[Federal Register Volume 82, Number 213 (Monday, November 6, 2017)]
[Notices]
[Pages 51449-51453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24056]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81993]
Order Temporarily Exempting Certain Broker-Dealers From Specified
Provisions of the Recordkeeping, Reporting, and Monitoring
Responsibilities of Rule 13h-1 Under the Securities Exchange Act of
1934
October 31, 2017.
I. Introduction
On July 27, 2011, the Securities and Exchange Commission
(``Commission'') adopted Rule 13h-1 (``Rule 13h-1'' or the ``Rule'')
under the Securities Exchange Act of 1934 (``Exchange Act'') \1\ to
assist the Commission in both identifying and obtaining information on
market participants that conduct a substantial amount of trading
activity, as measured by volume or market value, in national market
system (``NMS'') securities (such persons are referred to as ``large
traders'').\2\ The Rule requires certain large traders to identify
themselves to the Commission on Form 13H. The Rule also requires, among
other things, certain broker-dealers to maintain records of large
trader transaction information and to report such information to the
Commission upon request. Since December 1, 2011, persons whose trading
activity reached or exceeded the identifying activity level specified
in the Rule have been required to identify themselves to the Commission
by filing Form 13H through the Commission's EDGAR system. The
Commission has implemented the broker-dealer recordkeeping, reporting,
and monitoring requirements of the Rule in phases through a series of
exemptive orders establishing certain delayed compliance dates.\3\
Currently, certain broker-dealers are required to keep records of and
report to the Commission upon request transaction data for certain of
their customers that are either a large trader or an Unidentified Large
Trader.\4\ Most recently, the Commission provided a temporary exemption
from specified provisions of the Rule for certain broker-dealers
(``Phase Three'')--provisions which otherwise would have fully
implemented the entirety of the recordkeeping and reporting
responsibilities of Rule 13h-1 by, in particular, requiring the capture
and reporting of execution time on trades of all large traders--until
November 1, 2017.\5\
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\1\ 17 CFR 240.13h-1.
\2\ See Securities Exchange Act Release No. 64976 (July 27,
2011), 76 FR 46960 (August 3, 2011) (``Large Trader Adopting
Release''). The effective date of Rule 13h-1 was October 3, 2011.
See also Exchange Act Rule 600(b)(46) of Regulation NMS (defining
``NMS security'').
\3\ See Securities Exchange Act Release Nos. 66839 (April 20,
2012), 77 FR 25007 (April 26, 2012) (``Phase One Order'')
(establishing Phase One); 69281 (April 3, 2013), 78 FR 20960 (April
8, 2013) (``Phase Two Extension Order'') (extending the compliance
date for Phase Two to November 1, 2013); 70150 (August 8, 2013), 78
FR 49556 (August 14, 2013) (``Phases Two and Three Order'')
(modifying Phase Two and providing for Phase Three); and 76322
(October 30, 2015), 80 FR 68590 (November 5, 2015) (``Phase Three
Extension Order'') (extension of compliance date for Phase Three
until November 1, 2017).
\4\ Rule 13h-1(a)(9) defines ``Unidentified Large Trader'' as
``each person who has not complied with the [large trader
identification requirements of the Rule] that a registered broker-
dealer knows or has reason to know is a large trader.'' The Rule
provides that, for purposes of determining whether a registered
broker-dealer has reason to know that a person is a large trader,
``a registered broker-dealer need take into account only
transactions in NMS securities effected by or through such broker-
dealer.'' Rule 13h-1(a)(9).
\5\ See Phase Three Extension Order, supra note 3 (extending the
Phase Three compliance date until November 1, 2017). See also Phases
Two and Three Order, supra note 3, 78 FR at 49560.
