Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 51449 

12For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

13 17 CFR 200.30–3(a)(12). 

1 17 CFR 240.13h–1. 

2See Securities Exchange Act Release No. 64976 

(July 27, 2011), 76 FR 46960 (August 3, 2011) 

(‘‘Large Trader Adopting Release’’). The effective 

date of Rule 13h–1 was October 3, 2011. See also 

Exchange Act Rule 600(b)(46) of Regulation NMS 

(defining ‘‘NMS security’’). 

3See Securities Exchange Act Release Nos. 66839 

(April 20, 2012), 77 FR 25007 (April 26, 2012) 

(‘‘Phase One Order’’) (establishing Phase One); 

69281 (April 3, 2013), 78 FR 20960 (April 8, 2013) 

(‘‘Phase Two Extension Order’’) (extending the 

compliance date for Phase Two to November 1, 

2013); 70150 (August 8, 2013), 78 FR 49556 (August 

14, 2013) (‘‘Phases Two and Three Order’’) 

(modifying Phase Two and providing for Phase 

Three); and 76322 (October 30, 2015), 80 FR 68590 

(November 5, 2015) (‘‘Phase Three Extension 

Order’’) (extension of compliance date for Phase 

Three until November 1, 2017). 

4Rule 13h–1(a)(9) defines ‘‘Unidentified Large 

Trader’’ as ‘‘each person who has not complied 

with the [large trader identification requirements of 

the Rule] that a registered broker-dealer knows or 

has reason to know is a large trader.’’ The Rule 

provides that, for purposes of determining whether 

a registered broker-dealer has reason to know that 

a person is a large trader, ‘‘a registered broker-dealer 

need take into account only transactions in NMS 

securities effected by or through such brokerdealer.’’ Rule 13h–1(a)(9). 

5See Phase Three Extension Order, supra note 3 

(extending the Phase Three compliance date until 

November 1, 2017). See also Phases Two and Three 

Order, supra note 3, 78 FR at 49560. 

6See Undated letter from William H. Herbert, 

Managing Director, FIF, to Heather Seidel, Acting 

Director, Division of Trading and Markets 

(‘‘Division’’), Commission (‘‘FIF I’’), available at 

https://www.sec.gov/comments/s7-10-10/s71010- 

1558852-131535.pdf; Letter from Thomas F. Price, 

Managing Director, Operations, Technology, and 

Continued 

one or more major market data vendors, 

without undue delay. Therefore, the 

Commission designates the proposed 

rule change to be operative upon 

filing.12

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEArca–2017–127 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSEArca–2017–127. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NYSEArca–2017–127 and 

should be submitted on or before 

November 27, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–24045 Filed 11–3–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81993] 

Order Temporarily Exempting Certain 

Broker-Dealers From Specified 

Provisions of the Recordkeeping, 

Reporting, and Monitoring 

Responsibilities of Rule 13h–1 Under 

the Securities Exchange Act of 1934 

October 31, 2017. 

I. Introduction 

On July 27, 2011, the Securities and 

Exchange Commission (‘‘Commission’’) 

adopted Rule 13h–1 (‘‘Rule 13h–1’’ or 

the ‘‘Rule’’) under the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 to assist the Commission in both 

identifying and obtaining information 

on market participants that conduct a 

substantial amount of trading activity, 

as measured by volume or market value, 

in national market system (‘‘NMS’’) 

securities (such persons are referred to 

as ‘‘large traders’’).2 The Rule requires 

certain large traders to identify 

themselves to the Commission on Form 

13H. The Rule also requires, among 

other things, certain broker-dealers to 

maintain records of large trader 

transaction information and to report 

such information to the Commission 

upon request. Since December 1, 2011, 

persons whose trading activity reached 

or exceeded the identifying activity 

level specified in the Rule have been 

required to identify themselves to the 

Commission by filing Form 13H through 

the Commission’s EDGAR system. The 

Commission has implemented the 

broker-dealer recordkeeping, reporting, 

and monitoring requirements of the 

Rule in phases through a series of 

exemptive orders establishing certain 

delayed compliance dates.3 Currently, 

certain broker-dealers are required to 

keep records of and report to the 

Commission upon request transaction 

data for certain of their customers that 

are either a large trader or an 

Unidentified Large Trader.4 Most 

recently, the Commission provided a 

temporary exemption from specified 

provisions of the Rule for certain brokerdealers (‘‘Phase Three’’)—provisions 

which otherwise would have fully 

implemented the entirety of the 

recordkeeping and reporting 

responsibilities of Rule 13h–1 by, in 

particular, requiring the capture and 

reporting of execution time on trades of 

all large traders—until November 1, 

2017.5

The Financial Information Forum 

(‘‘FIF’’) and Securities Industry and 

Financial Markets Association 

(‘‘SIFMA,’’ and, together with FIF, the 

‘‘Industry Organizations’’) have asked 

the Commission to eliminate Phase 

Three of the Rule, which would impose 

the remaining requirements on all 

broker-dealers and all large trader 

customers.6 Alternatively, the Industry 


Pmangrum on DSK3GDR082PROD with NOTICES
51450 Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 

