would the Plan Processor face when ingesting such information and
linking it to the appropriate Customers' accounts?
9. Options Market Maker Quotes
    Section 6.4(d)(iii) of the CAT NMS Plan states that, with respect
to the reporting obligations of an Options Market Maker under Sections
6.3(d)(ii) and (iv) regarding its quotes \204\ in Listed Options, such
quotes shall be reported to the Central Repository by the relevant
Options Exchange in lieu of reporting by the Options Market Maker.\205\
Section

6.4(d)(iii) further states that each Participant that is an Options
Exchange shall, through its Compliance Rule, require its Industry
Members that are Options Market Makers to report to the Options
Exchange the time at which a quote in a Listed Option is sent to the
Options Exchange (and, if applicable, the time of any subsequent quote
modification and/or cancellation where such modification or
cancellation is originated by the Options Market Maker).\206\ Such time
information also shall be reported to the Central Repository by the
Options Exchange in lieu of reporting by the Options Market Maker.\207\
---------------------------------------------------------------------------

    \204\ Rule 613(c)(7) provides that the CAT NMS Plan must require
reporting of the details for each order and each Reportable Event,
including the routing and modification or cancellation of an order.
17 CFR 242.613(c)(7). Rule 613(j)(8) defines ``order'' to include
``any bid or offer.'' 17 CFR 242.613(j)(8).
    \205\ See CAT NMS Plan, supra note 3, at Section 6.4(d)(iii).
The SROs requested exemptive relief from Rule 613 so that the CAT
NMS Plan may permit Options Market Maker quotes to be reported to
the Central Repository by the relevant Options Exchange in lieu of
requiring that such reporting be done by both the Options Exchange
and the Options Market Maker, as is required by Rule 613. See
Exemptive Request Letter, supra note 16, at 2. In accord with the
exemptive relief requested, the SROs committed to require Options
Market Makers to report to the Exchange the time at which a quote in
a Listed Option is sent to the Options Exchange. Id. at 3. The
Commission granted exemptive relief on March 1, 2016 in order to
allow this alternative to be included in the CAT NMS Plan and
subject to notice and comment. See Exemption Order, supra note 18.
    \206\ See CAT NMS Plan, supra note 3, at Section 6.4(d)(iii).
    \207\ Id.
---------------------------------------------------------------------------

Request for Comment
    168. The Commission granted an exemption from Rule 613 in order to
allow the alternative of permitting Options Exchanges to report Options
Market Maker quotes to the Central Repository in lieu of requiring such
reporting by both the Options Exchange and the Options Market Maker as
is required by Rule 613, to be included in the CAT NMS Plan and subject
to notice and comment.\208\ Do Commenters believe that permitting
exchanges to report quote information sent to them by Options Market
Makers, including the Quote Sent Time, to the Central Repository would
affect the completeness or quality of CAT Data? If so, what information
would be missing?
---------------------------------------------------------------------------

    \208\ See Exemption Order, supra note 18.
---------------------------------------------------------------------------

    169. Under Rule 613, Options Market Makers would report their
quotes to the Central Repository and time stamps would be attached to
such quotes. Under the exemption, Options Market Makers would include
the Quote Sent Time when sending quote information to the Options
Exchanges. What, if any, are the risks of permitting the Options
Exchanges to report information Options Market Makers otherwise would
be required to report?
    170. Do Commenters believe that the cost savings from permitting
Options Exchanges to report information Options Market Makers would
otherwise have to report makes this a preferable approach than Rule
613?
10. Error Rates
    The CAT NMS Plan defines Error Rate as ``the percentage of
[R]eportable [E]vents collected by the [C]entral [R]epository in which
the data reported does not fully and accurately reflect the order event
that occurred in the market.'' \209\ Under the CAT NMS Plan, the
Operating Committee sets the maximum Error Rate that the Central
Repository would tolerate from a CAT Reporter reporting data to the
Central Repository.\210\ The Operating Committee reviews and resets the
maximum Error Rate, at least annually.\211\ If a CAT Reporter reports
CAT Data to the Central Repository with errors such that their error
percentage exceeds the maximum Error Rate, then such CAT Reporter would
not be in compliance with the CAT NMS Plan or Rule 613.\212\ As such,
``the Participants as Participants or the SEC may take appropriate
action for failing to comply with the reporting obligations under the
CAT NMS Plan and SEC Rule 613.'' \213\ The CAT NMS Plan, however, does
not detail what specific compliance enforcement provisions would apply
if a CAT Reporter exceeds the maximum Error Rate.
---------------------------------------------------------------------------

    \209\ See CAT NMS Plan, supra note 3, at Section 1.1; see also
Rule 613(j)(6).
    \210\ See id. at Section 6.5(d)(i).
    \211\ See id. at Appendix C, Section A.3(b).
    \212\ See id. at Appendix C, Section A.3(b) and Rule 613(g) and
(h).
    \213\ See id. at Appendix C, Section A.3(b).
---------------------------------------------------------------------------

    The CAT NMS Plan sets the initial maximum Error Rate at 5% for any
data reported pursuant to subparagraphs (3) and (4) of Rule
613(c).\214\ The SROs highlight that ``the Central Repository will
require new reporting elements and methods for CAT Reporters and there
will be a learning curve when CAT Reporters begin to submit data to the
Central Repository'' in support of a 5% initial rate.\215\ Further, the
SROs state that ``many CAT Reporters may have never been obligated to
report data to an audit trail.'' \216\ The SROs believe an initial
maximum Error Rate of 5% ``strikes the balance of making allowances for
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.'' \217\ In the CAT NMS Plan,
the Participants compared the contemplated Error Rates of CAT Reporters
to the error rates of OATS reporters in the time periods immediately
following three significant OATS releases in the last ten years.\218\
The Participants state that for the three comparative OATS releases:
\219\ An average of 2.42% of order events did not pass systemic
validations; an average of 0.36% of order events were not submitted in
a timely manner; an average of 0.86% of orders were unsuccessfully
matched to a trade reporting facility trade report; an average of 3.12%
of OATS Route Reports were unsuccessfully matched to an exchange order;
and an average of 2.44% of OATS Route Reports were unsuccessfully
matched to a report by another reporting entity.\220\
---------------------------------------------------------------------------

    \214\ See id. at Section 6.5(d)(i).
    \215\ See id. at Appendix C, Section A.3(b).
    \216\ See id.
    \217\ See id.
    \218\ See id. The SROs note that the three comparative releases
are known as ``(1) OATS Phase III, which required manual orders to
be reported to OATS; (2) OATS for OTC Securities which required OTC
equity securities to be reported to OATS; and (3) OATS for NMS which
required all NMS stocks to be reported to OATS.'' Id.
    \219\ See id. The SROs note that the calculated ``combined
average error rates for the time periods immediately following [the
OATS] release across five significant categories for these three
releases'' was used in setting in the initial maximum Error Rate.
Id.
    \220\ See id.
---------------------------------------------------------------------------

    The Participants, moreover, anticipate reviewing and resetting the
maximum Error Rate once Industry Members (excluding Small Industry
Members) begin to report to the Central Repository and again once Small
Industry Members report to the Central Repository.\221\
---------------------------------------------------------------------------

    \221\ See id.
---------------------------------------------------------------------------

    The Participants thus propose a phased approach to lowering the
maximum Error Rates among CAT Reporters based on the period of time
reporting to the Central Repository and whether the CAT Reporters are
Participants, large broker-dealers or small broker-dealers.\222\ The
Plan sets forth a goal of the following maximum Error Rates \223\ where
``Year(s)'' refers to year(s) after the CAT NMS Plan's date of
effectiveness:
---------------------------------------------------------------------------

    \222\ See id.
    \223\ See id.

                                      Table 1--Maximum Error Rates Schedule
----------------------------------------------------------------------------------------------------------------
                                                    One year %      Two years %    Three years %   Four years %
----------------------------------------------------------------------------------------------------------------
Participants....................................               5               1               1               1
Large Industry Members..........................             N/A               5               1               1
Small Industry Members..........................             N/A             N/A               5               1
----------------------------------------------------------------------------------------------------------------

    The CAT NMS Plan requires that the Plan Processor to: (i) Measure
and report errors every business day; \224\ (ii) provide CAT Reporters
daily statistics and error reports as they become available, including
a description of such errors; \225\ (iii) provide monthly reports to
CAT Reporters that detail a CAT Reporter's performance and comparison
statistics; \226\ (iv) define educational and support programs for CAT
Reporters to minimize Error Rates; \227\ and (v) identify, daily, all
CAT Reporters exceeding the maximum allowable Error Rate.\228\ To
timely correct data-submitted errors to the Central Repository, the
Participants require that the Central Repository receive and process
error corrections at all times.\229\ Further, the CAT NMS Plan requires
that CAT Reporters be able to submit error corrections to the Central
Repository through a web-interface or via bulk uploads or file
submissions, and that the Plan Processor, subject to the Operating
Committee's approval, support the bulk replacement of records and the
reprocessing of such records.\230\ The Participants, furthermore,
require that the Plan Processor identify CAT Reporter data submission
errors based on the Plan Processor's validation processes.\231\
---------------------------------------------------------------------------

    \224\ See id. The CAT NMS Plan sets forth that the Plan
Processor shall provide the Operating Committee with regular Error
Rate reports. Id. at Section 6.1(o)(v). The Error Rate reports shall
include each of the following--if the Operating Committee deems them
necessary or advisable--``Error Rates by day and by delta over time,
and Compliance Thresholds by CAT Reporter, by Reportable Event, by
age before resolution, by symbol, by symbol type (e.g., ETF and
Index) and by event time (by hour and cumulative on the hour)[.]''
Id.
    \225\ See id. at Appendix C, Section A.3(b).
    \226\ See id.
    \227\ See id. at Appendix D, Section 10.1. The CAT NMS Plan sets
forth support programs that shall include educational programs,
including FAQs, a dedicated help desk, industry-wide trainings,
certifications, industry-wide testing, maintaining Technical
Specifications with defined intervals for new releases/updates,
emailing CAT Reporter data outliers, conducting annual assessments,
using test environments prior to releasing new code to production,
and imposing CAT Reporter attendance requirements for testing
sessions and educational and industry-wide trainings. Id.
    \228\ See id. at Appendix D, Section 10.4.
    \229\ See id. at Appendix C, Section A.3(b).
    \230\ See id.
    \231\ See id. At a minimum, the processes would include
validating the data's file format, CAT Data format, type,
consistency, range, logic, validity, completeness, timeliness and
linkage. See id. at Appendix D, Section 7.2.
---------------------------------------------------------------------------

Request for Comment \232\
---------------------------------------------------------------------------

    \232\ See Section IV.E.4, infra, for further Error Rate related
requests for comment.
---------------------------------------------------------------------------

    171. Do Commenters believe the CAT NMS Plan's initial maximum Error
Rate of 5% for CAT Data reported to the Central Repository is
appropriate in light of OATS' current error rate of less than 1%? \233\
Why or why not?
---------------------------------------------------------------------------

    \233\ See Section IV.E.1.b(1), infra.
---------------------------------------------------------------------------

