Document ID: SEC-2015-0256-0001
Agency: sec
Document Type: Notice
Title: Joint Industry Plans: BATS Exchange, Inc., BATS-Y Exchange, Inc., BOX Options Exchange LLC, et al.
Posted Date: 2015-02-11T05:00Z

[Federal Register Volume 80, Number 28 (Wednesday, February 11, 2015)]
[Notices]
[Pages 7654-7657]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02840]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74223; File No. 4-668]

Joint Industry Plan; Notice of Amendment to the National Market 
System Plan Governing the Process of Selecting a Plan Processor and 
Developing a Plan for the Consolidated Audit Trail by BATS Exchange, 
Inc., BATS-Y Exchange, Inc., BOX Options Exchange LLC, C2 Options 
Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, 
Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., 
Financial Industry Regulatory Authority, Inc., International Securities 
Exchange, LLC, ISE Gemini, LLC, Miami International Securities Exchange 
LLC, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, The NASDAQ Stock Market 
LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, and 
NYSE MKT LLC, NYSE Arca, Inc.

February 6, 2015.

I. Introduction

    Pursuant to Section 11A of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 608 thereunder,\2\ notice is hereby given that, 
on December 12, 2014, BATS Exchange, Inc., BATS-Y Exchange, Inc., BOX 
Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board 
Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA 
Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory 
Authority, Inc., International Securities Exchange, LLC, ISE Gemini, 
LLC, Miami International Securities Exchange LLC, NASDAQ OMX BX, Inc., 
NASDAQ OMX PHLX LLC, The NASDAQ Stock Market LLC, National Stock 
Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and NYSE 
Arca, Inc. (collectively, ``SROs'' or ``Participants''), filed with the 
Securities and Exchange Commission (the ``Commission'') a proposal to 
amend the Plan Governing the Process of Selecting a Plan Processor and 
Developing a Plan for the Consolidated Audit Trail (the ``Selection 
Plan'').
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
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II. Background

    On July 11, 2012, the Commission adopted Rule 613 to require the 
SROs to jointly submit a national market system (``NMS'') plan to 
create, implement, and maintain a consolidated audit trail (``CAT NMS 
Plan'').\3\ To facilitate the development of the consolidated audit 
trail, following the adoption of Rule 613, the SROs created a working 
group consisting of representatives from each SRO. The SROs also 
decided to engage in a request for proposal (``RFP'') process to help 
them develop the CAT NMS Plan and to solicit bids (``Bids \4\'') for 
the role of Plan Processor to build, operate, administer, and maintain 
the consolidated audit trail.\5\ In addition, on September 3, 2013, the 
SROs filed, for approval, the Selection Plan to govern how the SROs 
would proceed with formulating and submitting the CAT NMS Plan--and, as 
part of that process, how the SROs would review, evaluate, and narrow 
down the Bids submitted in response to the RFP--and ultimately 
selecting the Plan Processor.\6\ The Selection Plan was approved on 
February 21, 2014.\7\
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    \3\ Securities Exchange Act Release No. 67457 (July 18, 2012), 
77 FR 45722 (August 1, 2012).
    \4\ Pursuant to Section I(C) of the Selection NMS Plan, a 
``Bid'' is a proposal submitted by a Bidder in response to the RFP.
    \5\ See Securities Exchange Act Release No. 70892 (Nov. 15, 
2013), 78 FR 69910 (Nov. 21, 2013)(Notice of Selection NMS Plan).
    \6\ Id.
    \7\ See Securities Exchange Act Release No. 71596 (Feb. 21, 
2014), 79 FR 11152 (Feb. 27, 2014)(Approval Order).
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    The SROs propose to amend the Selection Plan in two ways. First, 
the SROs propose to provide opportunities to accept revised Bids prior 
to approval of the CAT NMS Plan, and second, to allow the list of 
Shortlisted Bids to be narrowed prior to Commission approval of the CAT 
NMS Plan. A copy of the proposed amendment to the Selection Plan is 
attached as Exhibit A hereto. The Commission is publishing this notice 
to solicit comments from interested persons on the proposed amendment 
to the Selection Plan.