BCP, SIFMA, to Heather Seidel, Acting Director, 

Division, Commission, dated March 3, 2017 

(‘‘SIFMA Letter’’), available at https://www.sec.gov/ 

comments/s7-10-10/s71010-1610783-135970.pdf; 

and Letter from William H. Herbert, Managing 

Director, FIF, to Heather Seidel, Acting Director, 

Division, Commission, dated September 14, 2017 

(‘‘FIF II’’), available at https://www.sec.gov/ 

comments/s7-10-10/s71010-2445134-161065.pdf. 

and In the alternative, FIF ‘‘recommends 

postponing the compliance date for five years’’ and 

SIFMA requests an extension ‘‘to a date no sooner 

than the earlier of the date of the full 

implementation of the CAT or November 1, 2022.’’ 

See FIF I at 2; and SIFMA Letter at 3. In a 

subsequent letter, FIF requested that the 

Commission eliminate Phase Three or, 

alternatively, extend the compliance date for Phase 

Three to November 1, 2020 to allow for the 

implementation of CAT Phase 1. See FIF II at 3. 

7See FIF II at 3 (asking the Commission, if it 

chooses not to eliminate Phase Three, to extend the 

compliance date for Phase Three until November 1, 

2020 ‘‘to allow full implementation of CAT Phase 

1 for both Large and Small Industry Members’’); FIF 

I at 2 (stating that ‘‘If it is not possible to eliminate 

Phase 3 of the Rule, FIF recommends postponing 

the compliance date for five years’’); and SIFMA 

Letter at 3 (requesting an extension ‘‘to a date no 

sooner than the earlier of the date of the full 

implementation of the CAT or November 1, 2022’’). 

8See Securities Exchange Act Release No. 79318 

(November 15, 2016), 81 FR 84696 (November 23, 

2016) (File No. 4–698) (‘‘CAT NMS Plan Order’’). 

9 17 CFR 242.613 (‘‘Rule 613’’). See also 

Securities Exchange Act Release No. 67457 (July 18, 

2012), 77 FR 45722 (August 1, 2012) (‘‘Rule 613 

Adopting Release’’). Rule 613 requires the SROs to 

submit a national market system (‘‘NMS’’) plan to 

create, implement, and maintain a consolidated 

audit trail (‘‘CAT’’) that would capture customer 

and order event information for orders in NMS 

securities, across all markets, from the time of order 

inception though routing, cancellation, 

modification, or execution in a single, consolidated 

data source. See Rule 613(a)(1), (c)(1), and (c)(7). 

Specifically, Rule 613 requires the SROs to ‘‘jointly 

file . . . a national market system plan to govern 

the creation, implementation, and maintenance of 

a consolidated audit trail and Central Repository.’’ 

See Rule 613(a)(1). As described more fully in the 

CAT NMS Plan Order, supra note 8, to satisfy the 

requirements of Rule 613, the SROs in February 

2015 filed an NMS plan governing the CAT (the 

‘‘CAT NMS Plan’’) that replaced and amended an 

earlier version of the plan. The Commission 

approved the CAT NMS Plan, as amended, in 

November 2016. See CAT NMS Plan Order, supra 

note 8. The purpose of the CAT NMS Plan, and the 

creation, implementation, and maintenance of a 

comprehensive audit trail for the U.S. securities 

markets, is to ‘‘substantially enhance the ability of 

the SROs and the Commission to oversee today’s 

securities markets and fulfill their responsibilities 

under the federal securities laws.’’ See Rule 613 

Adopting Release, supra note 9, 77 FR at 45726. As 

contemplated by Rule 613, the CAT ‘‘will allow for 

the prompt and accurate recording of material 

information about all orders in NMS securities, 

including the identity of customers, as these orders 

are generated and then routed throughout the U.S. 

markets until execution, cancellation, or 

modification. This information will be consolidated 

and made readily available to regulators in a 

uniform electronic format.’’ See id. 

10See Rule 613 Adopting Release, supra note 9, 

77 FR at 45734; and CAT NMS Plan Order, supra 

note 8, 81 FR at 84777. 

11See infra notes 24–27 and accompanying text 

(describing Phases One and Two). 

