Title 17—Commodity and Securities Exchanges--Volume 1
PART 242—REGULATIONS M, SHO, ATS, AC, NMS, SE, AND SBSR, AND CUSTOMER MARGIN REQUIREMENTS FOR SECURITY FUTURES
§ 242.601   Dissemination of transaction reports and last sale data with respect to transactions in NMS stocks.
(a) Filing and effectiveness of transaction reporting plans. (1) Every national securities exchange shall file a transaction reporting plan regarding transactions in listed equity and Nasdaq securities executed through its facilities, and every national securities association shall file a transaction reporting plan regarding transactions in listed equity and Nasdaq securities executed by its members otherwise than on a national securities exchange.
(2) Any transaction reporting plan, or any amendment thereto, filed pursuant to this section shall be filed with the Commission, and considered for approval, in accordance with the procedures set forth in § 242.608(a) and (b). Any such plan, or amendment thereto, shall specify, at a minimum:
(i) The listed equity and Nasdaq securities or classes of such securities for which transaction reports shall be required by the plan;
(ii) Reporting requirements with respect to transactions in listed equity securities and Nasdaq securities, for any broker or dealer subject to the plan;
(iii) The manner of collecting, processing, sequencing, making available and disseminating transaction reports and last sale data reported pursuant to such plan;
(iv) The manner in which such transaction reports reported pursuant to such plan are to be consolidated with transaction reports from national securities exchanges and national securities associations reported pursuant to any other effective transaction reporting plan;
(v) The applicable standards and methods which will be utilized to ensure promptness of reporting, and accuracy and completeness of transaction reports;
(vi) Any rules or procedures which may be adopted to ensure that transaction reports or last sale data will not be disseminated in a fraudulent or manipulative manner;
(vii) Specific terms of access to transaction reports made available or disseminated pursuant to the plan; and
(viii) That transaction reports or last sale data made available to any vendor for display on an interrogation device identify the marketplace where each transaction was executed.
(3) No transaction reporting plan filed pursuant to this section, or any amendment to an effective transaction reporting plan, shall become effective unless approved by the Commission or otherwise permitted in accordance with the procedures set forth in § 242.608.
(b) Prohibitions and reporting requirements. (1) No broker or dealer may execute any transaction in, or induce or attempt to induce the purchase or sale of, any NMS stock:
(i) On or through the facilities of a national securities exchange unless there is an effective transaction reporting plan with respect to transactions in such security executed on or through such exchange facilities; or
(ii) Otherwise than on a national securities exchange unless there is an effective transaction reporting plan with respect to transactions in such security executed otherwise than on a national securities exchange by such broker or dealer.
(2) Every broker or dealer who is a member of a national securities exchange or national securities association shall promptly transmit to the exchange or association of which it is a member all information required by any effective transaction reporting plan filed by such exchange or association (either individually or jointly with other exchanges and/or associations).
(c) Retransmission of transaction reports or last sale data. Notwithstanding any provision of any effective transaction reporting plan, no national securities exchange or national securities association may, either individually or jointly, by rule, stated policy or practice, transaction reporting plan or otherwise, prohibit, condition or otherwise limit, directly or indirectly, the ability of any vendor to retransmit, for display in moving tickers, transaction reports or last sale data made available pursuant to any effective transaction reporting plan; provided, however, that a national securities exchange or national securities association may, by means of an effective transaction reporting plan, condition such retransmission upon appropriate undertakings to ensure that any charges for the distribution of transaction reports or last sale data in moving tickers permitted by paragraph (d) of this section are collected.
(d) Charges. Nothing in this section shall preclude any national securities exchange or national securities association, separately or jointly, pursuant to the terms of an effective transaction reporting plan, from imposing reasonable, uniform charges (irrespective of geographic location) for distribution of transaction reports or last sale data.
(e) Appeals. The Commission may, in its discretion, entertain appeals in connection with the implementation or operation of any effective transaction reporting plan in accordance with the provisions of § 242.608(d).
(f) Exemptions. The Commission may exempt from the provisions of this section, either unconditionally or on specified terms and conditions, any national securities exchange, national securities association, broker, dealer, or specified security if the Commission determines that such exemption is consistent with the public interest, the protection of investors and the removal of impediments to, and perfection of the mechanisms of, a national market system.
§ 242.602   Dissemination of quotations in NMS securities.
(a) Dissemination requirements for national securities exchanges and national securities associations. (1) Every national securities exchange and national securities association shall establish and maintain procedures and mechanisms for collecting bids, offers, quotation sizes, and aggregate quotation sizes from responsible brokers or dealers who are members of such exchange or association, processing such bids, offers, and sizes, and making such bids, offers, and sizes available to vendors, as follows:
(i) Each national securities exchange shall at all times such exchange is open for trading, collect, process, and make available to vendors the best bid, the best offer, and aggregate quotation sizes for each subject security listed or admitted to unlisted trading privileges which is communicated on any national securities exchange by any responsible broker or dealer, but shall not include:
(A) Any bid or offer executed immediately after communication and any bid or offer communicated by a responsible broker or dealer other than an exchange market maker which is cancelled or withdrawn if not executed immediately after communication; and
(B) Any bid or offer communicated during a period when trading in that security has been suspended or halted, or prior to the commencement of trading in that security on any trading day, on that exchange.
(ii) Each national securities association shall, at all times that last sale information with respect to NMS securities is reported pursuant to an effective transaction reporting plan, collect, process, and make available to vendors the best bid, best offer, and quotation sizes communicated otherwise than on an exchange by each member of such association acting in the capacity of an OTC market maker for each subject security and the identity of that member (excluding any bid or offer executed immediately after communication), except during any period when over-the-counter trading in that security has been suspended.
(2) Each national securities exchange shall, with respect to each published bid and published offer representing a bid or offer of a member for a subject security, establish and maintain procedures for ascertaining and disclosing to other members of that exchange, upon presentation of orders sought to be executed by them in reliance upon paragraph (b)(2) of this section, the identity of the responsible broker or dealer who made such bid or offer and the quotation size associated with it.
(3)(i) If, at any time a national securities exchange is open for trading, such exchange determines, pursuant to rules approved by the Commission pursuant to section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)), that the level of trading activities or the existence of unusual market conditions is such that the exchange is incapable of collecting, processing, and making available to vendors the data for a subject security required to be made available pursuant to paragraph (a)(1) of this section in a manner that accurately reflects the current state of the market on such exchange, such exchange shall immediately notify all specified persons of that determination. Upon such notification, responsible brokers or dealers that are members of that exchange shall be relieved of their obligation under paragraphs (b)(2) and (c)(3) of this section and such exchange shall be relieved of its obligations under paragraphs (a)(1) and (2) of this section for that security; provided, however , that such exchange will continue, to the maximum extent practicable under the circumstances, to collect, process, and make available to vendors data for that security in accordance with paragraph (a)(1) of this section.
(ii) During any period a national securities exchange, or any responsible broker or dealer that is a member of that exchange, is relieved of any obligation imposed by this section for any subject security by virtue of a notification made pursuant to paragraph (a)(3)(i) of this section, such exchange shall monitor the activity or conditions which formed the basis for such notification and shall immediately renotify all specified persons when that exchange is once again capable of collecting, processing, and making available to vendors the data for that security required to be made available pursuant to paragraph (a)(1) of this section in a manner that accurately reflects the current state of the market on such exchange. Upon such renotification, any exchange or responsible broker or dealer which had been relieved of any obligation imposed by this section as a consequence of the prior notification shall again be subject to such obligation.
(4) Nothing in this section shall preclude any national securities exchange or national securities association from making available to vendors indications of interest or bids and offers for a subject security at any time such exchange or association is not required to do so pursuant to paragraph (a)(1) of this section.
(5)(i) Any national securities exchange may make an election for purposes of the definition of subject security in § 242.600(b)(101) for any NMS security, by collecting, processing, and making available bids, offers, quotation sizes, and aggregate quotation sizes in that security; except that for any NMS security previously listed or admitted to unlisted trading privileges on only one exchange and not traded by any OTC market maker, such election shall be made by notifying all specified persons, and shall be effective at the opening of trading on the business day following notification.
(ii) Any member of a national securities association acting in the capacity of an OTC market maker may make an election for purposes of the definition of subject security in § 242.600(b)(101) for any NMS security, by communicating to its association bids, offers, and quotation sizes in that security; except that for any other NMS security listed or admitted to unlisted trading privileges on only one exchange and not traded by any other OTC market maker, such election shall be made by notifying its association and all specified persons, and shall be effective at the opening of trading on the business day following notification.
(iii) The election of a national securities exchange or member of a national securities association for any NMS security pursuant to this paragraph (a)(5) shall cease to be in effect if such exchange or member ceases to make available or communicate bids, offers, and quotation sizes in such security.
(b) Obligations of responsible brokers and dealers. (1) Each responsible broker or dealer shall promptly communicate to its national securities exchange or national securities association, pursuant to the procedures established by that exchange or association, its best bids, best offers, and quotation sizes for any subject security.
(2) Subject to the provisions of paragraph (b)(3) of this section, each responsible broker or dealer shall be obligated to execute any order to buy or sell a subject security, other than an odd-lot order, presented to it by another broker or dealer, or any other person belonging to a category of persons with whom such responsible broker or dealer customarily deals, at a price at least as favorable to such buyer or seller as the responsible broker's or dealer's published bid or published offer (exclusive of any commission, commission equivalent or differential customarily charged by such responsible broker or dealer in connection with execution of any such order) in any amount up to its published quotation size.
(3)(i) No responsible broker or dealer shall be obligated to execute a transaction for any subject security as provided in paragraph (b)(2) of this section to purchase or sell that subject security in an amount greater than such revised quotation size if:
(A) Prior to the presentation of an order for the purchase or sale of a subject security, a responsible broker or dealer has communicated to its exchange or association, pursuant to paragraph (b)(1) of this section, a revised quotation size; or
(B) At the time an order for the purchase or sale of a subject security is presented, a responsible broker or dealer is in the process of effecting a transaction in such subject security, and immediately after the completion of such transaction, it communicates to its exchange or association a revised quotation size, such responsible broker or dealer shall not be obligated by paragraph (b)(2) of this section to purchase or sell that subject security in an amount greater than such revised quotation size.
(ii) No responsible broker or dealer shall be obligated to execute a transaction for any subject security as provided in paragraph (b)(2) of this section if:
(A) Before the order sought to be executed is presented, such responsible broker or dealer has communicated to its exchange or association pursuant to paragraph (b)(1) of this section, a revised bid or offer; or
(B) At the time the order sought to be executed is presented, such responsible broker or dealer is in the process of effecting a transaction in such subject security, and, immediately after the completion of such transaction, such responsible broker or dealer communicates to its exchange or association pursuant to paragraph (b)(1) of this section, a revised bid or offer; provided, however , that such responsible broker or dealer shall nonetheless be obligated to execute any such order in such subject security as provided in paragraph (b)(2) of this section at its revised bid or offer in any amount up to its published quotation size or revised quotation size.
(4) Subject to the provisions of paragraph (a)(4) of this section:
(i) No national securities exchange or OTC market maker may make available, disseminate or otherwise communicate to any vendor, directly or indirectly, for display on a terminal or other display device any bid, offer, quotation size, or aggregate quotation size for any NMS security which is not a subject security with respect to such exchange or OTC market maker; and
(ii) No vendor may disseminate or display on a terminal or other display device any bid, offer, quotation size, or aggregate quotation size from any national securities exchange or OTC market maker for any NMS security which is not a subject security with respect to such exchange or OTC market maker.
(5)(i) Entry of any priced order for an NMS security by an exchange market maker or OTC market maker in that security into an electronic communications network that widely disseminates such order shall be deemed to be:
(A) A bid or offer under this section, to be communicated to the market maker's exchange or association pursuant to this paragraph (b) for at least the minimum quotation size that is required by the rules of the market maker's exchange or association if the priced order is for the account of a market maker, or the actual size of the order up to the minimum quotation size required if the priced order is for the account of a customer; and
(B) A communication of a bid or offer to a vendor for display on a display device for purposes of paragraph (b)(4) of this section.
(ii) An exchange market maker or OTC market maker that has entered a priced order for an NMS security into an electronic communications network that widely disseminates such order shall be deemed to be in compliance with paragraph (b)(5)(i)(A) of this section if the electronic communications network:
(A)( 1 ) Provides to a national securities exchange or national securities association (or an exclusive processor acting on behalf of one or more exchanges or associations) the prices and sizes of the orders at the highest buy price and the lowest sell price for such security entered in, and widely disseminated by, the electronic communications network by exchange market makers and OTC market makers for the NMS security, and such prices and sizes are included in the quotation data made available by such exchange, association, or exclusive processor to vendors pursuant to this section; and
( 2 ) Provides, to any broker or dealer, the ability to effect a transaction with a priced order widely disseminated by the electronic communications network entered therein by an exchange market maker or OTC market maker that is:
( i ) Equivalent to the ability of any broker or dealer to effect a transaction with an exchange market maker or OTC market maker pursuant to the rules of the national securities exchange or national securities association to which the electronic communications network supplies such bids and offers; and
( ii ) At the price of the highest priced buy order or lowest priced sell order, or better, for the lesser of the cumulative size of such priced orders entered therein by exchange market makers or OTC market makers at such price, or the size of the execution sought by the broker or dealer, for such security; or
(B) Is an alternative trading system that:
( 1 ) Displays orders and provides the ability to effect transactions with such orders under § 242.301(b)(3); and
( 2 ) Otherwise is in compliance with Regulation ATS (§ 242.300 through § 242.303).
(c) Transactions in listed options. (1) A national securities exchange or national securities association:
(i) Shall not be required, under paragraph (a) of this section, to collect from responsible brokers or dealers who are members of such exchange or association, or to make available to vendors, the quotation sizes and aggregate quotation sizes for listed options, if such exchange or association establishes by rule and periodically publishes the quotation size for which such responsible brokers or dealers are obligated to execute an order to buy or sell an options series that is a subject security at its published bid or offer under paragraph (b)(2) of this section;
(ii) May establish by rule and periodically publish a quotation size, which shall not be for less than one contract, for which responsible brokers or dealers who are members of such exchange or association are obligated under paragraph (b)(2) of this section to execute an order to buy or sell a listed option for the account of a broker or dealer that is in an amount different from the quotation size for which it is obligated to execute an order for the account of a customer; and
(iii) May establish and maintain procedures and mechanisms for collecting from responsible brokers and dealers who are members of such exchange or association, and making available to vendors, the quotation sizes and aggregate quotation sizes in listed options for which such responsible broker or dealer will be obligated under paragraph (b)(2) of this section to execute an order from a customer to buy or sell a listed option and establish by rule and periodically publish the size, which shall not be less than one contract, for which such responsible brokers or dealers are obligated to execute an order for the account of a broker or dealer.
(2) If, pursuant to paragraph (c)(1) of this section, the rules of a national securities exchange or national securities association do not require its members to communicate to it their quotation sizes for listed options, a responsible broker or dealer that is a member of such exchange or association shall:
(i) Be relieved of its obligations under paragraph (b)(1) of this section to communicate to such exchange or association its quotation sizes for any listed option; and
(ii) Comply with its obligations under paragraph (b)(2) of this section by executing any order to buy or sell a listed option, in an amount up to the size established by such exchange's or association's rules under paragraph (c)(1) of this section.
(3) Thirty second response. Each responsible broker or dealer, within thirty seconds of receiving an order to buy or sell a listed option in an amount greater than the quotation size established by a national securities exchange's or national securities association's rules pursuant to paragraph (c)(1) of this section, or its published quotation size must:
(i) Execute the entire order; or
(ii)(A) Execute that portion of the order equal to at least:
( 1 ) The quotation size established by a national securities exchange's or national securities association's rules, pursuant to paragraph (c)(1) of this section, to the extent that such exchange or association does not collect and make available to vendors quotation size and aggregate quotation size under paragraph (a) of this section; or
( 2 ) Its published quotation size; and
(B) Revise its bid or offer.
(4) Notwithstanding paragraph (c)(3) of this section, no responsible broker or dealer shall be obligated to execute a transaction for any listed option as provided in paragraph (b)(2) of this section if:
(i) Any of the circumstances in paragraph (b)(3) of this section exist; or
(ii) The order for the purchase or sale of a listed option is presented during a trading rotation in that listed option.
(d) Exemptions. The Commission may exempt from the provisions of this section, either unconditionally or on specified terms and conditions, any responsible broker or dealer, electronic communications network, national securities exchange, or national securities association if the Commission determines that such exemption is consistent with the public interest, the protection of investors and the removal of impediments to and perfection of the mechanism of a national market system.
§ 242.603   Distribution, consolidation, dissemination, and display of information with respect to quotations for and transactions in NMS stocks.
(a) Distribution of information. (1) Any exclusive processor, or any broker or dealer with respect to information for which it is the exclusive source, that distributes information with respect to quotations for or transactions in an NMS stock to a securities information processor shall do so on terms that are fair and reasonable.
(2) Any national securities exchange, national securities association, broker, or dealer that distributes information with respect to quotations for or transactions in an NMS stock to a securities information processor, broker, dealer, or other persons shall do so on terms that are not unreasonably discriminatory.
(b) Consolidation and dissemination of information. (1) Application of paragraphs (b)(2) and (3) of this section:
(i) Compliance with paragraph (b)(3) of this section is required until the date indicated by the Commission in any order approving amendments to the effective national market system plan(s) to effectuate a cessation of the operations of the plan processors that disseminate consolidated information regarding NMS stocks.
