Document ID: SEC-2014-0341-0001
Agency: sec
Document Type: Notice
Title: Joint Industry Plans: BATS Exchange, Inc., BATS-Y Exchange, Inc., BOX Options Exchange, LLC, et al.
Posted Date: 2014-02-27T05:00Z

[Federal Register Volume 79, Number 39 (Thursday, February 27, 2014)]
[Notices]
[Pages 11152-11160]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04240]

[[Page 11152]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71596; File No. 4-668]

Joint Industry Plan; 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, 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, NYSE Arca, Inc. and Topaz 
Exchange, LLC; Order Approving Proposed National Market System Plan 
Governing the Process of Selecting a Plan Processor and Developing a 
Plan for the Consolidated Audit Trail

February 21, 2014.

I. Introduction

    On September 3, 2013, 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, 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, NYSE Arca, Inc., and Topaz 
Exchange, LLC (collectively, ``SROs'' or ``Participants'') filed with 
the Securities and Exchange Commission (``Commission'' or ``SEC'') 
pursuant to Section 11A of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 608 thereunder,\2\ a proposed National Market 
System (``NMS'') Plan Governing the Process of Selecting a Plan 
Processor and Developing a Plan for the Consolidated Audit Trail 
(``Plan'').\3\ The Participants requested that the Commission approve 
the Plan.\4\ The Plan was published for comment in the Federal Register 
on November 21, 2013.\5\ The Commission received six comment letters 
from five commenters in response to the proposal.\6\ On January 31, 
2014, the Participants to the Plan responded to the comment letters.\7\ 
This order approves the Plan.
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
    \3\ See letter to Elizabeth M. Murphy, Secretary, Commission, 
from the SROs dated August 23, 2013 (``Submission Letter'').
    \4\ Id. at 1.
    \5\ See Securities Exchange Act Release No. 70892 (November 15, 
2013), 78 FR 69910 (``Notice'').
    \6\ See letters to Elizabeth M. Murphy, Secretary, Commission, 
from Marcia E. Asquith, Senior Vice President and Corporate 
Secretary, Financial Industry Regulatory Authority, Inc. 
(``FINRA''), dated December 20, 2013 (``FINRA Letter''); from 
Anonymous (``Anonymous 1''), dated December 23, 2013 (``Anonymous 1 
Letter''); from Theodore R. Lazo, Managing Director and Associate 
General Counsel, Securities Industry and Financial Markets 
Association (``SIFMA''), dated December 23, 2013 (``SIFMA Letter''); 
from Manisha Kimmel, Executive Director, Financial Information Forum 
(``FIF''), dated December 23, 2013 (``FIF Letter''); Anonymous 
(``Anonymous 2''), dated December 23, 2013 (``Anonymous 2 Letter'') 
from Manisha Kimmel, Executive Director, FIF, dated January 24, 2014 
(``FIF Letter II'').
    FINRA notes that it has two roles with respect to the 
development of the consolidated audit trail: (1) A role as a 
Participant in developing the CAT NMS Plan (as defined below) (``SRO 
Side'') and (2) a role as an entity that has submitted an intent to 
submit a Bid (as defined below) in response to the RFP (as defined 
below) (``Bid Side''). FINRA notes that it has implemented a 
communications firewall between the SRO Side and the Bid Side, 
including policies and procedures designed to prevent the members of 
the SRO Side and the Bid Side from communicating with one another 
about non-public matters involving the consolidated audit trail. The 
FINRA Letter was submitted by the Bid Side. See FINRA Letter at 1.
    Copies of all comments received on the proposed Plan are 
available on the Commission's Web site, located at http://www.sec.gov/comments/4-668/4-668.shtml. Comments are also available 
for Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE., Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. ET.
    \7\ See letter to Elizabeth M. Murphy, Secretary, Commission, 
from the Participants, dated January 31, 2014 (``Response Letter'').
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II. Background

    On July 11, 2012, the Commission adopted Rule 613 under the Act to 
require the SROs to jointly submit an NMS plan (``CAT NMS Plan'') to 
create, implement, and maintain a consolidated order tracking system, 
or consolidated audit trail (``CAT''), with respect to the trading of 
NMS securities, that would capture customer and order event information 
for orders in NMS securities, across all markets, from the time of 
order inception through routing, cancellation, modification, or 
execution.\8\ Rule 613 outlines a broad framework for the creation, 
implementation, and maintenance of the consolidated audit trail, 
including the minimum elements the Commission believes are necessary 
for an effective consolidated audit trail. In instances where Rule 613 
sets forth minimum requirements for the consolidated audit trail, the 
Rule provides flexibility to the SROs to draft the requirements of the 
CAT NMS Plan in a way that best achieves the objectives of the Rule. 
Specifically, Rule 613 incorporates a series of twelve 
``considerations'' that the Participants must address in the CAT NMS 
Plan, including:
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    \8\ See Securities Exchange Act Release No. 67457 (July 18, 
2012), 77 FR 45722 (August 1, 2013) (``Adopting Release'').
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     The specific details and features of the CAT NMS Plan;
     The Participants' analysis of the CAT NMS Plan's costs and 
impact on Competition, efficiency, and capital formation;
     The process in developing the CAT NMS Plan;
     Information about the implementation of the CAT NMS Plan; 
and
     Milestones for the creation of the consolidated audit 
trail.\9\
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    \9\ See Rule 613(a)(1)(i)-(xii).
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    As part of the discussion of these ``considerations,'' the 
Participants must include cost estimates for the proposed solution, and 
a discussion of the costs and benefits of alternate solutions 
considered but not proposed.\10\ In addition, Rule 613 requires that 
the Participants: (1) Provide an estimate of the costs associated with 
creating, implementing, and maintaining the consolidated audit trail 
under the terms of the CAT NMS Plan submitted to the Commission for its 
consideration; (2) discuss the costs, benefits, and rationale for the 
choices made in developing the CAT NMS Plan submitted; and (3) provide 
their own analysis of the submitted CAT NMS Plan's potential impact on 
competition, efficiency, and capital formation.\11\ These detailed 
requirements are intended to ensure that the Commission and the public 
have sufficiently detailed information to carefully consider all 
aspects of the CAT NMS Plan ultimately submitted by the 
Participants.\12\
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    \10\ See Rule 613(a)(1)(vii); Rule 613(a)(1)(xii).
    \11\ See Rule 613(a)(1)(viii).
    \12\ See Adopting Release, supra note 8, at 45725.
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    In light of the numerous specific requirements of Rule 613, the 
Participants concluded that publication of a request for proposal 
(``RFP'') was necessary to ensure that potential alternative solutions 
to creating the consolidated audit trail can be presented and 
considered by the Participants and that a detailed and meaningful cost/
benefit analysis can be performed, both of which are required 
considerations to be addressed in the CAT NMS Plan.\13\ The 
Participants published the RFP on February 26, 2013, and requested that 
any potential

[[Page 11153]]

bidders notify the Participants of their intent to bid by March 5, 
2013. Thirty-one firms submitted an intent to bid in response to the 
publication of the RFP; four of the firms were Participants or 
Affiliates of Participants.\14\
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    \13\ See Submission Letter, supra note 3, at 3.
    \14\ Since that time, 13 firms--including two Participants and 
one Affiliate of a Participant--have formally notified the 
Participants that they will not submit bids as primary bidders. A 
list of firms that submitted an intent to bid is located on the 
Participants' Web site at www.catnmsplan.com (``CAT NMS Plan Web 
site''). According to the Plan, ``[a]n `Affiliate' of an entity 
means any entity controlling, controlled by, or under common control 
with such entity.'' See Section I(A) of the Plan.
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III. Description of the Proposal

    The Participants filed the Plan to govern how the SROs will proceed 
with formulating and submitting the CAT NMS Plan--and, as part of that 
process, how to review, evaluate, and narrow down the bids submitted in 
response to the RFP (``Bids'') \15\--and ultimately choosing the plan 
processor that will build, operate, and maintain the consolidated audit 
trail (``Plan Processor'').\16\
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    \15\ See Section I(C) of the Plan.
    \16\ See Submission Letter, supra note 3, at 4.
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A. Governance