    172. Please provide examples of error rates that are generally
accepted with respect to other regulatory data reporting systems. At
what error rate should data be considered materially unreliable? Please
explain.
    173. Do Commenters believe the CAT NMS Plan's initial maximum Error
Rate of 5% would negatively affect the quality of CAT Data? Why or why
not? In explaining why or why not, please address each quality
(accuracy, completeness, timeliness and accessibility) separately.
    174. Do Commenters believe that it was reasonable for the
Participants to compare the contemplated Error Rates of CAT Reporters
to the error rates of OATS reporters in the time periods immediately
following three significant OATS releases in the last ten years? Why or
why not?
    175. If not 5%, what initial maximum Error Rate do Commenters
believe Participants and Industry Members should be subject to and why?
    176. What impact, if any, do Commenters believe a 5% initial
maximum Error Rate would have on Industry Members' costs of compliance?
Please describe the costs of correcting audit trail data. Given the
costs of correcting audit trail data, do Commenters believe that
establishing a lower maximum Error Rate could be less costly to
Industry Members? Why or why not? How much less costly?
    177. What impact, if any, do Commenters believe a 5% initial
maximum Error Rate would have on the timing of the retirement of any
redundant audit trail systems and any related costs? Please explain.
Should the actual Error Rate for CAT Data affect the timing of the
retirement of any redundant audit trail systems? If so, why? If not,
why not?
    178. Do Commenters believe the CAT NMS Plan's target maximum Error
Rate of 1% for CAT Data reported to the Central Repository pursuant to
the CAT NMS Plan's phased approach is the appropriate target maximum
Error Rate in light of current industry standards? If not, why not? If
not 1%, what target maximum Error Rate do Commenters believe
Participants and Industry Members should be subject to and why?
    179. Do Commenters believe there are any increased risks as a
result of allowing CAT Data subject to an initial maximum Error Rate of
5% to be reported to the CAT? How difficult would it be for the Central
Repository to process and analyze CAT Data based on data reported
subject to an initial maximum Error Rate of 5%? Specifically, what are
the increased risks, if any, of CAT Data reported subject to an Error
Rate of 5% in respect of combining or linking data within the Central
Repository or across other sources of trade and order data currently
available to regulators?
    180. Do Commenters believe there are any increased risks as a
result of allowing CAT Data subject to a target maximum Error Rate of
1% to be reported to the CAT? How difficult would it be for the Central
Repository to process and analyze CAT Data based on data reported
subject to a target maximum Error Rate of 1%? Specifically, what are
the increased risks, if any, of CAT Data reported subject to an Error
Rate of 1% in respect of combining or linking data within the Central
Repository or across other sources of trade and order data currently
available to regulators?
    181. The CAT NMS Plan provides that the Participants would review
and reset, at least on an annual basis, the maximum Error Rate. Do
Commenters believe that this establishes an appropriately rigorous
schedule for the Participants to evaluate whether the maximum Error
Rate could potentially be set to a lower rate? Are there any other
factors that should affect when and how the maximum Error Rate is set?
    182. The CAT NMS Plan provides as a goal a four-year phased
approach schedule to lower the maximum Error

Rate segmented by Participants, large broker-dealers and small broker-
dealers. Do Commenters believe a phased schedule is appropriate and
reasonable? Do Commenters believe establishing segments is appropriate
and reasonable, and if so are these the appropriate Error Rate
groupings? What alternative groupings, if any, do Commenters believe
are the appropriate Error Rate groupings?
    183. Do Commenters believe that the CAT NMS Plan is clear whether
the four-year phased approach is a goal? Should it be more than a goal?
Please explain.
    184. Do Commenters believe the phased approach for CAT
implementation, whereby SROs would begin reporting CAT Data one year
prior to other CAT Reporters and two years prior to small CAT
Reporters, would affect the quality of the CAT Data and the number of
available CAT Data items in the audit trail?
    185. Do Commenters believe the CAT NMS Plan provides adequate
enforcement provisions to ensure CAT Reporters submit data to the
Central Repository no higher than the maximum Error Rate? If not, what
additional enforcement provisions should the CAT NMS Plan provide?
    186. Do Commenters believe that there should be a lower initial
maximum Error Rate and/or a more accelerated or slower reduction of the
target maximum Error Rate? Would an accelerated reduction of the target
maximum Error Rate facilitate the earlier retirement of any redundant
audit trail system? What should the initial maximum Error Rate and/or
what should be the schedule for reducing the target maximum Error Rate?
    187. What framework and criteria should regulators adopt when
determining whether to retire potentially redundant regulatory data
reporting systems? Please explain when and how such retirement should
take place.
    188. Do Commenters believe the CAT NMS Plan sets forth sufficient
consequences for a CAT Reporter exceeding the maximum Error Rates? If
not, what should be those consequences?
    189. Do Commenters believe that some errors are of greater concern
than others? If so, what types of errors are more or less problematic?
Should the type of error be considered when calculating Error Rates? If
so, how should the Plan Processor take into account different types of
errors when calculating Error Rates? How should the Participants take
into account different types of errors when setting Error Rates?
11. Regulatory Access
    Under Section 6.5(c) of the CAT NMS Plan, the Plan Processor must
provide regulators access to the Central Repository for regulatory and
oversight purposes and create a method of accessing CAT Data that
includes the ability to run complex searches and generate reports.\234\
Section 6.10(c) requires regulator access by two different methods: (1)
An online targeted query tool with predefined selection criteria to
choose from; and (2) user-defined direct queries and bulk extractions
of data via a query tool or language allowing querying of all available
attributes and data sources.\235\ Additional requirements concerning
regulator access appear in Section 8 of Appendix D.\236\
---------------------------------------------------------------------------

    \234\ See CAT NMS Plan, supra note 3, at Section 6.5(c).
Appendix C provides objective milestones to assess progress
concerning regulator access to the Central Repository. See id. at
Appendix C, Section C.10(d).
    \235\ Id. at Section 6.10(c). Section 6.10(c) also requires the
Plan Processor to reasonably assist regulatory staff with queries,
submit queries on behalf of regulatory staff as requested, and
maintain a help desk to assist regulatory staff with questions
concerning CAT Data. Id.
    \236\ See id. at Appendix D, Section 8.
---------------------------------------------------------------------------

    The CAT NMS Plan requires that CAT must support a minimum of 3,000
regulatory users and at least 600 such users accessing CAT concurrently
without an unacceptable decline in performance.\237\ Moreover, CAT must
support an arbitrary number of user roles and, at a minimum, include
defined roles for both basic and advanced regulatory users.\238\
---------------------------------------------------------------------------

    \237\ Id. at Appendix D, Section 8.1.
    \238\ Id.
---------------------------------------------------------------------------

a. Online Targeted Query Tool
    Sections 8.1.1, 8.1.2, and 8.1.3 of Appendix D contain further
specifications for the online targeted query tool.\239\ The tool must
allow for retrieval of processed and/or validated (unlinked) data via
an online query screen that includes a choice of a variety of pre-
defined selection criteria.\240\ Targeted queries must include date(s)
and/or time range(s), as well as one or more of a variety of fields
listed in Section 8.1.1 (e.g., product type, CAT-Reporter-ID, and
Customer-ID).\241\ Targeted queries would be logged such that the Plan
Processor could provide monthly reports to the SROs concerning metrics
on performance and data usage of the search tool.\242\ The CAT NMS Plan
further requires that acceptable response times for the targeted search
be in increments of less than one minute; for complex queries scanning
large volumes of data or large result sets (over one million records)
response times must be available within 24 hours of the request; and
queries for data within one business date of a 12-month period must
return results within three hours regardless of the complexity of
criteria.\243\ Under the CAT NMS Plan, regulators may access all CAT
Data except for PII data (access to which would be limited to an
authorized subset of Participant and Commission employees) and the Plan
Processor must work with regulators to implement a process for
providing them with access and routinely verifying a list of active
users.\244\
---------------------------------------------------------------------------

    \239\ Id. at Appendix D, Sections 8.1.1-8.1.3.
    \240\ Id. at Appendix D, Section 8.1.1.
    \241\ Id.
    \242\ Id.
    \243\ Id. at Appendix D, Section 8.1.2. Appendix D, Section
8.1.2 contains further performance requirements applicable to data
and the architecture of the online query tool. Id.
    \244\ Id. at Appendix D, Section 8.1.3.
---------------------------------------------------------------------------

b. User-Defined Direct Queries and Bulk Extraction of Data
    Section 8.2 of Appendix D outlines the requirements for user-
defined direct queries and bulk extraction of data, which regulators
would use to obtain large data sets for internal surveillance or market
analysis.\245\ Under the CAT NMS Plan, regulators must be able to
create, save, and schedule dynamic queries that would run directly
against processed and/or unlinked CAT Data.\246\ Additionally, CAT must
provide an open application program interface (``API'') that allows use
of analytic tools and database drivers to access CAT Data.\247\ Queries
submitted through the open API must be auditable and the CAT System
must contain the same level of control, monitoring, logging, and
reporting as the online targeted query tool.\248\ The Plan Processor
must also provide procedures and training to regulators that would use
the direct query feature.\249\ Sections 8.2.1 and 8.2.2 of Appendix D
contain additional specifications for user-defined direct queries and
bulk data extraction, respectively.\250\
---------------------------------------------------------------------------

    \245\ Id. at Appendix D, Section 8.2.
    \246\ Id.
    \247\ Id.
    \248\ Id. Direct queries must not return or display PII data but
rather display non-PII unique identifiers (e.g., Customer-ID or Firm
Designated ID). The PII corresponding to these identifiers could be
gathered using the PII workflow described in Appendix D, Data
Security, PII Data Requirements. See id. at Appendix D, Section
4.1.6.
    \249\ Id. at Appendix D, Section 8.2.
    \250\ Id. at Appendix D, Sections 8.2.1 and 8.2.2.
---------------------------------------------------------------------------

c. Regulatory Access Schedule
    Section A.2 of Appendix C addresses the time and method by which
CAT

Data would be available to regulators.\251\ Section A.2(a) requires
that data be available to regulators any point after the data enters
the Central Repository and passes basic format validations.\252\ After
errors are communicated to CAT Reporters on T+1, CAT Reporters would be
required to report corrected data back to the Central Repository by 8
a.m. Eastern Time on T+3.\253\ Regulators must then have access to
corrected and linked Order and Customer data by 8:00 a.m. Eastern Time
on T+5.\254\ Section A.2(b) generally describes Bidders' approaches
regarding regulator access and use of CAT Data and notes that although
the SROs set forth the standards the Plan Processor must meet, they do
not endorse any particular approach.\255\ Section A.2(c) outlines
requirements the Plan Processor must meet for report building and
analysis regarding data usage by regulators, consistent with, and in
addition to, the specifications outlined in Section 8 of Appendix
D.\256\
---------------------------------------------------------------------------

    \251\ Id. at Appendix C, Section A.2.
    \252\ Id. at Appendix C, Section A.2(a). Appendix C, Section
A.3(e) indicates this would be no later than noon EST on T+1. Id. at
Appendix C, Section A.3(e).
    \253\ Id. at Appendix C, Section A.1(a)(iv); Appendix D, Section
6.1.
    \254\ Id. at Appendix C, Section A.2(a).
    \255\ Id. at Appendix C, Section A.2(b).
    \256\ Id. at Appendix C, Section A.2(c). Appendix C, Section
A.2(d) addresses system service level agreements that the SROs and
Plan Processor would enter into. Id. at Appendix C, Section A.2(d).
---------------------------------------------------------------------------

Request for Comment \257\
---------------------------------------------------------------------------

    \257\ See Section IV.H.5, infra, for further regulatory access
related requests for comment.
---------------------------------------------------------------------------