(ii) Compliance with paragraph (b)(2) of this section is required 180 calendar days from the date of the Commission's approval of the amendments, filed as required under § 242.614(e), to the effective national market system plan(s).
(2) Every national securities exchange on which an NMS stock is traded and national securities association shall act jointly pursuant to one or more effective national market system plans for the dissemination of consolidated market data. Every national securities exchange on which an NMS stock is traded and national securities association shall make available to all competing consolidators and self-aggregators its information with respect to quotations for and transactions in NMS stocks, including all data necessary to generate consolidated market data, in the same manner and using the same methods, including all methods of access and the same format, as such national securities exchange or national securities association makes available any information with respect to quotations for and transactions in NMS stocks to any person.
(3) Every national securities exchange on which an NMS stock is traded and national securities association shall act jointly pursuant to one or more effective national market system plans to disseminate consolidated information, including a national best bid and national best offer and odd-lot information, on quotations for and transactions in NMS stocks. Such plan or plans shall provide for the dissemination of all consolidated information for an individual NMS stock through a single plan processor and such single plan processor must represent quotation sizes in such consolidated information in terms of the number of shares, rounded down to the nearest multiple of a round lot. Every national securities exchange on which an NMS stock is traded and national securities association shall make available to a plan processor all data necessary to generate odd-lot information.
(c) Display of information. (1) No securities information processor, broker, or dealer shall provide, in a context in which a trading or order-routing decision can be implemented, a display of any information with respect to quotations for or transactions in an NMS stock without also providing, in an equivalent manner, a consolidated display for such stock.
(2) The provisions of paragraph (c)(1) of this section shall not apply to a display of information on the trading floor or through the facilities of a national securities exchange or to a display in connection with the operation of a market linkage system implemented in accordance with an effective national market system plan.
(d) Exemptions. The Commission, by order, may exempt from the provisions of this section, either unconditionally or on specified terms and conditions, any person, security, or item of information, or any class or classes of persons, securities, or items of information, if the Commission determines that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.
§ 242.604   Display of customer limit orders.
(a) Specialists and OTC market makers. For all NMS stocks:
(1) Each member of a national securities exchange that is registered by that exchange as a specialist, or is authorized by that exchange to perform functions substantially similar to that of a specialist, shall publish immediately a bid or offer that reflects:
(i) The price and the full size of each customer limit order held by the specialist that is at a price that would improve the bid or offer of such specialist in such security; and
(ii) The full size of each customer limit order held by the specialist that:
(A) Is priced equal to the bid or offer of such specialist for such security;
(B) Is priced equal to the national best bid or national best offer; and
(C) Represents more than a de minimis change in relation to the size associated with the specialist's bid or offer.
(2) Each registered broker or dealer that acts as an OTC market maker shall publish immediately a bid or offer that reflects:
(i) The price and the full size of each customer limit order held by the OTC market maker that is at a price that would improve the bid or offer of such OTC market maker in such security; and
(ii) The full size of each customer limit order held by the OTC market maker that:
(A) Is priced equal to the bid or offer of such OTC market maker for such security;
(B) Is priced equal to the national best bid or national best offer; and
(C) Represents more than a de minimis change in relation to the size associated with the OTC market maker's bid or offer.
(b) Exceptions. The requirements in paragraph (a) of this section shall not apply to any customer limit order:
(1) That is executed upon receipt of the order.
(2) That is placed by a customer who expressly requests, either at the time that the order is placed or prior thereto pursuant to an individually negotiated agreement with respect to such customer's orders, that the order not be displayed.
(3) That is an odd-lot order.
(4) That is a block size order, unless a customer placing such order requests that the order be displayed.
(5) That is delivered immediately upon receipt to a national securities exchange or national securities association-sponsored system, or an electronic communications network that complies with the requirements of § 242.602(b)(5)(ii) with respect to that order.
(6) That is delivered immediately upon receipt to another exchange member or OTC market maker that complies with the requirements of this section with respect to that order.
(7) That is an “all or none” order.
(c) Exemptions. The Commission may exempt from the provisions of this section, either unconditionally or on specified terms and conditions, any responsible broker or dealer, electronic communications network, national securities exchange, or national securities association if the Commission determines that such exemption is consistent with the public interest, the protection of investors and the removal of impediments to and perfection of the mechanism of a national market system.
§ 242.605   Disclosure of order execution information.
This section requires market centers, brokers, and dealers to make available standardized, monthly reports of statistical information concerning their order executions. This information is presented in accordance with uniform standards that are based on broad assumptions about order execution and routing practices. The information will provide a starting point to promote visibility and competition on the part of market centers and broker-dealers, particularly on the factors of execution price and speed. The disclosures required by this section do not encompass all of the factors that may be important to investors in evaluating the order routing services of a broker-dealer. In addition, any particular market center, broker, or dealer's statistics will encompass varying types of orders routed by different broker-dealers on behalf of customers with a wide range of objectives. Accordingly, the statistical information required by this section alone does not create a reliable basis to address whether any particular broker-dealer failed to obtain the most favorable terms reasonably available under the circumstances for customer orders.
(a) Monthly electronic reports by market centers, brokers, and dealers. (1) Every market center, broker, or dealer shall make available for each calendar month, in accordance with the procedures established pursuant to paragraph (a)(3) of this section, a report on the covered orders in NMS stocks that it received for execution from any person or that it received for execution in a prior calendar month but which remained open. Any OTC market maker that provides a trading system for only a single dealer to solely buy and sell securities against all other persons entering orders in that system shall produce a separate report pertaining only to covered orders entered in such trading system. Alternative trading systems (as defined in § 242.300(a)) shall prepare reports separately from their broker-dealer operators to the extent such entities are required to prepare reports. Each report shall be in electronic form; shall be categorized by security, order type, and order size; and shall include the following columns of information:
(i) For market orders, marketable limit orders, marketable immediate-or-cancel orders, midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, executable non-marketable limit orders, executable non-marketable limit orders that are immediate-or-cancel, executable market orders submitted with stop prices, executable stop marketable limit orders, and executable stop non-marketable limit orders:
(A) The number of covered orders;
(B) The cumulative notional value of covered orders;
(C) The cumulative number of shares of covered orders;
(D) The cumulative number of shares of covered orders cancelled prior to execution;
(E) The cumulative number of shares of covered orders executed at the receiving market center, broker, or dealer (excluding shares that the market center, broker, or dealer executes on a riskless principal basis);
(F) The cumulative number of shares of covered orders executed at any other venue;
(G) The cumulative number of shares of covered orders executed less than 100 microseconds after the time of order receipt; or, for non-marketable limit orders or orders submitted with stop prices, after the time the order becomes executable;
(H) The cumulative number of shares of covered orders executed from 100 microseconds to less than 1 millisecond after the time of order receipt; or, for non-marketable limit orders or orders submitted with stop prices, after the time the order becomes executable ;
(I) The cumulative number of shares of covered orders executed from 1 millisecond to less than 10 milliseconds after the time of order receipt; or, for non-marketable limit orders or orders submitted with stop prices, after the time the order becomes executable;
(J) The cumulative number of shares of covered orders executed from 10 milliseconds to less than 1 second after the time of order receipt; or, for non-marketable limit orders or orders submitted with stop prices, after the time the order becomes executable;
(K) The cumulative number of shares of covered orders executed from 1 second to less than 10 seconds after the time of order receipt; or, for non-marketable limit orders or orders submitted with stop prices, after the time the order becomes executable;
(L) The cumulative number of shares of covered orders executed from 10 seconds to less than 30 seconds after the time of order receipt; or, for non-marketable limit orders or orders submitted with stop prices, after the time the order becomes executable;
(M) The cumulative number of shares of covered orders executed from 30 seconds to less than 5 minutes after the time of order receipt; or, for non-marketable limit orders or orders submitted with stop prices, after the time the order becomes executable;
(N) The cumulative number of shares of covered orders executed 5 minutes or more after the time of order receipt; or, for non-marketable limit orders or orders submitted with stop prices, after the time the order becomes executable;
(O) For executions of covered orders, the average realized spread as calculated 50 milliseconds after the time of execution;
(P) For executions of covered orders, the average percentage realized spread as calculated 50 milliseconds after the time of execution;
(Q) For executions of covered orders, the average realized spread as calculated 1 second after the time of execution;
(R) For executions of covered orders, the average percentage realized spread as calculated 1 second after the time of execution;
(S) For executions of covered orders, the average realized spread as calculated 15 seconds after the time of execution;
(T) For executions of covered orders, the average percentage realized spread as calculated 15 seconds after the time of execution;
(U) For executions of covered orders, the average realized spread as calculated 1 minute after the time of execution;
(V) For executions of covered orders, the average percentage realized spread as calculated 1 minute after the time of execution;
(W) For executions of covered orders, the average realized spread as calculated 5 minutes after the time of execution;
(X) For executions of covered orders, the average percentage realized spread as calculated 5 minutes after the time of execution;
(Y) For executions of covered orders, the average midpoint; and
(ii) For market orders, marketable limit orders, marketable immediate-or-cancel orders, midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, executable market orders submitted with stop prices, and executable stop marketable limit orders:
(A) For executions of covered orders, the average quoted spread;
(B) For executions of covered orders, the average effective spread;
(C) For executions of covered orders, the average percentage effective spread;
(D) For executions of covered orders, the average effective divided by the average quoted spread, expressed as a percentage;
(E) The cumulative number of shares of covered orders executed with price improvement;
(F) For shares executed with price improvement, the share-weighted average amount per share that prices were improved;
(G) For shares executed with price improvement, the share-weighted average period from the time of order receipt to the time of order execution, expressed in increments of a millisecond or finer, or, in the case of midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, executable market orders submitted with stop prices, and executable stop marketable limit orders, from the time such orders first become executable to the time of order execution, expressed in increments of a millisecond or finer;
(H) The cumulative number of shares of covered orders executed at the quote;
(I) For shares executed at the quote, the share-weighted average period from the time of order receipt to the time of order execution, expressed in increments of a millisecond or finer, or, in the case of midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, executable market orders submitted with stop prices, and executable stop marketable limit orders, from the time such orders first become executable to the time of order execution, expressed in increments of a millisecond or finer;
(J) The cumulative number of shares of covered orders executed outside the quote;
(K) For shares executed outside the quote, the share-weighted average amount per share that prices were outside the quote;
(L) For shares executed outside the quote, the share-weighted average period from the time of order receipt, expressed in increments of a millisecond or finer, or, in the case of midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, executable market orders submitted with stop prices, and executable stop marketable limit orders, from the time such orders first become executable to the time of order execution, expressed in increments of a millisecond or finer;
(M) The cumulative number of shares of covered orders executed with price improvement relative to the best available displayed price;
(N) For shares executed with price improvement relative to the best available displayed price, the share-weighted average amount per share that prices were improved as compared to the best available displayed price;
(O) The cumulative number of shares of covered orders executed at the best available displayed price;
(P) The cumulative number of shares of covered orders executed outside the best available displayed price;
(Q) For shares executed outside the best available displayed price, the share-weighted average amount per share that prices were outside the best available displayed price;
(R) For executions of covered orders, the cumulative number of shares of the order size benchmark;
(S) The sum of, for each execution of a covered order, the greater of: the total number of shares executed with price improvement plus the total number of shares executed at the quote minus the order size benchmark, or zero; and
(iii) For midpoint-or-better limit orders, midpoint-or-better limit orders that are immediate-or-cancel, executable non-marketable limit orders, executable non-marketable limit orders that are immediate-or-cancel, and executable stop non-marketable limit orders:
(A) The number of covered orders that received either a complete or partial fill;
(B) The cumulative number of shares executed regular way at prices that could have filled the order while the order was in force, as reported pursuant to an effective transaction reporting plan or effective national market system plan. For each order, the share count shall be capped at the order size;
(C) The cumulative number of shares executed regular way on any national securities exchange at prices that could have filled the order while the order was in force, as reported pursuant to an effective transaction reporting plan or effective national market system plan. For each order, the share count shall be capped at the order size; and
(D) For shares executed, the share-weighted average period from the time the order becomes executable to the time of order execution expressed in increments of a millisecond or finer.
(2) Every market center, broker, or dealer shall make publicly available for each calendar month a report providing summary statistics on all covered orders that are market and marketable limit orders that it received for execution from any person. Such report shall be made available as an electronic file using the most recent version of the schema for comma separated values format (CSV) and the associated PDF renderer as published on the Commission's website for all reports required by this paragraph (a)(2). Such report shall include a section for NMS stocks that are included in the S&P 500 Index as of the first day of that month and a section for other NMS stocks. Each section shall be categorized by order type (market orders or marketable limit orders) and order size (less than $250, $250 to less than $1,000, $1,000 to less than $5,000, $5,000 to less than $10,000, $10,000 to less than $20,000, $20,000 to less than $50,000, $50,000 to less than $200,000, $200,000 or more, and all order sizes combined, excluding orders with a notional value of $200,000 or more), and shall include the following columns of information:
(i) The average order size in shares;
(ii) The average notional order size;
(iii) For executions of covered orders, the average midpoint;
(iv) For executions of covered orders, the percentage of shares executed at the quote or better;
(v) For executions of covered orders, the percentage of shares that received price improvement;
(vi) For executions of covered orders, the share-weighted average percentage price improvement, calculated as the cumulative amount that prices were improved less the cumulative amount that prices were executed outside the quote divided by sum of the average midpoint times the number of shares executed;
(vii) For executions of covered orders, the average percentage effective spread;
(viii) For executions of covered orders, the average percentage quoted spread, calculated as the average quoted spread divided by the average midpoint for such orders;
(ix) For executions of covered orders, the average effective spread divided by the average quoted spread, expressed as a percentage;
(x) For executions of covered orders, the average percentage realized spread as calculated 15 seconds after the time of execution;
(xi) For executions of covered orders, the average percentage realized spread as calculated 1 minute after the time of execution; and
(xii) For executions of covered orders, the share-weighted average execution speed, in milliseconds.
(3) Every national securities exchange on which NMS stocks are traded and each national securities association shall act jointly in establishing procedures for market centers, brokers, and dealers to follow in making available to the public the reports required by this section in a uniform, readily accessible, and usable electronic form.
(4) In the event there is no effective national market system plan establishing such procedures, market centers, brokers, and dealers shall prepare their reports in a consistent, usable, and machine-readable electronic format, in accordance with the requirements in paragraph (a)(1) of this section, and make such reports available for downloading from an internet website that is free and readily accessible to the public.
(5) Every market center, broker, or dealer shall keep the reports required by paragraphs (a)(1) and (2) of this section posted on an internet website that is free and readily accessible to the public for a period of three years from the initial date of posting on the internet website.
(6) A market center, broker, or dealer shall make available the reports required by paragraphs (a)(1) and (2) of this section within one month after the end of the month addressed in the reports.
(7) A broker or dealer that is not a market center shall not be subject to the requirements of this section unless that broker or dealer introduces or carries 100,000 or more customer accounts through which transactions are effected for the purchase or sale of NMS stocks (the “customer account threshold” for purposes of this paragraph). For purposes of this section, a broker or dealer that utilizes an omnibus clearing arrangement with respect to any of its underlying customer accounts shall be considered to carry such underlying customer accounts when calculating the number of customer accounts that it introduces or carries. Any broker or dealer that meets or exceeds this customer account threshold and is also a market center shall produce separate reports pertaining to each function. A broker or dealer that meets or exceeds the customer account threshold shall be required to produce reports pursuant to this section for at least three calendar months (“Reporting Period”). The Reporting Period shall begin the first calendar day of the next calendar month after the broker or dealer met or exceeded the customer account threshold, unless it is the first time the broker or dealer has met or exceeded the customer account threshold, in which case the Reporting Period shall begin the first calendar day four calendar months later. If, at any time after a broker or dealer has been required to produce reports pursuant to this section for at least a Reporting Period, a broker or dealer falls below the customer account threshold, the broker or dealer shall not be required to produce a report pursuant to this paragraph (a)(7) for the next calendar month.
(b) Exemptions. The Commission may, by order upon application, conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision or provisions of this section, if the Commission determines that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.
§ 242.606   Disclosure of order routing information.
(a) Quarterly report on order routing. (1) Every broker or dealer shall make publicly available for each calendar quarter a report on its routing of non-directed orders in NMS stocks that are submitted on a held basis and of non-directed orders that are customer orders in NMS securities that are option contracts during that quarter broken down by calendar month and keep such report posted on an internet website that is free and readily accessible to the public for a period of three years from the initial date of posting on the internet website. Such report shall include a section for NMS stocks—separated by securities that are included in the S&P 500 Index as of the first day of that quarter and other NMS stocks—and a separate section for NMS securities that are option contracts. Such report shall be made available using the most recent versions of the XML schema and the associated PDF renderer as published on the Commission's website for all reports required by this section. Each section in a report shall include the following information:
(i) The percentage of total orders for the section that were non-directed orders, and the percentages of total non-directed orders for the section that were market orders, marketable limit orders, non-marketable limit orders, and other orders;
(ii) The identity of the ten venues to which the largest number of total non-directed orders for the section were routed for execution and of any venue to which five percent or more of non-directed orders were routed for execution, the percentage of total non-directed orders for the section routed to the venue, and the percentages of total non-directed market orders, total non-directed marketable limit orders, total non-directed non-marketable limit orders, and total non-directed other orders for the section that were routed to the venue;
(iii) For each venue identified pursuant to paragraph (a)(1)(ii) of this section, the net aggregate amount of any payment for order flow received, payment from any profit-sharing relationship received, transaction fees paid, and transaction rebates received, both as a total dollar amount and per share, for each of the following non-directed order types:
(A) Market orders;
(B) Marketable limit orders;
(C) Non-marketable limit orders; and
(D) Other orders.
