[Federal Register Volume 82, Number 106 (Monday, June 5, 2017)]
[Notices]
[Pages 25863-25870]
[FR Doc No: 2017-11506]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80811; File No. SR-Phlx-2017-43]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing
of Proposed Rule Change To Eliminate Requirements That Will Be
Duplicative of CAT

May 30, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 26, 2017, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend the Rule 3400 series relating to the
Order Audit Trail System, Rule 785 relating to Electronic Blue Sheets,
Rule 1022 relating to account identification, and Rule 1063 and Option
Floor Procedure Advices and Order and Decorum Regulations C-2 relating
to the Consolidated Options Audit Trail System to reflect changes to
these rules once members are effectively reporting to the Consolidated
Audit Trail (``CAT'') and the CAT's accuracy and reliability meets
certain standards as described below.
    The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the Rule 3400 series relating to the
Order Audit Trail System (``OATS''), Rule 785 relating to Electronic
Blue Sheets (``EBS''), Rule 1022 relating to account identification,
and Rule 1063 Option Floor Procedure Advices and Order and Decorum
Regulations C-2 relating to the Consolidated Options Audit Trail System
(``COATS'') to reflect changes to these rules once members are
effectively reporting to the CAT, and the CAT's accuracy and
reliability meets certain standards as described below.\3\
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    \3\ The Exchange initially filed the proposed rule change on May
15, 2017 (SR-Phlx-2017-38). On May 26, 2017, the Exchange withdrew
that filing and submitted this filing.
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Background
    Bats BYX Exchange, Inc.; Bats BZX Exchange, Inc.; Bats EDGA
Exchange, Inc.; Bats EDGX Exchange, Inc.; BOX Options Exchange LLC; C2
Options Exchange, Incorporated; Chicago Board Options Exchange,
Incorporated; Chicago Stock Exchange, Inc.; FINRA; International
Securities Exchange, LLC; Investors' Exchange LLC; ISE Gemini, LLC; ISE
Mercury, LLC; Miami International Securities Exchange LLC; MIAX PEARL,
LLC; NASDAQ BX, Inc.; 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, the ``Participants'') filed
with the Commission, pursuant to Section 11A of the Exchange Act \4\
and Rule 608 of Regulation NMS thereunder,\5\ the National Market
System Plan Governing the Consolidated Audit Trail (the ``CAT NMS
Plan'' or ``Plan'').\6\ The Participants filed the Plan to comply with
Rule 613 of Regulation NMS under the Exchange Act.\7\ The Plan was
published for comment in the Federal Register on May 17, 2016,\8\ and
approved by the Commission, as modified, on November 15, 2016.\9\ On
March 15, 2017, the Commission approved the new Phlx Rule 900A Series
to implement provisions of the CAT NMS Plan that are applicable to Phlx
members.\10\
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    \4\ 15 U.S.C. 78k-1.
    \5\ 17 CFR 242.608.
    \6\ See Letter from the Participants to Brent J. Fields,
Secretary, Commission, dated September 30, 2014; and Letter from
Participants to Brent J. Fields, Secretary, Commission, dated
February 27, 2015. On December 24, 2015, the Participants submitted
an amendment to the CAT NMS Plan. See Letter from Participants to
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
     ISE Gemini, LLC, ISE Mercury, LLC and International Securities
Exchange, LLC have been renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC,
and Nasdaq ISE, LLC, respectively. See Securities Exchange Act
Release No. 80248 (March 15, 2017), 82 FR 14547 (March 21, 2017);
Securities Exchange Act Release No. 80326 (March 29, 2017), 82 FR
16460 (April 4, 2017); and Securities Exchange Act Release No. 80325
(March 29, 2017), 82 FR 16445 (April 4, 2017).
     National Stock Exchange, Inc. has been renamed NYSE National,
Inc. See Securities Exchange Act Release No. 79902 (Jan. 30, 2017),
82 FR 9258 (February 3, 2017).
    \7\ 17 CFR 242.613.
    \8\ Securities Exchange Act Release No. 77724 (April 27, 2016),
81 FR 30614 (May 17, 2016).
    \9\ Securities Exchange Act Release No. 79318 (November 15,
2016), 81 FR 84696 (November 23, 2016) (``Approval Order'').
    \10\ See Securities Exchange Act Release No. 80256 (March 15,
