Repository, as compared to the approach in the CAT NMS Plan, without a
significant impact on the expected benefits of the Plan or the costs to
operate the Central Repository.
---------------------------------------------------------------------------

    \3018\ See Notice, supra note 5, at 30769-70.
---------------------------------------------------------------------------

    The Commission received three comments relevant to this
alternative. One commenter stated that, ``in order to minimize cost and
invasiveness to the industry,'' the Central Repository should accept
existing symbology ``as-is'' rather than requiring listing exchange
symbology.\3019\ Another commenter stated that using listing exchange
symbology was costly not only for equities, as discussed in the
Notice,\3020\ but also for options.\3021\ The final commenter stated
that, ``it would be more efficient to have the Central Repository
manage the mapping tables in one place, as it is less error prone . . .
than to have all reporting broker-dealers mapping to their separate
tables,'' \3022\ and that the use of existing

symbology ``does provide a data quality advantage.'' \3023\ However,
the commenter also stated that it did not expect the elimination of the
requirement to use existing symbology to result in a large cost
savings.\3024\ While the commenter did not explain why the cost savings
would be minimal, as discussed in the Baseline Section above, the
Participants' response notes that broker-dealers currently use listing
exchange symbology to report to OATS and existing messaging protocols
do not necessarily use a standard symbology. Therefore, in the absence
of such a requirement, CAT reporters might use ``bespoke'' symbologies
to report that would be difficult for the Central Repository to map.
---------------------------------------------------------------------------

    \3019\ Data Boiler Letter at 37-38.
    \3020\ See Notice, supra note 5, at 30730.
    \3021\ Bloomberg Letter at 5.
    \3022\ FIF Letter at 95.
    \3023\ FIF Letter at 95.
    \3024\ FIF Letter at 95.
---------------------------------------------------------------------------

    In the Participants' response, the Participants stated their belief
that the requirement for CAT Reporters to use listing exchange
symbology ``is the most efficient, cost-effective and least error prone
approach to symbology,'' and that based on discussions with the DAG, it
is their understanding that ``all Industry Members subject to OATS or
EBS reporting requirements currently use the symbology of the listing
exchange when submitting such reports.'' \3025\ They further stated
that allowing CAT Reporters to determine symbology would ``require each
CAT Reporter to submit regular mapping symbology information to the
CAT, thereby increasing the complexity and likelihood for errors in the
CAT.'' \3026\ However, the Participants stated that they ``understand
that some industry messaging formats, such as some exchange binary
formats, require symbology other than the primary listing exchange
symbology,'' and that in these and similar cases, the Participants
recommended that the Plan be amended to permit the use of the required
symbology.\3027\ The Participants also added that, based on their
understanding of current practices, Industry Members currently employ
technical solutions and/or systems that allow them to translate
symbology in the correct format when submitting data to
exchanges.\3028\
---------------------------------------------------------------------------

    \3025\ Response Letter II at 7.
    \3026\ Response Letter II at 7.
    \3027\ Response Letter II at 7.
    \3028\ Response Letter III at 13.
---------------------------------------------------------------------------

    The Commission is revising its economic analysis of this
alternative in light of the comments and the Participants' response.
While commenters generally agreed with the Commission's analysis in the
Notice, they seemed to indicate that the cost savings from a
requirement to use existing symbology would not be large. Further, the
additional baseline information in the Participants' response also
suggests that the cost savings might not be significant. The
Commission's analysis in the Notice hinged on the necessity of running
an additional process on messaging protocol data prior to submitting
the data. The Commission believed the cost savings and the data quality
benefits would come from avoiding this additional process, which would
need to be built and maintained and could add errors to the data.
However, the Participants' response indicates that existing messaging
protocols may already have integrated processes that translate symbols
efficiently and accurately prior to routing to an exchange. While the
Participants' response does not indicate that the messaging protocols
translate symbols for other types of messages, the Commission presumes
that the functionality should be transferable to other message types,
including order originations and routes to other broker-dealers.
Because this functionality operates for business purposes, broker-
dealers have a strong incentive to ensure its accuracy. Therefore, the
Commission no longer believes that eliminating the requirement to
translate symbols would improve accuracy and significantly reduce
costs. In addition, the Commission now believes that eliminating the
requirement could result in an additional cost to the Central
Repository and a potential reduction in accuracy because it could
involve having to map ``bespoke'' symbologies into one standardized
symbology.
5. Clock Synchronization Logging Procedures
    In the Notice, the Commission solicited comments on an alternative
that would require logging only exceptions to the clock offset (i.e.,
events in which a market participant checks the clock offset and
applies changes to the clock).\3029\ While logging every event,
including clock offset checks, may be cost effective with longer clock
synchronization tolerances, the Commission questioned whether logging
each event is cost effective with finer clock offset tolerances, given
the large number of events expected for the proposed and alternative
clock synchronization standards. The Commission explained that it could
not quantify the reduction in costs from this alternative because it
lacked data on the proportion of clock synchronization costs that are
associated with event logging and the proportion of those costs that
could be avoided by alternative event logging requirements. The
Commission discussed its preliminary belief that any reduction in
benefits from this alternative, as compared to the CAT NMS Plan's
approach for clock synchronization, would be minor because the
inclusion of clock synchronization checks that required no clock
adjustment would not improve regulators' ability to sequence events.
The Commission noted, however, that enforcement of clock
synchronization requirements could be more difficult without
comprehensive logging requirements that document firms' actions to
comply with requirements; consequently, relaxing the logging
requirement could also reduce incentives to comply with the clock
synchronization requirements.
---------------------------------------------------------------------------

    \3029\ See Notice, supra note 5, at 30764. This is one of the
alternatives suggested in the FIF Clock Offset Survey. See supra
note 247.
---------------------------------------------------------------------------

    As discussed above,\3030\ one commenter supported the alternative
raised by the Commission that any requirement to maintain a log of
clock synchronization events should only require logging of clock
synchronization exceptions, not all clock synchronization events,
noting that requiring logging of all events would be costly for some
broker-dealers.\3031\ However, the commenter did not provide any
additional information that would allow the Commission to quantify the
cost savings of logging only these events. Therefore, while the
Commission continues to believe that there could be cost savings from
logging only exceptions to the clock offset, the Commission remains
unable to quantify the reduction in costs from this alternative. The
Commission continues to believe that any reduction in benefits under
this alternative approach would be minor, but that enforcement of clock
synchronization requirements may be more difficult, which may reduce
incentives to comply with the clock synchronization requirements.
---------------------------------------------------------------------------

    \3030\ See Section IV.D.13, supra.
    \3031\ FIF Letter at 108, 122.
---------------------------------------------------------------------------

6. Data Accessibility Standards
    In the Notice, the Commission solicited comment on alternative
approaches to the manner in which the CAT NMS Plan provides data access
to regulators.\3032\ The Commission discussed the requirements for
regulatory access to the Central Repository, explaining that the CAT
NMS Plan could result in many improvements to regulatory activities

such as surveillance, examinations, and enforcement, but that these
benefits may not be fully realized if access to data is cumbersome or
inefficient. The Commission solicited comment on each of the minimum
data accessibility standards required in the Plan. The Commission also
discussed several examples in particular, and requested comment on
alternative standards that might be adopted in each case.
---------------------------------------------------------------------------

    \3032\ See Notice, supra note 5, at 30770.
---------------------------------------------------------------------------

    In the Notice, the Commission noted that the CAT NMS Plan requires
query responses for various types of queries of 5 minutes, 10 minutes,
3 hours, and 24 hours, where the simplest queries involving scanning
narrow sets of data would be required to return in 5 minutes and
complex queries scanning multiple days of data and returning large
datasets would be required to return within 24 hours. While the
benefits of direct access to CAT Data depend on reasonably fast query
responses, the Commission recognized that faster query response times
come at a cost. The Commission stated that it did not have detailed
information on significant breakpoints in those costs to judge whether
slightly longer response times than those in the Plan could
significantly reduce the costs of developing, maintaining, and
operating the Central Repository. The Commission recognized that the
detailed information on numerous other minimum standards regarding
regulator access to CAT Data is similarly unclear. Therefore, the
Commission requested comment regarding all standards for regulatory
access and whether technology creates natural breakpoints in costs such
that a particular alternative could reduce the costs of the Plan
without significantly reducing benefits or could increase benefits
without significantly increasing costs.
    Commenters made a number of suggestions regarding data
accessibility standards. One commenter stated that it was unclear
whether the CAT would be able to support various types of data analysis
by regulators within the Central Repository, and noted that, without
that ability, all of the analyses must be done outside of the CAT
Repository and within the regulators' own infrastructure, which would
require bulk extraction and could lead to increased costs and security
concerns due to the need to store multiple copies of CAT Data with
various SROs.\3033\ The commenter recommended that the Plan clearly
specify the analytical capability requirements with respect to the
Central Repository.\3034\ Another commenter recommended that the CAT
support real-time ingestion, processing and surveillance, and that the
CAT provide regulators with access to real-time analytics.\3035\ One
commenter believed that the proposed model and timeframe for regulatory
access is consistent with the Commission's regulatory objectives, but
recommended the use of pre-defined extract templates and uniform global
formats such as ISO 20022 to allow for exchange of data between both
national and global regulators.\3036\ That commenter also suggested
that there should be an ability for regulators to perform analyses
within the CAT environment, and that there should be flexible search/
filtering capabilities.\3037\
---------------------------------------------------------------------------

    \3033\ SIFMA Letter at 33.
    \3034\ SIFMA Letter at 33.
    \3035\ Data Boiler Letter at 1, 10.
    \3036\ UnaVista Letter at 4.
    \3037\ UnaVista Letter at 4.
---------------------------------------------------------------------------

    In their response, the Participants stated that, with respect to
the analytical requirements of the Central Repository, they believe the
details in the Plan are sufficient, and noted that Section 8 of
Appendix D of the Plan describes various tools that will be used for
surveillance and analytics. They also noted that it would be
``counterproductive from a regulatory oversight perspective to provide
significant detail regarding the surveillance processes of the
regulators.'' \3038\ With respect to real-time ingestion, processing,
surveillance, and analytics, the Participants noted that Rule 613 does
not provide for real-time reporting.\3039\ With respect to pre-defined
extract templates and uniform global formats, the Participants noted
that the Plan requires data extracts to use common industry
formats.\3040\ The Participants also stated that they expect that the
requests from regulators other than those regulators permitted access
to the CAT (such as foreign regulators and other U.S. government
agencies) will be on an ad hoc basis pursuant to applicable information
sharing agreements, and would be accommodated on a case-by-case
basis.\3041\
---------------------------------------------------------------------------

    \3038\ Response Letter I at 42.
    \3039\ Response Letter I at 43.
    \3040\ Response Letter I at 43.
    \3041\ Response Letter I at 43.
---------------------------------------------------------------------------

    The Commission has considered the comments received and the
Participants' response. With respect to the suggestion that the Plan
clearly specify the analytical capability requirements with respect to
the Central Repository,\3042\ the Commission notes that, while the Plan
provides detail on the method of access and the type of queries that
regulators could run, many of the decisions regarding access have been
deferred until after the Plan Processor is selected and finalizes the
Technical Specifications. In particular, as discussed in the Notice,
the details of functionality and performance of the final system are
still to be determined.\3043\ The Commission believes that an
alternative approach that clearly specified the required analytical
capabilities of the Central Repository would reduce the uncertainty
with respect to the expected benefits of the Plan in terms of
accessibility. However, the Commission does not have sufficient
information to estimate the costs of requiring the Central Repository
to provide specific analytical capabilities, because the Commission
lacks information on the costs of building those capabilities into the
Central Repository as opposed to using outside servers.
---------------------------------------------------------------------------

    \3042\ SIFMA Letter at 33.
    \3043\ See Notice, supra note 5, at 30691.
---------------------------------------------------------------------------