(iv) A discussion of the material aspects of the broker's or dealer's relationship with each venue identified pursuant to paragraph (a)(1)(ii) of this section, including a description of any arrangement for payment for order flow and any profit-sharing relationship and a description of any terms of such arrangements, written or oral, that may influence a broker's or dealer's order routing decision including, among other things:
(A) Incentives for equaling or exceeding an agreed upon order flow volume threshold, such as additional payments or a higher rate of payment;
(B) Disincentives for failing to meet an agreed upon minimum order flow threshold, such as lower payments or the requirement to pay a fee;
(C) Volume-based tiered payment schedules; and
(D) Agreements regarding the minimum amount of order flow that the broker-dealer would send to a venue.
(2) A broker or dealer shall make the report required by paragraph (a)(1) of this section publicly available within one month after the end of the quarter addressed in the report.
(b) Customer requests for information on order routing. (1) Every broker or dealer shall, on request of a customer, disclose to its customer, for:
(i) Orders in NMS stocks that are submitted on a held basis;
(ii) Orders in NMS stocks that are submitted on a not held basis and the broker or dealer is not required to provide the customer a report under paragraph (b)(3) of this section; and
(iii) Orders in NMS securities that are option contracts, the identity of the venue to which the customer's orders were routed for execution in the six months prior to the request, whether the orders were directed orders or non-directed orders, and the time of the transactions, if any, that resulted from such orders. Such disclosure shall be made available using the most recent versions of the XML schema and the associated PDF renderer as published on the Commission's website for all reports required by this section.
(2) A broker or dealer shall notify customers in writing at least annually of the availability on request of the information specified in paragraph (b)(1) of this section.
(3) Except as provided for in paragraphs (b)(4) and (5) of this section, every broker or dealer shall, on request of a customer that places, directly or indirectly, one or more orders in NMS stocks that are submitted on a not held basis with the broker or dealer, disclose to such customer within seven business days of receiving the request, a report on its handling of such orders for that customer for the prior six months by calendar month. Such report shall be made available using the most recent versions of the XML schema and the associated PDF renderer as published on the Commission's website for all reports required by this section. For purposes of such report, the handling of a NMS stock order submitted by a customer to a broker-dealer on a not held basis includes the handling of all child orders derived from that order. Such report shall be divided into two sections: One for directed orders and one for non-directed orders. Each section of such report shall include, with respect to such order flow sent by the customer to the broker or dealer, the total number of shares sent to the broker or dealer by the customer during the relevant period; the total number of shares executed by the broker or dealer as principal for its own account; the total number of orders exposed by the broker or dealer through an actionable indication of interest; and the venue or venues to which orders were exposed by the broker or dealer through an actionable indication of interest, provided that, where applicable, a broker or dealer must disclose that it exposed a customer's order through an actionable indication of interest to other customers but need not disclose the identity of such customers. Each section of such report also shall include the following columns of information for each venue to which the broker or dealer routed such orders for the customer, in the aggregate:
(i) Information on Order Routing. (A) Total shares routed;
(B) Total shares routed marked immediate or cancel;
(C) Total shares routed that were further routable; and
(D) Average order size routed.
(ii) Information on Order Execution. (A) Total shares executed;
(B) Fill rate (shares executed divided by the shares routed);
(C) Average fill size;
(D) Average net execution fee or rebate (cents per 100 shares, specified to four decimal places);
(E) Total number of shares executed at the midpoint;
(F) Percentage of shares executed at the midpoint;
(G) Total number of shares executed that were priced on the side of the spread more favorable to the order;
(H) Percentage of total shares executed that were priced at the side of the spread more favorable to the order;
(I) Total number of shares executed that were priced on the side of the spread less favorable to the order; and
(J) Percentage of total shares executed that were priced on the side of the spread less favorable to the order.
(iii) Information on Orders that Provided Liquidity. (A) Total number of shares executed of orders providing liquidity;
(B) Percentage of shares executed of orders providing liquidity;
(C) Average time between order entry and execution or cancellation, for orders providing liquidity (in milliseconds); and
(D) Average net execution rebate or fee for shares of orders providing liquidity (cents per 100 shares, specified to four decimal places).
(iv) Information on Orders that Removed Liquidity. (A) Total number of shares executed of orders removing liquidity;
(B) Percentage of shares executed of orders removing liquidity; and
(C) Average net execution fee or rebate for shares of orders removing liquidity (cents per 100 shares, specified to four decimal places).
(4) Except as provided below, no broker or dealer shall be required to provide reports pursuant to paragraph (b)(3) of this section if the percentage of shares of not held orders in NMS stocks the broker or dealer received from its customers over the prior six calendar months was less than five percent of the total shares in NMS stocks the broker or dealer received from its customers during that time (the “five percent threshold” for purposes of this paragraph). A broker or dealer that equals or exceeds this five percent threshold shall be required (subject to paragraph (b)(5) of this section) to provide reports pursuant to paragraph (b)(3) of this section for at least six calendar months (“Compliance Period”) regardless of the percentage of shares of not held orders in NMS stocks the broker or dealer receives from its customers during the Compliance Period. The Compliance Period shall begin the first calendar day of the next calendar month after the broker or dealer equaled or exceeded the five percent threshold, unless it is the first time the broker or dealer has equaled or exceeded the five percent threshold, in which case the Compliance Period shall begin the first calendar day four calendar months later. A broker or dealer shall not be required to provide reports pursuant to paragraph (b)(3) of this section for orders that the broker or dealer did not receive during a Compliance Period. If, at any time after the end of a Compliance Period, the percentage of shares of not held orders in NMS stocks the broker or dealer received from its customers was less than five percent of the total shares in NMS stocks the broker or dealer received from its customers over the prior six calendar months, the broker or dealer shall not be required to provide reports pursuant to paragraph (b)(3) of this section, except for orders that the broker or dealer received during the portion of a Compliance Period that remains covered by paragraph (b)(3) of this section.
(5) No broker or dealer shall be subject to the requirements of paragraph (b)(3) of this section with respect to a customer that traded on average each month for the prior six months less than $1,000,000 of notional value of not held orders in NMS stocks through the broker or dealer.
(c) Exemptions. The Commission may, by order upon application, conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision or provisions of this section, if the Commission determines that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.
§ 242.607   Customer account statements.
(a) No broker or dealer acting as agent for a customer may effect any transaction in, induce or attempt to induce the purchase or sale of, or direct orders for purchase or sale of, any NMS stock or a security authorized for quotation on an automated inter-dealer quotation system that has the characteristics set forth in section 17B of the Act (15 U.S.C. 78q-2), unless such broker or dealer informs such customer, in writing, upon opening a new account and on an annual basis thereafter, of the following:
(1) The broker's or dealer's policies regarding receipt of payment for order flow from any broker or dealer, national securities exchange, national securities association, or exchange member to which it routes customers' orders for execution, including a statement as to whether any payment for order flow is received for routing customer orders and a detailed description of the nature of the compensation received; and
(2) The broker's or dealer's policies for determining where to route customer orders that are the subject of payment for order flow absent specific instructions from customers, including a description of the extent to which orders can be executed at prices superior to the national best bid and national best offer.
(b) Exemptions. The Commission, upon request or upon its own motion, may exempt by rule or by order, any broker or dealer or any class of brokers or dealers, security or class of securities from the requirements of paragraph (a) of this section with respect to any transaction or class of transactions, either unconditionally or on specified terms and conditions, if the Commission determines that such exemption is consistent with the public interest and the protection of investors.
§ 242.608   Filing and amendment of national market system plans.
(a) Filing of national market system plans and amendments thereto. (1) Any two or more self-regulatory organizations, acting jointly, may file a national market system plan or may propose an amendment to an effective national market system plan (“proposed amendment”) by submitting the text of the plan or amendment to the Commission by email, together with a statement of the purpose of such plan or amendment and, to the extent applicable, the documents and information required by paragraphs (a)(4) and (5) of this section.
(2) The Commission may propose amendments to any effective national market system plan by publishing the text thereof, together with a statement of the purpose of such amendment, in accordance with the provisions of paragraph (b) of this section.
(3) Self-regulatory organizations are authorized to act jointly in:
(i) Planning, developing, and operating any national market subsystem or facility contemplated by a national market system plan;
(ii) Preparing and filing a national market system plan or any amendment thereto; or
(iii) Implementing or administering an effective national market system plan.
(4) Every national market system plan filed pursuant to this section, or any amendment thereto, shall be accompanied by:
(i) Copies of all governing or constituent documents relating to any person (other than a self-regulatory organization) authorized to implement or administer such plan on behalf of its sponsors; and
(ii) To the extent applicable:
(A) A detailed description of the manner in which the plan or amendment, and any facility or procedure contemplated by the plan or amendment, will be implemented;
(B) A listing of all significant phases of development and implementation (including any pilot phase) contemplated by the plan or amendment, together with the projected date of completion of each phase;
(C) An analysis of the impact on competition of implementation of the plan or amendment or of any facility contemplated by the plan or amendment;
(D) A description of any written understandings or agreements between or among plan sponsors or participants relating to interpretations of the plan or conditions for becoming a sponsor or participant in the plan; and
(E) In the case of a proposed amendment, a statement that such amendment has been approved by the sponsors in accordance with the terms of the plan.
(5) Every national market system plan, or any amendment thereto, filed pursuant to this section shall include a description of the manner in which any facility contemplated by the plan or amendment will be operated. Such description shall include, to the extent applicable:
(i) The terms and conditions under which brokers, dealers, and/or self-regulatory organizations will be granted or denied access (including specific procedures and standards governing the granting or denial of access);
(ii) The method by which any fees or charges collected on behalf of all of the sponsors and/or participants in connection with access to, or use of, any facility contemplated by the plan or amendment will be determined and imposed (including any provision for distribution of any net proceeds from such fees or charges to the sponsors and/or participants) and the amount of such fees or charges;
(iii) The method by which, and the frequency with which, the performance of any person acting as plan processor with respect to the implementation and/or operation of the plan will be evaluated; and
(iv) The method by which disputes arising in connection with the operation of the plan will be resolved.
(6) In connection with the selection of any person to act as plan processor with respect to any facility contemplated by a national market system plan (including renewal of any contract for any person to so act), the sponsors shall file with the Commission a statement identifying the person selected, describing the material terms under which such person is to serve as plan processor, and indicating the solicitation efforts, if any, for alternative plan processors, the alternatives considered and the reasons for selection of such person.
(7) Any national market system plan (or any amendment thereto) which is intended by the sponsors to satisfy a plan filing requirement contained in any other section of this Regulation NMS and part 240, subpart A of this chapter shall, in addition to compliance with this section, also comply with the requirements of such other section.
(8)(i) A participant in an effective national market system plan shall ensure that a current and complete version of the plan is posted on a plan website or on a website designated by plan participants within two business days after notification by the Commission of effectiveness of the plan. Each participant in an effective national market system plan shall ensure that such website is updated to reflect amendments to such plan within two business days after the plan participants have been notified by the Commission of its approval of a proposed amendment pursuant to paragraph (b) of this section. If the amendment is not effective for a certain period, the plan participants shall clearly indicate the effective date in the relevant text of the plan. Each plan participant also shall provide a link on its own website to the website with the current version of the plan.
(ii) The plan participants shall ensure that any proposed amendments filed pursuant to paragraph (a) of this section are posted on a plan website or a designated website no later than two business days after the filing of the proposed amendments with the Commission. If the plan participants do not post a proposed amendment on a plan website or a designated website on the same business day that they file such proposed amendment with the Commission, then the plan participants shall inform the Commission of the business day on which they posted such proposed amendment on a plan website or a designated website. The plan participants shall maintain any proposed amendment to the plan on a plan website or a designated website until the Commission approves the plan amendment and the plan participants update the website to reflect such amendment or the plan participants withdraw the proposed amendment or the plan participants are notified pursuant to paragraph (b)(1)(iii) of this section that the proposed amendment is not filed in compliance with requirements or the Commission disapproves the proposed amendment. If the plan participants withdraw a proposed amendment or are notified pursuant to paragraph (b)(1)(iii) of this section that a proposed amendment is not filed in compliance with requirements or the Commission disapproves a proposed amendment, the plan participants shall remove such amendment from the plan website or designated website within two business days of withdrawal, notification of non-compliant filing or disapproval. Each plan participant shall provide a link to the website with the current version of the plan.
(b) Effectiveness of national market system plans. (1) The Commission shall publish notice of the filing of any national market system plan, or any proposed amendment to any effective national market system plan (including any amendment initiated by the Commission), together with the terms of substance of the filing or a description of the subjects and issues involved, and shall provide interested persons an opportunity to submit written comments. No national market system plan, or any amendment thereto, shall become effective unless approved by the Commission or otherwise permitted in accordance with paragraph (b)(3) of this section.
(i) Publication of national market system plans. The Commission shall send the notice of the filing of a national market system plan to the Federal Register for publication thereof under this paragraph (b)(1) within 90 days of the business day on which such plan was filed with the Commission pursuant to paragraph (a) of this section. If the Commission fails to send the notice to the Federal Register for publication thereof within such 90-day period, then the date of publication shall be deemed to be the last day of such 90-day period.
(ii) Publication of proposed amendments. The Commission shall send the notice of the filing of a proposed amendment to the Federal Register for publication thereof under this paragraph (b)(1) within 15 days of the business day on which such proposed amendment was posted on a plan website or a website designated by plan participants pursuant to paragraph (a) of this section after being filed with the Commission pursuant to paragraph (a) of this section. If the Commission fails to send the notice to the Federal Register for publication thereof within such 15-day period, then the date of publication shall be deemed to be the business day on which such website posting was made.
(iii) A national market system plan or proposed amendment has not been filed with the Commission for purposes of this paragraph (b)(1) if, not later than 7 business days after the business day of receipt by the Commission, the Commission notifies the plan participants that the filing of the national market system plan or proposed amendment does not comply with paragraph (a) of this section or plan filing requirements in other sections of Regulation NMS and part 240, subpart A of this chapter, except that if the Commission determines that the plan or amendment is unusually lengthy and is complex or raises novel regulatory issues, the Commission shall inform the plan participants of such determination not later than 7 business days after the business day of receipt by the Commission and, for purposes of this paragraph (b)(1), the filing of such plan or amendment has not been made with the Commission if, not later than 21 days after the business day of receipt by the Commission, the Commission notifies the plan participants that the filing of such plan or amendment does not comply with paragraph (a) of this section or plan filing requirements in other sections of Regulation NMS and part 240, subpart A of this chapter.
(iv) For purposes of this section, a “business day” is any day other than a Saturday, Sunday, Federal holiday, a day that the Office of Personnel Management has announced that Federal agencies in the Washington, DC area are closed to the public, a day on which the Commission is subject to a Federal government shutdown or a day on which the Commission's Washington, DC office is otherwise not open for regular business; provided further, a filing received by the Commission or a website posting made at or before 5:30 p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever is currently in effect, on a business day, shall be deemed received or made on that business day, and a filing received by the Commission or a website posting made after 5:30 p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever is currently in effect, shall be deemed received or made on the next business day.
(2) The Commission shall approve a national market system plan or proposed amendment to an effective national market system plan, with such changes or subject to such conditions as the Commission may deem necessary or appropriate, if it finds that such plan or amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act. The Commission shall disapprove a national market system plan or proposed amendment if it does not make such a finding. Approval or disapproval of a national market system plan, or an amendment to an effective national market system plan (other than an amendment initiated by the Commission), shall be by order. Promulgation of an amendment to an effective national market system plan initiated by the Commission shall be by rule.
(i) Within 90 days of the date of publication of notice of the filing of a national market system plan or proposed amendment, or within such longer period as to which the plan participants consent, the Commission shall, by order, approve or disapprove the plan or amendment, or institute proceedings to determine whether the plan or amendment should be disapproved. Proceedings to determine whether the plan or amendment should be disapproved will be conducted pursuant to 17 CFR 201.700 and 201.701. Such proceedings shall include notice of the grounds for disapproval under consideration and opportunity for hearing and shall be concluded within 180 days of the date of publication of notice of the plan or amendment. At the conclusion of such proceedings the Commission shall, by order, approve or disapprove the plan or amendment. The time for conclusion of such proceedings may be extended for up to 60 days (up to 240 days from the date of notice publication) if the Commission determines that a longer period is appropriate and publishes the reasons for such determination or the plan participants consent to the longer period.
(ii) The time for conclusion of proceedings to determine whether a national market system plan or proposed amendment should be disapproved may be extended for an additional period up to 60 days beyond the period set forth in paragraph (b)(2)(i) of this section (up to 300 days from the date of notice publication) if the Commission determines that a longer period is appropriate and publishes the reasons for such determination or the plan participants consent to the longer period.
(3) A proposed amendment may be put into effect upon filing with the Commission if designated by the sponsors as:
(i) [Reserved]
(ii) Concerned solely with the administration of the plan, or involving the governing or constituent documents relating to any person (other than a self-regulatory organization) authorized to implement or administer such plan on behalf of its sponsors; or
(iii) Involving solely technical or ministerial matters. At any time within 60 days of the filing of any such amendment, the Commission may summarily abrogate the amendment and require that such amendment be refiled in accordance with paragraph (a)(1) of this section and reviewed in accordance with paragraph (b)(2) of this section, if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system or otherwise in furtherance of the purposes of the Act.
(4) Notwithstanding the provisions of paragraph (b)(1) of this section, a proposed amendment may be put into effect summarily upon publication of notice of such amendment, on a temporary basis not to exceed 120 days, if the Commission finds that such action is necessary or appropriate in the public interest, for the protection of investors or the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system or otherwise in furtherance of the purposes of the Act.