12See Rule 13h–1(a)(1). 

13See Rule 13h–1(a)(7). See also Phase Three 

Extension Order, supra note 3 (establishing an 

alternative ‘‘premium paid’’ methodology for 

calculating equity options value). 

14See Rule 13h–1(b)(1)(i)–(iii). Form 13H and all 

updates to it are filed electronically through the 

Commission’s EDGAR system. 

15When a large trader files its initial Form 13H 

filing through EDGAR, the system sends an 

automatically generated confirmation email 

acknowledging acceptance of the filing. That email 

also contains the unique 8-digit LTID number 

assigned to the large trader. 

16See Rule 13h–1(b)(2). See also Large Trader 

Adopting Release, supra note 2, 76 FR at 46971 

(‘‘the requirements that a large trader provide its 

LTID to all registered broker-dealers who effect 

transactions on its behalf, and identify each account 

to which it applies, are ongoing responsibilities that 

must be discharged promptly’’). 

17See Rule 13h–1(d)(1)(iii). 

Organizations have asked the 

Commission to extend the compliance 

date for Phase Three for an additional 

period of three or five years.7

For the reasons discussed below, the 

Commission believes that it is 

consistent with the purposes of the 

Exchange Act to grant a limited 

extension of the compliance date for 

Phase Three by temporarily exempting 

broker-dealers until November 15, 2018 

from the recordkeeping and reporting 

obligations of the Rule that would 

otherwise have been implemented in 

Phase Three on November 1, 2017. As 

discussed below, the Commission 

approved the Consolidated Audit Trail 

(‘‘CAT NMS Plan’’) 8 submitted by 

FINRA and the national securities 

exchanges (collectively, the ‘‘SROs’’) 

pursuant to Rule 613 under the 

Exchange Act.9 In adopting Rule 613 

and later when it approved the CAT 

NMS Plan, the Commission 

contemplated that the CAT would be 

duplicative of the reporting 

requirements of Rule 13h–1 under the 

Exchange Act.10 To focus broker-dealer 

attention and resources on 

implementing the CAT in the near term, 

the Commission hereby is exempting 

temporarily, until November 15, 2018, 

broker-dealers from the remaining 

recordkeeping and reporting obligations 

of Rule 13h–1, beyond those previously 

implemented in Phases One and Two.11

During that time, the Commission will 

consider progress in implementing the 

CAT as it determines implementation of 

Phase Three. 

II. Background 

A. Large Trader Status 

Rule 13h–1 defines a large trader as a 

person who ‘‘directly or indirectly, 

including through other persons 

controlled by such person, exercises 

investment discretion over one or more 

accounts and effects transactions for the 

purchase or sale of any National Market 

System (NMS) security for or on behalf 

of such accounts, by or through one or 

more registered broker-dealers, in an 

aggregate amount equal to or greater 

than the identifying activity level’’ 

(emphasis added), or voluntarily 

registers as such.12 The term 

‘‘identifying activity level’’ is defined in 

the Rule to mean aggregate transactions 

in NMS securities that are equal to or 

greater than (1) during a calendar day, 

either 2 million shares or shares with a 

fair market value of $20 million; or (2) 

during a calendar month, either 20 

million shares or shares with a fair 

market value of $200 million.13

B. The Requirements of Rule 13h–1 

1. Large Trader Self-Identification 

The Rule requires large traders to selfidentify to the Commission on Form 

13H and to periodically update their 

Form 13H submission,14 obtain a 

unique large trader identification 

number (‘‘LTID’’) from the 

Commission,15 and provide this number 

to their broker-dealers and identify each 

account to which the LTID applies.16

These large trader responsibilities are 

referred to collectively as the ‘‘SelfIdentification Requirements.’’ 

2. Broker-Dealers’ Recordkeeping and 

Reporting Responsibilities Regarding 

Unidentified Large Traders and the 

Customer Monitoring Safe Harbor 

Under Rules 13h–1(d) and (e), 

registered broker-dealers are responsible 

for, among other things, maintaining 

records of certain transaction 

information and information relating to 

Unidentified Large Traders and then 

reporting such information to the 

Commission upon request. Specifically, 

Rule 13h–1 requires that every 

registered broker-dealer maintain 

records of information specified in 

paragraphs (d)(2) and (d)(3) of the Rule 

(‘‘Transaction Data’’), including, among 

other things, the applicable LTID(s) and 

execution time of each trade, for all 

transactions effected directly or 

indirectly by or through: (1) An account 

such broker-dealer carries for a large 

trader or an Unidentified Large Trader; 

or (2) if the broker-dealer is a large 

trader, any proprietary or other account 

over which such broker-dealer exercises 

investment discretion. Additionally, 

where a non-broker-dealer carries an 

account for a large trader or an 

Unidentified Large Trader under the 

Rule, the broker-dealer effecting 

transactions directly or indirectly for 

such large trader or Unidentified Large 

Trader must maintain records of all 

Transaction Data.17 These 

recordkeeping obligations are referred to 


Pmangrum on DSK3GDR082PROD with NOTICES
Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 51451 

18See Rule 13h–1(e). 

