Notice2022-20827
Joint Industry Plan; Order Disapproving the Fifty-First Amendment to the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 27, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 186 (Tuesday, September 27, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 186 (Tuesday, September 27, 2022)]
[Notices]
[Pages 58544-58552]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-20827]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95848; File No. S7-24-89]
Joint Industry Plan; Order Disapproving the Fifty-First Amendment
to the Joint Self-Regulatory Organization Plan Governing the
Collection, Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privileges Basis
September 21, 2022.
I. Introduction
On November 5, 2021,\1\ the Participants \2\ in the Joint Self-
Regulatory Organization Plan Governing the Collection, Consolidation
and Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading Privileges
Basis (``UTP Plan'' or ``Plan'') \3\ filed with the Securities and
Exchange Commission (``Commission''), pursuant to Section 11A of the
Securities Exchange Act of 1934 (``Act'') \4\ and Rule 608 of
Regulation National Market System (``NMS'') thereunder,\5\ a proposal
(the ``Proposed Amendment'') to amend the UTP Plan to implement the
non-fee-related aspects of the Commission's Market Data Infrastructure
Rules (``MDI Rules'').\6\ The Proposed Amendment was published for
comment in the Federal Register on November 26, 2021.\7\
---------------------------------------------------------------------------
\1\ See Letter from Robert Books, Chair, UTP Operating
Committee, to Vanessa Countryman, Secretary, Commission (Nov. 5,
2021).
\2\ The ``Participants'' are: Cboe BYX Exchange, Inc.; Cboe BZX
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;
MIAX PEARL, LLC; Nasdaq BX, Inc.; Nasdaq ISE, 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.
\3\ The Plan governs the collection, processing, and
dissemination on a consolidated basis of quotation information and
transaction reports in Eligible Securities for its Participants. The
Plan serves as the required transaction reporting plan for its
Participants, which is a prerequisite for their trading Eligible
Securities. See Securities Exchange Act Release No. 55647 (Apr. 19,
2007), 72 FR 20891 (Apr. 26, 2007).
\4\ 15 U.S.C. 78k-1.
\5\ 17 CFR 242.608.
\6\ The ``MDI Rules'' as used in this Order, and as relevant to
the Proposed Amendment, are Rules 600, 603, and 614 of Regulation
NMS. 17 CFR 242.600, 603, 614. See also Securities Exchange Act
Release No. 90610 (Dec. 9, 2020), 86 FR 18596 (Apr. 9, 2021) (File
No. S7-03-20) (``MDI Rules Release''); Securities Exchange Act
Release No. 90610A (May 24, 2021), 86 FR 29195 (June 1, 2021) (File
No. S7-03-20) (technical correction to MDI Rules Release). Several
exchanges filed petitions for review challenging the MDI Rules
Release in the U.S. Court of Appeals for the District of Columbia
Circuit, which were denied on May 24, 2022. See The Nasdaq Stock
Market LLC, et al. v. SEC, No. 21-1100 (D.C. Cir. May 24, 2022).
\7\ See Securities Exchange Act Release No. 93620 (Nov. 19,
2021), 86 FR 67541 (Nov. 26, 2021) (``Notice''). Comments received
in response to the Notice are available at <a href="https://www.sec.gov/comments/s7-24-89/s72489.htm">https://www.sec.gov/comments/s7-24-89/s72489.htm</a>.
---------------------------------------------------------------------------
On February 24, 2022, the Commission instituted proceedings
pursuant to Rule 608(b)(2)(i) of Regulation NMS,\8\ to determine
whether to approve or disapprove the Proposed Amendment or to approve
the Proposed Amendment with any changes or subject to any conditions
the Commission deems necessary or appropriate after considering public
comment.\9\ On May 19, 2022, pursuant to Rule 608(b)(2)(i) of
Regulation NMS,\10\ the Commission extended the period within which to
conclude proceedings regarding the Proposed
[[Page 58545]]
Amendment to July 24, 2022,\11\ and on July 21, 2022, the Commission
further extended the period within which to conclude proceedings
regarding the Proposed Amendment to September 22, 2022.\12\
---------------------------------------------------------------------------
\8\ 17 CFR 242.608(b)(2)(i).
\9\ See Securities Exchange Act Release No. 94308 (Feb. 24,
2022), 87 FR 11755 (Mar. 2, 2022) (``OIP''). Comments received in
response to the OIP are available at <a href="https://www.sec.gov/comments/s7-24-89/s72489.htm">https://www.sec.gov/comments/s7-24-89/s72489.htm</a>.
\10\ See 17 CFR 242.608(b)(2)(i).
\11\ See Securities Exchange Act Release No. 94954 (May 19,
2022), 87 FR 31922 (May 25, 2022).
\12\ See Securities Exchange Act Release No. 95347 (July 21,
2022), 87 FR 45142 (July 27, 2022).
---------------------------------------------------------------------------
This order disapproves the Proposed Amendment.\13\
---------------------------------------------------------------------------
\13\ The Participants have filed similar amendments to the
Second Restatement of the Consolidated Tape Association (``CTA'')
Plan and the Restated Consolidated Quotation (``CQ'') Plan, which
the Commission is also disapproving. See Securities Exchange Act
Release No. 95850 (Sept. 21, 2022) (File No. SR-CTA/CQ-2021-02).
Separately, certain Participants have also filed amendments to
implement the fee-related aspects of the MDI Rules. See Securities
Exchange Act Release Nos. 93625 (Nov. 19, 2021), 86 FR 67517 (Nov.
