Document ID: SEC-2023-1389-0001
Agency: sec
Document Type: Notice
Title: Order Granting Exemption: Recordkeeping Requirements for Industry Test Data
Posted Date: 2023-12-01T05:00Z

[Federal Register Volume 88, Number 230 (Friday, December 1, 2023)]
[Notices]
[Pages 84026-84028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-26407]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99023; File No. 4-698]

Order Granting an Exemption Pursuant to Section 36(a)(1) of the 
Securities Exchange Act of 1934 and Rule 608(e) of Regulation NMS Under 
the Exchange Act, Relating to the Recordkeeping Requirements for 
Industry Test Data, as Required by Rule 17a-1 Under the Exchange Act 
and Certain Provisions of the National Market System Plan Governing the 
Consolidated Audit Trail

November 27, 2023.

I. Introduction

    By letter dated June 2, 2023, BOX Exchange LLC, Cboe BYX Exchange, 
Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX 
Exchange, Inc., Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Financial 
Industry Regulatory Authority, Inc., Investors Exchange LLC, Long-Term 
Stock Exchange, Inc., MEMX LLC, Miami International Securities Exchange 
LLC, MIAX Emerald, LLC, MIAX PEARL, LLC, NASDAQ BX, LLC, Nasdaq GEMX, 
LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, NASDAQ PHLX LLC, The NASDAQ 
Stock Market LLC, New York Stock Exchange LLC, NYSE American LLC, NYSE 
Arca, Inc., NYSE Chicago, Inc., and NYSE National, Inc., (collectively, 
the ``Participants'') requested that the Securities and Exchange 
Commission (``Commission'') grant exemptive relief to the 
Participants,\1\ pursuant to its authority under section 36(a)(1) of 
the Securities Exchange Act of 1934 (``Exchange Act'') \2\ and Rule 
608(e) of Regulation NMS \3\ under the Exchange Act, from certain 
recordkeeping requirements for retaining data from industry testing, in 
Rule 17a-1 \4\ of the Exchange Act and certain provisions of the 
National Market System Plan Governing the Consolidated Audit Trail 
(``CAT NMS Plan'').\5\
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    \1\ See letter from the Participants to Vanessa Countryman, 
Secretary, Commission, dated June 2, 2023 (the ``Exemption 
Request''). Unless otherwise noted, capitalized terms are used as 
defined in the CAT NMS Plan.
    \2\ 15 U.S.C. 78mm(a)(1).
    \3\ 17 CFR 242.608(e).
    \4\ 17 CFR 240.17a-1.
    \5\ The CAT NMS Plan was approved by the Commission, as 
modified, on Nov. 15, 2016. See Securities Exchange Act Release No. 
79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (``CAT NMS Plan 
Approval Order'').
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    Section 36(a)(1) of the Exchange Act grants the Commission the 
authority, with certain limitations, to ``conditionally or 
unconditionally exempt any person, security, or transaction . . . from 
any provision or provisions of [the Exchange Act] or of any rule or 
regulation thereunder, to the extent that such exemption is necessary 
or appropriate in the public interest, and is consistent with the 
protection of investors.'' \6\ Under Rule 608(e) of Regulation NMS, the 
Commission may ``exempt from [Rule 608], 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 mechanism of, 
a national market system.'' \7\
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    \6\ 15 U.S.C. 78mm(a)(1).
    \7\ 17 CFR 242.608(e).
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    For the reasons set forth below, the Commission believes that it is 
consistent with the purposes of the Exchange Act to grant exemptive 
relief relating to the Participants' record-keeping and data retention 
requirements in Rule 17a-1 of the Exchange Act, Section 9.1 of the CAT 
NMS Plan, Section 1.4 of Appendix D of the CAT NMS Plan and certain 
provisions in Appendix C of the CAT NMS Plan (to the extent any may 
apply).

II. Background and Request for Relief

    In the Exemption Request, the Participants state that CAT 
Reporters, including both Participants and Industry Members, engage in 
testing related to the reporting of order and transaction data to the 
CAT, both pursuant to required testing and testing on a voluntary 
basis.\8\ The Participants explain that in connection with this 
testing, CAT LLC, through the Plan

[[Page 84027]]