19See id. 

20See id. 

21See Rule 13h–1(f). 

22See Large Trader Adopting Release, supra note 

2, 76 FR at 46963. 

23See, e.g., Phase Three Extension Order, supra 

note 3, 80 FR at 68594. 

24See id. See also supra note 3 (citing to the 

applicable releases). 

25See Phase One Order, supra note 3, 77 FR at 

25008–9. A ‘‘sponsored access’’ arrangement is an 

arrangement where a broker-dealer permits a 

customer to enter orders into a trading center 

without using the broker-dealer’s trading system 

(i.e., using the customer’s own technology or that 

of a third party provider). 

26See Phases Two and Three Order, supra note 

3, 78 FR at 49559–60. See also Securities Exchange 

Act Release No. 63241 (November 3, 2010), 75 FR 

69792, 69793 (November 15, 2010) (File No. S7–03– 

10) (‘‘Generally, direct market access refers to an 

arrangement whereby a broker-dealer permits 

customers to enter orders into a trading center but 

such orders flow through the broker-dealer’s trading 

systems prior to reaching the trading center.’’). 

27See Phases Two and Three Order, supra note 

3, 78 FR at 49558–9. 

28See id. at 78 FR at 49560; and Phase Three 

Extension Order, supra note 3. 

29See Rule 613 Adopting Release, supra note 9. 

30See Rule 613(a)(1). 

31See CAT NMS Plan Order, supra note 8. 

32See Rule 613 Adopting Release, supra note 9, 

77 FR at 45734. 

33 Id. at text accompanying n.95. 

collectively as the ‘‘Recordkeeping 

Responsibilities.’’ 

The Rule also requires that, upon 

Commission request, every registered 

broker-dealer that is itself a large trader 

or carries an account for a large trader 

or an Unidentified Large Trader must 

electronically report Transaction Data to 

the Commission through the Electronic 

Blue Sheets (‘‘EBS’’) system for all 

transactions effected directly or 

indirectly by or through accounts 

carried by such broker-dealer for large 

traders or Unidentified Large Traders 

equal to or greater than the reporting 

activity level.18 Additionally, where a 

non-broker-dealer carries an account for 

a large trader or an Unidentified Large 

Trader, the broker-dealer effecting such 

transactions directly or indirectly for the 

large trader or Unidentified Large 

Trader must electronically report 

Transaction Data to the Commission 

through the EBS system for such 

transactions equal to or greater than the 

reporting activity level.19 The Rule 

requires that reporting broker-dealers 

submit the requested Transaction Data 

no later than the day and time specified 

in the Commission’s request.20 These 

reporting obligations are referred to 

collectively as the ‘‘Reporting 

Responsibilities.’’ 

Rule 13h–1(f) provides a safe harbor 

that is designed to reduce brokerdealers’ recordkeeping and reporting 

burdens with respect to Unidentified 

Large Traders by, among other things, 

providing relief for when a brokerdealer shall be deemed to know or have 

reason to know that a person is a large 

trader and thus subject to reporting 

obligations related to Unidentified Large 

Traders under Rule 3h-1. Under the safe 

harbor, a registered broker-dealer is 

deemed not to know or have reason to 

know that a person is a large trader if 

the broker-dealer does not have actual 

knowledge that a person is a large trader 

and it establishes policies and 

procedures reasonably designed to 

identify customers whose transactions 

effected through an account or group of 

accounts carried by such broker-dealer 

or through which such broker-dealer 

executes transactions, as applicable, 

equal or exceed the identifying activity 

level and, if so, to treat such persons as 

Unidentified Large Traders and notify 

them of their potential reporting 

obligations under this Rule.21

C. Phased Implementation of Rule 

13h–1 

When the Commission adopted the 

Rule, it characterized the large trader 

reporting requirements as ‘‘relatively 

modest steps’’ to ‘‘address the 

Commission’s near-term need for access 

to more information about large traders 

and their trading activities. . . .’’ 22

After the Commission adopted the Rule, 

industry commenters began to identify 

specific implementation challenges and 

offered more detailed estimates of the 

cost of compliance for broker-dealers 

with the Recordkeeping and Reporting 

Responsibilities.23 Such concerns led 

the Commission to implement the 

Recordkeeping and Reporting 

Responsibilities in phases.24

In Phase One, which began on 

November 30, 2012, the Commission 

temporarily exempted from the 

Recordkeeping and Reporting 

Responsibilities all broker-dealers, 

except clearing brokers for large traders 

(including the large trader itself if it is 

a self-clearing broker-dealer), with 

respect to large trader transactions that 

were either (1) proprietary trades by a 

U.S. registered broker-dealer, or (2) 