26, 2021) (File No. SR-CTA/CQ-2021-03), and 93618 (Nov. 19, 2021),
86 FR 67562 (Nov. 26, 2021) (File No. S7-24-89) (together, the
``Proposed Fee Amendments''). The Commission is, by separate orders,
also disapproving the Proposed Fee Amendments. See Securities
Exchange Act Release No. 95851 (Sept. 21, 2022) (File No. SR-CTA/CQ-
2021-03), and 95849 (Sept. 21, 2022) (File No. S7-24-89).
---------------------------------------------------------------------------
II. Overview
Pursuant to Regulation NMS and the Equity Data Plans,\14\ the
national securities exchange and national securities associations
(``self-regulatory organizations'' or ``SROs'') must provide certain
information with respect to quotations for and transactions in NMS
stocks (``NMS information'') to an exclusive plan securities
information processor (``exclusive SIP''), which consolidates the NMS
information and makes it available to market participants on the
consolidated tapes. The purpose of the Equity Data Plans is to
facilitate the collection and dissemination of SIP data so that the
public has ready access to a ``comprehensive, accurate, and reliable
source of information for the prices and volume of any NMS stock at any
time during the trading day.'' \15\ Because the infrastructure for the
collection, consolidation, and dissemination of this data had not been
significantly updated since its initial implementation in the 1970s,
the Commission adopted amendments to Regulation NMS that increase the
content of NMS information and amend the manner in which such NMS
information is collected, consolidated, and disseminated by the Equity
Data Plans.\16\ In the MDI Rules Release, the Commission stated,
``[t]he widespread availability of timely market information promotes
fair and efficient markets and facilitates the ability of brokers and
dealers to provide best execution to their customers.'' \17\
---------------------------------------------------------------------------
\14\ The three effective national market system plans that
govern the collection, consolidation, processing, and dissemination
of certain NMS information are: (1) the CTA Plan; (2) the CQ Plan;
and (3) the UTP Plan (collectively, the ``Equity Data Plans''). Each
of the Equity Data Plans is an effective national market system plan
under 17 CFR 242.608 (Rule 608) of Regulation NMS. See also
Securities Exchange Act Release No. 28146 (June 26, 1990), 55 FR
27917 (July 6, 1990) (order approving UTP Plan).
\15\ Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3593 (Jan. 21,
2010).
\16\ See MDI Rules Release, supra note 6.
\17\ Id. at 18599.
---------------------------------------------------------------------------
The MDI Rules increase the content of NMS information and modify
the manner in which NMS information is collected, consolidated, and
disseminated. Significantly, under the MDI Rules, the Commission
required the introduction of a competitive decentralized consolidation
model under which competing consolidators and self-aggregators will
replace the exclusive SIPs that collect, consolidate, and disseminate
equity market data under the Equity Data Plans.\18\ Although the
exclusive SIPs will no longer disseminate consolidated information for
an individual NMS stock, the Equity Data Plans will continue to play an
important role--they will develop and propose fees for the data content
underlying consolidated market data, collect and allocate revenues
collected for this data, develop the monthly performance metrics for
competing consolidators, and provide an annual assessment of competing
consolidator performance.
---------------------------------------------------------------------------
\18\ See id. at 18637 (``The Commission is adopting a
decentralized consolidation model in which competing consolidators,
rather than the exclusive SIPs, will collect, consolidate, and
disseminate consolidated market data.'').
---------------------------------------------------------------------------
Rule 614(e) of Regulation NMS requires the participants of the
effective national market system plan(s) for NMS stocks to file an
amendment pursuant to Rule 608 of Regulation NMS to conform the plan(s)
to the decentralized consolidation model.\19\ Specifically, Rule
614(e)(1) directs the participants to file an amendment to conform the
plan(s) to reflect the provision of information with respect to
quotations for and transactions in NMS stocks that is necessary to
generate consolidated market data by the SROs to competing
consolidators and self-aggregators. The Proposed Amendment was filed by
the Participants pursuant to this requirement.\20\
---------------------------------------------------------------------------
\19\ 17 CFR 242.614(e). See also MDI Rules Release, supra note
6, 86 FR at 18680-81.
\20\ The Participants have filed the Proposed Amendment under
the Equity Data Plans. See supra note 14. While the Commission
issued an order on August 6, 2020, approving, as modified, a new
national market system plan regarding equity market data--the CT
Plan--to replace the existing Equity Data Plans, that order was
stayed on October 13, 2021, see The Nasdaq Stock Market, et al. LLC
v. Securities and Exchange Commission, No. 21-1167 (D.C. Cir. Oct.
13, 2021), which was before the Participants filed the Proposed
Amendment. The Commission's order approving the CT Plan was
subsequently vacated. See The Nasdaq Stock Market LLC, et al. v.
Securities and Exchange Commission, Nos. 21-1167, 21-1168, 21-1169
(D.C. Cir., July 5, 2022) (vacating Securities Exchange Act Release
No. 92586 (Aug. 6, 2021), 86 FR 44142 (Aug. 11, 2021) (Order
Approving, as Modified, a National Market System Plan Regarding
Consolidated Market Data)).
---------------------------------------------------------------------------
As explained below, however, the Proposed Amendment does not comply
with Rule 614(e)(1) because it does not conform the Plan to reflect the
provision of information with respect to quotations for and
transactions in NMS stocks that is necessary to generate consolidated
market data by the SROs to competing consolidators and self-
aggregators. For example, inconsistent with the decentralized
consolidation model and with the requirements of Rule 614(e), the
Proposed Amendment: (1) amends the Plan to reflect that it will
disseminate consolidated market data to competing consolidators and
self-aggregators, even though the Plan will not be disseminating any
consolidated market data; \21\ (2) fails to amend the Plan to reflect
that the Processor will no longer have the responsibility to
disseminate regulatory halt notices once the decentralized
consolidation model has been implemented; \22\ (3) fails to include
requirements for the Participants to timestamp every element of data
necessary to generate consolidated market data; \23\ and (4) fails to
amend the Plan to remove references to a single processor.\24\
---------------------------------------------------------------------------
\21\ 17 CFR 242.603(b). See also MDI Rules Release, supra note
6, 86 FR at 18653 (``[T]hese changes to Rule 603(b) are appropriate
to establish the decentralized consolidation model.'').