2017), 82 FR 14526 (March 21, 2017) (SR-Phlx-2017-07).
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    The CAT NMS Plan is designed to create, implement, and maintain a
consolidated audit trail that will capture in a single consolidated
data source customer and order event information for orders in NMS
Securities and OTC Equity Securities, across all markets, from the time
of order inception through routing, cancellation, modification, or
execution. Among other things, Section C.9. of Appendix C to the Plan,
as modified by the Commission, requires each Participant to ``file with
the SEC the relevant rule change filing to eliminate or modify its
duplicative rules within six (6) months of the SEC's approval of the
CAT NMS Plan.'' \11\ The Plan notes that ``the elimination of such
rules and the retirement of such systems [will] be effective at such
time as CAT Data meets minimum standards of accuracy and reliability.''
\12\ Finally, the Plan requires the rule filing to discuss the
following:
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    \11\ CAT NMS Plan, Appendix C, Section C.9.
    \12\ See id.
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    (i) Specific accuracy and reliability standards that will determine
when duplicative systems will be retired, including, but not limited
to, whether the attainment of a certain Error Rate should determine
when a system duplicative of the CAT can be retired;
    (ii) whether the availability of certain data from Small Industry
Members two years after the Effective Date would facilitate a more
expeditious retirement of duplicative systems; and
    (iii) whether individual Industry Members can be exempted from
reporting to duplicative systems once their CAT reporting meets
specified accuracy and reliability standards, including, but not
limited to, ways in which establishing cross-system regulatory
functionality or integrating data from existing systems and the CAT
would facilitate such Individual Industry Member exemptions.\13\
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    \13\ See id.
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Changes to OATS
    In response to these requirements, Phlx is proposing to delete the
Rule 3400 Series (the ``OATS Rules'') from the Phlx rulebook once the
CAT achieves the specific accuracy and reliability standards described
below, and Phlx has determined that its usage of the CAT Data has not
revealed material issues that have not been corrected, confirmed that
the CAT includes all data necessary to allow Phlx to continue to meet
its surveillance obligations,\14\ and confirmed that the Plan Processor
is sufficiently meeting all of its obligations under the CAT NMS
Plan.\15\
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    \14\ As noted in the Participants' September 23, 2016 response
to comment letters on the Plan, the Participants ``worked to keep
[the CAT] gap analyses up-to-date by including newly-added data
fields in these duplicative systems, such as the new OATS data
fields related to the tick size pilot and ATS order book changes, in
the gap analyses.'' See Letter from Participants to Brent J. Fields,
Secretary, Commission, dated September 23, 2016, at 21. The
Participants noted that they ``will work with the Plan Processor and
the industry to develop detailed Technical Specifications to ensure
that by the time Industry Members are required to report to the CAT,
the CAT will include all data elements necessary to facilitate the
rapid retirement of duplicative systems.'' Id.
    \15\ Phlx notes that the OATS Rules were originally proposed to
fulfill one of the undertakings contained in an order issued by the
Commission relating to the settlement of an enforcement action
against the National Association of Securities Dealers, Inc. for
failure to adequately enforce its rules. See Securities Exchange Act
Release No. 39729 (March 6, 1998), 63 FR 12559 (March 13, 1998). In
approving the OATS Rules, the Commission concluded that OATS
satisfied the conditions of the SEC's order and was consistent with
the Exchange Act. See id. at 12566-67.
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Specific Accuracy and Reliability Standards
    The first issue the Plan requires the proposed rule change to
discuss is ``specific accuracy and reliability