effected through a ‘‘sponsored access’’ 

arrangement.25 In Phase Two, which 

began on November 1, 2013, the 

Commission further implemented the 

Rule by subjecting transactions effected 

pursuant to ‘‘direct market access’’ 

arrangements to the Recordkeeping and 

Reporting Responsibilities.26

Specifically, Phase Two temporarily 

exempted broker-dealers, until 

November 1, 2015, from the 

Recordkeeping and Reporting 

Responsibilities, except for: (1) The 

clearing broker-dealer for a large trader, 

with respect to (a) proprietary 

transactions by the large trader brokerdealer; (b) transactions effected 

pursuant to a ‘‘sponsored access’’ 

arrangement; and (c) transactions 

effected pursuant to a ‘‘direct market 

access’’ arrangement; and (2) a brokerdealer that carries an account for a large 

trader, with respect to transactions other 

than those set forth above, and for 

Transaction Data other than the 

execution time.27 In other words, the 

Recordkeeping and Reporting 

Responsibilities under Phase Two 

require capture and reporting of LTID 

numbers for all large traders, but require 

capture and reporting of execution time 

only for the three specific categories of 

large trader activity outlined above. 

Phase Three, scheduled to commence 

on November 1, 2017, would require 

compliance with the entirety of the 

Recordkeeping and Reporting 

Responsibilities for all broker-dealers, 

covering the remaining types of large 

traders and transactions not covered by 

Phases One and Two.28 Notably, 

implementation of Phase Three would 

require the capture and reporting of 

execution time for all large trader 

transactions, not just for the three 

specific categories of large trader 

activity already implemented through 

Phases One and Two. 

D. Adoption of Rule 613 and 

Implementation of the CAT 

The Commission adopted Rule 613 to 

create a CAT that would allow 

regulators to more efficiently and 

accurately track activity in NMS 

securities.29 Rule 613 requires the SROs 

to jointly submit an NMS plan to create, 

implement and maintain a consolidated 

audit trail.30 In November 2016, the 

Commission approved the SROs’ 

proposed CAT NMS Plan.31

When the Commission adopted Rule 

613 it stated that, while certain aspects 

of Rule 13h–1 are not addressed by Rule 

613, Rule 613 may supersede certain of 

the broker-dealer Recordkeeping and 

Reporting Responsibilities of Rule 

13h–1.32 Specifically, the Commission 

stated ‘‘[t]o the extent that . . . data 

reported to the central repository under 

Rule 613 obviates the need for the EBS 

system, the Commission expects that the 

separate [trade] reporting requirements 

of Rule 13h–1 related to the EBS system 

would be eliminated.’’ 33 Further, when 

it approved the CAT NMS Plan, the 

Commission noted that ‘‘CAT will 

provide Commission Staff with much of 


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34See CAT NMS Plan Order, supra note 8, 81 FR 

at 84777 (citations omitted). 35See 15 U.S.C. 78m and Rule 13h–1(g), 

respectively. 36See FIF I, supra note 6, at 2; and SIFMA Letter, 

supra note 6, at 3. 37See FIF I, supra note 6, at 2. 38See FIF II, supra note 6, at 3. 39See SIFMA Letter, supra note 6, at 3. 40See FIF I, supra note 6, at 1–2; and SIFMA 

Letter, supra note 6, at 2. See also FIF II, supra note 

6, at 1 (stating that mandating implementation of 

Phase Three would ‘‘divert scarce resources from 

the [i]mplementation of CAT’’). 

41SIFMA Letter, supra note 6, at 2. See also FIF 

II at 2 (expressing the view that the implementation 

of Phase Three ‘‘would be redundant of the CAT 

initiative’’). 

