Order.

Id.

at Section 6.3(d)(i).

351

For “routing of an order,” the CAT NMS Plan specifies the following data elements: (i) CAT-Order-ID; (ii) date on which the order is routed; (iii) time at which the order is routed (using timestamps pursuant to Section 6.8 of the CAT NMS Plan); (iv) SRO-Assigned Market Participant Identifier of the Industry Member or Participant routing the order; (v) SRO-Assigned Market Participant Identifier of the Industry Member or Participant to which the order is being routed; (vi) if routed internally at the Industry Member, the identity and nature of the department or desk to which the order is routed; and (vii) Material Terms of the Order.

Id.

at Section 6.3(d)(ii).

352

For “receipt of an order that has been routed,” the CAT NMS Plan specifies the following data elements: (i) CAT-Order-ID; (ii) date on which the order is received; (iii) time at which the order is received (using timestamps pursuant to Section 6.8); (iv) SRO-Assigned Market Participant Identifier of the Industry Member or Participant receiving the order; (v) SRO-Assigned Market Participant Identifier of the Industry Member or Participant routing the order; and (vi) Material Terms of the Order.

Id.

at Section 6.3(d)(iii).

353

For an “order [that] is modified or cancelled,” the CAT NMS Plan specifies the following data elements: (i) CAT-Order-ID; (ii) date the modification or cancellation is received or originated; (iii) time at which the modification or cancellation is received or originated (using timestamps pursuant to Section 6.8 of the CAT NMS Plan); (iv) price and remaining size of the order, if modified; (v) other changes in the Material Terms of the Order, if modified; and (vi) whether the modification or cancellation instruction was given by the Customer or was initiated by the Industry Member or Participant.

Id.

at Section 6.3(d)(iv).

354

For an “order [that] is executed, in whole or in part,” the CAT NMS Plan specifies the following data elements: (i) CAT-Order-ID; (ii) date of execution; (iii) time of execution (using timestamps pursuant to Section 6.8 of the CAT NMS Plan); (iv) execution capacity (principal, agency or riskless principal); (v) execution price and size; (vi) SRO-Assigned Market Participant Identifier of the Participant or Industry Member executing the order; and (vii) 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.

Id.

at Section 6.3(d)(v).

355

See id.

at Section 6.3(d)(vi).

356

For an “order [that] is executed, in whole or in part,” the CAT NMS Plan specifies the following additional data elements: (i) an Allocation Report; (ii) SRO-Assigned Market Participant Identifier of the clearing broker or prime broker, if applicable; and (iii) CAT-Order-ID of any contra-side order(s).

Id.

at Section 6.4(d)(ii)(A).

357

For a “trade [that] is cancelled,” the CAT NMS Plan specifies the following additional data element: a cancelled trade indicator.

Id.

at Section 6.4(d)(ii)(B).

358

For “original receipt or origination of an order,” the CAT NMS Plan specifies the following additional data element(s): the Firm Designated ID, Customer Account Information, and Customer Identifying Information for the relevant Customer.

Id.

at Section 6.4(d)(ii)(C).

359

Id.

at Appendix D, Section 3.

11. Timeliness of Data Reporting

Section 6.3(b)(ii) of the CAT NMS Plan requires each Participant to report Participant Data to the Central Repository by 8:00 a.m. ET on the Trading Day following the day the Participant records such data.

360

Additionally, a Participant may voluntarily report such data prior to this deadline.

361

Section 6.4(b)(ii) states that each Participant shall, through its Compliance Rule, require its Industry Members to report Recorded Industry Member Data to the Central Repository by 8:00 a.m. ET on the Trading Day following the day the Industry Member records such data, and Received Industry Member Data to the Central Repository by 8:00 a.m. ET on the Trading Day following the day the Industry Member receives such data.

362

Section 6.4(b)(ii) of the CAT NMS Plan also states that each Participant shall, through its Compliance Rule, permit its Industry Members to voluntarily report such data prior to the applicable 8:00 a.m. ET deadline.

363

360

Id.

at Section 6.3(b)(ii);

see also

Exemption Order,

supra

note 21, at 31-41.

385

See

CAT NMS Plan,

supra

note 5, at Section 6.3(e)(i).

386

Id.

at Section 6.4(d)(vi).

387

See

Exemption Order,

supra

note 21, at 31-41.

388

Id.

at 20.

The CAT must be able to capture, store, and maintain current and historical SRO-Assigned Market Participant Identifiers.

389

The SRO-Assigned Market Participant Identifier must also be included on the Plan Processor's acknowledgment of its receipt of data files from a CAT Reporter or Data Submitter,

390

on daily statistics provided by the Plan Processor after the Central Repository has processed data,

391

and on a secure Web site that the Plan Processor would maintain that would contain each CAT Reporter's daily reporting statistics.

392

In addition, data validations by the Plan Processor must include confirmation of a valid SRO-Assigned Market Participant Identifier.

393

389

Id.

at Appendix D, Section 2.

390

See id.

at Appendix D, Section 7.1.

391

See id.

at Appendix D, Section 7.2.

392

See id.

at Appendix D, Section 10.1.