    The Commission does not agree with the commenter that stated that
an approach requiring bulk extractions by regulators is likely to
increase the Participants' costs significantly relative to an approach
whereby regulators perform analyses within the Central
Repository.\3044\ The Commission acknowledges that hosting large
databases is costly, but it believes that SROs are likely to consider
the cost implications when contemplating replicating large portions of
the Central Repository within their IT infrastructure, and presumably
will only replicate the data when it is efficient for them to do
so.\3045\ In response to the commenter that stated that frequent bulk
extractions of data by regulators may result in an increased security
risk,\3046\ the Commission notes that, as discussed above,\3047\ in
order to extract, remove, duplicate, or copy CAT Data into their own
local server environment, the Participants will be required to have
policies and procedures regarding CAT Data security that are equivalent
to those implemented and maintained by the Plan Processor for the
Central Repository,\3048\ and that each Participant must certify and
provide evidence to the CISO of the Plan Processor that its policies
and procedures for the security of CAT Data meet the same security
standards applicable to the CAT Data that is reported to and collected
and stored by the Central Repository. This

requirement should mitigate any increased security risk associated with
bulk extractions.
---------------------------------------------------------------------------

    \3044\ SIFMA Letter at 33.
    \3045\ See Section V.F.1, supra, for further discussion of the
costs of bulk downloads by the Participants.
    \3046\ See Section IV.D.6.f, supra.
    \3047\ Id.
    \3048\ See Section IV.D.6.o, supra.
---------------------------------------------------------------------------

    In response to the suggestion that the CAT NMS Plan incorporate
real-time analytics,\3049\ the Commission notes that this would require
real-time reporting. As discussed further above,\3050\ the Commission
considered whether CAT Reporters should be required to report data in
real-time when it adopted Rule 613 under Regulation NMS.\3051\ While
the Commission acknowledged that there might be advantages to receiving
data intraday, it stated that the greater majority of benefits that may
be realized from development of the CAT do not require real-time
reporting.\3052\ Further, the Commission recognized that not requiring
real-time reporting upon implementation could result in cost savings
for industry participants.\3053\ The Commission therefore believes that
any alternative approach that required real-time reporting would
increase the costs of the Plan significantly. However, the commenter
did not provide sufficient information to allow the Commission to
further analyze the benefits and costs of this alternative.
---------------------------------------------------------------------------

    \3049\ Data Boiler Letter at 1, 10.
    \3050\ See Section IV.D.3, supra.
    \3051\ See Adopting Release, supra note 14, at 45765. Indeed,
Rule 613 stated that the CAT NMS Plan may not impose a reporting
deadline earlier than 8:00 a.m. ET. 17 CFR 242.613(c)(3).
    \3052\ See Adopting Release, supra note 14, at 45768.
    \3053\ Id. at 45769.
---------------------------------------------------------------------------

    The Commission agrees with the commenter that suggested that using
pre-defined extract templates and uniform global formats such as ISO
20022 could have some benefits in terms of facilitating the exchange of
data between national and global regulators. As the Participants note,
the Plan requires data extracts to use common industry formats,\3054\
but it does not require a particular format.\3055\ However, as
explained above and in Section IV.D.2, when selecting a Plan Processor,
the Participants will consider whether a Bidder has proposed a format
that is easily understood and adoptable by the industry, and the
Commission believes that the message format decision must be made in
connection with developing the overall architecture for CAT.
---------------------------------------------------------------------------

    \3054\ Response Letter I at 43.
    \3055\ For further discussion of the alternatives related to the
data ingestion format, See Section V.H.12, infra.
---------------------------------------------------------------------------

7. Clock Synchronization Hours
    In the Notice, the Commission solicited comment on alternative
requirements for the times during which clock synchronization is
required that would provide more flexibility than the requirements of
the Plan.\3056\ The Commission discussed its preliminary belief that an
alternative that does not require synchronizing clocks when servers are
not recording Reportable Events or when precise timestamps are not as
important to sequencing, such as outside of normal trading hours, would
not materially reduce benefits. Given the responses to the FIF Clock
Offset Survey, the Commission also stated that it preliminarily
believed that this alternative could reduce costs, because
synchronization activities and log entries related to those events
would not be as beneficial outside of normal trading hours. The
Commission noted, however, that it did not have information necessary
to quantify the cost reduction from this alternative because cost
information available to the Commission is not broken down by time of
day or server status.
---------------------------------------------------------------------------

    \3056\ See Notice, supra note 5, at 30764.
---------------------------------------------------------------------------

    One commenter supported alternative clock synchronization hours,
stating off-hours clock synchronization ``isn't needed from either a
business or regulator perspective'' and that ``without this provision,
firms would require additional off-hours staffing, or it will prevent
the off-hours support staff from focusing on more pressing issues that
need to be resolved during off hours.'' \3057\ However, the commenter
did not provide any additional information that would allow the
Commission to quantify the potential cost savings. The Commission
continues to believe that an alternative that does not require
synchronizing clocks when servers are not recording Reportable Events
or when precise timestamps are not as important to sequencing, such as
outside of normal trading hours, would not materially reduce benefits.
The Commission also believes that this alternative could reduce costs,
but continues to lack the information necessary to quantify the
potential cost reduction.
---------------------------------------------------------------------------

    \3057\ FIF Letter at 122-23.
---------------------------------------------------------------------------

8. Primary Market Transactions
    As set out in the Notice,\3058\ the CAT NMS Plan does not require
the reporting of any primary market information to the Central
Repository. However, as required by Rule 613(i), the CAT NMS Plan
commits to incorporating a discussion of how and when to implement the
inclusion of some primary market information into a document outlining
how additional Eligible Securities could be reported to the Central
Repository (the ``Discussion Document''), which would be jointly
provided to the Commission within six months after effectiveness of the
Plan.\3059\ Additionally, as required by Rule 613(a)(1)(vi), the Plan
includes a discussion of the feasibility, benefits, and costs of
including primary market transactions in the CAT NMS Plan.\3060\ As
explained in the Notice,\3061\ the discussion in the CAT NMS Plan
divides the primary market information into two categories: Information
on top-account allocations and information on subaccount allocations.
Top-account allocations refer to allocations to institutional clients
and retail broker-dealers during the book-building process. Top-account
institutions and broker-dealers make the subsequent subaccount
allocations to the actual accounts receiving the shares. The Plan
concludes that including information on subaccount allocations in the
CAT would provide significant benefits without unreasonable costs,
while including information on top-account allocations would provide
marginal benefits at significantly higher costs.\3062\
---------------------------------------------------------------------------

    \3058\ See Notice, supra note 5, at 30772.
    \3059\ See CAT NMS Plan, supra note 5, at Appendix C, Section
C.9. Section 6.11 of the Plan satisfies a requirement in 17 CFR
242.613(i) to plan for expansion.
    \3060\ 17 CFR 242.613(a)(1)(vi); CAT NMS Plan, supra note 5, at
Appendix C, Section A.6.
    \3061\ See Notice, supra note 5, at 30772.
    \3062\ See CAT NMS Plan, supra note 5, at Appendix C, Section
A.6(b)-(c).
---------------------------------------------------------------------------

    As discussed in the Notice, the Plan states that ``the Participants
are supportive of considering the reporting of Primary Market
Transactions, but only at the subaccount level, and would incorporate
analysis of this requirement, including how and when to implement such
a requirement, into their document outlining how additional Eligible
Securities could be reported to the Central Repository, in accordance
with SEC Rule 613(i) and Section 6.11 of the Plan.'' \3063\ The Plan
therefore would limit the discussion of reporting primary market
transactions in the Discussion Document to the subaccount level.
---------------------------------------------------------------------------

    \3063\ Id. at Appendix C, Section A.6(c).
---------------------------------------------------------------------------

    In the Notice, the Commission solicited comment on the alternative
approach that would broaden the required scope of the discussion of
primary market allocation information in the Discussion Document to
include an analysis of incorporating both top-account and subaccount
allocation information for primary market transactions into the
CAT.\3064\ To assess this alternative, the Commission examined the
benefits and costs of ultimately including top-account

allocations in the CAT. The Commission preliminarily believed that the
potential benefits of including top-account allocation information in
the CAT could be significant and that the costs of including top-
account allocation information could be lower than what is described in
the CAT NMS Plan and appropriate in light of significant potential
benefits. For these reasons, the Commission preliminarily believed that
top-account allocation information should not be excluded from the
Discussion Document.\3065\
---------------------------------------------------------------------------

    \3064\ See Notice, supra note 5, at 30772.
    \3065\ Id.
---------------------------------------------------------------------------

    In the Notice, the Commission discussed several benefits of
including top-account allocation information, in addition to subaccount
allocation information, for primary market transactions in CAT. First,
the Commission noted that top-account allocation information would be
necessary to surveil for prohibited activities in the book-building
process and would improve the efficiency of investigations into such
prohibited activities. For example, examinations of ``spinning,''
``laddering,'' and other ``quid pro quo'' arrangements would benefit
from inclusion of top-account allocation information in CAT Data.
Second, the Commission noted that top-account allocation information
would provide very useful insights into IPO and follow-on allocations
in market analysis and that such insights would help inform rulemaking
and other policy decisions.\3066\
---------------------------------------------------------------------------

    \3066\ Id. at 30773.
---------------------------------------------------------------------------

    As discussed in the Notice,\3067\ the CAT NMS Plan estimates that
for broker-dealers to implement a system to record and report both top-
account and subaccount allocation information for primary market
transactions would cost $234.8 million, whereas implementing a system
with only subaccount information would cost $58.7 million.\3068\ The
inclusion of top-account allocation information accounts for the
difference of $176.1 million.
---------------------------------------------------------------------------

    \3067\ Id.
    \3068\ See CAT NMS Plan, supra note 5, at Appendix C, Section
A.6(c).
---------------------------------------------------------------------------

    In the Notice, the Commission discussed its preliminary belief that
the implementation costs of adding top-account allocation information
may be lower than those estimated in the CAT NMS Plan, for several
reasons. First, the Commission noted that, in combination with an
alternative that would require less granular timestamps or a larger
allowable clock offset on less time-sensitive systems, including the
systems for reporting top-account allocation information, the costs for
including top-account allocation information would be lower than
indicated in the Plan. Second, the Commission noted that the Plan's
estimate was sensitive to the number of underwriters. In particular,
the estimates assumed that all underwriters participating in an
offering would need to implement changes for top-account allocation
information. In contrast, the Commission suspected that lead
underwriters could have all of the information necessary to report the
top-account allocation information. If so, then only the lead
underwriters would need to implement systems changes to report top-
account allocation information. Estimating costs only for lead
underwriters could result in a much smaller estimate.\3069\
---------------------------------------------------------------------------

    \3069\ See Notice, supra note 5, at 30773.
---------------------------------------------------------------------------

    The Commission noted that it did not have an estimate of the
ongoing costs of underwriters reporting top-account allocation
information. However, the Commission preliminarily estimated that the
reporting of primary market transactions would generate a total of 1.2
million CAT Reportable Events per year. The Commission noted that this
total was much smaller than the number of Reportable Events in the
secondary market (trillions). The Commission preliminarily believed
that the ongoing costs of reporting primary market transactions would
be a fraction of the ongoing costs of secondary market reporting and
would likely be supported by staff already engaged to maintain CAT
reporting.\3070\
---------------------------------------------------------------------------

    \3070\ Id. at 30773-74.
---------------------------------------------------------------------------

    The Commission received three comment letters that provided
information relevant to the Commission's economic analysis of this
alternative, though the comments focused more on the inclusion of
primary market transactions in the initial phase of the Plan as opposed
to in the Discussion Document. In particular, commenters provided
information relevant to the baseline, benefits, and costs of the
inclusion of top-account primary market information in the Plan.\3071\
---------------------------------------------------------------------------

    \3071\ Commenters also provided general information on primary
market transactions that could inform the Discussion Document. See
FIF Letter at 118-20; SIFMA Letter at 36; Hanley Letter at 1-6.
---------------------------------------------------------------------------

    Commenters provided information relevant to the current baseline of
the underwriting process and primary market transaction records. One
commenter documented significant diversity across underwriters in the
volume of deals and workflows and provided more precise information on
that diversity than included in the Notice or Plan.\3072\ The commenter
further stated that the processes that handle top-account allocations
are very separate from the secondary market systems. Another commenter
described three stages in the offering process: (1) Preliminary
indications of interest, (2) final top-account allocation, and (3)
subsequent subaccount allocations.\3073\ Both commenters agreed that
indications of interest in top-account allocations can change numerous
times,\3074\ but one commenter indicates the existence of a final top-
account allocation (Stage 2) while the other does not.
---------------------------------------------------------------------------

