the imposition of fines in lieu of commencing a formal disciplinary
proceeding for violations of certain rules, including the OTS
rules).
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I. Operation and Administration of the NMS Plan

    The proposed Rule would require that the NMS plan include a
governance structure to ensure fair representation of the plan
sponsors.\263\ The rule as proposed gives flexibility to the SROs to
devise a governance structure as they see fit. The proposed rule would
require the NMS plan to include a provision addressing the percentage
of votes required by the plan sponsors to effectuate amendments to the
plan.\264\ For example, the plan sponsors could determine to provide
each plan sponsor one vote on matters subject to a vote.\265\ Or, if
there was a concern that this method would result in ``blocs'' of plan
sponsors under common control exerting control in a one-sponsor, one-
vote system, the SROs could choose another alternative to ensure fair
representation.
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    \263\ See proposed Rule 613(b)(1).
    \264\ See proposed Rule 613(b)(3).
    \265\ For example, Section 4.3 of the OPRA Plan provides that,
except as otherwise provided, each of the members of the Management
Committee shall be authorized to cast one vote for each Member that
he or she represents on all matters voted upon by the Management
Committee, and action of the Management Committee shall be
authorized by the affirmative vote of a majority of the total number
of votes the members of the Management Committee are authorized to
cast, subject to the approval of the Commission whenever such
approval is required under applicable provisions of the Exchange
Act, and the rules of the Commission adopted thereunder. Action of
the Management Committee authorized in accordance with the OPRA Plan
shall be without prejudice to the rights of any Member to present
contrary views to any regulatory body or in any other appropriate
forum.
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    Further, most existing NMS plans require unanimous consent from the
plan sponsors to effect an amendment.\266\ The Commission recognizes
the unanimous consent requirement could be desirable because it helps
to ensure that no plan sponsor is forced to comply with requirements
with which it is unable to comply, or forced by the other sponsors to
pay fees. However, a unanimous consent requirement also could allow one
plan sponsor to effectively ``veto'' a provision desired by all other
plan sponsors for competitive reasons, or permit one sponsor to lag
behind in making updates to its systems or rules that would benefit the
industry as a whole. The Commission proposes to allow the plan sponsors
to determine whether to include in the NMS plan to be filed with the
Commission a unanimity requirement for effectuating amendments to the
plan, or some other convention.
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    \266\ See, e.g., Securities Exchange Act Release Nos. 60405
(July 30, 2009), 74 FR 39362 (August 6, 2009) (order approving the
Options Order Protection and Locked/Crossed Market Plan) and 17638
(March 18, 1981), 22 S.E.C. Docket 484 (March 31, 1981) (order
approving the OPRA Plan).
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    The Commission also recognizes that the scope or purpose of the
proposed NMS plan may differ from existing plans. The Commission
requests comment on whether there are lessons from previous experience
that suggest that the governance structure of the NMS plan to be filed
with the Commission should differ from existing plans. The Commission
requests comment on these provisions relating to the governance
structure of the plan. Should the Commission require certain governance
standards to ensure efficient

cooperation, or should the exchanges and association be allowed to
create a governance structure of their own choosing? What are the
relative merits of unanimity or super majority requirements? What are
the relative merits of alternative voting mechanisms and other
governance structures available to the plan sponsors? Should the voting
mechanism vary by the type of decision or should different decision
making bodies have authority over different types of decisions to avoid
situations where no decision is made because the sponsors cannot agree?
How should the governance and voting mechanisms be set up to avoid
inefficient operations or paralysis? Should there be limits on the time
frames given to make decisions? Should there be mechanisms to resolve
impasses once a decision has taken a certain amount of time? The
Commission also requests comment on whether the scope of the plan,
including the requirements on broker-dealers members, and the
expectation of improved surveillances for investor protection dictate
that the governance structure should differ from existing plans. In
particular, should the SRO sponsors be required to include in the
governance structure and decision-making authority representatives of
members to address member interests and independent representatives
chosen specifically to address investor and other public interests?
    The proposed Rule also would require that the NMS plan include
provisions to govern the administration of the central repository,
including the selection of a plan processor. A ``plan processor'' is
defined in Rule 600 of Regulation NMS to mean any SRO or securities
information processor acting as an exclusive processor in connection
with the development, implementation and/or operation of any facility
contemplated by an effective national market system plan.\267\ The
Commission expects that the plan sponsors would engage in a thorough
analysis and formal competitive bidding process to choose the plan
processor. As proposed, the plan sponsors would be required to select a
person to act as the plan processor for the central repository no later
than two months after the effectiveness of the national market system
plan.\268\ The Commission preliminarily believes that this time frame
would provide the plan sponsors with sufficient time to choose the plan
processor, while providing that such entity would be in place with
enough time to create and build the central repository to receive data
from the SROs within one year after effectiveness of the NMS plan and
from the members within two years after such effectiveness.
---------------------------------------------------------------------------

    \267\ See 17 CFR 242.600(55).
    \268\ See proposed Rule 613(a)(3)(i).
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    The Commission requests comment as to whether the proposed Rule
should include specific requirements detailing the process for
selection of a plan processor. Should the Commission require specific
minimum requirements or standards that a plan processor should meet? If
so, what requirement or standards would be necessary or appropriate?
Should the plan processor be a non-SRO? Would this promote impartiality
on the part of the plan processor? The Commission also requests comment
on the proposed time frame to choose the plan processor. Is it too
short? Too long? If so, why? Please be specific in your response.
    The proposed Rule also would require that the NMS plan contain a
requirement that a Chief Compliance Officer (``CCO'') be appointed to
regularly review the operation of the central repository.\269\ The CCO
would be expected to establish reasonable procedures designed to make
sure the operations of the central repository keep pace with technical
developments. To the extent upgrades or other changes are necessary to
assure the central repository's effectiveness, the CCO would be
responsible for making recommendations for enhancements to the nature
of the information collected and the manner in which it is processed.
---------------------------------------------------------------------------

    \269\ See proposed Rule 613(b)(5).
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    The Commission requests comment on the necessity for a CCO to
oversee the operation of the central repository. If commenters support
the proposal to require a CCO, should the proposed Rule include a
requirement that the CCO be independent from the plan sponsors and
their members? That is, should the CCO be required to not have any
actual or potential conflicts of interest with respect to the plan
sponsors and their members (e.g. such as prior or future employment
with a plan sponsor or member, or a material business relationship with
a plan sponsor or member)? What are the risks of allowing a CCO who is
affiliated or associated with a plan sponsor or its members? What types
of conflicts of interest should be avoided? Are there any specific
qualifications that a CCO should possess? Should there be a specific
process in place for appointing a CCO or for removing a CCO for failure
to perform his or her assigned duties? Should there be a limit to the
number of years a CCO may serve as such?
    The plan sponsors also would be required to include in the NMS plan
a provision addressing the requirements for the admission of new
sponsors to the plan and the withdrawal of sponsors from the plan.\270\
Proposed Rule 613(b)(4) also would require that the sponsors develop a
process for allocating among the plan sponsors the costs associated
with implementing and operating the central repository, including a
provision addressing the manner in which such costs would be allocated
to sponsors who join the plan after it was approved. Various NMS plans
have developed different ways to ensure that a fair cost or ``new
participant fee'' is assessed upon new plan sponsors.\271\ For example,
when determining a new participation fee, the OPRA Plan requires that
the following factors be considered: (1) The portion of costs
previously paid by OPRA for the development, expansion and maintenance
of OPRA's facilities which, under generally accepted accounting
principles, would have been treated as capital expenditures and would
have been amortized over the five years preceding the admission of the
new member; (2) an assessment of costs incurred and to be incurred by
OPRA for modifying the OPRA System or any part thereof to accommodate
the new member, which are not otherwise required to be paid or
reimbursed by the new Member; and (3) previous fees paid by other new
members. The plan sponsors could choose to include in the NMS plan to
be filed a similar provision or develop a new method for determining
the cost to join the plan that would better suit the NMS plan proposed
to be required by this Rule.
---------------------------------------------------------------------------

    \270\ See proposed Rule 613(b)(2).
    \271\ See e.g. Section 7.1 of OPRA Plan.
---------------------------------------------------------------------------

    The Commission requests comment on whether the rule or plan should
specify a method for allocating costs among the plan sponsors. The
Commission also requests comment as to what provisions the exchanges
and FINRA should include in the NMS plan relating to the admission of
new plan sponsors and the withdrawal of existing plan sponsors. Should
the Commission specify the process for the admission of new plan
sponsors? What are the concerns, if any, that should be taken into
account when providing for the admission of new plan sponsors? The
Commission requests comment on all aspects of the proposed Rule
relating to governance and administration of the NMS plan.

J. Proposed Implementation Schedule

    While the Commission preliminarily believes a comprehensive
consolidated audit trail would be useful as soon as possible, the
Commission also believes that it would be prudent to implement the Rule
at a measured pace to ensure that all market participants are fully
able to meet the requirements of the proposed Rule. Therefore, the
proposed Rule would provide that the proposed data collection and
submission requirements would first apply to national securities
exchanges and national securities associations, but not to their
individual members. As part of operating their businesses, the national
securities exchanges and national securities associations are
accustomed to handling large volumes of data and many already have in
place electronic trading, routing and reporting systems.\272\ Further,
under the proposal the exchanges would not be responsible for providing
to the central repository, for each order, information relating to the
customer. The Commission therefore preliminarily believes these systems
could more readily and quickly be modified than the members' systems to
comply with the requirements of the proposed Rule.
---------------------------------------------------------------------------

    \272\ For example, as part of COATS compliance, the options
exchanges are required to have in place systems to electronically
capture all order, transaction, and quotation information on the
exchange.
---------------------------------------------------------------------------

    Specifically, proposed Rule 613(a)(3)(iii) would require the
exchanges and associations to provide to the central repository the
data to be required by the Rule within one year after effectiveness of
the NMS plan. Members of the exchanges and associations would be
required to begin providing to the central repository the data required
by the proposed Rule two years after effectiveness of the NMS plan,
which would be one year following the implementation deadline for the
national securities exchanges and national securities
associations.\273\ This phased approach is designed to allow members
additional time to implement systems changes necessary to begin
providing the information to the central repository and to develop
procedures designed to capture customer and order information that they
may not have previously been required to collect to comply with other
Commission and SRO rules.
---------------------------------------------------------------------------

    \273\ See proposed Rule 613(a)(3)(v).
---------------------------------------------------------------------------

