Document ID: SEC-2022-0917-0001
Agency: sec
Document Type: Notice
Title: Order Granting Temporary Conditional Exemptive Relief
Posted Date: 2022-07-14T04:00Z

[Federal Register Volume 87, Number 134 (Thursday, July 14, 2022)]
[Notices]
[Pages 42247-42257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14982]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95234]

Order Granting Temporary Conditional Exemptive Relief, Pursuant 
to Section 36 of the Securities Exchange Act of 1934 (``Exchange Act'') 
and Rule 608(e) of Regulation NMS Under the Exchange Act, From Certain 
Requirements of the National Market System Plan Governing the 
Consolidated Audit Trail

July 8, 2022.

I. Introduction

    In July 2012, the Securities and Exchange Commission (the 
``Commission'' or the ``SEC'') adopted Rule 613 of Regulation NMS, 
which required national securities exchanges and national securities 
associations (the ``Participants'') \1\ to jointly develop and submit 
to the Commission a national market system plan to create, implement, 
and maintain a consolidated audit trail (the ``CAT'').\2\ The goal of 
Rule 613 was to create a modernized audit trail system that would 
provide regulators with timely access to a comprehensive set of trading 
data, thus enabling regulators to more efficiently and effectively 
analyze and reconstruct market events, monitor market behavior, conduct 
market analysis to support regulatory decisions, and perform 
surveillance, investigation, and enforcement activities. On November 
15, 2016, the Commission approved the national market system plan 
required by Rule 613 (the ``CAT NMS Plan'').\3\
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    \1\ The Participants include BOX Exchange LLC, Cboe BYX 
Exchange, Inc., Cboe BZX Exchange, Inc., Cboe C2 Exchange, Inc., 
Cboe EDGA Exchange, Inc., Cboe EDGX 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, Inc., 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.
    \2\ See Securities Exchange Act Release No. 67457 (July 18, 
2012), 77 FR 45722 (Aug. 1, 2012) (``Rule 613 Adopting Release'').
    \3\ Securities Exchange Act Release No. 78318 (Nov. 15, 2016), 
81 FR 84696, (Nov. 23, 2016) (``CAT NMS Plan Approval Order''). The 
CAT NMS Plan is Exhibit A to the CAT NMS Plan Approval Order. See 
CAT NMS Plan Approval Order, at 84943-85034. The CAT NMS Plan 
functions as the limited liability company agreement of the jointly 
owned limited liability company formed under Delaware state law 
through which the Participants conduct the activities of the CAT 
(the ``Company''). Each Participant is a member of the Company and 
jointly owns the Company on an equal basis. The Participants 
submitted to the Commission a proposed amendment to the CAT NMS Plan 
on Aug. 29, 2019, which they designated as effective on filing. 
Under the amendment, the limited liability company agreement of a 
new limited liability company named Consolidated Audit Trail, LLC 
serves as the CAT NMS Plan, replacing in its entirety the CAT NMS 
Plan. See Securities Exchange Act Release No. 87149 (Sept. 27, 
2019), 84 FR 52905 (Oct. 3, 2019).
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    The Commission recognizes that the Participants have expended, and 
continue to expend, substantial resources and effort towards the 
development and implementation of the CAT. To provide the Participants 
with more time to meet certain requirements of the CAT NMS Plan and 
thereby allow the Participants to prioritize and focus resources on 
meeting other implementation goals, the Commission issued two exemptive 
orders on December 16, 2020 (collectively, the ``prior Orders''). In 
the first order, in response to a request from the Participants, the 
Commission granted temporary conditional relief from certain 
performance requirements related to the online targeted query tool 
(``OTQT'').\4\ The second order granted temporary conditional relief 
from the following requirements: (1) requirements for lifecycle 
linkages timeframes; (2) requirements for re-processing of corrected 
data received after T+5; (3) linkage requirements for Securities 
Information Processor data (``SIP Data''); (4) reporting requirements 
for port-level settings; (5) requirements for lifecycle linkages 
between customer orders and ``representative'' orders; and (6) 
requirements for Participant reporting of rejected orders.\5\ Although 
the Participants did not request the relief granted in the Second 
Order, the Commission believed that granting such relief was necessary 
in order to ``provide Participants the time to develop the necessary 
technological, system or procedural changes to meet the CAT NMS Plan 
requirements'' at stake.\6\
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    \4\ See Securities Exchange Act Release No. 90689 (Dec. 16, 
2020), 85 FR 83667 (Dec. 22, 2020) (the ``First Order''); see also 
Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, 
to Vanessa Countryman, Secretary, Commission, dated Dec. 1, 2020, 
available at https://catnmsplan.com/sites/default/files/2020-12/12.01.20-CAT-Exemption-Request-OTQT.pdf (``Participant 
Letter'').
    \5\ See Securities Exchange Act Release No. 90688 (Dec. 16, 
2020), 85 FR 83634 (Dec. 22, 2020) (the ``Second Order'').
    \6\ Id. at 83634.
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    On February 14, 2021, a subset of the Participants filed motions 
requesting that the Commission stay the December 2020 orders, based on 
their concern that portions of the orders ``interpret and apply the 
Plan in ways that will produce unintended adverse consequences, present 
implementation challenges, or both.'' \7\ Corresponding petitions for 
judicial review were also filed with the D.C. Circuit by a smaller 
subset of the Participants.\8\ In their motions to stay and supporting 
materials, the Participants urged the Commission to consider their 
``arguments and supporting evidence and to reevaluate whether the 
Order[s] [were] appropriate in light of that

[[Page 42248]]

information.'' \9\ Alternatively, the Participants requested that the 
Commission stay portions of the prior Orders pending resolution of the 
petitions for judicial review.\10\ Since that time, the Participants 
and Commission staff have been engaged in ongoing discussions with the 
goal of resolving or narrowing their differences with respect to the 
issues raised in the Participants' stay motions. On January 12, 2022, 
the Participants requested that the Commission supplement the record to 
include certain additional materials prepared in connection with those 
discussions.\11\ The Commission granted this request.
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    \7\ See Motion for Partial Stay of Order 34-90689, at 2 (``First 
Motion''); Motion for Partial Stay of Order 34-90688, at 2 (``Second 
Motion''). Financial Industry Regulatory Authority, Inc. and Long-
Term Stock Exchange, Inc. did not join these motions.
    \8\ See Petition for Review, USCA Case No. 21-1065; Petition for 
Review, USCA Case No. 21-1066. Financial Industry Regulatory 
Authority, Inc., Investors Exchange LLC, Long-Term Stock Exchange, 
Inc., MEMX LLC, Miami International Securities Exchange LLC, MIAX 
Emerald, LLC, and MIAX PEARL, LLC did not join these petitions.
    \9\ First Motion, supra note 7, at 2; Second Motion, supra note 
7, at 2.
    \10\ First Motion, supra note 7, at 2; Second Motion, supra note 
7, at 2.
    \11\ See Letter from K. King, Counsel for Consolidated Audit 
Trail, LLC, Covington & Burling LLP, to Vanessa Countryman, 
Secretary, Commission (Jan. 12, 2022).
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    After careful review of the arguments and evidence proffered by the 
Participants, the Commission has decided to issue a new order granting 
temporary exemptive relief that will supersede the prior Orders. This 
order (the ``Third Order'' or ``Order'') revises the conditions with 
which the Participants must comply in order to qualify for the 
exemptive relief provided herein. As of the date that this Order is 
issued by the Commission, the terms of this Order will govern, and the 
terms of the First Order and the Second Order will no longer be in 
force.\12\
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    \12\ In May 2020, the Commission adopted amendments to the CAT 
NMS Plan that establish four Financial Accountability Milestones and 
set target deadlines by which these milestones must be achieved. 
These amendments also reduce the amount of any fees, costs, and 
expenses that the Participants may recover from Industry Members if 
the Participants fail to meet the target deadlines. See Securities 
Exchange Act Release No. 88890 (May 15, 2020), 85 FR 31322 (May 22, 
2020). The Commission believes it is most appropriate to consider 
whether the Participants have met the target deadlines established 
for each Financial Accountability Milestone in connection with 
proposals related to the imposition of CAT fees on broker-dealers. 
For that reason, in issuing this Order, the Commission makes no 
determinations regarding the Participants' compliance or non-
compliance with the conditions set forth in the prior Orders or the 
potential impact of such compliance or non-compliance on the 
Participants' ability to meet the Financial Accountability 
Milestones set forth in Section 1.1 of the CAT NMS Plan or the 
potential application of fee reduction provisions set forth in 
Section 11.6 of the CAT NMS Plan. Rather, the Commission will 
consider the Participants' compliance with the CAT NMS Plan 
requirements, and/or compliance with the conditions set forth in the 
prior Orders and the Third Order and the impact of that compliance, 
in the context of such fee proposals. Moreover, the Commission makes 
no determinations regarding the Participants' compliance or non-
compliance with other provisions or requirements of the CAT NMS Plan 
that are not discussed in the prior Orders or in this Order.
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II. Discussion and Exemptive Relief