    \3072\ FIF Letter at 118-19.
    \3073\ Hanley Letter at 4.
    \3074\ FIF Letter at 118; Hanley Letter at 4.
---------------------------------------------------------------------------

    Two commenters provided different perspectives on the benefits of
including top-account allocation information in the Discussion
Document. One commenter emphasized that many benefits could only be
achieved by requiring the reporting of primary market transactions at
both the top-account and the subaccount allocation levels.\3075\ In
particular, the commenter maintained that because lead underwriters
were responsible for the top-account allocations, some abuses, such as
``spinning,'' ``laddering,'' ``quid pro quo,'' Rule 105 violations, and
manipulation, could only be present in these allocations.\3076\
Further, this commenter also stated that top-account information would
facilitate analyses of the value of discretionary allocation in book-
building for issuers. This commenter also indicated that final top-
account allocations should be sufficient to achieve such benefits,
while also indicating that information on the indications of interest
was crucial for the understanding of the capital formation process and
for designing efficient regulations that would facilitate capital
formation without compromising investor protection.\3077\ The other
commenter believed that having only subaccount primary market
allocation information is less valuable from a regulatory perspective
than having both subaccount and top-account allocation
information.\3078\
---------------------------------------------------------------------------

    \3075\ Hanley Letter at 4.
    \3076\ Hanley Letter at 4.
    \3077\ Hanley Letter at 5-6.
    \3078\ FIF Letter at 120.
---------------------------------------------------------------------------

    The Commission received three comment letters relevant to the costs
of including top-account allocation information in the Plan. All three
commenters indicated that it would be very costly to include top-
account allocations in the Plan,\3079\ but one

commenter limited this conclusion just to the inclusion of indications
of interest.\3080\ According to the commenters, these costs generally
stem from added complexity and a lack of standardization in book-
building processes. Another commenter noted that top-account
allocations would be less feasible to report than subaccount
allocations and cited to information from the DAG.\3081\ One commenter
disagreed with the Plan's cost estimates of $176 million for including
top-account allocation information in the Plan and provided an
alternative estimate of $864,000 per year.\3082\ Another commenter
indicated that the Plan's estimates amounted to guesswork and that the
$176 million estimate in the Plan does not contemplate reporting all
the events in a deal's lifecycle, but does not indicate which events it
does include.\3083\
---------------------------------------------------------------------------

    \3079\ FIF Letter at 120; Hanley Letter at 4; SIFMA Letter at
36.
    \3080\ Hanley Letter at 4.
    \3081\ SIFMA Letter at 36.
    \3082\ Hanley Letter at 4-5.
    \3083\ FIF Letter at 120.
---------------------------------------------------------------------------

    Two commenters recommended additional analysis on some or all top-
account allocation information, but neither specifically mentioned the
Discussion Document. One commenter noted having little information
about the requirements of reporting top-account allocation information
and that subaccount allocation information is a good first step toward
potentially collecting complete information on primary market
activities that would allow time to study the complexities and
difficulties associated with reporting top-account allocations.\3084\
This commenter also attempted a further study of more generally
including primary market information in the Plan but noted that the 60-
day comment period did not permit a larger, more in depth study.\3085\
Another commenter suggested considering an alternate reporting scheme
for indications of interest other than CAT that better balances the
costs of producing data indications of interest but does not diminish
the usefulness of such data.\3086\
---------------------------------------------------------------------------

    \3084\ FIF Letter at 13, 120.
    \3085\ FIF Letter at 119.
    \3086\ Hanley Letter at 5-6.
---------------------------------------------------------------------------

    In their response, the Participants reiterated their support for
the inclusion in the CAT of subaccount allocations in Primary Market
Transactions, but not top-account allocations, and reiterated the
conclusions from the Plan that reporting top-account allocations would
likely impose significant costs to CAT Reporters while only providing a
marginal additional regulatory benefit over subaccount allocation
data.\3087\ In response to comments regarding the scope of top-account
allocation information, the Participants restated the definition in the
Plan that top-account allocations are allocations to institutional
clients or retail broker-dealers, which are conditional and may
fluctuate until the offer syndicate terminates.\3088\ The Participants
did not respond to the comment that the cost estimates in the Plan do
not contemplate reporting all events in a deal's lifecycle and did not
further discuss why top-account allocation information should not be
included in the Discussion Document.
---------------------------------------------------------------------------

    \3087\ Response Letter I at 49.
    \3088\ Response Letter I at 50.
---------------------------------------------------------------------------

    The Commission is revising its analysis of the economic effects of
including top-account primary market transactions in the CAT and thus
of whether top-account allocations should be included in the Discussion
Document in light of comments and the Participants' response. With
respect to the benefits of including top-account allocation
information, in addition to subaccount allocation information, in the
CAT, none of the commenters disagreed with the Commission's analysis.
In fact, the Commission is expanding its analysis to include the
additional benefits noted by one commenter that the Commission had not
previously considered, namely better understanding the economics of the
offering process and better identifying manipulative activities.\3089\
Further, the Participants' response provided no new information on why
Participants believe top-account allocations provide only a marginal
regulatory benefit over sub-account allocation data. Therefore, the
Commission continues to believe that top-account primary market
allocation information would provide significant regulatory benefits.
---------------------------------------------------------------------------

    \3089\ Hanley Letter at 1-4.
---------------------------------------------------------------------------

    With respect to the costs of including top-account allocation
information in the CAT, the Commission notes that the estimate of
$864,000 per year provided by one of the commenters may not be
comparable to the estimate of $176.1 million provided in the CAT NMS
Plan. This is because the latter estimate reflects the implementation
costs of adding top-account allocation information, while the former
estimate seems to measure the ongoing annual costs to maintain the
reporting.
    At the same time, the Commission believes that the commenter's
analysis of costs is consistent with the Commission's analysis in the
Notice in two respects. First, the commenter's analysis is consistent
with the Commission's preliminary conclusion that requiring less
granular timestamps for reporting top-account allocation information
would result in lower costs for top-account allocation information than
indicated in the Plan. Second, the commenter's estimate that reporting
top-account allocation information would cost $864,000 per year in
ongoing costs is consistent with the Commission's preliminary
conclusion that the ongoing costs of reporting primary market
transactions would be a fraction of the ongoing costs of secondary
market reporting. Indeed, $864,000 per year represents a small fraction
of the total ongoing annual cost of CAT, which the Commission estimates
to be $1.7 billion per year.\3090\
---------------------------------------------------------------------------

    \3090\ See Section VI.F.2, supra.
---------------------------------------------------------------------------

    With respect to the commenter who indicated that the cost estimates
in the Plan did not contemplate indications of interest, the Commission
notes that the Plan defines top-account allocations to include
indications of interest--``conditional and may fluctuate until the
offering syndicate terminates'' \3091\--and suggests that its cost
estimates for top-account allocations therefore include indications of
interest. However, because this commenter conducted the study that
provides the basis for the Plan's cost estimate, the Commission
believes that the commenter is correct and that the cost estimates in
the Plan do not represent the costs of top-account allocations as
defined in the Plan (i.e., the estimates do not cover indications of
interest). That said, no comments directly disagreed with the reasons
that the Commission provided in the Notice for why the Commission
preliminarily believed the costs estimates in the Plan overstated the
costs of including top-account allocation information in the
Plan.\3092\ Therefore, in light of the comments, the Commission is less
clear on the magnitude of the costs of including top-account allocation
information in the Plan.
---------------------------------------------------------------------------

    \3091\ See CAT NMS Plan, supra note 5, at Appendix C, Section
A.6(a).
    \3092\ See Notice, supra note 5, at 30773.
---------------------------------------------------------------------------

    In response to the commenters that indicated that additional
analysis or consideration of including top-account allocation
information in the Plan would be beneficial, the Commission notes that
including this alternative in the Discussion Document provides an
opportunity for this additional analysis and consideration. The
Discussion Document will provide an outline of how the Participants
could incorporate top-account allocation information into

the CAT Data and include details for each order and Reportable Event
that may be required to be provided, which market participants may be
required to provide the data, the implementation timeline, and a cost
estimate. Indeed, in addition to the commenters' suggestions for more
study, the Commission believes that the information from commenters
regarding the benefits of the different types of top-account allocation
information, and the questions surrounding the cost estimates in the
Plan, suggest that investors could benefit from the additional analysis
that would be included in the Discussion Document.
9. Periodic Updates to Customer Information
    In the Notice, the Commission solicited comment on an alternative
that would eliminate the requirement for periodic full refreshes of
customer information.\3093\ The Commission stated that the requirement
for periodic full refreshes could be redundant if the initial list and
daily updates are complete and accurate and would, therefore, provide
no additional benefit. Further, not requiring these periodic refreshes
could reduce the risk of a security breach of personally identifiable
information. Therefore, the Commission preliminarily believed that
removing the requirements for periodic full refreshes of customer
information could minimally reduce the cost of the Plan without
materially reducing the benefits.
---------------------------------------------------------------------------

    \3093\ See Notice, supra note 5, at 30775-76.
---------------------------------------------------------------------------

    The Commission received two comments relevant to this alternative.
One commenter suggested ``having the functional support for a voluntary
full refresh, but . . . eliminat[ing] the mandated requirement to
provide full refreshes periodically,'' and stated that, ``the initial
load, daily updates and standard error processing should be sufficient
to maintain data integrity.'' \3094\ That commenter went on to state
that it ``may be easier to define all active customers to CAT, or just
active customers who have transacted in NMS securities.'' The commenter
stated that removing the requirement may ``only slightly reduce the
burden or cost,'' although it would improve the overall security of the
CAT.\3095\ Another commenter stated their belief that, ``periodic
refreshes of all customer information to the Central Repository is a
bad idea.'' \3096\ In their response, the Participants stated that they
believe that a periodic refresh of customer information is beneficial
because it will help to ensure that all customer information remains
accurate and up to date.\3097\ The Participants noted the provisions in
the Plan with respect to information security.\3098\ The Participants
also noted that the Plan provides that the Participants will define the
scope of what constitutes a ``full'' customer information refresh with
the assistance of the Plan Processor to determine the extent to which
inactive or other accounts would need to be reported.\3099\
---------------------------------------------------------------------------

    \3094\ FIF Letter at 22.
    \3095\ FIF Letter at 93.
    \3096\ Data Boiler Letter at 41.
    \3097\ Response Letter I at 31-32.
    \3098\ Response Letter I at 31-32.
    \3099\ Response Letter I at 31-32.
---------------------------------------------------------------------------

    The Commission has considered the comments and the Participants'
response and continues to believe that removing the requirements for
periodic full refreshes of customer information could minimally reduce
the cost of the Plan without materially reducing the benefits.
Specifically, the Commission agrees that allowing market participants
to periodically refresh their customer information but dropping the
requirement that they refresh it regularly would reduce costs to
broker-dealers because broker-dealers could choose to do a refresh when
they believe a full refresh would be more cost effective than editing
individual records, while not requiring them to do a refresh when they
believe their customer information stored in the Central Repository is
accurate. Having a full refresh as an option would save broker-dealers
the costs associated with running a refresh procedure when it is not
needed, but allowing it when it is efficient for the broker-dealer to
update its customer information in this manner. The Commission
disagrees with the comment that periodic refreshes are a ``bad idea''
in general. As discussed above,\3100\ the Commission recognizes that
periodic refreshes introduce an opportunity for correct data in the
Central Repository to be replaced by incorrect data due to a problem in
the refresh procedure. However, the Commission also believes that
periodic refreshes provide an opportunity for incorrect information in
the Central Repository to be replaced with correct information. The
Commission does not have information to estimate whether the former
outcome is more likely than the latter, because it lacks information on
the proportion of customer information records that are errant in
existing databases in industry and the likelihood that data refresh
procedures introduce incorrect data, and commenters did not provide
this information. The Commission notes that the Participants' response
does not address whether the periodic refreshes would be redundant, or
why submitting the redundant information would be beneficial. However,
the Commission acknowledges that, as set out in the Participants'
response, the Plan provides that the Participants will work with the
Plan Processor to determine the extent to which inactive or other
accounts would need to be reported,\3101\ which may reduce the costs of
the periodic refresh by reducing the number of accounts to which it
applies.
---------------------------------------------------------------------------

    \3100\ See Section V.E.3.a, supra.
    \3101\ Response Letter I, at 31-32.
---------------------------------------------------------------------------