    The Commission requests comment on the proposed implementation time
periods. Are these time periods practical or feasible? Should they be
shorter? Longer? Please provide detailed reasons in your response. As
proposed, the national securities exchanges and national securities
associations would be required to submit data to the central repository
for one year before their members are required to submit data. Is
requiring the exchanges and FINRA to provide data before requiring
their members to do so a feasible way to phase in compliance with the
proposed rule? How would this phased-in approach affect the quality of
the data and the number of available data items in the audit trail? Are
there alternative ways to phase in implementation that would be more
practical? For instance, should the Commission consider requiring all
exchanges and FINRA and their respective members to begin reporting a
subset of the data initially, and phase in the collection of addition
data over time? Should the Commission require all exchanges, FINRA, and
their members to implement the proposed requirements first for NMS
stocks, then for listed options? Or vice versa? How should the
Commission take into consideration any concern commenters might have
that market participants might shift manipulative or other illegal
trading activity to products or markets not covered by the proposed
Rule in its analysis of whether, or how, to phase in compliance with
the proposed Rule across products classes (meaning, NMS stock and
listed options)? If so, how?
    Should ATSs,\274\ including so-called dark pools,\275\ be required
to implement the proposed requirements before broker-dealers that are
not registered as ATSs? Would ATSs be able to more quickly comply with
the proposed recording and reporting requirements, since they generally
are highly automated and their business may be more narrowly focused
than, for example, broker-dealers that engage in a customer,
proprietary, and/or market making business? Are there any cost savings
associated with a phased approach to implementation? Would additional
unnecessary costs be incurred by implementing the plan in a phased-in
approach? Please provide data to support your views.
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    \274\ See supra note 181.
    \275\ Dark pools are ATSs that do not provide their best-priced
orders for inclusion in the consolidated quotation data. In general,
dark pools offer trading services to institutional investors and
others that seek to execute large trading interest in a manner that
will minimize the movement of prices against the trading interest
and thereby reduce trading costs. Dark pools fall within the
statutory definition of an exchange, but are exempted if they comply
with Regulation ATS. See Concept Release on Equity Market Structure,
supra note 19, at 3599, and supra note 181.
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IV. Request for Comments

    We request and encourage any interested person to comment generally
on the proposed Rule. In addition to the specific requests for comment
throughout the release, the Commission requests general comment on all
aspects of proposed Rule 613 of Regulation NMS. The Commission
encourages commenters to provide information regarding the advantages
and disadvantages of each aspect of the proposed Rule. The Commission
invites commenters to provide views and data as to the costs and
benefits associated with the proposed Rule. The Commission also seeks
comment regarding other matters that may have an effect on the proposed
Rule. We request comment from the point of view of national securities
exchanges, national securities associations, members, investors, and
other market participants. With regard to any comments, we note that
such comments are of great assistance to our rulemaking initiative if
accompanied by supporting data and analysis of the issues addressed in
those comments.

V. Paperwork Reduction Act

    Certain provisions of the proposal contain ``collection of
information requirements'' within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'') \276\ and the Commission has submitted
them 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 title of the new collection of information is
``Creation of a Consolidated Audit Trail Pursuant to Section 11A of the
Securities Exchange Act of 1934 and Rules Thereunder.''
---------------------------------------------------------------------------

    \276\ 44 U.S.C. 3501 et. seq.
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A. Summary of Collection of Information Under Proposed Rule 613

1. Creation and Filing of an NMS Plan
    As detailed above, the proposed Rule would require each national
securities exchange and national securities association to jointly file
with the Commission, on or before 90 days from approval of the proposed
Rule, an NMS plan to govern the creation, implementation, and
maintenance of a consolidated audit trail and central repository for
the collection of information for NMS securities.\277\ The

NMS plan would be required to require each exchange or association and
its respective members to provide certain data to the central
repository in compliance with proposed Rule 613.\278\ The NMS plan also
would need to include certain specified provisions related to
administration and operation of the plan,\279\ and the operation of the
central repository.\280\ Further, the NMS plan would be required to
include certain provisions related to compliance by the exchanges and
associations and their members with the requirement of the proposed
Rule and the NMS plan.\281\
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    \277\ See proposed Rule 613(a)(1) and supra Section III.
    \278\ See proposed Rule 613(c) and supra Section III.D.
    \279\ For example, the NMS plan would be required to include
provisions: (1) To ensure fair representation of the plan sponsors;
(2) for administration of the central repository; (3) addressing the
requirements for admission of new plan sponsors and withdrawal of
existing plan sponsors; (4) addressing the percentage of votes
required by the plan sponsors to effectuate amendments to the plan;
(5) addressing the manner in which the costs of operating the
central repository would be allocated among the national securities
exchanges and national securities associations that are sponsors of
the plan, including a provision addressing the manner in which costs
would be allocated to new sponsors to the plan. See proposed Rule
613(b).
    \280\ For example, the NMS plan would be required to include a
provision requiring the creation and maintenance by the central
repository of a method of access to the data, including search and
reporting functions. See proposed Rule 613(e)(3). Additionally, the
NMS plan would be required to include policies and procedures,
including standards, to be used by the plan processor to: (1) Ensure
the security and confidentiality of all information submitted to,
and maintained by, the central repository; (2) ensure the
timeliness, accuracy, and completeness of the data provided to the
central repository; (3) require the rejection of data that does not
meet validation parameters and the retransmission of corrected data;
and (4) ensure the accuracy of the consolidation by the plan
processor of the data provided to the central repository. See
proposed Rule 613(e)(4).
    \281\ The NMS plan would be required to include: (1) A provision
that by subscribing to and submitting the plan to the Commission,
each national securities exchange and national securities
association that is a sponsor to the plan agrees to enforce
compliance by its members with the provisions of the plan; and (2) a
mechanism to ensure compliance by the sponsors of the plan with the
requirements of the plan. See proposed Rule 613(g)(3) and (h)(3).
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    Each national securities exchange and national securities
association would be required to be a sponsor of the NMS plan.\282\ The
Commission preliminarily believes that requiring the proposed NMS plan
would impose a paperwork burden on national securities exchanges and
national securities associations associated with preparing and filing
the joint NMS plan.
---------------------------------------------------------------------------

    \282\ See proposed Rule 613(a)(5).
---------------------------------------------------------------------------

2. Report
    Rule 613(i) also would require the national securities exchanges
and national securities associations to jointly provide to the
Commission a document outlining how such national securities exchanges
and national securities associations would propose to incorporate into
the consolidated audit trail information for: (1) Equity securities
that are not NMS securities; (2) debt securities; and (3) primary
market transactions in NMS stocks, equity securities that are not NMS
securities and debt securities.\283\ This report would be required to
specify in detail the data that would be collected and reported by each
market participant, an implementation timeline, and a cost estimate.
The Commission preliminarily believes that requiring the proposed
report would impose a paperwork burden on national securities exchanges
and national securities associations associated with preparing and
submitting the report to the Commission.
---------------------------------------------------------------------------

    \283\ See proposed Rule 613(i).
---------------------------------------------------------------------------

3. Rule Filings by National Securities Exchanges and National
Securities Associations
    Each national securities exchange and national securities
association would be required to file with the Commission, pursuant to
Section 19(b)(2) of the Exchange Act and Rule 19b-4 thereunder,\284\ a
proposed rule change to require its members to comply with the
requirements of the proposed Rule and the NMS plan submitted pursuant
to the proposed Rule and approved by the Commission of which the
national securities exchange or national securities association is a
sponsor.\285\ The burden of filing such proposed rule change would
already be included under the collection of information requirements
contained in Rule 19b-4 under the Exchange Act.\286\
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    \284\ 15 U.S.C. 78s(b)(2) and 17 CFR 240.19b-4.
    \285\ See proposed Rule 613(g)(1).
    \286\ 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 concluded as of August 5, 2008, the
current collection of information estimates 1,279 total annual Rule
19b-4 filings with respect to proposed rule changes by self-
regulatory organizations.
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4. Collection and Retention of NBBO and Last Sale Data
    The central repository would be required to collect and retain on a
current and continuing basis the national best bid and national best
offer for each NMS security, 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 last sale
reports reported pursuant to the OPRA Plan.\287\ The central repository
would be required to retain this information for a period of not less
than five years.\288\
---------------------------------------------------------------------------

    \287\ See proposed Rule 613(e)(5); 17 CFR 242.601.
    \288\ See proposed Rule 613(e)(6).
---------------------------------------------------------------------------

5. Data Collection and Reporting
    The proposed Rule would require each national securities exchange,
national securities association, and any member of such national
securities exchange or national securities association to collect and
electronically provide to the central repository details for each order
and reportable event documenting the life of an order through the
process of routing, modification, cancellation, and execution (in whole
or in part).\289\ The proposed Rule would require the collection and
reporting to the central repository of some information that national
securities exchanges, national securities associations, and their
members already are required to collect, and under certain
circumstances, report to a third party, in compliance with existing
Commission \290\ and SRO requirements.\291\ The proposed Rule

would, however, require exchanges, associations, and their members to
report to the central repository information not required to be
currently collected and reported pursuant to existing SRO audit trail
rules.
---------------------------------------------------------------------------

    \289\ See proposed Rule 613(c)(1) and supra Section III.D.
    \290\ For example, Rule 17a-3 requires broker-dealers to
maintain the following information that would be captured by the
proposed Rule: Customer name and address; time an order was
received; and price of execution. 17 CFR 240.17a-3. Also, Rule 17a-
25 requires brokers to maintain the following information with
respect to customer orders: Date on which the transaction was
executed; account number; identifying symbol assigned to the
security; transaction price; the number of shares or option
contracts traded and whether such transaction was a purchase, sale,
or short sale, and if an option transaction, whether such was a call
or put option; the clearing house number of such broker or dealer
and the clearing house numbers of the brokers or dealers on the
opposite side of the transaction; prime broker identifier; the
customer's name and address; the customer's tax identification
number; and other related account information. 17 CFR 240.17a-25.
This information would be captured by the proposed Rule. See also
Section 17(a) of the Exchange Act, 15 U.S.C. 78q(a), and Rules 17a-1
and 17a-4 under the Exchange Act, 17 CFR 240.17a-1 and 17 CFR
240.17a-4.
    \291\ The audit trail rules of several of the national
securities exchanges and FINRA require the following information be
recorded: Date order was originated or received by a member,
security or option symbol, clearing member organization, order
identifier, market participant symbol, number of shares executed,
designation of order as short sale, limit order, market order, stop
order or stop limit order, account type or number, date and time of
execution, and execution price and size. See BOX Ch. V, Section 4;
BX Rule 6955; FINRA Rule 7440; Nasdaq Options Market Chapter IX,
Section 4; Nasdaq Rule 6955; NYSE Rule 132B; and NYSE Amex Equities
Rule 132B. This information would be captured pursuant to the
proposed Rule.
---------------------------------------------------------------------------

    For example, although members of national securities exchanges and
national securities associations already should know the identity of
their customers, and in some instances may be required to provide that
information to the Commission or SRO staff upon request,\292\ the
requirement to electronically capture and report detailed information
sufficient to identify the customer to the central repository, in real
time, would be new. Further, although some existing audit trail
requirements include a unique order identifier,\293\ the proposed
Rule's requirement that the unique order identifier remain with the
order throughout its entire life, across markets and market
participants, would go beyond the current requirements. In addition,
although such members currently have unique market participant
identifiers (``MPIDs''), such MPIDs may differ across markets, whereas
the proposed Rule would require that each member have a unique
identifier that is the same across all markets. The proposed
requirements to report whether an order opens or closes a position for
NMS stocks, and to report borrow information, also are not required to
be marked on orders by current SRO or Commission rules. Further, much
of the information that would be required for the first time to be
reported to the central repository would be reported in real time, as
the event is occurring.
---------------------------------------------------------------------------

    \292\ See supra Section I.A. (discussing Rule 17a-25 and the EBS
system).
    \293\ See supra Section I.C. (discussing the requirements of
FINRA's OATS).
---------------------------------------------------------------------------