(5) Any plan (or amendment thereto) in connection with:
(i) The planning, development, operation, or regulation of a national market system (or a subsystem thereof) or one or more facilities thereof; or
(ii) The development and implementation of procedures and/or facilities designed to achieve compliance by self-regulatory organizations and/or their members of any section of this Regulation NMS (§§ 242.600 through 242.612) and part 240, subpart A of this chapter promulgated pursuant to section 11A of the Act (15 U.S.C. 78k-1), approved by the Commission pursuant to section 11A of the Act (or pursuant to any rule or regulation thereunder) prior to the effective date of this section (either temporarily or permanently) shall be deemed to have been filed and approved pursuant to this section and no additional filing need be made by the sponsors with respect to such plan or amendment; provided, however, that all terms and conditions associated with any such approval (including time limitations) shall continue to be applicable; provided, further, that any amendment to such plan filed with or approved by the Commission on or after the effective date of this section shall be subject to the provisions of, and considered in accordance with the procedures specified in, this section.
(c) Compliance with terms of national market system plans. Each self-regulatory organization shall comply with the terms of any effective national market system plan of which it is a sponsor or a participant. Each self-regulatory organization also shall, absent reasonable justification or excuse, enforce compliance with any such plan by its members and persons associated with its members.
(d) Appeals. The Commission may, in its discretion, entertain appeals in connection with the implementation or operation of any effective national market system plan as follows:
(1) Any action taken or failure to act by any person in connection with an effective national market system plan (other than a prohibition or limitation of access reviewable by the Commission pursuant to section 11A(b)(5) or section 19(d) of the Act (15 U.S.C. 78k-1(b)(5) or 78s(d))) shall be subject to review by the Commission, on its own motion or upon application by any person aggrieved thereby (including, but not limited to, self-regulatory organizations, brokers, dealers, issuers, and vendors), filed not later than 30 days after notice of such action or failure to act or within such longer period as the Commission may determine.
(2) Application to the Commission for review, or the institution of review by the Commission on its own motion, shall not operate as a stay of any such action unless the Commission determines otherwise, after notice and opportunity for hearing on the question of a stay (which hearing may consist only of affidavits or oral arguments).
(3) In any proceedings for review, if the Commission, after appropriate notice and opportunity for hearing (which hearing may consist solely of consideration of the record of any proceedings conducted in connection with such action or failure to act and an opportunity for the presentation of reasons supporting or opposing such action or failure to act) and upon consideration of such other data, views, and arguments as it deems relevant, finds that the action or failure to act is in accordance with the applicable provisions of such plan and that the applicable provisions are, and were, applied in a manner consistent with the public interest, the protection of investors, the maintenance of fair and orderly markets, and the removal of impediments to, and the perfection of the mechanisms of a national market system, the Commission, by order, shall dismiss the proceeding. If the Commission does not make any such finding, or if it finds that such action or failure to act imposes any burden on competition not necessary or appropriate in furtherance of the purposes of the Act, the Commission, by order, shall set aside such action and/or require such action with respect to the matter reviewed as the Commission deems necessary or appropriate in the public interest, for the protection of investors, and the maintenance of fair and orderly markets, or to remove impediments to, and perfect the mechanisms of, a national market system.
(e) Exemptions. The Commission may exempt from the provisions of this section, either unconditionally or on specified terms and conditions, any self-regulatory organization, member thereof, or specified security, if the Commission determines that such exemption is consistent with the public interest, the protection of investors, the maintenance of fair and orderly markets and the removal of impediments to, and perfection of the mechanisms of, a national market system.
§ 242.609   Registration of securities information processors: form of application and amendments.
(a) An application for the registration of a securities information processor shall be filed on Form SIP (§ 249.1001 of this chapter) in accordance with the instructions contained therein.
(b) If any information reported in items 1-13 or item 21 of Form SIP or in any amendment thereto is or becomes inaccurate for any reason, whether before or after the registration has been granted, the securities information processor shall promptly file an amendment on Form SIP correcting such information.
(c) The Commission, upon its own motion or upon application by any securities information processor, may conditionally or unconditionally exempt any securities information processor from any provision of the rules or regulations adopted under section 11A(b) of the Act (15 U.S.C. 78k-1(b)).
(d) Every amendment filed pursuant to this section shall constitute a “report” within the meaning of sections 17(a), 18(a) and 32(a) of the Act (15 U.S.C. 78q(a), 78r(a), and 78ff(a)).
§ 242.610   Access to quotations.
(a) Quotations of SRO trading facility. A national securities exchange or national securities association shall not impose unfairly discriminatory terms that prevent or inhibit any person from obtaining efficient access through a member of the national securities exchange or national securities association to the quotations in an NMS stock displayed through its SRO trading facility.
(b) Quotations of SRO display-only facility. (1) Any trading center that displays quotations in an NMS stock through an SRO display-only facility shall provide a level and cost of access to such quotations that is substantially equivalent to the level and cost of access to quotations displayed by SRO trading facilities in that stock.
(2) Any trading center that displays quotations in an NMS stock through an SRO display-only facility shall not impose unfairly discriminatory terms that prevent or inhibit any person from obtaining efficient access to such quotations through a member, subscriber, or customer of the trading center.
(c) Fees for access to quotations. A trading center shall not impose, nor permit to be imposed, any fee or fees for the execution of an order against a protected quotation of the trading center or against any other quotation of the trading center that is the best bid or best offer of a national securities exchange or the best bid or best offer of a national securities association in an NMS stock that exceed or accumulate to more than the following limits:
(1) If the price of a protected quotation or other quotation is $1.00 or more, the fee or fees cannot exceed or accumulate to more than $0.001 per share; or
(2) If the price of a protected quotation or other quotation is less than $1.00, the fee or fees cannot exceed or accumulate to more than 0.1% of the quotation price per share.
(d) Transparency of fees. A national securities exchange shall not impose, nor permit to be imposed, any fee or fees, or provide, or permit to be provided, any rebate or other remuneration, for the execution of an order in an NMS stock that cannot be determined at the time of execution.
(e) Locking or crossing quotations. Each national securities exchange and national securities association shall establish, maintain, and enforce written rules that:
(1) Require its members reasonably to avoid:
(i) Displaying quotations that lock or cross any protected quotation in an NMS stock; and
(ii) Displaying manual quotations that lock or cross any quotation in an NMS stock disseminated pursuant to an effective national market system plan;
(2) Are reasonably designed to assure the reconciliation of locked or crossed quotations in an NMS stock; and
(3) Prohibit its members from engaging in a pattern or practice of displaying quotations that lock or cross any protected quotation in an NMS stock, or of displaying manual quotations that lock or cross any quotation in an NMS stock disseminated pursuant to an effective national market system plan, other than displaying quotations that lock or cross any protected or other quotation as permitted by an exception contained in its rules established pursuant to paragraph (d)(1) of this section.
(f) Exemptions. The Commission, by order, may exempt from the provisions of this section, either unconditionally or on specified terms and conditions, any person, security, quotations, orders, or fees, or any class or classes of persons, securities, quotations, orders, or fees, if the Commission determines that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.
§ 242.611   Order protection rule.
(a) Reasonable policies and procedures. (1) A trading center shall establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent trade-throughs on that trading center of protected quotations in NMS stocks that do not fall within an exception set forth in paragraph (b) of this section and, if relying on such an exception, that are reasonably designed to assure compliance with the terms of the exception.
(2) A trading center shall regularly surveil to ascertain the effectiveness of the policies and procedures required by paragraph (a)(1) of this section and shall take prompt action to remedy deficiencies in such policies and procedures.
(b) Exceptions. (1) The transaction that constituted the trade-through was effected when the trading center displaying the protected quotation that was traded through was experiencing a failure, material delay, or malfunction of its systems or equipment.
(2) The transaction that constituted the trade-through was not a “regular way” contract.
(3) The transaction that constituted the trade-through was a single-priced opening, reopening, or closing transaction by the trading center.
(4) The transaction that constituted the trade-through was executed at a time when a protected bid was priced higher than a protected offer in the NMS stock.
(5) The transaction that constituted the trade-through was the execution of an order identified as an intermarket sweep order.
(6) The transaction that constituted the trade-through was effected by a trading center that simultaneously routed an intermarket sweep order to execute against the full displayed size of any protected quotation in the NMS stock that was traded through.
(7) The transaction that constituted the trade-through was the execution of an order at a price that was not based, directly or indirectly, on the quoted price of the NMS stock at the time of execution and for which the material terms were not reasonably determinable at the time the commitment to execute the order was made.
(8) The trading center displaying the protected quotation that was traded through had displayed, within one second prior to execution of the transaction that constituted the trade-through, a best bid or best offer, as applicable, for the NMS stock with a price that was equal or inferior to the price of the trade-through transaction.
(9) The transaction that constituted the trade-through was the execution by a trading center of an order for which, at the time of receipt of the order, the trading center had guaranteed an execution at no worse than a specified price (a “stopped order”), where:
(i) The stopped order was for the account of a customer;
(ii) The customer agreed to the specified price on an order-by-order basis; and
(iii) The price of the trade-through transaction was, for a stopped buy order, lower than the national best bid in the NMS stock at the time of execution or, for a stopped sell order, higher than the national best offer in the NMS stock at the time of execution.
(c) Intermarket sweep orders. The trading center, broker, or dealer responsible for the routing of an intermarket sweep order shall take reasonable steps to establish that such order meets the requirements set forth in § 242.600(b)(47).
(d) Exemptions. The Commission, by order, may exempt from the provisions of this section, either unconditionally or on specified terms and conditions, any person, security, transaction, quotation, or order, or any class or classes of persons, securities, quotations, or orders, if the Commission determines that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.
§ 242.612   Minimum pricing increment.
(a) Definitions. For purposes of this section only, the following terms shall have the meanings set forth in this section.
(1) Evaluation Period means:
(i) The three months from January through March of a calendar year; and
(ii) The three months from July through September of a calendar year during which the Time Weighted Average Quoted Spread of an NMS stock shall be measured by the primary listing exchange to determine the minimum pricing increment for each NMS stock.
(2) Time Weighted Average Quoted Spread means the average dollar value difference between the NBB and NBO during regular trading hours where each instance of a unique NBB and NBO is weighted by the length of time that the quote prevailed as the NBB or NBO.
(b) Minimum pricing increments. (1) The minimum pricing increment under paragraph (b)(2) of this section shall be operative on:
(i) The first business day of May for the Evaluation Period from January through March and continue through the last business day of October of the calendar year; and
(ii) The first business day of November for the Evaluation Period from July through September and continue through the last business day of April of the next calendar year.
(2) No national securities exchange, national securities association, alternative trading system, vendor, or broker or dealer shall display, rank, or accept from any person a bid or offer, an order, or an indication of interest in any NMS stock in an increment smaller than required pursuant to either paragraph (b)(2)(i) or (ii) of this section if that bid or offer, order, or indication of interest is priced equal to or greater than $1.00 per share:
(i) $0.01, if the Time Weighted Average Quoted Spread for the NMS stock during the Evaluation Period was greater than, $0.015; or
(ii) $0.005, if the Time Weighted Average Quoted Spread for the NMS stock during the Evaluation Period was equal to or less than $0.015.
(3) No national securities exchange, national securities association, alternative trading system, vendor, or broker or dealer shall display, rank, or accept from any person a bid or offer, an order, or an indication of interest in any NMS stock priced in an increment smaller than $0.0001 if that bid or offer, order, or indication of interest is priced less than $1.00 per share.
(c) New NMS Stocks. Any security that becomes an NMS Stock during an operative period as described in paragraph (b)(1) of this section shall be assigned a minimum pricing increment of $0.01 for bids or offers, orders, or indications of interest priced equal to or greater than $1.00 per share.
(d) Exemptions. The Commission, by order, may exempt from the provisions of this section, either unconditionally or on specified terms and conditions, any person, security, quotation, or order, or any class or classes of persons, securities, quotations, or orders, if the Commission determines that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.
§ 242.613   Consolidated audit trail.
(a) Creation of a national market system plan governing a consolidated audit trail. (1) Each national securities exchange and national securities association shall jointly file on or before 270 days from the date of publication of the Adopting Release in the Federal Register a national market system plan to govern the creation, implementation, and maintenance of a consolidated audit trail and central repository as required by this section. The national market system plan shall discuss the following considerations:
(i) The method(s) by which data will be reported to the central repository including, but not limited to, the sources of such data and the manner in which the central repository will receive, extract, transform, load, and retain such data; and the basis for selecting such method(s);
(ii) The time and method by which the data in the central repository will be made available to regulators, in accordance with paragraph (e)(1) of this section, to perform surveillance or analyses, or for other purposes as part of their regulatory and oversight responsibilities;
(iii) The reliability and accuracy of the data reported to and maintained by the central repository throughout its lifecycle, including transmission and receipt from market participants; data extraction, transformation and loading at the central repository; data maintenance and management at the central repository; and data access by regulators;
(iv) The security and confidentiality of the information reported to the central repository;
(v) The flexibility and scalability of the systems used by the central repository to collect, consolidate and store consolidated audit trail data, including the capacity of the consolidated audit trail to efficiently incorporate, in a cost-effective manner, improvements in technology, additional capacity, additional order data, information about additional securities or transactions, changes in regulatory requirements, and other developments;
(vi) The feasibility, benefits, and costs of broker-dealers reporting to the consolidated audit trail in a timely manner:
(A) The identity of all market participants (including broker-dealers and customers) that are allocated NMS securities, directly or indirectly, in a primary market transaction;
(B) The number of such securities each such market participant is allocated; and
(C) The identity of the broker-dealer making each such allocation;
(vii) The detailed estimated costs for creating, implementing, and maintaining the consolidated audit trail as contemplated by the national market system plan, which estimated costs should specify:
(A) An estimate of the costs to the plan sponsors for establishing and maintaining the central repository;
(B) An estimate of the costs to members of the plan sponsors, initially and on an ongoing basis, for reporting the data required by the national market system plan;
(C) An estimate of the costs to the plan sponsors, initially and on an ongoing basis, for reporting the data required by the national market system plan; and
(D) How the plan sponsors propose to fund the creation, implementation, and maintenance of the consolidated audit trail, including the proposed allocation of such estimated costs among the plan sponsors, and between the plan sponsors and members of the plan sponsors;
(viii) An analysis of the impact on competition, efficiency and capital formation of creating, implementing, and maintaining of the national market system plan;
(ix) A plan to eliminate existing rules and systems (or components thereof) that will be rendered duplicative by the consolidated audit trail, including identification of such rules and systems (or components thereof); to the extent that any existing rules or systems related to monitoring quotes, orders, and executions provide information that is not rendered duplicative by the consolidated audit trail, an analysis of:
(A) Whether the collection of such information remains appropriate;
(B) If still appropriate, whether such information should continue to be separately collected or should instead be incorporated into the consolidated audit trail; and
(C) If no longer appropriate, how the collection of such information could be efficiently terminated; the steps the plan sponsors propose to take to seek Commission approval for the elimination of such rules and systems (or components thereof); and a timetable for such elimination, including a description of how the plan sponsors propose to phase in the consolidated audit trail and phase out such existing rules and systems (or components thereof);
(x) Objective milestones to assess progress toward the implementation of the national market system plan;
(xi) The process by which the plan sponsors solicited views of their members and other appropriate parties regarding the creation, implementation, and maintenance of the consolidated audit trail, a summary of the views of such members and other parties, and how the plan sponsors took such views into account in preparing the national market system plan; and
(xii) Any reasonable alternative approaches to creating, implementing, and maintaining a consolidated audit trail that the plan sponsors considered in developing the national market system plan including, but not limited to, a description of any such alternative approach; the relative advantages and disadvantages of each such alternative, including an assessment of the alternative's costs and benefits; and the basis upon which the plan sponsors selected the approach reflected in the national market system plan.
(2) The national market system plan, or any amendment thereto, filed pursuant to this section shall comply with the requirements in § 242.608(a), if applicable, and be filed with the Commission pursuant to § 242.608.
(3) The national market system plan submitted pursuant to this section shall require each national securities exchange and national securities association to:
(i) Within two months after effectiveness of the national market system plan jointly (or under the governance structure described in the plan) select a person to be the plan processor;
(ii) Within four months after effectiveness of the national market system plan synchronize their business clocks and require members of each such exchange and association to synchronize their business clocks in accordance with paragraph (d) of this section;
(iii) Within one year after effectiveness of the national market system plan provide to the central repository the data specified in paragraph (c) of this section;
(iv) Within fourteen months after effectiveness of the national market system plan implement a new or enhanced surveillance system(s) as required by paragraph (f) of this section;
(v) Within two years after effectiveness of the national market system plan require members of each such exchange and association, except those members that qualify as small broker-dealers as defined in § 240.0-10(c) of this chapter, to provide to the central repository the data specified in paragraph (c) of this section; and
(vi) Within three years after effectiveness of the national market system plan require members of each such exchange and association that qualify as small broker-dealers as defined in § 240.0-10(c) of this chapter to provide to the central repository the data specified in paragraph (c) of this section.
(4) Each national securities exchange and national securities association shall be a sponsor of the national market system plan submitted pursuant to this section and approved by the Commission.
(5) No national market system plan filed pursuant to this section, or any amendment thereto, shall become effective unless approved by the Commission or otherwise permitted in accordance with the procedures set forth in § 242.608. In determining whether to approve the national market system plan, or any amendment thereto, and whether the national market system plan or any amendment thereto is in the public interest under § 242.608(b)(2), the Commission shall consider the impact of the national market system plan or amendment, as applicable, on efficiency, competition, and capital formation.