\22\ See, e.g., MDI Rules Release, supra note 6, 86 FR at 18633-
35 (discussing the provision of ``regulatory data'' by the primary
listing exchange for an NMS stock to competing consolidators and
self-aggregators under the decentralized consolidation model).
\23\ 17 CFR 242.614(e)(2).
\24\ The MDI Rules Release amended Rule 603(b) to remove the
requirement that ``all consolidated information for an individual
NMS stock [be disseminated] through a single plan processor.'' See
MDI Rules Release, supra note 6, 86 FR at 18652-53. See also supra
note 21; MDI Rules Release, supra note 6, 86 FR at 18701 (discussing
the retirement of the exclusive SIPs).
---------------------------------------------------------------------------
Because the Proposed Amendment is inconsistent with the MDI Rules,
specifically Rule 614(e), the Commission must disapprove the Proposed
Amendment under Rule 608(b)(2) of Regulation NMS because it cannot find
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
[[Page 58546]]
the mechanisms of, a national market system, or otherwise in
furtherance of the purposes of the Act.\25\
---------------------------------------------------------------------------
\25\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
III. Summary of the Proposed Amendment
The Participants propose to amend the Plan to comply with Rule
614(e) of the MDI Rules. Under Rule 614(e), participants to the
effective national market system plan(s) for NMS stocks were required
to file by November 5, 2021, an amendment with the Commission that
includes each of the requirements of Rule 614(e)(1)-(5).\26\
---------------------------------------------------------------------------
\26\ 17 CFR 242.614(e).
---------------------------------------------------------------------------
Specifically, Rule 614(e)(1) requires the amendment to conform the
effective national market system plan(s) for NMS stocks to reflect
that, under the decentralized consolidation model, the national
securities exchange and national securities association participants
will provide to competing consolidators and self-aggregators the
information, with respect to quotations for and transactions in NMS
stocks, that is necessary to generate consolidated market data.
Rule 614(e)(2) requires the amendment to include the application of
timestamps by the national securities exchange and national securities
association participants on all information with respect to quotations
for and transactions in NMS stocks that is necessary to generate
consolidated market data, including the time that such information was
generated as applicable by the national securities exchange or national
securities association and the time the national securities exchange or
national securities association made such information available to
competing consolidators and self-aggregators.
Rule 614(e)(3) requires the amendment to include assessments of
competing consolidator performance, including speed, reliability, and
cost of data provision and the provision of an annual report of such
assessment to the Commission.
Rule 614(e)(4) requires the amendment to include the development,
maintenance, and publication of a list that identifies the primary
listing exchange for each NMS stock.
Rule 614(e)(5) requires the amendment to include the calculation
and publication on a monthly basis of consolidated market data gross
revenues for NMS stocks as specified by (i) listed on the NYSE; (ii)
listed on Nasdaq; and (iii) listed on exchanges other than NYSE or
Nasdaq.
The following is a summary of the changes proposed to be made to
the Plan by the Proposed Amendment.\27\
---------------------------------------------------------------------------
\27\ The full text of the Proposed Amendment appears as
Attachment A to the Notice. See Notice, supra note 7, 86 FR at
67543-55.
---------------------------------------------------------------------------
Section III. Definitions
Under the Proposed Amendment, the Plan would include the following
new provision: ``Terms used in this plan have the same meaning as the
terms are defined in Rule 600(b) under the Act.''
The Proposed Amendment amends the definitions of ``News Service,''
``Subscriber,'' and ``Vendor'' to add competing consolidators as a
source of Transaction Reports and Quotation Information.
The Proposed Amendment defines ``Primary Listing Exchange,'' to
mean ``the national securities exchange on which an Eligible Security
is listed.'' The proposed definition further states, ``[i]f an Eligible
Security is listed on more than one national securities exchange,
Primary Listing Exchange means the exchange on which the security has
been listed the longest.'' The Participants explain that this
definition is being added to comply with the requirements of the MDI
Rules and to replace the definition of ``Listing Market.'' \28\
---------------------------------------------------------------------------
\28\ See id. at 67541. The Proposed Amendment deletes a
definition of ``Primary Listing Market'' from former Section X.
(Section XI., as proposed), Regulatory and Operational Halts.
---------------------------------------------------------------------------
The Proposed Amendment amends the definition of ``Quotation
Information'' to define it as ``all information with respect to
quotations for Eligible Securities required to be collected and made
available to the Processor, Competing Consolidators, and Self-
Aggregators pursuant to this Plan, including all data necessary to
generate consolidated market data.'' Similarly, the Proposed Amendment
amends the definition of ``Transaction Reports'' to mean ``all
information with respect to transactions in Eligible Securities
required to be collected and made available to the Processor, Competing
Consolidators, and Self-Aggregators pursuant to this Plan, including
all data necessary to generate consolidated market data.'' The
Participants explain that these amendments are intended to track the
MDI Rules more closely.\29\
---------------------------------------------------------------------------
\29\ See id.
---------------------------------------------------------------------------
Section IV. Administration of Plan
The Proposed Amendment amends Section IV.B., Operating Committee:
Authority, to add references to competing consolidators and self-
aggregators. Specifically, the Proposed Amendment states that the
Operating Committee shall be responsible for overseeing the
consolidation \30\ of Quotation Information and Transaction Reports in
Eligible Securities from the Participants for dissemination to
competing consolidators and self-aggregators, among other entities;
that the Operating Committee shall be responsible for periodically
evaluating the Processor and competing consolidators; and that the
Operating Committee shall be responsible for setting the level of fees
to be paid by competing consolidators and self-aggregators, among other
entities, for services relating to Quotation Information or Transaction
Reports in Eligible Securities, and for taking action in respect
thereto in accordance with the Plan.