    190. Do Commenters believe the CAT NMS Plan's ``Functionality of
the CAT System'' Section (Section 8 of Appendix D) describes with
sufficient detail how a regulator would access, use and analyze CAT
Data? If not, describe what, if any, additional requirements and
details should be provided and how.
    191. Do Commenters believe the CAT NMS Plan's ``Functionality of
the CAT System'' Section sufficiently addresses all regulators' end-
user requirements? If not, please explain. Describe what, if any,
additional requirements and details should be provided and how.
    192. If Commenters believe that the CAT NMS Plan's ``Functionality
of the CAT System'' Section does not cover all regulators' end-user
requirements, please describe how regulators would integrate their
applications in a timely and reasonable manner.
    193. The CAT NMS Plan permits the CAT to be implemented in a way
that would (1) require regulators to download entire data sets and
analyze such data within the regulator or the regulators' cloud or (2)
permit regulators to analyze sets of data within the CAT using
applications or programs selected by the Commission. What do Commenters
believe are the advantages and disadvantages to each approach?
    194. Do Commenters believe the CAT NMS Plan's T+5 schedule for
regulatory access to corrected and linked Order and Customer data is
the appropriate schedule in light of current industry standards? If
not, why not? Do Commenters believe that the SROs' determination of
current industry standards is reasonable or appropriate? Do Commenters
believe that it is appropriate to base the timing for regulatory access
on industry standards? Why or why not?
    195. If the T+5 schedule is not appropriate, when do Commenters
believe regulatory access to corrected and linked Order and Customer
data should be provided and why? Do Commenters believe the SROs' should
include in the CAT NMS Plan detailed provisions with milestones in
achieving a more accelerated regulatory access schedule to corrected
and linked Order and Customer data?
    196. Do Commenters believe the Plan's proposed error correction
timeframe--i.e., communication of errors on T+1, corrected data
resubmitted by CAT Reporters by T+3, and corrected data available to
regulators by T+5--is feasible and appropriate in light of current
industry standards? If not, why not, and how long do Commenters believe
these error correction timeframes should be and why? Are shorter
timeframes feasible and appropriate in light of current industry
standards? Why or why not?
    197. To what extent do Commenters believe the CAT NMS Plan's T+5
regulatory access schedule to corrected and linked Order and Customer
data would affect the accuracy, completeness, accessibility and/or
timeliness of CAT Data collected and maintained under the CAT? How?
    198. To what extent do Commenters believe the Plan's three-day
window of error correction would affect the accuracy, completeness,
accessibility and/or timeliness of CAT Data collected and maintained
under the CAT? How?
    199. Regulators' technology teams would be required to work with
the Plan Processor to integrate their applications under the CAT NMS
Plan. What, if any, are the risks to this approach? Should the Plan
Processor be required to enter into support contracts with regulators?
If so, please explain. Describe what, if any, service contract terms
should be set forth in the CAT NMS Plan or set forth in any related
documents. Do Commenters have any concerns about the security or
confidentiality of CAT Data resulting from a service contract between
the Plan Processor and the regulators? If so, please explain. If
Commenters have any security or confidentiality concerns resulting from
a service contract between the Plan Processor and the regulators,
please specify any appropriate service contract terms that would
address the concerns.
    200. How do Commenters believe the Plan Processor should set
pricing for a regulator seeking additional functionality from the Plan
Processor under the CAT? What, if anything, do Commenters believe
should govern pricing for additional functionality by the Plan
Processor? For example, should pricing or contract standards (e.g.,
reasonable, commercially reasonable, etc.), agreed-upon profit
margins--or minimums and maximums, etc.--be included under the CAT NMS
Plan or any related documentation? If so, please explain.
    201. Do Commenters believe the CAT NMS Plan appropriately
encourages or incentivizes the Participants and the Plan Processor to
incorporate new technology and to innovate? Does the CAT NMS Plan
appropriately encourage or incentivize the Plan Processor to have a
flexible and scalable solution? Do Commenters believe that the CAT NMS
Plan would result in a CAT that has adequate system flexibility and
scalability to incorporate improvements in technology and future
regulatory, analytic and data capture needs? Why or why not?
    202. Does the regulatory access approach set forth in the CAT NMS
Plan provide regulators with sufficient tools to maximize their
regulatory activities, actions, and improve their surveillances? If
not, why not and what should be added?
    203. The CAT NMS Plan provides that targeted queries and data
extractions would be logged so that the Plan Processor can provide the
Operating Committee, the Participants, and the Commission with monthly
performance and usage reports including data such as the user ID of the
person submitting the query and the parameters of the query. Do
Commenters believe that the data to be recorded in these logs and
provided in these reports to each Participant and to the SEC would be
appropriate and useful? Should any data elements be added or removed
from these reports?
    204. Do Commenters believe it is appropriate for the Plan Processor
and the Operating Committee to also have access to these logs and
monthly performance and usage reports? How should the Plan Processor
and

Operating Committee be permitted to use these logs and reports? To the
extent that these logs and reports are accessible by the Plan Processor
and the Operating Committee, should any data elements be added or
removed? Should additional details or requirements be added to the CAT
NMS Plan to clarify what the content of these logs and reports would be
and which parties would have access to them?
12. Security, Confidentiality, and Use of Data
    The CAT NMS Plan provides that the Plan Processor is responsible
for the security and confidentiality of all CAT Data received and
reported to the Central Repository, including during all communications
between CAT Reporters and the Plan Processor, data extraction, data
manipulation and transformation, loading to and from the Central
Repository, and data maintenance by the Central Repository.\258\ The
Plan Processor must, among other things, require that individuals with
access to the Central Repository agree to use CAT Data only for
appropriate surveillance and regulatory activities and to employ
safeguards to protect the confidentiality of CAT Data.\259\
---------------------------------------------------------------------------

    \258\ See CAT NMS Plan, supra note 3, at Section 6.5(f)(i),
(iv).
    \259\ Id. at Section 6.5(f)(i).
---------------------------------------------------------------------------

    In addition, the Plan Processor must develop a comprehensive
information security program as well as a training program that
addresses the security and confidentiality of all information
accessible from the CAT and the operational risks associated with
accessing the Central Repository.\260\ The Plan Processor must also
designate one of its employees as Chief Information Security Officer;
among other things, the Chief Information Security Officer is
responsible for creating and enforcing appropriate policies,
procedures, and control structures regarding data security.\261\ The
Technical Specifications, which the Plan Processor must publish, must
include a detailed description of the data security standards for
CAT.\262\
---------------------------------------------------------------------------

    \260\ Id. at Sections 6.1(m), 6.12.
    \261\ Id. at Section 6.2(b).
    \262\ Id. at Section 6.9.
---------------------------------------------------------------------------

    Appendix D of the CAT NMS Plan sets forth minimum data security
requirements for CAT that the Plan Processor must meet.\263\ For
example, Appendix D enumerates various connectivity, data transfer, and
encryption requirements such as that the CAT System must have encrypted
internet connectivity, CAT Reporters must connect to CAT infrastructure
using secure methods such as private lines or virtual private network
connections over public lines, CAT Data must be encrypted in flight
using industry standard best practices, PII data must be encrypted both
at rest and in flight, and CAT Data stored in a public cloud must be
encrypted at rest.\264\ Additional requirements regarding data storage,
data access, breach management, and PII data are also specified in
Appendix D.\265\
---------------------------------------------------------------------------

    \263\ Id. at Appendix D, Section 4.
    \264\ Id. at Appendix D, Section 4.1.1, 4.1.2.
    \265\ Id. at Appendix D, Section 4.1.3-4.1.6.
---------------------------------------------------------------------------

    In addition, the Participants must establish and enforce policies
and procedures that ensure the confidentiality of the CAT Data obtained
from the Central Repository, limit the use of CAT Data obtained from
the Central Repository solely for surveillance and regulatory
purposes,\266\ implement effective information barriers between each
Participant's regulatory and non-regulatory Staff with regard to CAT
Data, and limit access to CAT Data to designated persons.\267\ However,
a Participant may use the Raw Data \268\ it reports to the Central
Repository for ``commercial or other'' purposes if not prohibited by
applicable law, rule or regulation.\269\
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    \266\ The Commission notes that regulatory purposes includes,
among other things, analysis and reconstruction of market events,
market analysis and research to inform policy decisions, market
surveillance, examinations, investigations, and other enforcement
functions.
    \267\ Id. at Section 6.5(f)(ii), (g).
    \268\ Raw data is defined as ``Participant Data and Industry
Member Data that has not been through any validation or otherwise
checked by the CAT System.'' Id. at Section 1.1.
    \269\ Id. at Section 6.5(f)(i).
---------------------------------------------------------------------------

Request for Comment
    205. Do Commenters believe that the CAT NMS Plan appropriately
allocates responsibility for the security and confidentiality of CAT
Data among the Participants, the Plan Processor, and other parties? If
not, how should these responsibilities be allocated?
    206. Do Commenters believe that the data security requirements set
out in Appendix D are appropriate and reasonable? Should any additional
details or requirements be provided?
    207. What, if any, specific details or requirements regarding data
security and confidentiality do Commenters believe should be included
in the information security program, training program, and Technical
Specifications to be developed by the Plan Processor? Should additional
details on the content of these programs and specifications be
provided?
    208. What, if any, specific details or requirements regarding data
confidentiality do Commenters believe should be included in the
policies and procedures to be developed by the Participants? Should
additional details on the content of these policies and procedures be
provided?
    209. Do Commenters believe that the CAT NMS Plan includes
sufficient safeguards to prevent the misuse of CAT Data by employees or
agents of the Participants or other persons with access to the Central
Repository? For example, do Commenters believe that requiring
information barriers between regulatory and non-regulatory staff \270\
and permitting the use of CAT Data only for regulatory, surveillance,
and commercial or other purposes as permitted by law \271\ are
effective measures to prevent the misuse of CAT Data? Should the CAT
NMS Plan set forth additional detail regarding the distinction between
regulatory and non-regulatory staff and between the appropriate and
inappropriate use of CAT Data for commercial or other purposes? Should
the CAT NMS Plan prescribe any specific information barriers? If so,
what should be prescribed in the CAT NMS Plan?
---------------------------------------------------------------------------

    \270\ See id. at Section 6.5(f)(ii)(A).
    \271\ See id. at Section 6.5(f)(i)(A).
---------------------------------------------------------------------------

    210. Do Commenters believe the data access and breach management
provisions described in Appendix D of the CAT NMS Plan \272\ are
effective mechanisms for monitoring and preventing the misuse of CAT
Data? Why or why not? Would any additional details or requirements make
these provisions more effective?
---------------------------------------------------------------------------

    \272\ See id. at Appendix D, Sections 4.1.4, 4.1.5.
---------------------------------------------------------------------------

    211. Which persons or entities should have the responsibility to
monitor for and prevent the misuse of CAT Data? For example, should the
Chief Compliance Officer or the Chief Information Security Officer have
this responsibility? Why or why not? Should additional details be
provided to clarify where this responsibility lies?
    212. Do Commenters believe it is appropriate for Participants to be
permitted to use all Raw Data reported to the Central Repository for
commercial purposes? If not, what particular types of Raw Data would be
inappropriate to use for commercial purposes?
    213. Do Commenters believe that the CAT NMS Plan adequately
addresses the protection and security of PII in CAT? If not, why not
and what should be added to the CAT NMS Plan? For example, should the
CAT NMS Plan provide that PII is accessible only when required, that
PII be properly masked,

and/or that it be safeguarded such that it would not be improperly
accessible?
    214. Do Commenters believe that there are alternative methods or
information that could be used in lieu of requiring the reporting of
Customer PII to the Central Repository that, without diminishing the
quality of CAT Data available to regulators or impairing regulators'
ability to use CAT Data to carry out their functions, would create less
risk of a breach of the security or confidentiality of the personal
information of Customers? If so, what methods or information,
specifically, could serve as such an alternative to PII? \273\
---------------------------------------------------------------------------

    \273\ See Section III.B.7, supra, for additional PII related
requests for comment.
---------------------------------------------------------------------------

    215. Do Commenters believe that the CAT NMS Plan includes adequate
requirements regarding the operational security of the CAT System?
What, if any, additional details or requirements should be provided?
Should the CAT NMS Plan require the Plan Processor to have the ability
to monitor for threats, attacks, and anomalous activity on a 24/7 basis
through a Security Operations Center (``SOC'') or a similar capability?
What would be the costs and benefits of such a requirement?
    216. Appendix C of the CAT NMS Plan discusses solutions for
encrypting data at rest and in motion. Appendix D of the CAT NMS Plan
states that all CAT Data must be encrypted in flight, and PII Data must
encrypted in flight and at rest. Do Commenters believe that the Plan's
data encryption requirements are adequate for CAT Data and PII Data?
Why or why not? Do Commenters believe that the CAT NMS Plan provides
sufficient information and clarity regarding data encryption
requirements? Do Commenters believe that there is a particular method
for data encryption, in motion and/or at rest, that should be used?
    217. Appendix D, Section 4.1.1 of the CAT NMS Plan states that the
CAT System must have ``encrypted internet connectivity.'' What are the
risks, if any, of allowing Internet access from the Central Repository,
even if encrypted? Please explain. Do Commenters believe that the
encrypted connection requirement in the CAT NMS Plan should apply to
communication paths from the Central Repository to the Internet and/or
connections from CAT to/from trusted parties? What challenges would the
Plan Processor face in implementing either option? Does one option
provide more robust security than the other? Why or why not?
    218. To the extent the requirement for ``encrypted internet
connectivity'' applies to connectivity between the Central Repository
and trusted parties such as the Commission and the Participants, do
Commenters believe that the CAT NMS Plan should require that these
parties and the Plan Processor enter into formal Memoranda of
Understanding or Interconnection Security Agreements that document the
technical, operational, and management details regarding the interface
between the CAT System and these parties? Why or why not?
    219. With respect to industry standards, do Commenters believe that
the CAT NMS Plan should be updated to include standards and
requirements of other NIST Special Publications (``SPs'') that were not
mentioned in Appendix D (e.g., NIST SP 800-86 for incident handling,
800-44 for securing public-facing web servers, 800-146 for cloud
security)? Why or why not?
    220. Do Commenters believe that the Plan should be updated more
broadly to include the NIST family of guidance documents? Why or why
not?
    221. Throughout the Plan, there are numerous references to
leveraging ``industry best practices'' pertaining to compliance
subjects such as system assessments and disaster recovery/business
continuity planning. How do ``industry best practices'' compare to NIST
guidance in these areas? Do Commenters believe that the Plan Processor
should implement NIST guidance for the Plan rather than industry best
practices? Why or why not?
    222. The CAT NMS Plan states that the Plan Processor must conduct
third party risk assessments at regular intervals to verify that
security controls implemented are in accordance with NIST SP 800-
53.\274\ Do Commenters believe that the CAT NMS Plan should adopt the
meaning and terminology of Security Assessment and Authorization as
defined by the NIST and/or other NIST guidance in the CAT NMS Plan,
particularly within the requirements set forth in Appendix D to the CAT
NMS Plan? Why or why not?
---------------------------------------------------------------------------

