Document ID: SEC-2023-0563-0001
Agency: sec
Document Type: Notice
Title: Order Granting Temporary Conditional Exemptive Relief
Posted Date: 2023-05-24T04:00Z

[Federal Register Volume 88, Number 100 (Wednesday, May 24, 2023)]
[Notices]
[Pages 33655-33657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-11031]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97530]

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

I. Introduction and Background

    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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[[Page 33656]]

    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 ``2020 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.\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; (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'' addressed in 
that order.\6\
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    \4\ See Securities Exchange Act Release No. 90689 (Dec.16, 
2020), 85 FR 83667 (Dec. 22, 2020); 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).
    \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 2020 Orders, based on their 
concern that portions of the 2020 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 
[2020] Order[s] [were] appropriate in light of that information.'' \9\ 
Alternatively, the Participants requested that the Commission stay 
portions of the 2020 Orders pending resolution of the petitions for 
judicial review.\10\ On January 12, 2022, the Participants further 
requested that the Commission supplement the record to include certain 
additional materials.\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 issued a new exemptive relief order on 
July 8, 2022.\12\ The 2022 Order clarified certain aspects of the 2020 
Orders, modified other aspects of the 2020 Orders in light of 
subsequent developments and/or additional information provided by the 
Participants, and provided 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. 
Specifically, the 2022 Order granted temporary exemptive relief from 
the same requirements addressed in the 2020 Orders until July 31, 2024, 
and set forth new conditions with which the Participants were required 
to comply in order to qualify for that exemptive relief.\13\ In 
granting this temporary conditional exemptive relief, the Commission 
emphasized its willingness to consider alternative regulatory solutions 
in the form of a proposed CAT NMS Plan amendment or a request for 
permanent exemptive relief.\14\
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    \12\ See Securities Exchange Act Release No. 95234 (July 8, 
2022), 87 FR 42247 (July 14, 2022) (the ``2022 Order''). The 
Commission stated that the 2022 Order superseded the 2020 Orders. As 
of July 8, 2022, the terms of the 2022 Order governed, and the terms 
of the 2020 Orders were no longer in force. Id. at 42248.
    \13\ See 2022 Order, supra note 12.
    \14\ See, e.g., id. at 42248.
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    On the same day that it issued the 2022 Order, the Commission 
denied the Participants' pending motions to stay the 2020 Orders as 
moot.\15\ With respect to the pending petitions for judicial review of 
the 2020 Orders, the Commission and the Participants submitted a joint 
stipulation of voluntary dismissal to the D.C. Circuit on August 5, 
2022,\16\ and the court dismissed those petitions for judicial 
review.\17\ On September 6, 2022, in order to reserve their rights, a 
subset of the Participants filed a new petition for judicial review of 
the 2022 Order with the D.C. Circuit.\18\ On October 3, 2022, the D.C. 
Circuit granted the parties' joint motion to hold the case in abeyance 
while the parties pursue settlement discussions.\19\ On March 29, 2023, 
the D.C. Circuit granted the parties' joint motion to govern future 
proceedings and lifted the abeyance.\20\
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    \15\ See Securities Exchange Act Release No. 95231 (July 8, 
2022), 87 FR 42242 (July 14, 2022).
    \16\ See Stipulation of Voluntary Dismissal, USCA Case Nos. 21-
1065, 21-1066.
    \17\ See Order Granting Dismissal (Aug. 5, 2022), USCA Case Nos. 
21-1065, 21-1066.
    \18\ See Petition for Review, USCA Case No. 22-1234. Financial 
Industry Regulatory Authority, Inc. and Investors' Exchange LLC did 
not join this petition.
    \19\ See Order Granting Joint Motion to Hold Appeal in Abeyance, 
USCA Case No. 22-1234.
    \20\ See Order Returning Case to Court's Active Docket and 
Setting Briefing Schedule, USCA Case No. 22-1234.
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    In the months following the issuance of the 2022 Order, the 
Participants and Commission staff have continued to engage in 
discussions with the goal of resolving or narrowing their differences 
with respect to the issues addressed in that order. On April 12, 2023, 
the Participants requested that the Commission extend the relief 
granted in the 2022 Order from July 31, 2024 to January 31, 2025, in 
order to facilitate further settlement discussions between the 
Participants and Commission staff.\21\ The Participants stated their 
belief that a six-month extension of the compliance deadline set forth 
in the 2022 Order