Processor, retains the test data submitted by Industry Members and 
Participants, feedback files related to such data, and output files 
that hold the detailed transactions (such test data and files are 
referred to herein as ``Industry Test Data'').\9\ The Participants 
further state that this exemption request only involves Industry Test 
Data related to the CAT order and transaction system, not the customer 
account and information system.\10\ The Participants request that the 
Commission grant exemptive relief from the longer data retention time 
periods set forth in Rule 17a-1 of the Exchange Act, Section 9.1 of the 
CAT NMS Plan, Section 1.4 of Appendix D of the CAT NMS Plan and certain 
provisions in Appendix C of the CAT NMS Plan, only as those retention 
requirements pertain to Industry Test Data.\11\ The Participants 
request that in granting this relief, the Commission will only require 
the Participants, acting through CAT LLC and the Plan Processor, to 
retain Industry Test Data for a period of three months.\12\
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    \8\ See Exemptive Request, at 2.
    \9\ Id.
    \10\ Id. at note 6.
    \11\ Id. at 4.
    \12\ Id. at 1.
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    In support of their request, the Participants state that Appendix D 
of the CAT NMS Plan specifically requires the retention of Industry 
Test Data for only three months,\13\ and that this specific provision 
governs the retention period for Industry Test Data, in spite of the 
lengthier general recordkeeping provisions in the CAT NMS Plan and the 
even more general recordkeeping requirements of Rule 17a-1 under the 
Exchange Act.\14\ The Participants state that Section 9.1 of the CAT 
NMS Plan incorporates by reference Rule 17a-1 under the Exchange Act, 
which requires every national securities exchange and national 
securities association ``to keep and preserve at least one copy of all 
documents, including all correspondence, memoranda, papers, books, 
notices, accounts, and other such records as shall be made or received 
by it in the course of its business as such and in the conduct of its 
self-regulatory activity,'' and to keep all such documents ``for a 
period of not less than five years, the first two years in an easily 
accessible place, subject to the destruction and disposition provisions 
of Rule 17a-6.'' \15\ The Participants also state that they do not 
believe that Industry Test Data constitutes documents covered by Rule 
17a-1 under the Exchange Act because to conclude as much would mean 
that the specific provision in Appendix D of the Plan calling for a 
three month retention of Industry Test Data would not have any 
application and would be rendered meaningless.\16\ The Participants 
further state that Section 1.4 of Appendix D, along with certain 
sections of Appendix C, of the CAT NMS Plan requires that the CAT have 
a record retention policy that makes ``data directly available and 
searchable electronically without manual intervention for at least six 
years.'' \17\ The Participants argue that this six-year requirement 
only applies to CAT data in the production environment of the Central 
Repository, and not to Industry Test Data, which has a specific 
provision calling for the data to be retained for three months 
only.\18\
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    \13\ Id. at 2.
    \14\ See Exemptive Request, at 3.
    \15\ Id. at 2-3.
    \16\ Id.
    \17\ Id., at 3 (referencing Appendix C of the CAT NMS Plan at C-
13, C-29, C-129).
    \18\ Id. The Participants reiterate their belief that the more 
specific three month requirement should apply by referring to a 
statement in Appendix C that ``[t]he Central Repository will retain 
data, including the Raw Data, linked data, and corrected data, for 
at least six years,'' to support this view. See id. (referencing 
Appendix C of the CAT NMS Plan at C-29 (``All of the data (including 
both corrected and uncorrected or rejected data) in the Central 
Repository must be kept online for a rolling six year period, which 
would create a six year historical audit trail.''); Appendix C of 
the CAT NMS Plan at C-129 (``The Participants are requiring data for 
six years to be kept online in an easily accessible format to enable 
regulators to have access to six years of audit trail materials for 
purposes of its regulation.'')).
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    The Participants state that retaining Industry Test Data for only 
three months would achieve approximately $1 million per year in 
savings.\19\ In support of this claim, the Participants note that the 
Plan Processor has been accumulating and retaining Industry Test Data 
for years, and thus the current size of the Industry Test Data is 
approximately 20 petabytes, growing at an average rate of 500 terabytes 
per month.\20\ The Participants state that if the Plan Processor were 
to remove Industry Test Data older than three months on a rolling 
monthly basis, then it estimates that the CAT would reach a steady 
state of retaining approximately two petabytes of Industry Test Data 
per year.\21\
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    \19\ Id. at 3-4.
    \20\ Id. at 3.
    \21\ Id.
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    The Participants further state that the costs of retaining the 
Industry Test Data far outweigh any benefits and that there is little 
to no regulatory value in retaining the data,\22\ and that the primary 
purpose for retaining Industry Test Data for three months is to allow 
CAT Reporters access to the data to facilitate their own testing 
needs.\23\ While the Participants have used the Industry Test Data for 
user acceptance testing related to past CAT releases, to date, the 
Participants state that there has been limited use of the Industry Test 
Data that adds regulatory value.\24\ The Participants state that on 
many days, there are no active queries related to Industry Test Data, 
and when there have been limited queries performed in the industry test 
environment, these queries generally were concentrated around 
Participant user acceptance test periods for releases.\25\ The 
Participants state that going forward, such Participant user acceptance 
testing would be limited as the CAT functionality is in the 
maintenance, not development, phase.\26\ The Participants further state 
that the substantial price tag of $1 million per year to retain the 
Industry Test Data beyond three months is not warranted by this limited 
incidental regulatory use, as the retention of Industry Test Data 
beyond three months provides little or no regulatory benefit.\27\ The 
Participants also believe that the Commission's prior approval of the 
CAT NMS Plan with the specific requirement to retain such data for 
three months supports their conclusion that the retention of Industry 
Test Data beyond three months is not warranted.\28\
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    \22\ Id. at 4.
    \23\ Id.
    \24\ See Exemptive Request, at 4.
    \25\ Id.
    \26\ Id.
    \27\ Id.
    \28\ Id.
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III. Discussion of Participants' Exemption Request