    \274\ See CAT NMS Plan, supra note 3, at Appendix D, Section
5.3.
---------------------------------------------------------------------------

    223. Do Commenters believe that the CAT NMS Plan should include
requirements regarding how the Plan Processor should categorize data
from a security perspective? For example, should the Plan Processor be
required to implement data categorization standards consistent with
Federal Information Processing Standard (``FIPS'') 199 or NIST SP 800-
60? Why or why not? Would including data categorization requirements in
the CAT NMS Plan improve data integrity, availability, segmentation,
auditing, and incident response? Why or why not?
    224. The CAT NMS Plan provides that CAT must follow NIST SP 800-
137--Information Security Continuous Monitoring for Federal Information
Systems and Organizations in addition to a limited number of related
monitoring provisions.\275\ Do Commenters believe that the CAT NMS Plan
provides sufficient and robust information related to continuous
monitoring program requirements? Why or why not?
---------------------------------------------------------------------------

    \275\ See id. at Sections 6.1(g), 6.10(c), Appendix C, Section
A.4, Appendix D, Sections 2.2, 4.1.2, 4.1.4, 4.2, 8.3, 8.4.
---------------------------------------------------------------------------

    225. Do Commenters believe the CAT NMS Plan adequately sets forth
the roles and responsibilities of independent third party risk
assessment functions, including the consistent description of their
specific functions and performance frequency? For example, are the CAT
NMS Plan independent third party risk assessment provisions consistent
with ``industry best practices''? Or should the CAT require a greater
or lesser performance frequency than as described in the CAT NMS Plan?
As another example, do the technical assessments described in Section
6.2, Appendix C, Section A.5, and the NIST SP 800-53 requirements noted
in Appendix D, Section 4.2, adequately and clearly establish the roles
and responsibilities of the parties assessing the technical aspects of
the CAT?
    226. Do Commenters believe the CAT NMS Plan should specify the
general audit and independent assessment requirements and the proper
timeframes for when those assessments should occur? For instance, are
there assessments that may need to occur on an annual basis? If so,
what are those assessments? Are there assessments that may need to
occur more frequently? If so, what are those assessments and why do
they need to occur more frequently?
    227. Do Commenters believe that the CAT NMS Plan requirements for
conducting ad hoc penetration testing and an application security code
audit by a reputable third-party in Appendix D, Section 4.1.3 ``prior
to launch'' and periodically as defined by SLAs are consistent with
industry best practices? Should additional testing or audits be
required? Why or why not? Should testing or audits be required to occur
more frequently than required by the CAT NMS Plan and SLAs? Why or why
not?
    228. Do Commenters believe that the third party risk assessments
and penetration tests required by the CAT

NMS Plan could themselves compromise the security or confidentiality of
CAT Data? Please explain.
    229. In Section 6.2(b)(vi) of the CAT NMS Plan, the Chief
Information Security Officer is required to report to the Operating
Committee the activities of the Financial Services Information Sharing
and Analysis Center (``FS-ISAC'') or other comparable body. Do
Commenters believe there are other cyber and threat intelligence
bodies, in addition to FS-ISAC, that the Plan Processor should join?
Why or why not?
    230. Do Commenters believe the CAT NMS Plan effectively describes
the verification process when CAT Reporters connect to the Central
Repository network? For example, which specific individual(s) at a CAT
Reporter would be allowed access to CAT for reporting and verification
purposes? Should there be a public key exchange process?
    231. Do Commenters believe the CAT NMS Plan provides sufficient
detail regarding the ability of CAT to determine whether a regulator's
queries are shielded from the Plan Processor (including its staff,
officers, and administrators) as well as other regulators and users of
CAT? If not, what specifically should be added to the CAT NMS Plan?
    232. Do Commenters believe that the CAT NMS Plan should require an
audit of all CAT Reporters' data security? If so, which person or
entity should have responsibility for such an audit, and what should
the scope and elements of the audit be? Please estimate the cost of
such audits. What other changes, if any, should be made to the CAT NMS
Plan to provide for the allocation of sufficient resources whereby such
an audit could be carried out?
    233. Do Commenters believe the CAT NMS Plan should require the Plan
Processor to provide a ``blanket'' security authorization to operate
(``ATO'') document (or its equivalent) prior to CAT Reporters sending
CAT Data?

IV. Economic Analysis

A. Introduction

    When adopting Rule 613, the Commission noted that the adopted Rule
permitted the SROs to consider a wider array of solutions than did the
proposed Rule. The Commission stated its belief that, as a result,
``the economic consequences of the consolidated audit trail now will
become apparent only over the course of the multi-step process for
developing and approving an NMS plan that will govern the creation,
implementation, and maintenance of a consolidated audit trail.'' \276\
In particular, the Commission noted its belief that ``the costs and
benefits of creating a consolidated audit trail, and the consideration
of specific costs as related to specific benefits, is more
appropriately analyzed once the SROs narrow the expanded array of
choices they have under the adopted Rule and develop a detailed NMS
plan.'' \277\ The Commission also noted that a ``robust economic
analysis of . . . the actual creation and implementation of a
consolidated audit trail itself . . . requires information on the
plan's detailed features (and their associated cost estimates) that
will not be known until the SROs submit their NMS plan to the
Commission for its consideration.'' \278\ Accordingly, the Commission
deferred its economic analysis of the actual creation, implementation,
and maintenance of the CAT until after submission of an NMS plan.
---------------------------------------------------------------------------

    \276\ See Adopting Release, supra note 9, at 45725-6.
    \277\ Id.
    \278\ Id. at 45726.
---------------------------------------------------------------------------

    To assist in that analysis, Rule 613, as adopted, requires that the
SROs: (1) Provide an estimate of the costs associated with creating,
implementing, and maintaining the consolidated audit trail under the
terms of the NMS plan submitted to the Commission for its
consideration; (2) discuss the costs, benefits, and rationale for the
choices made in developing the NMS plan submitted; and (3) provide
their own analysis of the submitted NMS plan's potential impact on
competition, efficiency and capital formation.\279\ The Commission
stated that it believed that these estimates and analyses would help
inform public comment regarding the CAT NMS Plan and would help inform
the Commission as it evaluates whether to approve the CAT NMS
Plan.\280\
---------------------------------------------------------------------------

    \279\ Id.; see also 17 CFR 242.613(a)(1)(vii), (viii), (xi),
(xii).
    \280\ See Adopting Release, supra note 9, at 45726. Rule
613(a)(5) requires that ``[i]n determining whether to approve the
national market system plan, or any amendment thereto, and whether
the national market system plan or any amendment thereto is in the
public interest under [Rule] 608(b)(2), the Commission shall
consider the impact of the national market system plan or amendment,
as applicable, on efficiency, competition, and capital formation.''
17 CFR 242.613(a)(5).
---------------------------------------------------------------------------

    The Commission is sensitive to the economic effects of the CAT NMS
Plan,\281\ including its costs and benefits and its impact on
efficiency, competition and capital formation. In the Adopting Release
for Rule 613, the Commission considered the economic effects of the
actions the SROs were required to take upon approval of the adopted
Rule, specifically the requirement that the SROs develop an NMS plan,
utilizing their own resources and undertaking their own research, that
addresses the specific details, cost estimates, considerations, and
other requirements of the Rule.\282\ As noted in the Adopting Release,
however, Rule 613 provided the SROs with ``flexibility in how they
[chose] to meet the requirements of the adopted Rule,'' \283\ allowing
the SROs to consider a number of different approaches in developing the
CAT NMS Plan.
---------------------------------------------------------------------------

    \281\ See CAT NMS Plan, supra note 3.
    \282\ See Adopting Release, supra note 9, at 45726.
    \283\ Id. at 45725.
---------------------------------------------------------------------------

    In accordance with the approach articulated by the Commission in
the Adopting Release, the Commission is hereby publishing its economic
analysis of the CAT NMS Plan and is soliciting comment thereon. This
Section reflects the Commission's preliminary analysis and conclusions
regarding the economic effects of the creation, implementation and
maintenance of the CAT pursuant to the details proposed in the NMS plan
submitted to the Commission for its consideration. The analysis is
divided into eight topics: (1) A summary of the expected economic
effects of approving the CAT NMS Plan; (2) a description of the
economic framework for analyzing the economic effects of approving the
CAT NMS Plan; (3) a discussion of the current, or ``Baseline,'' audit
trail data available to regulators, and the sources of such data; (4) a
discussion of the potential benefits of the CAT NMS Plan; (5) a
discussion of the potential costs of the CAT NMS Plan; (6) an economic
analysis of the CAT NMS Plan's impact on efficiency, competition, and
capital formation; (7) a discussion of alternatives to various features
of the CAT NMS Plan and to the CAT NMS Plan itself; and (8) a request
for comment on the Commission's preliminary economic analysis.

B. Summary of Expected Economic Effects

    As the Commission explained in the Adopting Release, the Commission
believes that the regulatory data infrastructure on which the SROs and
the Commission currently must rely is outdated for effective oversight
of a complex, dispersed, and highly automated national market
system.\284\ In performing their oversight responsibilities, regulators
today must attempt to cobble together disparate data from a variety of
existing information systems, each lacking in completeness,

accuracy, accessibility, and/or timeliness--a model that neither
supports the efficient aggregation of data from multiple trading venues
nor yields the type of complete and accurate market activity data
needed for robust market oversight.\285\ The Commission has analyzed
the expected economic effects of the CAT NMS Plan in light of these
existing shortcomings and the goal of improving the ability of SROs and
the Commission to perform their regulatory activities to the benefit of
investors.\286\
---------------------------------------------------------------------------

    \284\ See id. at 45723.
    \285\ See id.
    \286\ The Commission noted current SRO audit trail limitations
in the Proposing Release and the Adopting Release. See Proposing
Release, supra note 9, at 32563-68; Adopting Release, supra note 9,
at 45726-30. Rule 613 is designed to address these limitations.
---------------------------------------------------------------------------

    In general, the Commission preliminarily believes that, if
approved, the CAT NMS Plan would result in benefits by improving the
quality of the data available to regulators in four areas that affect
the ultimate effectiveness of core regulatory efforts--completeness,
accuracy, accessibility and timeliness.\287\ The Commission
preliminarily believes that the improvements in these data qualities
that would be realized from approval of the CAT NMS Plan would
substantially improve regulators' ability to perform analysis and
reconstruction of market events, and market analysis and research to
inform policy decisions, as well as perform other regulatory
activities, in particular market surveillance, examinations,
investigations, and other enforcement functions. Regulators depend on
data for many of these activities and the improvements in the data
qualities would thus improve the efficiency and effectiveness of such
regulatory activities. As explained further below, these improvements
could benefit investors by giving regulators more and better regulatory
tools to provide investors with a more effectively regulated trading
environment,\288\ which could increase capital formation, liquidity,
and price efficiency. Data improvements could enhance regulators'
ability to provide investors and the public with more timely and
accurate analysis and reconstruction of market events, and to develop
more effective responses to such events.\289\ Improved understanding of
emerging market issues resulting from enhanced market analysis and
research could inform regulatory policies that improve investor
protection through better market quality, more transparency, and more
efficient prices.
---------------------------------------------------------------------------

    \287\ See Adopting Release, supra note 9, at 45727 (discussing
four ``qualities'' of trade and order data that impact the
effectiveness of core SRO and Commission regulatory efforts:
Accuracy, completeness, accessibility, and timeliness); see also
Section IV.E, infra, for a detailed discussion of the expected
benefits of the CAT NMS Plan.
    \288\ See Section IV.E.2, infra.
    \289\ See Section IV.E.2.a, infra.
---------------------------------------------------------------------------

    In terms of completeness, the Plan requires the reporting of
certain additional data fields, events, and products.\290\ More
importantly, the CAT NMS Plan requires certain data elements useful for
regulatory analysis to be available from a single data source. Having
relevant data elements available from a single source would simplify
regulators' data collection process and facilitate more efficient
analyses and surveillances that incorporate cross-market and cross-
product data.
---------------------------------------------------------------------------

    \290\ See CAT NMS Plan, supra note 3, at Sections 6.3, 6.4; see
also 17 CFR 242.613(c)(7).
---------------------------------------------------------------------------