10. Bulk Data Downloads by CAT Reporters
    Several commenters discussed the Plan's treatment of bulk data
downloads by CAT Reporters. Specifically, some commenters suggested
that CAT Reporters should be allowed to access and export the data they
report to the Central Repository. The Commission has considered the
potential economic effects of that alternative approach, as discussed
below.
    Several commenters suggested that the Plan permit CAT Reporters to
access their own CAT Data through bulk data exports.\3102\ Another
commenter stated that permitting CAT Reporters to download their own
data from the Central Repository will provide benefits such as improved
CAT reporting error rates and improved ability to meet regulatory,
surveillance, and compliance requirements.\3103\ One commenter
suggested that independent software vendors be permitted to access the
CAT Data on behalf of their clients.\3104\ However, several commenters
expressed strong concerns about allowing any entity to extract or
download data from the Central Repository, suggesting that the risk of
a data breach would greatly increase as the data are maintained at more
sites.\3105\ Commenters also suggested that the risk increases when
those entities downloading the data may have technology systems that
are not subject to the same high security requirements at the Plan
Processor.\3106\
---------------------------------------------------------------------------

    \3102\ FIF Letter at 1, 9, 60-61; KCG Letter at 7-8.
    \3103\ TR Letter at 8.
    \3104\ Bloomberg Letter at 7.
    \3105\ SIFMA Letter at 20; Fidelity Letter at 4; ICI Letter at
6-7.
    \3106\ FSR Letter at 7.
---------------------------------------------------------------------------

    In their response, the Participants stated that they believe that
there may be merit to providing Industry Member CAT Reporters and their
vendors with bulk access to the CAT Reporters' own unlinked CAT Data,
but noted that such

access also raises a variety of operational, security, cost and other
issues related to the CAT. The Participants stated that they will
consider this issue once the CAT is operational.\3107\
---------------------------------------------------------------------------

    \3107\ Response Letter I at 43-44.
---------------------------------------------------------------------------

    Currently, the CAT NMS Plan states that, initially, CAT Reporters
will not have access to their data submissions through bulk data
extracts.\3108\ The Commission agrees with commenters that an
alternative approach that specified that CAT Reporters will be allowed
to make bulk extractions of their own data from the Central Repository
would help CAT Reporters correct errors and respond to regulatory
inquiries. Specifically, the Commission believes that, by querying and
analyzing the full set of data submitted to the CAT, as opposed to
viewing only the errors, CAT Reporters may be able to better diagnose a
problem that could be system-wide. This could facilitate corrections to
the process that CAT reporters use to record and report order events to
prevent future errors. The Commission also recognizes that there may be
benefits to internal surveillance regarding compliance, tracking
regulatory submissions by third parties, and CAT Reporter
recordkeeping.\3109\ The Commission believes this could have benefits
in terms of increasing the accuracy and timeliness of the CAT Data by
allowing errors to be corrected faster and more effectively, and by
possibly reducing reporting costs for some entities by making the error
correction process easier and more efficient and eliminating the need
for CAT Reporters to store the data they submit on their own systems.
---------------------------------------------------------------------------

    \3108\ See CAT NMS Plan, supra note 5, at Appendix D, Section
8.2.
    \3109\ FIF Letter at 60-61.
---------------------------------------------------------------------------

    However, the Commission notes that, under the Plan, CAT Reporters
will be able to view their submissions online in a read-only, non-
exportable format, which will facilitate error identification and
correction.\3110\ Commenters did not provide sufficient information to
allow the Commission to assess the magnitude of the potential benefits
of allowing bulk data exports in addition to read-only access,\3111\
and the Commission believes they may be modest. The Commission also
notes that, to the extent CAT Reporters retain copies of their
submissions, they may be able to refer to that data when correcting
errors and responding to regulatory inquiries. Further, the Commission
also agrees with commenters and the Participants that allowing CAT
Reporters to engage in bulk data exports, even if limited to their own
reported data, could increase the risk of a data breach insofar as it
increases the number of systems that have access to the CAT Central
Repository. As discussed above,\3112\ while uncertain, the costs of a
security breach could be significant. The Commission recognizes that
some CAT Reporters that would be downloading bulk data might already
have access to the Central Repository in order to upload their data,
but it notes that many may not, because their data may be reported by
one or more third parties. The Commission notes that it is difficult to
determine the magnitude by which the risk of a breach would increase,
because many of the decisions that define security measures for the
Central Repository are coincident with the selection of the Plan
Processor, and there is considerable diversity in the potential
security approaches of the Bidders. The Commission notes that the
Participants state that they will reconsider the issue once the CAT is
operational.\3113\
---------------------------------------------------------------------------

    \3110\ See CAT NMS Plan, supra note 5, at Appendix D, Section
10.1.
    \3111\ For example, the Commission does not know how many of the
errors that may need to be corrected may be rooted in a problem that
a CAT Reporter would require bulk-downloaded data to detect.
    \3112\ See Section V.F.4.a, supra.
    \3113\ Response Letter I at 44.
---------------------------------------------------------------------------

11. Alternatives to the CAT NMS Plan
    In the Notice, the Commission recognized that approving the CAT NMS
Plan is not the only available means of improving the completeness,
accuracy, accessibility and timeliness of the data used in regulatory
activities.\3114\ Therefore, the Commission solicited comment on the
broad set of alternatives involving modifying existing systems to
reduce their data limitations instead of approving the CAT NMS Plan.
---------------------------------------------------------------------------

    \3114\ See Notice, supra note 5, at 30776.
---------------------------------------------------------------------------

    The Commission discussed how, as one alternative to the CAT NMS
Plan, it could require modifications to OATS. However, the Commission
also noted that OATS would require significant modifications in order
to provide the attributes that the Commission deems crucial for an
effective audit trail. Furthermore, the Commission indicated that any
OATS-based alternative to CAT that did not provide these attributes
would limit the potential benefits of the alternative
significantly.\3115\
---------------------------------------------------------------------------

    \3115\ Id.
---------------------------------------------------------------------------

    The Commission acknowledged that it does not have sufficient
information to estimate the potential cost savings, if any, from
mandating an OATS-based approach as an alternative to the CAT NMS Plan.
However, the Commission noted that Rule 613 provided flexibility to the
SROs to propose an approach based on OATS and that the SROs could have
utilized an OATS-based approach if that approach had represented
significant cost savings relative to the Plan's approach.\3116\
---------------------------------------------------------------------------

    \3116\ Id.
---------------------------------------------------------------------------

    In the Notice, the Commission discussed another alternative, which
would be for the Commission to modify other data sources instead of, or
in combination with, OATS. However, the Commission also noted that like
OATS, all of the current data sources have limitations that would need
to be addressed in order to provide the attributes that the Commission
deems crucial to an effective audit trail. Furthermore, the Commission
preliminarily believed that modifying any other single data source
would be more costly than modifying OATS while adopting an alternative
to the CAT NMS Plan that relied on multiple data sources . . . would
eliminate the benefits associated with having a single complete
consolidated source from which regulators can access trade and order
data, which the Commission considers to be very significant.\3117\
---------------------------------------------------------------------------

    \3117\ Id.
---------------------------------------------------------------------------

    Overall, the Commission preliminarily believed that mandating
improvements to the completeness, accuracy, accessibility, and
timeliness of current data sources without an NMS Plan that requires
the consolidation of data and increased coverage across markets and
broker-dealers would likely significantly limit the potential benefits
relative to the Plan, possibly without providing significant cost
savings.\3118\
---------------------------------------------------------------------------

    \3118\ Id.
---------------------------------------------------------------------------

    The Commission received one comment on the possibility of requiring
modifications to OATS as an alternative to the CAT NMS Plan. The
commenter agreed with the Commission's analysis and the CAT NMS Plan
approach, noting that ``the vision of CAT has evolved through the years
to become a much more comprehensive system than OATS or any other
current system'' and that ``there is an opportunity now to take
advantage of new technologies and the associated cost benefits they
provide.'' \3119\ Another commenter suggested an alternate approach to
the CAT NMS Plan where the Commission would host the system in-house,
under its direct and sole control, retaining the prerogative to grant
(or deny) access to the data to non-broker-dealer affiliated

SROs.\3120\ The commenter believed that collecting the data pursuant to
an NMS Plan providing for SRO ownership, management and control over
the data would limit the benefits of the Plan by potentially limiting
the Commission's access to, and use of, CAT Data.\3121\
---------------------------------------------------------------------------

    \3119\ FIF Letter at 121.
    \3120\ Better Markets Letter at 3-5.
    \3121\ Specifically, the commenter stated that allowing the SROs
ownership, management, and control over the data, without direct SEC
oversight and control, would have ``serious and unacceptable''
consequences, because there will be a limited number of user
accounts allocated to the SEC; there may be limitations on the SEC's
access to the data for non-regulatory purposes; the potential exists
for the CAT LLC to charge the SEC for accessing the CAT system and
its data; the SEC does not participate directly in the governance of
the CAT Plan; the CAT Plan Participants may dismiss the Plan
Processor with no notice to the SEC; and the Plan Participants may
make material changes to the functions and operations of the CAT NMS
system (or matters related to the CAT data).
---------------------------------------------------------------------------

    The Commission has considered the comments and continues to believe
that mandating improvements to the completeness, accuracy,
accessibility, and timeliness of current data sources without an NMS
Plan that requires the consolidation of data and increased coverage
across markets and broker-dealers would likely significantly limit the
potential benefits, possibly without providing significant cost
savings. In response to the suggestion that the Commission host the
system in-house, the Commission believes that the concerns expressed by
the commenter with respect to the Commission's ability to access and
utilize the CAT Data are mitigated by the Commission's direct oversight
authority with respect to the CAT NMS Plan, including but not limited
to its ability to observe all meetings, including those conducted in
Executive Session, its review and approval of rule changes, and its
examination and inspection authority over the SROs. Further, as
discussed above,\3122\ SROs have specific obligations under the
Exchange Act as front-line regulators of the securities markets, and
accordingly are well-positioned to oversee the development and
operation of the CAT in a manner that will best fulfill regulatory
needs, subject to oversight by the Commission. The Commission therefore
does not agree that an alternative to the CAT NMS Plan where the
Commission hosted the system in-house would result in greater benefits
as compared to the CAT NMS Plan approach.
---------------------------------------------------------------------------

    \3122\ See supra note 747.
---------------------------------------------------------------------------

12. Alternatives Discussed in the CAT NMS Plan
    In the Notice, the Commission recognized that the Plan discussed
many alternatives that the Commission did not discuss in the
Alternatives Section of the Notice.\3123\ Rule 613(a)(1)(xii) required
the Participants to discuss in the Plan any reasonable alternative
approaches that the Plan sponsors considered in developing the Plan,
including a description of any such alternative approach; the relative
advantages and disadvantages of each such alternative, including an
assessment of the alternative's costs and benefits; and the basis upon
which the Plan sponsors selected the approach reflected in the CAT NMS
Plan. Such discussions appear in Section 12 of Appendix C of the Plan.
The Commission reviewed these alternatives and did not include in the
Alternatives Section of its Notice a discussion of all of the specific
alternatives addressed in the Plan. In some cases, the Commission had
no analysis to add beyond the analysis in the Plan. In other cases, the
Plan did not require any specific alternative, so the Commission could
not analyze the effect on the Plan of selecting a different
alternative.
---------------------------------------------------------------------------

    \3123\ See Notice, supra note 5, at 30779-82 (Request for
Comment Nos. 437-50).
---------------------------------------------------------------------------

    The Commission received sufficient comments to analyze some
economic implications of alternatives related to the primary storage
method, data ingestion format approaches, the process to develop the
CAT, and user support and the help desk. However, the Commission still
does not have sufficient information to add to the Plan's analysis of
the alternatives regarding organizational structure,\3124\ personally
identifiable information,\3125\ required reportable events,\3126\ data
feed connectivity,\3127\ industry testing,\3128\ user management,\3129\
and quality assurance.\3130\
---------------------------------------------------------------------------