6. Central Repository
    The proposed Rule would require that the central repository be
responsible for the receipt, consolidation, and retention of all data
submitted to the central repository by the national securities
exchanges, national securities associations, and their members.\294\
The proposed Rule also would require that (1) the central repository
retain the information collected pursuant to subparagraph (c)(7) and
(e)(5) of the proposed Rule in a convenient and usable standard
electronic data format that is directly available and searchable
electronically without any manual intervention for a period of not less
than five years, and (2) the information be available immediately, or
if immediate availability cannot reasonably and practically be
achieved, that any search query begin operating on the data not later
than one hour after the search query is made.\295\ The Commission notes
that a plan processor would be responsible for operating the central
repository in compliance with the proposed Rule and the NMS plan.
---------------------------------------------------------------------------

    \294\ See proposed Rule 613(e)(1). The Commission notes that a
plan processor would be responsible for operating the central
repository in compliance with the proposed Rule and the NMS plan.
    \295\ See proposed Rule 613(e)(6).
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B. Proposed Use of Information

1. Creation and Filing of NMS Plan
    As discussed in detail above, the NMS plan would govern the
creation, implementation, and maintenance of a consolidated audit trail
for NMS securities, which would aid the Commission and national
securities exchanges and national securities associations in
effectively and efficiently carrying out their regulatory
responsibilities. The information that would be collected pursuant to
the NMS plan would allow the SROs to more efficiently monitor trading
activity in the securities markets, and would facilitate the Commission
and the national securities exchanges and national securities
associations' trading reconstruction efforts as well as enhance their
monitoring, enforcement, and regulatory activities.
2. Report
    As the Commission states above in Section III.A., it ultimately
intends for the proposed consolidated audit trail, if adopted, to be
expanded to cover other securities, including equity securities that
are not NMS securities, corporate bonds and other debt instruments;
credit default swaps and other security-based swaps; and any other
products that may come under the Commission's jurisdiction in the
future. Further, the Commission preliminarily believes that it would be
beneficial to expand the consolidated audit trail to include
information on primary market transactions in NMS stocks and other
equity securities that are not NMS stocks, as well as primary market
transactions in debt securities. The Commission preliminarily believes
that a timely expansion of the scope of the consolidated audit trail
beyond NMS securities would be beneficial as illegal trading strategies
that the consolidated audit trail would be designed to help detect and
deter, such as insider trading, may involve trading in multiple related
products other than NMS securities across multiple markets.
    To help ensure that such an expansion would occur in a reasonable
time and that the systems and technology that would be used to
implement the Rule as proposed are designed to be easily scalable,
proposed Rule 613(i) would require that the NMS plan contain a
provision requiring each national securities exchange and national
securities association that is a sponsor of the plan to jointly provide
to the Commission within two months after effectiveness of the NMS plan
a document outlining how the sponsors would incorporate into the
consolidated audit trail information with respect to: (1) Equity
securities that are not NMS securities; (2) debt securities; and (3)
primary market transactions in NMS stocks, equity securities that are
not NMS securities, and debt securities. The sponsors specifically
would be required to address, among other things, details for each
order and reportable event that they would recommend requiring to be
provided; which market participants would be required to provide the
data; an implementation timeline; and a cost estimate. The Commission
would be able to use the information contained in the report in its
consideration and analysis of whether to expand the consolidated audit
trail.
3. Collection and Retention of NBBO and Last Sale Data
    As discussed above, the requirement that the central repository
collect and retain the NBBO and transaction data in an electronic
format compatible with the order and event information collected
pursuant to the proposed Rule is intended to allow SRO and Commission
staff to easily search across order, NBBO, and transaction data bases.
The Commission preliminarily believes that having the NBBO information
in an electronic format compatible with the order audit trail
information would be useful for SROs to enforce compliance with federal
securities laws, rules and regulations.\296\ The Commission also
preliminarily believes that requiring the central repository to collect
and retain in its

database the transaction information in a format compatible with the
order execution information would aid the SROs in being able to monitor
for certain market manipulations.\297\
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    \296\ The NBBO is used by SROs and the Commission to evaluate
members for compliance with numerous regulatory requirements, such
as the duty of best execution or Rule 611 of Regulation NMS. See
Rule 611 of Regulation NMS, 17 CFR 242.611. See also ISE Rule 1901,
NYSE Arca 6.94, and Phlx Rule 1084. An SRO would be able to compare
order execution information to the NBBO information on a more timely
basis because the order and execution information would be available
on a real time basis and all of the information would be available
in a compatible format in the same database. The SROs also may enjoy
economies of scale by adopting standard cross-market surveillance
parameters for certain types of violations.
    \297\ See supra Section III.D.1.v. As discussed above, the
proposed Rule would require that each report of the execution (in
whole or in part) of an order sent to the central repository include
a notation as to whether the execution was reported to the
consolidated tape pursuant to an effective transaction reporting
plan or the OPRA Plan. This requirement should allow regulators to
more efficiently evaluate certain trading activity. For example,
trading patterns of reported and unreported trades may cause the
staff of an SRO or the Commission to make further inquiry 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 the trade reporting
obligations under SRO rules. Similarly, patterns in the reported and
unreported transactions could be indicia of market abuse, including
failure to obtain best execution for customer orders or possible
market manipulation. Being able to more efficiently compare the
consolidated order execution data with the trades reported to the
consolidated tape could thus be an important component of overall
surveillance activity.
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4. Data Collection and Reporting
    As discussed above, the Commission preliminarily believes that the
data collection and reporting requirements of the proposed Rule would
enhance the ability of SRO staff to effectively monitor and surveil the
securities markets and thus detect and investigate potentially illegal
activity in a more timely fashion, whether on one market or across
markets. Further, the Commission preliminarily believes that the
ability to access such data would improve the ability of SRO staff to
conduct timely and accurate trading analysis for market reconstructions
and complex enforcement inquiries or investigations, as well as
inspections and examinations. Further, the Commission preliminarily
believes that the ability to access such data would aid the Commission
staff in its regulatory and market analysis efforts.
5. Central Repository
    The central repository would be required to receive and retain the
data required to be submitted by the national securities exchanges,
national securities associations, and their members pursuant to the
proposed Rule. SROs and Commission staff would then have access to the
data for regulatory purposes, as discussed above.

C. Respondents

1. National Securities Exchanges and National Securities Associations
    Proposed Rule 613 would apply to all of the fourteen national
securities exchanges and to one national securities association (FINRA)
currently registered with the Commission.
2. Members of National Securities Exchanges and National Securities
Associations
    Proposed Rule 613 would apply to the approximately 5,178 broker-
dealers that are currently registered with the Commission and are
members of the national securities exchanges or FINRA.\298\
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    \298\ This is the number of broker-dealers filing FOCUS Reports
at year-end 2008. FOCUS Reports are required to be filed by all
registered broker-dealers, with a few exceptions. Excluded from this
number were recently established broker-dealers that had yet to
become active, or broker-dealers no longer doing business that had
yet to deregister.
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D. Total Annual Reporting and Recordkeeping Burden

1. Burden on National Securities Exchanges and National Securities
Associations
a. Creation and Filing of NMS Plan
    Proposed Rule 613 would require the national securities exchanges
and FINRA to jointly file with the Commission a joint NMS plan to
govern the creation, implementation, and maintenance of a consolidated
audit trail and a central repository. The Commission estimates that it
would take each national securities exchange and national securities
association approximately 840 burden hours of internal legal,
compliance, information technology, and business operations time to
develop and file the NMS plan, including the required provisions
regarding governance, administration, and operation of the plan.\299\
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    \299\ The Commission derived the total estimated burdens from
the following estimates, which are based on the Commission's
understanding of, and burden estimates for, existing NMS plans:
(Attorney at 400 hours) + (Compliance Manager at 100 hours) +
(Programmer Analyst at 220 hours) + (Business Analyst at 120 hours).
The Commission preliminarily believes that the cost of developing
and filing the NMS plan pursuant to the proposed Rule would be
comparable to the cost to create other existing NMS plans,
recognizing that the proposed Rule may include more detail as to
what must be incorporated and addressed in the NMS plan implementing
the proposed Rule.
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    The Commission preliminarily expects that national securities
exchange and national securities association respondents may incur one-
time external costs for outsourced legal services to develop and draft
the NMS plan. While the Commission recognizes that the amount of legal
outsourcing used may vary from SRO to SRO, the staff estimates that on
average, each national securities exchange and national securities
association would outsource 50 hours of legal time to develop and draft
the NMS plan, for a capital cost of approximately $20,000 for each
national securities exchange and national securities association
resulting from outsourced legal work.\300\ Therefore, the Commission
preliminarily estimates that the average one-time initial burden of
developing and filing the NMS plan would be 840 burden hours plus
$20,000 external costs for outsourced legal counsel per SRO, for an
aggregate estimated burden of 12,600 hours plus $300,000 external
costs.
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    \300\ Based on industry sources, the Commission estimates that
the hourly rate for outsourced legal services in the securities
industry is $400 per hour.
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    Once the national securities exchanges and national securities
associations have established the NMS plan, the Commission estimates
that, on average, each national securities exchange and national
securities association would incur 192 burden hours annually to ensure
that the NMS plan is up to date and remains in compliance with the
proposed Rule,\301\ for an aggregate estimated burden of 2,880 hours.
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    \301\ The Commission derived the total estimated burdens from
the following estimates, which are based on prior Commission
experience with burden estimates: (Attorney at 64 hours) +
(Compliance Manager at 64 hours) + (Programmer Analyst at 64 hours)
= 192 burden hours.
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b. Report
    The Commission estimates that it would take each national
securities exchange or national securities association approximately
420 burden hours of internal legal, compliance, business operations and
information technology staff time to create the report required by the
proposed Rule.\302\ The Commission also expects that each national
securities exchange and national securities association respondent may
incur one-time external costs for outsourced legal services helping to
prepare the report. Commission estimates that on average, each national
securities exchange and national securities association would outsource
25 hours of legal time to create the report, for an aggregate one-time
capital cost of approximately $10,000.\303\ Therefore, the Commission