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The Financial Information Forum (``FIF'') and Securities Industry
and Financial Markets Association (``SIFMA,'' and, together with FIF,
the ``Industry Organizations'') have asked the Commission to eliminate
Phase Three of the Rule, which would impose the remaining requirements
on all broker-dealers and all large trader customers.\6\ Alternatively,
the Industry
[[Page 51450]]
Organizations have asked the Commission to extend the compliance date
for Phase Three for an additional period of three or five years.\7\
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\6\ See Undated letter from William H. Herbert, Managing
Director, FIF, to Heather Seidel, Acting Director, Division of
Trading and Markets (``Division''), Commission (``FIF I''),
available at https://www.sec.gov/comments/s7-10-10/s71010-1558852-131535.pdf; Letter from Thomas F. Price, Managing Director,
Operations, Technology, and BCP, SIFMA, to Heather Seidel, Acting
Director, Division, Commission, dated March 3, 2017 (``SIFMA
Letter''), available at https://www.sec.gov/comments/s7-10-10/s71010-1610783-135970.pdf; and Letter from William H. Herbert,
Managing Director, FIF, to Heather Seidel, Acting Director,
Division, Commission, dated September 14, 2017 (``FIF II''),
available at https://www.sec.gov/comments/s7-10-10/s71010-2445134-161065.pdf. and In the alternative, FIF ``recommends postponing the
compliance date for five years'' and SIFMA requests an extension
``to a date no sooner than the earlier of the date of the full
implementation of the CAT or November 1, 2022.'' See FIF I at 2; and
SIFMA Letter at 3. In a subsequent letter, FIF requested that the
Commission eliminate Phase Three or, alternatively, extend the
compliance date for Phase Three to November 1, 2020 to allow for the
implementation of CAT Phase 1. See FIF II at 3.
\7\ See FIF II at 3 (asking the Commission, if it chooses not to
eliminate Phase Three, to extend the compliance date for Phase Three
until November 1, 2020 ``to allow full implementation of CAT Phase 1
for both Large and Small Industry Members''); FIF I at 2 (stating
that ``If it is not possible to eliminate Phase 3 of the Rule, FIF
recommends postponing the compliance date for five years''); and
SIFMA Letter at 3 (requesting an extension ``to a date no sooner
than the earlier of the date of the full implementation of the CAT
or November 1, 2022'').
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For the reasons discussed below, the Commission believes that it is
consistent with the purposes of the Exchange Act to grant a limited
extension of the compliance date for Phase Three by temporarily
exempting broker-dealers until November 15, 2018 from the recordkeeping
and reporting obligations of the Rule that would otherwise have been
implemented in Phase Three on November 1, 2017. As discussed below, the
Commission approved the Consolidated Audit Trail (``CAT NMS Plan'') \8\
submitted by FINRA and the national securities exchanges (collectively,
the ``SROs'') pursuant to Rule 613 under the Exchange Act.\9\ In
adopting Rule 613 and later when it approved the CAT NMS Plan, the
Commission contemplated that the CAT would be duplicative of the
reporting requirements of Rule 13h-1 under the Exchange Act.\10\ To
focus broker-dealer attention and resources on implementing the CAT in
the near term, the Commission hereby is exempting temporarily, until
November 15, 2018, broker-dealers from the remaining recordkeeping and
reporting obligations of Rule 13h-1, beyond those previously
implemented in Phases One and Two.\11\ During that time, the Commission
will consider progress in implementing the CAT as it determines
implementation of Phase Three.
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\8\ See Securities Exchange Act Release No. 79318 (November 15,
2016), 81 FR 84696 (November 23, 2016) (File No. 4-698) (``CAT NMS
Plan Order'').
\9\ 17 CFR 242.613 (``Rule 613''). See also Securities Exchange
Act Release No. 67457 (July 18, 2012), 77 FR 45722 (August 1, 2012)
(``Rule 613 Adopting Release''). Rule 613 requires the SROs to
submit a national market system (``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 though routing,
cancellation, modification, or execution in a single, consolidated
data source. See Rule 613(a)(1), (c)(1), and (c)(7). Specifically,
Rule 613 requires the SROs to ``jointly file . . . a national market
system plan to govern the creation, implementation, and maintenance
of a consolidated audit trail and Central Repository.'' See Rule
613(a)(1). As described more fully in the CAT NMS Plan Order, supra
note 8, to satisfy the requirements of Rule 613, the SROs in
February 2015 filed an NMS plan governing the CAT (the ``CAT NMS
Plan'') that replaced and amended an earlier version of the plan.