    \3124\ The Commission received one comment on its request for
comment regarding the organizational structure. Better Markets
opposes the for-profit nature of the CAT LLC and the fact that the
Commission would not control that corporation. See Section IV.B.4,
supra, discusses the Participants' and the Commission's responses to
that comment. Specifically, the CAT LLC will not be for-profit.
    \3125\ Many commenters suggested alternative approaches to
maintain the security and confidentiality of PII. See Section
IV.D.7.b, supra, for a summary of these comments and the
Commission's response.
    \3126\ Data Boiler suggested including the ``results order
event'' and the ``CAT feedback order event'' as a ``way to introduce
randomness for the sake of improving information security control.''
While the Commission is sensitive to security, the Commission still
does not have sufficient information to distinguish these order
events from the required order event types to ascertain the benefits
other than the security benefits mentioned by this commenter or to
analyze the costs of reporting these order types. See Data Boiler
Letter at 42.
    \3127\ Data Boiler suggested receiving SIP data in real-time,
but did so conditional on the Central Repository receiving the data
in real-time. Because the SROs may already get SIP data in real-time
for other purposes and the CAT reporting will be on T+1, the
Commission still does not have sufficient information to fully
analyze the alternative of receiving SIP data in real-time. See Data
Boiler Letter at 42; see also Section IV.D.3, supra, for the
Commission's response to this comment.
    \3128\ Data Boiler suggested not mandating an approach to
industry testing because ``appropriate management flexibilities/
discretions are needed,'' but did not provide further explanation
that would allow the Commission to better understand the economic
tradeoffs. See Data Boiler Letter at 42. Further, FIF suggested
specific testing standards but did not provide further explanation
that would allow the Commission to better understand the economic
tradeoffs of specifying these standards. See FIF Letter at 13, 125-
26; see also Section IV.D.12, supra, for the Commission's response
to these comments.
    \3129\ FIF stated that the Plan does not need to require a
specific approach to user management, but that the Plan should
specify some functionality and criteria for evaluation of the
approach. For example, the user management system should provide for
on-boarding and support levels of entitlement. See FIF Letter at
129-30. The commenter did not provide further explanation that would
allow the Commission to better understand the costs and benefits of
specifying these functionalities or not specifying an approach.
Further, SIFMA provided specific suggestions for user management but
did not specifically address the relative economic effects of
various alternatives. See SIFMA Letter at 21.
    \3130\ Data Boiler suggested not mandating an approach to
quality assurance because appropriate management flexibilities/
discretions are needed, but did not provide further explanation that
would allow the Commission to better understand the economic
tradeoffs. See Data Boiler Letter at 42.
---------------------------------------------------------------------------

a. Primary Storage
    In the Notice, the Commission solicited comment on whether the CAT
NMS Plan should mandate a particular data storage method and on how a
storage method could affect the costs and benefits of the Plan.\3131\
The CAT NMS Plan states that bidders proposed two methods of primary
data storage: Traditionally-hosted storage architecture and
infrastructure-as-a-service.\3132\ The CAT NMS Plan does not mandate a
specific method for primary storage, but does indicate that the storage
solution would meet the security, reliability, and accessibility
requirements for the CAT, including storage of PII data, separately.
The CAT

NMS Plan also indicates several considerations in the selection of a
storage solution including maturity, cost, complexity, and reliability
of the storage method.
---------------------------------------------------------------------------

    \3131\ See Notice, supra note 5, at 30780.
    \3132\ See CAT NMS Plan, supra note 5, at Appendix C, Section
D.12(c). Traditionally-hosted storage architecture is a model in
which an organization would purchase and maintain proprietary
servers and other hardware to store CAT Data. Infrastructure-as-a-
service is a provisioning model in which an organization outsources
the equipment used to support operations, including storage,
hardware, servers, and networking components, to a third party who
charges for the service on a usage basis.
---------------------------------------------------------------------------

    The Commission received three comment letters in response to this
alternative.\3133\ All three commenters recommended not mandating a
particular storage method. One commenter suggested that mandating the
storage method would ``make the structure too rigid and static,
hindering the flexibility for future scalability.'' \3134\ Another
commenter claimed too little information in that the ``eventual Plan
Processor is in a better position to define the storage methods''
stating that evaluation considers ``total system design, not storage
methods in isolation.'' \3135\ The third commenter did not provide
arguments supporting its recommendation, but did point out that the
method of storage would allow the ability to return results of queries
at varying time intervals.\3136\ The commenters did not discuss the
relative costs and benefits of the specific architectures mentioned in
the Plan but one commenter indicated that its own system could enable
ultrafast analysis/pattern recognition and save significant
space.\3137\ Based on these comments, the Commission believes that
mandating a particular storage method could be costly, but Commission
did not receive comments on the benefits of mandating a storage method
or on the costs or benefits of particular storage methods. Therefore,
the Commission has more information than at the time of the Notice
regarding the costs of mandating a particular storage method but still
cannot fully analyze the economic effects.
---------------------------------------------------------------------------

    \3133\ FIF Letter at 125; FSI Letter at 3; Data Boiler Letter at
8.
    \3134\ Data Boiler Letter at 8.
    \3135\ FIF Letter at 125.
    \3136\ FSI Letter at 3.
    \3137\ Data Boiler Letter at 8.
---------------------------------------------------------------------------

b. Data Ingestion Format
    In the Notice, the Commission requested comment on whether the Plan
should mandate a particular approach to data ingestion.\3138\ The CAT
NMS Plan does not mandate the format in which data must be reported to
the Central Repository.\3139\ Rather, the Plan provides that the Plan
Processor will determine the electronic format in which data must be
reported, and that the format will be described in the Technical
Specifications.\3140\ The Plan discusses the tradeoffs between
requiring that the CAT Reporters report data to CAT in a uniform
defined format, in existing messaging protocols, or a hybrid of
both.\3141\ The Plan does not require any approach, but will determine
the approach in conjunction with the selection of the Plan Processor.
An example of a uniform defined format includes the current process for
reporting data to OATS.\3142\ Several bidders proposed to leverage the
OATS format and enhance it to meet the requirements of Rule 613. The
Plan states that this could reduce the burden on certain CAT Reporters
(i.e., current OATS Reporters) and simplify the process for those CAT
Reporters to implement the CAT.\3143\ The other alternative, accepting
existing messaging protocols, would allow CAT Reporters to submit
copies of their order handling messages that are typically used across
the order lifecycle and within order management processes, such as
FIX.\3144\ The Plan states that using existing messaging protocols
could result in quicker implementation times and simplify data
aggregation.\3145\ The Plan further notes that surveys revealed no cost
difference between the two approaches,\3146\ but that FIF members
prefer using the FIX protocol.\3147\
---------------------------------------------------------------------------

    \3138\ See Notice, supra note 5, at 30780-81.
    \3139\ See CAT NMS Plan, supra note 5, at Appendix C, Section
D.12(f); see also id. at Appendix C, Section A.1(a).
    \3140\ Id. at Appendix D, Section 2.1.
    \3141\ See CAT NMS Plan, supra note 5, at Appendix C, Section
B.7(b)(i)(A)(2), Section D.12(f). These are also called ``Approach
1'' and ``Approach 2'' elsewhere in this economic analysis.
    \3142\ This is Approach 2 in the CAT Reporters Study. See CAT
NMS Plan, supra note 5, at Appendix C, Section B.7(b)(i)(A)(2).
    \3143\ Id. at Appendix C, Section D.12(f).
    \3144\ This is Approach 1 in the CAT Reporters Study. Id. at
Appendix C, Section B.7(b)(i)(A)(2).
    \3145\ Id. at Appendix C, Section D.12(f).
    \3146\ Id.
    \3147\ Id.
---------------------------------------------------------------------------

    While the Plan discussed a ``uniform defined format'' as different
from existing messaging protocols such as FIX, the Commission
understands that the term ``uniform defined format'' can also apply to
FIX. To clarify the distinction between the two approaches, the
Commission refers to one approach as requiring a ``specialized
delimited flat file'' approach and the other as requiring existing
messaging protocols.
    In addition to soliciting comment on whether the Plan should
mandate an approach, the Commission also requested information on the
relative costs and benefits, including implementation and ongoing costs
of the data ingestion format approaches.\3148\ Further, the Commission
noted that the survey results that the costs of the approaches are
similar did not seem intuitive and requested comment on why the costs
appear similar in the survey results.\3149\
---------------------------------------------------------------------------

    \3148\ See Notice, supra note 5, at 30780-81.
    \3149\ See Notice, supra note 5, at 30737 (Request for Comment
Nos. 318 and 331).
---------------------------------------------------------------------------

    As an alternative to the Plan, four commenters seemed to support
specifying an approach to data ingestion format.\3150\ One commenter
stated that mandating an approach in the Plan would give industry more
time to prepare and would limit the chances that broker-dealers would
need to make significant changes after seeing the Technical
Specifications, which could seriously compromise the implementation
schedule.\3151\ In particular, this commenter stated that the data
ingestion format approach is a critical component of the Plan and ``an
optimum solution that meets the needs of industry at reasonable cost
and is minimally disruptive'' would require that the approach be
``widely reviewed and vetted across the industry.'' \3152\ Another
commenter suggested mandating the approach for consistency and
transparency.\3153\ The other two commenters that supported mandating
the approach in the Plan provided arguments regarding the effects of a
specific approach but not the effects of mandating an approach.
---------------------------------------------------------------------------

    \3150\ FIF Letter at 91; FIX Trading Letter at 1; Better Markets
Letter at 7; ICI Letter at 13.
    \3151\ FIF Letter at 90.
    \3152\ FIF Letter at 90.
    \3153\ FIX Trading Letter at 1.
---------------------------------------------------------------------------

    Another alternative would be to specify the actual format in the
Plan. Of the four commenters who supported mandating the approach, one
also supported mandating the format in the Plan.\3154\
---------------------------------------------------------------------------

    \3154\ Better Markets Letter at 7.
---------------------------------------------------------------------------

    Six commenters provided information on the tradeoffs or economic
effects of various approaches or formats.\3155\ While some commenters
addressed the alternatives of a specialized delimited flat file such as
a modified OATS, existing messaging protocol such as FIX, or a hybrid
of the two,\3156\ others commented more generally on the impacts of
non-uniform formats or standards without indicating whether they
consider a messaging protocol to be non-uniform or uniform format or
standard.\3157\ Only one commenter specifically addressed why the costs
of reporting using Plan-mandated

messaging protocols would be similar to reporting in a specialized
delimited flat file format, and that commenter asserted that the costs
should be the same for either approach because accepting existing
message protocols would require a more expensive infrastructure and the
cost would likely be passed down to the CAT Reporters.\3158\ The six
commenters also provided mixed information on the economic effects of
various considerations,\3159\ such as accepting multiple formats or a
single format,\3160\ and accepting only widely used existing formats,
new specialized delimited flat file formats, or existing bespoke
broker-dealer formats.\3161\
---------------------------------------------------------------------------

    \3155\ These comments are summarized in more detail in Section
IV.D.2, supra.
    \3156\ FIF Letter at 90-91; FIX Trading Letter at 1. ICI
provided a messaging protocol as an example, but did not recommend a
messaging protocol specifically.
    \3157\ ICI Letter at 13; Better Markets Letter at 7-8; UnaVista
Letter at 2-3.
    \3158\ Data Boiler Letter at 36.
    \3159\ See Section IV.D.2, supra, for a complete summary of
these comments as well as the Participants' and Commission's
responses.
    \3160\ Data Boiler Letter at 41; FIF Letter at 91; FIX Trading
Letter at 1; UnaVista Letter at 2-3; ICI Letter at 13; Better
Markets Letter at 7-8.
    \3161\ Data Boiler Letter at 41; FIF Letter at 90-91; FIX
Trading Letter at 1; ICI Letter at 13; Better Markets Letter at 7.
---------------------------------------------------------------------------

    In response to comments, the Participants explained that they
continue to believe that the Plan should not mandate a specific message
format.\3162\ That said, the Participants understand that the message
format used for reporting to the Central Repository must be easily
understood and adopted by the industry, and this factor will be
considered as the Participants evaluate each Bidder's solution.
Moreover, the Participants also will take into consideration that the
Plan Processor must be able to reliably and accurately convert data to
a uniform electronic format for consolidation and storage, regardless
of the message formats in which the CAT Reporters would be required to
report data to the Central Repository. The message format(s) ultimately
selected for reporting to the Central Repository will be described in
the Technical Specifications, which will be approved by the Operating
Committee. In addition, the Participants indicated that the Bids of the
three remaining Bidders propose accepting existing messaging protocols
(e.g., FIX), rather than requiring CAT Reporters to use a new
format.\3163\
---------------------------------------------------------------------------