    Section 36 of the Exchange Act grants the Commission the authority 
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.'' \13\ Rule 608(e) of 
Regulation NMS similarly grants the Commission the authority to 
``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 mechanisms of, a national market system.'' 
\14\
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    \13\ 15 U.S.C. 78mm(a)(1).
    \14\ 17 CFR 242.608(e).
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    In each of the areas of CAT operation addressed below, the current 
functionality of the CAT does not yet comply with CAT NMS Plan 
requirements. As explained above, the Commission's intention in issuing 
the prior Orders was to provide the Participants with additional time 
in which to come into compliance with the CAT NMS Plan, subject to 
certain conditions generally intended to allow the Commission (and, in 
some instances, the public) to monitor progress towards that goal. The 
Participants represent that, in many of these areas, strict compliance 
with the CAT NMS Plan requirements and/or the conditions set forth in 
the prior Orders would not be cost-effective; in other areas, the 
Participants disagree with or seek clarification of the Commission's 
interpretation of the CAT NMS Plan's requirements. Upon consideration 
of the Participants' arguments and evidence, the Commission has 
determined that the revised exemptive relief discussed herein is 
appropriate in the public interest and consistent with the protection 
of investors under Section 36 of the Exchange Act, as well as 
consistent with the public interest, the protection of investors, the 
maintenance of fair and orderly markets, and the perfection of the 
mechanisms of a national market system under Rule 608(e).
    The Commission approved the CAT NMS Plan to help to protect 
investors and maintain fair and orderly markets by providing a 
sophisticated audit trail that improves regulators' ability to 
investigate potential misconduct, to reconstruct and to analyze market 
events, and to support regulatory decisions with detailed and accurate 
data, among other benefits. To realize this full spectrum of regulatory 
benefits, however, the CAT must be implemented in a manner that 
achieves the regulatory goals of Rule 613 and the CAT NMS Plan. The 
Commission believes that providing the Participants with additional 
time to achieve such implementation will improve the functionality of 
the CAT for regulators and thus further the public interest, the 
protection of investors, the maintenance of fair and orderly markets, 
and the perfection of the mechanisms of a national market system.
    In evaluating the Participants' implementation of the provisions of 
the CAT NMS Plan, the Commission is guided by the desire to realize the 
full spectrum of the CAT's intended benefits, as encompassed in the 
terms of the CAT NMS Plan and the CAT NMS Plan Approval Order. To the 
extent that Participants seek to implement alternative solutions that 
deviate from the CAT NMS Plan requirements, they must first obtain 
Commission approval of either an amendment to the CAT NMS Plan or 
permanent exemptive relief. The Commission is therefore issuing this 
new Order to clarify certain aspects of the prior Orders, to modify 
other aspects of the prior Orders in light of subsequent developments 
and/or additional information provided by the Participants, and to 
provide the Participants with additional time either to come into 
compliance with the relevant provisions of the CAT NMS Plan or to 
develop alternative solutions that achieve the regulatory goals of Rule 
613 and the CAT NMS Plan in a more cost-effective manner. In doing so, 
the Commission emphasizes its willingness to consider such alternative 
solutions in the form of a proposed CAT NMS Plan amendment or a request 
for permanent exemptive relief.

A. OTQT Performance Requirements

    Section 6.10(c)(i) of the CAT NMS Plan requires the Plan Processor 
\15\ to provide Participants and the Commission with access to CAT Data 
\16\

[[Page 42249]]

stored in the Central Repository \17\ through three different methods: 
(1) the OTQT, (2) user-defined direct queries, and (3) bulk extracts. 
Section 8.1.2 of Appendix D of the CAT NMS Plan sets forth certain 
performance requirements for the OTQT, including timeframes in which 
results must be returned for various types of queries (``Search Return 
Functionality''). Specifically, the CAT NMS Plan requires the OTQT to 
return results for searches that include only equities and options 
trade data within the following timeframes: (1) ``within 1 minute for 
all trades and related lifecycle events for a specific Customer or CAT 
Reporter with the ability to filter by security and time range for a 
specified time window up to and including an entire day''; (2) ``within 
30 minutes for all trades and related lifecycle events for a specific 
Customer or CAT Reporter in a specified date range (maximum 1 month)''; 
and (3) ``within 6 hours for all trades and related lifecycle events 
for a specific Customer or CAT Reporter in a specified date range 
(maximum 12-month duration from the most recent 24 months).'' \18\ 
Section 8.1.2 of Appendix D also requires the OTQT to ``support 
parallel processing of queries'' and states that the OTQT ``must be 
able to process up to 300 simultaneous query requests with no 
performance degradation'' (``Simultaneous Query Functionality'').
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    \15\ ``Plan Processor'' is a defined term under the CAT NMS Plan 
and means ``the Initial Plan Processor or any other Person selected 
by the Operating Committee pursuant to SEC Rule 613 and Sections 
4.3(b)(i) and 6.1, and with regard to the Initial Plan Processor, 
the Selection Plan, to perform the CAT processing functions required 
by SEC Rule 613 and set forth in this Agreement.'' See CAT NMS Plan, 
supra note 3, at Section 1.1.
    \16\ ``CAT Data'' is a defined term under the CAT NMS Plan and 
means ``data derived from Participant Data, Industry Member Data, 
SIP Data, and such other data as the Operating Committee may 
designate as `CAT Data' from time to time.'' See id.
    \17\ ``Central Repository'' is a defined term under the CAT NMS 
Plan and means ``the repository responsible for the receipt, 
consolidation, and retention of all information reported to the CAT 
pursuant to SEC Rule 613 and this Agreement.'' See id.
    \18\ Different timeframes are identified for searches that 
include equities and options order and National Best Bid and 
National Best Offer data in search criteria. Id. at Appendix D, 
Section 8.1.2.
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    The Participants sought relief from these requirements in their 
December 1, 2020 letter.\19\ The Participants explained that the OTQT 
provided by the Plan Processor is based on a model that responds to 
user queries by first collecting all relevant data into a ``data mart'' 
and then making this ``data mart'' available to the user for subsequent 
filtering and analysis.\20\ This data mart functionality does not 
consistently return results to users in accordance with the timeframes 
specified by the Search Return Functionality requirements of the CAT 
NMS Plan.\21\ Nor does the OTQT currently satisfy the Simultaneous 
Query Functionality requirements of the CAT NMS Plan, which require the 
OTQT ``to process up to 300 simultaneous query requests with no 
performance degradation.'' \22\ As the Commission explained in the 
First Order, ``performance degradation'' is a deterioration in 
performance as measured according to a certain standard.\23\ The OTQT's 
ability to process up to 300 simultaneous queries with ``no performance 
degradation'' should accordingly be based on the ability of the OTQT to 
achieve the timeframes set forth in Appendix D, Section 8.1.2 of the 
CAT NMS Plan.\24\ Because the current data mart model cannot 
consistently achieve these timeframes even on fewer than 300 
simultaneous queries, the OTQT does not currently comply with the 
performance requirements of the CAT NMS Plan.\25\ And, as discussed in 
the First Order, the OTQT does not currently meet the above-described 
1-minute, 30-minute, and 6-hour requirements that apply to certain 
queries run on ``all trades and related lifecycle events.'' \26\ The 
Participants argued, however, that the data mart model is a ``more 
powerful, useful[,] and reliable regulatory surveillance tool'' than 
``an alternative OTQT'' that ``might be constructed'' that ``returns 
results'' within the required timeframes.\27\
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    \19\ See Participant Letter, supra note 4, at 3-6. The 
Participants also sought relief from certain requirements of 
Appendix D, Section 8.1.1 of the CAT NMS Plan in their Dec. 1, 2020 
letter, see id. at 2-3, but the Participants have asserted that this 
functionality was implemented in Feb. 2021. See, e.g., CAT Q4 2021 
Quarterly Progress Report, available at https://catnmsplan.com/sites/default/files/2022-01/CAT-Q4-2021-QPR.pdf.
    \20\ See Participant Letter, supra note 4, at 4; see also First 
Motion, supra note 7, at 6.
    \21\ See Participant Letter, supra note 4, at 4-5 (``It 
typically currently takes up to four minutes for queries for a 
single day involving equities trades and up to six minutes for 
options trade queries for a single day for the OTQT to create and 
return a data mart in response to targeted search requests with a 
required response time of one minute under Section 8.1.2 of Appendix 
D.''); First Motion, supra note 7, at 6 (``The OTQT query function 
can perform the latter step, but not both steps, in one minute.'').
    \22\ See CAT NMS Plan, supra note 3, at Appendix D, Section 
8.1.2.
    \23\ See First Order, supra note 4, at 83670.
    \24\ See id.
    \25\ See Participant Letter, supra note 4, at 6 (requesting 
relief from the requirement that the OTQT achieve ``parallel 
processing up to 300 simultaneous query requests with no performance 
degradation'').
    \26\ See First Order, supra note 4, at 83669.
    \27\ See Participant Letter, supra note 4, at 5.
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    In the First Order, the Commission granted the Participants' 
request for temporary exemptive relief from the Search Return 
Functionality and Simultaneous Query Functionality requirements until 
July 31, 2023.\28\ The Commission conditioned this exemptive relief on: 
(1) the satisfaction of all other requirements of the Full 
Implementation of Core Equity Reporting Requirements milestone by 
December 31, 2020; (2) the performance of benchmark queries to measure, 
on a monthly basis, the timeframes in which the OTQT returns results 
for specified types of queries, the provision of monthly reports 
containing certain data on the timeframes in which the OTQT returns 
results for any actual queries done by regulatory users, the provision 
of such information to the Operating Committee, and the inclusion of 
such information as factual indicators in the Quarterly Progress 
Reports required by Section 6.6(c) of the CAT NMS Plan; and (3) the 
monthly testing, using benchmark queries, of the time it takes to 
provide results to users from OTQT searches that are run concurrently 
with either 50-100, 100-200, or 200-300 queries, the provision of such 
information to the Operating Committee, and the inclusion of such 
information as factual indicators in the Quarterly Progress Reports 
required by Section 6.6(c) of the CAT NMS Plan.\29\
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    \28\ See First Order, supra note 4, at 83670.
    \29\ See id. at 83670-71.
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    In requesting a stay of the conditions of the First Order, the 
Participants challenge the Commission's conclusion that ``[t]he 
timeframe for `returning results' in Section 8.1.2 of Appendix D . . . 
begins with the submission of the query in the OTQT and ends with the 
return of the results of the query to user; it does not begin with the 
population of a data mart.'' \30\ The Participants argue that the CAT 
NMS Plan is ``silent'' as to ``whether creation of the data mart counts 
toward'' the timeframe for ``returning results'' and that the timeframe 
should thus be assessed after the system creates a data mart.\31\ But 
in requiring results to be returned within a specified timeframe, the 
CAT NMS Plan by its terms refers to the entirety of the time it takes 
to generate results in response to the user's initial query. It thus 
encompasses the time it takes the system to process the user's initial 
query, to generate results, and to return the results to the user. 
There is nothing in the natural reading of ``returning results'' that 
indicates that the timeframe actually begins at some point, 
undiscernible by the user, after query submission. Nor is there any 
other indication that the CAT NMS Plan contemplated such a possibility. 
Moreover, the CAT NMS Plan requires the OTQT to record the date and 
time the query request is submitted. It therefore stands to reason that 
the query