42SIFMA Letter, supra note 6, at 2. SIFMA stated 

that it had previously described the significant 

implementation challenges that would need to be 

resolved to meet the compliance requirements of 

Phase Three. Id. at 1. Quoting its February 13, 2013, 

letter to the Commission, SIFMA stated that ‘‘‘it 

would require a massive restructuring of most of the 

current execution and clearing flows and systems 

at considerable cost to aggregate all of [the relevant 

reporting] information at one broker-dealer’ and 

that ‘individual broker-dealers must make 

significant internal changes to their systems, the 

fundamental restructuring of certain industry 

standard clearing processes may be required, and 

concerted and coordinated development activities 

will be required throughout the broker-dealer 

industry.’ ’’ Id. at 1–2, citing Letter from Theodore 

R. Lazo, Managing Director and Associate General 

Counsel, SIFMA, to David S. Shillman, Associate 

Director, Division, Commission, dated February 13, 

2013, available at https://www.sec.gov/comments/ 

s7-10-10/s71010-102.pdf. SIFMA stated that 

‘‘[t]hese challenges continue to persist and are no 

less burdensome today,’’ and asserted that the 

reporting structure that would be developed and 

implemented under Phase Three would become 

redundant when the CAT is instituted. SIFMA 

Letter, supra note 6, at 2. See also FIF II, supra note 

6, at 2 (referencing FIF’s previous descriptions of 

the implementation challenges associated with 

Phase Three). 

43See FIF II, supra note 6, at 2. 

44See CAT NMS Plan Order, supra note 8. 

45See Letter from the Selection Committee of the 

CAT NMS Plan to Brent J. Fields, Secretary, 

Commission, dated January 18, 2017, available at 

https://www.sec.gov/divisions/marketreg/rule613- 

info-notice-of-plan-processor-selection.pdf. 

46See CAT NMS Plan, Appendix C, Section 10(b). 

47See, e.g., NYSE Rules 6820(a) and 6895(b), 

CBOE Rules 6.86(a) and 6.96(b), and Nasdaq Rules 

6820(a) and 6895(b). In accordance with an 

exemption to the CAT NMS Plan, the SROs’ 

compliance rules require members that were 

capturing time in milliseconds on March 8, 2017, 

to have synchronized their business clocks on or 

before March 15, 2017. The compliance rules 

require members that did not capture time in 

milliseconds on March 8, 2017, to synchronize their 

business clocks on or before February 19, 2018. See 

Securities Exchange Act Release No. 80142 (March 

2, 2017), 82 FR 13034 (March 8, 2017) (Order 

Granting Limited Exemptive Relief from the CAT 

NMS Plan requirement that members synchronize 

their business clocks no later than March 15, 2017). 

48See Securities Exchange Act Release No. 80256 

(March 15, 2017), 82 FR 14526 (March 21, 2017) 

(order approving File Nos. SR–BatsBYX–2017–02; 

SR–BatsBZX–2017–08; SR–BatsEDGA–2017–03; 

SR–BatsEDGX–2017–08; SR–BOX–2017–07; SR– 

C2–2017–007; SR–CBOE–2017–012; SR–CHX– 

2017–03; SR–ISE–2017–08; SR–IEX–2017–04; SR– 

ISEGemini–2017–04; SR–ISEMercury–2017–03; 

SR–MIAX–2017–03; SR–PEARL–2017–04; SR– 

NASDAQ–2017–008; SRBX–2017–007; SR–PHLX– 

2017–07; SR–NYSE–2017–01; SR–NYSEArca– 

2017–03; SR–NYSEArca–2017–04; SR–NYSEMKT– 

2017–02; and SR–NSX–2017–03). 

49See, e.g., Securities Exchange Act Release Nos. 

80783 (May 26, 2017), 82 FR 2542 (June 1, 2017) 

(SR–FINRA–2017–13); 80789 (May 26, 2017), 82 FR 

25492 (June 1, 2017) (SR–BOX–2017–17); 80813 

(May 30, 2017), 82 FR 25820 (June 5, 2017) (SR– 

Nasdaq–2017–055). 

50This order does not affect Rule 13h–1 

requirements implemented in Phases One and Two. 

51See Rule 613(c)(7)(v)(C) (requiring, for an order 

executed in whole or in part, ‘‘[t]ime of execution’’). 

See also CAT NMS Plan, supra note 8, at Section 

6.3(d)(v). 

52See CAT NMS Plan Order, supra note 8, 81 FR 

at 84777 (citations omitted); and CAT NMS Plan, 

supra note 8, at Section 6.4(d)(ii)(A)(1) (concerning 

Allocation Reports). 

the equity and option data that is 

currently obtained through equity and 

option cleared reports and EBS, 

including the additional transaction 

data captured in connection with Rule 

13h–1 concerning large traders.’’ 34

III. Exemptive Relief 

Pursuant to Section 13(h)(6) of the 

Exchange Act and Rule 13h–1(g) 

thereunder,35 the Commission, by order, 

may exempt from the provisions of Rule 

13h–1, upon specified terms and 

conditions or for stated periods, any 

person or class of persons or any 

transaction or class of transactions from 

the provisions of Rule 13h–1 to the 

extent that such exemption is consistent 

with the purposes of the Exchange Act. 