standards that will determine when duplicative systems will be retired,
including, but not limited to, whether the attainment of a certain
Error Rate should determine when a system duplicative of the CAT can be
retired.'' \16\ Phlx believes that relevant error rates are the
primary, but not the sole, metric by which to determine the CAT's
accuracy and reliability and will serve as the baseline requirement
needed before OATS can be retired and requests for trading information
can be amended to account for information being available in the CAT.
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    \16\ See id. [sic]
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    As discussed in Section A.3.(b) of Appendix C to the CAT NMS Plan,
the Participants established an initial Error Rate, as defined in the
Plan, of 5% on initially submitted data (i.e., data as submitted by a
CAT Reporter before any required corrections are performed). The
Participants noted in the Plan that their expectation was that ``error
rates after reprocessing of error corrections will be de minimis.''
\17\ The Participants based this Error Rate on their consideration of
``current and historical OATS Error Rates, the magnitude of new
reporting requirements on the CAT Reporters and the fact that many CAT
Reporters may have never been obligated to report data to an audit
trail.'' \18\
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    \17\ See CAT NMS Plan, Appendix C, Section A.3(b), at n.102.
    \18\ Id.
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    Phlx agrees with the Participants' conclusion that a 5% pre-
correction threshold ``strikes the balance of adapting to a new
reporting regime, while ensuring that the data provided to regulators
will be capable of being used to conduct surveillance and market
reconstruction, as well as having a sufficient level of accuracy to
facilitate the retirement of existing regulatory reports and systems
where possible.'' \19\ However, Phlx believes that, when assessing the
accuracy and reliability of the data for the purposes of retiring OATS,
the error thresholds should be measured in more granular ways and
should also include minimum error rates of post-correction data, which
represents the data most likely to be used by Phlx to conduct
surveillance. Although Phlx is proposing to measure the appropriate
error rates in the aggregate, rather than firm-by-firm, Phlx believes
that the error rates for equity securities should be measured
separately from options since options orders are not currently reported
regularly or included in OATS.
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    \19\ Id.
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    To ensure the CAT's accuracy and reliability, Phlx is proposing
that, before OATS could be retired, the CAT would generally need to
achieve a sustained error rate for Industry Member reporting in each of
the categories below for a period of at least 180 days of 5% or lower,
measured on a pre-correction or as-submitted basis and 2% or lower on a
post-correction basis (measured at T+5).\20\ Phlx is proposing to
measure the 5% pre-correction and 2% post-correction thresholds by
averaging the error rate across the period, not require a 5% pre-
correction and 2% post-correction maximum each day for 180 consecutive
days. Phlx believes that measuring each of the thresholds over the
course of 180 days will ensure that the CAT consistently meets minimum
accuracy and reliability thresholds for Industry Member reporting while
also ensuring that single-day measurements do not unduly affect the
overall measurements.
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    \20\ The Plan requires that the Plan Processor must ensure that
regulators have access to corrected and linked order and Customer
data by 8:00 a.m. Eastern Time on T+5. See CAT NMS Plan, Appendix C,
Section A.2(a).
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    Phlx is proposing to use error rates in each the following
categories, measured separately for options and for equities, to assess
whether the threshold pre- and post-correction error rates are being
met:
     Rejection Rates and Data Validations. Data validations for
the CAT, while not expected to be designed the same as OATS, must be
functionally equivalent to OATS in accordance with the CAT NMS Plan
(i.e., the same types of basic data validations must be performed by
the Plan Processor to comply with the CAT NMS Plan requirements).
Appendix D of the Plan, for example, requires that certain file
validations \21\ and syntax and context checks be performed on all
submitted records.\22\ If a record does not pass these basic data
validations, it must be rejected and returned to the CAT Reporter to be
corrected and resubmitted.\23\ The specific validations can be
determined only after the Plan Processor has finalized the Industry
Member Technical Specifications; however, the Plan also requires the
Plan Processor to provide daily statistics on rejection rates after the
data has been processed, including the number of files rejected and
accepted, the number of order events accepted and rejected, and the
number of each type of report rejected.\24\ Phlx is proposing that,
over the 180-day period, aggregate rejection rates (measured separately
for equities and options) must be no more than 5% pre-correction or 2%
post-correction across all CAT Reporters.
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    \21\ See CAT NMS Plan, Appendix D, Section 7.2. The Plan
requires the Plan Processor to confirm that file transmission and
receipt are in the correct formats, including validation of header
and trailers on the submitted report, confirmation of a valid
Exhange [sic]-Assigned Market Participant Identifier, and
verification of the number of records in the file. Id.
    \22\ See id. The Plan notes that syntax and context checks would
include format checks (i.e., that data is entered in the specified
format); data type checks (i.e., that the data type of each
attribute conforms to the specifications); consistency checks (i.e.,
that all attributes for a record of a specified type are
consistent); range/logic checks (i.e., that each attribute for every
record has a value within specified limits and the values provided
are associated with the event type they represent); data validity
checks (i.e., that each attribute for every record has an acceptable
value); completeness checks (i.e., that each mandatory attribute for
every record is not null); and timeliness checks (i.e., that the
records were submitted within the submission timelines). Id.
    \23\ See id.
    \24\ See id.
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     Intra-Firm Linkages. The Plan requires that ``the Plan
Processor must be able to link all related order events from all CAT
Reporters involved in the lifecycle of an order.'' \25\ At a minimum,
this requirement includes the creation of an order lifecycle between
``[a]ll order events handled within an individual CAT Reporter,
including orders routed to internal desks or departments with different
functions (e.g., an internal ATS).'' \26\ Phlx is proposing that
aggregate intra-firm linkage rates across all Industry Member Reporters
must be at least 95% pre-correction and 98% post-correction.
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    \25\ CAT NMS Plan, Appendix D, Section 3.
    \26\ Id.
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     Inter-Firm Linkages. The order linkage requirements in the
Plan also require that the Plan Processor be able to create the
lifecycle between orders routed between broker-dealers.\27\ Phlx is
proposing that at least a 95% pre-correction and 98% post-correction
aggregate match rate be achieved for orders routed between two Industry
Member Reporters.\28\
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    \27\ Id.
    \28\ This assumes linkage statistics will include both unlinked
route reports and new orders where no related route report could be
found.
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     Order Linkage Rates. In addition to creating linkages
within and between broker-dealers, the Plan also includes requirements
that the Plan Processor be able to create lifecycles to link various
pieces of related orders.\29\ For example, the Plan requires linkages
between customer orders and ``representative'' orders created in firm
accounts for the purpose of facilitating a customer order, various legs
of option/equity complex orders, riskless principal orders, and orders
worked through average price accounts.\30\ Phlx is proposing that there