[[Page 42250]]

response times set forth in the CAT NMS Plan were intended to be 
measured from the time of query submission.\32\
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    \30\ Id. at 83669.
    \31\ See, e.g., First Motion, supra note 7, at 7.
    \32\ Appendix D, Section 8.1.1 of the CAT NMS Plan requires that 
the OTQT ``must provide a record count of the result set, the date 
and time the query request is submitted, and the date and time the 
result set is provided to the users.'' It also requires that the 
OTQT must ``log submitted queries and parameters used in the query, 
the user ID of the submitter, the date and time of the submission, 
as well as the delivery of results.''
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    This plain language interpretation also accords with the purpose of 
the performance requirements. The OTQT is an important regulatory tool 
required by the CAT NMS Plan; it is one of only three methods that 
regulators have to access and query CAT Data, and it is the only method 
that can be used by regulatory staff without programming experience to 
directly access and query the CAT with tools provided by the Plan 
Processor. And to most efficiently enable regulatory use, a well-
functioning regulatory tool should consistently return results in a 
predictable, reliable, and timely manner. Measuring the OTQT's 
performance from the time a data mart is generated would undermine that 
goal. Such an interpretation builds in an undetermined, undiscernible 
timeframe for the provisions of results to the user and, taken to its 
logical extreme, would essentially erase the required timeframes set 
forth in Appendix D, Section 8.1.2 of the CAT NMS Plan.\33\ Given its 
significance to regulators, it is critically important that the OTQT be 
subject to meaningful and enforceable performance standards.
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    \33\ For instance, under this approach, the OTQT could be said 
to satisfy the 1-minute timeframe set forth in Appendix D, Section 
8.1.2 if it took 72 hours to generate a data mart but only 30 
seconds to return that data mart to the user. The Commission does 
not believe this is a sensible or plausible reading of the CAT NMS 
Plan.
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    The Participants assert that it is technologically infeasible for 
the OTQT, using the data mart functionality, to meet the requirements 
of the CAT NMS Plan and that the data mart functionality is beneficial 
to regulatory users. But, if that is the case, the more appropriate 
course is for the Participants to seek regulatory relief in the form of 
a CAT NMS Plan amendment or permanent exemptive relief, rather than 
adhere to an implausible interpretation of straightforward CAT NMS Plan 
requirements.
    The Commission continues to believe that temporary conditional 
exemptive relief from the performance requirements set forth in 
Appendix D, Section 8.1.2 is appropriate. Such relief gives the 
Participants additional time either to implement the required 
functionality or to obtain the Commission's approval of an alternative 
solution that would meaningfully advance the goals that the standards 
were intended to promote. In light of information that the Participants 
have provided with the First Motion, and further developments in the 
interim period, the Commission believes it is appropriate for the Third 
Order to provide this exemptive relief until July 31, 2024 and to 
replace the conditions set forth in the First Order with the following 
conditions:
     The Participants must maintain or improve the existing 
performance of the OTQT.
     The Participants must continue to test the OTQT's 
performance with benchmark queries and to evaluate the response times 
for actual queries on a monthly basis. Such tests and evaluations 
should contain the same content that is currently provided to the 
Commission and should be provided to the Commission within 30 days from 
the end of each month.
     The Participants must provide the results of any 
concurrency testing performed on the OTQT within 30 days from the date 
of such testing.\34\
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    \34\ Unlike the First Order, the exemptive relief provided by 
the Third Order is not conditioned on the satisfaction of ``all 
other requirements of the Full Implementation of Core Equity 
Reporting Requirements milestone by December 31, 2020.'' See First 
Order, supra note 4, at 83670. This milestone has passed and is 
therefore no longer relevant to the exemptive relief provided 
herein. However, the Commission will consider the Participants' 
compliance with that condition in assessing whether the Participants 
have met the target deadlines established for the Full 
Implementation of Core Equity Reporting Requirements milestone. See 
note 12 supra.
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     To ensure that the Participants remain on track either to 
come into compliance with the requirements of the CAT NMS Plan or 
obtain the Commission's approval of an alternative solution by July 31, 
2024, the Participants and the Plan Processor must meet with Commission 
staff on at least a monthly basis to provide a detailed status update 
regarding their current efforts towards this goal and promptly respond 
to related requests for additional information or data.

The Commission intends these conditions to preserve, as a baseline, the 
OTQT functionality that is already in place and expects that the 
Participants will provide the Commission with sufficient information to 
gather necessary insight into the performance of the OTQT and the 
impact of any changes or improvements made by the Participants.\35\
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    \35\ Because these revised conditions only require the 
Participants to provide the Commission with the results of testing 
that is already performed, such revisions should also address the 
Participants' objections that the testing conditions set forth in 
the First Order imposed significant and unwarranted new costs. See 
First Motion, supra note 7, at 9-10.
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B. Requirements for Lifecycle Linkages Timeframes

    Appendix D, Section 6.1 of the CAT NMS Plan states that ``Noon 
Eastern Time T+1 (transaction date + one day)'' is the deadline for 
``initial data validation, lifecycle linkages and communication of 
errors to CAT Reporters.'' The CAT NMS Plan further explains that the 
Plan Processor must ``link and create the order lifecycle'' using a 
``daisy chain approach,'' in which ``a series of unique order 
identifiers, assigned to all order events handled by CAT Reporters[,] 
are linked together by the Central Repository and assigned a single 
CAT-generated CAT-Order-ID that is associated with each individual 
order event and used to create the complete lifecycle of an order.'' 
\36\ This language makes clear that additional steps by the Plan 
Processor are required after the submission of certain ``unique order 
identifiers'' by CAT Reporters to ``link and create the order 
lifecycle.'' In context, the term ``lifecycle linkages'' in Section 6.1 
of Appendix D is thus properly understood as a reference to this order 
event connection process (i.e., completed processing and linkage of the 
initial data) and not, as the Participants assert,\37\ to the ``unique 
order identifiers'' that are used to create lifecycle linkages. Section 
6.1 of Appendix D requires that the Plan Processor create these 
lifecycle linkages, and not just validate or verify them, by T+1 at 
noon Eastern Time. Initial data validation, including validation of 
data elements that can be used by the Plan Processor to create a 
lifecycle linkage, is a separate step that must also occur by T+1 at 
noon Eastern Time.\38\
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    \36\ CAT NMS Plan, supra note 3, at Appendix D, Section 3.
    \37\ See Second Motion, supra note 7, at 6.
    \38\ See CAT NMS Plan, supra note 3, at Appendix D, Section 6.1; 
see also Securities Exchange Act Release No. 77724 (Apr. 27, 2016), 
81 FR 30614, 30691 (May 17, 2016) (``CAT NMS Plan Notice'') (``The 
CAT Data would be made available to regulators in raw form after it 
is received from reporters and passes basic validations; the Plan 
does not specify exactly when these validations would be complete, 
but the requirement to link records by 12:00 p.m. (noon) Eastern 
Time on day T+1 gives a practical upper bound on this timeline for 
initial access to the data.''). If the Participants were only 
required to validate lifecycle linkages by T+1 at noon Eastern Time, 
the CAT NMS Plan would state that ``lifecycle validations''--not 
``lifecycle linkages''--were due to be completed by that deadline.
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    The Plan Processor creates lifecycle linkages by assigning an 
interim CAT