[[Page 33657]]

would ``provide the parties with adequate time to conclude their 
settlement negotiations and allow the Commission time to consider any 
resulting [CAT NMS] Plan amendments or exemptive relief.'' \22\ The 
Participants further stated that, if the Commission granted the 
requested extension of exemptive relief, they would agree to ``promptly 
seek an abeyance of the litigation for an appropriate length of time in 
light of the duration of the extension, the status of settlement 
negotiations, and related considerations.'' \23\
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    \21\ See Letter from Brandon Becker, CAT NMS Plan Operating 
Committee Chair, to Vanessa Countryman, Secretary, Commission (Apr. 
12, 2023), available at https://catnmsplan.com/sites/default/files/2023-04/04.12.23-July-8-Order-Extension-Request.pdf (``Participant 
Letter''), at 2.
    \22\ See id. at 2.
    \23\ See id.
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    For the reasons set forth below, this order (the ``Order'') grants 
the Participants' request for an extension of the temporary exemptive 
relief that was provided by the 2022 Order, subject to the same 
conditions set forth for that relief in the 2022 Order.\24\
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    \24\ 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 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.'' \25\ 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.'' 
\26\
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    \25\ 15 U.S.C. 78mm(a)(1).
    \26\ 17 CFR 242.608(e).
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    The Commission has determined that an extension of the exemptive 
relief provided in the 2022 Order, subject to the same conditions set 
forth in that order, 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. 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's intention in issuing the 2022 Order, the substance 
of which is incorporated by reference herein, was to provide the 
Participants with additional time either to come into compliance with 
the requirements of the CAT NMS Plan or to develop and obtain 
Commission approval of alternative solutions that achieve the 
regulatory goals of Rule 613 and the CAT NMS Plan in a more cost-
effective manner,\27\ subject to certain conditions generally intended 
to preserve existing functionality as a baseline and/or give the 
Commission information about the performance of the CAT and the impact 
of any changes or improvements made by the Participants. Some 
conditions attached to the relief provided in the 2022 Order were also 
designed to ensure that the parties remained on track to resolve these 
issues in a timely fashion.\28\
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    \27\ See 2022 Order, supra note 12, at 42248.
    \28\ For example, the Commission required the Participants and 
the Plan Processor to meet with Commission staff on at least a 
monthly basis to provide a detailed status update regarding each 
requirement at issue in the litigation and to promptly respond to 
related requests for additional information or data, in order 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.'' 
See 2022 Order, supra note 12, at 42250-57.
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    As noted above, the Participants and Commission staff have 
continued to engage in discussions with the goal of reaching agreement 
on long-term solutions to the issues addressed in the 2022 Order that 
achieve the regulatory goals of Rule 613 and the CAT NMS Plan in a more 
cost-effective manner. The Commission agrees with the Participants that 
``significant progress is being made'' in these ongoing settlement 
discussions \29\ and believes that a six-month extension will provide 
additional time for the discussions to conclude and for the Commission 
to consider any resulting proposed CAT NMS Plan amendments or requests 
for exemptive relief. The Commission also believes that such an 
extension will increase the likelihood of timely agreement on and 
implementation of such long-term solutions, thus furthering 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.
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    \29\ See Participant Letter, at 2.
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III. Conclusion

    Accordingly, it is hereby ordered, pursuant to section 36(a)(1) of 
the Exchange Act \30\ and Rule 608(e) under the Exchange Act,\31\ that 
the exemptive relief granted in the 2022 Order be extended to January 
31, 2025, subject to the same conditions set forth in that order.
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    \30\ 15 U.S.C. 78mm(a)(1).
    \31\ 17 CFR 242.608(e).

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    By the Commission.

    Dated: May 19, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-11031 Filed 5-23-23; 8:45 am]
BILLING CODE 8011-01-P