be at least a 95% pre-correction and 98% post-correction linkage rate
for multi-legged orders (e.g., related equity/options orders, VWAP
orders, riskless principal transactions).
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    \29\ See CAT NMS Plan, Appendix D, Section 3.
    \30\ See id.
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     Exchange and TRF/ORF Match Rates. The Plan requires that
an order lifecycle be created to link ``[o]rders routed from broker-
dealers to exchanges'' and ``[e]xecuted orders and trade reports.''
\31\ Phlx is proposing at least a 95% pre-correction and 98% post-
correction aggregate match rate to each equity exchange for orders
routed from Industry Members to an exchange and, for over-the-counter
executions, the same match rate for orders linked to trade reports.
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    \31\ Id.
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    In addition to these minimum error rates and matching thresholds
that generally must be met before OATS can be retired, Phlx believes
that during the minimum 180-day period during which the thresholds are
calculated, Phlx's use of the data in the CAT must confirm that (i)
usage over that time period has not revealed material issues that have
not been corrected, (ii) the CAT includes all data necessary to allow
Phlx to continue to meet its surveillance obligations, and (iii) the
Plan Processor is sufficiently meeting all of its obligations under the
CAT NMS Plan. Phlx believes this time period to use the CAT Data is
necessary to reveal any errors that may manifest themselves only after
surveillance patterns and other queries have been run and to confirm
that the Plan Processor is meeting its obligations and performing its
functions adequately.
Small Industry Member Data Availability
    The second issue the Plan requires the proposed rule change to
address is ``whether the availability of certain data from Small
Industry Members two years after the Effective Date would facilitate a
more expeditious retirement of duplicative systems.''
    Phlx believes that there is no effective way to retire OATS until
all current OATS reporters are reporting to the CAT. Although Technical
Specifications for Industry Members are not yet available, PHLX
believes it would be inefficient, less reliable, and more costly to
attempt to marry the OATS and CAT databases for a temporary period to
allow some Phlx members to report to CAT while others continue to
report to OATS. Consequently, Phlx has concluded at this time that
having data from those Small Industry Members currently reporting to
OATS available two years after the Effective Date would substantially
facilitate a more expeditious retirement of OATS. For this reason, Phlx
supports an amendment to the Plan that would require current OATS
Reporters that are ``Small Industry Members'' to report two years after
the Effective Date (instead of three). Phlx intends to work with the
other Participants to submit a proposed amendment to the Plan to
require Small Industry Members that are OATS Reporters to report two
years after the Effective Date.
    Phlx has identified approximately 300 member firms that currently
report to OATS and meet the definition of ``Small Industry Member;''
however, only ten of these firms submit information to OATS on their
own behalf, and eight of the ten firms report very few orders to
OATS.\32\ The vast majority of these 300 firms use third parties to
fulfill their reporting obligations, and many of these third parties
will begin reporting to CAT in November 2018. Consequently, Phlx
believes that the burden on current OATS Reporters that are ``Small
Industry Members'' would not be significant if those firms are required
to report to CAT beginning in November 2018 rather than November 2019.
The burdens, however, are significantly greater for those firms that
are not reporting to OATS currently; therefore, Phlx does not believe
it would be necessary or appropriate to accelerate CAT reporting for
``Small Industry Members'' that are not currently reporting to OATS,
and PHLX would not support an amendment to the Plan to accelerate CAT
reporting for ``Small Industry Members'' that are not currently OATS
Reporters.
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    \32\ For example, in one recent month, eight of the ten firms
submitted fewer than 100 reports during the month, with four firms
submitting fewer than 50.
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Individual Industry Member Exemptions
    The final issue the Plan requires the proposed rule change to
address is ``whether individual Industry Members can be exempted from
reporting to duplicative systems once their CAT reporting meets
specified accuracy and reliability standards, including, but not
limited to, ways in which establishing cross-system regulatory
functionality or integrating data from existing systems and the CAT
would facilitate such Individual Industry Member exemptions.''
    As described above, Phlx believes that a single cut-over from OATS
to CAT is highly preferable to a firm-by-firm approach and is not
proposing to exempt members from the OATS requirements on a firm-by-
firm basis. The primary benefit to a firm-by-firm exemptive approach
would be to reduce the amount of time an individual firm is required to
report to a legacy system (e.g., OATS) if it is also accurately and
reliably reporting to the CAT. Phlx believes that the overall accuracy
and reliability thresholds for the CAT described above would need to be
met under any conditions before firms could stop reporting to OATS.
Moreover, as discussed above, Phlx supports amending the Plan to
accelerate the reporting requirements for Small Industry Members that
are OATS Reporters to report on the same timeframe as all other OATS
Reporters. If such an amendment were approved by the Commission, there
would be no need to exempt members from OATS requirements on a firm-by-
firm basis.
Changes to EBS and Account Identification Rules
    Rule 785 is Phlx's rule regarding the automated submission of
specific trading data to Phlx upon request using the Electronic Blue
Sheet (``EBS'') system. Rule 785 requires members to submit certain
trade information as prescribed by the Exchange, including, for
proprietary transactions, the clearing house number or alpha symbol of
the member submitting the data, the identifying symbol assigned to the
security, and the date the transaction was executed.
    Rule 1022 imposes certain account identification requirements on
Specialists and Registered Options Traders. Specifically, Rule 1022
requires those market participants to file with the Exchange upon
request and keep current a list identifying all accounts for stock,
Exchange-Traded Fund Shares, option and related securities or foreign
currencies, physical commodities, physical commodity options, commodity
futures contracts, options on commodity futures contracts, any other
derivatives based on such commodity and other related trading in which
the Specialist or Registered Options Trader may, directly or
indirectly, engage in trading activities or over which they exercise
investment discretion. That Rule prohibits a Specialist or Registered
Options Trader from engaging in trading in any of these instruments in
an account that has not been reported to the Exchange pursuant to this
rule.
    Once broker-dealer reporting to the CAT has begun, the CAT will
contain the data the Participants would otherwise have requested via
the EBS system for purposes of NMS Securities and OTC Equity
Securities. Consequently, Phlx will not need to use the EBS system or
request information