    With respect to the accuracy of available data, the Commission
preliminarily believes that the requirements in the Plan would improve
data accuracy significantly. For example, the Commission expects that
the requirements to store the CAT Data in a uniform linked format and
the use of consistent identifiers for customers and market participants
would result in fewer inaccuracies as compared to current data sources.
These accuracy improvements should significantly reduce the time
regulators spend processing the data and finding solutions when faced
with inaccurate data. The Commission preliminarily believes that the
requirements in the Plan for clock synchronization and time stamp
granularity would improve the accuracy of data with respect to the
timing of market events, but the improvements would be modest. The
Commission preliminarily believes that the Plan would improve
regulators' ability to determine the sequence of a small percentage of
market events relative to all surrounding events.\291\
---------------------------------------------------------------------------

    \291\ The CAT NMS Plan would also require that CAT Reporters'
business clocks be synchronized to within 50 milliseconds of the
time maintained by the NIST, which would increase the precision of
the time stamps provided by the 39% of broker-dealers who currently
synchronize their clocks with less precision than what is called for
by the Plan. See supra note 125. Independent of the potential time
clock synchronization benefits, the order linking data that would be
captured in CAT should increase the proportion of events that could
be sequenced accurately. This reflects the fact that some records
pertaining to the same order could be sequenced by their placement
in an order lifecycle (e.g., an order submission must have occurred
before its execution) without relying on time stamps. This
information may also be used to partially sequence surrounding
events.
---------------------------------------------------------------------------

    The Commission also preliminarily believes that the Plan would
increase the accessibility of data for SROs and the Commission, because
regulators would be able to access the CAT Data directly.\292\ This,
coupled with the improvements in completeness, would vastly increase
the scope of information readily available to regulators and
significantly reduce the number of data requests from the several
hundred thousand requests regulators make each year. The increased
scope of readily available information should facilitate more data-
driven regulatory policy decisions, broaden the potential
surveillances, expand the opportunities for SRO and Commission analysis
to help target broker-dealers and investment advisers for examinations
and help to perform those examinations.
---------------------------------------------------------------------------

    \292\ See CAT NMS Plan, supra note 3, at Appendix C, Section
A.2, Appendix D, Section 8.1; see also 17 CFR 242.613(e)(2).
---------------------------------------------------------------------------

    Finally, the Commission preliminarily believes that the CAT NMS
Plan would improve the timeliness of available data. Because regulators
would be able to access uncorrected data the day after an order event
and would be able to access corrected and linked data five days after
an order event,\293\ many data elements would be available to
regulators more quickly than they are currently and the amount of time
regulators would need to acquire and process data before running
analyses would be reduced. For example, the corrected and linked data
available on T+5 would identify the customer account associated with
all order events, information that currently takes ten days or longer
for regulators to obtain and then need to link to other data sources
for use. These improvements in timeliness, combined with improvements
in completeness, accessibility, and accuracy discussed above, would
improve the efficiency of regulatory analysis and reconstruction of
market events, as well as market analysis and research that informs
policy decisions, and make market surveillance, examinations,
investigations, and other enforcement functions more efficient,
allowing, for example, the SROs and the Commission to review tips and
complaints more effectively.
---------------------------------------------------------------------------

    \293\ CAT Data would be reported by 8:00 a.m. Eastern Time on
day T+1 and made available to regulators in raw form after it is
received and passes basic formatting validations with an error
correction process completed by 8:00 a.m. Eastern Time on day T+5.
While the Plan does not specify exactly when these validations would
be complete, the requirement to link records by 12:00 p.m. Eastern
Time on day T+1 gives a practical upper bound on this timeline. See
CAT NMS Plan, supra note 3, at Appendix C, Sections A.2(a), A.3(a),
Appendix D, Section 6.2.
---------------------------------------------------------------------------

    The Commission notes that the Plan lacks information regarding the
details of certain elements of the Plan likely to affect the costs and
benefits associated

with it, primarily because those details have not yet been determined,
and this lack of information creates some uncertainty about the
expected economic effects. As discussed further below, lack of
specificity surrounding the processes for converting data formats and
linking related order events creates uncertainty as to the anticipated
improvements in accuracy because such processes have the potential to
create new data inaccuracies. Lack of specificity surrounding the
process for regulators to access the CAT Data also creates uncertainty
around the expected improvements in accessibility. For example, while
the Plan indicates that regulators would have an on-line targeted query
tool and a tool for user-defined direct queries or bulk
extraction,\294\ the Plan itself does not provide an indication for how
user-friendly the tools would be or the particular skill set needed to
use the tools for user-defined direct queries. However, the Commission
has analyzed the expected economic effects of the Plan to the extent
possible with the information available, noting areas of uncertainty in
its analysis where applicable. The Commission has also considered
whether certain provisions related to the operation and administration
of the Plan could mitigate some of the uncertainties.\295\
---------------------------------------------------------------------------

    \294\ See CAT NMS Plan, supra note 3, at Appendix D, Sections
8.1.1, 8.1.2.
    \295\ See Section IV.E.3.d, infra.
---------------------------------------------------------------------------

    The Commission also preliminarily believes that more effective and
efficient regulation of securities markets and market participants
resulting from approval of the CAT NMS Plan could significantly benefit
investors and the integrity of the market. For example, the Commission
preliminarily believes that more effective and efficient surveillance
and enforcement would detect a higher proportion of violative market
activity. This additional detection could not only reduce violative
behavior through potential enforcement actions, but through deterrence
if market participants believe violative activities are more likely to
be detected. Because violative activity degrades market quality and
imposes costs on investors and market participants, reductions in
violative activity would benefit investors and market integrity.
Likewise, more effective and efficient risk assessment and risk-based
examinations should more effectively facilitate the selection of market
participants for examination who have characteristics that elevate
their risk of violating the rules. Decreasing the amount of violative
activity by targeting exams in this way would provide investors with a
more effectively regulated trading environment and hence better market
quality. Further, access to audit trail data that is comprehensive,
accurate, and timely could improve regulatory reconstruction of market
events, market analysis, and research resulting in an improved
understanding of emerging market issues and regulatory policies that
better encourage industry competition, thus improving investor
protection through better transparency and more efficient prices.\296\
---------------------------------------------------------------------------

    \296\ See Section IV.E.2.a, IV.E.2.b, infra.
---------------------------------------------------------------------------

    Further, regulatory initiatives that are based on a more thorough
understanding of underlying events and their causes, and that are
narrowly tailored to address any market deficiency, could improve
market quality and thus benefit investors. Moreover, access to more
complete and linked audit trail data would improve regulators' ability
to analyze and reconstruct market events, allowing regulators to
provide investors and the public with more accurate explanations of
market events, to develop more effective responses to such events, and
to use the information to assist in retrospective analyses of their
rules and pilots.
    The Commission has also evaluated the potential costs that would
result from approval of the CAT NMS Plan. In particular, using
information included in the Plan, information gathered from market
participants through discussions, surveys of market participants, and
other relevant information, the Commission has preliminarily estimated
the potential costs associated with building and maintaining the
Central Repository as well as the costs to report data to the Central
Repository. Currently, the 20 Participants spend $154.1 million
annually on reporting regulatory data and performing surveillance,
while the approximately 1,800 broker-dealers anticipated to have CAT
reporting responsibilities spend $1.6 billion annually on regulatory
data reporting, for total current industry costs of $1.7 billion
annually for regulatory data reporting and surveillance by SROs. The
Commission preliminarily estimates the cost of the Plan as
approximately $2.4 billion in initial aggregate implementation costs
and recurring annual costs of $1.7 billion.\297\ The primary driver of
the annual costs is the data reporting costs for broker-dealers, which
are estimated to be $1.5 billion per year. For both large and small
broker-dealers, the primary driver of both current $1.6 billion
reporting costs and projected $1.5 billion CAT reporting costs is costs
associated with staffing. Estimates of the costs to build the Central
Repository are based on Bids that vary in a range as high as $92
million. Current estimates of annual operating costs are based on Bids
that vary in a range up to $135 million. The eventual magnitude of
Central Repository costs is dependent on the Participants' selection of
the Plan Processor, and may ultimately differ from estimates discussed
above if Bids are revised as the bidding process progresses.
Furthermore, the Plan anticipates a period of duplicative reporting
responsibilities preceding the retirement of potentially duplicative
regulatory data reporting systems; these duplicative reporting costs
are likely to be significant.\298\
---------------------------------------------------------------------------

    \297\ See Section IV.F.2, Table 9, infra.
    \298\ The economic analysis discusses duplicative reporting
costs in Section IV.F.2, infra.
---------------------------------------------------------------------------

    Drawing from the discussion in the CAT NMS Plan,\299\ the
Commission expects that, if approved, the Plan would have a number of
additional economic effects, including effects on efficiency,
competition, and capital formation. The Commission preliminarily
believes that the Plan generally promotes competition. However, the
Commission recognizes that the Plan could increase barriers to entry
because of the costs to comply with the Plan. Further, the Commission's
analysis identifies several limiting factors to competition but Plan
provisions and Commission oversight could address such limiting
factors. The Commission preliminarily believes that the Plan would
improve regulatory analysis and reconstruction of market events, as
well as market analysis and research that informs policy decisions. In
addition, the Plan would improve enforcement related activities,
including the efficiency of regulatory activities such as market
surveillance, examinations, investigations, and other enforcement
functions that could enhance market efficiency by reducing violative
activity that harms market efficiency. Finally, the Commission
preliminarily believes that the Plan could have positive effects on
capital formation and allocative efficiency and that the threat of a
security breach at the Central Repository is unlikely to significantly
harm capital formation. The Commission recognizes that the Plan's
likely effects on competition, efficiency and capital formation are
dependent to some extent on the

performance and decisions of the Plan Processor and the Operating
Committee in implementing the Plan, and thus there is necessarily some
uncertainty in the Commission's analysis. Nonetheless, the Commission
believes that the Plan contains certain governance provisions, as well
as provisions relating to the selection and removal of the Plan
Processor, that mitigate this uncertainty by promoting decision-making
that could, on balance, have positive effects on competition,
efficiency, and capital formation.
---------------------------------------------------------------------------

    \299\ See CAT NMS Plan, supra note 3, at Appendix C, Section
B.8; see also Section IV.G, infra.
---------------------------------------------------------------------------

    The Commission notes that while the Participants developed the Plan
in compliance with Rule 613 by considering information from industry
representatives, the Commission has discretion to approve the Plan
subject to changes or conditions that the Commission deems necessary or
appropriate.\300\ Therefore, as a part of this economic analysis, the
Commission analyzed numerous alternatives to provisions of the CAT NMS
Plan and to the CAT NMS Plan itself. The Commission analyzes
alternatives to the approaches the Exemption Order permitted the
Participants to include in the Plan; \301\ alternatives to certain
specific approaches in the Plan; alternatives to the scope of certain
specific elements of the Plan; and the broad alternative of modifying
OATS or another existing system to meet the requirements of Rule 613
instead of approving the Plan. Finally, the Commission requests comment
on alternatives discussed in this economic analysis, alternatives
considered in the Plan, and on whether the Commission should consider
any additional alternatives.
---------------------------------------------------------------------------

    \300\ See 17 CFR 242.608(b)(1) (``No national market system plan
. . . shall become effective unless approved by the Commission . .
.''); 17 CFR 242.608(b)(2) (``Within 120 days of the date of
publication of notice of filing of a national market system plan . .
. the Commission shall approve such plan . . . with such changes or
subject to such conditions as the Commission may deem necessary or
appropriate, if it finds that such plan or amendment is necessary or
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 mechanisms of, a national market
system, or otherwise in furtherance of the purposes of the Act.'').
    \301\ See Exemption Order, supra note 18.
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C. Framework for Economic Analysis

    As discussed above, the Commission is conducting an economic
analysis of the CAT NMS Plan filed by the SROs on February 27, 2015, as
amended, as anticipated in the Adopting Release for Rule 613.\302\ In
particular, the Commission has carefully evaluated the information in
the CAT NMS Plan, including the twelve considerations required by Rule
613 \303\ and the details of the decisions left to the discretion of
the SROs. The Commission has also considered information drawn from
outside the Plan in order to assess potential economic effects not
addressed therein. To provide context for this analysis, this Section
describes the economic framework for the analysis and seeks to identify
uncertainties within that framework.
---------------------------------------------------------------------------

    \302\ See Adopting Release, supra note 9, at 45789.
    \303\ See 17 CFR 242.613(a)(1).
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1. Economic Framework
a. Benefits
    The CAT NMS Plan would create a new data source that could replace
the use of some current data sources for many regulatory activities. As
such, the economic benefits of the CAT NMS Plan would come from any
expanded and more efficient regulatory activities facilitated by
improvements to the data regulators use. Therefore, the framework for
examining benefits in this economic analysis involves first considering
whether and to what degree the CAT Data would improve on the Baseline
of current trading and order data in terms of the four qualities of
accuracy, completeness, accessibility, and timeliness.\304\
---------------------------------------------------------------------------