III. Description of the Plan

    Set forth in this Section II is the statement of the purpose of the 
Selection Plan, along with the information required by Rule 608(a)(4) 
and (5) under the Exchange Act,\8\ prepared and submitted by the SROs 
to the Commission.\9\
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    \8\ See 17 CFR 242.608(a)(4) and (a)(5).
    \9\ See Letter from the Participants to Brent J. Fields, 
Secretary, Commission, dated December 12, 2014.
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A. Background

    The Selection Plan governs the process for Participant review of 
Bids for the role of Plan Processor for the CAT NMS Plan, the 
procedures for evaluating the Bids, and ultimately, until approval of 
the CAT NMS Plan,

[[Page 7655]]

the selection of the Plan Processor. The CAT NMS Plan was filed with 
the Commission for approval on September 30, 2014.
    After gaining experience with the development process for the CAT 
NMS Plan, the Participants believe it is necessary to amend the 
Selection Plan to ensure that the Participants will be able to choose a 
Plan Processor within the timeframe provided in the Selection Plan and 
Rule 613. The Participants propose amending the Selection Plan to (1) 
provide for additional opportunities to accept revised Bids and (2) 
allow the set of Shortlisted Bids to be narrowed prior to Commission 
approval of the CAT NMS Plan.
1. The Selection Plan Currently Allows Bid Revisions Only Following CAT 
NMS Plan Approval, and Does Not Allow for Narrowing of the Set of 
Shortlisted Bids
    Under the Selection Plan, Shortlisted Bidders are only eligible to 
revise Bids following Commission approval of the CAT NMS Plan. The 
Selection Plan specifies that, following approval of the CAT NMS Plan 
by the SEC, Shortlisted Bidders for the role of Plan Processor may be 
permitted to revise their Bids based on the provisions in the approved 
CAT NMS Plan, including further discussions if determined to be 
necessary by the Selection Committee described in the Selection 
Plan.\10\ The Selection Plan provides that a Shortlisted Bidder will be 
permitted to revise its Bid only upon approval by a majority of the 
Selection Committee, subject to certain recusal provisions in the 
Selection Plan, that revisions are necessary or appropriate in the 
light of the content of the Shortlisted Bidder's initial Bid and the 
provisions in the approved CAT NMS Plan.\11\
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    \10\ See 78 FR 69910 at 69917.
    \11\ Id.
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    The Selection Plan also requires that selection of the Plan 
Processor occur from among the initial set of Shortlisted Bids.\12\ 
Under the current Selection Plan, the Participants are not permitted to 
narrow the list of Shortlisted Bids determined pursuant to Section 
VI(B) of the Selection Plan.
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    \12\ Id. at 69917-18.
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2. Allowing Revision(s) of Bids In Light of Additional Information 
Available to Shortlisted Bidders and Providing for Narrowing the Set of 
Shortlisted Bidders Will Allow the Participants to Select the Plan 
Processor More Effectively and Efficiently Within the Rule 613 
Timeframe
    The Participants believe that providing the Shortlisted Bidders 
with an additional opportunity or opportunities to revise their Bids 
prior to the approval of the CAT NMS Plan is critical to the timely and 