The Commission approved the CAT NMS Plan, as amended, in November
2016. See CAT NMS Plan Order, supra note 8. The purpose of the CAT
NMS Plan, and the creation, implementation, and maintenance of a
comprehensive audit trail for the U.S. securities markets, 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.'' See Rule 613
Adopting Release, supra note 9, 77 FR at 45726. 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 id.
\10\ See Rule 613 Adopting Release, supra note 9, 77 FR at
45734; and CAT NMS Plan Order, supra note 8, 81 FR at 84777.
\11\ See infra notes 24-27 and accompanying text (describing
Phases One and Two).
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II. Background
A. Large Trader Status
Rule 13h-1 defines a large trader as a person who ``directly or
indirectly, including through other persons controlled by such person,
exercises investment discretion over one or more accounts and effects
transactions for the purchase or sale of any National Market System
(NMS) security for or on behalf of such accounts, by or through one or
more registered broker-dealers, in an aggregate amount equal to or
greater than the identifying activity level'' (emphasis added), or
voluntarily registers as such.\12\ The term ``identifying activity
level'' is defined in the Rule to mean aggregate transactions in NMS
securities that are equal to or greater than (1) during a calendar day,
either 2 million shares or shares with a fair market value of $20
million; or (2) during a calendar month, either 20 million shares or
shares with a fair market value of $200 million.\13\
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\12\ See Rule 13h-1(a)(1).
\13\ See Rule 13h-1(a)(7). See also Phase Three Extension Order,
supra note 3 (establishing an alternative ``premium paid''
methodology for calculating equity options value).
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B. The Requirements of Rule 13h-1
1. Large Trader Self-Identification
The Rule requires large traders to self-identify to the Commission
on Form 13H and to periodically update their Form 13H submission,\14\
obtain a unique large trader identification number (``LTID'') from the
Commission,\15\ and provide this number to their broker-dealers and
identify each account to which the LTID applies.\16\ These large trader
responsibilities are referred to collectively as the ``Self-
Identification Requirements.''
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\14\ See Rule 13h-1(b)(1)(i)-(iii). Form 13H and all updates to
it are filed electronically through the Commission's EDGAR system.
\15\ When a large trader files its initial Form 13H filing
through EDGAR, the system sends an automatically generated
confirmation email acknowledging acceptance of the filing. That
email also contains the unique 8-digit LTID number assigned to the
large trader.
\16\ See Rule 13h-1(b)(2). See also Large Trader Adopting
Release, supra note 2, 76 FR at 46971 (``the requirements that a
large trader provide its LTID to all registered broker-dealers who
effect transactions on its behalf, and identify each account to
which it applies, are ongoing responsibilities that must be
discharged promptly'').
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2. Broker-Dealers' Recordkeeping and Reporting Responsibilities
Regarding Unidentified Large Traders and the Customer Monitoring Safe
Harbor
Under Rules 13h-1(d) and (e), registered broker-dealers are
responsible for, among other things, maintaining records of certain
transaction information and information relating to Unidentified Large
Traders and then reporting such information to the Commission upon
request. Specifically, Rule 13h-1 requires that every registered
broker-dealer maintain records of information specified in paragraphs
(d)(2) and (d)(3) of the Rule (``Transaction Data''), including, among
other things, the applicable LTID(s) and execution time of each trade,
for all transactions effected directly or indirectly by or through: (1)
An account such broker-dealer carries for a large trader or an
Unidentified Large Trader; or (2) if the broker-dealer is a large
trader, any proprietary or other account over which such broker-dealer
exercises investment discretion. Additionally, where a non-broker-
dealer carries an account for a large trader or an Unidentified Large
Trader under the Rule, the broker-dealer effecting transactions
directly or indirectly for such large trader or Unidentified Large
Trader must maintain records of all Transaction Data.\17\ These
recordkeeping obligations are referred to
[[Page 51451]]
collectively as the ``Recordkeeping Responsibilities.''