    \3162\ Response Letter I at 29; see also Section IV.D.2, supra,
for a complete discussion of the Participants' response.
    \3163\ Response Letter III at 13.
---------------------------------------------------------------------------

    The Commission has considered the comments and Participants'
responses in relation to whether the Plan should mandate a specific
approach and believes that there are certain costs and benefits
associated with mandating the approach in the Plan and that not
mandating the approach is a source of uncertainty in assessing the
economic effects of the Plan. The Commission believes that the risks to
the implementation schedule (and therefore an increase in
implementation costs) of not mandating an approach would be lower if
CAT Reporters could submit their reports to CAT in the message
protocols they currently use for business purposes because such
implementation would involve updating current systems rather than
building new systems. The Commission understands from the Participants'
response that all remaining Bidders would have within the Plan
Processor the ability to accept existing message protocols. Therefore,
those CAT Reporters currently using the messaging protocols accepted by
the eventual Plan Processor would not need to make significant systems
changes. However, the Commission recognizes that the mixed information
regarding the economic effects of particular approaches or formats
reflects the level of uncertainty in the range of benefits and costs
associated with the selection of data ingestion formats and thus the
impact of the lack of transparency in the Plan on this economic
analysis.
    In response to the comment that the costs of the two approaches
should be similar, the Commission notes that the costs of the
approaches do not seem consistent with the comment. Whereas the
commenter's statements would suggest that the costs of message
protocols would be lower for broker-dealers, vendors, and SROs, and
higher for building and operating the Central Repository, and similar
in aggregate, the costs actually appear similar for each survey group.
Therefore, the Commission continues to recognize that the survey result
indicating that the costs of the approaches are similar does not seem
intuitive.
    Finally, the Commission notes the potential for the Plan Processor
to use the opportunity to select a message format that entrenches
itself by increasing the costs of replacement due to
underperformance.\3164\ However, as explained above and in Section
IV.D.2 the Participants will consider whether a Bidder has proposed a
format that is easily understood and adoptable by the industry, and the
Commission believes that the message format decision must be made in
connection with developing the overall architecture for CAT.
---------------------------------------------------------------------------

    \3164\ See Section V.I.4.b.(2), supra, for a discussion of how
the costs of switching Plan Processors limits the competitive
incentives of the selected Plan Processor and of the provisions that
promote good performance by the Plan Processor.
---------------------------------------------------------------------------

c. Process To Develop CAT
    In the Notice, the Commission requested comment on whether the CAT
NMS Plan should mandate a particular development process and the impact
on the relative costs and benefits of particular processes.\3165\
Bidders proposed, and the Plan describes, several processes for
development of the CAT: The agile or iterative development model, the
waterfall model, and hybrid models.\3166\ The CAT NMS Plan does not
mandate a particular development process because any of the options
could be utilized to manage the development of CAT.\3167\ The CAT NMS
Plan notes that the agile model is more flexible and more susceptible
to the early delivery of software for testing and feedback, but that
the agile model makes it more difficult to accurately estimate the
effort and time required for development. The waterfall model would
also facilitate longer-term planning and coordination among multiple
vendors or project streams.\3168\
---------------------------------------------------------------------------

    \3165\ See Notice supra note 5, at 30781.
    \3166\ See CAT NMS Plan, supra note 5, at Appendix C, Section
D.12(g). An agile methodology is an iterative model in which
development is staggered and provides for continuous evolution of
requirements and solutions. A waterfall model is a sequential
process of software development with dedicated phases for
Conception, Initiation, Analysis, Design, Construction, Testing,
Production/Implementation and Maintenance. Id.
    \3167\ Id.
    \3168\ Id.
---------------------------------------------------------------------------

    Two commenters suggested that the Plan not mandate a particular
development method.\3169\ One commenter stated that ``appropriate
management flexibilities/discretions are needed.'' \3170\ The other
commenter cited bidder expertise and that the Plan Processor should be
allowed to choose the ``methodology most appropriate for the specific
development effort.'' \3171\ The commenter continued on to say that
``the different development methodologies can each be equally effective
in an implementation plan, depending on many factors and tradeoffs.''
While providing information on the costs of mandating a method, neither
provided relative costs and benefits of specific methods.
---------------------------------------------------------------------------

    \3169\ FIF Letter at 49; Data Boiler Letter at 42.
    \3170\ Data Boiler Letter at 42.
    \3171\ FIF Letter at 49.
---------------------------------------------------------------------------

    Based on these comments, the Commission believes that mandating a
specific development process in the Plan could be costly because
mandating the process removes the ability for the Plan Processor to
select the lowest cost or most effective methodology for a given
implementation. The Commission recognizes that the Plan will involve
one big implementation initially, but

may also involve many subsequent implementations based on amendments to
the Plan or changes in the technical specifications. The nature of
these implementations could vary greatly and the same development
methodology may not be most effective in all situations. Therefore, the
Commission recognizes that mandating a specific development process
would be costly.
d. User Support and Help Desk
    In the Notice, the Commission requested comment on whether the CAT
NMS Plan should specify the standards for user support and on the
relative costs and benefits of the alternative standards.\3172\ The CAT
NMS Plan discusses several alternatives related to how the Plan
Processor provides a CAT help desk that would be available 24 hours a
day, 7 days a week and be able to manage 2,500 calls per month.\3173\
Specifically, alternatives relate to the number of user support staff
members, the degree to which the support team is dedicated to CAT, and
whether the help desk is located in the United States or offshore. The
CAT NMS Plan discusses the benefit and cost tradeoffs,\3174\ but does
not mandate any of the particular alternatives. Instead, the CAT NMS
Plan commits to considering each Bidder's user support proposals in the
context of the overall Bid.
---------------------------------------------------------------------------

    \3172\ See Notice, supra note 5, at 30781.
    \3173\ See CAT NMS Plan, supra note 5, at Appendix C, Section
D.12(j). The RFP specified these standards. Id.
    \3174\ See id. The Plan states that a larger support staff could
be more effective, but would be more costly. Further, a dedicated
CAT support team would have a deeper knowledge of CAT but would be
more costly. Finally, a U.S.-based help desk could facilitate
greater security and higher quality service, but would be more
costly. Id.
---------------------------------------------------------------------------

    Two commenters addressed alternatives regarding user support and a
help desk.\3175\ One commenter recommended that customer support
guidelines and functionalities be specified in the Plan \3176\ while
the other suggested that the costs of user support and a help desk
could be ``minimized or eliminated'' under different data collection
and reporting methods.\3177\ The commenter that supported specifying
guidelines and functionalities in the Plan stated that ``the level of
service provided is directly tied to the industry's ability to meet the
aggressive quality goals and error rates, and directly tied to customer
service costs in bidders' proposals, and ultimately in costs to be
borne by the industry.'' Therefore, the commenter said they ``should be
dictated by the Plan and not left to Plan Processor discretion.''
Rather than focus on the size and location of the support team and
whether the team is dedicated to CAT, the commenter suggests specific
standards and functionalities such as wait times, a tracking system,
and the ability for web submission or ``on-line chat.''
---------------------------------------------------------------------------

    \3175\ FIF Letter at 125-29; Data Boiler Letter at 42.
    \3176\ FIF Letter at 125-29.
    \3177\ Data Boiler Letter at 42.
---------------------------------------------------------------------------

    In their response, the Participants clarified that the CAT Help
Desk staff will be trained to support CAT Reporters as needed, and
noted that this may include, for example, training related to data
access tools, data submission requirements, and customer support.\3178\
---------------------------------------------------------------------------

    \3178\ See Response Letter I at 38.
---------------------------------------------------------------------------

    The Commission has considered these comments and recognizes the
benefits of the Plan specifying certain functionalities and standards
while letting the Plan Processor select the size and location of the
support team necessary to meet these functionalities and standards. In
particular, the Commission agrees with the commenter that specifying
guidelines and functionalities can facilitate the accomplishment of the
benefits described herein and could result in lower costs to the
industry relative to the Plan. However, the Commission also agrees that
the Plan Processor may be in a better position to determine the size
and location of the support team needed to satisfy the guidelines and
functionalities.
VI. Paperwork Reduction Act
    Certain provisions of Rule 613 contain ``collection of information
requirements'' within the meaning of the Paperwork Reduction Act of
1995 (``PRA'').\3179\ The Commission published notice requesting
comment on the collection of information requirements in the Notice and
submitted the proposed collection to the Office of Management and
Budget (``OMB'') for review in accordance with 44 U.S.C. 3507 and 5 CFR
1320.11. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid OMB control number. The control number for Rule 613
is OMB Control No. 3235-0671 and the title of the collection of
information is ``Creation of a Consolidated Audit Trail Pursuant to
Section 11A of the Securities Exchange Act of 1934 and Rules
Thereunder.'' The Commission is adopting this collection of
information.
---------------------------------------------------------------------------

    \3179\ 44 U.S.C. 3501 et. seq.
---------------------------------------------------------------------------

    The Commission has amended the CAT NMS Plan, resulting in ``a new
collection of information'' ``CAT NMS Plan Reporting and Disclosure
Requirements.'' The new collection of information is described in
Section VI.E., below. The Commission is requesting public comment on
the new collection of information requirement in this Order. We are
applying for an OMB control number for the proposed new collection of
information in accordance with 44 U.S.C. 3507(j) and 5 CFR 1320.13, and
OMB has not yet assigned a control number to the new collection.
Responses to the new collection of information would be mandatory. An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid OMB control number.
    This Order includes the Commission's estimates of the costs
associated with the requirements of Rule 613, as imposed by the CAT NMS
Plan. Similarly, the Commission is discussing below its estimates of
the burden hours associated with the information collection
requirements of the CAT NMS Plan, as filed by the Participants, and as
subsequently amended by the Commission.\3180\ These estimates are based
on the requirements of Rule 613 and take into account the Exemption
Order.\3181\ Information and estimates contained in the CAT NMS Plan
that was submitted by the Participants also informed these estimates
because they provide a useful, quantified point of reference regarding
potential burdens and costs. In the Notice, the Commission requested
comment on the collection of information requirements associated with
the CAT NMS Plan that were required by Rule 613. As noted above, the
Commission received 24 comment letters on the Notice.\3182\ Although
the Commission did not receive any comments on the hourly burdens
associated with the information collections required by Rule 613, a
number of comments were submitted that addressed the Commission's cost

estimates related to these collections.\3183\
---------------------------------------------------------------------------

    \3180\ See Section VI.E., infra.
    \3181\ See Exemption Order, supra note 21. The Commission
acknowledges that the CAT NMS Plan as filed contains provisions in
addition to those required by Rule 613 (e.g., requiring the
inclusion of OTC Equity Securities; the availability of historical
data for not less than six years in a manner that is directly
available and searchable without manual intervention from the Plan
Processor; a complete symbology database to be maintained by the
Plan Processor, including the historical symbology; as well as issue
symbol information and data using the listing exchange symbology
format). See CAT NMS Plan, supra note 5, at Section 1.1 (defining
``Eligible Security'' as all NMS securities and all OTC Equity
Securities); Section 6.5(b)(1); Appendix C, Section A.1(a); Appendix
D, Section 2.
    \3182\ See supra note 6.
    \3183\ In addition to the discussion that follows, the
Commission's cost estimates and responses to cost comments are
discussed in detail in Section V.F., supra.
---------------------------------------------------------------------------

A. Summary of Collection of Information Under Rule 613
    Rule 613 requires that the CAT NMS Plan must provide for an
accurate, time-sequenced record of an order's life, from receipt or
origination, through the process of routing, modification, cancellation
and execution.\3184\ The Central Repository, created by the
Participants, would be required to receive, consolidate and retain the
data required under the Rule.\3185\ Such data must be accessible to
each Participant, as well as the Commission, for purposes of performing
regulatory and oversight responsibilities.\3186\
---------------------------------------------------------------------------

    \3184\ See 17 CFR 242.613(c)(1).
    \3185\ See 17 CFR 242.613(e)(1).
    \3186\ See 17 CFR 242.613(e)(1), (e)(2).
---------------------------------------------------------------------------