considered selection of the Plan Processor. Since the Bidders submitted 
their Bids, the Participants have expended substantial effort in 
analyzing potential solutions for the consolidated audit trail 
(``CAT'') by gathering and evaluating data and information from a 
variety of market participants, including Bidders, broker-dealers, 
vendors, regulators and others. As a result, since the original Bid 
date, the Participants have made substantial strides in identifying 
characteristics of an optimal solution and formalizing these 
determinations in the proposed CAT NMS Plan and related technical 
documents. Given the development of the requirements for an optimal 
solution for the CAT, the Participants believe that waiting until after 
the approval of the CAT NMS Plan to permit the Shortlisted Bidders to 
revise their Bids will shortchange the Bid process to the detriment of 
the final plan. Moreover, given the passage of time since the original 
Bids, Bidders have indicated that new technological and other 
beneficial solutions are now available that may further improve the 
Bids, and, ultimately, the proposed solutions.
    In addition, the Participants believe that delaying the Bid 
revision process until after the approval of the CAT NMS Plan will 
prevent Bidders from submitting, and the Participants from adequately 
reviewing the most relevant, informative and fulsome Bids before 
selecting a Plan Processor. Specifically, Rule 613(a)(2)(i) requires 
the Participants to select the Plan Processor within two months after 
effectiveness of the CAT NMS Plan. The Participants anticipate 
permitting the Shortlisted Bidders to revise their Bids, pursuant to 
Section VI(D) of the Selection Plan, after approval of the CAT NMS 
Plan, if there are substantial changes to the CAT NMS Plan before the 
CAT NMS Plan is approved by the Commission. Therefore, the Participants 
will have only a short time period of two months to analyze the 
Shortlisted Bids--Bids that are likely to have substantial revisions 
after the approval of the CAT NMS Plan for the reasons discussed above. 
Given the very large amount of information to digest in the revised 
Bids and the importance of appropriately analyzing such information, 
the Participants do not believe that two months will be sufficient to 
select the Plan Processor given the limitations of the current 
Selection Plan. However, if the Shortlisted Bidders are able to revise 
their Bids to reflect the provisions of the proposed CAT NMS Plan and 
any draft technical materials, as well as any new technology or other 
relevant developments, prior to the approval of the CAT NMS Plan, then 
the Participants believe that they will be able to select the Plan 
Processor within the time limits imposed by Rule 613 in a more 
thoughtful and deliberative manner.
    In addition, the Participants believe that providing the Selection 
Committee the discretion to further reduce the number of Shortlisted 
Bids, either before or after any revisions to Shortlisted Bids are 
accepted, would also facilitate the selection of the Plan Processor 
within the time limits imposed by Rule 613. Allowing the Selection 
Committee to reduce the number of Shortlisted Bids before approval of 
the CAT NMS Plan could allow the Participants to more efficiently 
select the Plan Processor by focusing attention on a more refined set 
of options during the limited two month time period for selection 
following approval of the CAT NMS Plan.