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\17\ See Rule 13h-1(d)(1)(iii).
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The Rule also requires that, upon Commission request, every
registered broker-dealer that is itself a large trader or carries an
account for a large trader or an Unidentified Large Trader must
electronically report Transaction Data to the Commission through the
Electronic Blue Sheets (``EBS'') system for all transactions effected
directly or indirectly by or through accounts carried by such broker-
dealer for large traders or Unidentified Large Traders equal to or
greater than the reporting activity level.\18\ Additionally, where a
non-broker-dealer carries an account for a large trader or an
Unidentified Large Trader, the broker-dealer effecting such
transactions directly or indirectly for the large trader or
Unidentified Large Trader must electronically report Transaction Data
to the Commission through the EBS system for such transactions equal to
or greater than the reporting activity level.\19\ The Rule requires
that reporting broker-dealers submit the requested Transaction Data no
later than the day and time specified in the Commission's request.\20\
These reporting obligations are referred to collectively as the
``Reporting Responsibilities.''
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\18\ See Rule 13h-1(e).
\19\ See id.
\20\ See id.
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Rule 13h-1(f) provides a safe harbor that is designed to reduce
broker-dealers' recordkeeping and reporting burdens with respect to
Unidentified Large Traders by, among other things, providing relief for
when a broker-dealer shall be deemed to know or have reason to know
that a person is a large trader and thus subject to reporting
obligations related to Unidentified Large Traders under Rule 3h-1.
Under the safe harbor, a registered broker-dealer is deemed not to know
or have reason to know that a person is a large trader if the broker-
dealer does not have actual knowledge that a person is a large trader
and it establishes policies and procedures reasonably designed to
identify customers whose transactions effected through an account or
group of accounts carried by such broker-dealer or through which such
broker-dealer executes transactions, as applicable, equal or exceed the
identifying activity level and, if so, to treat such persons as
Unidentified Large Traders and notify them of their potential reporting
obligations under this Rule.\21\
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\21\ See Rule 13h-1(f).
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C. Phased Implementation of Rule 13h-1
When the Commission adopted the Rule, it characterized the large
trader reporting requirements as ``relatively modest steps'' to
``address the Commission's near-term need for access to more
information about large traders and their trading activities. . . .''
\22\ After the Commission adopted the Rule, industry commenters began
to identify specific implementation challenges and offered more
detailed estimates of the cost of compliance for broker-dealers with
the Recordkeeping and Reporting Responsibilities.\23\ Such concerns led
the Commission to implement the Recordkeeping and Reporting
Responsibilities in phases.\24\
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\22\ See Large Trader Adopting Release, supra note 2, 76 FR at
46963.
\23\ See, e.g., Phase Three Extension Order, supra note 3, 80 FR
at 68594.
\24\ See id. See also supra note 3 (citing to the applicable
releases).
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In Phase One, which began on November 30, 2012, the Commission
temporarily exempted from the Recordkeeping and Reporting
Responsibilities all broker-dealers, except clearing brokers for large
traders (including the large trader itself if it is a self-clearing
broker-dealer), with respect to large trader transactions that were
either (1) proprietary trades by a U.S. registered broker-dealer, or
(2) effected through a ``sponsored access'' arrangement.\25\ In Phase
Two, which began on November 1, 2013, the Commission further
implemented the Rule by subjecting transactions effected pursuant to
``direct market access'' arrangements to the Recordkeeping and
Reporting Responsibilities.\26\ Specifically, Phase Two temporarily
exempted broker-dealers, until November 1, 2015, from the Recordkeeping
and Reporting Responsibilities, except for: (1) The clearing broker-
dealer for a large trader, with respect to (a) proprietary transactions
by the large trader broker-dealer; (b) transactions effected pursuant
to a ``sponsored access'' arrangement; and (c) transactions effected
pursuant to a ``direct market access'' arrangement; and (2) a broker-
dealer that carries an account for a large trader, with respect to
transactions other than those set forth above, and for Transaction Data
other than the execution time.\27\ In other words, the Recordkeeping
and Reporting Responsibilities under Phase Two require capture and
reporting of LTID numbers for all large traders, but require capture
and reporting of execution time only for the three specific categories
of large trader activity outlined above.