preliminarily estimates that the one-time initial burden of drafting
the report required by the proposed Rule would be 420 burden hours plus
$10,000 external costs for outsourced legal counsel per SRO, for an
aggregate estimated burden of 6,300 hours and $150,000 external costs.
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    \302\ The Commission derived the total estimated burden from the
following estimates, which assumes preparation of the report would
impose approximately half of the approximate burden of preparing the
plan, reflects half of the approximate burden of drafting and filing
the NMS plan, and the Commission's preliminary view that the cost of
preparing the report would not be as extensive as the drafting and
filing of the NMS plan: (Attorney at 200 hours) + (Compliance
Manager at 50 hours) + (Programmer Analyst at 110 hours) + (Business
Analyst at 60 hours) = 420 burden hours per SRO.
    \303\ The Commission derived the total estimated burden for
outsourced legal counsel based on the assumption that the report
required by the proposed Rule would require approximately half the
effort of drafting and filing the proposed NMS plan.
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c. Data Collection and Reporting
    The proposed Rule would require the collection and reporting on a
real time basis of some information that national securities exchanges
and national securities associations already collect to operate their
business, and are required to maintain in compliance with Section 17(a)
of the Exchange Act and Rule 17a-1 thereunder.\304\ For instance, the
Commission believes that exchanges keep records pursuant to Section
17(a) of the Exchange Act and Rule 17a-1 thereunder in electronic form,
of the receipt of all orders entered into their systems, as well as
records of the routing, modification, cancellation, and execution of
those orders. However, the proposed Rule would require each SRO to
collect and report additional and more detailed information, and to
report the information to the central repository in real time in a
specified uniform format. The Commission anticipates that exchanges may
need to enhance or replace their current systems to be able to comply
with the proposed information collection and reporting requirements of
the proposed Rule.
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    \304\ 15 U.S.C. 78q(a); 17 CFR 240.17a-1.
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    The Commission recognizes that the extent to which a particular SRO
would need to make systems changes would differ depending upon the
SRO's current market structure and existing systems. However, the
Commission preliminarily estimates that, on average, the initial one-
time burden per national securities exchange and national securities
association for development and implementation of the systems needed to
capture the required information and transmit it to the central
repository in a specified format in compliance with the proposed Rule
to be 2,200 hours.\305\ Further, the Commission estimates that, on
average, each exchange and association would incur approximately 40
hours of outsourced legal counsel legal time for the development and
implementation of systems needed to capture the required information
and transmit it to the central repository, and a one-time software and
hardware cost of $4,542,940 per SRO to develop and implement the
necessary systems. Therefore, the Commission preliminarily estimates
that the average one-time initial burden per national securities
exchange and national securities association for development and
implementation of the systems needed to capture the required
information and transmit it to the central repository in a specified
format in compliance with the proposed Rule would be 2,200 burden hours
plus $16,000 costs for outsourced legal counsel and $4,542,940 for
hardware and software costs,\306\ for an aggregate estimated burden of
33,000 hours and $68,384,100 external and systems costs.
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    \305\ The Commission derived the total estimated burdens from
the following estimates, which reflect the Commission's experience
with, and burden estimates for, SRO systems changes, and discussions
with market participants: (Attorney at 100 hours) + (Compliance
Manager at 80 hours) + (Programmer Analyst at 1,960 hours) +
(Business Analyst at 60 hours) = 2,200 burden hours per SRO.
    \306\ These estimates are based on the Commission's previous
experience with, and cost estimates for, SRO systems changes, and
discussions with market participants. See Securities Exchange Act
Release No. 50870 (December 16, 2004), 69 FR 77424 (December 27,
2004) (``Regulation NMS Reproposing Release'') at 77480 (discussing
costs to implement Rule 611 of Regulation NMS). Although the
Commission recognizes that the substance of Rule 611 of Regulation
NMS is not the same as the proposed Rule, the Commission
preliminarily believes that the scope of the systems changes would
be comparable.
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    Once a national securities exchange or national securities
association has established the appropriate systems required for
collection and transmission of the required information to the central
repository in a specified format, the Commission preliminarily believes
that it would be necessary for each national securities exchange or
national securities association to undertake efforts to ensure that
their system technology is up to date and remains in compliance with
the proposed Rule, which could include personnel time to monitor each
SRO's reporting of the required data and the maintenance of the systems
to report the required data; activity related to adding extra systems
capacity to accommodate new order types that would need to be reported
to the central repository; or implementing changes to trading systems
which might result in additional reports to the central repository. The
Commission preliminarily estimates that, on average, it would take a
national securities exchange or national securities association
approximately 4,975 hours per year to ensure that the system technology
is up to date and remains in compliance with the proposed Rule.\307\
The Commission also estimates that it would cost, on average,
approximately $1.25 million per year per SRO to continue to comply with
the proposed requirements to provide information to the central
repository, including costs to maintain the systems connectivity to the
central repository and purchase any necessary hardware, software, and
other materials.\308\ Therefore, the Commission preliminarily estimates
that the average ongoing annual burden per SRO would be approximately
4,975 hours plus $1.25 million external costs to maintain the systems
necessary to collect and transmit information to the central
repository, for an aggregate estimated annual burden of 74,625 hours
and $18,750,000 external systems costs.
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    \307\ The Commission derived the total estimated burdens from
the following estimates, which reflect the Commission's preliminary
view that annual ongoing costs would be approximately half the costs
of developing and implementing the systems to capture the required
information and transmit it to the central repository, and
discussions with market participants: (Attorney at 1,500 hours) +
(Compliance Analyst at 1,600 hours) + (Programmer Analyst at 1,375
hours) + (Business Analyst at 500 hours) = 4,975 burden hours per
SRO.
    \308\ This estimate includes an estimated cost of approximately
$10,000 per month to maintain systems connectivity to the central
repository, including back-up connectivity. This estimate is based
on discussions with a market participant.
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d. Central Repository
    The proposed Rule would require national securities exchanges and
national securities associations to jointly establish a central
repository tasked with the receipt, consolidation, and retention of the
reported order and execution information. The central repository thus
would need its own system(s) to receive, consolidate, and retain the
electronic data received from the SROs and their members. The system
would be required to be accessible by the sponsors and the Commission
for regulatory purposes, with validation parameters allowing the
central repository to automatically check the accuracy and completeness
of the data submitted, and reject data not conforming to these
parameters. It is anticipated that the burdens of development and
operation of the central repository would be shared among the plan
sponsors.
    The Commission staff preliminarily estimates that there would be an
average initial one-time burden of 17,500 hours per plan sponsor for
development and implementation of the systems needed to capture the
required information in compliance with the proposed Rule.\309\

Further, the Commission estimates that each exchange and association
would incur software and hardware costs of approximately $4 million per
plan sponsor related to systems development. Therefore, the Commission
preliminarily estimates a one-time initial burden of 17,500 hours per
plan sponsor, plus software and hardware costs of approximately $4
million related to systems development,\310\ for an aggregate estimated
burden of 262,500 hours and $60 million in external systems costs.
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    \309\ The Commission derived the total estimated burdens based
on the following estimates, which are based on information provided
to the Commission regarding the development of reporting systems for
the collection, consolidation, and dissemination of quotation and
last sale data and discussions with market participants: (Attorney
at 3,000 hours) + (Compliance Manager at 4,000 hours) + (Programmer
Analyst at 7,500 hours) + (Business Analyst at 3,000 hours) = 17,500
per SRO. This figure excludes the number of burden hours required to
create and file the NMS plan.
    \310\ This cost estimate includes the estimated costs that each
exchange and association would incur for software and hardware costs
related to systems development. This cost estimate also would
encompass (1) costs related to engaging in an analysis and formal
bidding process to choose the plan processor, and (2) any search
undertaken to hire a CCO. See proposed Rule 613(a)(3)(i) (the plan
sponsors would be required to select a person to act as a plan
processor for the central repository no later than two months after
the effectiveness of the NMS plan) and 613(b)(5) (the plan sponsors
would be required to appoint a CCO to regularly review the operation
of the central repository to assure its continued effectiveness in
light of market and technological developments, and make any
appropriate recommendations for enhancements to the nature of the
information collected and the manner in which the information is
processed).
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    Once the plan sponsors have established the systems necessary for
the central repository to receive, consolidate, and retain the required
information, the Commission estimates that the burden per plan sponsor
to ensure that the system technology and functionality is up to date
and remains in compliance with the proposed Rule would be 192 hours per
year, for an estimated aggregate burden per year of 2,880 hours.\311\
The estimated burden would include actions taken to regularly review
the operation of the central repository to assure its continued
effectiveness and to determine the need for enhancements to accommodate
the information required to be collected, or new information collected,
and the manner in which the data is processed, as well as periodic
assessments of the adequacy of the system technology and functionality
of the central repository.
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    \311\ The Commission derived the total estimated burdens from
the following estimates, which are based on prior Commission
experience with burden estimates: (Attorney at 16 hours) +
(Compliance Manager at 16 hours) + (Programmer Analyst at 16 hours)
= 48 burden hours per quarter, or 192 burden hours per year.
---------------------------------------------------------------------------

    After the central repository systems have been developed and
implemented, there would be ongoing costs for operating the central
repository, including the cost of paying the CCO; the cost of systems
and connectivity upgrades or changes necessary to receive, consolidate,
and store the reported order and execution information from SROs and
their members; the cost, including storage costs, of collecting and
maintaining the NBBO and transaction data in a format compatible with
the order and event information collected pursuant to the proposed
Rule; the cost of monitoring the required validation parameters, which
would allow the central repository to automatically check the accuracy
and completeness of the data submitted and reject data not conforming
to these parameters consistent with the requirements of the proposed
Rule; and the cost of compensating the plan processor. The Commission
preliminarily assumes that the plan processor would be responsible for
the ongoing operations of the central repository. The Commission
estimates that these costs would be approximately $100 million in
external costs to the plan processor for operation of the central
repository per year, or approximately $6,666,666 per plan sponsor per
year.\312\
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    \312\ The Commission derived the total estimated burdens based
on discussions with market participants. The estimated annual cost
includes an annual salary for a CCO of $703,800. This figure is
based on a $391 per-hour figure for a Chief Compliance Officer from
SIFMA's Management & Professional Earnings in the Securities
Industry 2008, modified by Commission staff to account for an 1,800-
hour work-year and multiplied by 5.35 to account for bonuses, firm
size, employee benefits, and overhead.
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e. Collection and Retention of the NBBO and Transaction Reports
    The proposed Rule would require that the central repository collect
and retain on a current and continuous basis the NBBO for each NMS
security, transaction reports reported pursuant to an effective
transaction reporting plan, and last sale reports reported pursuant to
the OPRA Plan. The central repository would be required to maintain
this NBBO and transaction data in a format compatible with the order
and event information collected pursuant to the proposed Rule.\313\
Further, the central repository would be required to retain the
information collected pursuant to paragraphs (c)(7) and (e)(5) of the
proposed Rule in a convenient and usable standard electronic data
format that is directly available and searchable electronically without
any manual intervention for a period of not less than five years. The
information would be required to be available immediately, or if
immediate availability could not reasonably and practically be
achieved, any search query would be required to begin operating on the
data not later than one hour after the search query is made.\314\
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    \313\ See proposed Rule 613(e)(5).
    \314\ See proposed Rule 613(e)(6).
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    The Commission preliminarily has included in the burden estimates
to the plan sponsors of developing and implementing the systems
necessary to capture the order audit trail information (see supra
Section V.D.1.d) the: (1) Initial one-time hour burden per plan sponsor
for development and implementation of the systems at the central
repository necessary to receive and retain this NBBO and last sale
information; (2) associated software and hardware costs; and (3)
ongoing costs of receiving and retaining the NBBO and last sale
information.\315\
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    \315\ See supra Section V.D.1.d.
---------------------------------------------------------------------------