B. Requirements Pursuant to Rule 608(a)

1. Description of the Amendments to the Selection Plan
    The Participants propose amending the Selection Plan to permit the 
Shortlisted Bidders to revise their Bids one or more times prior to 
approval of the CAT NMS Plan if the Selection Committee determines, by 
majority vote, subject to the applicable recusal provisions, that such 
revisions are necessary and appropriate. The proposed amendment would 
not affect Section VI(D) of the Selection Plan, which allows for 
revisions to Shortlisted Bids following Commission approval of the CAT 
NMS Plan.
    The Participants also propose amending the Selection Plan to 
provide the Selection Committee discretion to narrow the set of 
Shortlisted Bids prior to approval of the CAT NMS Plan. Specifically, 
the proposed amendment would authorize another round of voting to 
narrow the set of Shortlisted Bids. This round of voting, which could 
occur either before or after any revisions to Shortlisted Bids are 
accepted, would be commenced upon at least a two-

[[Page 7656]]

thirds vote of the Selection Committee, and would proceed in a manner 
similar to the initial round for voting for the Shortlisted Bids. Each 
Voting Senior Officer would choose a first, second, and third choice 
Shortlisted Bid, with each choice receiving a weight of, respectively, 
three points, two points, and one point. The three bids receiving the 
highest cumulative number of points would constitute the new set of 
Shortlisted Bids. In the event of a tie that would result in more than 
three final Shortlisted Bids, the votes would be recounted, excluding 
each Voting Senior Officer's third choice. The three Shortlisted Bids 
receiving the largest number of cumulative votes in this recount would 
be the new Shortlisted Bids. If this recount were to result in a tie 
leading to a larger or equal number of final Shortlisted Bids than the 
initial count, the results of the initial count would constitute the 
new set of Shortlisted Bids. The proposed amendment also includes, for 
the sake of clarity, a provision ensuring that at least one Non-SRO Bid 
is included in the narrowed set of Shortlisted Bids. The individual 
scores and rankings under any vote to narrow the list of Shortlisted 
Bids shall be kept confidential.
    Finally, the proposed amendment includes provisions with respect to 
the recusal of Participants that also are Shortlisted Bidders. Under 
this proposed provision, no Bidding Participant shall vote in the 
process narrowing the set of Shortlisted Bidders, if a Bid submitted by 
or including the Participant or an Affiliate of the Participant is a 
Shortlisted Bid.
2. Governing or Constituent Documents
    Not applicable.
3. Implementation of Amendment
    The terms of the proposed amendments will be operative immediately 
upon approval of the amendments by the Commission.
4. Development and Implementation Phases
    Not applicable.
5. Analysis of Impact on Competition
    The proposed amendments do not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Exchange Act. The SROs believe that the amendments are reasonably 
designed to help assure that the SROs receive more updated and informed 
submissions from Shortlisted Bidders before the CAT NMS Plan is 
finalized, thereby helping to assure that the selection of the Plan 
Processor for the CAT NMS Plan proceeds efficiently within the 
timeframe provided by Rule 613. Moreover, the SROs believe that the 
amended process will facilitate the development of an audit trail that 
maximizes its regulatory utility while minimizing unnecessary costs, to 
the benefit of all market participants. Furthermore, providing the 
ability to narrow the list of Bidders at an earlier stage will prevent 
Bidders whose Bids are unlikely to be selected from misallocating their 
resources toward the further development of their Bid.
6. Written Understanding or Agreements Relating to Interpretation of, 
or Participation in, Plan
    Not applicable.
7. Statement That the Amendments Have Been Approved by the Plan 
Sponsors
    The Selection Plan provides that amendments to the Selection Plan 
shall be effected by means of a written amendment that: (1) Sets forth 
the change, addition, or deletion; (2) is executed by over two-thirds 
of the Participants; and (3) is approved by the SEC pursuant to Rule 
608, or otherwise becomes effective under Rule 608.\13\
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    \13\ 17 CFR 242.608.
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    The proposed amendments have been executed by eighteen of the 
Participants, and have consequently been approved by the SROs. One 
Participant which is also a Shortlisted Bidder, abstained from the 
decision whether to adopt these amendments to avoid potential conflicts 
of interest.
8. Terms and Conditions of Access
    Not applicable.
9. Method of Determination and Imposition, and Amount of, Fees and 
Charges
    Not applicable.
10. Method and Frequency of Processor Evaluation
    Not applicable.
11. Dispute Resolution
    Not applicable.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the Amendment to 
the Plan 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 4-668 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number 4-668. 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 Amendment to the Plan that are filed 
with the Commission, and all written communications relating to the 
Amendment to the Plan 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 10:00 a.m. and 
3:00 p.m. Copies of the filing will also be available for inspection 
and copying at the Participants' principal offices. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number 4-668 and should be submitted 
on or before March 13, 2015.

    By the Commission.
Brent J. Fields,
Secretary.

Exhibit A

    Proposed new language is italicized; proposed deletions are in 
[brackets].

PROPOSED AMENDMENT TEXT

Plan Processor Evaluation and Selection Plan

I. Definitions

* * * * *
    (X) ``Shortlisted Bid'' means a Bid submitted by a Qualified Bidder 
and selected as a Shortlisted Bid by the Selection Committee pursuant 
to

[[Page 7657]]

Section VI(B) and, if applicable, pursuant to Section VI(C)(3) of the 
Plan.
* * * * *