[[Page 42251]]

Order ID.\39\ The Commission understands that, currently, the Plan 
Processor is generally capable of assigning interim CAT Order IDs by 
T+1 at 9 p.m. Eastern Time, rather than by the T+1 at noon Eastern Time 
deadline set forth in the CAT NMS Plan. Accordingly, in the Second 
Order, the Commission granted the Participants temporary exemptive 
relief, until July 31, 2023, to give the Participants time to achieve 
compliance with the CAT NMS Plan's requirement that the Plan Processor 
create lifecycle linkages by noon Eastern Time on T+1.\40\ The 
Commission conditioned this exemptive relief on the Participants 
``providing an interim CAT Order ID and lifecycle linkages by 9 p.m. 
EST T+1''--which it understood to represent current performance--and 
including in Quarterly Progress Reports factual indicators that 
describe ``any improvements to the time by which the Plan Processor is 
capable of providing an interim CAT Order ID and lifecycle linkages.'' 
\41\
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    \39\ See, e.g., Second Order, supra note 5, at 83634.
    \40\ See id. at 83634-35.
    \41\ Id. at 83635.
---------------------------------------------------------------------------

    The Participants requested a stay of this aspect of the Second 
Order, arguing that the CAT NMS Plan is ``silent regarding when CAT 
Order IDs must be assigned'' and does not ``expressly recite'' a 
requirement to assign interim CAT Order IDs.\42\ But the CAT NMS Plan 
does expressly require the creation of lifecycle linkages by noon 
Eastern Time on T+1. And the obligation to assign CAT Order IDs--the 
mechanism by which the Plan Processor creates lifecycle linkages--by 
noon Eastern Time on T+1 necessarily follows from that requirement.
---------------------------------------------------------------------------

    \42\ See Second Motion, supra note 7, at 5-6.
---------------------------------------------------------------------------

    Contrary to Participants' suggestion,\43\ this conclusion is not at 
odds with the CAT NMS Plan's framework for identifying and correcting 
errors. Although the initial data submitted by CAT Reporters may 
contain errors, the CAT NMS Plan specifically contemplates regulator 
access to ``all iterations of processed data'' during the period 
between noon Eastern Time on T+1 (when such errors must be identified) 
and T+5 (when corrected data must be made available to regulators).\44\ 
Consistent with this framework, the CAT NMS Plan requires that the Plan 
Processor first provide lifecycle linkages to regulators by T+1 at noon 
Eastern Time, and then, after any errors in linkage data have been 
identified and corrected, provide finalized and corrected lifecycle 
linkages by T+5 at 8:00 a.m. Eastern Time.\45\ Indeed, the error 
correction process has not prevented the Plan Processor from generally 
providing interim CAT Order IDs by T+1 at 9 p.m. Eastern Time, which 
are then corrected if necessary by T+5.
---------------------------------------------------------------------------

    \43\ See id. at 7.
    \44\ See, e.g., CAT NMS Plan, supra note 3, at Appendix D, 
Section 6.2.
    \45\ See id. None of the CAT NMS Plan provisions cited by the 
Participants state that the Plan Processor may wait until T+5 to 
assign CAT Order IDs given their role in creating lifecycle 
linkages. See Second Motion, supra note 7, at 7.
---------------------------------------------------------------------------

    The Participants also incorrectly assert that there is ``no 
benefit'' to requiring lifecycle linkages by noon Eastern Time on 
T+1.\46\ Timely access to linked data was one of the underlying goals 
of Rule 613 and the CAT NMS Plan. Before the implementation of CAT, it 
could take up to several days for regulators to gain access to 
uncorrected order event data, and regulators could spend additional 
days (or months) processing data to create lifecycle linkages.\47\ The 
CAT NMS Plan proposed by the Participants and approved by the 
Commission therefore specifically included measures like Appendix D, 
Section 3 and Section 6.1 that require the Plan Processor to provide 
faster access to uncorrected data in a linked format.\48\ These 
measures ``generally represent[ed] a significant improvement in 
timeliness'' and were intended to ``reduce or eliminate the delays 
associated with merging and linking order events within the same 
lifecycle.'' \49\ The alternative approach suggested by the 
Participants in their Second Motion--e.g., that regulatory users should 
manually piece together lifecycle linkages using unique order 
identifiers submitted by CAT Reporters instead of the Plan Processor 
providing lifecycle linkages by T+1 at noon Eastern Time \50\--actively 
undercuts these goals by burdening regulatory users with the Plan 
Processor's obligations. The expected regulatory benefits provided by 
timely access to linked CAT Data would be even further undermined if 
the CAT did not provide lifecycle linkages to regulatory users until 
T+5. In order to study and react to market events and/or problematic 
trading activity in an effective and expeditious way, regulators need 
access to relevant data as close in time to such events or activity as 
is possible. Delays in access to data could delay a regulator's 
response time.
---------------------------------------------------------------------------

    \46\ See Second Motion, supra note 7, at 8.
    \47\ See CAT NMS Plan Notice, supra note 38, at 30693.
    \48\ See id. at 30691-93.
    \49\ Id. at 30691, 30693.
    \50\ See Second Motion, supra note 7, at 6.
---------------------------------------------------------------------------

    The Participants argue that, in exercising its discretionary 
authority to grant exemptive relief, the Commission must consider 
whether the regulatory benefits of the requirement to create lifecycle 
linkages by T+1 at noon justify the cost of reconfiguring the CAT 
system to enable it do so.\51\ But in granting sua sponte exemptive 
relief from this requirement, the Commission was relieving burdens. The 
Commission has not altered the CAT NMS Plan requirement to create 
lifecycle linkages by T+1 at noon Eastern Time and the Participants 
configured the CAT System knowing what that requirement was. To the 
extent the Participants believe that requirement is no longer 
appropriate in light of the way the CAT System has been built, the 
Participants may propose an alternative solution that advances the 
relevant regulatory objectives in a more cost-effective manner, either 
through a CAT NMS Plan amendment or a request for permanent exemptive 
relief. The Commission is open to considering and working with the 
Participants to identify such a solution.
---------------------------------------------------------------------------

    \51\ See, e.g., id. at 8.
---------------------------------------------------------------------------

    To give the Participants additional time either to implement the 
required functionality or to obtain the Commission's approval of an 
alternative solution, the Commission continues to believe that 
temporary conditional exemptive relief from the requirement set forth 
in Appendix D, Section 6.1 that lifecycle linkages be created by T+1 at 
noon Eastern Time is appropriate. However, in light of the information 
the Participants have provided with their stay motion and further 
developments in the interim period, the Commission believes it is 
appropriate for the Third Order to provide this exemptive relief until 
July 31, 2024, and to replace the conditions set forth in the Second 
Order with the following conditions:
     The Participants must maintain or improve the existing 
performance of functionality currently providing lifecycle linkages by 
T+1 at 9 p.m. Eastern Time.
     The Participants must provide, in Quarterly Progress 
Reports submitted pursuant to Section 6.6(c), factual indicators that 
describe any improvements to the time by which the Plan Processor is 
capable of providing lifecycle linkages.
     To ensure that the Participants remain on track either to 
come into compliance with the requirements of the CAT NMS Plan or 
obtain the Commission's approval of an alternative solution by July 31, 
2024, the

[[Page 42252]]

Participants and the Plan Processor must meet with Commission staff on 
at least a monthly basis to provide a detailed status update regarding 
their current efforts towards this goal and promptly respond to related 
requests for additional information or data.

The Commission intends these conditions to preserve, as a baseline, the 
lifecycle linkage functionality that is already in place and expects 
that the Participants will provide the Commission with sufficient 
information to gather necessary insight into the Plan Processor's 
ability to meet the T+1 at noon Eastern Time deadline and the impact of 
any changes or improvements made by the Participants.

C. Requirements for Re-Processing of Corrected Data Received After T+5

    Appendix D, Section 3 of the CAT NMS Plan requires that ``[a]ll CAT 
Data reported to the Central Repository must be processed and assembled 
to create the complete lifecycle of each Reportable Event.'' The CAT 
NMS Plan sets a deadline of T+3 at 8:00 a.m. Eastern Time for the 
``[r]esubmission of corrected data'' and a deadline of T+5 at 8:00 a.m. 
Eastern Time for the Plan Processor to make ``[c]orrected data 
available to Participant regulatory staff and the SEC.'' \52\ For data 
corrections received after T+5, the CAT NMS Plan specifies that 
``Participants' regulatory staff and the SEC must be notified and 
informed as to how re-processing will be completed.'' \53\ Together, 
these sections require the Plan Processor to process and assemble any 
corrected CAT Data received after T+5 into complete order event 
lifecycles and to notify regulatory users as to how such re-processing 
will be completed.
---------------------------------------------------------------------------

    \52\ See CAT NMS Plan, supra note 3, at Appendix D, Section 6.1.
    \53\ See id. at Appendix D, Section 6.2.
---------------------------------------------------------------------------