    Section III of the Plan establishes the overall governance 
structure the Participants have chosen.\17\ Specifically, the 
Participants propose establishing an Operating Committee responsible 
for formulating, drafting, and filing with the Commission the CAT NMS 
Plan and for ensuring the Participants' joint obligations under Rule 
613 are met in a timely and efficient manner. As set forth in Section 
III(B) of the Plan, each Participant will select one individual and one 
substitute to serve on the Operating Committee; however, other 
representatives of each Participant are permitted to attend Operating 
Committee meetings. Section III of the Plan also establishes the 
procedures for the Operating Committee, including provisions regarding 
meetings, Participants' voting rights, and voting requirements.
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    \17\ Section I sets forth the definitions used throughout the 
Plan, and Section II lists the Participants and establishes the 
requirements for admission of new, or withdrawal of existing, 
Participants. Each currently approved national securities exchange 
and national securities association subject to Rule 613(a)(1) is a 
Participant in the Plan. Section II(B) of the Plan provides that any 
entity approved by the Commission as a national securities exchange 
or national securities association under the Act after the 
effectiveness of the Plan shall become a Participant by satisfying 
each of the following requirements: (1) effecting an amendment to 
the Plan by executing a copy of the Plan as then in effect (with the 
only change being the addition of the new Participant's name in 
Section II of the Plan) and submitting such amendment to the 
Commission for approval; and (2) providing each then-current 
Participant with a copy of such executed Plan.
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B. Conflicts of Interest

    The Participants recognize their important regulatory obligations 
with respect to the development of the CAT NMS Plan, and ultimately the 
creation and operation of the consolidated audit trail.\18\ However, 
they also recognize that Participants or Affiliates of Participants may 
also be Bidders seeking to serve as the Plan Processor or may be a 
subcontractor to Bidders seeking to serve as the Plan Processor.\19\ 
Accordingly, the Participants have sought to mitigate these potential 
conflicts of interest by including in the Plan multiple provisions, 
which are described below, designed to balance these competing factors. 
The Participants believe that the Plan achieves this balance by 
allowing all Participants to participate meaningfully in the process of 
creating the CAT NMS Plan and choosing the Plan Processor while 
imposing strict requirements to ensure that the participation is 
independent and that the process is fair and transparent.\20\
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    \18\ See Notice, supra note 5, at 69911.
    \19\ Id.
    \20\ Id.
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C. Plan Processor Selection Process

1. Bidder Shortlist Determination
    Sections V and VI of the Plan \21\ set forth the process for the 
Participants' evaluation, and narrowing down, of the Bids, and choosing 
the Plan Processor.\22\ Pursuant to these Sections, the evaluation of 
Bids and selection of the Plan Processor will be performed by a 
Selection Committee composed of one senior officer from each 
Participant (``Voting Senior Officer'').\23\ The SROs noted that, 
because of the potential conflicts of interest noted above, the Plan 
includes multiple requirements to increase the independence of the 
Voting Senior Officer who participates on the Selection Committee on 
behalf of a Bidding Participant.\24\ The criteria set forth in Section 
V(D) of the Plan include requirements concerning the Voting Senior 
Officer's job responsibilities, decision-making authority, and 
reporting, and require that the Bidding Participant establishes 
functional separation between its Plan responsibilities and its 
business/commercial (including market operations) functions. In 
addition, the criteria prohibit any disclosure of information regarding 
the Bid to the Voting Senior Officer and prohibit the Voting Senior 
Officer from disclosing any non-public information gained in his or her 
role as such. According to the SROs, these criteria are intended to 
insulate the Voting Senior Officer from any inside knowledge regarding 
the Bid (while also preventing any information about the evaluation 
process from being shared with staff preparing the Bidding 
Participant's Bid) and to reduce any potential personal motivation that 
may exist that could improperly influence a Voting Senior Officer's 
decisions.\25\
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    \21\ Section IV of the Plan governs amendments to the Plan. In 
general, except with respect to the addition of new Participants, 
any change to the Plan requires a written amendment that sets forth 
the change, is executed by over two-thirds of the Participants, and 
is approved by the Commission pursuant to Rule 608 of the Act or 
otherwise becomes effective under Rule 608.
    \22\ Initial steps in the evaluation and selection process will 
be performed pursuant to the Plan; the final two rounds of 
evaluation and voting, as well as the final selection of the Plan 
Processor, will be performed pursuant to the CAT NMS Plan. The 
sections of the CAT NMS Plan governing these final two voting rounds 
are set forth in Sections VI(D) and (E) of the Plan and will be 
incorporated into the CAT NMS Plan. The Participants believe it is 
essential that the entire process be laid out in the Plan so that 
the Commission can consider and approve the entire evaluation and 
selection process, even though the final two voting rounds, 
including the selection of the Plan Processor, will not be conducted 
until after the approval of the CAT NMS Plan. See Submission Letter, 
supra note 3, at 4.
    \23\ In the case of Affiliated Participants, one individual may 
be (but is not required to be) the Voting Senior Officer for more 
than one or all of the Affiliated Participants.
    \24\ The Plan defines a ``Bidding Participant'' broadly to 
include any Participant that: (1) submits a Bid; (2) is an Affiliate 
of an entity that submits a Bid; or (3) is included, or is an 
Affiliate of an entity that is included, as a Material Subcontractor 
as part of a Bid. See Section I(E) of the Plan. A ``Material 
Subcontractor'' is ``any entity that is known to the Participant to 
be included as part of a Bid as a vendor, subcontractor, service 
provider, or in any other similar capacity and, excluding products 
or services offered by the Participant to one or more Bidders on 
terms subject to a fee filing approved by the SEC, (1) is 
anticipated to derive 5% or more of its annual revenue in any given 
year from services provided in such capacity; or (2) accounts for 5% 
or more of the total estimated annual cost of the Bid for any given 
year.'' See Section I(J) of the Plan. The Plan provides that ``[a]n 
entity will not be considered a `Material Subcontractor' solely due 
to the entity providing services associated with any of the entity's 
regulatory functions as a self-regulatory organization registered 
with the SEC.'' See id.
    \25\ See Notice, supra note 5, at 69912. As described below, 
even with the independence criteria in place, the Plan also requires 
recusal by the Voting Senior Officer from certain votes.
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    Any action requiring a vote by the Selection Committee under the 
Plan can only be taken in a meeting in which all Participants entitled 
to vote are present.\26\ All votes taken by the Selection Committee are 
confidential and non-public, and a Participant's individual votes will 
not be disclosed to other Participants or to the public.\27\ For

[[Page 11154]]