    Rule 613 provides that the CAT NMS Plan must require that all
Participants that are exchanges, and their members, record and report
to the Central Repository certain data for each NMS security registered
or listed on a national securities exchange, or admitted to unlisted
trading privileges on such exchange, and each Participant that is a
national securities association, and its members, record and report for
each NMS security for which transaction reports are required to be
submitted to the national securities association in a uniform
electronic format or in a manner that would allow the Central
Repository to convert the data to a uniform electronic format for
consolidation and storage. This data must be recorded contemporaneously
with the Reportable Event and reported to the Central Repository in no
event later than 8:00 a.m. ET on the trading day following the day such
information has been recorded by the national securities exchange,
national securities association, or member.\3187\
---------------------------------------------------------------------------

    \3187\ See 17 CFR 242.613(c)(3).
---------------------------------------------------------------------------

    Rule 613 also provides that the CAT NMS Plan must require each
member of a Participant to record and report to the Central Repository
other information which may not be available until later in the
clearing process no later than 8:00 a.m. ET on the trading day
following the day the member receives such information.\3188\ Rule 613
also requires the Participants to provide to the Commission, at least
every two years after the effectiveness of the CAT NMS Plan, a written
assessment of the operation of the consolidated audit trail.\3189\
---------------------------------------------------------------------------

    \3188\ See 17 CFR 242.613(c)(4).
    \3189\ See 17 CFR 242.613(b)(6).
---------------------------------------------------------------------------

    Rule 613 requires all Participants to make use of the consolidated
information, either by each developing and implementing new
surveillance systems, or by enhancing existing surveillance
systems.\3190\ The Rule also requires the CAT NMS Plan to require
Participants to submit to the Commission a document outlining the
manner in which non-NMS securities and primary market transactions in
NMS and non-NMS securities can be incorporated into the consolidated
audit trail.\3191\
---------------------------------------------------------------------------

    \3190\ See 17 CFR 242.613(a)(3)(iv).
    \3191\ See 17 CFR 242.613(i).
---------------------------------------------------------------------------

1. Central Repository
    Rule 613 provides that the CAT NMS Plan must require the creation
and maintenance of a Central Repository that would be responsible for
the receipt, consolidation, and retention of all data submitted by the
Participants and their members.\3192\ The Rule also requires that the
CAT NMS Plan require the Central Repository to retain the information
reported pursuant to subparagraphs (c)(7) and (e)(7) of the Rule for a
period of not less than five years in a convenient and usable standard
electronic data format that is directly available and searchable
electronically without any manual intervention.\3193\ The Plan
Processor is responsible for operating the Central Repository in
compliance with the Rule and the CAT NMS Plan. In addition, the Rule
provides that the CAT NMS Plan must include: Policies and procedures to
ensure the security and confidentiality of all information submitted to
the Central Repository,\3194\ including safeguards to ensure the
confidentiality of data; \3195\ information barriers between regulatory
and non-regulatory staff with regard to access and use of data;\3196\ a
mechanism to confirm the identity of all persons permitted to use the
data; \3197\ a comprehensive information security program for the
Central Repository that is subject to regular reviews by the CCO;
\3198\ and penalties for non-compliance with policies and procedures of
the Participants or the Central Repository with respect to information
security.\3199\ Further, the Rule provides that the CAT NMS Plan must
include policies and procedures to be used by the Plan Processor to
ensure the timeliness, accuracy, integrity, and completeness of the
data submitted to the Central Repository,\3200\ as well as policies and
procedures to ensure the accuracy of the consolidation by the Plan
Processor of the data.\3201\
---------------------------------------------------------------------------

    \3192\ See 17 CFR 242.613(e)(1).
    \3193\ See 17 CFR 242.613(e)(8). The Commission notes that the
CAT NMS Plan proposes to require that the Central Repository retain
data reported in a convenient and usable standard electronic data
format that is directly available and searchable electronically
without any manual intervention for six years. See CAT NMS Plan,
supra note 5, at Section 6.5(b)(i).
    \3194\ See 17 CFR 242.613(e)(4)(i).
    \3195\ See 17 CFR 242.613(e)(4)(i)(A).
    \3196\ See 17 CFR 242.613(e)(4)(i)(B).
    \3197\ See 17 CFR 242.613(e)(4)(i)(C).
    \3198\ Id.
    \3199\ See 17 CFR 242.613(e)(4)(i)(D).
    \3200\ See 17 CFR 242.613(e)(4)(ii).
    \3201\ See 17 CFR 242.613(e)(4)(iii).
---------------------------------------------------------------------------

2. Data Collection and Reporting
    Rule 613 provides that the CAT NMS Plan must require each
Participant, and any member of such Participant, to record and
electronically report to the Central Repository details for each order
and Reportable Event documenting the life of an order through the
process of original receipt or origination, routing, modification,
cancellation, and execution (in whole or part) for each NMS
security.\3202\ Rule 613 requires the CAT NMS Plan to require each
national securities exchange and its members to record and report to
the Central Repository the information required by Rule 613(c)(7) for
each NMS security registered or listed for trading on an exchange, or
admitted to unlisted trading privileges on such exchange.\3203\ Rule
613 provides that the CAT NMS Plan must require each Participant that
is a national securities association, and its members, to record and
report to the Central Repository the information required by Rule
613(c)(7) for each NMS security for which transaction reports are
required to be submitted to the Participant.\3204\ The Rule requires
each Participant and any member of a Participant to record the
information required by Rule 613(c)(7)(i) through (v) contemporaneously
with the Reportable Event, and to report this information to the
Central Repository by 8:00 a.m. ET on the trading day following the day
such information has been recorded by the Participant or member of the
Participant.\3205\ The Rule requires each Participant and any member of
a Participant to record and report the information required by Rule
613(c)(7)(vi) through (viii) to the Central Repository by 8:00 a.m. ET
on the trading day following the day the

Participant or member receives such information.\3206\ The Rule
requires each Participant and any member of such Participant to report
information required by Rule 613(c)(7) in a uniform electronic format
or in a manner that would allow the Central Repository to convert the
data to a uniform electronic format for consolidation and
storage.\3207\
---------------------------------------------------------------------------

    \3202\ See 17 CFR 242.613(c)(1), (c)(5), (c)(6), (c)(7).
    \3203\ See 17 CFR 242.613(c)(1), (c)(5).
    \3204\ See 17 CFR 242.613(c)(1), (c)(6).
    \3205\ See 17 CFR 242.613(c)(3).
    \3206\ See 17 CFR 242.613(c)(4).
    \3207\ See 17 CFR 242.613(c)(2).
---------------------------------------------------------------------------

    Such information must also be reported to the Central Repository
with a timestamp of a granularity that is at least to the millisecond
or less to the extent that the order handling and execution systems of
a Participant or a member utilize timestamps in finer increments.\3208\
The Commission understands that any changes to broker-dealer recording
and reporting systems to comply with Rule 613 may also include changes
to comply with the millisecond timestamp requirement.
---------------------------------------------------------------------------

    \3208\ See 17 CFR 242.613(d)(3).
---------------------------------------------------------------------------

3. Collection and Retention of National Best Bid and National Best
Offer, Last Sale Data and Transaction Reports
    Rule 613(e)(7) provides that the CAT NMS Plan must require the
Central Repository to collect and retain on a current and continuing
basis: (i) Information on the National Best Bid and National Best Offer
(``NBBO'') for each NMS Security; (ii) transaction reports reported
pursuant to a transaction reporting plan filed with the Commission
pursuant to, and meeting the requirements of, Rule 601 of Regulation
NMS; and (iii) Last Sale Reports reported pursuant to the OPRA
Plan.\3209\ The Central Repository must retain this information for no
less than five years.\3210\
---------------------------------------------------------------------------

    \3209\ See 17 CFR 242.613(e)(7); 17 CFR 242.601.
    \3210\ See 17 CFR 242.613(e)(8).
---------------------------------------------------------------------------

4. Surveillance
    Rule 613(f) provides that the CAT NMS Plan must require that every
Participant develop and implement a surveillance system, or enhance
existing surveillance systems, reasonably designed to make use of the
consolidated information contained in the consolidated audit trail.
Rule 613(a)(3)(iv) provides that the CAT NMS Plan must require that the
surveillance systems be implemented within fourteen months after
effectiveness of the CAT NMS Plan.
5. Participant Rule Filings
    Rule 613(g)(1) requires each Participant to file with the
Commission, pursuant to Section 19(b)(2) of the Exchange Act and Rule
19b-4 thereunder,\3211\ a proposed rule change to require its members
to comply with the requirements of Rule 613 and the CAT NMS Plan
approved by the Commission.\3212\ The burden of filing such a proposed
rule change is already included under the collection of information
requirements contained in Rule 19b-4 under the Exchange Act.\3213\
---------------------------------------------------------------------------

    \3211\ 15 U.S.C. 78s(b)(2); 17 CFR 240.19b-4.
    \3212\ See 17 CFR 242.613(g)(1).
    \3213\ See Securities Exchange Act Release No. 50486 (October 5,
2004), 69 FR 60287, 60293 (October 8, 2004) (File No. S7-18-04)
(describing the collection of information requirements contained in
Rule 19b-4 under the Exchange Act). The Commission has submitted
revisions to the current collection of information titled ``Rule
19b-4 Filings with Respect to Proposed Rule Changes by Self-
Regulatory Organizations'' (OMB Control No. 3235-0045). According to
the last submitted revision, for Fiscal Year 2012 SROs submitted
1,688 Rule 19b-4 proposed rule changes.
---------------------------------------------------------------------------

6. Document on Expansion to Other Securities
    Rule 613(i) provides that the CAT NMS Plan must require the
Participants to jointly provide to the Commission, within six months
after the CAT NMS Plan is effective, a document outlining how the
Participants could incorporate into the CAT information regarding: (1)
Equity securities that are not NMS securities; \3214\ (2) debt
securities; and (3) primary market transactions in equity securities
that are not NMS securities and in debt securities.\3215\
---------------------------------------------------------------------------

    \3214\ As noted above, the CAT NMS Plan would require the
inclusion of OTC Equity Securities, while Rule 613 does not include
such a requirement. See supra note 3181.
    \3215\ See 17 CFR 242.613(i).
---------------------------------------------------------------------------

7. Written Assessment of Operation of the Consolidated Audit Trail
    Rule 613(b)(6) provides that the CAT NMS Plan must require the
Participants to provide the Commission a written assessment of the
consolidated audit trail's operation at least every two years, once the
CAT NMS Plan is effective.\3216\ Such written assessment shall include,
at a minimum, with respect to the CAT: (i) An evaluation of its
performance; (ii) a detailed plan for any potential improvements to its
performance; (iii) an estimate of the costs associated with any such
potential improvements; and (iv) an estimated implementation timeline
for any such potential improvements, if applicable.\3217\ As required
by Rule 613(b)(6), the Participants submitted a CAT NMS Plan that
includes these minimum requirements. The Commission is subsequently
amending the requirements set forth in the CAT NMS Plan to change the
reporting frequency from every two years to annual, as well as to
provide additional specificity regarding the elements of the written
assessment.\3218\ As amended, the annual written assessment must
include the following: (i) An evaluation of the information security
program of the CAT to ensure that the program is consistent with the
highest industry standards for protection of data; (ii) an evaluation
of potential technological upgrades based upon a review of
technological advancements over the preceding year, drawing on
technology expertise, whether internal or external; (iii) an evaluation
of the time necessary to restore and recover CAT Data at a back-up
site; (iv) an evaluation of how the Plan Processor and Participants are
monitoring Error Rates and to explore the imposition of Error Rates
based on product, data element or other criteria; (v) a copy of the
evaluation required by the CAT NMS Plan in Section 6.8(c) of the Plan
that the Plan Processor evaluate whether industry standards have
evolved such that: (1) The synchronization standard in Section 6.8(a)
of the CAT NMS Plan should be shortened; or (2) the required timestamp
in Section 6.8(b) of the CAT NMS Plan should be in finer increments;
and (vi) an assessment of whether any data elements reported to the CAT
should be added, deleted or changed; and (vii) an estimate of the costs
and benefits associated with any potential improvements to the
performance of the CAT, including an assessment of the potential impact
on competition, efficiency, capital formation, and investor protection.
---------------------------------------------------------------------------