    The Commission estimates that the ongoing external costs to receive
the NBBO and last sale data from the SIPs would be approximately $1,370
per year.\316\
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    \316\ The Commission derived this estimate based on the average
current cost of obtaining consolidated quotation and transaction
information from existing quotation and transaction reporting plans.
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2. Members
    The Commission preliminarily believes that the proposed Rule would
require the collection and reporting in real time of much of the
information that registered broker-dealers already maintain in
compliance with existing regulations.\317\ For example, Section 17 of
the Exchange Act and Rule 17a-3 thereunder mandate that broker-dealers
keep certain records of orders handled during the course of
business.\318\ Certain information also is required to be collected and
reported by broker-dealers in compliance with a Commission request
pursuant to Rule 17a-25 under

the Exchange Act.\319\ The proposed Rule would, however, require SRO
members to collect and report additional information for each order in
a specified uniform format. In addition to the new information, the
members also would be required to report most of the information on a
real time basis to the central repository, which is not currently
required. The Commission anticipates that SRO members would need to
either enhance or replace their current order handling, trading, and
other systems to be able to collect and report the required order and
reportable event information to the central repository as required by
the proposed Rule.
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    \317\ See Section 17(a) of the Exchange Act, 14 U.S.C. 78q(a),
and Rules 17a-3, 17a-4, and 17a-25 under the Exchange Act, 17 CFR
240.17a-3, 17 CFR 240.17a-4, and 17 CFR 240.17a-25; see also, e.g.,
BATS Rule 20.7; BOX Chapter V, Section 4; CBOE Chapter VI, Rule
6.24; CHX Article 11, Rule 3; FINRA Rule 7440; Nasdaq Options Market
Chapter IX, Section 4; NYSE Rule 132B; and NYSE Amex Equities Rule
132B.
    \318\ 15 U.S.C. 78q et seq.; 17 CFR 240.17a-3. Generally,
broker-dealers must keep a memorandum of each brokerage order,
including the following information: The terms and conditions of an
order or instructions; the account for which an order was entered;
time of order entry and receipt and, to the extent feasible, time of
execution; any modifications or cancellations (and, to the extent
feasible, time of cancellation); execution price; and the identity
of each associated person, if any, responsible for the account. See
Rule 17a-3(a)(6)(i) under the Exchange Act, 17 CFR 240.17a-
3(a)(6)(i). Broker-dealers also are required to keep a record for
each cash and margin account they hold, and the name and address of
the beneficial owner of each such account. See Rule 17a-3(a)(9)
under the Exchange Act, 17 CFR 240.17a-3(a)(9).
    \319\ See supra Section I.A for a detailed discussion of what
information is required to be submitted upon request to the
Commission pursuant to Rule 17a-25 under the Exchange Act, 17 CFR
240.17a-25.
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    The Commission recognizes that the extent to which a particular
member would need to make systems changes or replace existing systems
would differ depending upon the member's current business operations
and systems. The Commission preliminarily believes that members that
rely mostly on their own internal order routing and execution
management systems would need to make changes to or replace such
systems to collect and report the required order and reportable event
information to the central repository as required by the proposed Rule.
The Commission estimates that there are approximately 1,114 of these
types of members.\320\ The Commission preliminarily estimates the
average initial one-time burden to develop and implement the needed
systems changes to capture the required information and transmit it to
the central repository in compliance with the proposed Rule for these
members would be approximately 6,530 burden hours.\321\ The Commission
also preliminarily estimates that these members would, on average,
incur approximately $1.5 million in one-time external costs for
hardware and software to implement the systems changes needed to
capture the required information and transmit it to the central
repository.\322\ Therefore, the Commission preliminarily estimates that
the average one-time initial burden per member would be 6,530 hours and
$1.5 million, for an estimated aggregate burden of 7,274,420 hours and
$1,671,000,000.
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    \320\ This number includes members that are clearing broker-
dealers that carry customer accounts; broker-dealers that accept
customer monies but do no margin business; introducing brokers that
clear proprietary securities transactions; ATSs registered with the
Commission; other clearing firms; and registered market makers. This
number was derived from annual FOCUS reports filed with the
Commission for the year ending in 2008.
    \321\ The Commission derived the total estimated burdens on the
following estimates, which reflect the Commission's previous
experience with, and burden estimates for, broker-dealer systems
changes, and discussions with market participants: (Attorney at
1,240 hours) + (Compliance Manager at 1,540 hours) + (Programmer
Analyst at 2,750 hours) + (Business Analyst at 1,000 hours) = 6,530
hours.
    \322\ These estimates are based on the Commission's previous
experience with, and cost estimates for, broker-dealer systems
changes, and discussions with market participants. See Regulation
NMS Reproposing Release, supra note 306, at 77480 (discussing costs
to implement Rule 611 of Regulation NMS). Although the Commission
recognizes that the substance of Rule 611 of Regulation NMS is not
the same as the proposed Rule, the Commission preliminarily believes
that the scope of the systems changes would be comparable.
    These estimated hour burdens and systems costs would include the
burden and costs, if any, that would be incurred by members to
obtain the required customer information, including beneficial
ownership, store it electronically, and transmit it to the central
repository.
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    This number would likely overestimate the costs for some of these
members and underestimate it for others. For example, it may
overestimate the cost for ATSs as opposed to members that engage in a
customer and proprietary (or market marking) business, in part because
of the narrower business focus of some ATSs.\323\ The Commission also
recognizes that some or all of these members may contract with one or
more outside vendors to provide certain front-end order management
systems. The third-party vendor may make changes to its systems to
permit the members that use the system to capture and provide the
required information to the central repository. Likewise, some or all
of these members may contract with outside vendors to provide back-
office functionality. These third-party vendors may make changes to
their systems to permit the members that use the systems to capture and
provide the required information to the central repository. The cost of
these changes may be shared by the various members that use the
systems, and thus may result in a reduced cost to an individual member
to implement changes to its own systems to comply with the requirements
of the proposed Rule.
---------------------------------------------------------------------------

    \323\ See Regulation NMS Reproposing Release, supra note 306, at
77480.
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    Once such a member has established the appropriate systems and
processes required for collection and transmission of the required
information to the central repository, the Commission estimates that
the proposal would impose on each member ongoing annual burdens
associated with, among other things, personnel time to monitor each
member's reporting of the required data and the maintenance of the
systems to report the required data; activity related to adding extra
systems capacity to accommodate new order types that would need to be
reported to the central repository; or implementing changes to trading
systems which might result in additional reports to the central
repository. The Commission preliminarily estimates that, on average, it
would take a member of a national securities exchange or national
securities association approximately 3,050 burden hours per year
continued compliance with the proposed Rule.\324\ The Commission also
estimates that it would cost, on average, approximately $756,000 per
year per member to maintain the systems connectivity to the central
repository and purchase any necessary hardware, software, and other
materials.\325\ Therefore, the Commission preliminarily estimates that
the average ongoing annual burden per member would be approximately
3,050 hours, plus $756,000 external costs to maintain the systems
necessary to collect and transmit information to the central
repository, for an estimated aggregate annual burden of 3,397,700 hours
and $842,184,000.
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    \324\ The Commission derived the total estimated burdens on the
following estimates, which reflect the Commission's preliminary view
that ongoing costs would be approximately half of the costs of
developing and implementing the systems to comply with the proposed
Rule: (Attorney at 800 hours) + (Compliance Manager at 1,000 hours)
+ (Programmer Analyst at 500 hours) + (Business Analyst at 750
hours) = 3,050 burden hours.
    \325\ This estimate includes an estimated cost of approximately
$10,000 per month to maintain systems connectivity to the central
repository, including back-up connectivity. This estimate is based
on discussions with a market participant.
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    The Commission preliminarily believes that other members generally
would rely on functionality provided by third parties to electronically
capture the required information and transmit it to the central
repository in real time. For purposes of the proposed Rule, the
Commission assumes that these members, which could include broker-
dealers defined as ``small entities'' for purposes of the Regulatory
Flexibility Act,\326\ generally do not clear transactions and may not
possess their own internal order routing and execution management
systems, but instead rely on third-party providers for such
functionality. Further, the Commission assumes that many of these
members currently do not themselves report order or trade information
and instead rely on their clearing firms or other third parties to do
it for them.

These smaller members may look for ``turn key'' systems that could
provide the functionality required by the proposed Rule. As such, the
Commission preliminarily believes that these members would not
undertake a fundamental restructuring of their business to comply with
the proposed Rule. Instead, they might continue to rely on their
clearing broker-dealer, or they might purchase a standardized software
product provided by a third party that would provide the functionality
to electronically capture the required information and transmit it to
the central repository in real time. The Commission estimates that
there are approximately 3,006 of these types of members.\327\ For these
members, Commission staff preliminarily estimates the average external
cost to compensate a third party, whether the clearing broker-dealer or
other third party, for software that would provide the necessary
functionality to electronically capture the required information and
transmit it to the central repository, would be approximately $50,000
per member.\328\ In addition, the Commission preliminarily estimates
that each of these members, on average, would incur a one-time burden
of 140 hours to incorporate this functionality.\329\ Therefore, the
Commission preliminarily estimates an initial aggregate burden of
420,840 hours and $150,300,000.
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    \326\ See infra Section IX.
    \327\ This number includes introducing broker-dealers that do
not clear transactions. This number excludes non-clearing firms that
specialize in direct participation programs; non-clearing firms that
sell insurance products; and non-clearing firms that are
underwriters and retailers of mutual funds because these firms do
not deal in NMS securities. This number was derived from annual
FOCUS reports filed with the Commission for the year ending in 2008.
    \328\ This estimate is based on the Commission's previous
experience with, and burden estimates for, broker-dealer systems
changes. See Regulation NMS Reproposing Release, supra note 306, at
77480 (discussing costs to implement Rule 611 of Regulation NMS).
Although the Commission recognizes that the substance of Rule 611 of
Regulation NMS is not the same as the proposed Rule, the Commission
preliminarily believes that the scope of the systems changes would
be comparable.
    \329\ The Commission derived the estimated burdens from the
following estimates, which are based on prior Commission experience
with burden estimates: (Attorney at 50 hours) + (Compliance Manager
at 50 hours) + (Programmer Analyst at 40 hours) = 140 hours.
    These estimated hour burdens and systems costs would include the
burden and costs, if any, that would be incurred by members to
obtain the required customer information, including beneficial
ownership, store it electronically, and transmit it to the central
repository.
---------------------------------------------------------------------------

    Once such a member has procured the appropriate third party
system(s) for collection and transmission of the required information
to the central repository, the Commission preliminarily estimates that
such a member would continue to incur, on average, an external cost of
$50,000 annually to compensate a third party, whether the clearing
broker-dealer or for software that would provide the necessary
functionality to capture the required information and transmit it to
the central repository. The Commission also preliminarily estimates
that each such member would incur a cost for compliance personnel
necessary to oversee continued compliance with the proposed Rule, which
would result in 64 burden hours annually for such member.\330\
Therefore, the Commission preliminarily estimates an aggregate ongoing
burden of 192,384 hours and $150,300,000 to ensure compliance with the
proposed Rule.
---------------------------------------------------------------------------

    \330\ The Commission bases this estimate one a full-time
Compliance Manager spending approximately 2 days per quarter of his
time on overseeing ongoing compliance with the proposed Rule.
---------------------------------------------------------------------------

    The Commission requests specific comments on each of its estimates
with respect to the estimated burden and costs on members to comply
with the proposed Rule. In particular, the Commission requests comment
on the specific types and amount of costs, as well as internal staff
burden, that would be incurred to modify members' order handling,
trading, and other systems to comply with the proposed Rule. The
Commission requests comment whether, and if so how, the estimated costs
would be impacted if the members did not have to provide the
information in proposed Rule 613(c)(7)(vi) and (vii) (the non-real time
information).\331\ For instance, would requiring the reporting to the
central repository of the account numbers for any subaccounts to which
an execution is allocated, and the amount of a commission, if any, paid
by the customer and the unique identifier of the broker-dealer(s) to
whom the commission is paid, require changes to systems other than
order handling and execution systems?
---------------------------------------------------------------------------

    \331\ Proposed Rule 613(c)(7)(vi) would require the reporting to
the central repository of the following information: (1) The account
number for any subaccounts to which the execution is allocated (in
whole or part); (2) the unique identifier of the clearing broker or
prime broker, if applicable; (3) the unique order identifier of any
contra-side order(s); (4) special settlement terms, if applicable;
(5) short sale borrow information and identifier; and (6) the amount
of a commission, if any, paid by the customer, and the unique
identifier of the broker-dealer(s) to whom the commission is paid.
Proposed Rule 613(c)(7)(vii) would require the reporting to the
central repository of a cancelled trade indicator, if the trade is
cancelled.
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E. Collection of Information Is Mandatory

    Each collection of information discussed above would be a mandatory
collection of information.