As noted above, the Industry 

Organizations have requested that the 

Commission eliminate Phase Three of 

the implementation of the Rule.36 In the 

alternative, FIF recommends postponing 

the compliance date for Phase Three for 

five years 37 or until November 1, 

2020,38 and SIFMA requested an 

extension of the compliance date until 

the earlier of full implementation of the 

CAT or November 1, 2022.39 The 

Industry Organizations both expressed 

the view that granting exemptive relief 

would allow the industry to focus 

resources on implementing the CAT.40

In addition, SIFMA asserted that ‘‘the 

reporting structure that would 

ultimately be developed and 

implemented under Phase III would 

become redundant when the 

Consolidated Audit Trail (CAT) is 

instituted.’’ 41 SIFMA further stated that 

‘‘[c]ertain aspects of Phase III 

implementation continue to be 

infeasible except at a prohibitive cost 

and involving significant industry 

coordination for the development of 

new operational flows and processing 

standards that is disproportionate to the 

anticipated relatively short-lived 

corresponding benefit. Specifically, 

with the progress on CAT . . . the 

useful life of a costly and specialized 

Phase III solution is now described in 

months.’’ 42 FIF stated that the 

implementation of Phase Three would 

represent ‘‘significant duplicative costs 

to the broker-dealer community because 

[the Phase Three] recordkeeping and 

reporting obligations are already 

included in the CAT.’’ 43

The Commission notes that there has 

been significant progress on the 

implementation of the CAT since it 

issued the Phase Three Extension Order 

on October 30, 2015. As noted above, 

the Commission approved the CAT 

NMS Plan submitted by the SROs on 

November 15, 2016,44 and to date the 

SROs have taken a series of steps to 

implement the CAT in accordance with 

the CAT NMS Plan. Among other 

things, the Plan Processor for the CAT 

NMS Plan has been selected,45 draft 

technical specifications for the SROs’ 

submission of order and quote data to 

the CAT have been developed,46 and 

compliance rules requiring SRO 

members to synchronize their business 

clocks used to report information 

required under the CAT NMS Plan to 

within 50 milliseconds of the time 

maintained by the National Institute of 

Standards and Technology have been 

adopted.47 In addition, the SROs have 

adopted rules requiring member 

compliance with relevant portions of 

the CAT NMS Plan,48 and they have 

filed proposed rule changes that are 

designed to eliminate systems that are 

duplicative of the CAT.49

In light of the fact that the CAT NMS 

Plan has now been approved and the 

CAT is being built and implemented, 

the Commission believes that it is 

appropriate to issue this temporary 

exemption so that broker-dealer 

resources can be focused on CAT.50

Reporting pursuant to the CAT NMS 

Plan will provide the Commission with 

information concerning the trading in 

equity and listed options transactions of 

all types of large traders that would 

otherwise be reported pursuant to Rule 

13h–1. In particular, the CAT will 

capture detailed information on each 

order, including the time of execution 

for orders executed in whole or in 

part 51 as well as information concerning 

allocation to subaccounts.52

Accordingly, because the CAT will 

capture the order execution information 

that would be covered in Phase Three, 

the Commission believes that a 

temporary exemption is appropriate to 

defer the burdens that would be 

imposed on the industry to implement 

Phase Three and instead focus finite 

broker-dealer resources on completing 

and implementing the CAT in the near 

term. The Commission notes that, prior 


Pmangrum on DSK3GDR082PROD with NOTICES
Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 51453 

53See Phase Three Extension Order at note 62 

(citing Letter from Mary Lou VonKaenel, Managing 

Director, FIF, to Stephen Luparello, Director, 

Division, Commission, dated March 27, 2015, 

available at http://www.sec.gov/comments/s7-10- 

10/s71010.shtml and Letter from Theodore R. Lazo, 

Managing Director and Associate General Counsel, 

SIFMA to Stephen Luparello, Director, Division, 

Commission, dated April 9, 2015, available at 

http://www.sec.gov/comments/s7-10-10/ 

s71010.shtml). 

54See supra note 7 (citing to the SIFMA and FIF 

letters). 

55The Commission notes that November 15, 2018 

currently is the date by which large industry SRO 

members are required to begin reporting to the CAT 

central repository. See CAT NMS Plan Order, supra 

note 8, at Ex. A, Sec. 6.7(a)(v), 81 FR at 84963. 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 81579 

(September 12, 2017), 82 FR 43584. 

4 15 U.S.C. 78s(b)(2). 

5 15 U.S.C. 78s(b)(2). 