III. Operating Committee

* * * * *

(E) Conflicts and Recusals

    A Participant may recuse itself from voting on any matter under 
consideration by the Operating Committee if the Participant determines 
that voting on such matter raises a conflict of interest. Except as 
provided in Sections V(B)(2), and V(B)(3), and V(B)(4) of the Plan, no 
Participant is automatically recused from voting on any matter.
* * * * *

V. Selection Committee

* * * * *

(B) Voting

* * * * *
    (2) No Bidding Participant shall vote on whether a Shortlisted 
Bidder will be permitted to revise its Bid pursuant to Section VI(C)(2) 
or Section VI(D)(1) below if a Bid submitted by or including the 
Participant or an Affiliate of the Participant is a Shortlisted Bid.
    (3) No Bidding Participant shall vote in the process narrowing the 
set of Shortlisted Bidders as set forth in Section VI(C)(3) if a Bid 
submitted by or including the Participant or an Affiliate of the 
Participant is a Shortlisted Bid.
    (4) No Bidding Participant shall vote in the second round set forth 
in Section VI(E)(4) below if a Bid submitted by or including the 
Participant or an Affiliate of the Participant is part of the second 
round.
    (5) All votes by the Selection Committee shall be confidential and 
non-public. All such votes will be tabulated by an independent third 
party approved by the Operating Committee, and a Participant's 
individual votes will not be disclosed to other Participants or to the 
public.
* * * * *

VI. RFP Bid Evaluation and Plan Processor Selection

* * * * *

(C) Formulation of the CAT NMS Plan

    (1) The Selection Committee shall review the Shortlisted Bids to 
identify optimal proposed solutions for the consolidated audit trail 
and provide descriptions of such proposed solutions for inclusion in 
the CAT NMS Plan. This process may, but is not required to, include 
iterative discussions with Shortlisted Bidders to address any aspects 
of an optimal proposed solution that were not fully addressed in a 
particular Bid.
    (2) Prior to the approval of the CAT NMS Plan, all Shortlisted 
Bidders will be permitted to revise their Bids one or more times if the 
Selection Committee determines, by majority vote, that such revision(s) 
are necessary or appropriate.
    (3) Prior to approval of the CAT NMS Plan, and either before or 
after any revisions to Shortlisted Bids are accepted, the Selection 
Committee may determine, by at least a two-thirds vote, to narrow the 
number of Shortlisted Bids to three Bids, in accordance with the 
process in this Paragraph (C)(3).
    (a) Each Voting Senior Officer shall select a first, second, and 
third choice from among the Shortlisted Bids.
    (b) A weighted score shall be assigned to each choice as follows:
     First--3 points.
     Second--2 points.
     Third--1 point.
    (c) The three Shortlisted Bids receiving the highest cumulative 
scores will be the new set of Shortlisted Bids.
    (d) In the event of a tie that would result in more than three 
final Shortlisted Bids, the votes shall be recounted, omitting each 
Voting Senior Officer's third choice, in order to break the tie. If 
this recount produces a tie that would result in a number of final 
Shortlisted Bids larger than or equal to that from the initial count, 
the results of the initial count shall constitute the final set of 
Shortlisted Bids.
    (e) To the extent there are Non-SRO Bids that are Shortlisted Bids, 
the final Shortlisted Bids selected pursuant to this Section VI(C)(3) 
must, if possible, include at least one Non-SRO Bid. If following the 
vote set forth in this Section VI(C)(3), no Non-SRO Bid was selected as 
a final Shortlisted Bid, the Non-SRO Bid receiving the highest 
cumulative votes shall be retained as a Shortlisted Bid.
    (f) The third party tabulating votes, as specified in Section 
V(B)(5), shall identify to the Selection Committee the new set of 
Shortlisted Bids, but shall keep confidential the individual scores and 
rankings of the Shortlisted Bids from the process in this Paragraph 
(C)(3).
    (4) The Participants shall incorporate information on optimal 
proposed solutions in the CAT NMS Plan, including cost-benefit 
information as required by SEC Rule 613.
[FR Doc. 2015-02840 Filed 2-10-15; 8:45 am]
BILLING CODE 8011-01-P