F. Confidentiality

    The proposed Rule would require that the information to be
collected and electronically provided to the central repository would
only be available to the national securities exchanges, national
securities association and the Commission for the purpose of performing
their respective regulatory and oversight responsibilities pursuant to
the federal securities laws, rules, and regulations.\332\ Further, the
national market system plan submitted pursuant to the proposed Rule
would be required to include policies and procedures to ensure the
security and confidentiality of all information submitted to the
central repository, and to ensure that all plan sponsors and their
employees, as well as all employees of the central repository, shall
use appropriate safeguards to ensure the confidentiality of such data
and shall agree not to use such data for any purpose other than
surveillance and regulatory purposes.\333\
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    \332\ See proposed Rule 613(e)(2).
    \333\ See proposed Rule 613(e)(4)(i).
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G. Retention Period of Recordkeeping Requirements

    National securities exchanges and national securities associations
would be required to retain records and information pursuant to Rule
17a-1 under the Exchange Act.\334\ Members would be required to retain
records and information in accordance with Rule 17a-4 under the
Exchange Act.\335\
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    \334\ 17 CFR 240.17a-1.
    \335\ 17 CFR 240.17a-4.
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H. Request for Comments

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comment to: (1) Evaluate whether each proposed collection of
information is necessary for the performance of the functions of the
agency, including whether the information shall have practical utility;
(2) evaluate the accuracy of the agency's estimate of the burden of
each proposed collection of information; (3) enhance the quality,
utility, and clarity of the information to be collected; and (4)
minimize the burden of each collection of information on those who are
to respond, including through the use of automated collection
techniques or other forms of information technology.

VI. Consideration of Costs and Benefits

    The Commission is sensitive to the anticipated costs and benefits
of the proposed Rule and requests comments on the costs and benefits of
the proposed Rule. The Commission encourages commenters to identify,
discuss, analyze, and supply relevant data regarding any such costs or
benefits.

A. Benefits

    Proposed Rule 613 would require all national securities exchanges
and national securities associations to jointly submit to the
Commission an NMS plan to create, implement, and maintain a
consolidated audit trail. The proposed consolidated audit trail would
capture, in real time, certain information about each order (including
quotations) for an NMS security, including the identity of the customer
placing the order, and the details of routing, modification,
cancellation, and execution (in whole or in part). In effect, an
``electronic audit trail report'' would be created for every event in
the life of the order. The consolidated audit trail would be maintained
by a central repository, and all exchanges, FINRA and the Commission
would have access to the consolidated audit trail data for regulatory
purposes.
    The Commission preliminarily believes that proposed Rule 613 would
significantly aid each of the exchanges and FINRA in carrying out its
respective statutory obligations to be organized and have the capacity
to comply, and enforce compliance by its members, with its rules, and
with the federal securities laws, rules, and regulations. Likewise, the
Commission believes that proposed Rule 613 would significantly aid the
Commission in its ability to oversee the exchanges and associations,
and to enforce compliance by the members of exchanges and associations
with the respective exchange's or association's rules, and the federal
securities laws and regulations. The proposed consolidated audit trail
also would aid the Commission in its efforts to limit the manipulation
of security prices, and to limit the use of manipulative or deceptive
devices in the purchase or sale of a security. Further, the proposal
would benefit exchanges, FINRA, and Commission staff by improving the
ability of exchanges, FINRA and Commission staff to conduct more timely
and accurate trading analysis for market reconstructions, complex
enforcement inquiries or investigations, as well as inspections and
examinations.
    Specifically, the Commission preliminarily believes that, as
proposed, Rule 613 would enable exchanges and FINRA to more effectively
and efficiently detect, investigate, and deter illegal trading
activity, particularly cross-market illegal activity, in furtherance of
their statutory obligations. In addition, the Commission preliminarily
believes that proposed Rule 613 would enhance the ability of the
Commission staff in its regulatory and market analysis efforts. The
proposed rule would achieve these objectives in several ways. First,
proposed Rule 613 would require the central repository to collect the
same data on customer and order event information from each exchange,
FINRA, and all members of the exchanges and FINRA, in a uniform format.
Currently, the scope and format of audit trail information relating to
orders and executions differs, sometimes significantly, among exchanges
and FINRA. Thus, by requiring that all exchanges, FINRA and their
members submit uniform customer and order event data to the central
repository in a uniform format that would more readily allow for
consolidation, the proposed Rule would allow regulators to more easily,
and in a more timely manner, surveil potential manipulative activity
across markets and market participants. The Commission preliminarily
believes that this increased efficiency would enhance the ability of
SRO and Commission staff to detect and investigate manipulative
activity in a more timely manner, whether the activity is occurring on
one market or across markets (or across different product classes).
Timely pursuit of potential violations can be important in, among other
things, seeking to freeze and recover any profits received from illegal
activity.
    The Commission also preliminarily believes that the proposed
consolidated audit trail would enhance the ability of SRO and
Commission staff to regulate the trading of NMS securities by requiring
that key pieces of information currently not captured in existing audit
trails be reported to the proposed consolidated audit trail. For
example, proposed Rule 613 would require that the customer that submits
or originates an order be identified in the consolidated audit trail.
In addition, the proposed Rule would require the assignment of unique
identifiers for each order, each customer, and each broker-dealer and
SRO that handles an order. Further, the proposed Rule would greatly
enhance the ability to track an order from the time of order inception
through routing, modification, cancellation, and execution. The
Commission preliminarily believes that this information would allow
regulators to more easily track potential manipulative activity across
markets and market participants, and would place SRO and Commission
staff in a better position to surveil whether exchange rules, as well
as federal securities laws, rules and regulations, are complied with.
    The proposal also would require that most of the required audit
trail information be submitted on a real time basis. Most existing
audit trails currently collect information on orders at the end of the
day, or upon request, rather than in real time.\336\ Other order and
execution information, such as EBS data and Rule 17a-25 data, is
provided to the Commission only upon request. The proposed consolidated
audit trail would require that certain information about orders and
executions be provided on a real time basis. The Commission
preliminarily believes that this requirement could significantly
increase the ability of SRO and Commission staff to identify and
investigate manipulative activity in a more timely manner.\337\
---------------------------------------------------------------------------

    \336\ See supra Sections I.C., I.D., II.A., and V.A.5.
    \337\ See supra Section III.D.1.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposal also would
benefit exchanges, FINRA, and Commission staff by improving the ability
of exchanges, FINRA and Commission staff to conduct timely and accurate
trading analysis for market reconstructions, complex enforcement
inquiries or investigations, as well as inspections and examinations.
Today, trading activity is widely dispersed among various market
centers, and one or more related orders for one or more securities or
other related products may be routed to multiple broker-dealers and
more than one exchange, or be executed in the OTC market. Thus, SRO and
Commission regulatory staff investigating potentially illegal behavior
may have to collect information from multiple broker-dealers and then
examine, analyze and reconcile the disparate information provided in
widely divergent formats to accurately reconstruct all trading activity
during a particular time frame in the course of investigating
potentially manipulative activity. Obtaining the necessary order and
execution information and undergoing the necessary analysis to
determine whether any wrongdoing exists based on the information
available today requires substantial investment of time and effort on
behalf

of regulatory authorities. Under proposed Rule 613, regulatory
authorities would be able to access all information about events in the
life of an order or related orders, and obtain critical information
identifying the customer (or beneficial owner) behind the order(s)
directly from the central repository in a uniform format. Thus, the
Commission preliminarily believes that ability of SRO and Commission
staff to conduct timely and accurate trading analysis for market
reconstructions, complex enforcement inquiries and investigation, as
well as inspections and examinations, would be significantly improved.
    The Commission also preliminarily believes that the proposal would
benefit SROs, as well as the NMS for NMS securities, by ultimately
reducing some regulatory costs, which may result in a more effective
re-allocation of overall costs. For example, by providing a more
comprehensive and searchable database, the Commission preliminarily
believes that the consolidated audit trail would significantly decrease
the amount of time invested by SRO staff to determine whether any
illegal activity is occurring either on one market or across markets.
Currently, SRO regulatory staff may need to submit multiple requests to
its members during the course of an investigation into possible illegal
activity, or submit multiple requests to ISG to obtain audit trail
information from other SROs about trading in a particular security, and
then commit significant staff time to collating and analyzing the data
produced. The proposal would benefit the Commission in similar
respects. For example, Commission staff often must submit numerous
requests to members after the Commission receives information from
equity cleared reports in an attempt to identify the ultimate customer
(or beneficial account holder) that entered the order or orders in
question. Substantial Commission staff resources currently are invested
in analyzing the data that is received in response to these requests.
    Under proposed Rule 613, SRO regulatory staff would have immediate,
easily searchable access to the consolidated audit trail data through
the central repository for purposes of conducting surveillance,
investigations, and enforcement activities. Commission staff likewise
would have more efficient and timely access for purposes of conducting
risk assessments of referrals received, investigations, and enforcement
activities, and for purposes of conducting market reconstructions or
other analysis. Thus, the Commission preliminarily believes that the
proposal would benefit SRO and Commission staff, as well as the market
for NMS securities as whole, by providing immediately accessible audit
trail information to regulatory staff, which would in turn reduce staff
time and effort that would otherwise be needed to collect and analyze
audit trail information and allow such staff time and effort to be
redirected to more effective uses, possibly even allowing the staff to
engage in more investigations. In other words, if the costs per
investigation decreased because of efficiencies in the proposed
consolidated audit trail information, SRO or Commission staff may be
able to review and investigate a greater amount of suspicious activity.
    Likewise, the Commission preliminarily believes that proposed Rule
613 would benefit the exchanges, FINRA, the Commission, and the members
of SROs, as well as investors and the public interest, by reallocating
the overall cost of regulating the markets for NMS securities on an
ongoing basis toward more efficient regulation. For instance, the
Commission preliminarily believes that the proposed consolidated audit
trail would eliminate the need for certain SRO and Commission rules
that currently mandate the collection and provision of information, at
least with respect to NMS securities. As noted above, many exchanges
and FINRA each have their own disparate audit trail rules. Thus, a
member of the various exchanges and FINRA could be subject to the audit
trail rules of, and be required to submit different information to,
more than one exchange and FINRA. The Commission intends that the
proposed consolidated audit trail replace the need to have disparate
SRO audit trail rules. If proposed Rule 613 were adopted, and the
consolidated audit trail was implemented, the Commission preliminarily
believes that the exchanges and FINRA would not need to have separate
and disparate audit trail rules that apply to NMS securities applicable
to their members. Thus, the Commission preliminarily believes that the
proposed consolidated audit trail would ultimately result in the
ability of SROs to repeal their existing audit trail rules because SRO
audit trail requirements would be encompassed within proposed Rule 613.
Similarly, the proposed consolidated audit trail also may render
duplicative and thus unnecessary certain data obtained from the EBS
system pursuant to Rule 17a-25 (and the SRO rules implementing the EBS
system), and from the equity cleared data, at least as it relates to
NMS securities. SRO and Commission staff instead would be able to
access the audit trail information for every order directly from the
central repository.\338\
---------------------------------------------------------------------------