6 17 CFR 200.30–3(a)(31). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

to the Commission’s issuance of the 

Phase Three Extension Order, FIF and 

SIFMA requested a permanent 

exemption or alternatively a five year 

deferment of the compliance date for 

Phase Three.53 In the Phase Three 

Extension Order, the Commission 

provided a two year exemption, until 

November 1, 2017. At that time, the 

Commission stated its belief that ‘‘two 

years will give the Commission enough 

time to evaluate future developments, 

including any investment in or progress 

on a CAT.’’ Further, FIF and SIFMA 

now have requested a permanent 

exemption, or alternatively a three or 

five year deferment of the compliance 

date for Phase Three.54 The Commission 

believes at this time that an extension to 

November 15, 2018 responds to requests 

from FIF and SIFMA to extend the 

Phase Three compliance date, but 

having a short exemption instead will 

allow broker-dealers to focus on 

implementing the CAT in the near term 

and will allow the Commission to 

revisit the implementation of Phase 

Three as it evaluates future 

developments during this period, 

including progress in implementing the 

CAT.55 During that time, the 

Commission will consider progress in 

implementing the CAT as it determines 

implementation of Phase Three. 

Accordingly, the Commission finds 

that it is consistent with the purposes of 

the Exchange Act to extend the 

compliance date for Phase Three by 

temporarily exempting broker-dealers 

until November 15, 2018 from 

compliance with specified provisions of 

the Rule. Thus, the Recordkeeping and 

Reporting Responsibilities under Rule 

13h–1 will continue to apply with 

respect to: (1) The clearing broker-dealer 

for a large trader, with respect to (a) 

proprietary transactions by a large trader 

broker-dealer; (b) transactions effected 

pursuant to a ‘‘sponsored access’’ 

arrangement; and (c) transactions 

effected pursuant to a ‘‘direct market 

access’’ arrangement; and (2) brokerdealers that carry an account for a large 

trader for Transaction Data other than 

execution time. 

IV. Conclusion 

It is hereby ordered, pursuant to 

Section 13(h)(6) of the Exchange Act 

and Rule 13h–1(g) thereunder, that 

broker-dealers are exempted temporarily 

until November 15, 2018 from the 

recordkeeping and reporting 

requirements of Rule 13h–1(d) and (e) 

except for: (1) Clearing broker-dealers 

for large traders with respect to (a) 

proprietary transactions by a large trader 

broker-dealer, (b) transactions effected 

pursuant to a ‘‘sponsored access’’ 

arrangement, and (c) transactions 

effected pursuant to a ‘‘direct market 

access’’ arrangement; and, for other 

types of transactions, (2) broker-dealers 

that carry an account for a large trader 

for Transaction Data other than 

execution time. 

By the Commission. 

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2017–24056 Filed 11–3–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81986; File No. SR– 

NASDAQ–2017–088] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Designation of a Longer Period for 

Commission Action on a Proposed 

Rule Change To Amend Rule 4703(a) 

To Allow Members To Designate When 

an Order With a RTFY or SCAN 

Routing Order Attribute Will Be 

Activated 

October 31, 2017. 

On August 30, 2017, The Nasdaq 

Stock Market LLC (‘‘Nasdaq’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to amend Nasdaq Rule 4703(a) to 

allow members to designate when an 

Order with a RTFY or SCAN routing 

Order Attribute will be activated. The 

proposed rule change was published for 

comment in the Federal Register on 

September 18, 2017.3 The Commission 

has received no comment letters on the 

proposed rule change. 

Section 19(b)(2) of the Act 4 provides 

that, within 45 days of the publication 

of notice of the filing of a proposed rule 

change, or within such longer period up 

to 90 days as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or as to which the 

self-regulatory organization consents, 

the Commission shall either approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether the 

proposed rule change should be 

disapproved. The 45th day after 

publication of the notice for this 

proposed rule change is November 2, 

2017. The Commission is extending this 

45-day time period. 

The Commission finds that it is 

appropriate to designate a longer period 

within which to take action on the 

proposed rule change so that it has 

sufficient time to consider the proposed 

rule change. Accordingly, the 

Commission, pursuant to Section 

19(b)(2) of the Act,5 designates 

December 17, 2017, as the date by 

which the Commission shall either 

approve or disapprove or institute 

proceedings to determine whether to 

disapprove the proposed rule change 

(File Number SR–NASDAQ–2017–088). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–24046 Filed 11–3–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81991; File No. SR–ISE– 

2017–96] 

Self-Regulatory Organizations; Nasdaq 

ISE, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Rule 1614 

October 31, 2017. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on October 

27, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 


Pmangrum on DSK3GDR082PROD with NOTICES