pursuant to these rules for NMS Securities or OTC Equity Securities for
time periods after CAT reporting has begun if the appropriate accuracy
and reliability thresholds are achieved, including an acceptable
accuracy rate for customer and account information. However, these
rules cannot be completely eliminated immediately upon the CAT
achieving the appropriate thresholds because Exchange staff may still
need to request information pursuant to these rules for trading
activity occurring before a member was reporting to the CAT.\33\ In
addition, these rules apply to information regarding transactions
involving securities that will not be reportable to the CAT, such as
fixed-income securities; thus, these rules must remain in effect with
respect to those transactions indefinitely or until those transactions
are captured in the CAT.
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    \33\ Firms are required to maintain the trade information for
pre-CAT transactions in equities and options pursuant to applicable
rules, such as books and records retention requirements, for the
relevant time period, which is generally three or six years
depending upon the record. See 17 CFR 240.17a-3(a), 240.17a-4.
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    The proposed rule change proposes to add new Supplementary Material
to Rule 785 and Rule 1022 to clarify how Phlx will request data under
these rules after members are reporting to the CAT. Specifically, the
proposed Supplementary Material to these rules will note that the
Exchange will request information under these rules only if the
information is not available in the CAT because, for example, the
transactions in question occurred before the firm was reporting
information to the CAT or involved securities that are not reportable
to the CAT. In essence, under the new Supplementary Material, the
Exchange will make requests under these rules if and only if the
information is not otherwise available through the CAT.
    The CAT NMS Plan states, however, that the elimination of rules
that are duplicative of the requirements of the CAT and the retirement
of the related systems should be effective at such time as CAT Data
meets minimum standards of accuracy and reliability.\34\ Accordingly,
as discussed in more detail below, Phlx believes that the EBS data may
be replaced by CAT Data at a date after all Industry Members are
reporting to the CAT when the proposed error rate thresholds have been
met, and Phlx has determined that its usage of the CAT Data has not
revealed material issues that have not been corrected, confirmed that
the CAT includes all data necessary to allow Phlx to continue to meet
its surveillance obligations, and confirmed that the Plan Processor is
sufficiently meeting all of its obligations under the CAT NMS Plan.
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    \34\ Id. [sic]
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    Phlx believes CAT Data should not be used in place of EBS data
until all Participants and Industry Members are reporting data to CAT.
In this way, Phlx will continue to have access to the necessary data to
perform its regulatory duties.
    The CAT NMS Plan requires that a rule filing to eliminate a
duplicative rule address whether ``the availability of certain data
from Small Industry Members two years after the Effective Date would
facilitate a more expeditious retirement of duplicative systems.'' \35\
Phlx believes that the submission of data to the CAT by Small Industry
Members a year earlier than is required in the CAT NMS Plan, at the
same time as the other Industry Members, would expedite the replacement
of EBS data with CAT Data, as Phlx believes that the CAT would then
have all necessary data from the Industry Members for Phlx to perform
the regulatory surveillance that currently is performed via EBS. For
this reason, Phlx supports amending the CAT NMS Plan to require Small
Industry Members to report data to the CAT two years after the
Effective Date (instead of three), and intends to work with other
Participants toward that end.
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    \35\ Id.
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    The CAT NMS Plan requires that this rule filing address ``whether
individual Industry Members can be exempted from reporting to
duplicative systems once their CAT reporting meets specified accuracy
and reliability standards, including, but not limited to, ways in which
establishing cross-system regulatory functionality or integrating data
from existing systems and the CAT would facilitate such Individual
Industry Member exemptions.'' \36\ Phlx believes that a single cut-over
from EBS to CAT is highly preferable to a firm-by-firm approach and is
not proposing to exempt members from the EBS requirements on a firm-by-
firm basis. Phlx believes that providing such individual exemptions to
Industry Members would be inefficient, more costly, and less reliable
than the single cut-over. Providing individual exemptions would require
the exchanges to create, for a brief temporary period, a cross-system
regulatory function and to integrate data from EBS and the CAT to avoid
creating any regulatory gaps as a result of such exemptions. Such a
function would be costly to create and would give rise to a greater
likelihood of data errors or other issues. Given the limited time in
which such exemptions would be necessary, Phlx does not believe that
such exemptions would be an appropriate use of limited resources.
Moreover, the primary benefit to a firm-by-firm exemptive approach
would be to reduce the amount of time an individual firm is required to
comply with EBS if it is also accurately and reliably reporting to the
CAT. Phlx believes that the overall accuracy and reliability thresholds
for the CAT described above would need to be met under any conditions
before firms could stop reporting to EBS, and as discussed above, by
accelerating Small Industry Members to report on the same timeframe as
all other Industry Members, there is no need to exempt members from EBS
requirements on a firm-by-firm basis.
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    \36\ Id.
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    The CAT NMS Plan also requires that a rule filing to eliminate a
duplicative rule to provide ``specific accuracy and reliability
standards that will determine when duplicative systems will be retired,
including, but not limited to, whether the attainment of a certain
Error Rate should determine when a system duplicative of the CAT can be
retired.'' \37\ Phlx believes that it is critical that the CAT Data be
sufficiently accurate and reliable for Phlx to perform the regulatory
functions that it now performs via EBS. Accordingly, Phlx believes that
the CAT Data should meet specific quantitative error rates, as well as
certain qualitative requirements.
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    \37\ Id.
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    Phlx believes that, before CAT Data may be used in place of EBS
data, the CAT would need to achieve a sustained error rate for a period
of at least 180 days of 5% or lower measured on a pre-correction or as-
submitted basis, and 2% or lower on a post-correction basis (measured
at T+5).\38\ Phlx proposes to measure the 5% pre-correction and 2%
post-correction thresholds by averaging the error rate across the
period, not require a 5% pre-correction and 2% post-correction maximum
each day for 180 consecutive days. Phlx believes that measuring each of
the thresholds over the course of 180 days will ensure that the CAT
consistently meets minimum accuracy and reliability thresholds while
also ensuring that single-day measurements do not unduly affect the
overall measurements. Phlx proposes to measure the appropriate error
rates in the aggregate, rather than firm-by-firm. The 2% and 5% error
rates are in line