    \304\ See Adopting Release, supra note 9, at 45727.
---------------------------------------------------------------------------

    Through these improvements in the data, the economic analysis then
considers the degree to which the Plan would result in improvements to
regulatory activities such as the analysis and reconstruction of market
events, in addition to market analysis and research conducted by SROs
and Commission Staff, as well as market surveillance, examinations,
investigations, and other enforcement functions. These potential
improvements, based on the regulatory objectives of the CAT NMS Plan
described in the Adopting Release,\305\ relate to the overall goal of
substantially enhancing the ability of the SROs and the Commission to
oversee securities markets and fulfill their regulatory
responsibilities under the securities laws. The economic analysis
explores how the improvements to these regulatory activities provide
economic benefits to investors and the market. Among other things,
potential benefits that could result from the CAT NMS Plan include
benefits rooted in changes in the behavior of market participants. For
example, requirements to report certain data elements or events to the
CAT could have the beneficial effect of deterring rule violations
because the inclusion of certain data fields and improvements in the
ability to surveil for violations could increase the perceived costs of
violating rules and regulations. Potential benefits could also stem
from improved investor protection, such as from more effective
surveillance and more informed, data-driven rulemaking.
---------------------------------------------------------------------------

    \305\ See id. at 45730.
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(1) Data Qualities
    In the Adopting Release, the Commission identified four qualities
of trade and order data that impact the effectiveness of core SRO and
Commission regulatory efforts: Accuracy, completeness, accessibility,
and timeliness.\306\ In assessing the potential benefits of the CAT NMS
Plan, the Commission's economic analysis compares the data that would
be available under the Plan to the trading and order data currently
available to regulators to determine whether and to what degree the
Plan would improve the available data with respect to those four
qualities.
---------------------------------------------------------------------------

    \306\ See id. at 45727. Accuracy refers to whether the data
about a particular order or trade is correct and reliable.
Completeness refers to whether a data source represents all market
activity of interest to regulators, and whether the data is
sufficiently detailed to provide the information regulators require.
While current data sources provide the trade and order data required
by existing rules and regulations, those sources generally do not
provide all of the information of interest to regulators in one
consolidated audit trail. Accessibility refers to how the data is
stored, how practical it is to assemble, aggregate, and process the
data, and whether all appropriate regulators could acquire the data
they need. Timeliness refers to when the data is available to
regulators and how long it would take to process before it could be
used for regulatory analysis. As explained in the Baseline, Section
IV.D, infra, the trading and order data currently available to
regulators suffers from deficiencies in all four dimensions.
---------------------------------------------------------------------------

(2) Regulatory Activities
    Any economic benefits would derive from how such improved data
would affect regulatory activities. Therefore, to analyze the potential
benefits of the CAT NMS Plan, the economic analysis also evaluates the
potential of the CAT NMS Plan to meet the regulatory objectives set out
in the Adopting Release for Rule 613. The objectives are: Improvements
in the analysis and reconstruction of broad-based market events;
improvements in market analysis in support of regulatory decisions; and
improvements in market surveillance, investigations, and other
enforcement activities.\307\
---------------------------------------------------------------------------

    \307\ See Adopting Release, supra note 9, at 45730.
---------------------------------------------------------------------------

A. Analysis and Reconstruction of Broad-Based Market Events
    The economic analysis considers whether and to what extent the CAT
NMS Plan would facilitate regulators'

performance of analysis and reconstruction of market events,
potentially helping to better inform both regulators and investors
about such market events and speeding the regulatory response following
market events. Regulators perform reconstructions of market events so
that they and the public can be informed by an accurate accounting of
what happened (and, possibly, why it happened). As discussed in the
Benefits Section,\308\ market reconstructions can take a significant
amount of time, in large measure due to various deficiencies in the
currently available trading and order data in terms of the four
qualities described above.\309\ The sooner regulators complete a
reconstruction and analysis of a market event, the sooner investors can
be informed and the sooner regulators can begin reviewing the event to
determine what happened, who was affected and how, and whether the
analysis supports potential regulatory responses.\310\ In addition, the
improved ability for regulators to generate prompt and complete market
reconstructions could provide improved market knowledge, which could
assist regulators in conducting retrospective analysis of their rules
and pilots.
---------------------------------------------------------------------------

    \308\ See Section IV.E.2.a, infra.
    \309\ See Section IV.C.1.a(1), supra.
    \310\ See Adopting Release, supra note 9, at 45732.
---------------------------------------------------------------------------

B. Market Analysis in Support of Regulatory Decisions
    The economic analysis considers whether and to what extent the CAT
NMS Plan would enhance the ability of the SROs and the Commission to
conduct market analysis and research, including analysis of market
structure, and the degree to which it would improve regulators' market
knowledge and facilitate consideration of policy questions of interest.
The SROs and Commission Staff conduct data-driven analysis on market
structure, in direct support of both rulemaking and other regulatory
decisions such as SRO rule approvals. The Commission also relies on
such analysis to improve understanding of market structure in ways that
could inform policy. Finally, SROs conduct market analysis and research
on their own regulatory initiatives. Improvements in the ability to
conduct market analysis could further improve analysis related to
regulatory decisions and potentially influence those regulatory
decisions to the benefit of investors and the markets more generally.
C. Market Surveillance and Investigations
    The economic analysis examines whether the CAT NMS Plan would
improve market surveillance and investigations, potentially resulting
in more effective oversight of trading, better investor protection, and
deterrence of violative behavior. As described in more detail in the
Baseline Section,\311\ both SROs and the Commission conduct market
surveillance, examinations, investigations, and other enforcement
functions targeting illegal activities such as insider trading, wash
sales, or manipulative practices. Improvements in market surveillance
and investigations could come in the form of ``facilitating risk-based
examinations, allowing more accurate and faster surveillance for
manipulation, improving the process for evaluating tips, complaints,
and referrals . . ., and promoting innovation in cross-market and
principal order surveillance.'' \312\
---------------------------------------------------------------------------

    \311\ See Section 0, infra.
    \312\ See Adopting Release, supra note 9, at 45730.
---------------------------------------------------------------------------

b. Costs
    The economic analysis evaluates the costs of building and operating
the Central Repository; the costs of CAT reporting for Participants,
broker-dealers, and service bureaus; and other CAT-related costs. Where
the CAT NMS Plan provides estimates of these costs, the economic
analysis evaluates those estimates and re-estimates them when
necessary. The economic analysis also discusses the drivers of these
costs, and whether broker-dealers may or may not pass these costs down
to their customers. In addition, the economic analysis assesses whether
the CAT NMS Plan has the potential to result in cost savings. Rule 613
requires the Plan to discuss ``[a] plan to eliminate existing rules and
systems (or components thereof) that would be rendered duplicative by
the consolidated audit trail.'' \313\ As a part of its consideration of
the costs of the CAT NMS Plan, the economic analysis considers costs
from duplicative reporting for some period of time as well as potential
cost savings from the retirement of duplicative regulatory reporting
systems.
---------------------------------------------------------------------------

    \313\ 17 CFR 242.613(a)(1)(ix).
---------------------------------------------------------------------------

    The economic analysis also considers whether the CAT NMS Plan could
result in second order effects, such as changes to the behavior of
market participants, that impose certain costs. For example, the CAT
NMS Plan's tiered funding model could lead to costly efforts by market
participants to try to control their tiers in order to affect their fee
payments, such as reducing activity levels near the end of an activity
level measuring period to avoid being classified as a higher activity
level firm. In addition, Participants, their members, and investors
could incur costs if their private information were accessed in the
event of a security breach of the Central Repository. The economic
analysis considers these and other elements of the Plan that could lead
to distortions in behavior by market participants.
2. Existing Uncertainties
    The Commission has carefully analyzed the information in the CAT
NMS Plan, as well as other relevant data, in order to assess the
economic effects of the Plan. As discussed throughout the analysis, in
certain cases the Commission lacks information needed to evaluate all
of the potential economic effects of the CAT NMS Plan, creating
uncertainty in some potential benefits and costs. The primary drivers
of uncertainty include the fee schedule applicable to funding the
Central Repository (the ``Funding Model''), which has not yet been
finalized, the deferral of decisions on certain discretionary elements
including the Technical Specifications applicable to the CAT, and a
lack of detailed information that would enable the Commission to assess
certain economic effects with greater precision. The implications of
each primary area of uncertainty for the Commission's economic analysis
are discussed below.
    First, as noted above, the economic analysis evaluates information
provided in the CAT NMS Plan on the economic effects of the Plan, as
well as information drawn from outside of the Plan. However, the
Commission lacks detailed information regarding some of the individual
costs and discretionary decisions in the Plan, including the Funding
Model. Specifically, the Plan does not outline the proportion of CAT
costs that would be allocated to Participants versus broker-dealers.
This uncertainty limits the Commission's ability to evaluate the
economic effects of the Plan in some cases. However, the Commission has
analyzed the expected economic effects of the Plan to the extent
possible with the information available, and where the Commission can
identify such areas of uncertainty, the economic analysis addresses
this uncertainty. In addition, the Commission requests comments to help
resolve such uncertainties during the consideration of the CAT NMS
Plan.
    Second, certain elements of the CAT NMS Plan would not be finalized
until after the selection of a ``Plan

Processor.'' \314\ Among these are the security and confidentiality
procedures of the Central Repository,\315\ the precise methods by which
regulators would access data in the Central Repository,\316\ and the
complete Technical Specifications.\317\ The Plan also provides the Plan
Processor the ``sole discretion'' to publish interpretations of the
Technical Specifications, including interpretations of permitted values
in data elements.\318\
---------------------------------------------------------------------------

    \314\ See CAT NMS Plan, supra note 3, at Article VI. The Plan
Participants have engaged in a bidding process to select a Plan
Processor, and the leading candidate bidders have proposed different
solutions. In certain instances, the Plan Participants have decided
to adopt the solutions proposed by whichever bidder they select.
    \315\ See Section 0, infra, for additional discussion of risks
and uncertainties related to data security.
    \316\ Rule 613(e)(1) requires the CAT NMS Plan to create a
Central Repository to collect, link, and store CAT Data and to make
that data available to regulators. See 17 CFR 242.613(e)(1).
    \317\ The CAT NMS Plan contains minimum standards and principles
for setting many of Technical Specifications, see CAT NMS Plan,
supra note 3, at Section 6.9, and the Commission's economic analysis
reflects those minimum standards and principles. However, because
the detailed Technical Specifications are not yet finalized by the
Participants, the Commission cannot fully assess any corresponding
costs and benefits.
    \318\ See id. at Section 6.9.
---------------------------------------------------------------------------

    Because these and other elements of the Plan have not yet been
finalized, the Commission cannot assess how and to what extent they
could affect the overall economic effects of the Plan. The Commission's
economic analysis is therefore limited to the extent that the economic
effects of the Plan depend on decisions that would be made after
approval of the Plan. However, the Commission has identified these
areas of uncertainty and has assessed the economic effects of the Plan
to the best of its ability in light of these existing uncertainties.
    Given the range of possible outcomes with respect to both the costs
and benefits of the CAT NMS Plan that depend on future decisions, the
Commission also recognizes the importance of provisions of the Plan
related to the operation and administration of the CAT. In particular,
governance provisions of the Plan related to voting by the Operating
Committee and the involvement of the Advisory Committee may help
promote better decision-making by the relevant parties. Such provisions
could mitigate concerns about potential uncertainty in the economic
effects of the Plan by giving the Commission greater confidence that
its expected benefits would be achieved in an efficient manner and that
costs resulting from inefficiencies would be avoided. As part of this
economic analysis, the Commission therefore considers these features of
the Plan.\319\
---------------------------------------------------------------------------

    \319\ See Section 0, infra.
---------------------------------------------------------------------------

3. Request for Comment on the Framework
    The Commission requests comment on all aspects of the Framework for
the Economic Analysis on the CAT NMS Plan. In particular, the
Commission seeks responses to the following questions:
    234. Do Commenters believe that the general economic framework
applied in this analysis is appropriate? If not, which considerations
should be added or removed?
    235. Do Commenters agree with the approach to identifying benefits
of the CAT NMS Plan? Are there important sources of benefits that are
not discussed here? Are the data qualities important for regulatory
uses? Are there additional data qualities that the Commission should
consider? Are the regulatory objectives important and beneficial for
investors? Are there additional regulatory objectives that the
Commission should consider?
    236. Do Commenters agree with the approach taken in this analysis
for examining the costs of CAT? Please explain.
    237. Do the Commenters agree with the approach for analyzing second
order effects? Are there other sources of economic effects that the
Commission should consider?
    238. Do Commenters agree with the Commission's characterization of
uncertainties in the economic analysis? How important are these
uncertainties to the Commission's consideration of the CAT NMS Plan?
Are there other sources of uncertainty that the Commission should
consider?
    239. Do Commenters agree with the Commission's preliminary
assessment that governance provisions of the Plan related to voting by
the Operating Committee and the involvement of the Advisory Committee
may help promote better decision-making by the relevant parties and
thus mitigate concerns associated with uncertainties in the economic
effects of the Plan? Please explain.