(b) Operation and administration of the national market system plan. (1) The national market system plan submitted pursuant to this section shall include a governance structure to ensure fair representation of the plan sponsors, and administration of the central repository, including the selection of the plan processor.
(2) The national market system plan submitted pursuant to this section shall include a provision addressing the requirements for the admission of new sponsors of the plan and the withdrawal of existing sponsors from the plan.
(3) The national market system plan submitted pursuant to this section shall include a provision addressing the percentage of votes required by the plan sponsors to effectuate amendments to the plan.
(4) The national market system plan submitted pursuant to this section shall include a provision addressing the manner in which the costs of operating the central repository will 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 will be allocated to new sponsors to the plan.
(5) The national market system plan submitted pursuant to this section shall require the appointment of a Chief Compliance Officer 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 it is processed.
(6) The national market system plan submitted pursuant to this section shall include a provision requiring the plan sponsors to provide to the Commission, at least every two years after effectiveness of the national market system plan, a written assessment of the operation of the consolidated audit trail. Such document shall include, at a minimum:
(i) An evaluation of the performance of the consolidated audit trail including, at a minimum, with respect to data accuracy (consistent with paragraph (e)(6) of this section), timeliness of reporting, comprehensiveness of data elements, efficiency of regulatory access, system speed, system downtime, system security (consistent with paragraph (e)(4) of this section), and other performance metrics to be determined by the Chief Compliance Officer, along with a description of such metrics;
(ii) A detailed plan, based on such evaluation, for any potential improvements to the performance of the consolidated audit trail with respect to any of the following: improving data accuracy; shortening reporting timeframes; expanding data elements; adding granularity and details regarding the scope and nature of Customer-IDs; expanding the scope of the national market system plan to include new instruments and new types of trading and order activities; improving the efficiency of regulatory access; increasing system speed; reducing system downtime; and improving performance under other metrics to be determined by the Chief Compliance Officer;
(iii) An estimate of the costs associated with any such potential improvements to the performance of the consolidated audit trail, including an assessment of the potential impact on competition, efficiency, and capital formation; and
(iv) An estimated implementation timeline for any such potential improvements, if applicable.
(7) The national market system plan submitted pursuant to this section shall include an Advisory Committee which shall function in accordance with the provisions set forth in this paragraph (b)(7). The purpose of the Advisory Committee shall be to advise the plan sponsors on the implementation, operation, and administration of the central repository.
(i) The national market system plan submitted pursuant to this section shall set forth the term and composition of the Advisory Committee, which composition shall include representatives of the member firms of the plan sponsors.
(ii) Members of the Advisory Committee shall have the right to attend any meetings of the plan sponsors, to receive information concerning the operation of the central repository, and to provide their views to the plan sponsors; provided, however, that the plan sponsors may meet without the Advisory Committee members in executive session if, by affirmative vote of a majority of the plan sponsors, the plan sponsors determine that such an executive session is required.
(c) Data recording and reporting. (1) The national market system plan submitted pursuant to this section shall provide for an accurate, time-sequenced record of orders beginning with the receipt or origination of an order by a member of a national securities exchange or national securities association, and further documenting the life of the order through the process of routing, modification, cancellation, and execution (in whole or in part) of the order.
(2) The national market system plan submitted pursuant to this section shall require each national securities exchange, national securities association, and member to report to the central repository the information required by paragraph (c)(7) of this section in a uniform electronic format, or in a manner that would allow the central repository to convert the data to a uniform electronic format, for consolidation and storage.
(3) The national market system plan submitted pursuant to this section shall require each national securities exchange, national securities association, and member to record the information required by paragraphs (c)(7)(i) through (v) of this section contemporaneously with the reportable event. The national market system plan shall require that information recorded pursuant to paragraphs (c)(7)(i) through (v) of this section must be reported to the central repository by 8:00 a.m. Eastern Time on the trading day following the day such information has been recorded by the national securities exchange, national securities association, or member. The national market system plan may accommodate voluntary reporting prior to 8:00 a.m. Eastern Time, but shall not impose an earlier reporting deadline on the reporting parties.
(4) The national market system plan submitted pursuant to this section shall require each member of a national securities exchange or national securities association to record and report to the central repository the information required by paragraphs (c)(7)(vi) through (viii) of this section by 8:00 a.m. Eastern Time on the trading day following the day the member receives such information. The national market system plan may accommodate voluntary reporting prior to 8:00 a.m. Eastern Time, but shall not impose an earlier reporting deadline on the reporting parties.
(5) The national market system plan submitted pursuant to this section shall require each national securities exchange and its members to record and report to the central repository the information required by paragraph (c)(7) of this section for each NMS security registered or listed for trading on such exchange or admitted to unlisted trading privileges on such exchange.
(6) The national market system plan submitted pursuant to this section shall require each national securities association and its members to record and report to the central repository the information required by paragraph (c)(7) of this section for each NMS security for which transaction reports are required to be submitted to the association.
(7) The national market system plan submitted pursuant to this section shall require each national securities exchange, national securities association, and any member of such exchange or association to record and electronically report to the central repository details for each order and each reportable event, including, but not limited to, the following information:
(i) For original receipt or origination of an order:
(A) Customer-ID(s) for each customer;
(B) The CAT-Order-ID;
(C) The CAT-Reporter-ID of the broker-dealer receiving or originating the order;
(D) Date of order receipt or origination;
(E) Time of order receipt or origination (using time stamps pursuant to paragraph (d)(3) of this section); and
(F) Material terms of the order.
(ii) For the routing of an order, the following information:
(A) The CAT-Order-ID;
(B) Date on which the order is routed;
(C) Time at which the order is routed (using time stamps pursuant to paragraph (d)(3) of this section);
(D) The CAT-Reporter-ID of the broker-dealer or national securities exchange routing the order;
(E) The CAT-Reporter-ID of the broker-dealer, national securities exchange, or national securities association to which the order is being routed;
(F) If routed internally at the broker-dealer, the identity and nature of the department or desk to which an order is routed; and
(G) Material terms of the order.
(iii) For the receipt of an order that has been routed, the following information:
(A) The CAT-Order-ID;
(B) Date on which the order is received;
(C) Time at which the order is received (using time stamps pursuant to paragraph (d)(3) of this section);
(D) The CAT-Reporter-ID of the broker-dealer, national securities exchange, or national securities association receiving the order;
(E) The CAT-Reporter-ID of the broker-dealer or national securities exchange routing the order; and
(F) Material terms of the order.
(iv) If the order is modified or cancelled, the following information:
(A) The CAT-Order-ID;
(B) Date the modification or cancellation is received or originated;
(C) Time the modification or cancellation is received or originated (using time stamps pursuant to paragraph (d)(3) of this section);
(D) Price and remaining size of the order, if modified;
(E) Other changes in material terms of the order, if modified; and
(F) The CAT-Reporter-ID of the broker-dealer or Customer-ID of the person giving the modification or cancellation instruction.
(v) If the order is executed, in whole or part, the following information:
(A) The CAT-Order-ID;
(B) Date of execution;
(C) Time of execution (using time stamps pursuant to paragraph (d)(3) of this section);
(D) Execution capacity (principal, agency, riskless principal);
(E) Execution price and size;
(F) The CAT-Reporter-ID of the national securities exchange or broker-dealer executing the order; and
(G) Whether the execution was reported pursuant to an effective transaction reporting plan or the Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information.
(vi) If the order is executed, in whole or part, the following information:
(A) The account number for any subaccounts to which the execution is allocated (in whole or part);
(B) The CAT-Reporter-ID of the clearing broker or prime broker, if applicable; and
(C) The CAT-Order-ID of any contra-side order(s).
(vii) If the trade is cancelled, a cancelled trade indicator.
(viii) For original receipt or origination of an order, the following information:
(A) Information of sufficient detail to identify the customer; and
(B) Customer account information.
(8) All plan sponsors and their members shall use the same Customer-ID and CAT-Reporter-ID for each customer and broker-dealer.
(d) Clock synchronization and time stamps. The national market system plan submitted pursuant to this section shall require:
(1) Each national securities exchange, national securities association, and member of such exchange or association to synchronize its business clocks that are used for the purposes of recording the date and time of any reportable event that must be reported pursuant to this section to the time maintained by the National Institute of Standards and Technology, consistent with industry standards;
(2) Each national securities exchange and national securities association to evaluate annually the clock synchronization standard to determine whether it should be shortened, consistent with changes in industry standards; and
(3) Each national securities exchange, national securities association, and member of such exchange or association to utilize the time stamps required by paragraph (c)(7) of this section, with at minimum the granularity set forth in the national market system plan submitted pursuant to this section, which shall reflect current industry standards and be at least to the millisecond. To the extent that the relevant order handling and execution systems of any national securities exchange, national securities association, or member of such exchange or association utilize time stamps in increments finer than the minimum required by the national market system plan, the plan shall require such national securities exchange, national securities association, or member to utilize time stamps in such finer increments when providing data to the central repository, so that all reportable events reported to the central repository by any national securities exchange, national securities association, or member can be accurately sequenced. The national market system plan shall require the sponsors of the national market system plan to annually evaluate whether industry standards have evolved such that the required time stamp standard should be in finer increments.
(e) Central repository. (1) The national market system plan submitted pursuant to this section shall provide for the creation and maintenance of a central repository. Such central repository shall be responsible for the receipt, consolidation, and retention of all information reported pursuant to paragraph (c)(7) of this section. The central repository shall store and make available to regulators data in a uniform electronic format, and in a form in which all events pertaining to the same originating order are linked together in a manner that ensures timely and accurate retrieval of the information required by paragraph (c)(7) of this section for all reportable events for that order.
(2) Each national securities exchange, national securities association, and the Commission shall have access to the central repository, including all systems operated by the central repository, and access to and use of the data reported to and consolidated by the central repository under paragraph (c) of this section, for the purpose of performing its respective regulatory and oversight responsibilities pursuant to the federal securities laws, rules, and regulations. The national market system plan submitted pursuant to this section shall provide that such access to and use of such data by each national securities exchange, national securities association, and the Commission for the purpose of performing its regulatory and oversight responsibilities pursuant to the federal securities laws, rules, and regulations shall not be limited.
(3) The national market system plan submitted pursuant to this section shall include a provision requiring the creation and maintenance by the plan processor of a method of access to the consolidated data stored in the central repository that includes the ability to run searches and generate reports.
(4) The national market system plan submitted pursuant to this section shall include policies and procedures, including standards, to be used by the plan processor to:
(i) Ensure the security and confidentiality of all information reported to the central repository by requiring that:
(A) All plan sponsors and their employees, as well as all employees of the central repository, agree to use appropriate safeguards to ensure the confidentiality of such data and agree not to use such data for any purpose other than surveillance and regulatory purposes, provided that nothing in this paragraph (e)(4)(i)(A) shall be construed to prevent a plan sponsor from using the data that it reports to the central repository for regulatory, surveillance, commercial, or other purposes as otherwise permitted by applicable law, rule, or regulation;
(B) Each plan sponsor adopt and enforce rules that:
( 1 ) Require information barriers between regulatory staff and non-regulatory staff with regard to access and use of data in the central repository; and
( 2 ) Permit only persons designated by plan sponsors to have access to the data in the central repository;
(C) The plan processor:
( 1 ) Develop and maintain a comprehensive information security program for the central repository, with dedicated staff, that is subject to regular reviews by the Chief Compliance Officer;
( 2 ) Have a mechanism to confirm the identity of all persons permitted to access the data; and
( 3 ) Maintain a record of all instances where such persons access the data; and
(D) The plan sponsors adopt penalties for non-compliance with any policies and procedures of the plan sponsors or central repository with respect to information security.
(ii) Ensure the timeliness, accuracy, integrity, and completeness of the data provided to the central repository pursuant to paragraph (c) of this section; and
(iii) Ensure the accuracy of the consolidation by the plan processor of the data provided to the central repository pursuant to paragraph (c) of this section.
(5) The national market system plan submitted pursuant to this section shall address whether there will be an annual independent evaluation of the security of the central repository and:
(i) If so, provide a description of the scope of such planned evaluation; and
(ii) If not, provide a detailed explanation of the alternative measures for evaluating the security of the central repository that are planned instead.
(6) The national market system plan submitted pursuant to this section shall:
(i) Specify a maximum error rate to be tolerated by the central repository for any data reported pursuant to paragraphs (c)(3) and (c)(4) of this section; describe the basis for selecting such maximum error rate; explain how the plan sponsors will seek to reduce such maximum error rate over time; describe how the plan will seek to ensure compliance with such maximum error rate and, in the event of noncompliance, will promptly remedy the causes thereof;
(ii) Require the central repository to measure the error rate each business day and promptly take appropriate remedial action, at a minimum, if the error rate exceeds the maximum error rate specified in the plan;
(iii) Specify a process for identifying and correcting errors in the data reported to the central repository pursuant to paragraphs (c)(3) and (c)(4) of this section, including the process for notifying the national securities exchanges, national securities association, and members who reported erroneous data to the central repository of such errors, to help ensure that such errors are promptly corrected by the reporting entity, and for disciplining those who repeatedly report erroneous data; and
(iv) Specify the time by which data that has been corrected will be made available to regulators.
(7) The national market system plan submitted pursuant to this section shall require the central repository to collect and retain on a current and continuing basis and in a format compatible with the information consolidated and stored pursuant to paragraph (c)(7) of this section:
(i) Information, including the size and quote condition, on the national best bid and national best offer for each NMS security;
(ii) Transaction reports reported pursuant to an effective transaction reporting plan filed with the Commission pursuant to, and meeting the requirements of, § 242.601; and
(iii) Last sale reports reported pursuant to the Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information filed with the Commission pursuant to, and meeting the requirements of, § 242.608.
(8) The national market system plan submitted pursuant to this section shall require the central repository to retain the information collected pursuant to paragraphs (c)(7) and (e)(7) of this section 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.
(f) Surveillance. Every national securities exchange and national securities association subject to this section shall develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the consolidated audit trail.
(g) Compliance by members. (1) Each national securities exchange and national securities association shall file with the Commission pursuant to section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) and § 240.19b-4 of this chapter on or before 60 days from approval of the national market system plan a proposed rule change to require its members to comply with the requirements of this section and the national market system plan approved by the Commission.
(2) Each member of a national securities exchange or national securities association shall comply with all the provisions of any approved national market system plan applicable to members.
(3) The national market system plan submitted pursuant to this section shall include a provision requiring each national securities exchange and national securities association to agree to enforce compliance by its members with the provisions of any approved plan.
(4) The national market system plan submitted pursuant to this section shall include a mechanism to ensure compliance with the requirements of any approved plan by the members of a national securities exchange or national securities association.
(h) Compliance by national securities exchanges and national securities associations. (1) Each national securities exchange and national securities association shall comply with the provisions of the national market system plan approved by the Commission.
(2) Any failure by a national securities exchange or national securities association to comply with the provisions of the national market system plan approved by the Commission shall be considered a violation of this section.
(3) The national market system plan submitted pursuant to this section shall include a mechanism to ensure compliance by the sponsors of the plan with the requirements of any approved plan. Such enforcement mechanism may include penalties where appropriate.
(i) Other securities and other types of transactions. The national market system plan submitted pursuant to this section shall include a provision requiring each national securities exchange and national securities association to jointly provide to the Commission within six months after effectiveness of the national market system plan a document outlining how such exchanges and associations could incorporate into the consolidated audit trail information with respect to equity securities that are not NMS securities, debt securities, primary market transactions in equity securities that are not NMS securities, and primary market transactions in debt securities, including details for each order and reportable event that may be required to be provided, which market participants may be required to provide the data, an implementation timeline, and a cost estimate.
(j) Definitions. As used in this section:
(1) The term CAT-Order-ID shall mean a unique order identifier or series of unique order identifiers that allows the central repository to efficiently and accurately link all reportable events for an order, and all orders that result from the aggregation or disaggregation of such order.
(2) The term CAT-Reporter-ID shall mean, with respect to each national securities exchange, national securities association, and member of a national securities exchange or national securities association, a code that uniquely and consistently identifies such person for purposes of providing data to the central repository.
(3) The term customer shall mean:
(i) The account holder(s) of the account at a registered broker-dealer originating the order; and
(ii) Any person from whom the broker-dealer is authorized to accept trading instructions for such account, if different from the account holder(s).
(4) The term customer account information shall include, but not be limited to, account number, account type, customer type, date account opened, and large trader identifier (if applicable).
(5) The term Customer-ID shall mean, with respect to a customer, a code that uniquely and consistently identifies such customer for purposes of providing data to the central repository.
(6) The term error rate shall mean the percentage of reportable events collected by the central repository in which the data reported does not fully and accurately reflect the order event that occurred in the market.
(7) The term material terms of the order shall include, but not be limited to, the NMS security symbol; security type; price (if applicable); size (displayed and non-displayed); side (buy/sell); order type; if a sell order, whether the order is long, short, short exempt; open/close indicator; time in force (if applicable); if the order is for a listed option, option type (put/call), option symbol or root symbol, underlying symbol, strike price, expiration date, and open/close; and any special handling instructions.
(8) The term order shall include:
(i) Any order received by a member of a national securities exchange or national securities association from any person;
(ii) Any order originated by a member of a national securities exchange or national securities association; or
(iii) Any bid or offer.
(9) The term reportable event shall include, but not be limited to, the original receipt or origination, modification, cancellation, routing, and execution (in whole or in part) of an order, and receipt of a routed order.
§ 242.614   Registration and responsibilities of competing consolidators.