    \338\ The Commission notes that, if the proposed Rule were
adopted, the SROs would need to consider the continued need for
their existing audit trail rules until such time that their members
begin complying with the requirements of the proposed Rule.
---------------------------------------------------------------------------

    The Commission requests comment on any ongoing cost savings to SROs
or their members that could be achieved by the proposal. Are there any
other systems or technologies that could be replaced by the proposed
audit trail? Would additional Commission action be required to achieve
cost savings due to redundant rules or systems? Are there any new
systems or technology requirements that could offset these potential
cost savings? To what extent would any cost savings amount to a
reallocation of resources towards more effective or efficient uses?
Please provide specific examples. The Commission also requests comment
as to whether the proposed Rule should require the NMS plan to include
provisions relating to transition from the existing audit trails to the
proposed consolidated audit trail.
    As discussed above, the Commission preliminarily believes that the
proposal would significantly enhance the ability of SRO staff to
efficiently and effectively regulate their market and their members,
including detecting and investigating potential manipulative activity.
The Commission also preliminarily believes that the proposed
consolidated audit trail would benefit the Commission in its regulatory
and market analysis efforts. More timely detection and investigation of
potential manipulative activity may lead to greater deterrence of
future illegal activity if potential wrongdoers perceive a greater
chance of regulators identifying their activity in a more timely
fashion. To the extent investors consider the improvement in
regulators' ability to detect and investigate wrongdoing as significant
to their investment decisions, investor trust, which is a component of
investor confidence, is improved and investors may be more willing to
invest in the securities markets.\339\ An increase in investor
participation in the securities markets, at least to the extent that
the increase is allocated efficiently, can potentially benefit the
securities markets as a whole, through better capital formation. Thus,
the Commission preliminarily believes that the proposed consolidated
audit trail

would benefit the NMS for NMS securities by encouraging more efficient
and potentially a higher level of capital investment.
---------------------------------------------------------------------------

    \339\ See Guiso, Sapienza, and Zingales, ``Trusting the Stock
Market,'' available at http://ssrn.acom/abstract=811545.
---------------------------------------------------------------------------

    The Commission requests comment on how the proposal would impact
investor protections and investor confidence. In particular, would the
consolidated audit trail better align investor protections to the
expectations that investors have about their protections? What would be
the economic effect of the potential changes to investor protections or
to better alignment of those protections with investor expectations?
Would any of the anticipated benefits of the proposed Rule be mitigated
if market participants alter their trading behavior, such as by
shifting their trading activity to products or markets that do not
require the capture of customer information to avoid compliance with
the requirements of the proposed Rule? If so, please explain how so,
and what, if any, steps the Commission should take in response.
    The Commission also preliminarily believes that proposed Rule 613
would enhance the overall reliability of audit trail data that is
available to the Commission and SRO regulatory staff. Because the
proposed Rule would require that the NMS plan include policies and
procedures, including standards, to be used by the plan processor to
ensure the timeliness, accuracy, and completeness of the audit data
submitted to the central repository, there would be an automatic check
on the incoming audit trail data submitted by exchanges and FINRA, and
their members, for reliability and accuracy. The Commission expects
that these policies and procedures would include validation parameters
that would need to be met before audit trail data would be accepted
into the central repository, and that the central repository would
reject data that did not meet certain validation parameters, and
require resubmission of corrected data. Thus, the Commission
preliminarily believes that the integrity of audit trail information
available to the Commission and to the regulatory staff of the
exchanges and FINRA would be enhanced and safeguarded by the provisions
applicable to the central repository pursuant to proposed Rule 613.

B. Costs

    As discussed below, the Commission acknowledges that there likely
would be significant up-front costs to implement the proposal. However,
the Commission preliminarily believes that SRO and Commission staff, as
well as SRO members, would realize other cost savings and benefits.
1. Creation and Filing of NMS Plan
    The proposed Rule would require the exchanges and FINRA to jointly
develop and file an NMS plan to create, implement and maintain a
consolidated audit trail that would capture customer and order event
information in real time for all orders in NMS securities, across all
markets, from the time of order inception through execution,
cancellation or modification.\340\ Exchanges and FINRA would be
expected to undertake any joint action necessary to develop and file
the NMS plan, and there would be attendant costs in doing so. For
example, the Commission anticipates that exchange and FINRA staff would
need to meet and draft the required terms and provisions of the NMS
plan.\341\ The Commission preliminarily believes that the existing
exchanges and FINRA would incur an aggregate one-time cost of
approximately $3,503,100 to prepare and file the NMS plan.\342\ Once
exchanges and FINRA have established the NMS plan, the Commission
estimates that, on average, each exchange and FINRA would incur a cost
of $48,384 per year to ensure that the plan is up to date and remains
in compliance with the proposed Rule,\343\ for an estimated aggregate
annual cost of $725,760.
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    \340\ See proposed Rule 613(c)(1), (c)(3), (c)(7); see also
supra Sections III.A., III.B., III.D., and V.A.5.
    \341\ As discussed above in Section III, these required
provisions include provisions relating to: A governance structure to
ensure the fair representation of the plan sponsors; administration
of the plan, including the selection of the plan processor; the
admission of new sponsors of the NMS plan and the withdrawal of
existing sponsors from the plan; the percentage of votes required by
the plan sponsors to effectuate amendments to the plan; the manner
in which costs of operating the central repository would be
allocated among the exchanges and FINRA, including a provision
addressing the manner in which costs would be allocated to new
sponsors of the plan; the appointment of a Chief Compliance Officer;
the provision stating that by subscribing to and submitting the plan
to the Commission each plan sponsor agrees to enforce compliance by
its members with the provisions of the plan; and the provision
requiring the creation and maintenance by the central repository of
a method of access to the consolidated data that includes search and
reporting functions. See proposed Rules 613(b), 613(e)(3), and
613(g)(3). The NMS plan also would be required to include policies
and procedures, including standards, to be used by the plan
processor to ensure the security and confidentiality of all
information submitted to the central repository; to ensure the
timeliness, accuracy, and completeness of the data provided to the
central repository; to require the rejection of data provided to the
central repository that does not meet the validation parameters set
out in the plan and the re-transmission of corrected data; and to
ensure the accuracy of the processing of the data provided to the
central repository. See proposed Rule 613(e)(4).
    \342\ This figure includes internal personnel time and external
legal costs. Commission staff estimates that each exchange and
association would expend (400 Attorney hours x $305 per hour) + (100
Compliance Manager hours x $258 per hour) + (220 Programmer Analyst
hours x $193 per hour) + (120 Business Analyst hours x $194 per
hour) = $213,540. The $305 per-hour figure for an Attorney; the $258
per hour figure for a Compliance Manager; the $193 per hour figure
for a Programmer Analyst; and the $194 per hour figure for a
Business Analysis (Intermediate) are from SIFMA's Management &
Professional Earnings in the Securities Industry 2008, modified by
Commission staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead. Commission staff also estimates that each
exchange and association would outsource, on average, 50 hours of
legal time, at an average hourly rate of $400. Thus, the Commission
preliminarily estimates, on average, a total cost of $233,540 per
SRO. See supra Section V.D.1.a. (discussing PRA costs for developing
and filing the NMS plan).
    \343\ Commission staff estimates that annually each exchange and
association would expend (64 Attorney hours x $305 per hour) + (64
Compliance Manager hours x $258 per hour) + (64 Programmer Analyst
hours x $193 per hour) = $48,384, to ensure that the NMS plan is up
to date and remains in compliance with the proposed Rule. See supra
note 301.
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    In estimating the costs for creation of the NMS plan, the
Commission considered exchange and FINRA staff time necessary for
preparing and filing the plan with the Commission. The Commission also
considered the cost of outsourced legal services. The Commission
requests comment on whether there are additional costs that would
contribute to the expense of creating and filing the NMS plan. Please
describe any such cost in detail and provide an estimate of the costs.
In estimating the ongoing costs of the NMS plan, the Commission
considered exchange and FINRA staff time necessary for periodically
reviewing the plan in light of current market trends and technology.
The Commission requests comment on these estimates and what types of
costs would be incurred to keep the plan up to date.
2. Synchronizing Clocks
    The proposed Rule would require each exchange and FINRA, and the
members of each exchange and FINRA, to synchronize its business clocks
that are used for the purpose of recording the date and time of any
reportable event that must be reported pursuant to the proposed Rule to
the time maintained by the National Institute of Standards and
Technology, consistent with industry standards.\344\ As part of the
initial implementation of the consolidated audit trail, the exchanges,
FINRA and their members therefore would have to ensure that their
business clocks are synchronized with the time maintained by the
National Institute of

Standards and Technology. The proposed Rule also would require that the
NMS plan provide for the annual evaluation of the synchronization time
standard to determine whether it should be shortened, consistent with
industry standards.\345\
---------------------------------------------------------------------------

    \344\ See proposed Rule 613(d)(1).
    \345\ See proposed Rule 613(d)(2).
---------------------------------------------------------------------------

    The Commission recognizes that the cost to each SRO and member to
synchronize their clocks consistent with the proposed requirements
would vary depending upon the SRO or member's existing systems. The
Commission preliminarily believes, however, that most SROs and their
members currently synchronize their clocks, and that therefore the SROs
and their members would not incur significant costs to comply with this
requirement.\346\ The Commission recognizes that each individual member
or SRO's costs may vary depending upon their current synchronization
practices, their business structure, their order management and trading
systems, and their geographic diversity. The Commission preliminarily
estimates that an SRO or member that would need to make system changes
to comply with the requirement would incur an average one-time initial
cost of approximately $9,650.\347\
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    \346\ See CHX Rule 4, Interpretations and Policies .02; FINRA
Rule 7430; NYSE and NYSE Amex Equities Rule 123, Supplementary
Material .23; NYSE and NYSE Amex Equities Rule 132A; and NYSE Arca
Options Rule 6.20.
    \347\ Commission staff estimates that, on average, each
exchange, association, and member would expend 50 hours of
information technology time, at a cost of $193 per hour to make
systems changes to comply with the requirement that clocks be
synchronized. This estimate is based on discussions with market
participants.
---------------------------------------------------------------------------

    The Commission also preliminarily estimates that there would be an
average ongoing annual cost of approximately $11,580 to each exchange,
FINRA, and member to synchronize their business clocks to the time
maintained by the National Institute of Standards and Technology,
consistent with industry standards.\348\ Further, the Commission
preliminarily estimates that there would be an average cost to
exchanges, FINRA and their members of approximately $6,192 per SRO or
member to annually evaluate the synchronization time standards to
determine whether it should be shortened, consistent with industry
standards.\349\
---------------------------------------------------------------------------

    \348\ Commission staff estimates that each exchange, association
and member would expend approximately five hours of information
technology time, per month, at $193 per hour. This estimate is based
on discussions with industry participants.
    \349\ This estimate assumes that each SRO or member would expend
(16 Programmer Analyst hours x $193 per hour) + (16 Business Analyst
hours x $194 per hour) = $6,192 to carry out this annual evaluation.
---------------------------------------------------------------------------