with the proposed retirement threshold for other systems, such as OATS
and COATS.
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    \38\ The Plan requires that the Plan Processor must ensure that
regulators have access to corrected and linked order and Customer
data by 8:00 a.m. Eastern Time on T+5. See CAT NMS Plan, at C-15.
---------------------------------------------------------------------------

    In addition to these minimum error rates before using CAT Data
instead of EBS data, Phlx believes that during the minimum 180-day
period during which the thresholds are calculated, Phlx's use of the
data in the CAT must confirm that (i) usage over that time period has
not revealed material issues that have not been corrected, (ii) the CAT
includes all data necessary to allow Phlx to continue to meet its
surveillance obligations, and (iii) the Plan Processor is sufficiently
meeting all of its obligations under the CAT NMS Plan. Phlx believes
this time period to use the CAT Data is necessary to reveal any errors
that may manifest themselves only after surveillance patterns and other
queries have been run and to confirm that the Plan Processor is meeting
its obligations and performing its functions adequately.
Changes to COATS
    The options exchanges utilize COATS to collect and review data
regarding options orders, quotes and transactions. The Participants
have provided COATS technical specifications to the Plan Processor for
the CAT for use in developing the Technical Specifications for the CAT,
and the Participants are working with the Plan Processor to include the
necessary COATS data elements in the CAT Technical Specifications.
Accordingly, although the Technical Specifications for the CAT have not
yet been finalized, Phlx and the other options exchanges propose to
eliminate COATS in accordance with the proposed timeline discussed
below.
    Phlx adopted Rule 1063 to implement certain reporting requirements
related to COATS, and therefore proposes to eliminate the information
reporting requirements of that rule and replacing those requirements
with a requirement that members report information pursuant to this
rule as required by Phlx's CAT Compliance Rule, Rule 900A.\39\ Phlx
also proposes to make a corresponding change to Option Floor Procedure
Advices and Order and Decorum Regulations C-2.
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    \39\ COATS was developed to comply with an order of the
Commission requiring the then-options exchanges to ``design and
implement'' a consolidated audit trail to ``enable the options
exchanges to reconstruct markets promptly, effectively surveil them
and enforce order handling, firm quote, trade reporting and other
rules.'' See Section IV.B.e.(v) of the Commission's Order
Instituting Public Administrative Proceedings Pursuant to Sections
19(h)(1) of the Securities Exchange Act of 1934, Making Findings and
Imposing Remedial Sanctions (the ``Order''). See Securities Exchange
Act Release No. 43268 (September 11, 2000) and Administrative
Proceeding File No. 3-10282. As noted, the Plan is designed to
create, implement and maintain a CAT that would capture customer and
order event information for orders in NMS Securities and OTC Equity
Securities, across all markets, from the time of order inception
through routing, cancellation, modification, or execution in a
single consolidated data source. Phlx has already adopted rules to
enforce compliance by its Industry Members, as applicable, with the
provisions of the Plan. Once the CAT is fully operational, it will
be appropriate to delete Phlx's rules implemented to comply with the
Order as duplicative of the CAT. Accordingly, Phlx believes that it
would continue to be in compliance with the requirements of the
Order once the CAT is fully operational and the COATS rules are
deleted.
---------------------------------------------------------------------------

    Rule 1063(e) describes the operations and requirements of the Floor
Broker Management System, which is designed to create an electronic
audit trail for equity, equity index and U.S. dollar-settled foreign
currency options orders represented by Floor Brokers on the Exchange's
Options Floor. Among other things, Rule 1063(e) requires a Floor Broker
or that Floor Broker's employees, contemporaneously upon receipt of an
order and prior to the representation of such an order in the trading
crowd, to record order information including (i) the order type (i.e.,
customer, firm, broker-dealer, professional) and order receipt time;
(ii) the option symbol; (iii) buy, sell, cross or cancel; (iv) call,
put, complex (i.e., spread, straddle), or contingency order; and (v)
number of contracts.
    Option Floor Procedure Advices and Order and Decorum Regulations C-
2 repeats these requirements, and imposes a schedule of fines for
violating these requirements.
    The CAT NMS Plan states that the elimination of rules that are
duplicative of the requirements of the CAT and the retirement of the
related systems should be effective at such time as CAT Data meets
minimum standards of accuracy and reliability.\40\ As discussed in more
detail below, Phlx and the other options exchanges believe that COATS
may be retired at a date after all Industry Members are reporting to
the CAT when the proposed error rate thresholds have been met, and Phlx
has determined that its usage of the CAT Data has not revealed material
issues that have not been corrected, confirmed that the CAT includes
all data necessary to allow Phlx to continue to meet its surveillance
obligations, and confirmed that the Plan Processor is sufficiently
meeting all of its obligations under the CAT NMS Plan.
---------------------------------------------------------------------------

    \40\ Id. [sic]
---------------------------------------------------------------------------

    Phlx believes COATS should not be retired until all Participants
and Industry Members that report data to COATS are reporting comparable
data to the CAT. In this way, Phlx will continue to have access to the
necessary data to perform its regulatory duties.
    The CAT NMS Plan requires that a rule filing to eliminate a
duplicative rule address whether ``the availability of certain data
from Small Industry Members two years after the Effective Date would
facilitate a more expeditious retirement of duplicative systems.'' \41\
The Exchange believes COATS should not be retired until all
Participants and Industry Members that report data to COATS are
reporting comparable data to the CAT. While the early submission of
options data to the CAT by Small Industry Members could expedite the
retirement of COATS, the Exchange believes that it premature to
consider such a change and that additional analysis would be necessary
to determine whether such early reporting by Small Industry Members
would be feasible.
---------------------------------------------------------------------------

    \41\ Id.
---------------------------------------------------------------------------