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\25\ See Phase One Order, supra note 3, 77 FR at 25008-9. A
``sponsored access'' arrangement is an arrangement where a broker-
dealer permits a customer to enter orders into a trading center
without using the broker-dealer's trading system (i.e., using the
customer's own technology or that of a third party provider).
\26\ See Phases Two and Three Order, supra note 3, 78 FR at
49559-60. See also Securities Exchange Act Release No. 63241
(November 3, 2010), 75 FR 69792, 69793 (November 15, 2010) (File No.
S7-03-10) (``Generally, direct market access refers to an
arrangement whereby a broker-dealer permits customers to enter
orders into a trading center but such orders flow through the
broker-dealer's trading systems prior to reaching the trading
center.'').
\27\ See Phases Two and Three Order, supra note 3, 78 FR at
49558-9.
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Phase Three, scheduled to commence on November 1, 2017, would
require compliance with the entirety of the Recordkeeping and Reporting
Responsibilities for all broker-dealers, covering the remaining types
of large traders and transactions not covered by Phases One and
Two.\28\ Notably, implementation of Phase Three would require the
capture and reporting of execution time for all large trader
transactions, not just for the three specific categories of large
trader activity already implemented through Phases One and Two.
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\28\ See id. at 78 FR at 49560; and Phase Three Extension Order,
supra note 3.
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D. Adoption of Rule 613 and Implementation of the CAT
The Commission adopted Rule 613 to create a CAT that would allow
regulators to more efficiently and accurately track activity in NMS
securities.\29\ Rule 613 requires the SROs to jointly submit an NMS
plan to create, implement and maintain a consolidated audit trail.\30\
In November 2016, the Commission approved the SROs' proposed CAT NMS
Plan.\31\
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\29\ See Rule 613 Adopting Release, supra note 9.
\30\ See Rule 613(a)(1).
\31\ See CAT NMS Plan Order, supra note 8.
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When the Commission adopted Rule 613 it stated that, while certain
aspects of Rule 13h-1 are not addressed by Rule 613, Rule 613 may
supersede certain of the broker-dealer Recordkeeping and Reporting
Responsibilities of Rule 13h-1.\32\ Specifically, the Commission stated
``[t]o the extent that . . . data reported to the central repository
under Rule 613 obviates the need for the EBS system, the Commission
expects that the separate [trade] reporting requirements of Rule 13h-1
related to the EBS system would be eliminated.'' \33\ Further, when it
approved the CAT NMS Plan, the Commission noted that ``CAT will provide
Commission Staff with much of
[[Page 51452]]
the equity and option data that is currently obtained through equity
and option cleared reports and EBS, including the additional
transaction data captured in connection with Rule 13h-1 concerning
large traders.'' \34\
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\32\ See Rule 613 Adopting Release, supra note 9, 77 FR at
45734.
\33\ Id. at text accompanying n.95.
\34\ See CAT NMS Plan Order, supra note 8, 81 FR at 84777
(citations omitted).
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III. Exemptive Relief
Pursuant to Section 13(h)(6) of the Exchange Act and Rule 13h-1(g)
thereunder,\35\ the Commission, by order, may exempt from the
provisions of Rule 13h-1, upon specified terms and conditions or for
stated periods, any person or class of persons or any transaction or
class of transactions from the provisions of Rule 13h-1 to the extent
that such exemption is consistent with the purposes of the Exchange
Act.