(a) Competing consolidator registration —(1) Initial Form CC —(i) Filing and effectiveness requirement. No person, other than a national securities exchange or a national securities association:
(A) May receive directly, pursuant to an effective national market system plan, from a national securities exchange or national securities association information with respect to quotations for and transactions in NMS stocks; and
(B) Generate a consolidated market data product for dissemination to any person unless the person files with the Commission an initial Form CC and the initial Form CC has become effective pursuant to paragraph (a)(1)(v) of this section.
(ii) Electronic filing and submission. Any reports to the Commission required under this section shall be filed electronically on Form CC (17 CFR 249.1002), include all information as prescribed in Form CC and the instructions thereto, and contain an electronic signature as defined in § 240.19b-4(j) of this chapter.
(iii) Commission review period. The Commission may, by order, as provided in paragraph (a)(1)(v)(B) of this section, declare an initial Form CC filed by a competing consolidator ineffective no later than 90 calendar days from the date of filing with the Commission.
(iv) Withdrawal of initial Form CC due to inaccurate or incomplete disclosures. During the review by the Commission of the initial Form CC, if any information disclosed in the initial Form CC is or becomes inaccurate or incomplete, the competing consolidator shall promptly withdraw the initial Form CC and may refile an initial Form CC pursuant to paragraph (a)(1) of this section.
(v) Effectiveness; ineffectiveness determination. (A) An initial Form CC filed by a competing consolidator will become effective, unless declared ineffective, no later than the expiration of the review period provided in paragraph (a)(1)(iii) of this section and publication pursuant to paragraph (b)(2)(i) of this section.
(B) The Commission shall, by order, declare an initial Form CC ineffective if it finds, after notice and opportunity for hearing, that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors. If the Commission declares an initial Form CC ineffective, the competing consolidator shall be prohibited from operating as a competing consolidator. An initial Form CC declared ineffective does not prevent the competing consolidator from subsequently filing a new Form CC.
(2) Form CC amendments. A competing consolidator shall amend a Form CC:
(i) Prior to the implementation of a material change to the pricing, connectivity, or products offered (“material amendment”); and
(ii) No later than 30 calendar days after the end of each calendar year to correct information that has become inaccurate or incomplete for any reason and to provide an Annual Report as required under Form CC (each a “Form CC amendment”).
(3) Notice of cessation. A competing consolidator shall notice its cessation of operations on Form CC at least 90 calendar days prior to the date the competing consolidator will cease to operate as a competing consolidator. The notice of cessation shall cause the Form CC to become ineffective on the date designated by the competing consolidator.
(4) Date of filing. For purposes of filings made pursuant to this section:
(i) The term business day shall have the same meaning as defined in § 240.19b-4(b)(2) of this chapter.
(ii) If the conditions of this section and Form CC are otherwise satisfied, all filings submitted electronically on or before 5:30 p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever is currently in effect, on a business day, shall be deemed filed on that business day, and all filings submitted after 5:30 p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever is currently in effect, shall be deemed filed on the next business day.
(b) Public disclosures. (1) Every Form CC filed pursuant to this section shall constitute a “report” within the meaning of sections 11A, 17(a), 18(a), and 32(a) of the Act (15 U.S.C. 78k-1, 78q(a), 78r(a), and 78ff(a)), and any other applicable provisions of the Act.
(2) The Commission will make public via posting on the Commission's website:
(i) Identification of each competing consolidator that has filed an initial Form CC with the Commission and the date of filing;
(ii) Each effective initial Form CC, as amended;
(iii) Each order of ineffective initial Form CC;
(iv) Each Form CC amendment. The Commission will make public the entirety of any Form CC amendment no later than 30 calendar days from the date of filing thereof with the Commission; and
(v) Each notice of cessation.
(c) Posting of hyperlink to the Commission's website. Each competing consolidator shall make public via posting on its website a direct URL hyperlink to the Commission's website that contains the documents enumerated in paragraphs (b)(2)(ii) through (v) of this section.
(d) Responsibilities of competing consolidators. Each competing consolidator shall:
(1) Collect from each national securities exchange and national securities association, either directly or indirectly, any information with respect to quotations for and transactions in NMS stocks as provided in § 242.603(b) that is necessary to create a consolidated market data product, as defined in § 242.600(b)(25).
(2) Calculate and generate a consolidated market data product, as defined in § 242.600(b)(25), from the information collected pursuant to paragraph (d)(1) of this section.
(3) Make a consolidated market data product, as defined in § 242.600(b)(25), as timestamped as required by paragraph (d)(4) of this section and including the national securities exchange and national securities association data generation timestamp required to be provided by the national securities exchange and national securities association participants by paragraph (e)(2) of this section, available to subscribers on a consolidated basis on terms that are not unreasonably discriminatory.
(4) Timestamp the information collected pursuant to paragraph (d)(1) of this section upon:
(i) Receipt from each national securities exchange and national securities association;
(ii) Receipt of such information at its aggregation mechanism; and
(iii) Dissemination of a consolidated market data product to subscribers.
(5) Within 15 calendar days after the end of each month, publish prominently on its website monthly performance metrics, as defined by the effective national market system plan(s) for NMS stocks, that shall include at least the information in paragraphs (d)(5)(i) through (v) of this section. All information must be publicly posted in downloadable files and must remain free and accessible (without any encumbrances or restrictions) by the general public on the website for a period of not less than three years from the initial date of posting.
(i) Capacity statistics;
(ii) Message rate and total statistics;
(iii) System availability;
(iv) Network delay statistics; and
(v) Latency statistics for the following, with distribution statistics up to the 99.99th percentile:
(A) When a national securities exchange or national securities association sends an inbound message to a competing consolidator network and when the competing consolidator network receives the inbound message;
(B) When the competing consolidator network receives the inbound message and when the competing consolidator network sends the corresponding consolidated message to a subscriber; and
(C) When a national securities exchange or national securities association sends an inbound message to a competing consolidator network and when the competing consolidator network sends the corresponding consolidated message to a subscriber.
(6) Within 15 calendar days after the end of each month, publish prominently on its website the information in paragraphs (d)(6)(i) through (v) of this section. All information must be publicly posted and must remain free and accessible (without any encumbrances or restrictions) by the general public on the website for a period of not less than three years from the initial date of posting.
(i) Data quality issues;
(ii) System issues;
(iii) Any clock synchronization protocol utilized;
(iv) For the clocks used to generate the timestamps described in paragraph (d)(4) of this section, the clock drift averages and peaks, and the number of instances of clock drift greater than 100 microseconds; and
(v) Vendor alerts.
(7) Keep and preserve at least one copy of all documents, including all correspondence, memoranda, papers, books, notices, accounts, and such other records as shall be made or received by it in the course of its business as such and in the conduct of its business. Competing consolidators shall keep all such documents for a period of no less than five years, the first two years in an easily accessible place.
(8) Upon request of any representative of the Commission, promptly furnish to the possession of such representative copies of any documents required to be kept and preserved by it.
(9) Each competing consolidator that is not required to comply with the requirements of §§ 242.1000 through 242.1007 regarding systems compliance and integrity (Regulation SCI) shall comply with the following:
(i) Definitions. For purposes of this paragraph (d)(9), the following definitions shall apply:
Systems disruption means an event in a competing consolidator's systems involved in the collection and consolidation of consolidated market data, and dissemination of consolidated market data products, that disrupts, or significantly degrades, the normal operation of such systems.
Systems intrusion means any unauthorized entry into a competing consolidator's systems involved in the collection and consolidation of consolidated market data, and dissemination of consolidated market data products.
(ii) Obligations relating to policies and procedures. (A)( 1 ) Establish, maintain, and enforce written policies and procedures reasonably designed to ensure: That its systems involved in the collection and consolidation of consolidated market data, and dissemination of consolidated market data products have levels of capacity, integrity, resiliency, availability, and security adequate to maintain the competing consolidator's operational capability and promote the maintenance of fair and orderly markets; and the prompt, accurate, and reliable dissemination of consolidated market data products.
( 2 ) Such policies and procedures shall be deemed to be reasonably designed if they are consistent with current industry standards, which shall be comprised of information technology practices that are widely available to information technology professionals in the financial sector and issued by an authoritative body that is a U.S. governmental entity or agency, association of U.S. governmental entities or agencies, or widely recognized organization. Compliance with such current industry standards, however, shall not be the exclusive means to comply with the requirements of this paragraph (d)(9)(ii)(A);
(B) Periodically review the effectiveness of the policies and procedures required by paragraph (d)(9)(ii)(A) of this section, and take prompt action to remedy deficiencies in such policies and procedures; and
(C) Establish, maintain, and enforce reasonably designed written policies and procedures that include the criteria for identifying responsible personnel, the designation and documentation of responsible personnel, and escalation procedures to quickly inform responsible personnel of potential systems disruptions and systems intrusions; and periodically review the effectiveness of the policies and procedures, and take prompt action to remedy deficiencies.
(iii) Systems disruptions or systems intrusions. (A) Upon responsible personnel having a reasonable basis to conclude that a systems disruption or systems intrusion has occurred, begin to take appropriate corrective action which shall include, at a minimum, mitigating potential harm to investors and market integrity resulting from the event and devoting adequate resources to remedy the event as soon as reasonably practicable.
(B) Promptly upon responsible personnel having a reasonable basis to conclude that a systems disruption (other than a system disruption that has had, or the competing consolidator reasonably estimates would have, no or a de minimis impact on the competing consolidator's operations or on market participants) has occurred, publicly disseminate information relating to the event (including the system(s) affected and a summary description); when known, promptly publicly disseminate additional information relating to the event (including a detailed description, an assessment of those potentially affected, a description of the progress of corrective action and when the event has been or is expected to be resolved); and until resolved, provide regular updates with respect to such information.
(C) Concurrent with public dissemination of information relating to a systems disruption pursuant to paragraph (d)(9)(iii)(B) of this section, or promptly upon responsible personnel having a reasonable basis to conclude that a systems intrusion (other than a system intrusion that has had, or the competing consolidator reasonably estimates would have, no or a de minimis impact on the competing consolidator's operations or on market participants) has occurred, provide the Commission notification and, until resolved, updates of such event. Notifications required pursuant to this paragraph (d)(9)(iii)(C) shall include information relating to the event (including the system(s) affected and a summary description); when known, additional information relating to the event (including a detailed description, an assessment of those potentially affected, a description of the progress of corrective action and when the event has been or is expected to be resolved); and until resolved, regular updates with respect to such information. Notifications relating to systems disruptions and systems intrusions pursuant to this paragraph (d)(9)(iii)(C) shall be submitted to the Commission on Form CC.
(iv) Coordinated testing. Participate in the industry- or sector-wide coordinated testing of business recovery and disaster recovery plans required of SCI entities pursuant to § 242.1004(c).
(e) Amendment of the effective national market system plan(s) for NMS stocks. The participants to the effective national market system plan(s) for NMS stocks shall file with the Commission, pursuant to § 242.608, an amendment that includes the following provisions within 150 calendar days from June 8, 2021:
(1) Conforming the effective national market system plan(s) for NMS stocks to reflect provision of information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data by the national securities exchange and national securities association participants to competing consolidators and self-aggregators;
(2) The application of timestamps by the national securities exchange and national securities association participants on all information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data, including the time that such information was generated as applicable by the national securities exchange or national securities association and the time the national securities exchange or national securities association made such information available to competing consolidators and self-aggregators;
(3) Assessments of competing consolidator performance, including speed, reliability, and cost of data provision and the provision of an annual report of such assessment to the Commission, and the Commission will make the annual report publicly available on the Commission's website;
(4) The development, maintenance, and publication of a list that identifies the primary listing exchange for each NMS stock; and
(5) The calculation and publication on a monthly basis of consolidated market data gross revenues for NMS stocks as specified by:
(i) Listed on the New York Stock Exchange (NYSE);
(ii) Listed on Nasdaq; and
(iii) Listed on exchanges other than NYSE or Nasdaq.
§ 242.800   Scope.
The provisions of §§ 242.800 through 242.835 shall apply to every security-based swap execution facility that is registered or is applying to become registered as a security-based swap execution facility under section 3D of the Securities Exchange Act (“Act”).
§ 242.801   Applicable provisions.
A security-based swap execution facility shall comply with the requirements of §§ 242.800 through 242.835 and all other applicable Commission rules, including any related definitions and cross- referenced sections.
§ 242.802   Definitions.
The following terms, and any other terms defined within §§ 242.800 through 242.835, are defined as follows solely for purposes of §§ 242.800 through 242.835:
Business day means the intraday period of time starting at 8:15 a.m. and ending at 4:45 p.m. eastern standard time or eastern daylight saving time, whichever is currently in effect in Washington, DC, on all days except Saturdays, Sundays, and Federal holidays in Washington, DC.
Committee member means a member, or functional equivalent thereof, of any committee of a security-based swap execution facility.
Correcting trade means a trade executed and submitted for clearing to a registered clearing agency with the same terms and conditions as an error trade other than any corrections to any operational or clerical error and the time of execution.
Disciplinary committee means any person or committee of persons, or any subcommittee thereof, that is authorized by a security-based swap execution facility or SBS exchange to issue disciplinary charges, to conduct disciplinary proceedings, to settle disciplinary charges, to impose disciplinary sanctions, or to hear appeals thereof in cases involving any violation of the rules of the security-based swap execution facility or SBS exchange, except those cases where the person or committee is authorized summarily to impose minor penalties for violating rules regarding decorum, attire, the timely submission of accurate records for clearing or verifying each day's transactions, or other similar activities.
Dormant product means:
(1) Any security-based swap listed on security-based swap execution facility that has no open interest and in which no trading has occurred for a period of 12 complete calendar months following a certification to, or approval by, the Commission; provided, however, that no security-based swap initially and originally certified to, or approved by, the Commission within the preceding 36 complete calendar months shall be considered to be a dormant product;
(2) Any security-based swap of a dormant security-based swap execution facility; or
(3) Any security-based swap not otherwise a dormant product that a security-based swap execution facility self-declares through certification to be a dormant product.
Dormant rule means:
(1) Any rule of a security-based swap execution facility which remains unimplemented for 12 consecutive calendar months following a certification with, or an approval by, the Commission; or
(2) Any rule or rule amendment of a dormant security-based swap execution facility.
Dormant security-based swap execution facility means a security-based swap execution facility on which no trading has occurred for the previous 12 consecutive calendar months; provided, however, that no security-based swap execution facility shall be considered to be a dormant security-based swap execution facility if its initial and original Commission order of registration was issued within the preceding 36 consecutive calendar months.
Electronic trading facility means a trading facility that operates by means of an electronic or telecommunications network and maintains an automated audit trail of bids, offers, and the matching orders or the execution of transactions on the facility.
Emergency means any occurrence or circumstance that, in the opinion of the governing board of a security-based swap execution facility, or a person or persons duly authorized to issue such an opinion on behalf of the governing board of the security-based swap execution facility under circumstances and pursuant to procedures that are specified by rule, requires immediate action and threatens or may threaten such things as the fair and orderly trading in, or the liquidation of or delivery pursuant to, any security-based swaps, including:
(1) Any manipulative or attempted manipulative activity;
(2) Any actual, attempted, or threatened corner, squeeze, congestion, or undue concentration of positions;
(3) Any circumstances which may materially affect the performance of security-based swaps or transactions, including failure of the payment system or the bankruptcy or insolvency of any market participant;
(4) Any action taken by any governmental body, or any other security-based swap execution facility, market, or facility which may have a direct impact on trading or clearing and settlement; and
(5) Any other circumstance which may have a severe, adverse effect upon the functioning of the security-based swap execution facility.
Employee means any person hired or otherwise employed on a salaried or contract basis by a security-based swap execution facility, but does not include:
(1) Any governing board member compensated by the security-based swap execution facility solely for governing board activities; or
(2) Any committee member compensated by a security-based swap execution facility solely for committee activities; or
(3) Any consultant hired by a security-based swap execution facility.
Error trade means any trade executed on or subject to the rules of a security-based swap execution facility that contains an operational or clerical error.
Governing board means the board of directors of a security-based swap execution facility, or for a security-based swap execution facility whose organizational structure does not include a board of directors, a body performing a function similar to a board of directors.
Governing board member means a member, or functional equivalent thereof, of the governing board of a security-based swap execution facility.
Member, with respect to a national securities exchange, has the same meaning as in section 3(a)(3) of the Act. Member, with respect to a security-based swap execution facility, means an individual, association, partnership, corporation, or trust owning or holding a membership in, admitted to membership representation on, or having trading privileges on the security-based swap execution facility.
Non-U.S. member means a member of a security-based swap execution facility that is not a U.S. person.
Offsetting trade means a trade executed and submitted for clearing to a registered clearing agency with terms and conditions that economically reverse an error trade that was accepted for clearing.
Order book means an electronic trading facility, a trading facility, or a trading system or platform in which all market participants in the trading system or platform have the ability to enter multiple bids and offers, observe or receive bids and offers entered by other market participants, and transact on such bids and offers.
Oversight panel means any panel, or any subcommittee thereof, authorized by a security-based swap execution facility or security-based swap exchange (“SBS exchange”) to recommend or establish policies or procedures with respect to the surveillance, compliance, rule enforcement, or disciplinary responsibilities of the security-based swap execution facility or SBS exchange.
Records has the meaning as in section 3(a)(37) of the Act (15 U.S.C. 78c(a)(37)).
Rule means any constitutional provision, article of incorporation, bylaw, rule, regulation, resolution, interpretation, stated policy, advisory, terms and conditions, trading protocol, agreement, or instrument corresponding thereto, including those that authorize a response or establish standards for responding to a specific emergency, and any amendment or addition thereto or repeal thereof, made or issued by a security-based swap execution facility or by the governing board thereof or any committee thereof, in whatever form adopted.