    The CAT NMS Plan requires that this rule filing address ``whether
individual Industry Members can be exempted from reporting to
duplicative systems once their CAT reporting meets specified accuracy
and reliability standards, including, but not limited to, ways in which
establishing cross-system regulatory functionality or integrating data
from existing systems and the CAT would facilitate such Individual
Industry Member exemptions.'' \42\ Phlx believes that a single cut-over
from COATS to CAT is highly preferable to a firm-by-firm approach and
is not proposing to exempt members from the COATS requirements on a
firm-by-firm basis. Phlx and the other options exchanges believe that
providing such individual exemptions to Industry Members would be
inefficient, more costly, and less reliable than the single cut-over.
Providing individual exemptions would require the options exchanges to
create, for a brief temporary period, a cross-system regulatory
function and to integrate data from COATS and the CAT to avoid creating
any regulatory gaps as a result of such exemptions. Such a function
would be costly to create and would give rise to a greater likelihood
of data errors or other issues. Given the limited time in which such
exemptions would be necessary, Phlx and the other options exchanges do
not believe that such exemptions would be an appropriate use of limited
resources.
---------------------------------------------------------------------------

    \42\ Id.
---------------------------------------------------------------------------

    The CAT NMS Plan also requires that a rule filing to eliminate a
duplicative rule to provide ``specific accuracy and reliability
standards that will determine

when duplicative systems will be retired, including, but not limited
to, whether the attainment of a certain Error Rate should determine
when a system duplicative of the CAT can be retired.'' \43\ Phlx
believes that it is critical that the CAT Data be sufficiently accurate
and reliable for the Exchange to perform the regulatory functions that
it now performs via COATS. Accordingly, Phlx believes that the CAT Data
should meet specific quantitative error rates, as well as certain
qualitative requirements.
---------------------------------------------------------------------------

    \43\ Id.
---------------------------------------------------------------------------

    Phlx and the other options exchanges believe that, before COATS may
be retired, the CAT would need to achieve a sustained error rate for a
period of at least 180 days of 5% or lower measured on a pre-correction
or as-submitted basis, and 2% or lower on a post-correction basis
(measured at T+5).\44\ Phlx proposes to measure the 5% pre-correction
and 2% post-correction thresholds by averaging the error rate across
the period, not require a 5% pre-correction and 2% post-correction
maximum each day for 180 consecutive days. Phlx believes that measuring
each of the thresholds over the course of 180 days will ensure that the
CAT consistently meets minimum accuracy and reliability thresholds
while also ensuring that single-day measurements do not unduly affect
the overall measurements. Phlx proposes to measure the appropriate
error rates in the aggregate, rather than firm-by-firm. In addition,
Phlx proposes to measure the error rates for options only, not equity
securities, as only options are subject to COATS. The 2% and 5% error
rates are in line with the proposed retirement threshold for OATS.
---------------------------------------------------------------------------

    \44\ The Plan requires that the Plan Processor must ensure that
regulators have access to corrected and linked order and Customer
data by 8:00 a.m. Eastern Time on T+5. See CAT NMS Plan, at C-15.
---------------------------------------------------------------------------

    In addition to these minimum error rates before COATS can be
retired, Phlx believes that during the minimum 180-day period during
which the thresholds are calculated, Phlx's use of the data in the CAT
must confirm that (i) usage over that time period has not revealed
material issues that have not been corrected, (ii) the CAT includes all
data necessary to allow Phlx to continue to meet its surveillance
obligations, and (iii) the Plan Processor is sufficiently meeting all
of its obligations under the CAT NMS Plan. Phlx believes this time
period to use the CAT Data is necessary to reveal any errors that may
manifest themselves only after surveillance patterns and other queries
have been run and to confirm that the Plan Processor is meeting its
obligations and performing its functions adequately.
    If the Commission approves the proposed rule change, Phlx will
announce the implementation date of the proposed rule change in a
Regulatory Notice that will be published once Phlx concludes the
thresholds for accuracy and reliability described above have been met
and that the Plan Processor is sufficiently meeting all of its
obligations under the CAT NMS Plan.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\45\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\46\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78f(b).
    \46\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Phlx believes that the proposed rule change fulfills the obligation
in the CAT NMS Plan for Phlx to submit a proposed rule change to
eliminate or modify duplicative rules. In approving the Plan, the SEC
noted that the Plan ``is necessary and appropriate in the public
interest, for the protection of investors and the maintenance of fair
and orderly markets, to remove impediments to, and perfect the
mechanism of a national market system, or is otherwise in furtherance
of the purposes of the Act.'' \47\ As this proposal implements the
Plan, Phlx believes that this proposal furthers the objectives of the
Plan, as identified by the SEC, and is therefore consistent with the
Exchange Act.
---------------------------------------------------------------------------

    \47\ Approval Order at 84697.
---------------------------------------------------------------------------

    Moreover, the purpose of the proposed rule change is to eliminate
rules that require the submission of duplicative data to the exchange.
The elimination of such duplicative requirements will reduce
unnecessary costs and other compliance burdens for Phlx and its
members, and therefore, will enhance the efficiency of the securities
markets. Furthermore, Phlx believes that the approach set forth in the
proposed rule change strikes the appropriate balance between ensuring
that Phlx is able to continue to fulfill its statutory obligation to
protect investors and the public interest by ensuring its surveillance
of market activity remains accurate and effective while also
establishing a reasonable timeframe for elimination or modification of
its rules that will be rendered duplicative after implementation of the
CAT.