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\35\ See 15 U.S.C. 78m and Rule 13h-1(g), respectively.
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As noted above, the Industry Organizations have requested that the
Commission eliminate Phase Three of the implementation of the Rule.\36\
In the alternative, FIF recommends postponing the compliance date for
Phase Three for five years \37\ or until November 1, 2020,\38\ and
SIFMA requested an extension of the compliance date until the earlier
of full implementation of the CAT or November 1, 2022.\39\ The Industry
Organizations both expressed the view that granting exemptive relief
would allow the industry to focus resources on implementing the
CAT.\40\ In addition, SIFMA asserted that ``the reporting structure
that would ultimately be developed and implemented under Phase III
would become redundant when the Consolidated Audit Trail (CAT) is
instituted.'' \41\ SIFMA further stated that ``[c]ertain aspects of
Phase III implementation continue to be infeasible except at a
prohibitive cost and involving significant industry coordination for
the development of new operational flows and processing standards that
is disproportionate to the anticipated relatively short-lived
corresponding benefit. Specifically, with the progress on CAT . . . the
useful life of a costly and specialized Phase III solution is now
described in months.'' \42\ FIF stated that the implementation of Phase
Three would represent ``significant duplicative costs to the broker-
dealer community because [the Phase Three] recordkeeping and reporting
obligations are already included in the CAT.'' \43\
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\36\ See FIF I, supra note 6, at 2; and SIFMA Letter, supra note
6, at 3.
\37\ See FIF I, supra note 6, at 2.
\38\ See FIF II, supra note 6, at 3.
\39\ See SIFMA Letter, supra note 6, at 3.
\40\ See FIF I, supra note 6, at 1-2; and SIFMA Letter, supra
note 6, at 2. See also FIF II, supra note 6, at 1 (stating that
mandating implementation of Phase Three would ``divert scarce
resources from the [i]mplementation of CAT'').
\41\ SIFMA Letter, supra note 6, at 2. See also FIF II at 2
(expressing the view that the implementation of Phase Three ``would
be redundant of the CAT initiative'').
\42\ SIFMA Letter, supra note 6, at 2. SIFMA stated that it had
previously described the significant implementation challenges that
would need to be resolved to meet the compliance requirements of
Phase Three. Id. at 1. Quoting its February 13, 2013, letter to the
Commission, SIFMA stated that ```it would require a massive
restructuring of most of the current execution and clearing flows
and systems at considerable cost to aggregate all of [the relevant
reporting] information at one broker-dealer' and that `individual
broker-dealers must make significant internal changes to their
systems, the fundamental restructuring of certain industry standard
clearing processes may be required, and concerted and coordinated
development activities will be required throughout the broker-dealer
industry.' '' Id. at 1-2, citing Letter from Theodore R. Lazo,
Managing Director and Associate General Counsel, SIFMA, to David S.
Shillman, Associate Director, Division, Commission, dated February
13, 2013, available at https://www.sec.gov/comments/s7-10-10/s71010-102.pdf. SIFMA stated that ``[t]hese challenges continue to persist
and are no less burdensome today,'' and asserted that the reporting
structure that would be developed and implemented under Phase Three
would become redundant when the CAT is instituted. SIFMA Letter,
supra note 6, at 2. See also FIF II, supra note 6, at 2 (referencing
FIF's previous descriptions of the implementation challenges
associated with Phase Three).
\43\ See FIF II, supra note 6, at 2.