SBS exchange means a national securities exchange that posts or makes available for trading security-based swaps.
Security-based swap execution facility has the same meaning as in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) but does not include an entity that is registered with the Commission as a clearing agency pursuant to section 17A of the Act (15 U.S.C. 78q-1) and limits its security-based swap execution facility functions to operation of a trading session that is designed to further the accuracy of end-of-day valuations.
Senior officer means the chief executive officer or other equivalent officer of a security-based swap execution facility.
Terms and conditions means any definition of the trading unit or the specific asset underlying a security-based swap, description of the payments to be exchanged under a security-based swap, specification of cash settlement or delivery standards and procedures, and establishment of buyers' and sellers' rights and obligations under the security-based swap. Terms and conditions of a security-based swap include provisions relating to the following:
(1) Identification of the major group, category, type, or class in which the security-based swap falls (such as a credit or equity security-based swap) and of any further sub-group, category, type, or class that further describes the security-based swap;
(2) Notional amounts, quantity standards, or other unit size characteristics;
(3) Any applicable premiums or discounts for delivery of a non-par product;
(4) Trading hours and the listing of security-based swaps;
(5) Pricing basis for establishing the payment obligations under, and mark-to-market value of, the security-based swap including, as applicable, the accrual start dates, termination, or maturity dates, and, for each leg of the security-based swap, the initial cash flow components, spreads, and points, and the relevant indexes, prices, rates, coupons, or other price reference measures;
(6) Any price limits, trading halts, or circuit breaker provisions, and procedures for the establishment of daily settlement prices;
(7) Payment and reset frequency, day count conventions, business calendars, and accrual features;
(8) If physical delivery applies, delivery standards and procedures, including fees related to delivery or the delivery process, alternatives to delivery, and applicable penalties or sanctions for failure to perform;
(9) If cash-settled, the definition, composition, calculation, and revision of the cash settlement price, and the settlement currency;
(10) Payment or collection of option premiums or margins;
(11) Option exercise price, if it is constant, and method for calculating the exercise price, if it is variable;
(12) Threshold prices for an option, the existence of which is contingent upon those prices;
(13) Any restrictions or requirements for exercising an option; and
(14) Life cycle events.
Trading facility —(1) In general. The term trading facility means a person or group of persons that constitutes, maintains, or provides a physical or electronic facility or system in which multiple participants have the ability to execute or trade agreements, contracts, or transactions:
(i) By accepting bids or offers made by other participants that are open to multiple participants in the facility or system; or
(ii) Through the interaction of multiple bids or multiple offers within a system with a pre- determined non-discretionary automated trade matching and execution algorithm.
(2) Exclusions. (i) The term trading facility does not include:
(A) A person or group of persons solely because the person or group of persons constitutes, maintains, or provides an electronic facility or system that enables participants to negotiate the terms of and enter into bilateral transactions as a result of communications exchanged by the parties and not from interaction of multiple bids and multiple offers within a predetermined, nondiscretionary automated trade matching and execution algorithm;
(B) A government securities dealer or government securities broker, to the extent that the dealer or broker executes or trades agreements, contracts, or transactions in government securities, or assists persons in communicating about, negotiating, entering into, executing, or trading an agreement, contract, or transaction in government securities (as the terms government securities dealer, government securities broker, and government securities are defined in section 3(a) of the Act); or
(C) A facility on which bids and offers, and acceptances of bids and offers effected on the facility, are not binding.
(ii) Any person, group of persons, dealer, broker, or facility described in paragraphs (2)(i)(A) through (C) of this definition of trading facility is excluded from the meaning of the term “trading facility” without any prior specific approval, certification, or other action by the Commission.
(3) Special rule. A person or group of persons that would not otherwise constitute a trading facility shall not be considered to be a trading facility solely as a result of the submission to a registered clearing agency of transactions executed on or through the person or group of persons.
U.S. person has the same meaning as in § 240.3a71-3(a)(4) of this chapter.
The Commission has not yet adopted a definition of “block trade.”
§ 242.803   Requirements and procedures for registration.
(a) Requirements for registration. (1) Any person operating a facility that offers a trading system or platform in which more than one market participant has the ability to execute or trade security-based swaps with more than one other market participant on the system or platform shall register the facility as a security-based swap execution facility under this section or as a national securities exchange pursuant to section 6 of the Act.
(2) A security-based swap execution facility shall, at a minimum, offer an order book.
(3) A security-based swap execution facility is not required to provide an order book under this section for transactions defined in § 242.815(d)(2), (3), and (4) except that a security-based swap execution facility must provide an order book under this section for Required Transactions that are components of transactions defined in § 242.815(d)(2), (3), and (4) when such Required Transactions are not executed as components of transactions defined in § 242.815(d)(2), (3), and (4).
(b) Procedures for full registration —(1) Request to register. An entity requesting registration as a security-based swap execution facility shall:
(i) File electronically a complete Form SBSEF (referenced in § 249.1701), or any successor forms, and all information and documentation described in such forms with the Commission using the EDGAR system and, for the information specified in the Registration Instructions to Form SBSEF, as an Interactive Data File in accordance with § 232.405 of this chapter; and
(ii) Provide to the Commission, upon the Commission's request, any additional information and documentation necessary to review an application.
(2) Request for confidential treatment. (i) An applicant requesting registration as a security-based swap execution facility shall identify with particularity any information in the application that will be subject to a request for confidential treatment pursuant to § 240.24b-2 of this chapter.
(ii) As set forth in § 242.808, certain information provided in an application shall be made publicly available.
(3) Amendment of application prior to full registration. An applicant amending a pending application for registration as a security-based swap execution facility or requesting an amendment to an order of registration shall file an amended application electronically with the Commission using the EDGAR system and, for the information specified in the Registration Instructions to Form SBSEF, as an Interactive Data File in accordance with § 232.405 of this chapter.
(4) Effect of incomplete application. If an application is incomplete pursuant to paragraph (b)(1) of this section, the Commission shall notify the applicant that its application will not be deemed to have been submitted for purposes of the Commission's review.
(5) Commission review period. The Commission shall approve or deny an application for registration as a security-based swap execution facility within 180 days of the filing of the application. If the Commission notifies the person that its application is materially incomplete and specifies the deficiencies in the application, the running of the 180-day period shall be stayed from the time of such notification until the application is resubmitted in completed form, provided that the Commission shall have not less than 60 days to approve or deny the application from the time the application is resubmitted in completed form.
(6) Commission determination. (i) The Commission shall issue an order granting registration upon a Commission determination, in its own discretion, that the applicant has demonstrated compliance with the Act and the Commission's rules applicable to security-based swap execution facilities. If deemed appropriate, the Commission may issue an order granting registration subject to conditions.
(ii) The Commission may issue an order denying registration upon a Commission determination, in its own discretion, that the applicant has not demonstrated compliance with the Act and the Commission's rules applicable to security-based swap execution facilities. If the Commission denies an application, it shall specify the grounds for the denial.
(c) Reinstatement of dormant registration. A dormant security-based swap execution facility may reinstate its registration under the procedures of paragraph (b) of this section. The applicant may rely upon previously submitted materials if such materials accurately describe the dormant security-based swap execution facility's conditions at the time that it applies for reinstatement of its registration.
(d) Request for transfer of registration. (1) A security-based swap execution facility seeking to transfer its registration from its current legal entity to a new legal entity as a result of a corporate change shall file a request for approval to transfer such registration with the Commission in the form and manner specified by the Commission.
(2) A request for transfer of registration shall be filed no later than three months prior to the anticipated corporate change; or in the event that the security-based swap execution facility could not have known of the anticipated change three months prior to the anticipated change, as soon as it knows of such change.
(3) The request for transfer of registration shall include the following:
(i) The underlying agreement that governs the corporate change;
(ii) A description of the corporate change, including the reason for the change and its impact on the security-based swap execution facility, including its governance and operations, and its impact on the rights and obligations of members;
(iii) A discussion of the transferee's ability to comply with the Act, including the core principles applicable to security-based swap execution facilities and the Commission's rules thereunder;
(iv) The governing documents of the transferee, including, but not limited to, articles of incorporation and bylaws;
(v) The transferee's rules marked to show changes from the current rules of the security-based swap execution facility;
(vi) A representation by the transferee that it:
(A) Will be the surviving entity and successor-in-interest to the transferor security-based swap execution facility and will retain and assume, without limitation, all of the assets and liabilities of the transferor;
(B) Will assume responsibility for complying with all applicable provisions of the Act and the Commission's rules thereunder;
(C) Will assume, maintain, and enforce all rules implementing and complying with the core principles applicable to security-based swap execution facilities, including the adoption of the transferor's rulebook, as amended in the request, and that any such amendments will be submitted to the Commission pursuant to § 242.806 or § 242.807;
(D) Will comply with all regulatory responsibilities except if otherwise indicated in the request, and will maintain and enforce all regulatory programs; and
(E) Will notify members of all changes to the transferor's rulebook prior to the transfer and will further notify members of the concurrent transfer of the registration to the transferee upon Commission approval and issuance of an order permitting this transfer.
(vii) A representation by the transferee that upon the transfer:
(A) It will assume responsibility for and maintain compliance with core principles for all security-based swaps previously made available for trading through the transferor, whether by certification or approval; and
(B) None of the proposed rule changes will affect the rights and obligations of any member.
(4) Upon review of a request for transfer of registration, the Commission, as soon as practicable, shall issue an order either approving or denying the request.
(e) Request for withdrawal of application for registration. An applicant for registration as a security-based swap execution facility may withdraw its application submitted pursuant to paragraph (b) of this section by filing a withdrawal request electronically with the Commission using the EDGAR system. Withdrawal of an application for registration shall not affect any action taken or to be taken by the Commission based upon actions, activities, or events occurring during the time that the application was pending with the Commission.
(f) Request for vacation of registration. A security-based swap execution facility may request that its registration be vacated by filing a vacation request electronically with the Commission using the EDGAR system at least 90 days prior to the date that the vacation is requested to take effect. Upon receipt of such request, the Commission shall promptly order the vacation to be effective upon the date named in the request and send a copy of the request and its order to all other security-based swap execution facilities, SBS exchanges, and registered clearing agencies that clear security-based swaps. Vacation of registration shall not affect any action taken or to be taken by the Commission based upon actions, activities, or events occurring during the time that the security-based swap execution facility was registered by the Commission. From and after the date upon which the vacation became effective the said security-based swap execution facility can thereafter be registered again by applying to the Commission in the manner provided in paragraph (b) of this section for an original application.
§ 242.804   Listing products for trading by certification.
(a) General. A security-based swap execution facility must comply with the submission requirements of this section prior to listing a product for trading that has not been approved under § 242.805 or that remains a dormant product subsequent to being submitted under this section or approved under § 242.805. A submission shall comply with the following conditions:
(1) The security-based swap execution facility has filed its submission electronically with the Commission using the EFFS system;
(2) The Commission has received the submission by the open of business on the business day that is 10 business days preceding the product's listing; and
(3) The submission includes:
(i) A copy of the submission cover sheet in accordance with the instructions therein;
(ii) A copy of the product's rules, including all rules related to its terms and conditions;
(iii) The intended listing date;
(iv) A certification by the security-based swap execution facility that the product to be listed complies with the Act and the Commission's rules thereunder;
(v) A concise explanation and analysis of the product and its compliance with applicable provisions of the Act, including core principles, and the Commission's rules thereunder. This explanation and analysis shall either be accompanied by the documentation relied upon to establish the basis for compliance with applicable law, or incorporate information contained in such documentation, with appropriate citations to data sources;
(vi) A certification that the security-based swap execution facility posted a notice of pending product certification with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the security-based swap execution facility's website. Information that the security-based swap execution facility seeks to keep confidential may be redacted from the documents published on the security-based swap execution's website but must be republished consistent with any determination made pursuant to § 240.24b-2 of this chapter; and
(vii) A request for confidential treatment, if appropriate, as permitted under § 240.24b-2 of this chapter.
(b) Additional information. If requested by Commission staff, a security-based swap execution facility shall provide any additional evidence, information, or data that demonstrates that the security-based swap meets, initially or on a continuing basis, the requirements of the Act or the Commission's rules or policies thereunder.
(c) Stay of certification of product —(1) General. The Commission may stay the certification of a product submitted pursuant to paragraph (a) of this section by issuing a notification informing the security-based swap execution facility that the Commission is staying the certification of the product on the grounds that the product presents novel or complex issues that require additional time to analyze, the product is accompanied by an inadequate explanation, or the product is potentially inconsistent with the Act or the Commission's rules thereunder. The Commission will have an additional 90 days from the date of the notification to conduct the review.
(2) Public comment. The Commission shall provide a 30-day comment period within the 90-day period in which the stay is in effect, as described in paragraph (c)(1) of this section. The Commission shall publish a notice of the 30-day comment period on the Commission's website. Comments from the public shall be submitted as specified in that notice.
(3) Expiration of a stay of certification of product. A product subject to a stay pursuant to this paragraph shall become effective, pursuant to the certification, at the expiration of the 90-day review period described in paragraph (c)(1) of this section, unless the Commission withdraws the stay prior to that time, or the Commission notifies the security-based swap execution facility during the 90-day time period that it objects to the proposed certification on the grounds that the product is inconsistent with the Act or the Commission's rules.
§ 242.805   Voluntary submission of new products for Commission review and approval.
(a) Request for approval. A security-based swap execution facility may request that the Commission approve a new or dormant product prior to listing the product for trading, or if a product was initially submitted under § 242.804, subsequent to listing the product for trading. A submission requesting approval shall:
(1) Be filed electronically with the Commission using the EFFS system;
(2) Include a copy of the submission cover sheet in accordance with the instructions therein;
(3) Include a copy of the rules that set forth the security-based swap's terms and conditions;
(4) Include an explanation and analysis of the product and its compliance with applicable provisions of the Act, including the core principles and the Commission's rules thereunder. This explanation and analysis shall either be accompanied by the documentation relied upon to establish the basis for compliance with the applicable law, or incorporate information contained in such documentation, with appropriate citations to data sources;
(5) Describe any agreements or contracts entered into with other parties that enable the security-based swap execution facility to carry out its responsibilities;
(6) Include, if appropriate, a request for confidential treatment as permitted under § 240.24b-2 of this chapter;
(7) Certify that the security-based swap execution facility posted a notice of its request for Commission approval of the new product and a copy of the submission, concurrent with the filing of a submission with the Commission, on the security-based swap execution facility's website. Information that the security-based swap execution facility seeks to keep confidential may be redacted from the documents published on the security-based swap execution facility's website but must be republished consistent with any determination made pursuant to § 240.24b-2 of this chapter; and
(8) Include, if requested by Commission staff, additional evidence, information, or data demonstrating that the security-based swap meets, initially or on a continuing basis, the requirements of the Act, or other requirement for registration under the Act, or the Commission's rules or policies thereunder. The security-based swap execution facility shall submit the requested information by the open of business on the date that is two business days from the date of request by Commission staff, or at the conclusion of such extended period agreed to by Commission staff after timely receipt of a written request from the security-based swap execution facility.
(b) Standard for review and approval. The Commission shall approve a new product unless the terms and conditions of the product violate the Act or the Commission's rules thereunder.
(c) Forty-five-day review. A product submitted for Commission approval under this paragraph shall be deemed approved by the Commission 45 days after receipt by the Commission, or at the conclusion of an extended period as provided under paragraph (d) of this section, unless notified otherwise within the applicable period, if:
(1) The submission complies with the requirements of paragraph (a) of this section; and
(2) The submitting security-based swap execution facility does not amend the terms or conditions of the product or supplement the request for approval, except as requested by the Commission or for correction of typographical errors, renumbering, or other non-substantive revisions, during that period. Any voluntary, substantive amendment by the security-based swap execution facility will be treated as a new submission under this section.
(d) Extension of time. The Commission may extend the 45-day review period in paragraph (c) of this section for:
(1) An additional 45 days, if the product raises novel or complex issues that require additional time to analyze, in which case the Commission shall notify the security-based swap execution facility within the initial 45-day review period and shall briefly describe the nature of the specific issue(s) for which additional time for review is required; or
(2) Any extended review period to which the security-based swap execution facility agrees in writing.
(e) Notice of non-approval. The Commission, at any time during its review under this section, may notify the security-based swap execution facility that it will not, or is unable to, approve the product. This notification will briefly specify the nature of the issues raised and the specific provision of the Act or the Commission's rules thereunder, including the form or content requirements of paragraph (a) of this section, that the product violates, appears to violate, or potentially violates but which cannot be ascertained from the submission.
(f) Effect of non-approval. (1) Notification to a security-based swap execution facility under paragraph (e) of this section of the Commission's determination not to approve a product does not prejudice the security-based swap execution facility from subsequently submitting a revised version of the product for Commission approval, or from submitting the product as initially proposed pursuant to a supplemented submission.
(2) Notification to a security-based swap execution facility under paragraph (e) of this section of the Commission's refusal to approve a product shall be presumptive evidence that the security-based swap execution facility may not truthfully certify under § 242.804 that the same, or substantially the same, product does not violate the Act or the Commission's rules thereunder.
§ 242.806   Voluntary submission of rules for Commission review and approval.