this reason, the Plan provides that votes of the Selection Committee 
will be tabulated by an independent third party approved by the 
Operating Committee.\28\ Moreover, the Participants do not anticipate 
that aggregate votes or anonymized voting distribution numbers will be 
provided to the Participants following votes by the Selection 
Committee.\29\
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    \26\ See Section V(C)(1) of the Plan.
    \27\ See Section V(B)(4) of the Plan.
    \28\ Id.
    \29\ See Notice, supra note 5, at 69912.
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    The Plan divides the processes for review and evaluation of Bids, 
and selection of the Plan Processor, into four separate stages. After 
Bids are submitted,\30\ Section VI(A) of the Plan provides that the 
Selection Committee will review them to determine which are Qualified 
Bids (i.e., Bids that contain sufficient information to allow the 
Voting Senior Officers to meaningfully assess and evaluate them).\31\ 
At this initial stage, if two-thirds or more of the Participants 
determine that a Bid does not meet the threshold for a Qualified Bid, 
the Bid will be eliminated from further consideration. The Participants 
believe this initial step will ensure that only those Bids meeting a 
minimum level of detail and sufficiency will move forward in the 
process, and insufficient Bids can be eliminated.\32\
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    \30\ The Participants anticipate that Bids must be submitted 
four weeks after the Commission approves the Plan. See id.
    \31\ The Plan defines a Qualified Bid as ``a Bid that is deemed 
by the Selection Committee to include sufficient information 
regarding the Bidder's ability to provide the necessary capabilities 
to create, implement, and maintain a consolidated audit trail so 
that such Bid can be effectively evaluated by the Selection 
Committee.'' See Section I(Q) of the Plan. The Plan provides that, 
``[w]hen evaluating whether a Bid is a Qualified Bid, each member of 
the Selection Committee shall consider whether the Bid adequately 
addresses the evaluation factors set forth in the RFP, and apply 
such weighting and priority to the factors as such member of the 
Selection Committee deems appropriate in his or her professional 
judgment.'' See id.
    \32\ See Notice, supra note 5, at 69912.
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    Following the elimination of Bids that are not Qualified Bids, each 
Qualified Bidder will be provided the opportunity to present its Bid to 
the Selection Committee.\33\ After the Qualified Bidders have made 
their presentations, the Selection Committee will establish a subset of 
Bids that will move on in the process (``Shortlisted Bids'').\34\ The 
Plan provides that, if there are six or fewer Qualified Bids submitted, 
all of those Bids will be selected as Shortlisted Bids.\35\ If there 
are more than six but fewer than eleven Qualified Bids, the Selection 
Committee will choose five Shortlisted Bids, and, if there are eleven 
or more Qualified Bids, the Selection Committee will choose 50% of the 
Qualified Bids as Shortlisted Bids.\36\
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    \33\ See Section VI(B)(1) of the Plan.
    \34\ See Section VI(B)(2) of the Plan.
    \35\ See id.
    \36\ See Sections VI(B)(3)-(4) of the Plan. The Plan provides 
that, if there is an odd number of Qualified Bids, the number of 
Shortlisted Bids to be chosen will be rounded up to the next whole 
number (e.g., if there are thirteen Qualified Bids, seven 
Shortlisted Bids will be selected). See Section VI(B)(4) of the 
Plan. In the event of a tie to select the Shortlisted Bids, all such 
tied Qualified Bids will be Shortlisted Bids. See Section 
VI(B)(3)(c) of the Plan.
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    When voting to select the Shortlisted Bids from among the Qualified 
Bids, each Voting Senior Officer must rank his or her selections, and 
the points assigned to the rankings increase in single-point 
increments.\37\ Thus, for example, if five Shortlisted Bids are to be 
chosen, each Participant will vote for its top five choices in rank 
order, with the first choice being given five points, the second choice 
four points, the third choice three points, the fourth choice two 
points, and the fifth choice one point. The Plan also provides that at 
least two Non-SRO Bids must be included as Shortlisted Bids, provided 
there are two Non-SRO Bids that are Qualified Bids.\38\ According to 
the SROs, this provision further reduces the impact of potential 
conflicts of interest in choosing Shortlisted Bids.\39\ If, following 
the vote, no Non-SRO Bids have been selected as Shortlisted Bids, the 
Plan requires that the two Non-SRO Bids receiving the highest 
cumulative votes be added as Shortlisted Bids.\40\ If, in this 
scenario, a single Non-SRO Bid was a Qualified Bid, that Non-SRO Bid 
would be added as a Shortlisted Bid.\41\ The Participants believe 
selecting Shortlisted Bids is appropriate both to ensure that Bidders 
submit a complete and thorough Bid initially and so that Qualified 
Bidders will know whether they have a realistic opportunity to be 
selected as the Plan Processor after the CAT NMS Plan is approved.\42\
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    \37\ See Section VI(B)(3) of the Plan.
    \38\ Id. The Plan defines a ``Non-SRO Bid'' as ``a Bid that does 
not include a Bidding Participant.'' See Section I(L) of the Plan.
    \39\ See Notice, supra note 5, at 69912-13
    \40\ See Section VI(B)(3)(d) of the Plan.
    \41\ Id.
    \42\ See Notice, supra note 5, at 69912.
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2. Bid Revision and Selection of Plan Processor
    Following the selection of Shortlisted Bids, the Participants will 
identify the optimal proposed solution(s) for the consolidated audit 
trail for inclusion in the CAT NMS Plan for submission to the 
Commission.\43\ As a part of this process, and the overall review and 
evaluation of Shortlisted Bids, the Selection Committee may consult 
with the advisory committee required and established by Rule 613 
(``Advisory Committee''). If the Commission approves the CAT NMS Plan, 
the Selection Committee will determine, by majority vote, which 
Shortlisted Bidders will have the opportunity to revise their Bids in 
light of the provisions in the final, approved CAT NMS Plan.\44\ In 
making a decision whether to permit a Shortlisted Bidder to revise its 
Bid, the Selection Committee will consider the provisions in the CAT 
NMS Plan as well as the content of the Shortlisted Bidder's initial 
Bid. According to the SROs, to reduce potential conflicts of interest, 
the Plan also provides that, if a Bid submitted by or including a 
Bidding Participant or an Affiliate of a Bidding Participant is a 
Shortlisted Bidder, that Bidding Participant must recuse itself from 
all votes regarding whether a Shortlisted Bidder will be permitted to 
revise its Bid.\45\
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    \43\ See Submission Letter, supra note 3, at 7; Section VI(D) of 
the Plan.
    \44\ See Section IV(D)(1) of the Plan.
    \45\ See Notice, supra note 5, at 69913. See Section V(B)(2) of 
the Plan.
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    Section VI(E) provides that, after the permitted Shortlisted 
Bidders submit any revisions, the Selection Committee will select the 
Plan Processor from the Shortlisted Bids in two rounds of voting where, 
subject to the recusal provision described below, each Participant has 
one vote. In the first round, each Participant will select a first and 
second choice, with the first choice receiving two points and the 
second choice receiving one point. The two Shortlisted Bids receiving 
the highest cumulative scores in the first round will advance to the 
second round.\46\ In the event of a tie resulting in more than two 
Shortlisted Bids advancing to the second round, the tie will be broken 
by assigning one point per vote to the tied Shortlisted Bids, and the 
one with the most votes will advance. If this procedure fails to break 
the tie, a revote will be taken on the tied Shortlisted Bids with each 
vote receiving one point. If the tie persists, the Participants will 
identify areas for discussion, and revotes will be taken until the tie 
is broken.\47\
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    \46\ See Section VI(E)(3) of the Plan. Each round of voting 
throughout the Plan is independent of other rounds.
    \47\ Id.
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    Once two Shortlisted Bids have been chosen, the Participants will 
vote for a single Shortlisted Bid from the final two to determine the 
Plan Processor.\48\ If one or both of the final Bids is submitted by or 
includes a Bidding Participant or an Affiliate of a Bidding 
Participant, the Bidding Participant must recuse itself from the final 
vote.\49\ In the event of a

[[Page 11155]]

tie, a revote will be taken. If the tie persists, the Participants will 
identify areas for discussion and, following these discussions, revotes 
will be taken until the tie is broken.\50\ As set forth in Section VII 
of the Plan, following the selection of the Plan Processor, the 
Participants will file with the Commission a statement identifying the 
Plan Processor and including the information required by Rule 608.
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    \48\ See Section VI(E)(4)(b) of the Plan.
    \49\ See Section V(B)(2) of the Plan.
    \50\ See Section VI(E)(4)(c) of the Plan.
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D. Implementation

    The terms of the Plan will be operative immediately upon approval 
of the Plan by the Commission. The Participants have announced that 
Bids must be submitted four weeks after the Commission's approval of 
the Plan.\51\ The Participants will begin reviewing and evaluating the 
Bids pursuant to Section VI of the Plan upon receipt of the Bids, and 
anticipate that it will take seven months to evaluate the Bids and 
submit the CAT NMS Plan to the Commission pursuant to Sections VI(A) 
and (B) of the Plan.\52\ As noted above, upon approval of the CAT NMS 
Plan, the Plan will automatically terminate. The review of revised 
Shortlisted Bids and the selection of the Plan Processor will be 
undertaken as set forth in Sections VI(D) and (E) of the Plan as those 
sections are incorporated into the CAT NMS Plan.
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    \51\ See Notice, supra note 5, at 69913.
    \52\ Id.
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IV. Comment Letters and Response Letter