    The Commission understands that the Participants do not currently 
process and assemble all corrected CAT Data received after T+5 into 
complete order event lifecycles; in some cases, for instance, the Plan 
Processor may simply add corrected CAT Data to the Central Repository 
without integrating such CAT Data into order event lifecycles.\54\ In 
the Second Order, the Commission granted the Participants temporary 
exemptive relief, until July 31, 2021, to provide the Participants time 
to come into compliance with the requirement in Section 3 and Section 
6.2 of Appendix D of the CAT NMS Plan that the Participants process and 
assemble the complete lifecycle for corrected Reportable Events 
received by the Plan Processor after T+5.\55\ The Commission 
conditioned this exemptive relief on the Participants including in the 
Quarterly Progress Reports required by Section 6.6(c) of the CAT NMS 
Plan factual indicators that describe ``progress made with respect to 
the re-processing of all corrections received after T+5 prior to the 
expiration of the exemptive relief on July 31, 2021.'' \56\
---------------------------------------------------------------------------

    \54\ See, e.g., Second Motion, supra note 7, at 11. For example, 
if a corrected record submitted after T+5 connects two broken order 
event lifecycles into one order event lifecycle, the Plan Processor 
does not join all relevant records into a single order event 
lifecycle as it would have if the corrected data had been received 
prior to T+5. As another example, in some instances the Plan 
Processor adds a corrected record to an order event lifecycle but 
also retains the original record, leaving two records representing 
the same event in the Central Repository--whereas the Plan Processor 
would have replaced the original record if the corrected data had 
been received prior to T+5.
    \55\ See Second Order, supra note 5, at 83635.
    \56\ See id.
---------------------------------------------------------------------------

    In their Second Motion, the Participants object that the 
Commission's interpretation requires the Plan Processor to assign a new 
CAT Order ID every time a correction is received after T+5.\57\ But the 
Commission recognizes that, in many such circumstances, it may not be 
necessary to assign a new CAT Order ID. As discussed above, the CAT NMS 
Plan gives the Participants the discretion to choose how--but not 
whether--to process and assemble corrected CAT Data submitted after T+5 
into complete order event lifecycles. Some re-processing is mandatory 
under Appendix D, Section 3 of the CAT NMS Plan to ensure that CAT Data 
submitted after T+5 is processed and assembled into complete order 
event lifecycles; if the Plan Processor is able to process and assemble 
CAT Data submitted after T+5 into complete and accurate order event 
lifecycles using existing CAT Order IDs, it need not assign a new CAT 
Order ID. To the extent the Participants believe that the above-
described requirements should be revised because of the costs involved 
in or technological obstacles presented by implementing such 
requirements in certain circumstances, the Participants may propose an 
amendment to the CAT NMS Plan or request permanent exemptive relief 
from the Commission.
---------------------------------------------------------------------------

    \57\ See, e.g., Second Motion, supra note 7, at 10.
---------------------------------------------------------------------------

    One of the main regulatory goals of Rule 613 and the CAT NMS Plan 
was to cure shortcomings in existing audit trail systems that made it 
impractical to follow orders through their entire lifecycles, as they 
may be routed, aggregated, re-routed, and disaggregated.\58\ Failure to 
process and assemble corrected data received after T+5 into complete 
order event lifecycles would perpetuate a similar problem within the 
CAT by making it difficult and/or time-consuming for regulators to find 
the relevant data and by forcing individual regulatory users to 
manually process data and assemble lifecycles on their own.\59\ These 
are burdens that the CAT NMS Plan was specifically designed to 
alleviate.\60\
---------------------------------------------------------------------------

    \58\ See, e.g., Rule 613 Adopting Release, supra note 2, at 
45722. See also, e.g., CAT NMS Plan Notice, supra note 38, at 30615; 
CAT NMS Plan Approval Order, supra note 3, at 84698.
    \59\ Simply adding corrected data to the Central Repository, for 
example, could require regulators to run multiple, time-consuming 
searches to locate corrected data (or just to discover whether 
corrected data exists), to manually process data to weed out 
inaccurate event records, to manually format data to look the same 
as data that was submitted before T+5, and/or to manually construct 
lifecycles. Depending on the circumstances, this methodology may not 
satisfy the requirement that corrected data submitted after T+5 be 
``processed and assembled to create the complete lifecycle of each 
Reportable Event.''
    \60\ See, e.g., CAT NMS Plan Notice, supra note 38, at 30693 
(``Currently regulators can spend days and up to months processing 
data they receive into a useful format. Part of this delay is due to 
the need to combine data across sources that could have non-uniform 
formats and to link data about the same event both within and across 
data sources. . . . [T]he Commission preliminarily believes that the 
Plan would reduce or eliminate the delays associated with merging 
and linking order events within the same lifecycle.'').
---------------------------------------------------------------------------

    To give the Participants additional time either to implement the 
required functionality or to obtain the Commission's approval of an 
alternative solution, the Commission continues to believe that it is 
appropriate to grant temporary conditional exemptive relief from the 
requirements set forth in Appendix D, Section 3 and Appendix D, Section 
6.2 of the CAT NMS Plan that the Plan Processor process and assemble 
any corrected CAT Data received after T+5 into complete order event 
lifecycles and notify regulatory users as to how such re-processing 
will be completed. However, in light of information the Participants 
have provided with their stay motion and further developments in the 
interim period, the Commission believes it is appropriate for the Third 
Order to provide this exemptive relief until July 31, 2024, and to 
replace the condition set forth in the Second Order with the following 
condition:
     The Participants must provide, in Quarterly Progress 
Reports submitted pursuant to Section 6.6(c), factual indicators that 
describe any improvements to functionality that processes and assembles 
corrected CAT Data submitted after T+5 into complete order event 
lifecycles.
     To ensure that the Participants remain on track either to 
come into compliance with the requirements of the CAT NMS Plan or 
obtain the

[[Page 42253]]

Commission's approval of an alternative solution by July 31, 2024, the 
Participants and the Plan Processor must meet with Commission staff on 
at least a monthly basis to provide a detailed status update regarding 
their current efforts towards this goal and promptly respond to related 
requests for additional information or data.

The Commission intends these conditions to provide the Commission with 
sufficient information to gather necessary insight into the Plan 
Processor's ability to meet the above-described requirements and the 
impact of any changes or improvements made by the Participants.

D. Requirements for SIP Data Linkage

    Section 6.5(a)(ii) of the CAT NMS Plan, which implements Rule 
613(e)(7), requires that the Central Repository ``collect . . . and 
retain on a current and continuing basis,'' certain SIP Data ``in a 
format compatible with'' the Participant Data and Industry Member Data 
that is collected pursuant to Rule 613(c)(7).\61\ This SIP Data must 
include: ``(A) information, including the size and quote condition, on 
quotes including the National Best Bid and National Best Offer for each 
NMS Security; [and] (B) Last Sale Reports and transaction reports 
reported pursuant to an effective transaction reporting plan filed with 
the SEC pursuant to, and meeting the requirements of, SEC Rules 601 and 
608.'' \62\ Section 6.5(b)(i) of the CAT NMS Plan further states that 
SIP Data, ``when available to Participant regulatory staff and the 
SEC[,] shall be linked'' to the Participant Data and Industry Member 
Data that is collected pursuant to Rule 613(c)(7). Moreover, the CAT 
NMS Plan explicitly includes the SIP Data described in Section 
6.5(a)(ii) in its definition of ``CAT Data,'' \63\ thereby subjecting 
SIP Data to the same requirements that generally apply to CAT Data, 
including the requirement set forth in Appendix D, Section 3 that 
``[a]ll CAT Data reported to the Central Repository must be processed 
and assembled to create the complete lifecycle of each Reportable 
Event.'' \64\
---------------------------------------------------------------------------

    \61\ See CAT NMS Plan, supra note 3, at Section 6.5(a)(ii)(A)-
(B); 17 CFR 242.613(e)(7).
    \62\ See CAT NMS Plan, supra note 3, at Section 6.5(a)(ii)(A)-
(B); see also 17 CFR 242.613(e)(7).
    \63\ See CAT NMS Plan, supra note 3, at Section 1.1 (defining 
``CAT Data'' as ``data derived from Participant Data, Industry 
Member Data, SIP Data, and such other data as the Operating 
Committee may designate as `CAT Data' from time to time'').
    \64\ See also 17 CFR 242.613(e)(1) (``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.'').
---------------------------------------------------------------------------

    The Commission understands that the CAT currently does not link SIP 
Data to the ``complete lifecycle of each Reportable Event,'' but 
instead presents regulatory users with a side-by-side view of SIP Data 
and other transactional data reported to the CAT.\65\ In other words, 
SIP Data is provided to regulatory users in a separate stream from 
order event lifecycles, such that regulatory users may only view SIP 
Data sequentially with other CAT Data, rather than as part of order 
event lifecycles. This side-by-side functionality forces regulatory 
users to perform the time-consuming and burdensome work of manually 
matching SIP Data with order event lifecycles and creating their own 
combined and linked audit trail.\66\ In approving the CAT NMS Plan, the 
Commission explained that ``regulators analyzing an event or running a 
surveillance pattern often need to link data,'' but that ``linking many 
different data sources'' was ``cumbersome and time-consuming'' and that 
``the inability to link all records affects the accuracy of the 
resulting data and can force an inefficient manual linkage process that 
would delay the completion of the data collection and analysis portion 
of an examination, investigation, or reconstruction.'' \67\ Linkage of 
all CAT Data--which includes SIP Data by definition--was intended to 
address these issues by improving the accuracy of the data provided to 
regulators and the timeliness of regulatory review.\68\ SIP Data is a 
core component of market structure and established market control 
mechanisms; SIP Data linkage would better enable regulators to clearly 
and accurately identify the market participants involved in the order 
event lifecycles that cause SIP messages, which is critical in 
recreating market events and looking for problematic trading behaviors.
---------------------------------------------------------------------------