D. Baseline

    The CAT NMS Plan would create a new regulatory dataset that SROs
and the Commission would use to supplement or replace their current
data sources. The Adopting Release states that ``improvements [in the
quality of audit trail data] should have the potential to result in the
following: (1) [I]mproved market surveillance and investigations; (2)
improved analysis and reconstructions of broad-based market events; and
(3) improved market analysis.'' \320\ To assess the overall economic
impact of the CAT NMS Plan, the economic analysis uses as the Baseline
the current state of trade and order data and the current state of
regulatory activity that relies on that data. The Baseline discusses
the currently available sources of data, limits in available data that
could impact regulatory activity, how regulators currently use the
available data, and the burden that producing that data imposes on SROs
and broker-dealers.
---------------------------------------------------------------------------

    \320\ See Adopting Release, supra note 9, at 45730.
---------------------------------------------------------------------------

1. Current State of Regulatory Activities
    The SROs and the Commission use data to analyze and reconstruct
market events, conduct market analysis and research in support of
regulatory decision-making, and conduct market surveillance,
examinations, investigations, and other enforcement functions. The
trend in this area is to use more automated and data-intensive methods
as regulators' activities adjust to the data and technology available.
The following Sections describe these regulatory activities and how
regulators currently use data.
a. Analysis and Reconstruction of Market Events
    In the Adopting Release, the Commission described how it expected
CAT Data to significantly improve the ability of regulators to
reconstruct market events so that the public might be informed by an
accurate and timely accounting of the events in question.\321\ In a
market reconstruction, regulators seek to provide an accurate and
factual accounting of what transpired during a market event of interest
by conducting a thorough analysis of the available market data. These
events often encompass activity in many securities across multiple
trading venues, requiring the linking and analysis of data from
multiple sources. Examples of recent market reconstructions include the
Commodity Futures Trading Commission (``CFTC'') and SEC's analysis of
the May 6, 2010 ``Flash Crash,'' \322\ analysis of equity market

volatility on August 24, 2015,\323\ and the multi-agency report on the
U.S. Treasuries market on October 15, 2014.\324\
---------------------------------------------------------------------------

    \321\ See id. at 45732-33.
    \322\ See Findings Regarding the Market Events of May 6, 2010:
Report of the Staffs of the CFTC and SEC to the Joint Advisory
Committee on Emerging Regulatory Issues (September 30, 2010)
(``Flash Crash Analysis''), available at http://www.sec.gov/news/studies/2010/marketevents-report.pdf.
    \323\ See Staff of the Office of Analytics and Research,
Division of Trading and Markets, Research Note: Equity Market
Volatility on August 24, 2015 (Dec. 2015) available at http://www.sec.gov/marketstructure/research/equity_market_volatility.pdf;
see also Austin Gerig and Keegan Murphy, The Determinants of ETF
Trading Pauses on August 24th, 2015, White Paper (February 2016)
available at http://www.sec.gov/marketstructure/research/determinants_eft_trading_pauses.pdf.
    \324\ See U.S. Department of the Treasury, Board of Governors of
the Federal Reserve System, Federal Reserve Bank of New York, U.S.
Securities and Exchange Commission, and U.S. Commodity Futures
Trading Commission, Joint Staff Report: The U.S. Treasury Market on
October 15, 2014 (July 13, 2015), available at http://www.sec.gov/reportspubs/special-studies/treasury-market-volatility-10-14-2014-joint-report.pdf.
---------------------------------------------------------------------------

b. Market Analysis and Research
    In the Adopting Release, the Commission described how it expected
CAT Data to improve the ability of regulators to monitor overall market
structure and better understand its relationship with market behavior,
so that the Commission and the SROs could be better informed in their
policy decisions.\325\ The Commission and SRO Staffs conduct data-
driven analysis on market structure, in direct support of both
rulemaking and other regulatory decisions such as SRO rule approvals as
well as retrospective analyses of rules and pilots. The Commission also
relies on data analysis to inform its market structure policy. SROs
also conduct market analysis and research on their own regulatory
initiatives. Examples of data-driven market analysis include reports on
OTC trading,\326\ small capitalization stock trading,\327\ the Limit
Up-Limit Down Pilot,\328\ short selling,\329\ and high frequency
trading.\330\
---------------------------------------------------------------------------

    \325\ See Adopting Release, supra note 9, at 45733.
    \326\ See Laura Tuttle, Alternative Trading Systems: Description
of ATS Trading in National Market System Stocks (October 2013)
available at http://www.sec.gov/divisions/riskfin/whitepapers/alternative-trading-systems-10-2013.pdf; Laura Tuttle, OTC Trading:
Description of Non-ATS OTC Trading in National Market System Stocks
(March 2014), available at http://www.sec.gov/dera/staff-papers/white-papers/otc-trading-white-paper-03-2014.pdf.
    \327\ See Securities Exchange Act Release No. 74892, Order
Approving the National Market System Plan to Implement a Tick Size
Pilot Program (May 6, 2015), 80 FR 27514, 27534, 27541 (May 13,
2015); see also Charles Collver, A Characterization of Market
Quality for Small Capitalization US Equities (September 2014),
available at http://www.sec.gov/marketstructure/research/small_cap_liquidity.pdf.
    \328\ See SRO Supplemental Joint Assessment, available at http://www.sec.gov/comments/4-631/4-631.shtml; Memo to File from the
Division of Economic and Risk Analysis regarding the Cornerstone
Analysis of the Impact of Straddle States on Options Market Quality
(February 8, 2016), available at http://www.sec.gov/comments/4-631/4631-42.pdf; see also Gerig and Murphy, supra note 323.
    \329\ See Memo to Chairman Christopher Cox from Daniel Aromi and
Cecilia Caglio regarding an Analysis of Short Selling Activity
during the First Weeks of September 2008, (December 16, 2008)
available at http://www.sec.gov/comments/s7-08-09/s70809-369.pdf;
Memo to Chairman Christopher Cox from Daniel Aromi and Cecilia
Caglio regarding an Analysis of a Short Sale Price Test Using
Intraday Quote and Trade Data (December 17, 2008) available at
http://www.sec.gov/comments/s7-08-09/s70809-368.pdf; Memo from the
Office of Economic Analysis regarding an Analysis of the July
Emergency Order Requiring a Pre-borrow on Short Sales (January 14,
2009) available at http://www.sec.gov/spotlight/shortsales/oeamemo011409.pdf.
    \330\ See Austin Gerig, High-Frequency Trading Synchronizes
Prices in Financial Markets, available at http://www.sec.gov/dera/staff-papers/working-papers/dera-wp-hft-synchronizes.pdf; see also
Staff of the Office of Analytics and Research, Division of Trading
and Markets, Research Note: Equity Market Volatility on August 24,
2015 (December 2015) available at http://www.sec.gov/marketstructure/research/equity_market_volatility.pdf.
---------------------------------------------------------------------------

c. Market Surveillance and Investigations
    Regulators perform market surveillance and investigation functions
that rely on access to multiple types of market data. In the Adopting
Release, the Commission discussed how data limitations impact
surveillance and investigations, including risk-based examinations,
market manipulation investigations, tips and complaints, and cross-
market and principal order surveillance.\331\ The following Sections
update and broaden the discussion from the Adopting Release to describe
the current state of SRO surveillance and SRO and Commission
examinations and enforcement investigations.
---------------------------------------------------------------------------

    \331\ See Adopting Release, supra note 9, at 45730-32.
---------------------------------------------------------------------------

(1) Current SRO Surveillance
    Rule 613(f) requires the SROs to develop and implement a
surveillance system, or enhance existing surveillance systems,
reasonably designed to make use of the CAT Data.\332\ For the purposes
of this economic analysis, the Commission considers surveillance to
involve SROs running automated processes on routinely collected or in-
house data to identify potential violations of rules or regulations. As
such, surveillance does not include processes run on data that the SROs
request only when needed. SRO surveillance can help protect investors
by having systems in place that can be used to detect fraudulent
behavior and anomalous trading. For instance, SROs use surveillance
systems, developed internally or by a third party, to detect violations
of trading rules, market abuse, or unusual behavior, in real time,
within one day, or within a few weeks of the activity in question. The
exchanges are responsible for surveillance of their own exchanges, and
FINRA is responsible for off-exchange and cross-market surveillance.
FINRA also provides surveillance services to U.S. equity and options
exchanges through regulatory services agreements with nearly every
equity market and all options exchanges.\333\ FINRA also currently
conducts several cross-market surveillance patterns, such as
surveillance focused on wash sales, front running, relationship
trading, and high frequency trading.
---------------------------------------------------------------------------

    \332\ See 17 CFR 242.613(f).
    \333\ See Richard G. Ketchum, FINRA Chairman and CEO, Testimony
Before the Subcommittee on Capital Markets and Government Sponsored
Enterprises Committee on Financial Services (May 1, 2015), available
at https://www.finra.org/newsroom/speeches/050115-testimony-subcommittee-capital-markets-and-government-sponsored-enterprises;
Richard G. Ketchum, FINRA Chairman and CEO, Testimony Before the
Subcommittee on Securities, Insurance and Investment, United States
Senate (March 3, 2016), available at http://www.finra.org/newsroom/speeches/030316-testimony-subcommittee-securities-insurance-and-investment-united-states.
---------------------------------------------------------------------------

    FINRA has responsibility to oversee and regulate OTC trading of
exchange-listed and non-exchange-listed securities, as well as trading
in corporate and municipal debt instruments and other fixed income
instruments. Also, FINRA conducts cross-market surveillance for
approximately 99% of the listed equity market and approximately 70% of
the listed options market.\334\ To conduct cross-market surveillance,
FINRA uses a variety of online and offline surveillance techniques and
programs to reconstruct market activity, using trading data and quote
information that is captured throughout the trading day, as well as
order audit trail data reported daily. FINRA's cross-market
surveillance is able to identify a single broker-dealer's manipulative
activity across multiple markets, as well as manipulative activity of
multiple market participants acting in concert across multiple
markets.\335\
---------------------------------------------------------------------------

    \334\ See Richard G. Ketchum, FINRA Chairman and CEO, Testimony
Before the Subcommittee on Securities, Insurance and Investment,
United States Senate (March 3, 2016), available at http://www.finra.org/newsroom/speeches/030316-testimony-subcommittee-securities-insurance-and-investment-united-states.
    \335\ See FINRA 2015 Regulatory and Examinations Priorities
Letter, at 14, available at https://www.finra.org/sites/default/files/p602239.pdf; see also FINRA 2016 Regulatory and Examinations
Priorities Letter, at 12, available at https://www.finra.org/sites/default/files/2016-regulatory-and-examination-priorities-letter.pdf.
---------------------------------------------------------------------------