    The Commission received six comment letters from five commenters on 
the proposed Plan.\53\ Three of the commenters generally supported the 
Plan.\54\ All of the commenters had concerns with, and/or questions 
regarding, specific details on the terms of the Plan, collectively 
identifying three main issues--(1) industry participation in the 
evaluation of Bidders, the selection of the Plan Processor, and the 
drafting of the CAT NMS Plan; (2) transparency in SRO decision-making; 
and (3) conflicts of interest--and offering suggestions as to how those 
concerns and/or questions could be addressed.\55\ The Participants 
responded to the comments regarding the proposal.\56\
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    \53\ See supra note 6.
    \54\ See FINRA Letter at 1; SIFMA Letter at 1; FIF Letter at 1.
    \55\ See FINRA Letter at 1-2; Anonymous 1 Letter at 1; SIFMA 
Letter at 1; FIF Letter at 1-2; Anonymous 2 Letter at 1; FIF Letter 
II at 2-3.
    \56\ See Response Letter, supra, note 7.
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A. Industry Participation

    As proposed in the Plan, only the SROs will participate in the 
selection process, and they may consult with the Advisory Committee 
when reviewing and evaluating the Shortlisted Bids.\57\ Three 
commenters believe that industry participation in the selection process 
is important, and they suggest varying solutions to ensure that such 
participation is required by the Plan.\58\
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    \57\ See Sections II and VI(D)(2) of the Plan.
    \58\ See SIFMA Letter; FINRA Letter; and FIF Letter.
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    One commenter states that the process should include the integrated 
involvement and meaningful participation of representatives of the 
broker-dealer community.\59\ Specifically, the commenter states that 
there should be public representation on the Operating Committee, and 
that non-SRO, industry members should be involved in the evaluation of 
Bidders and the selection of the Plan Processor.\60\ The commenter 
believes that ``[t]he unique expertise and insight of the broker-dealer 
community complements that of the SROs and would bring the perspective 
of the entities that will be providing the `lion's share' of the 
reported data to the CAT.'' \61\ This commenter additionally recommends 
that the Participants amend the Plan to establish the Advisory 
Committee as part of this Plan, as opposed to waiting for the 
submission of the CAT NMS Plan, with safeguards and procedural 
protections to assure that the SROs fully consider the views of the 
committee.\62\ Another commenter states that it supports consultation 
with the Advisory Committee as part of the selection process so long as 
safeguards are put in place to ensure the confidentiality of the 
Bidders' information is protected.\63\ A third commenter believes that 
the Advisory Committee's scope of participation is extremely limited 
and should be expanded and it recommends that the SROs should be 
required to consult the Advisory Committee when reviewing the 
Shortlisted Bids to select the Plan Processor.\64\
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    \59\ See SIFMA Letter at 1.
    \60\ Id. at 2-4.
    \61\ Id. at 3.
    \62\ Id. at 4-5. In particular, the commenter suggests that the 
Plan should require the SROs: (1) to document and provide the 
Advisory Committee with a written statement, explaining the reasons 
for any SRO rejection of a written recommendation submitted by the 
committee; and (2) to prepare agendas for meetings and provide 
documents to be discussed at the meetings in advance to give 
committee members sufficient time to analyze information and 
formulate views. Id.
    \63\ See FINRA Letter at 4. The commenter requests clarification 
on whether members of the Advisory Committee would be required to 
sign a non-disclosure agreement (``NDA'') if they are given access 
to confidential information as part of any consultation with the 
Selection Committee. Id. at 3-4.
    \64\ See FIF Letter at 4.
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    In response to these comments, the SROs indicate how the Operating 
Committee has provided, and will continue to provide, for industry 
participation in the development of the CAT NMS Plan.\65\ In response 
to the comment that Advisory Committee consultation should be mandatory 
as part of the review of Shortlisted Bidders, the SROs noted that they 
will consult proactively with the industry for input on key aspects of 
the Bids, so long as the selection process is not impaired, especially 
with regard to maintaining Bidder confidential information.\66\ The 
SROs also note that they created the CAT Development Advisory Group 
(``DAG'') and that the DAG has been, and will continue to be, a 
valuable source of input for the development of the CAT NMS Plan.\67\ 
The SROs state that they will continue to engage the industry on key 
topics pertaining to aspects of the Bids that directly affect the 
industry.\68\ The SROs further state that, after Bids are received in 
response to the RFP, they are committed to providing the DAG with 
anonymized information taken from Bids that will provide the DAG 
members with enough specificity to allow them to understand the 
comparative advantages and disadvantages of the options being 
considered by the SROs, so that they can contribute in a meaningful way 
to the SROs' analysis of such information.\69\ The SROs further note 
that they intend to work with the DAG to identify the particular 
sections of the RFP that will benefit from industry input during the 
evaluation of Bids.\70\

[[Page 11156]]

The SROs also explain that they understand that broad industry input 
during the development of the CAT NMS Plan is critical to selecting 
optimal proposed solutions, and that they will continue to hold 
discussions with the DAG at the greatest level of detail possible 
without compromising a fair selection process and confidential Bid 
information.\71\
---------------------------------------------------------------------------

    \65\ See Response Letter, supra note 7, at 2-4.
    \66\ Id. The SROs, however, note that the creation of the 
Advisory Committee that is required by Rule 613(b)(7) (``Rule 613 
Advisory Committee'') is not germane to the Plan. The SROs state 
that the requirement in Rule 613(b)(7) is that the CAT NMS Plan 
establish an Advisory Committee to advise the SROs on the 
implementation, operation and administration of the consolidated 
audit trail. The SROs then state that the Rule 613 Advisory 
Committee will be established in the CAT NMS Plan, and that the CAT 
NMS Plan will provide specifics as to the role of the Rule 613 
Advisory Committee in the process of reviewing and evaluating Bids. 
Id. at 2.
    \67\ Id. at 2-4. The SROs also note their previous engagement 
with industry through posting industry questions on the CAT NMS Plan 
Web site and conducting open meetings. Id. at n.5.
    \68\ Id. at 2.
    \69\ Id. at 3. The SROs note that this information sharing will 
occur only after executed NDAs are in place with the appropriate 
industry members. Id. at n. 7.
    \70\ Id. at 3.
    \71\ Id.
---------------------------------------------------------------------------

B. Transparency

    Several commenters stress the importance of transparency in the 
Bidder selection process and the standards the SROs will employ for 
review of Bids.\72\ One commenter states that the Commission should not 
approve the Plan unless it is amended to provide public disclosure of 
the selection process.\73\ The commenter recommends that the SROs 
publish the Bidders and the contents of the Bids, explaining that the 
Bids should be available to the public to inform the discussion 
regarding the costs and benefits, and technological feasibility of 
different solutions.\74\ The commenter believes that these responses to 
the RFP and the SROs' rationale for eliminating them from consideration 
as the Plan Processor will be important for the industry to consider in 
commenting on the CAT NMS Plan.\75\
---------------------------------------------------------------------------

    \72\ See FINRA Letter at 1-2; SIFMA Letter at 1-3; FIF Letter at 
2-3; FIF Letter II at 2.
    \73\ See SIFMA Letter at 3.
    \74\ Id. at 2.
    \75\ Id.
---------------------------------------------------------------------------

    Another commenter recommends that the SROs share information 
contained in the Bids, specifically relating to the functions and 
interfaces of the entities (i.e., broker-dealers and SROs) that are 
required to report to the CAT (``CAT Reporters''), so that the industry 
can provide feedback to the SROs for assessment of Bidder 
responses.\76\ The commenter believes that broad input from the DAG 
during the CAT NMS Plan development process is critical to ensure that 
the SROs consider issues from the CAT Reporter perspective.\77\ The 
commenter maintains that this information would represent an external 
description of the Plan Processor and should not require any disclosure 
of internal implementations or proprietary information from the 
Bidders.\78\ Further, the commenter argues that this level of 
information will be public information once the CAT NMS Plan is 
published as Rule 613 requires that the CAT NMS Plan be sufficiently 
detailed to describe the alternatives to the solution selected by the 
SROs.\79\ The commenter also argues that because Bids cannot be revised 
prior to the submission of the CAT NMS Plan pursuant to the proposed 
Plan, information leakage should not be a concern.\80\
---------------------------------------------------------------------------