    The Commission has carefully considered the Participants' exemption 
request. The Commission believes, for the reasons stated below, that 
granting exemptive relief from the recordkeeping and data retention 
time periods set forth in Rule 17a-1 of the Exchange Act, Section 9.1 
of the CAT NMS Plan, Section 1.4 of Appendix D of the CAT NMS Plan and 
certain provisions in Appendix C of the CAT NMS Plan (to the extent any 
may apply), for Industry Test Data, is, pursuant to section 36(a)(1) of 
the Exchange Act, appropriate in the public interest and consistent 
with the protection of investors, and that pursuant to Rule 608(e), 
this 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 the perfection of a national market 
system.
    In their exemption request, the Participants state that they retain

[[Page 84028]]

Industry Test Data through CAT LLC and the Plan Processor, and will 
continue to retain such data for three months pursuant to the 
requirement in Section 1.2 of Appendix D of the CAT NMS Plan.\29\ The 
Commission believes that the regulatory value does not justify the 
approximately $1 million per year cost for retaining Industry Test Data 
beyond three months. As the Participants note, the primary purpose of 
Industry Test Data is to facilitate CAT Reporter testing needs. Indeed, 
the Participants stated that over the past fifteen months, queries of 
Industry Test Data generally were concentrated around Participant user 
acceptance test periods for releases.\30\ Additionally, Section 1.2 of 
the CAT NMS Plan requires the operational metrics associated with 
industry testing to be retained for six years.\31\
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    \29\ Id. at 4.
    \30\ Id. at 4. The Participants state that there have been 406 
queries in the industry test environment, which is an average of 27 
queries per month during this 15-month period. Id.
    \31\ Id. at 2. Specifically, Section 1.2 of Appendix D of the 
CAT NMS Plan requires that ``[o]perational metrics associated with 
industry testing (including but not limited to testing results, 
firms who participated, and amount of data reported and linked) must 
be stored for the same duration as the CAT production data.'' Id. 
Industry Test Data does not include such operational metrics 
associated with industry testing, and operational metrics will 
continue to be retained for six years.
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    Based on the foregoing, pursuant to section 36(a)(1) of the 
Exchange Act, it is appropriate in the public interest and consistent 
with the protection of investors, and pursuant to Rule 608(e), it is 
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 a national market system to grant exemptive 
relief that exempts each Participant from the longer recordkeeping and 
data retention requirements for Industry Test Data as set forth in Rule 
17a-1 under the Exchange Act, Section 9.1 of the CAT NMS Plan, Section 
1.4 of Appendix D of the CAT NMS Plan and Appendix C of the CAT NMS 
Plan (to the extent any may apply).

IV. Conclusion

    The Commission believes it is appropriate to grant exemptive relief 
that exempts each Participant from the longer recordkeeping and data 
retention requirements for Industry Test Data as set forth in Rule 17a-
1 under the Exchange Act, Section 9.1 of the CAT NMS Plan, Section 1.4 
of Appendix D of the CAT NMS Plan and Appendix C of the CAT NMS Plan 
(to the extent any may apply).
    Accordingly, it is hereby ordered, pursuant to section 36(a)(1) of 
the Exchange Act,\32\ and Rule 608(e) of the Exchange Act \33\ that the 
Participants are granted an exemption from the longer recordkeeping and 
data retention requirements for Industry Test Data as set forth in Rule 
17a-1 under the Exchange Act, Section 9.1 of the CAT NMS Plan, Section 
1.4 of Appendix D of the CAT NMS Plan and Appendix C of the CAT NMS 
Plan (to the extent any may apply).
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    \32\ 15 U.S.C. 78mm(a)(1).
    \33\ 17 CFR 242.608(e).

    By the Commission.
Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-26407 Filed 11-30-23; 8:45 am]
BILLING CODE 8011-01-P