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The Commission notes that there has been significant progress on
the implementation of the CAT since it issued the Phase Three Extension
Order on October 30, 2015. As noted above, the Commission approved the
CAT NMS Plan submitted by the SROs on November 15, 2016,\44\ and to
date the SROs have taken a series of steps to implement the CAT in
accordance with the CAT NMS Plan. Among other things, the Plan
Processor for the CAT NMS Plan has been selected,\45\ draft technical
specifications for the SROs' submission of order and quote data to the
CAT have been developed,\46\ and compliance rules requiring SRO members
to synchronize their business clocks used to report information
required under the CAT NMS Plan to within 50 milliseconds of the time
maintained by the National Institute of Standards and Technology have
been adopted.\47\ In addition, the SROs have adopted rules requiring
member compliance with relevant portions of the CAT NMS Plan,\48\ and
they have filed proposed rule changes that are designed to eliminate
systems that are duplicative of the CAT.\49\
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\44\ See CAT NMS Plan Order, supra note 8.
\45\ See Letter from the Selection Committee of the CAT NMS Plan
to Brent J. Fields, Secretary, Commission, dated January 18, 2017,
available at https://www.sec.gov/divisions/marketreg/rule613-info-notice-of-plan-processor-selection.pdf.
\46\ See CAT NMS Plan, Appendix C, Section 10(b).
\47\ See, e.g., NYSE Rules 6820(a) and 6895(b), CBOE Rules
6.86(a) and 6.96(b), and Nasdaq Rules 6820(a) and 6895(b). In
accordance with an exemption to the CAT NMS Plan, the SROs'
compliance rules require members that were capturing time in
milliseconds on March 8, 2017, to have synchronized their business
clocks on or before March 15, 2017. The compliance rules require
members that did not capture time in milliseconds on March 8, 2017,
to synchronize their business clocks on or before February 19, 2018.
See Securities Exchange Act Release No. 80142 (March 2, 2017), 82 FR
13034 (March 8, 2017) (Order Granting Limited Exemptive Relief from
the CAT NMS Plan requirement that members synchronize their business
clocks no later than March 15, 2017).
\48\ See Securities Exchange Act Release No. 80256 (March 15,
2017), 82 FR 14526 (March 21, 2017) (order approving File Nos. SR-
BatsBYX-2017-02; SR-BatsBZX-2017-08; SR-BatsEDGA-2017-03; SR-
BatsEDGX-2017-08; SR-BOX-2017-07; SR-C2-2017-007; SR-CBOE-2017-012;
SR-CHX-2017-03; SR-ISE-2017-08; SR-IEX-2017-04; SR-ISEGemini-2017-
04; SR-ISEMercury-2017-03; SR-MIAX-2017-03; SR-PEARL-2017-04; SR-
NASDAQ-2017-008; SRBX-2017-007; SR-PHLX-2017-07; SR-NYSE-2017-01;
SR-NYSEArca-2017-03; SR-NYSEArca-2017-04; SR-NYSEMKT-2017-02; and
SR-NSX-2017-03).
\49\ See, e.g., Securities Exchange Act Release Nos. 80783 (May
26, 2017), 82 FR 2542 (June 1, 2017) (SR-FINRA-2017-13); 80789 (May
26, 2017), 82 FR 25492 (June 1, 2017) (SR-BOX-2017-17); 80813 (May
30, 2017), 82 FR 25820 (June 5, 2017) (SR-Nasdaq-2017-055).