    \76\ See FIF Letter at 2-3; and FIF Letter II at 2-3.
    \77\ See FIF Letter II at 3.
    \78\ See FIF Letter at 3.
    \79\ See FIF Letter II at 2-3.
    \80\ Id. at 2.
---------------------------------------------------------------------------

    The commenter also opines that if the SROs deem it necessary to 
require DAG members to sign NDAs in order to share confidential 
portions of Bidders' responses, any such NDAs should be targeted and 
finite in nature, specifically noting that DAG discussions on CAT 
Reporter functionality should not be subject to an NDA.\81\ The 
commenter states that only confidential portions of Bids should be 
covered by NDAs, and that to the greatest extent possible, information 
relating to Bidders' responses should be publicly available to 
facilitate critical outreach from the DAG.\82\
---------------------------------------------------------------------------

    \81\ See FIF Letter II at 3.
    \82\ Id.
---------------------------------------------------------------------------

    In response to these comments, the SROs state that they do not 
intend to publish the content of the Bids in order to manage a fair 
process and to address Bidders' concerns regarding the confidentiality 
of proprietary and other sensitive information during the selection 
process.\83\ The SROs represent that this is standard industry 
practice.\84\ The SROs further indicate that, as required by Rule 613, 
the CAT NMS Plan submitted will discuss appropriate and anonymized 
elements of the Bids that were not selected, including the relative 
advantages and disadvantages of each solution, an assessment of the 
costs and benefits, and the basis upon which the SROs selected the 
optimal proposed solutions in the CAT NMS Plan.\85\ The SROs also note 
that the CAT NMS Plan will be subject to notice and comment.\86\ 
However, the SROs state that they will seek industry feedback on 
proposed approaches and key themes of the RFP responses.\87\
---------------------------------------------------------------------------

    \83\ See Response Letter, supra note 7, at 9.
    \84\ Id.
    \85\ Id.
    \86\ Id.
    \87\ Id. at 8.
---------------------------------------------------------------------------

    The SROs also state that, prior to any consultation with the 
Advisory Committee or the DAG about information contained in a Bid, the 
SROs will require the execution of an NDA.\88\ In response to the 
comment regarding the scope of NDAs, the SROs state that NDAs will be 
appropriately drafted to protect confidential information while 
allowing for meaningful discussion between the SROs and members of the 
Advisory Committee or the DAG.\89\
---------------------------------------------------------------------------

    \88\ Id.
    \89\ Id.
---------------------------------------------------------------------------

    Three commenters recommend that the selection criteria used to 
evaluate the Bids be publicly available.\90\ Specifically, one 
commenter states that, if the evaluation criteria are thorough and 
known to all parties (i.e., SROs, Bidders, the industry and the 
Commission), the process will be more transparent and fair.\91\ This 
commenter suggests that the evaluation process and criteria used in the 
final two rounds of voting be published prior to each round of voting, 
or at a minimum reviewed with the industry via the DAG.\92\ Another 
commenter requests clarification regarding the criteria that Voting 
Senior Officers will employ when reviewing and ranking Bids, both when 
selecting the Shortlisted Bids from the Qualified Bids and when 
selecting the Plan Processor from the Shortlisted Bids.\93\ A third 
commenter suggests that the SROs should publish information about the 
results of each round of voting (e.g., the total votes received by each 
Bidder or a ranking of the Bidders by voting result).\94\
---------------------------------------------------------------------------

    \90\ See FINRA Letter at 2; SIFMA Letter at 3; FIF Letter at 2.
    \91\ See FIF Letter at 2.
    \92\ Id.
    \93\ See FINRA Letter at 2.
    \94\ See SIFMA Letter at 3.
---------------------------------------------------------------------------

    In response to these comments, the SROs agree to publish more 
detailed descriptions of the evaluation criteria listed in the RFP, 
which will be used by each SRO as a guideline when evaluating Bids.\95\ 
The SROs note that the evaluation criteria can be broadly grouped into 
the following five areas: (1) technical architecture, (2) operations--
technical (processing capability), (3) operations--non-technical, (4) 
company information, and (5) contract and terms. The SROs further 
provide lists of criteria within each of the five areas in the Response 
Letter.\96\ The SROs explain that each SRO's assessment will be 
informed by the defined criteria noted above but that an individual SRO 
may determine that other factors are important in making its 
independent evaluation of a Bid.\97\ The SROs do not intend to publish 
voting results.\98\ The SROs state that this approach is considered 
standard industry practice and there is no articulated benefit to 
making this information publicly available. The SROs state that they 
are concerned that the public disclosure of such information may 
incorrectly and

[[Page 11157]]

inaccurately suggest the relative strength of a particular Bid without 
any meaningful context.\99\
---------------------------------------------------------------------------

    \95\ See Response Letter, supra note 7, at 4.
    \96\ Id. at 4-5.
    \97\ Id. at 5.
    \98\ Id. at 9.
    \99\ Id.
---------------------------------------------------------------------------

    One commenter recommends that the minutes of the SRO Operating 
Committee meetings be made public, in order to further increase 
transparency and serve as a communications vehicle for informing the 
industry of the CAT governance actions and decisions.\100\ In response 
to this comment, the SROs indicate that the Operating Committee meeting 
minutes will not be made public either prior to or after approval of 
the CAT NMS Plan.\101\ The SROs state that, in managing a fair process 
and maintaining Bidder confidentiality as provided for in the NDA 
executed with the Bidders, the SROs will not publish Operating 
Committee minutes during the Bid evaluation and selection process.\102\ 
The SROs believe that this approach encourages effective and critical 
review of the Bids as well as open and frank discussions in light of 
all material considerations, including timing and complexity.\103\ The 
SROs explain that the decisions made by the Operating Committee 
regarding aspects of the Bids will be reflected in the CAT NMS Plan, 
which will be open to public comment, and will include an analysis of 
both the optimal proposed solutions and those solutions not selected, 
thus providing the public with the opportunity to consider the SROs' 
decisions.\104\ The SROs further state that, once the CAT NMS Plan has 
been approved and the Advisory Committee has been established, members 
of that committee will have the right to attend CAT management 
committee meetings, except for executive sessions, and, as such, will 
have access to the minutes from such meetings, as well as the right to 
receive information concerning the operation of the central repository 
and to provide their views to the SROs.\105\
---------------------------------------------------------------------------

    \100\ See FIF Letter at 2.
    \101\ See Response Letter, supra note 7, at 10.
    \102\ Id.
    \103\ Id.
    \104\ Id.
    \105\ Id. The SROs state, however, that consistent with standard 
industry practices, the SROs will not share the minutes with the 
industry as a whole. Id.
---------------------------------------------------------------------------

    Finally, one commenter requests clarification on whether the 
optimal proposed solutions for the CAT NMS Plan will be the product of 
an individual Bid or a composite of select portions of multiple 
Bids.\106\ If it will be the latter, the commenter questions how the 
SROs will determine the costs and benefits of such solutions.\107\ In 
response to this comment, the SROs clarify that the optimal proposed 
solutions could include approaches from different Bids in order to 
identify a solution that best meets the requirements of Rule 613.\108\ 
The SROs recognize that there may be inherent challenges in combining 
elements of separate solutions, but they want to ensure the flexibility 
in the evaluation process to identify a holistic solution that is 
better suited to meet the requirements of Rule 613, while not being 
limited to the components of any individual Bid.\109\ The SROs intend 
to consult with the DAG and the industry as part of the review of 
anonymized solutions from the Bids, including, but not limited to, 
requesting input on the technical and operational specifications of the 
proposed solutions, and the associated cost-benefit analysis.\110\
---------------------------------------------------------------------------

    \106\ See FIF Letter at 2.
    \107\ Id.
    \108\ See Response Letter, supra note 7, at 8.
    \109\ Id.
    \110\ Id. at 4.
---------------------------------------------------------------------------