---------------------------------------------------------------------------
\30\ Under the decentralized consolidation model, the Operating
Committee would no longer oversee the consolidation of data by the
Processor, but rather the provision of data underlying consolidated
market data to competing consolidators and self-aggregators. See
Rule 603(b), 17 CFR 242.603(b); Rule 614(e)(1), 17 CFR
242.614(e)(1). See also MDI Rules Release, supra note 6, 86 FR at
18682.
---------------------------------------------------------------------------
The Proposed Amendment also amends Section IV.B. to require the
Operating Committee to publish on the Plan's website the Primary
Listing Exchange for each Eligible Security and to calculate and
publish, on a monthly basis, consolidated market data gross revenues
for Eligible Securities. The Participants explain that these amendments
are intended to comply with Rule 614(e)(4) and Rule 614(e)(5)(ii).\31\
---------------------------------------------------------------------------
\31\ See Notice, supra note 7, 86 FR at 67541.
---------------------------------------------------------------------------
Section VII. Administrative Functions
The Proposed Amendment amends this section by deleting references
to the Processor. Additionally, under the Proposed Amendment, the
Administrator, not the Processor, shall be responsible for carrying out
all administrative functions necessary to the operation and maintenance
of the consolidated information collection and dissemination system
provided for in the Plan. The Participants explain that the
Administrative Functions described in the section are more
appropriately ascribed to the Administrator.\32\
---------------------------------------------------------------------------
\32\ See id.
---------------------------------------------------------------------------
Section VIII. Evaluation of Competing Consolidators
The Proposed Amendment adds new Section VIII to require the
Operating Committee to assess the performance of competing
consolidators and to submit an annual report to the Commission
[[Page 58547]]
containing the assessment.\33\ The Proposed Amendment requires this
annual report to include an analysis with respect to competing
consolidators' speed, reliability, and cost of data provision. The
Participants explain that these changes are intended to comply with the
requirements of Rule 614(e)(3).\34\
---------------------------------------------------------------------------
\33\ As a result of this addition, the Proposed Amendment
renumbers the remaining sections of the Plan.
\34\ See Notice, supra note 7, 86 FR at 67541.
---------------------------------------------------------------------------
In addition, the Proposed Amendment requires the Operating
Committee, in conducting the analysis, to review the monthly
performance metrics to be published by competing consolidators pursuant
to Rule 614(d)(5).\35\ Rule 614(d)(5) requires competing consolidators
to publish on their websites monthly performance metrics as defined by
the effective national market system plan(s) for NMS stocks.\36\ The
Proposed Amendment adds the following monthly performance metrics to
this section:
---------------------------------------------------------------------------
\35\ 17 CFR 242.614(d)(5).
\36\ See id.
A. Capacity statistics, including system tested capacity, system
output capacity, total transaction capacity, and total transaction
peak capacity;
B. Message rate and total statistics, including peak output
rates on the following bases: 1-millisecond, 10-millisecond, 100-
millisecond, 500-millisecond, 1-second, and 5-second;
C. System availability statistics, including system up-time
percentage and cumulative amount of outage time;
D. Network delay statistics, including quote and trade zero
window size events, quote and trade retransmit events, and quote and
trade message total; and
E. Latency statistics, including distribution statistics up to
the 99.99th percentile, for the following:
1. When a Participant sends an inbound message to a competing
consolidator and when the competing consolidator receives the
inbound message;
2. When the competing consolidator receives the inbound message
and when the competing consolidator sends the corresponding
consolidated message to a customer of the competing consolidator;
and
3. When a Participant sends an inbound message to a competing
consolidator and when the competing consolidator sends the
corresponding consolidated message to a customer of the competing
consolidator.
The Participants explain that they have proposed to amend Section
VIII to define the monthly performance metrics in accordance with Rule
614(d)(5).\37\
---------------------------------------------------------------------------
\37\ See Notice, supra note 7, 86 FR at 67541-42.
---------------------------------------------------------------------------
Section IX. (Previously Section VIII.), Transmission of Information to
Processor, Competing Consolidators, and Self-Aggregators by
Participants
The Proposed Amendment amends Section IX.A., Quotation Information,
to add the requirement that each Participant collect and transmit to
competing consolidators and self-aggregators all quotation information
required to be made available by such Participant by Rule 603(b) of
Regulation NMS,\38\ including all data necessary to generate
consolidated market data. Additionally, the Proposed Amendment requires
each Participant to make available quotation information, and changes
in any such information, to competing consolidators and self-
aggregators in the same manner and using the same methods, including
all methods of access and the same format, as such Participant makes
available any information with respect to quotations for and
transactions in NMS stocks to any person.
---------------------------------------------------------------------------
\38\ 17 CFR 242.603(b).
---------------------------------------------------------------------------
In addition, under the Proposed Amendment, each bid and offer with
respect to an Eligible Security furnished to competing consolidators
and self-aggregators by any Participant pursuant to the Plan would be
accompanied by the time (reported in microseconds) the Participant made
such bid and offer available to Competing Consolidators and Self
Aggregators. With respect to FINRA, the Proposed Amendment states that
if FINRA's quotation facility provides a proprietary feed of its
quotation information, then the quotation facility shall also furnish
the Processor, competing consolidators, and self-aggregators with the
time of the quotation as published on the quotation facility's
proprietary feed, and that FINRA shall convert any quotation times
reported to it in seconds or milliseconds to microseconds and shall
furnish such times to the Processor, competing consolidators, and self-
aggregators in microseconds.