    As stated above, the Commission preliminarily believes that the
costs to the SROs and their members associated with synchronizing their
clocks would not be significant because most SROs and their members
currently synchronize their clocks. The Commission requests comments on
whether commenters agree. If not, what costs would be incurred? Please
be specific as to the type of changes necessary and the costs of making
them. Further, the proposed Rule would require that all SROs and their
members synchronize to same time standard and to the same level of
accuracy. The Commission requests comment on its estimate of the cost
to SROs and their members of initializing synchronizing business
clocks, the ongoing costs for maintaining accurate synchronization, and
the costs associated with annual evaluation of the synchronization time
standard. Would SROs or their members incur costs, and if so, what
types of costs?
3. Costs To Provide Information
    As discussed above in Section V.A.5, the Commission preliminarily
believes that the proposed Rule would require the collection and
reporting on a real time basis of some information that national
securities exchanges and national securities associations already
record to operate their business, and are required to maintain in
compliance with Section 17(a) of the Exchange Act and Rule 17a-1
thereunder.\350\ However, the proposed Rule would require each SRO to
collect and report additional and more detailed information, and to
report the information to the central repository in real time in a
specified format. Based on discussions with SROs, the Commission
anticipates that exchanges would need to enhance or replace their
current systems to be able to comply with the proposed information
collection and reporting requirements of the proposed Rule.
---------------------------------------------------------------------------

    \350\ 15 U.S.C. 78q(a) et seq.; 17 CFR 240.17a-1. Rule 17a-1
requires an exchange or association to keep and preserve at least
one record of all documents or other records that shall be received
by it in the course of its business as such and in the conduct of
its self-regulatory activity. This would include records of the
receipt of all orders entered into their systems, as well as records
of the routing, modification, cancellation, and execution of those
orders. The Commission understands that SROs have automated this
process and thus keep these records in electronic format.
---------------------------------------------------------------------------

    Likewise, the Commission preliminarily believes the proposed Rule
would require the collection of much of the information that registered
broker-dealers already maintain in compliance with existing
regulations.\351\ The proposed Rule, however, would require members to
collect additional information for each order and, in addition to the
new information, the members also would be required to report most of
the information on a real time basis to the central repository in a
specified uniform format. Based on discussions with members, the
Commission anticipates that the SRO members would need to enhance or
replace their current order handling, trading and other systems to be
able to collect and report the required order and reportable event
information to the central repository as required by the proposed Rule.
---------------------------------------------------------------------------

    \351\ See supra notes 317 to 319 and accompanying text.
---------------------------------------------------------------------------

    The Commission recognizes that the extent to which a particular SRO
or member would need to make systems changes would differ depending
upon the SRO's market structure (e.g., floor vs. electronic) and
systems, or the member's current business operations and systems. The
Commission preliminarily estimates that the average one-time, initial
cost to exchanges and FINRA to put in place the systems necessary to
identify, collect and transmit the consolidated audit trail information
to the central repository would total approximately $5 million per
SRO,\352\ for an aggregate estimated cost of $75 million for all SROs.
In estimating this cost, the Commission has considered SRO staff time
necessary to build new systems or enhance existing systems to comply
with the proposed Rule.\353\ In addition, the Commission estimated
costs for system hardware, software, and other materials.\354\ What
other types of costs

might SROs incur? Please be specific in your response.
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    \352\ The Commission based this estimated cost on the
Commission's previous experience with, and burden estimates for, SRO
systems changes and discussions with market participants. See
Regulation NMS Reproposing Release, supra note 306, at 77480
(discussing costs of implementing Rule 611 of Regulation NMS).
Although the Commission recognizes that the substance of Rule 611 is
not the same as the proposed Rule, the Commission preliminarily
believes that the scope of systems changes would be comparable.
    \353\ Commission staff estimates that each exchange and
association would expend (100 Attorney hours x $305 per hour) + (80
Compliance Manager hours x $258 per hour) + 1,960 Programmer Analyst
hours x $193 per hour) + 60 Business Analyst hours x $194) =
$441,060 to develop and implement the systems needed to capture the
required information and transmit it. In addition, the Commission
estimates that each exchange and association would expend 40 hours
of outsourced legal time at an average rate of $400 per hour. See
supra note 305.
    \354\ Commission staff estimates that the cost for system
hardware, software, and other materials would be $4,542,940. See
supra note 306 and accompanying text.
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    Once an SRO has implemented the changes necessary to collect and
transmit the required information to the central repository as required
by the proposed Rule, the Commission estimates that each SRO would
incur, on average, an annual ongoing cost of $2.5 million to ensure
compliance with the proposed Rule,\355\ for an estimated ongoing annual
aggregate cost of $37.5 million for all SROs.
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    \355\ Commission staff estimates that each exchange and
association would expend (1,500 Attorney hours x $305 per hour) +
(1,600 Compliance Manager hours x $258 per hour) + (1,375 Programmer
Analyst hours x $193 per hour) + (500 Business Analyst hours x $194
per hour) to ensure that the systems technology is up to date and
remains in compliance with the proposed Rule, for a total of
$1,250,675. In addition, Commission staff estimates that each
exchange and association would expend approximately $1.25 million on
system hardware, software, connectivity and other materials. These
estimates reflect the preliminary view that ongoing costs to
maintain compliance with the proposed Rule would be half of the
initial costs. See supra notes 307 and 308.
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    The Commission understands that many members, particularly smaller
members, currently rely on third parties to report information required
to be reported pursuant to SRO audit trail or other rules. For example,
a member that is an introducing broker who sends all of its customer
order flow to a clearing broker currently may rely on that clearing
broker for reporting purposes. The Commission preliminarily believes
that these members would not undertake a fundamental restructuring of
their business to comply with the proposed Rule. Instead, they might
continue to rely on their clearing broker-dealer, or they might look
for the ability to purchase a standardized software product provided by
a third party that would provide the functionality to electronically
capture the required information and transmit it to the central
repository in real time. The costs of this approach are likely to be
significantly lower than the costs to a member that enhances its own
systems, or creates new systems, to comply with the proposed
requirements to report information to the central repository. The
Commission estimates that there are approximately 3,006 of these types
of members, and that the average cost to such members to compensate a
third party, whether a clearing broker-dealer or other third party, for
software that would provide the necessary functionality to
electronically capture the required information and transmit it to the
central repository would be approximately $50,000 per member.\356\ In
addition, the Commission estimates that, on average, each member would
incur a one-time cost of $35,870 to incorporate the new functionality
into its existing systems to ensure compliance with the proposed
Rule.\357\ Thus, the Commission preliminarily estimates that each of
these members would incur, on average, a one-time cost of $85,870, for
an estimated aggregate cost of $258,125,220.
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    \356\ See supra note 328. The Commission based this estimated
cost on the Commission's previous experience with, and burden
estimates for, broker-dealer systems changes. See Regulation NMS
Reproposing Release, supra note 306, at 77480 (discussing costs of
implementing Rule 611 of Regulation NMS). Although the Commission
recognizes that the substance of Rule 611 is not the same as the
proposed Rule, the Commission preliminarily believes that the scope
of systems changes would be comparable.
    \357\ Commission staff estimates that annually each of these
types of members would expend (50 Attorney hours x $305 per hour) +
(50 Compliance Manager hours x $258 per hour) + (40 Information
Analyst hours x $193 per hour) = $35,870 to incorporate the new
functionality into its existing systems.
    These costs would include any systems or other changes necessary
to obtain the required customer information, including the identity
of the beneficial owner, and electronically storing it for
transmittal to the central repository with the order information.
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    The Commission also preliminarily estimates that each of these
members would continue to incur, on average, annual costs of $66,512 to
ensure continued compliance with the proposed Rule.\358\
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    \358\ This estimate is based on a cost of $50,000 per year to
compensate a third party for the functionality to capture the
required information and transmit it to the central repository, and
a cost of $16,512 for personnel time to oversee compliance with the
proposed Rule (64 hours Compliance Manager x $258 per hour). See
supra note 330.
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    Do commenters believe that smaller members would likely rely on
third parties to provide a functionality that would provide required
data to the central repository? Why or why not? Would it be more cost
effective for a small member to enhance existing systems or create new
systems to comply with the proposed Rule? Why or why not? What would be
the costs associated with each approach? Should members that currently
rely on another party to report, such as their clearing broker, be able
to have their clearing firms report on their behalf? Why or why not?
How would allowing third-party reporting impact the ability to report
data in real time? Would the manner in which these members currently
maintain customer information create practical difficulties for
providing the beneficial ownership information, or additional burdens
that have not been taken into account in estimating costs? For example,
is customer information stored electronically? What is the impact of
the manner in which this information is currently stored on the
Commission's cost estimates?
    The Commission preliminarily estimates that there are 1,114 members
that would undertake their own development changes to implement the
proposed Rule.\359\ The Commission preliminarily estimates that the
average one-time, initial cost to these members for development,
including programming and testing of the systems necessary to identify,
collect and transmit the consolidated audit trail information to the
central repository, would be approximately $3 million per member,\360\
for an estimated aggregate cost of $3,342,000,000. This number would
likely overestimate the costs for some of these members and
underestimate it for others. For example, it likely overestimates the
cost for ATSs as opposed to broker-dealers that have a customer and
proprietary, or market-making, business, in part because of the
narrower business focus of some ATSs. The Commission recognizes that
some of these members may contract with one or more outside vendors to
provide certain front-end order management systems. The third-party
vendor may make changes to its systems to permit the members that use
the system to capture and provide the required information to the
central repository. Likewise, some of these members may contract with
outside vendors to provide back-office functionality. These third-party
vendors may make changes to their systems to permit the members that
use the systems to capture and provide the required information to the
central repository. The cost of these changes may be shared by the
various members that use the systems, and thus may result in a reduced
cost to an individual

member to implement changes to its own systems to comply with the
requirements of the proposed consolidated audit trail.
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    \359\ See supra Section V.D.2 and note 320.
    \360\ Commission staff estimates that each member would expend
(1,240 Attorney hours x $305 per hour) + (1,540 Compliance Manager
hours x $258 per hour) + (2,750 Programmer Analyst hours x $193 per
hour) + (1,000 Business Analyst hours x $194 per hour) = $1,500,270
to develop and implement the systems needed to capture the required
information and transmit it. In addition, the Commission estimates
that the cost for system hardware, software, and other materials
would be approximately $1.5 million. This estimate is based on the
Commission's previous experience with, and burden estimates for,
broker-dealer systems changes. See Regulation NMS Reproposing
Release, supra note 306, at 77480 (discussing cost estimates for
implementing Rule 611 of Regulation NMS). Although the Commission
recognizes that the substance of Rule 611 is not the same as the
proposed Rule, the Commission preliminarily believes that the scope
of systems changes would be comparable. These costs would include
any systems or other changes necessary to obtain the required
customer information, including the identity of the beneficial
owner, and electronically storing it for transmittal to the central
repository with the order information.
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    The Commission requests comment on this estimate. Specifically,
what types of costs would members incur building new systems, or
enhancing existing systems, to comply with the proposed Rule? Would
members need to expand their capacity as part of any systems upgrades?
What would be the costs associated with this? Would the manner in which
these members currently maintain customer information create practical
difficulties for providing the beneficial ownership information, or
additional burdens that have not been taken into account in estimating
costs? For example, is customer information stored electronically? What
is the impact of the manner in which this information is currently
stored on the Commission's cost estimates?
    Once these members have largely implemented the changes necessary
to collect and report the required order and reportable event
information to the central repository as required by the proposed Rule,
the Commission estimates that each such member would incur, on average,
an annual ongoing cost of approximately $1.5 million,\361\ for an