    \3216\ See 17 CFR 242.613(b)(6).
    \3217\ See id.
    \3218\ See Section IV.H., supra.
---------------------------------------------------------------------------

B. Proposed Use of Information

1. Central Repository
    Rule 613 states that the Central Repository is required to receive,
consolidate and retain the data required to be submitted by the
Participants and their members.\3219\ Participant and Commission staff
would have access to the data for regulatory purposes.\3220\
---------------------------------------------------------------------------

    \3219\ See 17 CFR 242.613(e)(1).
    \3220\ See 17 CFR 242.613(e)(2).
---------------------------------------------------------------------------

2. Data Collection and Reporting
    The Commission believes that the data collected and reported
pursuant to the requirements of Rule 613 would be used by regulators to
monitor and surveil the securities markets and detect and investigate
activity, whether on one market or across markets. The data collected
and reported pursuant to Rule 613 would also be used by regulators for
the evaluation of tips and complaints and for complex enforcement
inquiries

or investigations, as well as inspections and examinations. Further,
the Commission believes that regulators would use the data collected
and reported to conduct timely and accurate analysis of market activity
for reconstruction of broad-based market events in support of
regulatory decisions.
3. Collection and Retention of NBBO, Last Sale Data and Transaction
Reports
    The CAT NMS Plan must require the Central Repository to collect and
retain NBBO information, transaction reports, and Last Sale Reports in
a format compatible with the order and event information collected
pursuant to Rule 613(c)(7).\3221\ Participant and Commission staff
could use this data to easily search across order, NBBO, and
transaction databases. The Commission believes that having the NBBO
information in a uniform electronic format compatible with order and
event information would assist Participants in enforcing compliance
with federal securities laws, rules, and regulations, as well as their
own rules.\3222\ The Commission also believes that a CAT NMS Plan
requiring the Central Repository to collect and retain the transaction
reports and Last Sale Reports in a format compatible with the order
execution information would aid regulators in monitoring for certain
market manipulations.\3223\
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    \3221\ See 17 CFR 242.613(e)(7).
    \3222\ The Commission and Participants use the NBBO to, among
other things, evaluate members for compliance with numerous
regulatory requirements, such as the duty of best execution or Rule
611 of Regulation NMS. See 17 CFR 242.611; see also, e.g., ISE Rule
1901 and Phlx Rule 1084.
    \3223\ Rules 613(e)(7)(ii) and (iii) require that transaction
reports reported pursuant to an effective transaction reporting plan
and Last Sale Reports reported pursuant to the OPRA Plan be reported
to the Central Repository. This requirement should allow regulators
to evaluate certain trading activity. For example, trading patterns
of reported and unreported trades may cause Participant or
Commission staff to make further inquiries into the nature of the
trading to ensure that the public was receiving accurate and timely
information regarding executions and that market participants were
continuing to comply with trade reporting obligations under
Participant rules. Similarly, patterns in the transactions that are
reported and unreported to the consolidated tape could be indicia of
market abuse, including failure to obtain best execution for
customer orders or possible market manipulation. The Commission and
the Participants would be able to review information on trades not
reported to the tape to determine whether they should have been
reported, whether Section 31 fees should have been paid, and/or
whether the trades are part of a manipulative scheme.
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4. Surveillance
    The requirement in Rule 613(f) that the Participants develop and
implement a surveillance system, or enhance existing surveillance
systems, reasonably designed to make use of the consolidated
information in the consolidated audit trail,\3224\ is intended to
position regulators to make full use of the consolidated audit trail
data in order to carry out their regulatory obligations. In addition,
because trading and potentially manipulative activities could take
place across multiple markets, and the consolidated audit trail data
would trace the entire lifecycle of an order from origination to
execution or cancellation, new or enhanced surveillance systems may
also enable regulators to investigate potentially illegal activity that
spans multiple markets more efficiently.
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    \3224\ 17 CFR 242.613(f).
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5. Document on Expansion to Other Securities
    Rule 613(i) requires the CAT NMS Plan to require the Participants
to jointly provide to the Commission, within six months after the CAT
NMS Plan is effective, a document outlining how the Participants could
incorporate into the CAT information regarding certain products that
are not NMS securities.\3225\ A document outlining a possible expansion
of the consolidated audit trail could help inform the Commission about
the Participants' strategy for potentially accomplishing such an
expansion over a reasonable period of time. Moreover, such document
would aid the Commission in assessing the feasibility and impact of
possible future proposals by the Participants to include such
additional securities and transactions in the consolidated audit trail.
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    \3225\ See 17 CFR 242.613(i); see also supra note 439.
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6. Written Assessment of Operation of the Consolidated Audit Trail
    Rule 613(b)(6) requires the CAT NMS Plan to require the
Participants to provide the Commission a written assessment of the
CAT's operation at least every two years, once the CAT NMS Plan is
effective that includes a plan for potential improvements, an estimate
of the costs associated with any such improvement, as well as the
potential impact on competition, efficiency and capital formation, and
a timeline.\3226\ The Commission has subsequently modified this
requirement as imposed by the CAT NMS Plan to change the reporting
frequency to annual and require that the written assessment include the
benefits of any potential improvements and the impact on investor
protection, as well as to provide more specificity on what the
assessment must address.\3227\ The assessment is now required to
include evaluations of the following: The information security program;
potential technological upgrades; the time to restore and recover CAT
Data at a back-up site; how the Plan Processor and the Participants are
monitoring Error Rates and exploring imposing Error Rates based on
other criteria; a copy of the evaluation required in Section 6.8(a) of
the CAT NMS Plan that the Plan Processor evaluate whether industry
standards have evolved such that: (i) The clock synchronization
standard in Section 6.8(a) of the CAT NMS Plan should be shortened;
(ii) the required timestamp in Section 6.8(b) of the CAT NMS Plan
should be in finer increments; and an assessment of whether any data
elements reported to the CAT should be added, deleted or changed. The
Commission believes that requiring these specific issues to be
addressed in the Participants' annual written assessment will focus the
Plan Processor and the Participants on critical technological and other
developments, and should help ensure that CAT technology remains up-to-
date, resilient and secure, and provides accurate CAT Data. Further,
the Commission believes that it is important that the Participants
consider not just the costs, but also the potential benefits associated
with any improvements to the performance of the CAT, including the
impact on investor protection.
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    \3226\ 17 CFR 242.613(b)(6).
    \3227\ See Section IV.H., supra.
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C. Respondents

1. National Securities Exchanges and National Securities Associations
    The information collection titled ``Creation of a Consolidated
Audit Trail Pursuant to Section 11A of the Securities Exchange Act of
1934 and Rules Thereunder'' and the proposed information collection
apply to the 21 Participants (the 20 national securities exchanges and
the one national securities association (FINRA)) currently registered
with the Commission.\3228\
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    \3228\ The Participants are: Bats BZX Exchange, Inc., Bats BYX
Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange,
Incorporated, Chicago Board Options Exchange, Incorporated, Chicago
Stock Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange,
Inc., Financial Industry Regulatory Authority, Inc., International
Securities Exchange, LLC, ISE Gemini, LLC, Miami International
Securities Exchange LLC, NASDAQ BX, Inc., NASDAQ PHLX LLC, The
NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York
Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. ISE Mercury
and IEX will become Participants in the CAT NMS Plan and are thus
accounted for as Participants for purposes of this Order. See supra
note 10.

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2. Members of National Securities Exchanges and National Securities
Association
    The information collection titled ``Creation of a Consolidated
Audit Trail Pursuant to Section 11A of the Securities Exchange Act of
1934 and Rules Thereunder'' also applies to the Participants' broker-
dealer members, that is, Industry Members. The Commission believes that
Rule 613 applies to 1,800 broker-dealers. The Commission understands
that there are currently 4,138 broker-dealers; however, not all broker-
dealers are expected to have CAT reporting obligations. The
Participants report that approximately 1,800 broker-dealers currently
quote or execute transactions in NMS Securities, Listed Options or OTC
Equity Securities and would likely have CAT reporting
obligations.\3229\
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    \3229\ The Commission understands that the remaining 2,338
registered broker-dealers either trade in asset classes not
currently included in the definition of Eligible Security or do not
trade at all (e.g., broker-dealers for the purposes of underwriting,
advising, private placements). See Notice, supra note 5, at 30712,
n.864.
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D. Total Initial and Annual Reporting and Recordkeeping Burden

1. Burden on National Securities Exchanges and National Securities
Associations
a. Central Repository
    Rule 613 requires the Participants to jointly establish a Central
Repository tasked with the receipt, consolidation, and retention of the
reported order and execution information. The Participants reflected
this requirement in the CAT NMS Plan. The Participants issued an RFP
soliciting Bids from entities to act as the consolidated audit trail's
Plan Processor.\3230\ Bidders were asked to provide total one-year and
annual recurring cost estimates to estimate the costs to the
Participants for implementing and maintaining the Central
Repository.\3231\ There are currently three remaining Bidders, any of
which could be selected to be the Plan Processor. The Plan Processor
would be responsible for building, operating, administering and
maintaining the Central Repository.
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    \3230\ See Notice, supra note 5, at 30616.
    \3231\ See CAT NMS Plan, supra note 5, at Appendix C, Section
B.7(b)(i)(B). The CAT NMS Plan listed the following as primary
drivers of Bid costs: (1) Reportable volumes of data ingested into
the Central Repository; (2) number of technical environments that
would have to be built to report to the Central Repository; (3)
likely future rate of increase of reportable volumes; (4) data
archival requirements; and (5) user support and/or help desk
resource requirements. Id.
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    The Plan's Operating Committee, which consists of one voting
representative of each Participant,\3232\ would be responsible for the
management of the LLC, including the Central Repository, acting by
Majority or Supermajority Vote, depending on the issue.\3233\ In
managing the Central Repository, among other things, the Operating
Committee would have the responsibility to authorize the following
actions of the LLC: (1) Interpreting the Plan; \3234\ (2) determining
appropriate funding-related policies, procedures and practices
consistent with Article XI of the CAT NMS Plan; \3235\ (3) terminating
the Plan Processor; (4) selecting a successor Plan Processor (including
establishing a Plan Processor Selection Committee to evaluate and
review Bids and make a recommendation to the Operating Committee with
respect to the selection of the successor Plan Processor); \3236\ (5)
entering into, modifying or terminating any Material Contract; \3237\
(6) making any Material Systems Change; \3238\ (7) approving the
initial Technical Specifications or any Material Amendment to the
Technical Specifications proposed by the Plan Processor; \3239\ (8)
amending the Technical Specifications on its own motion; \3240\ (9)
approving the Plan Processor's appointment or removal of the CCO, CISO,
or any Independent Auditor in accordance with Section 6.1(b) of the CAT
NMS Plan; \3241\ (10) approving any recommendation by the CCO pursuant
to Section 6.2(a)(v)(A); \3242\ (11) selecting the members of the
Advisory Committee; \3243\ (12) selecting the Operating Committee
chair; \3244\ and (13) determining to hold an Executive Session of the
Operating Committee.\3245\
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    \3232\ See id. at Section 4.2(a).
    \3233\ See Notice, supra note 5, at 30702.
    \3234\ See CAT NMS Plan, supra note 5, at Section 4.3(a)(iii).
    \3235\ See id. at Section 4.3(a)(vi).
    \3236\ See id. at Section 4.3(b)(i).
    \3237\ See id. at Section 4.3(b)(iv).
    \3238\ See id. at Section 4.3(b)(v).
    \3239\ See id. at Section 4.3(b)(vi).
    \3240\ See id. at Section 4.3(b)(vii).
    \3241\ See id. at Section 4.3(b)(iii).
    \3242\ See id. at Section 4.3(a)(iv).
    \3243\ See id. at Section 4.3(a)(ii). Section 4.13(e) of the CAT
NMS Plan states that the members of the Advisory Committee shall
have the right to receive information concerning the operation of
the Central Repository; provided that the Operating Committee
retains the authority to determine the scope and content of
information supplied to the Advisory Committee, which shall be
limited to that information that is necessary and appropriate for
the Advisory Committee to fulfill its functions. The Commission is
amending this section to state that the members of the Advisory
Committee shall receive the same information concerning the
operation of the Central Repository as the Operating Committee;
provided, however, that the Operating Committee may withhold