Similarly, the Proposed Amendment amends Section IX.B., Transaction
Reports, to require each Participant to make available Transaction
Reports to competing consolidators and self-aggregators in the same
manner and using the same methods, including all methods of access and
the same format, as such Participant makes available any information
with respect to quotations for and transactions in NMS stocks to any
person.
The Proposed Amendment also amends Section IX.B. to require
Transaction Reports to competing consolidators and self-aggregators to
include the time (in microseconds) that the Participant made such
information available to competing consolidators and self-aggregators.
With respect to FINRA, the Proposed Amendment states that if FINRA's
trade reporting facility provides a proprietary feed of trades reported
by the trade reporting facility to the Processor, competing
consolidators and self-aggregators, then the FINRA trade reporting
facility shall also furnish the Processor with the time of the
transmission as published on the facility's proprietary feed.
Additionally, the Proposed Amendment requires FINRA to convert times
that its members report to it in seconds or milliseconds to
microseconds and to furnish such times to the Processor, Competing
Consolidators, and Self-Aggregators in microseconds. The Participants
state that the amendments to Sections IX.A. and IX.B. are designed to
comply with the requirements of Rule 614(e)(1) and (2).\39\
---------------------------------------------------------------------------
\39\ Notice, supra note 7, 86 FR at 67542. The Participants
state that the Proposed Amendment amends Section IX.B., Transaction
Reports, to add the requirement that each Participant agrees to
collect and transmit to competing consolidators and self-aggregators
all transaction reports required to be made available pursuant to
Rule 603(b) of Regulation NMS; however, the Proposed Amendment does
not actually propose to make this change to the text of the Plan.
See id. at 67550.
---------------------------------------------------------------------------
The Proposed Amendment also deletes the following statement from
Section IX.B.: ``The Participants shall seek to reduce the time period
for reporting last sale prices to the Processor as conditions
warrant.''
In addition, Section IX.B. currently includes a list of types of
transactions that are not required to be reported to the Processor
pursuant to the Plan. The Proposed Amendment adds competing
consolidators and self-aggregators as entities to which these types of
transactions are not required to be reported.
Finally, the Proposed Amendment amends Section IX.D. to include
references to competing consolidators and self-aggregators. Section
IX.D., as amended would read: ``Whenever a Participant determines that
a level of trading activity or other unusual market conditions prevent
it from collecting and transmitting Quotation Information or
Transaction Reports to the Processor, Competing Consolidators, and
Self-Aggregators, or where a trading halt or suspension in an Eligible
Security is in effect in its Market, the Participant shall promptly
notify the Processor, Competing Consolidators, and Self-Aggregators of
such condition or event and shall resume collecting and transmitting
Quotation Information and
[[Page 58548]]
Transaction Reports to it as soon as the condition or event is
terminated. In the event of a system malfunction resulting in the
inability of a Participant or its members to transmit Quotation
Information or Transaction Reports to the Processor, Competing
Consolidators, and Self-Aggregators, the Participant shall promptly
notify the Processor, Competing Consolidators, and Self-Aggregators of
such event or condition. Upon receiving such notification, the
Processor shall take appropriate action, including either closing the
quotation or purging the system of the affected quotations.''
Section XI. (Previously Section X.), Regulatory and Operational Halts
The Proposed Amendment revises this section to delete the
definition of ``Primary Listing Market'' from Section XI.A.,
Definitions for Purposes of Section XI. The Proposed Amendment also
replaces references to ``Primary Listing Market'' with ``Primary
Listing Exchange'' throughout Section XI.\40\ The Participants state
that this change would align the text of the Plan with terminology in
the MDI Rules.\41\
---------------------------------------------------------------------------
\40\ The Proposed Amendment does not replace a reference to
Primary Listing Market in the definition of ``Regulatory Halt'' in
this section.
\41\ See Notice, supra note 7, 86 FR at 67542.
---------------------------------------------------------------------------
The Proposed Amendment amends Section XI.B., Operational Halts, to
state that competing consolidators and self-aggregators shall be
notified by a Participant if that Participant has concerns about its
ability to collect and transmit Quotation Information or Transaction
Reports, or where it has declared an Operational Halt or suspension of
trading in one or more Eligible Securities, pursuant to the procedures
adopted by the Operating Committee. Similarly, the Proposed Amendment
amends Section XI.H., Communications, to state that if a Primary
Listing Exchange for an Eligible Security determines it appropriate to
initiate a Regulatory Halt, it will notify competing consolidators and
self-aggregators of such Regulatory Halt as well as provide notice that
a Regulatory Halt has been lifted using such protocols and other
emergency procedures as may be mutually agreed to between the Operating
Committee and the Primary Listing Exchange. The Participants state that
these changes are consistent with Rule 614(e)(1) and would ensure that
competing consolidators and self-aggregators are notified of
information related to Regulatory and Operational Halts and that
competing consolidators can disseminate this information to their
customers.\42\
---------------------------------------------------------------------------
\42\ See id.
---------------------------------------------------------------------------
Section XII. (Previously Section XI.), Hours of Operation
The Proposed Amendment amends Section XII.B.(ii) and (iii) to add
references to competing consolidators and self-aggregators.
Specifically, with respect to the reporting obligations of
Participants, proposed Section XII.B.(ii)provides that transactions in
Eligible Securities executed after 8:00 p.m. and before 12:00 a.m.
(midnight) shall be reported to the Processor, competing consolidators,
and self-aggregators between the hours of 4:00 a.m. and 8:00 p.m. ET on
the next business day (T+1), and shall be designated ``as/of'' trades
to denote their execution on a prior day, and be accompanied by the
time of execution. And proposed Section XII.B.(iii) provides that
transactions in Eligible Securities executed between 12:00 a.m.