C. Conflicts of Interest

    Two commenters express concerns that the provisions in the Plan 
that are intended to address conflicts of interest are 
insufficient.\111\ One commenter questions the genuineness of the 
separation through firewalls within the SROs intended to segregate 
individuals participating in the selection process from those 
participating in the bidding process.\112\ The commenter also expresses 
concern that it is challenging to enforce and monitor such 
restrictions.\113\ The commenter further recommends that the Plan 
either limit the Bidders to non-SROs or only to SROs.\114\ Another 
commenter recommends that the Plan require Bidding Participants to be 
recused from both rounds of voting on Shortlisted Bids, not just the 
second round of voting to select the Plan Processor.\115\
---------------------------------------------------------------------------

    \111\ See Anonymous 1 Letter at 1; Anonymous 2 Letter at 1.
    \112\ See Anonymous 1 Letter at 1.
    \113\ Id.
    \114\ Id.
    \115\ See Anonymous 2 Letter at 1. The commenter has submitted 
an intent to bid on the RFP. Id.
---------------------------------------------------------------------------

    In response to these comments, the SROs note the important 
regulatory obligations that exist for each of them with respect to the 
creation and operation of the CAT, and that it is essential that each 
one contribute to the development of the CAT NMS Plan and the selection 
of the Plan Processor.\116\ However, the SROs recognize that SROs or 
Affiliates of SROs may also be Bidders seeking to serve as the Plan 
Processor or may be included as part of a Bid.\117\ The SROs represent 
that they have sought to mitigate these potential conflicts of interest 
by including in the Plan multiple provisions designed to balance these 
competing factors, and have established information barriers, which 
they believe are sufficient to maintain functional separation between 
employees representing a specific SRO as part of the consortium 
planning the CAT and employees developing Bids.\118\ The SROs state 
that the implementation of information barriers is considered a 
standard industry practice for mitigating the risks of conflicts of 
interests.\119\ The SROs continue to believe that the Plan achieves 
this balance by allowing all SROs to participate meaningfully in the 
process of creating the CAT NMS Plan and choosing the Plan Processor, 
while imposing strict requirements to ensure that the participation is 
independent and that the process is fair and transparent.\120\
---------------------------------------------------------------------------

    \116\ See Response Letter, supra note 7, at 7.
    \117\ Id.
    \118\ Id.
    \119\ Id.
    \120\ Id.
---------------------------------------------------------------------------

    Distinct from the concern regarding potential conflicts of interest 
arising from an SRO that is also a Bidder, one commenter suggests that 
the Plan or NDA should be amended to require, even for SROs that are 
not Bidders or Affiliates of Bidders, the functional separation of 
employees representing an SRO for purposes of the selection process and 
its business or commercial functions to safeguard against misuse of 
Bidders' confidential information.\121\
---------------------------------------------------------------------------

    \121\ See FINRA Letter at 4.
---------------------------------------------------------------------------

    The SROs state that, although the Bidding Participants are required 
to maintain the functional separation suggested by the commenter, it 
will not be practical for all other SROs to isolate their employees 
that participate in the Bid evaluation and selection process, as 
varying skillsets will be required to fully evaluate the Bids, and many 
SROs are faced with resource constraints that would make them unable to 
wall off certain personnel without either decreasing the expertise 
available to evaluate Bids or having inadequate resources to manage 
their business/commercial functions.\122\ While the SROs state that it 
is not practical to isolate non-Bidding SRO employees participating in 
the Bid evaluation and selection process from other SRO employees, they 
represent that, to protect Bidders' confidential information, all SROs 
will adhere to the section of the NDA executed with Bidders that 
restricts the distribution and use of Bid information by SROs,

[[Page 11158]]

their affiliates, agents, advisors, and contractors by obligating such 
parties:
---------------------------------------------------------------------------

    \122\ Id.

    (i) to hold the Disclosing Party's Confidential Information in 
strict confidence and to protect such Confidential Information from 
disclosure to others (including, without limitation, all precautions 
the Receiving Party employs with respect to its own Confidential 
Information), (ii) no [sic] to divulge any such Confidential 
Information . . . other than to its Representatives for the purpose 
of assisting the Receiving Party with respect to the CAT NMS 
Selection Process, and (ii) [sic] not to make use whatsoever at any 
time of Confidential Information except to evaluate and discuss the 
CAT NMS Selection Process . . . the Receiving Party shall ensure 
that its Representatives comply with this Agreement as if they were 
parties to this Agreement.\123\
---------------------------------------------------------------------------

    \123\ See Response Letter, supra note 7, at 10-11.
---------------------------------------------------------------------------

D. Other Issues

1. Revision of Bids
    The proposed Plan provides that, following approval of the CAT NMS 
Plan, upon a majority vote of the Selection Committee, Shortlisted 
Bidders will be permitted to revise their Bids provided that revisions 
are necessary or appropriate in light of the Shortlisted Bidder's 
initial Bid and the provisions in the approved CAT NMS Plan. One 
commenter recommends that the Selection Committee instead should only 
allow revised Bids: (1) After the first round of voting on the 
Shortlisted Bidders, at which time the list of Bidders would be 
narrowed to two; and (2) only for the purposes of confirming that the 
final two Bidders have proposals that meet the requirements of the 
approved CAT NMS Plan.\124\ The commenter also believes that, if 
revisions would require material changes to the Bid of either of the 
two remaining Bidders, both Bidders should be permitted to revise their 
Bids.\125\ This commenter is concerned that allowing Bidders to revise 
their Bids too early in the selection process could materially impact 
the depth and breadth of information that Bidders are willing to 
provide in their initial Bids.\126\ Under the Plan as proposed, the 
commenter believes that Bidders will not have a strong incentive to put 
forth their best ideas, processes, systems, and methods in response to 
the initial RFP, and will include only enough information to meet the 
Qualified Bidder threshold.\127\ Contrary to this position, another 
commenter believes that all Bidders should be permitted to revise their 
Bids, based on the provisions contained in the approved CAT NMS Plan, 
and recommends removing the requirement that the Selection Committee 
grant permission to revise Bids.\128\
---------------------------------------------------------------------------

    \124\ See FINRA Letter at 2-3.
    \125\ Id at 3.
    \126\ Id at 3.
    \127\ Id.
    \128\ See FIF Letter at 4.
---------------------------------------------------------------------------

    In response to these comments, the SROs state that they recognize 
the value of allowing the Shortlisted Bidders to revise their Bids and 
expect that including this component in the Plan will result in better 
quality and more comprehensive Bids from all Bidders.\129\ Further, the 
SROs note that preserving their discretion to limit revision of Bids is 
important, particularly in the instance where there are six or fewer 
Bidders, all of whom would automatically become Shortlisted 
Bidders.\130\ The SROs believe that without SRO discretion to determine 
which Bidders can revise their Bids, Bidders may not provide detailed 
information in their initial Bids, but will await the final structure 
of the CAT NMS Plan to provide full information in their revised 
Bids.\131\ Therefore, the SROs believe they need discretion to not 
allow a Shortlisted Bidder to revise its Bid if the initial Bid did not 
clearly communicate a cogent, workable plan and evidence the ability to 
execute the plan.\132\ Accordingly, the SROs will assess whether 
revisions are necessary or appropriate in light of the content of the 
Shortlisted Bidder's initial Bid and the provisions of the approved CAT 
NMS Plan.\133\ More specifically, the SROs anticipate permitting 
revision of Bids where the initial Bid clearly communicated a feasible 
CAT approach and showed a substantial likelihood that the Bidder could 
implement the approach contained in the approved CAT NMS Plan.\134\ The 
SROs believe this is consistent with standard industry practices when 
managing an RFP process.\135\
---------------------------------------------------------------------------

    \129\ See Response Letter, supra note 7, at 6.
    \130\ Id.
    \131\ Id.
    \132\ Id.
    \133\ Id.
    \134\ Id.
    \135\ Id.
---------------------------------------------------------------------------