    \65\ See, e.g., Second Order, supra note 5, at 83635.
    \66\ The Commission identified several possible uses for SIP 
Data in approving the CAT NMS Plan. See CAT NMS Plan Approval Order, 
supra note 3, at 84914 n.3222-23.
    \67\ See, e.g., CAT NMS Plan Approval Order, supra note 3, at 
84814-15.
    \68\ See notes 58, 60 and associated text supra; see also CAT 
NMS Plan Approval Order, supra note 3, at 84826-27.
---------------------------------------------------------------------------

    In the Second Order, the Commission granted the Participants 
temporary exemptive relief, until July 31, 2023, to give them more time 
to develop the changes necessary to meet the SIP data linkage 
requirements described above.\69\ The Commission conditioned this 
exemptive relief on the Participants including in Quarterly Progress 
Reports factual indicators that describe ``the release of updated 
specifications and/or scenarios documents relating to the linkage of 
Participant Data and Industry Member Data with SIP Data, such that SIP 
Data is incorporated in the lifecycle of an order.'' \70\
---------------------------------------------------------------------------

    \69\ See Second Order, supra note 5, at 83635.
    \70\ Id.
---------------------------------------------------------------------------

    In their Second Motion, the Participants argue that the Commission 
was obligated to consider various practical and technological obstacles 
before requiring them to link SIP data to the complete order 
lifecycle.\71\ But as discussed above, that requirement was imposed by 
the CAT NMS Plan itself, not by the Commission's exemptive order, which 
merely granted the Participants more time to meet the requirement. To 
the extent the Participants now believe this CAT NMS Plan requirement 
is inappropriate or unjustified in light of its costs, the Participants 
are free to propose an alternative solution that advances the relevant 
regulatory objectives in a more cost-effective manner, either through a 
CAT NMS Plan amendment or a request for permanent exemptive relief. The 
Commission is open to considering and working with the Participants to 
identify such a solution.
---------------------------------------------------------------------------

    \71\ See, e.g., Second Motion, supra note 7, at 15.
---------------------------------------------------------------------------

    The Participants contend that linking SIP Data to complete order 
lifecycles is impractical, in part because it would require changes to 
the existing national market system plans that govern the collection, 
consolidation, processing, and dissemination of SIP Data (the 
``existing SIP Plans''),\72\ and because of the new approach to SIP 
Data provided for under the Commission's Market Data Infrastructure 
Rule (``MDI Rules'').\73\ The Commission does not believe that amending 
the existing SIP Plans is impractical. The Commission also believes 
that there may be alternatives that would allow the Participants to 
achieve SIP Data linkage without changing the existing SIP Plans or the 
MDI Rules. Under the existing SIP Plans, which remain in effect despite 
the promulgation of the MDI Rules, the Participants provide data to the 
SIPs; under the MDI Rules, the Participants would provide data to 
competing consolidators. The Participants are also the parties that 
currently provide this data to the CAT and that would provide

[[Page 42254]]

this data to the CAT in the future. To achieve compliance with the CAT 
NMS Plan, the Participants may therefore be able to include in their 
data the information necessary for the Plan Processor to facilitate SIP 
Data linkage in a manner that would not require an amendment to the 
existing SIP Plans or the MDI Rules. In any event, if the Participants 
disagree, the appropriate course is for the Participants to seek 
regulatory relief in the form of a CAT NMS Plan amendment or permanent 
exemptive relief.
---------------------------------------------------------------------------

    \72\ See Securities Exchange Act Release No. 90610 (Dec. 9, 
2020), 86 FR 18596, at 18598 n.10 (Apr. 9, 2021) (describing the 
three effective national market system plans that govern the 
collection, consolidation, processing, and dissemination of certain 
NMS information) (``MDI Release'').
    \73\ See id.; see also Second Motion, supra note 7, at 14-15.
---------------------------------------------------------------------------

    The Commission continues to believe that temporary conditional 
exemptive relief from the requirements set forth in Section 6.5(b)(i) 
and Appendix D, Section 3 of the CAT NMS Plan that SIP Data ``shall be 
linked,'' processed, and assembled to create complete order event 
lifecycles is appropriate to give the Participants time either to 
implement the required functionality or to obtain the Commission's 
approval of an alternative solution. However, in light of information 
the Participants have provided with their stay motion, further 
developments in the interim period, and the current status of 
implementation of the MDI Rules, the Commission believes it is 
appropriate for the Third Order to provide this exemptive relief until 
July 31, 2024.\74\ The Commission further believes it is appropriate to 
replace the condition set forth in the Second Order with the following 
conditions:
---------------------------------------------------------------------------

    \74\ The MDI Rules, pursuant to which the SIPs will eventually 
be replaced by ``competing consolidators,'' are in the process of 
being implemented. The Commission has stated that as a result of the 
MDI Rules, ``the Central Repository may have to collect the data 
from a different source,'' which may be one or multiple competing 
consolidators. See MDI Release, supra note 72, at 18697. Therefore, 
the Participants can meet the requirements of Section 6.5(b)(i) and 
Appendix D, Section 3 of the CAT NMS Plan by July 31, 2024, by using 
the current SIPs or one or more competing consolidators that the 
Operating Committee may determine to use once they are operational.
---------------------------------------------------------------------------

     The Participants must provide, in Quarterly Progress 
Reports submitted pursuant to Section 6.6(c), factual indicators that 
describe any improvements to functionality that links Participant Data 
and Industry Member Data with SIP Data, such that SIP Data is 
incorporated into complete order event lifecycles.
     To ensure that the Participants remain on track to either 
come into compliance with the requirements of the CAT NMS Plan or 
obtain the Commission's approval of an alternative solution by July 31, 
2024, the Participants and the Plan Processor must meet with Commission 
staff on at least a monthly basis to provide a detailed status update 
regarding their current efforts towards this goal and promptly respond 
to related requests for additional information or data.

The Commission intends these conditions to provide the Commission with 
sufficient information to gather necessary insight into the 
Participants' efforts to meet the requirements of the CAT NMS Plan and 
the impact of any changes or improvements made by the Participants.

E. Reporting Requirements for Port-Level Settings

    Rule 613 and Sections 6.3(d)(i)(F), 6.3(d)(ii)(G), 6.3(d)(iii)(F), 
6.3(d)(iv)(E), and 6.4(d)(i) of the CAT NMS Plan require the 
Participants to report, and to amend their Compliance Rules to require 
Industry Members to report, the ``Material Terms of the Order'' for 
certain events in an order's lifecycle, including ``for original 
receipt or origination of an order,'' ``for the routing of an order,'' 
``for the receipt of an order that has been routed,'' and for orders 
that are ``modified or cancelled.'' \75\ Rule 613 and the CAT NMS Plan 
further define the ``Material Terms of the Order'' to include ``any 
special handling instructions.'' \76\ Port-level settings are used by 
Industry Members and Participants as one method of communicating 
various Material Terms of the Order, including, in some cases, special 
handling instructions.\77\ When port-level settings are used to 
communicate Material Terms of the Order, Rule 613 and the CAT NMS Plan 
thus require these port-level settings to be reported for that order by 
both senders and receivers.\78\
---------------------------------------------------------------------------

    \75\ See also 17 CFR 242.613(c)(7).
    \76\ See CAT NMS Plan, supra note 3, at Section 1.1; 17 CFR 
242.613(j)(7).
    \77\ Material Terms of the Order can also be communicated 
verbally. In response to the Participants' request for exemptive 
relief, the Commission granted temporary exemptive relief from 
certain reporting requirements contained in the CAT NMS Plan that 
relate to such verbal communications. See Securities Exchange Act 
Release No. 90405 (Nov. 12, 2020), 85 FR 73544 (Nov. 18, 2020).
    \78\ The terms of Rule 613 and the CAT NMS Plan require that any 
special handling instructions be reported by senders (for 
``origination of an order'' and ``for the routing of an order'') and 
receivers (``for original receipt'' of an order and ``for the 
receipt of an order that has been routed''), as well as by both 
Participants and Industry Members. Each party--sender and receiver, 
Participant and Industry Member--is therefore required to report any 
special handling instructions that it communicated through a port-
level setting. Requiring both the sender and the receiver to report 
in this manner is not necessarily duplicative. Rather, this kind of 
differential reporting is of value to regulators; comparing the 
special handling instructions reported by senders and receivers can 
be used by regulators to identify inconsistencies in reporting. 
Moreover, even where two-sided reporting would be duplicative, it 
still provides value to regulators. Because of the differences 
between the technical specifications utilized by Industry Members 
and Participants, and the varied approach to applying and reporting 
port-level settings among the Participants, it is far more efficient 
for regulators evaluating the trading activity of one firm to 
analyze that firm's (e.g., the sender's) data directly. If only 
receivers are required to report, the regulatory user would be 
required to expend significant additional effort to run unique 
queries to find each receiver's data and process such data into a 
consistent and usable format.
---------------------------------------------------------------------------