    Additional surveillance is conducted by exchange-operating SROs,
some of it

conducted as trading activity occurs. This surveillance can include
detection of market manipulation, violations of trading rules, and
other unusual behavior.
(2) Examinations
    In the Adopting Release, the Commission explained how it expected
CAT Data to facilitate risk-based examinations.\336\ SROs currently
conduct exams of broker-dealers for violations of trading-related
federal laws, rules, and regulations and for violations of SRO rules
and regulations.\337\ In 2015, FINRA's Member Regulation Department
conducted approximately 2,400 broker-dealer examinations.\338\ The
Commission currently conducts exams of broker-dealers, transfer agents,
investment advisers, investment companies, municipal advisers, clearing
agencies, the national securities exchanges, other SROs such as FINRA
and the Municipal Securities Rulemaking Board, and the Public Company
Accounting Oversight Board (``PCAOB''). The Commission conducted 493
broker-dealer examinations in 2014 and 484 in 2015, 70 exams of the
national securities exchanges and FINRA in 2014 and 21 in 2015. In
addition, the Commission conducted 1,237 investment adviser and
investment company examinations in 2014 and 1,358 in 2015. Virtually
all investment adviser examinations and a significant proportion of the
Commission's other examinations involve analysis of trading and order
data.
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    \336\ See Adopting Release, supra note 9, at 45730-31.
    \337\ SEC Rule 17d-2 permits SROs to propose joint plans among
two or more SROs for the allocation of regulatory responsibility.
Where 17d-2 agreements are in place, SROs have joint plans with
respect to their common members (i.e., members of both/all the SROs
party to an agreement under Rule 17d-2) for common rules (i.e.,
rules that are identical or substantially identical). Commission
approval of a plan filed pursuant to Rule 17d-2 relieves an SRO of
those regulatory responsibilities allocated by the plan to another
SRO. See 17 CFR 240.17d-2. Exchanges also enter into Regulatory
Services Agreements (``RSAs'') whereby one SRO contractually agrees
to perform regulatory services for another. However, RSAs do not
relieve the contracting SRO from regulatory responsibility for the
performance of any regulatory services allocated pursuant to the RSA
and are not filed with the Commission for approval.
    \338\ This estimate is based on Staff discussions with FINRA.
See also FINRA overview of Member Regulation available at http://www.finra.org/industry/member-regulation.
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    Examinations of broker-dealers and investment advisers involve
intensive analysis of trading data. Examinations seek to determine
whether the entity being examined is: Conducting its activities in
accordance with the federal securities laws, rules adopted under these
laws, and SRO rules; adhering to the disclosures it has made to its
clients, customers, the general public, SROs and/or the Commission; and
implementing supervisory systems and/or compliance policies and
procedures that are reasonably designed to ensure that the entity's
operations are in compliance with the applicable legal
requirements.\339\
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    \339\ See SEC, Examination Information for Entities Subject to
Examination or Inspection by the Commission (June, 2014), available
at http://www.sec.gov/about/offices/ocie/ocie_exambrochure.pdf.
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    The Commission and certain SROs, such as FINRA, use a risk-based
approach to select candidates and to determine exam scope and
focus.\340\ ``Risk-based examinations'' seek to increase regulatory
efficiency by using preliminary data analysis to direct examination
resources towards entities and activities where risks of violative or
illegal activity are the highest. The Commission uses risk and data
analysis before opening an exam to identify broker-dealers and
investment advisers for areas of focus such as suspicious trading, as
well as during an exam to identify the particular activities of a
broker-dealer or investment adviser that could trigger certain
compliance and supervisory risks.
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    \340\ FINRA conducts regulatory examinations by contract on
behalf of all the options and equities exchanges, except for the
Chicago Stock Exchange, Inc. (``CHX'') and the National Stock
Exchange, Inc. (``NSX''). Accordingly most exchanges also employ a
risk-based approach to examination selection and scope. CHX examines
members on a cycle basis. NSX recently resumed operations in
December, 2015. See Securities Exchange Act Release No. 76640
(December 14, 2015), 80 FR 79122 (December 18, 2015).
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    Because of the data-intensive nature of examinations, the
Commission and SROs have systems, such as the Commission's National
Exam Analytics Tool (``NEAT''), to combine, standardize, and analyze
exam data. The NEAT system allows examiners to import trade blotter
data to conduct commission analysis, cross trades analysis, bunch price
analysis, trading pattern analysis, and restricted trade analysis.
However, as discussed further below, there are limitations on the trade
blotter data imported by the NEAT system.\341\
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    \341\ See Section IV.D.2.b, infra.
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(3) Enforcement Investigations
    The Adopting Release details how the Commission expects the CAT
Data to aid in the analysis of potential manipulation.\342\ The
Commission and SROs undertake numerous investigations to enforce the
securities laws and related rules and regulations, including
investigations of market manipulations (e.g., marking the close, order
layering, spoofing,\343\ wash sales, trading ahead), insider trading,
and issuer repurchase violations. As noted below, the Commission
estimates that 30-50% of enforcement investigations use trade and order
data, and any of these types of investigations, in addition to numerous
other investigations, could potentially utilize CAT Data.\344\
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    \342\ See Adopting Release, supra note 9, at 45731.
    \343\ Layering and spoofing are manipulations where orders are
placed close to the best buy or sell price with no intention to
trade in an effort to falsely overstate the liquidity in a security.
    \344\ See infra note 345 and accompanying text. The percentage
of enforcement investigations that could be expected to utilize CAT
Data depends on the percentage of investigations that involve
broker-dealers, investment advisers and investment companies.
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    SROs rely primarily on surveillance to initiate investigations
based on anomalies in the trading of securities. The Commission
initiates enforcement investigations when SROs or others submit
reliable tips, complaints, or referrals, or when the Commission becomes
aware of anomalies indicative of manipulation. After the detection of
potential anomalies, a tremendous amount of time and resources are
expended in gathering and interpreting trade and order data to
construct an accurate picture of when trades were actually executed,
what market conditions were in effect at the time of the trade, which
traders participated in the trade, and which beneficial owners were
affected by the trade. In 2015, the Commission filed 807 enforcement
actions, including 39 related to insider trading, 43 related to market
manipulation, 124 related to broker-dealers, 126 related to investment
advisers/investment companies, and one related to exchange or SRO
duties. In 2014, the Commission filed 755 enforcement actions,
including 52 related to insider trading, 63 related to market
manipulation, 166 related to broker-dealers, and 130 related to
investment advisers/investment companies, many of which involved trade
and order data.\345\ Similarly, FINRA brought 1,397 disciplinary
actions in 2014 and 1,512 in 2015.\346\
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    \345\ See Year-by-Year SEC Enforcement Statistics, available at
https://www.sec.gov/news/newsroom/images/enfstats.pdf. The total
number of actions filed is not necessarily the same as the number of
investigations. An investigation may result in no filings, one
filing, or multiple filings. Additionally, trade and order data may
be utilized in enforcement investigations that do not lead to any
filings.
    \346\ See FINRA statistics available at http://www.finra.org/newsroom/statistics.

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(4) Tips and Complaints
    The Adopting Release discussed how the Commission expected CAT Data
to improve the processes used by the SROs and the Commission for
evaluating tips and complaints.\347\ Market participants or those with
experience in analyzing market data sometimes notice atypical trading
or quoting patterns in publicly available market data, and these
observations sometimes result in a tip or complaint to a regulator.
Regulators investigate thousands of tips and complaints each year. In
fiscal years 2014 and 2015, the Commission received around 15,000
entries in its Tips, Complaints and Referrals (``TCR'') system,
approximately one third of which related to manipulation, insider
trading, market events, or other trading and pricing issues.
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    \347\ See Adopting Release, supra note 9, at 45731-32.
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    Analysis of tips and complaints follows three general stages.
First, regulators ensure that the tip or complaint contains sufficient
information to facilitate analysis. The second stage involves a
triaging effort in which regulators may use directly accessible data or
make phone calls and other informal queries to determine if the tip or
complaint is credible. For tips and complaints that seem credible, the
third stage involves a more in-depth investigation or examination,
which follows the processes described above for examinations and
enforcement investigations.
2. Current State of Trade and Order Data
    To assess how and to what degree the CAT NMS Plan would affect the
trade and order data available to regulators, the economic analysis
considers what data regulators use currently and the limitations in
that data.
a. Current Sources of Trade and Order Data
    The SROs and the Commission currently use a range of trading and
order data sources for the regulatory activities discussed above. The
types of data and ease of use can vary widely from one source to the
next. Some data sources provide access to in-depth information on a
narrow slice of the market, while others reveal more limited
information but with broader market coverage. This Section reviews the
primary sources of data currently available to regulators, describing
the content of the data provided and examples of their specialized
uses. There are limitations on each of the data sources discussed below
that reduce their usefulness for regulatory purposes. These limitations
and their impact on the ability of the SROs and the Commission to use
the data sources for regulatory purposes are explained in Section
IV.D.2.b below.
(1) SRO Data
    Most SROs maintain audit trails that contain the trade and order
data that they obtain from members. Regulators have access to at least
three sources of audit trail data. First, the National Association of
Securities Dealers (``NASD'') \348\ established its Order Audit Trail
System (``OATS'') \349\ in 1998, which required NASD (n/k/a FINRA)
members to report certain trade and order data regarding NASDAQ-listed
equity securities.\350\ OATS was later expanded to include OTC equity
securities and all NMS stocks.\351\ Second, beginning in 2000, several
of the current options exchanges implemented the Consolidated Options
Audit Trail System (``COATS'').\352\ Finally, each equity and options
exchange keeps an audit trail of orders and trades that occur on its
market.\353\
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    \348\ In 2007, NASD and the member-related functions of NYSE
Regulation, Inc., the regulatory subsidiary of New York Stock
Exchange LLC (``NYSE''), were consolidated. As part of this
regulatory consolidation, the NASD changed its name to FINRA. See
Securities Exchange Act Release No. 56146 (July 26, 2007), 72 FR
42190 (August 1, 2007). FINRA and the National Futures Association
(``NFA'') are currently the only national securities associations
registered with the Commission; however, the NFA has a limited
purpose registration with the Commission under Section 15A(k) of the
Exchange Act. 15 U.S.C. 78o-3(k); see also Securities Exchange Act
Release No. 44823 (September 20, 2001), 66 FR 49439 (September 27,
2001).
    \349\ See Securities Exchange Act Release No. 39729 (March 6,
1998), 63 FR 12559 (March 13, 1998) (order approving proposed rules
comprising OATS) (``OATS Approval Order'').
    \350\ The FINRA Web site states: ``FINRA has established the
Order Audit Trail System (OATS), as an integrated audit trail of
order, quote, and trade information for all NMS stocks and OTC
equity securities. FINRA uses this audit trail system to recreate
events in the life cycle of orders and more completely monitor the
trading practices of member firms.'' FINRA, OATS, available at
http://www.finra.org/industry/oats (listing further information on
OATS).
    \351\ See Securities Exchange Act Release No. 63311 (November
12, 2010), 75 FR 70757 (November 18, 2010) (order approving proposed
rule change by FINRA relating to the expansion of OATS to all NMS
stocks).
    \352\ See, e.g., In the Matter of Certain Activities of Options
Exchanges, Order Instituting Public Administrative Proceedings
Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934,
Making Findings and Imposing Remedial Sanctions, Securities Exchange
Act Release No. 43268 (September 11, 2000) (``Options Settlement
Order''); Securities Exchange Act Release No. 50996 (January 7,
2005), 70 FR 2436 (January 13, 2005) (order approving proposed rule
change by Chicago Board Options Exchange, Incorporated (``CBOE'')
relating to Phase V of COATS).
    \353\ See, e.g., infra notes 358-364 and accompanying text. For
example, the NYSE tracks counterparties on every trade in its
Consolidated Equity Audit Trail Data (``CAUD'') system, and records
electronic order events in a System Order Data (``SOD'') database.
See Proposing Release, supra note 9, at 32564-68 (proposing
Consolidated Audit Trail and discussing equity exchange audit
trails). The SROs provided data in various proprietary formats to
the Commission in support of the investigation of the May 6th, 2010
``Flash Crash.'' These data sources are briefly discussed in the
Flash Crash Analysis, supra note 322.
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    Specifically, for each of these stages in the life of an order,
FINRA Rule 7440 requires the recording and reporting of the following
information, as applicable, including but not limited to: For the
receipt or origination of the order, the date and time the order was
first originated or received by the reporting member, a unique order
identifier, the market participant symbol of the receiving reporting
member, and the material terms of the order; \354\ for the internal or
external routing of an order, the unique order identifier, the market
participant symbol of the member to which the order was transmitted,
the identification and nature of the department to which the order was
transmitted if transmitted internally, the date and time the order was
received by the market participant or department to which the order was
transmitted, the material terms of the order as transmitted,\355\ the
date and time the order was transmitted, and the market participant
symbol of the member who transmitted the order; for the modification or
cancellation of an order, a new unique order identifier, original
unique order identifier, the date and time a modification or
cancellation was originated or received, and the date and time the
order was first received or originated; \356\ and for the execution of
an order, in whole or in part, the unique order identifier, the
designation of the order as fully or partially executed, the number of
shares to which a partial

execution applies and the number of unexecuted shares remaining, the
date and time of execution, the execution price, the capacity in which
the member executed the transaction, the identification of the market
where the trade was reported, and the date and time the order was
originally received. FINRA Rule 7440 also requires reporting of the
account type,\357\ the identification of the department or terminal
where an order is received from a customer, the identification of the
department or terminal where an order is originated by a reporting
member, and the identification of a reporting agent if the agent has
agreed to take on the responsibilities of a reporting member under Rule
7450.
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