2. Timing
    Two commenters express concerns with timing related to the 
selection process.\136\ One commenter takes issue with the due date for 
Bids in response to the RFP being four weeks after approval of this 
Plan.\137\ Specifically, the commenter believes that Bidding 
Participants are likely to have information about the final selection 
process and associated timeline for approval before it is made publicly 
available, and that Bidders must have adequate time to modify their 
Bids to reengage subcontractors and product/service providers, as well 
as to update prices for technology components.\138\ Accordingly, the 
commenter recommends that the due date for Bids in response to the RFP 
be 12 weeks after approval of the Plan.\139\ Another commenter does not 
believe that two months after effectiveness of the CAT NMS Plan is 
sufficient time for the SROs to select a Plan Processor from among the 
Shortlisted Bidders, particularly if there are significant changes from 
the proposed and approved CAT NMS Plan.\140\ The commenter recommends a 
four- to six-month period to allow the Shortlisted Bidders time to 
revise their Bids to reflect the approved CAT NMS Plan, and to allow 
the SROs time to consider the Bids and seek industry and technical 
expertise to aid their evaluation process.\141\
---------------------------------------------------------------------------

    \136\ See Anonymous 2 Letter at 1; FIF Letter at 5.
    \137\ See Anonymous 2 Letter at 1.
    \138\ Id.
    \139\ Id.
    \140\ See FIF Letter at 5.
    \141\ Id.
---------------------------------------------------------------------------

    In response to the comment regarding the due date for Bids, the 
SROs indicate that the anticipated deadline four weeks after the 
approval of the Plan is based on the current requirement to submit the 
CAT NMS Plan by September 30, 2014.\142\ However, the SROs note that, 
if the approved Plan has a material impact on the Bidders' ability to 
respond to the RFP, then the due date may be extended.\143\ In response 
to the comment regarding the timeframe to select the Plan Processor, 
the SROs note that that requirement is mandated by Rule 613(a)(3)(i) 
and that they hope to meet the deadline.\144\ Going forward, the SROs 
indicate that they will continue to evaluate whether, and how much, 
additional time they may be required to seek from the Commission for 
the selection of the Plan Processor.\145\
---------------------------------------------------------------------------

    \142\ See Response Letter, supra note 7, at 11-12.
    \143\ Id. at 12. Any such changes to the due date will be 
communicated to Bidders as soon as such a decision is made. Id.
    \144\ Id. at 11.
    \145\ Id.
---------------------------------------------------------------------------

3. Quorum Standard
    One commenter is concerned that the quorum standard for the 
Selection Committee is too difficult and could lead to delays.\146\ 
Specifically, the commenter notes that each SRO's Voting Senior Officer 
is a very unique employee and is concerned that such individuals may 
not always be available for meetings of the Selection

[[Page 11159]]

Committee.\147\ The commenter further believes that, because all Voting 
Senior Officers are required to be present in order to have a quorum of 
the Selection Committee, delays in the evaluation and voting procedures 
could occur.\148\ Consequently, the commenter recommends that an 
alternate member, with less stringent qualifications, be considered as 
a voting substitute for the Voting Senior Officer, but any actions 
taken by the voting substitute would continue to be the direct 
responsibility of the Voting Senior Officer.\149\
---------------------------------------------------------------------------

    \146\ See FIF Letter at 2.
    \147\ Id.
    \148\ Id.
    \149\ Id.
---------------------------------------------------------------------------

    In response to this comment, the SROs state that they will ensure 
that all Voting Senior Officers will be in attendance for all voting 
processes as part of the Plan Processor selection, either in person or 
telephonically, as permitted under operation of the CAT beyond the 
selection of the Plan Processor.\150\ The SROs further indicate that 
the Plan does not affect the operation of the CAT beyond the selection 
of the Plan Processor, and, as such, the SROs will include additional 
personnel with voting rights as part of the broader governance of the 
CAT.\151\
---------------------------------------------------------------------------

    \150\ See Response Letter, supra note 7, at 7.
    \151\ Id. at 7-8.
---------------------------------------------------------------------------

4. Information Sharing
    Another commenter expresses a concern related to information 
sharing with Bidders.\152\ Specifically, the commenter believes that 
some Bidders may be affiliated or associated with members of the DAG 
and, therefore, may have access to information relating to DAG 
discussions that other Bidders do not.\153\ The commenter further 
believes that all Bidders should have uniform information relating to 
DAG discussions and recommends that a formal process be developed under 
which the SROs disseminate information to all Bidders relating to DAG 
discussions that are relevant to the Bidding process.\154\ Another 
commenter similarly stated that the Bidders and all other interested 
parties should have access to DAG discussions.\155\ The commenter 
recommended that all DAG meeting materials and minutes could be posted 
on the CAT NMS Plan Web site to achieve this goal.\156\
---------------------------------------------------------------------------

    \152\ See FINRA Letter at 4.
    \153\ Id.
    \154\ Id at 4-5.
    \155\ See FIF Letter II at 2.
    \156\ Id.
---------------------------------------------------------------------------

    In response to the concern that some Bidders will have access to 
the DAG discussions while others will not, the SROs state that, prior 
to consultation on any aspect of information included in a Bid, the 
SROs intend to require the execution of NDAs by members of the Advisory 
Committee or the DAG, thus facilitating communication and mitigating 
the confidentiality risks of proprietary Bidder information.\157\ 
Additionally, the SROs indicate that it will be a requirement that no 
member of the Advisory Committee or the DAG will have affiliations with 
Bidding entities, unless such members have functional separation 
between their representatives on the DAG and their representatives 
involved with entities preparing or participating in a Bid similar to 
those restrictions imposed on Bidding SROs under Section V(D) of the 
Plan.\158\
---------------------------------------------------------------------------

    \157\ See Response Letter, supra note 7, at 8.
    \158\ Id. at 9.
---------------------------------------------------------------------------

    In response to comments recommending the dissemination of DAG 
materials, the SROs state that they are committed to holding an open 
dialogue with industry members during the development of the CAT NMS 
Plan and will host additional industry outreach events to communicate, 
among other updates, decisions and ongoing discussion topics from DAG 
meetings.\159\ The SROs state that they will post to the CAT NMS Plan 
Web site those materials from DAG discussions that are deemed to be 
non-confidential information regarding the CAT NMS Plan development and 
Bidder evaluation process, such as gap analyses regarding the 
sunsetting of existing regulatory systems.\160\ However, the SROs state 
that not all DAG materials will be posted to the Web site in order to 
safeguard confidential information and maintain a fair process.\161\
---------------------------------------------------------------------------

    \159\ Id. at 9.
    \160\ Id.
    \161\ Id.
---------------------------------------------------------------------------

V. Discussion and Commission Findings

    After carefully considering the proposed Plan, the issues raised by 
the comment letters, and the Response Letter, including the commitments 
contained therein, the Commission has determined to approve the Plan 
pursuant to Section 11A(a)(3)(B) of the Act \162\ and Rule 608,\163\ in 
that it is necessary or appropriate in the public interest, for the 
protection of investors and the maintenance of fair and orderly 
markets, to remove impediments to, and perfect the mechanism of, a 
national market system.\164\ Rule 613 mandates that the SROs develop 
the CAT NMS Plan, and the SROs have voluntarily filed this Plan for the 
purpose of facilitating that development. The Commission believes the 
Plan is reasonably designed to govern the process by which the SROs 
will formulate and submit the CAT NMS Plan, including the review, 
evaluation, and narrowing down of Bids in response to the RFP, and 
ultimately choosing the Plan Processor that will build, operate, and 
maintain the consolidated audit trail. The Commission believes that the 
Plan should thereby help promote the goals of investor protection, and 
fair and orderly markets, by describing the process of developing the 
CAT NMS Plan, selecting a Plan Processor, and ultimately creating the 
consolidated audit trail, which will substantially enhance the ability 
of the SROs and the Commission to oversee today's securities markets 
and fulfill their responsibilities under the federal securities laws.
---------------------------------------------------------------------------

    \162\ 15 U.S.C. 78k-1(a)(3)(B).
    \163\ 17 CFR 242.608. In approving this Plan, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \164\ 17 CFR 242.608(b)(2). See also 15 U.S.C. 78k-1(a).
---------------------------------------------------------------------------

    The Commission notes that, in response to the comments regarding 
industry participation in the selection process,\165\ the SROs state 
that the DAG is a valuable source of input for the development of the 
CAT NMS Plan, and commit to provide the DAG with anonymized information 
taken from Bids with enough specificity to allow the DAG to understand 
the comparative advantages and disadvantages of the options being 
considered so that the DAG can contribute in a meaningful way to the 
SROs' analysis of Bid information.\166\ The SROs also commit to 
continue to work with the DAG to identify the particular sections of 
the RFP that will benefit from industry input, and to solicit the views 
of the DAG and the industry for the required cost-benefit analysis, 
while adhering to their responsibility to maintain the confidentiality 
of the Bid submissions.\167\ The Commission believes that such an 
ongoing and open dialogue between the SROs and the DAG during the 
selection process is appropriate, and will facilitate the drafting of a 
detailed and thoughtful CAT NMS Plan, as contemplated by Rule 613. The 
Commission encourages the SROs to consult with and utilize the DAG to 
inform their decision making processes.
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    \165\ See SIFMA Letter at 1-5; FINRA Letter at 4; and FIF Letter 
at 4.
    \166\ See Response Letter, supra note 7, at 2-4.
    \167\ Id.