393

See id.

at Appendix D, Section 7.2. The CAT NMS Plan also notes that both the CAT-Reporter-ID and the SRO-Assigned Market Participant Identifier would be data fields for the online targeted query tool described in the CAT NMS Plan as providing authorized users with the ability to retrieve processed and/or validated (unlinked) data via an online query screen.

See id.

at Appendix D, Section 8.1.1.

15. Customer-ID

a. Customer Information Approach

Rule 613(c)(7)(i)(A) requires that for the original receipt or origination of an order, a CAT Reporter report the “Customer-ID(s) for each Customer.”

394

“Customer-ID” is defined in Rule 613(j)(5) to mean “with respect to a customer, a code that uniquely and consistently identifies such customer for purposes of providing data to the Central Repository.”

395

Rule 613(c)(8) requires that “[a]ll plan sponsors and their members shall use the same Customer-ID and CAT-Reporter-ID for each customer and broker-dealer.”

396

394

17 CFR 242.613(c)(7)(i)(A).

395

17 CFR 242.613(j)(5).

396

17 CFR 242.613(c)(8).

In Appendix C, the Participants describe the “Customer Information Approach,”

397

an alternative approach to the requirement that a broker-dealer report a Customer-ID for every Customer upon original receipt or origination of an order.

398

Under the Customer Information Approach, the CAT NMS Plan would require each broker-dealer to assign a unique Firm Designated ID to each Customer.

399

As the Firm Designated ID, broker-dealers 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).

400

According to the CAT NMS Plan, broker-dealers would submit an initial set of Customer information to the Central Repository, including, as applicable, the Firm Designated ID, 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,

401

and/or Large Trader ID (“LTID”), if applicable, which would be updated as set forth in the CAT NMS Plan.

402

397

The SROs requested exemptive relief from Rule 613 so that the CAT NMS Plan may permit the Customer Information Approach, which would require each broker-dealer to assign a unique Firm Designated ID to each trading account and to submit an initial set of information identifying the Customer to the Central Repository, in lieu of requiring each broker-dealer to report a Customer-ID for each Customer upon the original receipt or origination of an order.

See

Exemptive Request Letter,

supra

note 21, at 12. The Commission granted exemptive relief on March 1, 2016 in order to allow this alternative to be included in the CAT NMS Plan and subject to notice and comment.

See

Exemption Order,

supra

note 21.

398

See

CAT NMS Plan,

supra

note 5, at Appendix C, Section A.1(a)(iii).

399

Id.

The CAT NMS Plan defines a “Firm Designated ID” as “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.”

See id.

at Section 1.1.

400

Id.

at Appendix C, Section A.1(a)(iii).

401

The CAT NMS Plan provides that where a validated LEI is available for a Customer or entity, this may obviate a need to report other identifier information (

e.g.,

Customer name, address, EIN).

Id.

at Appendix C, Section A.1(a)(iii) n.31.

402

The CAT NMS Plan states that the Participants anticipate that Customer information that is initially reported to the CAT could be limited to Customer accounts that have, or are expected to have, CAT Reportable Event activity. For example, the CAT NMS Plan notes accounts that are considered open, but have not traded Eligible Securities in a given time frame, may not need to be pre-established in the CAT, but rather could be reported as part of daily updates after they have CAT Reportable Event activity.

Id.

at Appendix C, Section A.1(a)(iii) n.32.

Under the Customer Information Approach, broker-dealers would be required to report only the Firm Designated ID for each new order submitted to the Central Repository, rather than the “Customer-ID” as defined by Rule 613(c)(j)(5) and as required by Rule 613(c)(7)(i)(A), and the Plan Processor would associate specific Customers and their Customer-IDs with individual order events based on the reported Firm Designated IDs.

403

Within the Central Repository, each Customer would be uniquely identified by identifiers or a combination of identifiers such as an ITIN/SSN, date of birth, and, as applicable, LEI and LTID.

404

The Plan Processor would be required to use these unique identifiers to map orders to specific Customers across all broker-dealers.

405

To ensure information identifying a Customer is updated, broker-dealers would be required to submit to the Central Repository daily updates for reactivated accounts, newly established or revised Firm Designated IDs, or associated reportable Customer information.

406

403

See id.

at Appendix C, Section A.1(a)(iii). The CAT NMS Plan also requires Industry Members to report “Customer Account Information” upon the original receipt of origination of an order.

See

CAT NMS Plan,

supra

note 5, at Sections 1.1, 6.4(d)(ii)(C).

404

See

CAT NMS Plan,

supra

note 5, at Appendix C, Section A.1(a)(iii).

405

Id.

406

The CAT NMS Plan notes that because reporting to the CAT is on an end-of-day basis, intra-day changes to information could be captured as part of the daily updates to the information. To ensure the completeness and accuracy of Customer information and associations, in addition to daily updates, broker-dealers would be required to submit periodic full refreshes of Customer information to the CAT. The scope of the “full” Customer information refresh would need to be further defined, with the assistance of the Plan Processor, to determine the extent to which inactive or otherwise terminated accounts would need to be reported.

Id.

at Appendix C, Section A.1(a)(iii) n.33.

Appendix C provides additional requirements that the Plan Processor must meet under the Customer Information Approach.

407

The Plan Processor must maintain information of sufficient detail to uniquely and consistently identify each Customer across all CAT Reporters, and asso

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