(midnight) and 4:00 a.m. ET shall be transmitted to the Processor,
competing consolidators, and self-aggregators between 4:00 a.m. and
9:30 a.m. ET, on trade date, shall be designated as ``.T'' trades to
denote their execution outside normal market hours, and shall be
accompanied by the time of execution.
The Proposed Amendment also amends Section XII.D. to require
Participants that enter Quotation Information or submit Transaction
Reports to competing consolidators and self-aggregators between 4:00
a.m. and 9:30 a.m. ET, and after 4:00 p.m. ET until 8:00 p.m. ET, to do
so for all Eligible Securities in which they enter quotations.
Section XIV. (Previously Section XIII.), Financial Matters
The Proposed Amendment amends Section XIV.C., Maintenance of
Financial Records, by replacing references to the Processor with
references to the Administrator. The Participants explain that the
responsibilities described in that section are more appropriately
ascribed to the Administrator.\43\
---------------------------------------------------------------------------
\43\ See id.
---------------------------------------------------------------------------
Section XV. (Previously Section XIV.), Indemnification
The Proposed Amendment amends this section to add references to
Competing Consolidators and Self-Aggregators and to remove a reference
to Vendors as a recipient of Transaction Reports, Quotation
Information, or other information disseminated by the Processor.
Specifically, the first paragraph in this section now states: ``Each
Participant agrees, severally and not jointly, to indemnify and hold
harmless each other Participant, Nasdaq, and each of its directors,
officers, employees and agents (including the Operating Committee and
its employees and agents) from and against any and all loss, liability,
claim, damage and expense whatsoever incurred or threatened against
such persons as a result of any Transaction Reports, Quotation
Information or other information reported to the Processor, Competing
Consolidators, and Self-Aggregators by such Participant and
disseminated by the Processor, Competing Consolidators, and Self-
Aggregators. This indemnity agreement shall be in addition to any
liability that the indemnifying Participant may otherwise have.''
Section XVIII. (Previously Section XVII.), Applicability of Securities
Exchange Act of 1934
The Proposed Amendment amends this section to include Competing
Consolidators and Self-Aggregators as subject to any applicable
provisions of the Act, as amended, and any rules and regulations
promulgated thereunder.
Section XIX. (Previously Section XVIII.), Operational Issues
The Proposed Amendment amends Section XIX.A. to include references
to Competing Consolidators and Self-Aggregators to require each
Participant to collect and validate quotes and last sale reports within
its own system prior to transmitting this data to Competing
Consolidators and Self-Aggregators.
Section XXI. Depth of Book Display
The Proposed Amendment deletes this section. The Participants
explain that this provision is obsolete given the MDI Rules.\44\
---------------------------------------------------------------------------
\44\ See id.
---------------------------------------------------------------------------
IV. Discussion
A. The Applicable Standard of Review
Under Rule 608(b)(2) of Regulation NMS, the Commission shall
approve a national market system plan or proposed amendment to an
effective national market system plan, with such changes or subject to
such conditions as the Commission may deem necessary or appropriate, if
it finds that the plan or amendment 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
mechanisms of, a national market system, or otherwise in furtherance of
[[Page 58549]]
the purposes of the Act.\45\ The Commission shall disapprove a national
market system plan or proposed amendment if it does not make such a
finding.\46\ Furthermore, Rule 700(b)(3)(ii) of the Commission's Rules
of Practice states:
---------------------------------------------------------------------------
\45\ 17 CFR 242.608(b)(2).
\46\ Id.
The burden to demonstrate that a NMS plan filing is consistent
with the Exchange Act and the rules and regulations issued
thereunder that are applicable to NMS plans is on the plan
participants that filed the NMS plan filing. Any failure of the plan
participants that filed the NMS plan filing to provide such detail
and specificity may result in the Commission not having a sufficient
basis to make an affirmative finding that an NMS plan filing is
consistent with the Exchange Act and the rules and regulations
issued thereunder that are applicable to NMS plans.\47\
---------------------------------------------------------------------------
\47\ 17 CFR 201.700(b)(3)(ii).
For the reasons discussed below, the Commission does not find that
the Participants have met their burden to demonstrate that the Proposed
Amendment is consistent with the Act.\48\ Specifically, the Commission
does not find that the Participants have demonstrated that the Proposed
Amendment is consistent with either Rule 614(e) of Regulation NMS or
Rule 608 of Regulation NMS. The Proposed Amendment clearly does not
comply with the requirements of the MDI Rules.\49\ Accordingly, the
Commission cannot make a finding that the Proposed Amendment 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 mechanisms of, a national market
system, or otherwise in furtherance of the purposes of the Act.\50\
---------------------------------------------------------------------------
\48\ 17 CFR 201.700(b)(3).
\49\ As discussed below, the Proposed Amendment does not comply
with MDI Rules 603(b), 614(e)(1), and 614(e)(2). 17 CFR 242.603(b),
17 CFR 242.614(e)(1), 17 CFR 242.614(e)(2).
\50\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
B. The Requirements of the MDI Rules Regarding the Proposed Amendment
As adopted by the Commission, the MDI Rules implement a
decentralized consolidation model in which competing consolidators
would replace the exclusive plan processors of the Equity Data Plans as
the entities responsible for disseminating consolidated market
data.\51\ The MDI Rules Release provides for an ``initial parallel
operation period'' of 180 days during which the existing exclusive SIPs
for the Equity Data Plans would operate in parallel with the competing
consolidators,\52\ and further provides for the transition from the
initial parallel operation period to the retirement of the exclusive
SIPs for equity market data:
---------------------------------------------------------------------------
\51\ See MDI Rules Release, supra note 6, 86 FR at 18637.