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[[Page 11160]]

    With respect to the comments on the transparency of the selection 
process,\168\ the SROs reiterate their commitment to provide 
transparency to the industry during the selection process and 
thereafter, and agree to provide more detailed descriptions of their 
evaluation criteria in the RFP.\169\ The SROs, however, recognize the 
need to balance full transparency with Bidder concerns about the 
confidentiality of proprietary information, in addition to more general 
concerns about inhibiting an open dialogue during the decision-making 
process. In light of these concerns, the SROs decline to publish the 
contents of the Bids, the Operating Committee minutes, or the SRO 
voting results.\170\ The Commission believes in the importance of a 
transparent process with respect to the development of the CAT NMS Plan 
and to the selection of a Plan Processor, but at the same time 
recognizes the legitimate concerns of Bidders regarding the 
confidentiality of proprietary and other sensitive information, and the 
desire by the SROs to encourage Bidders to provide sufficiently 
detailed Bids to facilitate the development of a robust CAT NMS Plan. 
The Commission believes that the SROs have appropriately balanced these 
competing goals as described above.
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    \168\ See FINRA Letter at 1-2; SIFMA Letter at 1-3; FIF Letter 
at 2-3.
    \169\ See Response Letter, supra note 7, at 4-5.
    \170\ Id. at 9-10. The Commission further notes that keeping 
voting information non-public can help address conflicts of interest 
by limiting the ability of outsiders to observe and reward certain 
voting behavior.
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    To address concerns regarding potential conflicts of interest in 
the selection process,\171\ the SROs included in the Plan multiple 
provisions that are intended to balance the need for SROs to 
participate in the process given the important regulatory obligations 
that exist for each of them with respect to the creation and operation 
of the CAT, with the potential for conflicts of interest that can arise 
when an SRO is a Bidding Participant.\172\ The Commission believes that 
the SROs have included reasonable steps to address the concerns about 
conflicts of interest.
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    \171\ See Anonymous 1 Letter at 1; Anonymous 2 Letter at 1.
    \172\ See Response Letter, supra note 7, at 7.
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    With regard to the issue of when and under what circumstances 
Bidders should be permitted to revise their Bids, one commenter 
encourages the SROs to liberalize the proposed Plan's approach to 
allowing revisions while another commenter suggests that the SROs 
increase restrictions on the ability of Bidders to revise their 
Bids.\173\ In their Response Letter, the SROs state that they will not 
modify their proposal to permit each Shortlisted Bidder the opportunity 
to revise its Bid only if a majority of the Selection Committee 
believes that revisions by the particular Bidder are ``necessary or 
appropriate.'' As noted above, the SROs believe that without SRO 
discretion to determine which Bidders can revise their Bids, Bidders 
may not provide detailed information in their initial Bids, but will 
await the final structure of the CAT NMS Plan to provide full 
information in their revised Bids.\174\ The Commission believes that 
the SROs' approach is reasonably designed to help assure that the SROs 
receive sufficiently detailed information to develop the CAT NMS Plan.
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    \173\ See FIF Letter at 4; FINRA Letter at 2-3.
    \174\ See Response Letter, supra note 7, at 6.
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    With respect to the comments raised by a commenter relating to the 
due date for Bids \175\ (four weeks after Commission approval of the 
Selection NMS Plan), the Commission notes that the SROs explain that 
the timeframe is based on the current requirement to submit the CAT NMS 
Plan by September 30, 2014, and note that, if the approved Plan has a 
material impact on the Bidders' ability to respond to the RFP, then the 
SROs may extend this date.\176\ Regarding the comments made by another 
commenter relating to the two-month period for the selection of the 
Plan Processor,\177\ the Commission notes that this is a deadline 
imposed by Rule 613(a)(3)(i) \178\ and that the SROs state that they 
hope to meet this deadline but will continue to evaluate whether, and, 
if so, how much, additional time may be required, and will seek 
additional time from the Commission for the selection of the Plan 
Processor if needed.\179\
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    \175\ See Anonymous 2 Letter at 1.
    \176\ See Response Letter, supra note 7, at 11-12.
    \177\ See FIF Letter at 5.
    \178\ See Response Letter, supra note 7, at 11.
    \179\ Id.
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    With respect to the comment regarding the quorum requirement for 
Selection Committee meetings,\180\ the Commission notes that the SROs 
state that they will ensure that all Voting Senior Officers will be in 
attendance for all voting processes as part of the Plan Processor 
selection, either in person or telephonically.\181\ With respect to the 
concerns regarding information sharing,\182\ the Commission notes that, 
in addition to requiring NDAs, the SROs have indicated that no member 
of the Advisory Committee or the DAG will be permitted to have 
affiliations with Bidding entities, unless such members have functional 
separation between their representatives on the DAG and their 
representatives involved with entities preparing or participating in a 
Bid.\183\
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    \180\ See FIF Letter at 2.
    \181\ See Response Letter, supra note 7, at 7.
    \182\ See FINRA Letter at 4-5.
    \183\ See Response Letter, supra note 7, at 9.
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    The Commission finds that the Plan is necessary or appropriate in 
the public interest, for the protection of investors and the 
maintenance of fair and orderly markets, to remove impediments to, and 
perfect the mechanism of, a national market system and that it is 
reasonably designed to achieve its objective of facilitating the 
development of the CAT NMS Plan and the selection of the Plan 
Processor. Accordingly, the Commission expects that the Participants 
will implement the Plan as described, and complete the evaluation of 
the Bids and submission of the CAT NMS Plan as required by Rule 
613.\184\
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    \184\ Rule 613(a)(1) required the SROs to file the CAT NMS Plan 
270 days from the date of publication of the Adopting Release in the 
Federal Register. See 17 CFR 242.613(a)(1). The Adopting Released 
was published on August 1, 2012, thus establishing April 28, 2013 as 
the initial deadline for the submission of the CAT NMS Plan. See 
Adopting Release, supra note 8. Since April 28, 2013, was a Sunday, 
in accordance with Rule 160(a) of the Commission's Rules of 
Practice, the deadline for filing the CAT NMS plan was Monday, April 
29, 2013. On March 7, 2013, the Commission granted a request from 
the SROs for a temporary exemption from this deadline until December 
6, 2013. See Securities Exchange Act Release No. 69060, 78 FR 15771 
(March 12, 2013); and letter to Elizabeth M. Murphy, Secretary, 
Commission, from Robert L.D. Colby, Executive Vice President and 
Chief Legal Officer, FINRA, dated February 7, 2013. On December 6, 
2013, the Commission granted a second request from the SROs for a 
temporary exemption from the new deadline until September 30, 2014. 
See Securities Exchange Act Release No. 71018, 78 FR 75669 (December 
12, 2013); and letter to Elizabeth M. Murphy, Secretary, Commission, 
from Robert L.D. Colby, Executive Vice President and Chief Legal 
Officer, FINRA, dated November 7, 2013.
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VI. Conclusion

    It is therefore ordered, pursuant to Sections 11A of the Act,\185\ 
and the rules thereunder, that the Plan (File No. 4-668) is approved 
and declared effective, and the Participants are authorized to act 
jointly to implement the Plan as a means of facilitating a national 
market system.
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    \185\ 15 U.S.C. 78k-1.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04240 Filed 2-26-14; 8:45 am]
BILLING CODE 8011-01-P