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

    Section 6(b)(8) of the Exchange Act \48\ requires that the
Exchange's rules not impose any burden on competition that is not
necessary or appropriate. Phlx does not believe that the proposed rule
change will result in any burden on competition that is not necessary
or appropriate in furtherance of the purposes of the Exchange Act. Phlx
notes that the proposed rule change implements the requirements of the
CAT NMS Plan approved by the Commission regarding the elimination of
rules and systems that are duplicative the CAT, and is designed to
assist Phlx in meeting its regulatory obligations pursuant to the Plan.
Similarly, all exchanges and FINRA are proposing the elimination of
their rules related to OATS, EBS and COATS to implement the
requirements of the CAT NMS Plan. Therefore, this is not a competitive
rule filing and, therefore, it does not raise competition issues
between and among the self-regulatory organizations and/or their
members.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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

    Although written comments on the proposed rule change were not
solicited, two commenters, the Financial Information Forum (``FIF'')
and the Securities Industry and Financial Markets Association
(``SIFMA''), submitted letters to the Participants regarding the
retirement of systems related to the CAT.\49\ In its comment letter,
with regard to the retirement of duplicative systems more generally,
FIF recommends that the Participants continue the effort to incorporate
current reporting obligations into the CAT in order to replace existing
reportable systems with the CAT. In addition, FIF further recommends
that, once a CAT Reporter achieves satisfactory reporting data quality,
the CAT Reporter should be exempt from reporting to any duplicative
reporting systems. FIF believes that these recommendations ``would
serve both an underlying regulatory objective of more

immediate and accurate access to data as well as an industry objective
of reduced costs and burdens of regulatory oversight.'' \50\ In its
comments about EBS specifically, FIF states that the retirement of the
EBS requirements should be a high priority, and that the CAT should be
designed to include the requisite data elements to permit the rapid
retirement of the EBS system.\51\ Similarly, SIFMA states that ``the
establishment of the CAT must be accompanied by the prompt elimination
of duplicative systems,'' and ``recommend[ed] that the initial
technical specifications be designed to facilitate the immediate
retirement of . . . duplicative reporting systems.'' \52\
---------------------------------------------------------------------------

    \49\ Letter from William H. Hebert, FIF, to Participants re:
Milestone for Participants' rule change filings to eliminate/modify
duplicative rules, dated April 12, 2017 (``FIF Letter''); Letter
from Kenneth E. Bentsen, Jr., SIFMA, to Participants re: Selection
of Thesys as CAT Processor, dated April 4, 2017 (``SIFMA Letter''),
at 2.
    \50\ FIF Letter at 2.
    \51\ Id.
    \52\ SIFMA Letter at 2.
---------------------------------------------------------------------------

    As discussed above, Phlx agrees with the commenters that the OATS,
EBS and COATS reporting requirements should be replaced by the CAT
reporting requirements as soon as accurate and reliable CAT Data is
available. To this end, Phlx anticipates that the CAT will be designed
to collect the data necessary to permit the retirement of OATS, EBS and
COATS. As discussed above, Phlx disagrees with the recommendation to
provide individual exemptions to those CAT Reporters who obtain
satisfactory data reporting quality; however, Phlx supports amendments
to the CAT NMS Plan that would accelerate reporting for Small Industry
Members that are currently reporting to OATS to facilitate the
retirement of that system.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-Phlx-2017-43 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2017-43. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2017-43, and should be
submitted on or before June 26, 2017.
---------------------------------------------------------------------------

    \53\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\53\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-11506 Filed 6-2-17; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 85, Number 133 (Friday, July 10, 2020)]
[Notices]
[Page 41621]
[FR Doc No: 2020-14925]

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

[Internal Agency Docket No. FEMA-4533-DR; Docket ID FEMA-2020-0001]

Alaska; Amendment No. 1 to Notice of a Major Disaster Declaration

AGENCY: Federal Emergency Management Agency, Department of Homeland
Security (DHS).

ACTION: Notice.

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SUMMARY: This notice amends the notice of a major disaster declaration
for the State of Alaska (FEMA-4533-DR), dated April 9, 2020, and
related determinations.

DATES: This amendment was issued June 25, 2020.

FOR FURTHER INFORMATION CONTACT: Dean Webster, Office of Response and
Recovery, Federal Emergency Management Agency, 500 C Street SW,
Washington, DC 20472,<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: The notice of a major disaster declaration
for the State of Alaska is hereby amended to include Individual
Assistance limited to the Crisis Counseling Program for those areas
determined to have been adversely affected by the event declared a
major disaster by the President in his declaration of April 9, 2020.

    Individual Assistance limited to the Crisis Counseling Program
for all areas in the State of Alaska (already designated for
emergency protective measures [Category B] not authorized under
other Federal statutes, including direct Federal assistance).

    The following Catalog of Federal Domestic Assistance Numbers
(CFDA) are to be used for reporting and drawing funds: 97.030,
Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis
Counseling; 97.033, Disaster Legal Services; 97.034, Disaster
Unemployment Assistance (DUA); 97.046, Fire Management Assistance
Grant; 97.048, Disaster Housing Assistance to Individuals and
Households In Presidentially Declared Disaster Areas; 97.049,
Presidentially Declared Disaster Assistance--Disaster Housing
Operations for Individuals and Households; 97.050 Presidentially
Declared Disaster Assistance to Individuals and Households--Other
Needs; 97.036, Disaster Grants--Public Assistance (Presidentially
Declared Disasters); 97.039, Hazard Mitigation Grant.

Pete Gaynor,
Administrator, Federal Emergency Management Agency.
[FR Doc. 2020-14925 Filed 7-9-20; 8:45 am]
BILLING CODE 9111-23-P