    The Commission understands, however, that Participants and/or 
Industry Members would have to make technological changes to ensure the 
accurate and reliable reporting of port-level settings by both the 
sender and receiver of the order. In the Second Order, the Commission 
therefore granted the Participants temporary exemptive relief, until 
July 31, 2023, from the requirement that both the CAT Reporter sending 
an order and the CAT Reporter receiving an order report port-level 
settings as part of the Material Terms of an Order.\79\ The Commission 
conditioned this relief on the Participants (1) including in the 
Quarterly Progress Reports required by Section 6.6(c) factual 
indicators that describe ``the release of updated specifications and/or 
scenarios documents relating to the reporting of port-level settings by 
both the sender and receiver of an Order as a special handling 
instruction'' and (2) engaging both the Commission and Industry Members 
on a plan to address the reporting of port-level settings on an 
exchange-by-exchange basis.\80\
---------------------------------------------------------------------------

    \79\ See Second Order, supra note 5, at 83636.
    \80\ Id.
---------------------------------------------------------------------------

    The Participants correctly assert in the Second Motion that the CAT 
NMS Plan does not require all port-level settings to be reported to the 
CAT.\81\ Rule 613 and the CAT NMS Plan only require Participants and 
Industry Members to report port-level settings that are used by a 
sender or a receiver of an order to communicate the Material Terms of 
the Order, including ``any special handling instructions.'' 
Furthermore, Rule 613 and the CAT NMS Plan only obligate the sender of 
an order to report the Material Terms of the Order that it communicated 
to and/or agreed upon with the receiver of the order, including default 
or implicit special handling instructions communicated through a port-
level setting. If the receiver of an order subsequently attaches ``any 
special handling instructions'' to an order without informing the 
sender, including special handling instructions communicated through a 
port-level

[[Page 42255]]

setting, only the receiver would be obligated to report those Material 
Terms of the Order.
---------------------------------------------------------------------------

    \81\ See, e.g., Second Motion, supra note 7, at 16.
---------------------------------------------------------------------------

    However, the Participants go further, suggesting that the reporting 
obligation is only implicated when instructions communicated through 
such port-level settings are ``applied'' or ``triggered,'' but that 
fact is irrelevant to this inquiry.\82\ A special handling instruction 
that a sender or receiver communicates through a port-level setting 
must be reported as Material Terms of the Order regardless of whether 
it is subsequently ``applied'' or ``triggered.'' Neither Rule 613 nor 
the CAT NMS Plan state, for instance, ``any special handling 
instructions applied to the order'' or ``Material Terms Applied to the 
Order.'' Rather, as one example, an instruction that prevents an order 
from trading with another order from the same broker-dealer (self-trade 
match prevention) is reportable as a special handling instruction even 
if the exchange does not need to apply the instruction because there is 
not another order from the same broker-dealer that would trade with the 
incoming order.\83\ Such information is valuable to regulators, 
regardless of whether it is applied, because it could potentially help 
regulators to identify and investigate trading behaviors like layering 
or wash sales and establish the intent of broker-dealers sending such 
orders.
---------------------------------------------------------------------------

    \82\ See, e.g., Second Motion, supra note 7, at 16; see also FAQ 
D34, available at https://catnmsplan.com/faq.
    \83\ See Second Order, supra note 5, at 83635-36.
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    The Participants also argue that, in exercising its discretion to 
grant a temporary exemption from the port-level settings reporting 
requirements, the Commission was obligated to consider certain costs 
and practical obstacles.\84\ But in granting sua sponte exemptive 
relief from this requirement, the Commission was relieving burdens and 
did not alter the CAT NMS Plan requirement. To the extent the 
Participants now believe this CAT NMS Plan requirement is inappropriate 
or unjustified in light of its costs, the Participants are free to 
propose an alternative solution that advances the relevant regulatory 
objectives in a more cost-effective manner, either through a CAT NMS 
Plan amendment or a request for permanent exemptive relief. The 
Commission is open to considering and working with the Participants to 
identify such a solution.
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    \84\ See, e.g., Second Motion, supra note 7, at 16.
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    To give the Participants and Industry Members additional time 
either to implement the required functionality or to obtain the 
Commission's approval of an alternative solution, the Commission 
continues to believe that it is appropriate to grant temporary 
conditional exemptive relief from the requirement set forth in Rule 
613(c)(7) and Sections 6.3(d)(i)(F), 6.3(d)(ii)(G), 6.3(d)(iii)(F), 
6.3(d)(iv)(E), and 6.4(d)(i) of the CAT NMS Plan that the Participants 
report, and amend their Compliance Rules to require Industry Members to 
report, the Material Terms of the Order for certain events in an 
order's lifecycle that are communicated through a port-level setting. 
However, in light of information the Participants have provided with 
their stay motion and further developments in the interim period, the 
Commission believes it is appropriate for the Third Order to provide 
this exemptive relief until July 31, 2024, and to replace the 
conditions set forth in the Second Order with the following conditions:
     The Participants must provide, in Quarterly Progress 
Reports submitted pursuant to Section 6.6(c), factual indicators that 
describe any improvements to the Participants' current efforts to 
report, and to require Industry Members to report, port-level settings 
that communicate ``Material Terms of the Order,'' including efforts to 
implement two-sided reporting (when required) and efforts to require 
that port-level settings that communicate ``any special handling 
instructions'' be reported regardless of whether such instructions are 
``applied.''
     To ensure that the Participants remain on track to either 
come into compliance with the requirements of the CAT NMS Plan or 
obtain the Commission's approval of an alternative solution by July 31, 
2024, the Participants and the Plan Processor must meet with Commission 
staff on at least a monthly basis to provide a detailed status update 
regarding their current efforts towards this goal and promptly respond 
to related requests for additional information or data.\85\
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    \85\ The Commission believes the Participants will need to 
engage and meet regularly with Industry Members in order to satisfy 
this condition.

The Commission intends these conditions to provide the Commission with 
sufficient information to gather necessary insight into the 
Participants' efforts to meet the requirements of the CAT NMS Plan and 
the impact of any changes or improvements made by the Participants.

F. Requirements for Lifecycle Linkages Between Customer Orders and 
``Representative'' Orders

    Appendix D, Section 3 of the CAT NMS Plan requires the Plan 
Processor to ``link all related order events from all CAT Reporters 
involved in the lifecycle of an order. At a minimum,'' the CAT NMS Plan 
specifies that the ``Central Repository must be able to create the 
lifecycle between . . . [c]ustomer orders to `representative' orders 
created in firm accounts for the purpose of facilitating a customer 
order (e.g., linking a customer order handled on a riskless principal 
basis to the street-side proprietary order).'' \86\ As discussed above, 
one of the main regulatory goals of Rule 613 and the CAT NMS Plan was 
to cure shortcomings in existing audit trail systems that made it 
impractical to follow orders through their entire lifecycles, as they 
may be routed, aggregated, re-routed, and disaggregated.\87\ Lifecycle 
linkage for all order events--including linkage of ``representative 
orders'' to customer orders and linkage of customer data across an 
order event lifecycle--was intended to alleviate the burdens associated 
with manual processing and linkage of data and to provide regulators 
with information that is not otherwise available.\88\ It is therefore 
critical that the Participants fully implement functionality to create 
complete order event lifecycle linkages, including linkage of 
``representative'' orders to customer orders.
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    \86\ See CAT NMS Plan, supra note 3, at Appendix D, Section 3. A 
representative order is an order originated in a firm-owned or -
controlled account, including principal, agency average price and 
omnibus accounts, by an Industry Member for the purpose of working 
one or more customer or client orders. See, e.g., Second Order, 
supra note 5, at 83636 n.14.
    \87\ See, e.g., note 58 and associated text supra.
    \88\ See, e.g., note 60 and associated text supra; see also, 
e.g., CAT NMS Plan Notice, supra note 38, at 30665-66 (describing 
difficulties involved in manual linkage of customer data across 
multiple parts of an order lifecycle).
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    The Commission understands that the Participants do not currently 
have the ability to create lifecycles in certain representative order 
scenarios where Industry Members do not have a systematic or direct 
link between their order management systems and execution management 
systems. This is a critical loss of data that breaks order event 
lifecycles, because regulatory users would not be able to recreate 
these parts of the order event lifecycles on their own. In the Second 
Order, the Commission granted the Participants temporary exemptive 
relief, until July 31, 2023, to allow time for Participants and 
Industry Members to develop the