(a) Request for approval of rules. A security-based swap execution facility may request that the Commission approve a new rule, rule amendment, or dormant rule prior to implementation of the rule, or if the request was initially submitted under § 242.806 or § 242.807, subsequent to implementation of the rule. A request for approval shall:
(1) Be filed electronically with the Commission using the EFFS system;
(2) Include a copy of the submission cover sheet in accordance with the instructions therein;
(3) Set forth the text of the rule or rule amendment (in the case of a rule amendment, deletions and additions must be indicated);
(4) Describe the proposed effective date of the rule or rule amendment and any action taken or anticipated to be taken to adopt the proposed rule by the security-based swap execution facility or by its governing board or by any committee thereof, and cite the rules of the security-based swap execution facility that authorize the adoption of the proposed rule;
(5) Provide an explanation and analysis of the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the Act, including the core principles relating to security-based swap execution facilities and the Commission's rules thereunder and, as applicable, a description of the anticipated benefits to market participants or others, any potential anticompetitive effects on market participants or others, and how the rule fits into the security-based swap execution facility's framework of regulation;
(6) Certify that the security-based swap execution facility posted a notice of the pending rule with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the security-based swap execution facility's website. Information that the security-based swap execution facility seeks to keep confidential may be redacted from the documents published on the security-based swap execution facility's website but must be republished consistent with any determination made pursuant to § 240.24b-2 of this chapter;
(7) Provide additional information which may be beneficial to the Commission in analyzing the new rule or rule amendment. If a proposed rule affects, directly or indirectly, the application of any other rule of the security-based swap execution facility, the pertinent text of any such rule must be set forth and the anticipated effect described;
(8) Provide a brief explanation of any substantive opposing views expressed to the security-based swap execution facility by governing board or committee members, members of the security-based swap execution facility, or market participants that were not incorporated into the rule, or a statement that no such opposing views were expressed; and
(9) As appropriate, include a request for confidential treatment as permitted under § 240.24b-2 of this chapter.
(b) Standard for review and approval. The Commission shall approve a new rule or rule amendment unless the rule or rule amendment is inconsistent with the Act or the Commission's rules thereunder.
(c) Forty-five-day review. A rule or rule amendment submitted for Commission approval under paragraph (a) of this section shall be deemed approved by the Commission 45 days after receipt by the Commission, or at the conclusion of such extended period as provided under paragraph (d) of this section, unless the security-based swap execution facility is notified otherwise within the applicable period, if:
(1) The submission complies with the requirements of paragraph (a) of this section;
(2) The security-based swap execution facility does not amend the proposed rule or supplement the submission, except as requested by the Commission, during the pendency of the review period, other than for correction of typographical errors, renumbering, or other non- substantive revisions. Any amendment or supplementation not requested by the Commission will be treated as the submission of a new filing under this section.
(d) Extension of time for review. The Commission may further extend the review period in paragraph (c) of this section for:
(1) An additional 45 days, if the proposed rule or rule amendment raises novel or complex issues that require additional time for review or is of major economic significance, the submission is incomplete, or the requestor does not respond completely to Commission questions in a timely manner, in which case the Commission shall notify the submitting security-based swap execution facility within the initial 45-day review period and shall briefly describe the nature of the specific issues for which additional time for review shall be required; or
(2) Any period, beyond the additional 45 days provided in paragraph (d)(1) of this section, to which the security-based swap execution facility agrees in writing.
(e) Notice of non-approval. Any time during its review under this section, the Commission may notify the security-based swap execution facility that it will not, or is unable to, approve the new rule or rule amendment. This notification will briefly specify the nature of the issues raised and the specific provision of the Act or the Commission's rules thereunder, including the form or content requirements of this section, with which the new rule or rule amendment is inconsistent or appears to be inconsistent with the Act or the Commission's rules thereunder.
(f) Effect of non-approval. (1) Notification to a security-based swap execution facility under paragraph (e) of this section does not prevent the security-based swap execution facility from subsequently submitting a revised version of the proposed rule or rule amendment for Commission review and approval or from submitting the new rule or rule amendment as initially proposed in a supplemented submission. The revised submission will be reviewed without prejudice.
(2) Notification to a security-based swap execution facility under paragraph (e) of this section of the Commission's determination not to approve a proposed rule or rule amendment shall be presumptive evidence that the security-based swap execution facility may not truthfully certify the same, or substantially the same, proposed rule or rule amendment under § 242.807(a).
(g) Expedited approval. Notwithstanding the provisions of paragraph (c) of this section, changes to a proposed rule or a rule amendment, including changes to terms and conditions of a product that are consistent with the Act and the Commission's rules thereunder, may be approved by the Commission at such time and under such conditions as the Commission shall specify in the written notification; provided, however, that the Commission may, at any time, alter or revoke the applicability of such a notice to any particular product or rule amendment.
§ 242.807   Self-certification of rules.
(a) Required certification. A security-based swap execution facility shall comply with the following conditions prior to implementing any rule—other than a rule delisting or withdrawing the certification of a product with no open interest and submitted in compliance with paragraphs (a)(1), (2), and (6) of this section—that has not obtained Commission approval under § 242.806, or that remains a dormant rule subsequent to being submitted under this section or approved under § 242.806.
(1) The security-based swap execution facility has filed its submission electronically with the Commission using the EFFS system.
(2) The security-based swap execution facility has provided a certification that it posted a notice of pending certification with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the security-based swap execution facility's website. Information that the security-based swap execution facility seeks to keep confidential may be redacted from the documents published on the security-based swap execution facility's website, but it must be republished consistent with any determination made pursuant to § 240.24b-2 of this chapter.
(3) The Commission has received the submission not later than the open of business on the business day that is 10 business days prior to the security-based swap execution facility's implementation of the rule or rule amendment.
(4) The Commission has not stayed the submission pursuant to § 242.807(c).
(5) A new rule or rule amendment that establishes standards for responding to an emergency shall be submitted pursuant to § 242.807(a). A rule or rule amendment implemented under procedures of the governing board to respond to an emergency shall, if practicable, be filed with the Commission prior to implementation or, if not practicable, be filed with the Commission at the earliest possible time after implementation, but in no event more than 24 hours after implementation. Any such submission shall be subject to the certification and stay provisions of paragraphs (b) and (c) of this section.
(6) The rule submission shall include:
(i) A copy of the submission cover sheet in accordance with the instructions therein (in the case of a rule or rule amendment that responds to an emergency, “Emergency Rule Certification” should be noted in the description section of the submission cover sheet);
(ii) The text of the rule (in the case of a rule amendment, deletions and additions must be indicated);
(iii) The date of intended implementation;
(iv) A certification by the security-based swap execution facility that the rule complies with the Act and the Commission's rules thereunder;
(v) A concise explanation and analysis of the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the Act, including core principles relating to security-based swap execution facilities and the Commission's rules thereunder;
(vi) A brief explanation of any substantive opposing views expressed to the security-based swap execution facility by governing board or committee members, members of the security-based swap execution facility, or market participants, that were not incorporated into the rule, or a statement that no such opposing views were expressed; and
(vii) As appropriate, a request for confidential treatment pursuant to the procedures provided in § 240.24b-2 of this chapter.
(7) The security-based swap execution facility shall provide, if requested by Commission staff, additional evidence, information, or data that may be beneficial to the Commission in conducting a due diligence assessment of the filing and the security-based swap execution facility's compliance with any of the requirements of the Act or the Commission's rules or policies thereunder.
(b) Review by the Commission. The Commission shall have 10 business days to review the new rule or rule amendment before the new rule or rule amendment is deemed certified and can be made effective, unless the Commission notifies the security-based swap execution facility during the 10-business-day review period that it intends to issue a stay of the certification under paragraph (c) of this section.
(c) Stay —(1) Stay of certification of new rule or rule amendment. The Commission may stay the certification of a new rule or rule amendment submitted pursuant to paragraph (a) of this section by issuing a notification informing the security-based swap execution facility that the Commission is staying the certification of the rule or rule amendment on the grounds that the rule or rule amendment presents novel or complex issues that require additional time to analyze, the rule or rule amendment is accompanied by an inadequate explanation, or the rule or rule amendment is potentially inconsistent with the Act or the Commission's rules thereunder. The Commission will have an additional 90 days from the date of the notification to conduct the review.
(2) Public comment. The Commission shall provide a 30-day comment period within the 90-day period in which the stay is in effect, as described in paragraph (c)(1) of this section. The Commission shall publish a notice of the 30-day comment period on the Commission website. Comments from the public shall be submitted as specified in that notice.
(3) Expiration of a stay of certification of new rule or rule amendment. A new rule or rule amendment subject to a stay pursuant to this paragraph shall become effective, pursuant to the certification, at the expiration of the 90-day review period described in paragraph (c)(1) of this section, unless the Commission withdraws the stay prior to that time, or the Commission notifies the security-based swap execution facility during the 90-day time period that it objects to the proposed certification on the grounds that the proposed rule or rule amendment is inconsistent with the Act or the Commission's rules thereunder.
(d) Notification of rule amendments. Notwithstanding the rule certification requirement of paragraph (a) of this section, a security-based swap execution facility may place the following rules or rule amendments into effect without certification to the Commission if the following conditions are met:
(1) The security-based swap execution facility provides to the Commission at least weekly a summary notice of all rule amendments made effective pursuant to this paragraph during the preceding week. Such notice must be labeled “Weekly Notification of Rule Amendments” and need not be filed for weeks during which no such actions have been taken. One copy of each such submission shall be furnished electronically using the EFFS system; and
(2) The rule governs:
(i) Non-substantive revisions. Corrections of typographical errors, renumbering, periodic routine updates to identifying information about the security-based swap execution facility, and other such non-substantive revisions of a product's terms and conditions that have no effect on the economic characteristics of the product;
(ii) Fees. Fees or fee changes, other than fees or fee changes associated with market making or trading incentive programs, that:
(A) Total $1.00 or more per contract, and
(B) Are established by an independent third party or are unrelated to delivery, trading, clearing, or dispute resolution.
(iii) Survey lists. Changes to lists of banks, brokers, dealers, or other entities that provide price or cash market information to an independent third party and that are incorporated by reference as product terms;
(iv) Approved brands. Changes in lists of approved brands or markings pursuant to previously certified or Commission approved standards or criteria;
(v) Trading months. The initial listing of trading months, which may qualify for implementation without notice pursuant to paragraph (d)(3)(ii)(F) of this section, within the currently established cycle of trading months; or
(vi) Minimum tick. Reductions in the minimum price fluctuation (or “tick”).
(3) Notification of rule amendments not required. Notwithstanding the rule certification requirements of paragraph (a) of this section, a security-based swap execution facility may place the following rules or rule amendments into effect without certification or notice to the Commission if the following conditions are met:
(i) The security-based swap execution facility maintains documentation regarding all changes to rules; and
(ii) The rule governs:
(A) Transfer of membership or ownership. Procedures and forms for the purchase, sale, or transfer of membership or ownership, but not including qualifications for membership or ownership, any right or obligation of membership or ownership, or dues or assessments;
(B) Administrative procedures. The organization and administrative procedures of a security-based swap execution facility's governing bodies such as a governing board, officers, and committees, but not voting requirements, governing board, or committee composition requirements or procedures, decision-making procedures, use or disclosure of material non-public information gained through the performance of official duties, or requirements relating to conflicts of interest;
(C) Administration. The routine daily administration, direction, and control of employees, requirements relating to gratuity and similar funds, but not guaranty, reserves, or similar funds; declaration of holidays; and changes to facilities housing the market, trading floor, or trading area;
(D) Standards of decorum. Standards of decorum or attire or similar provisions relating to admission to the floor, badges, or visitors, but not the establishment of penalties for violations of such rules;
(E) Fees. Fees or fee changes, other than fees or fee changes associated with market making or trading incentive programs, that:
( 1 ) Are less than $1.00; or
( 2 ) Relate to matters such as dues, badges, telecommunication services, booth space, real-time quotations, historical information, publications, software licenses, or other matters that are administrative in nature; and
(F) Trading months. The initial listing of trading months which are within the currently established cycle of trading months.
§ 242.808   Availability of public information.
(a) The Commission shall make publicly available on its website the following parts of an application to register as a security-based swap execution facility, unless confidential treatment is obtained pursuant to § 240.24b-2 of this chapter:
(1) Transmittal letter and first page of the application cover sheet;
(2) Exhibit C;
(3) Exhibit G;
(4) Exhibit L; and
(5) Exhibit M.
(b) The Commission shall make publicly available on its website, unless confidential treatment is obtained pursuant to § 240.24b-2 of this chapter, a security-based swap execution facility's filing of new products pursuant to the self-certification procedures of § 242.804, new products for Commission review and approval pursuant to § 242.805, new rules and rule amendments for Commission review and approval pursuant to § 242.806, and new rules and rule amendments pursuant to the self-certification procedures of § 242.807.
(c) The terms and conditions of a product submitted to the Commission pursuant to § 242.804, § 242.805, § 242.806, or § 242.807 shall be made publicly available at the time of submission unless confidential treatment is obtained pursuant to § 240.24b-2 of this chapter.
§ 242.809   Staying of certification and tolling of review period pending jurisdictional determination.
(a) A product certification made by a security-based swap execution facility pursuant to § 242.804 shall be stayed, or the review period for a product that has been submitted for Commission approval by a security-based swap execution facility pursuant to § 242.805 shall be tolled, upon request for a joint interpretation of whether the product is a swap, security-based swap, or mixed swap made pursuant to § 240.3a68-2 of this chapter by the security-based swap execution facility, the Commission, or the Commodity Futures Trading Commission.
(b) The Commission shall provide the security-based swap execution facility with a written notice of the stay or tolling pending issuance of a joint interpretation.
(c) The stay shall be withdrawn, or the approval review period shall resume, if a joint interpretation finding that the Commission has jurisdiction over the product is issued.
§ 242.810   Product filings by security-based swap execution facilities that are not yet registered and by dormant security-based swap execution facilities.
(a) An applicant for registration as a security-based swap execution facility may submit a security-based swap's terms and conditions prior to listing the product as part of its application for registration.
(b) Any security-based swap terms and conditions or rules submitted as part of a security-based swap execution facility's application for registration shall be considered for approval by the Commission at the time the Commission issues the security-based swap execution facility's order of registration.
(c) After the Commission issues the order of registration, the security-based swap execution facility shall submit a security-based swap's terms and conditions, including amendments to such terms and conditions, new rules, or rule amendments pursuant to the procedures in §§ 242.804, 242.805, 242.806, and 242.807.
(d) Any security-based swap terms and conditions or rules submitted as part of an application to reinstate the registration of a dormant security-based swap execution facility shall be considered for approval by the Commission at the time the Commission approves the reinstatement of registration of the dormant security-based swap execution facility.
§ 242.811   Information relating to security-based swap execution facility compliance.
(a) Request for information. Upon the Commission's request, a security-based swap execution facility shall file with the Commission information related to its business as a security-based swap execution facility in the form and manner, and within the timeframe, specified by the Commission.
(b) Demonstration of compliance. Upon the Commission's request, a security-based swap execution facility shall file with the Commission a written demonstration, containing supporting data, information, and documents, that it is in compliance with one or more core principles or with its other obligations under the Act or the Commission's rules thereunder, as the Commission specifies in its request. The security-based swap execution facility shall file such written demonstration in the form and manner, and within the timeframe, specified by the Commission.
(c) Equity interest transfer —(1) Equity interest transfer notification. A security-based swap execution facility shall file with the Commission a notification of any transaction involving the direct or indirect transfer of 50 percent or more of the equity interest in the security-based swap execution facility. The Commission may, upon receiving such notification, request supporting documentation of the transaction.
(2) Timing of notification. The equity interest transfer notice described in paragraph (c)(1) of this section shall be filed with the Commission in a form and manner specified by the Commission at the earliest possible time, but in no event later than the open of business 10 business days following the date upon which the security-based swap execution facility enters into a firm obligation to transfer the equity interest.
(3) Rule filing. Notwithstanding the foregoing, if any aspect of an equity interest transfer described in paragraph (c)(1) of this section requires a security-based swap execution facility to file a rule, the security-based swap execution facility shall comply with the applicable rule filing requirements of § 242.806 or § 242.807.
(4) Certification. Upon an equity interest transfer described in paragraph (c)(1) of this section, the security-based swap execution facility shall file with the Commission, in a form and manner specified by the Commission, a certification that the security-based swap execution facility meets all of the requirements of section 3D of the Act and the Commission rules thereunder, no later than two business days following the date on which the equity interest of 50 percent or more was acquired.
(d) Pending legal proceedings. (1) A security-based swap execution facility shall submit to the Commission a copy of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decision, and such further documents as the Commission may thereafter request filed in any material legal proceeding to which the security-based swap execution facility is a party or its property or assets is subject.
(2) A security-based swap execution facility shall submit to the Commission a copy of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decision, and such further documents as the Commission may thereafter request filed in any material legal proceeding instituted against any officer, director, or other official of the security-based swap execution facility from conduct in such person's capacity as an official of the security-based swap execution facility and alleging violations of:
(i) The Act or any rule, regulation, or order under the Act;
(ii) The constitution, bylaws, or rules of the security-based swap execution facility; or
(iii) The applicable provisions of State law relating to the duties of officers, directors, or other officials of business organizations.
(3) All documents required by this paragraph (d) to be submitted to the Commission shall be submitted electronically in a form and manner specified by the Commission within 10 days after the initiation of the legal proceedings to which they relate, after the date of issuance, or after receipt by the security-based swap execution facility of the notice of appeal, as the case may be.
(4) For purposes of this paragraph (d), a “material legal proceeding” includes but is not limited to actions involving alleged violations of the Act or the Commission rules thereunder. However, a legal proceeding is not “material” for the purposes of this rule if the proceeding is not in a Federal or State court or if the Commission is a party.