\52\ See id. at 18700.
Within 90 days of the end of the initial parallel operation
period, the Operating Committee will make a recommendation to the
Commission as to whether the exclusive SIPs should be
decommissioned. The Commission will consider an effective national
market system plan amendment to effectuate a cessation of the
operations of the exclusive SIPs and, if consistent with the
requirements of Rule 608 and the Exchange Act, approve such an
amendment.\53\
---------------------------------------------------------------------------
\53\ Id. at 18701.
Pursuant to Rule 614(e)(1) of Regulation NMS, and as discussed in
the MDI Rules Release, the Participants to the Plan were required to
file an amendment to conform the Plan to reflect the provision of
information with respect to quotations for and transactions in NMS
stocks that is necessary to generate consolidated market data by the
national securities exchange and national securities association
participants to competing consolidators and self-aggregators.\54\
---------------------------------------------------------------------------
\54\ See id. at 18700-01.
---------------------------------------------------------------------------
C. Whether the Proposed Amendment Is Consistent With Rule 614(e)(1) of
Regulation NMS
1. Consistency With the Decentralized Consolidation Model
Two commenters recommend disapproval of the Proposed Amendment
because the amendment does not properly conform the Plan to the MDI
Rules in that the amendments fail to accurately reflect the
decentralized consolidation model.\55\ One commenter states, ``[t]he
MDI rule represents a fundamental shift to a decentralized
consolidation model. The Plan amendments need to reflect that
throughout the body and exhibits of the Plans.'' \56\ The commenter
also argues that the Proposed Amendment must ``[a]cknowledge that the
Plan is no longer responsible for the creation, distribution and
pricing of consolidated market data.'' \57\
---------------------------------------------------------------------------
\55\ See Letter from Patrick Flannery, Chief Executive Officer,
MayStreet, Inc., to Vanessa Countryman, Secretary, Commission (Dec.
17, 2021) (``MayStreet Letter I''); Letter from Manisha Kimmel,
Chief Policy Officer, MayStreet, Inc., to Vanessa Countryman,
Secretary, Commission (Mar. 23, 2022) (``MayStreet Letter II'');
Letter from Ellen Greene, Managing Director, Equity and Options
Market Structure, and William C. Thum, Managing Director and
Associate General Counsel, Asset Management Group, Securities
Industry and Financial Markets Association, to Vanessa Countryman,
Secretary, Commission (Dec. 17, 2021) (``SIFMA Letter I'').
\56\ MayStreet Letter II, supra note 55, at 2.
\57\ Id. at 4-5.
---------------------------------------------------------------------------
The commenter states, ``[d]espite the fact that competing
consolidators generate consolidated market data, the Nasdaq/UTP Plan as
amended at IV(B) states that consolidated data is disseminated to
competing consolidators.'' \58\ The commenter reiterates that only
competing consolidators would externally distribute and charge for
consolidated market data and that the Plan would only be selling
underlying content.\59\
---------------------------------------------------------------------------
\58\ MayStreet Letter I, supra note 55, at 4, n.5.
\59\ See MayStreet Letter II, supra note 55, at 4-5.
---------------------------------------------------------------------------
The commenter also argues that the sections of the Plan that
discuss vendors' and subscribers' contractual relationships with the
Plan should be ``removed or significantly altered to reflect that the
Plan no longer has agreements with vendors and end users and instead
have agreements with the competing consolidators and self-aggregators
related specifically to the cost of content underlying core market
data.'' \60\ This commenter states that ``the relationship between
competing consolidators and their customers should not include a
contractual relationship with the plan'' because vendors would be
receiving consolidated market data from competing consolidators rather
than from the Plan.\61\
---------------------------------------------------------------------------
\60\ See MayStreet Letter I, supra note 55, at 3.
\61\ Id. See also MayStreet Letter II, supra note 54, at 9
(arguing that, since the Plan would only be selling underlying
content to competing consolidators and self-aggregators, vendor and
subscriber agreements should not be required).
---------------------------------------------------------------------------
This commenter also objects to the continued references to
subscribers and vendors in the Plan as recipients of data from the
Processor, arguing that under the decentralized consolidation model,
``only competing consolidators would sell consolidated market data to
vendors and subscribers.'' \62\
---------------------------------------------------------------------------
\62\ MayStreet Letter I, supra note 55, at 3.
---------------------------------------------------------------------------
One commenter objects to the retention of the concept of a single
processor in the Proposed Amendment.\63\ Another commenter also states
that ``it is worth noting that the Plans do not reflect the
decentralized consolidation model nor do they acknowledge the parallel
period.'' \64\ This commenter requests clarification of how the Plan
will operate during the parallel operation period, such as the
inclusion in the Plan of objective criteria for ending the parallel
period and the addition of a section devoted to competing consolidators
and self-
[[Page 58550]]
aggregators to help distinguish between their obligations and the
obligations of the exclusive SIPs during the parallel period.\65\ The
commenter recommends that the Proposed Amendment clarify that all
content underlying consolidated market data will be provided to
competing consolidators and self-aggregators, and provide validation
procedures to be followed by competing consolidators.
---------------------------------------------------------------------------
\63\ See SIFMA Letter I, supra note 55, at 8.
\64\ MayStreet Letter II, supra note 55, at 8.
\65\ See id. at 7-8.
---------------------------------------------------------------------------
The Participants submitted a comment letter in which they argue
that maintaining the exclusive SIPs through the parallel operation
period is consistent with the MDI Rules Release, stating:
[P]ursuant to the phased transition period set forth in the MDI
Rules Release, the Plans must operate a parallel operation period
during which the decentralized consolidation model introduced by the
MDI Rules will run in parallel to the existing exclusive SIP model.