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In light of the fact that the CAT NMS Plan has now been approved
and the CAT is being built and implemented, the Commission believes
that it is appropriate to issue this temporary exemption so that
broker-dealer resources can be focused on CAT.\50\ Reporting pursuant
to the CAT NMS Plan will provide the Commission with information
concerning the trading in equity and listed options transactions of all
types of large traders that would otherwise be reported pursuant to
Rule 13h-1. In particular, the CAT will capture detailed information on
each order, including the time of execution for orders executed in
whole or in part \51\ as well as information concerning allocation to
subaccounts.\52\ Accordingly, because the CAT will capture the order
execution information that would be covered in Phase Three, the
Commission believes that a temporary exemption is appropriate to defer
the burdens that would be imposed on the industry to implement Phase
Three and instead focus finite broker-dealer resources on completing
and implementing the CAT in the near term. The Commission notes that,
prior
[[Page 51453]]
to the Commission's issuance of the Phase Three Extension Order, FIF
and SIFMA requested a permanent exemption or alternatively a five year
deferment of the compliance date for Phase Three.\53\ In the Phase
Three Extension Order, the Commission provided a two year exemption,
until November 1, 2017. At that time, the Commission stated its belief
that ``two years will give the Commission enough time to evaluate
future developments, including any investment in or progress on a
CAT.'' Further, FIF and SIFMA now have requested a permanent exemption,
or alternatively a three or five year deferment of the compliance date
for Phase Three.\54\ The Commission believes at this time that an
extension to November 15, 2018 responds to requests from FIF and SIFMA
to extend the Phase Three compliance date, but having a short exemption
instead will allow broker-dealers to focus on implementing the CAT in
the near term and will allow the Commission to revisit the
implementation of Phase Three as it evaluates future developments
during this period, including progress in implementing the CAT.\55\
During that time, the Commission will consider progress in implementing
the CAT as it determines implementation of Phase Three.
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\50\ This order does not affect Rule 13h-1 requirements
implemented in Phases One and Two.
\51\ See Rule 613(c)(7)(v)(C) (requiring, for an order executed
in whole or in part, ``[t]ime of execution''). See also CAT NMS
Plan, supra note 8, at Section 6.3(d)(v).
\52\ See CAT NMS Plan Order, supra note 8, 81 FR at 84777
(citations omitted); and CAT NMS Plan, supra note 8, at Section
6.4(d)(ii)(A)(1) (concerning Allocation Reports).
\53\ See Phase Three Extension Order at note 62 (citing Letter
from Mary Lou VonKaenel, Managing Director, FIF, to Stephen
Luparello, Director, Division, Commission, dated March 27, 2015,
available at http://www.sec.gov/comments/s7-10-10/s71010.shtml and
Letter from Theodore R. Lazo, Managing Director and Associate
General Counsel, SIFMA to Stephen Luparello, Director, Division,
Commission, dated April 9, 2015, available at http://www.sec.gov/comments/s7-10-10/s71010.shtml).
\54\ See supra note 7 (citing to the SIFMA and FIF letters).
\55\ The Commission notes that November 15, 2018 currently is
the date by which large industry SRO members are required to begin
reporting to the CAT central repository. See CAT NMS Plan Order,
supra note 8, at Ex. A, Sec. 6.7(a)(v), 81 FR at 84963.
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Accordingly, the Commission finds that it is consistent with the
purposes of the Exchange Act to extend the compliance date for Phase
Three by temporarily exempting broker-dealers until November 15, 2018
from compliance with specified provisions of the Rule. Thus, the
Recordkeeping and Reporting Responsibilities under Rule 13h-1 will
continue to apply with respect to: (1) The clearing broker-dealer for a
large trader, with respect to (a) proprietary transactions by a large
trader broker-dealer; (b) transactions effected pursuant to a
``sponsored access'' arrangement; and (c) transactions effected
pursuant to a ``direct market access'' arrangement; and (2) broker-
dealers that carry an account for a large trader for Transaction Data
other than execution time.
IV. Conclusion
It is hereby ordered, pursuant to Section 13(h)(6) of the Exchange
Act and Rule 13h-1(g) thereunder, that broker-dealers are exempted
temporarily until November 15, 2018 from the recordkeeping and
reporting requirements of Rule 13h-1(d) and (e) except for: (1)
Clearing broker-dealers for large traders with respect to (a)
proprietary transactions by a large trader broker-dealer, (b)
transactions effected pursuant to a ``sponsored access'' arrangement,
and (c) transactions effected pursuant to a ``direct market access''
arrangement; and, for other types of transactions, (2) broker-dealers
that carry an account for a large trader for Transaction Data other
than execution time.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017-24056 Filed 11-3-17; 8:45 am]
BILLING CODE 8011-01-P