[[Page 42256]]

capability of meeting this CAT NMS Plan requirement.\89\ The Commission 
conditioned this relief on the Participants (1) continuing to require 
Industry Member reporting of representative orders as described in 
another exemptive relief order related to the timing and phasing of 
Industry Member reporting and (2) including in the Quarterly Progress 
Reports required by Section 6.6(c) factual indicators that describe 
``progress made regarding the release of updated specifications and/or 
scenarios documents relating to the reporting of all representative 
orders.'' \90\
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    \89\ See Second Order, supra note 5, at 83636.
    \90\ Id.
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    After challenging this part of the Second Order in the Second 
Motion, the Participants issued guidance indicating that Industry 
Members will be required to provide the data necessary for the Central 
Repository to create the required lifecycle linkages starting on July 
31, 2023.\91\ To give Industry Members additional time to implement the 
necessary reporting, the Commission believes that it is appropriate to 
grant temporary conditional exemptive relief from the requirement set 
forth in Appendix D, Section 3 of the CAT NMS Plan that the ``Central 
Repository must be able to create the lifecycle between . . . 
[c]ustomer orders to `representative' orders created in firm accounts 
for the purpose of facilitating a customer order (e.g., linking a 
customer order handled on a riskless principal basis to the street-side 
proprietary order)'' for representative order scenarios in which 
Industry Members do not have a systematic or direct link between their 
order management systems and execution management systems until July 
31, 2024. The Commission also believes that it is appropriate to impose 
conditions on this relief similar to those set forth in the Second 
Order:
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    \91\ See, e.g., FAQ F5-F7, available at https://catnmsplan.com/faq.
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     The Participants must require Industry Members to report 
``representative'' orders as currently described in FAQs F5-F7 and as 
described in other exemptive relief issued by the Commission by July 
31, 2024.\92\
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    \92\ See, e.g., Securities Exchange Act Release No. 88702 (Apr. 
20, 2020), 85 FR 23075 (Apr. 24, 2020).
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     The Participants must provide, in Quarterly Progress 
Reports submitted pursuant to Section 6.6(c), factual indicators that 
describe the progress made towards the release of updated 
specifications and/or scenarios documents relating to the reporting and 
linkage of all ``representative'' orders.
     To ensure that the Participants remain on track to come 
into compliance with the requirements of the CAT NMS Plan by July 31, 
2024, the Participants and the Plan Processor must meet with Commission 
staff on at least a monthly basis to provide a detailed status update 
regarding their current efforts towards this goal and promptly respond 
to related requests for additional information or data.\93\
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    \93\ The Commission believes the Participants will need to 
engage and meet regularly with Industry Members in order to satisfy 
this condition.

The Commission intends these conditions to preserve, as a baseline, the 
reporting and linkage functionality that is already in place for 
``representative'' orders and expects the Participants and Industry 
Members to provide the Commission with sufficient information to gather 
necessary insight into the efforts made by both Participants and 
Industry Members to fully meet the requirements of the CAT NMS Plan.

G. Requirements for Participant Reporting of Rejected Orders

    Rule 613(c)(7) and Section 6.3(d)(i) of the CAT NMS Plan require 
Participants to ``record and electronically report to the Central 
Repository'' certain information for ``each order and each Reportable 
Event,'' including ``for original receipt or origination of an order.'' 
\94\ The CAT NMS Plan specifies that ``order'' has ``the meaning set 
forth in Rule 613(j)(8),'' \95\ which further defines ``order'' to 
include: ``(i) [a]ny order received by a member of a national 
securities exchange or national securities association from any person; 
(ii) [a]ny order originated by a member of a national securities 
exchange or national securities association; or (iii) [a]ny bid or 
offer.'' \96\ These provisions require the Participants to report all 
orders that are ``received,'' not just those orders that are ``received 
and successfully processed by the matching engine,'' those orders that 
are ``received and accepted,'' and/or those orders that are ``received 
and assigned an order ID''; the reporting requirement is not 
conditioned on how a Participant acts on an order that is received. For 
example, if a Participant receives a message that contains all of the 
terms necessary for an order to be executed, that message still 
constitutes a ``received'' order that must be reported pursuant to the 
provisions of Section 6.3(d) of the CAT NMS Plan regardless of whether 
it is subsequently rejected. Moreover, as ``CAT Data,'' rejected orders 
must also be ``processed and assembled to create the complete lifecycle 
of each Reportable Event'' under Appendix D, Section 3 of the CAT NMS 
Plan.
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    \94\ 17 CFR 242.613(c)(7); CAT NMS Plan, supra note 3, at 
Section 6.3(d)(i).
    \95\ See CAT NMS Plan, supra note 3, at Section 1.1.
    \96\ 17 CFR 242.613(j)(8).
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    Orders that are received and rejected are part of a complete order 
event lifecycle, in the same way that cancelled orders are part of a 
complete order event lifecycle. Without information about these events, 
regulatory users reviewing trading activity could struggle to determine 
how orders that are received but rejected were resolved.\97\ As 
discussed above, one of the main regulatory goals of Rule 613 and the 
CAT NMS Plan was to cure shortcomings in existing audit trail systems 
that made it impractical to follow orders through their entire 
lifecycles.\98\ Providing regulatory users with a more complete and 
comprehensive set of audit trail data was another of the main 
regulatory goals of Rule 613 and the CAT NMS Plan.\99\ Failure to 
report orders that are received and rejected and to create complete 
order lifecycles for such orders would subvert these two goals, because 
regulators would not have access to ``all of the market activity of 
interest in sufficient detail in one consolidated audit trail.'' \100\
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    \97\ Sometimes a rejected order may represent the final action 
in a complete order event lifecycle; other times, the sender may 
submit a second order as a ``follow-up'' to the rejected order. In 
both cases, data reflecting orders that were received and rejected 
provides useful and necessary context to regulatory users evaluating 
trading activity.
    \98\ See, e.g., note 58, note 60 and associated text supra.
    \99\ See, e.g., Rule 613 Adopting Release, supra note 2, at 
45723 (``In performing their oversight responsibilities, regulators 
today must attempt to cobble together disparate data from a variety 
of existing information systems lacking in completeness, accuracy, 
accessibility, and/or timeliness--a model that neither supports the 
efficient aggregation of data from multiple trading venues nor 
yields the type of complete and accurate market activity data needed 
for robust market oversight.''); see also, e.g., CAT NMS Plan 
Notice, supra note 38, at 30652 (stating that the CAT NMS Plan would 
benefit regulators by improving the completeness of data by 
requiring the reporting of additional data fields, events, and 
products in Section 6.3 of the CAT NMS Plan).
    \100\ See CAT NMS Plan Notice, supra note 38, at 30662.
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    In the Second Order, the Commission granted the Participants 
temporary exemptive relief, until December 13, 2021, from the 
requirement in Section 6.3(d) of the CAT NMS Plan that the Participants 
report rejected orders.\101\ The Commission conditioned this relief on 
the Participants including in Quarterly Progress Reports factual 
indicators that describe ``any updates to specifications and/or 
scenarios

[[Page 42257]]

documents relating to the capture and reporting of rejected orders.'' 
\102\ The Participants represent in the Second Motion that they are 
reporting to the CAT ``all messages rejected after receipt by an 
exchange.'' \103\ However, the Commission understands that the 
Participants are currently only reporting a subset of the rejected 
orders that are required to be reported by Section 6.3(d) and are 
working on implementing functionality that will permit the Participants 
to report additional rejected orders.
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    \101\ See Second Order, supra note 5, at 83636.
    \102\ Id. at 83636-37.
    \103\ See Second Motion, supra note 7, at 3 n.8.
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    To give the Participants and Industry Members sufficient time 
either to implement the required functionality or to obtain the 
Commission's approval of an alternative solution, the Commission 
continues to believe that it is appropriate to grant temporary 
conditional exemptive relief from the requirement set forth in Rule 
613(c)(7) and Section 6.3(d)(i) of the CAT NMS Plan that Participants 
``record and electronically report to the Central Repository'' certain 
information for orders that are received and subsequently rejected, and 
from the requirement set forth in Appendix D, Section 3 of the CAT NMS 
Plan that ``[a]ll CAT Data'' related to such orders be ``processed and 
assembled to create the complete lifecycle of each Reportable Event.'' 
However, in light of further developments in the interim period, the 
Commission believes it is appropriate for the Third Order to provide 
this exemptive relief until July 31, 2024, and to replace the condition 
set forth in the Second Order with the following conditions:
     The Participants must maintain or improve their existing 
reporting of orders that are received and subsequently rejected, 
including existing efforts towards implementing functionality that 
would permit the Participants to report additional rejected orders.
     The Participants must provide, in Quarterly Progress 
Reports submitted pursuant to Section 6.6(c), factual indicators that 
describe any improvements to the Participants' reporting of orders that 
are received and subsequently rejected, as well as improvements to the 
functionality that creates linkages for such orders.
     To ensure that the Participants remain on track to either 
come into compliance with the requirements of the CAT NMS Plan or 
obtain the Commission's approval of an alternative solution by July 31, 
2024, the Participants and the Plan Processor must meet with Commission 
staff on at least a monthly basis to provide a detailed status update 
regarding their current efforts towards this goal and promptly respond 
to related requests for additional information or data.

The Commission intends these conditions to preserve, as a baseline, the 
reporting functionality that is already in place and expects the 
Participants to provide the Commission with sufficient information to 
gather necessary insight into the Participants' efforts to meet the 
requirements of the CAT NMS Plan.

III. Conclusion

    Accordingly, it is hereby ordered, pursuant to Section 36(a)(1) of 
the Exchange Act \104\ and Rule 608(e) under the Exchange Act,\105\ 
that the above-described temporary conditional exemptive relief be 
granted.
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    \104\ 15 U.S.C. 78mm(a)(1).
    \105\ 17 CFR 242.608(e).

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-14982 Filed 7-13-22; 8:45 am]
BILLING CODE 8011-01-P