. . . After completion of the parallel operation period, the Plans
are required to submit an amendment to effectuate a cessation of the
operations of the exclusive SIPs, which would include removing
references of the exclusive SIPs from the text of the Plans.\66\
---------------------------------------------------------------------------
\66\ Letter from James P. Dombach, Counsel for CTA, CQ, and UTP
Plans, McGonigle, P.C., to Vanessa Countryman, Secretary,
Commission, at 2 (Mar. 25, 2022) (``McGonigle Letter'').
The Participants also maintain that the exclusive SIPs will
continue to provide market data under the current Equity Data Plans
during the parallel operation period and that the inclusion of the
exclusive SIPs in the Equity Data Plans (as provided for in the
Proposed Amendment) until the submission of a further amendment after
the parallel operation period is consistent with the MDI Rules
Release.\67\
---------------------------------------------------------------------------
\67\ See id. at 1-2.
---------------------------------------------------------------------------
The Commission agrees with the commenters who argue that the
Proposed Amendment does not properly conform the Plan to the
decentralized consolidation model. First, under the MDI Rules, the SROs
are required to make available to competing consolidators and self-
aggregators the data necessary to generate consolidated market
data,\68\ and competing consolidators and self-aggregators will then
generate consolidated market data, rather than receive consolidated
market data from the Plan.\69\ The Participants, however, propose to
amend the UTP Plan to give the Operating Committee the authority to
oversee the consolidation of Quotation Information and Transaction
Reports from the Participants to competing consolidators and self-
aggregators.\70\ This is not consistent with the decentralized
consolidation model.
---------------------------------------------------------------------------
\68\ See Rule 603(b), 17 CFR 242.603(b). See also Rule
600(b)(19), which defines ``consolidated market data'' as the
following data, consolidated across all national securities
exchanges and national securities associations: (i) Core data; (ii)
Regulatory data; (iii) Administrative data; (iv) Self-regulatory
organization-specific program data; and (v) Additional regulatory,
administrative, or self-regulatory organization-specific program
data elements defined as such pursuant to the effective national
market system plan or plans required under Sec. 242.603(b). See 17
CFR 242.600(b)(19).
\69\ See Rule 614(d)(1)-(3). 17 CFR 242.614(d)(1)-(3).
\70\ See Notice, supra note 7, 86 FR at 67545 (UTP Plan Proposed
Amendment at Section IV.B.).
---------------------------------------------------------------------------
Specifically, Rule 614(d) provides that competing consolidators
shall collect any information with respect to quotations for and
transactions in NMS stocks as provided in Rule 603(b) that is necessary
to create a consolidated market data product from each national
securities exchange and national securities association,\71\ calculate
and generate a consolidated market data product,\72\ and make the
consolidated market data product available to subscribers.\73\ Self-
aggregators will receive information with respect to quotations for and
transactions in NMS stocks, including all data necessary to generate
consolidated market data, and generate consolidated market data solely
for their internal use.\74\ Additionally, pursuant to Rule 603(b), the
Participants shall make available to all competing consolidators and
self-aggregators ``all data necessary to generate consolidated market
data.'' \75\ Accordingly, the Plan's modified role under the
decentralized consolidation model will be to develop and file with the
Commission the fees associated with the underlying data, to collect and
allocate revenues for that data, to develop monthly performance metrics
for competing consolidators, and to provide an annual assessment of
competing consolidator performance.\76\ Therefore, the Proposed
Amendment impermissibly provides for the dissemination by the Plan of
consolidated market data to competing consolidators and self-
aggregators, which is inconsistent with Rule 603(b), which requires the
Participants to make available the data necessary to generate
consolidated market data to competing consolidators and self-
aggregators so that, pursuant to Rule 614(d), those entities can
generate consolidated market data themselves.
---------------------------------------------------------------------------
\71\ See Rule 614(d)(1), 17 CFR 242.614(d)(1).
\72\ See Rule 614(d)(2), 17 CFR 242.614(d)(2).
\73\ See Rule 614(d)(3), 17 CFR 242.614(d)(3). The MDI Rules
also define ``competing consolidator'' as a securities information
processor required to be registered pursuant to Sec. 242.614 (Rule
614) or a national securities exchange or national securities
association that receives information with respect to quotations for
and transactions in NMS stocks and generates a consolidated market
data product for dissemination to any person. See 17 CFR
242.600(b)(16).
\74\ The definition of ``self-aggregator'' was added by the MDI
Rules. See 17 CFR 242.600(b)(83). A self-aggregator may make
consolidated market data available to its affiliates that are
registered with the Commission for their internal use. Id.
\75\ 17 CFR 242.603(b).
\76\ See MDI Rules Release, supra note 6, 86 FR at 18604, 18681.
---------------------------------------------------------------------------
Second, the Proposed Amendment is inconsistent in certain other
ways with the decentralized consolidation model provided for in the MDI
Rules. Under the decentralized consolidation model, the primary listing
exchanges will be required to collect, calculate, and make available
regulatory data, which includes information relating to regulatory
halts, to competing consolidators and self-aggregators in accordance
with the definition of ``regulatory data'' in Rule 600(b)(78).\77\ The
Proposed Amendment, however, does not reflect this requirement with
respect to regulatory data. For example, the Proposed Amendment fails
to amend the Plan to reflect that the Processor will no longer have the
responsibility to disseminate regulatory halt notices once the
decentralized consolidation model has been implemented.
---------------------------------------------------------------------------
\77\ 17 CFR 242.600(b)(78) defines ``Regulatory Data'' as, among
other things: (A) Information regarding Short Sale Circuit Breakers
pursuant to Sec. 242.201; (B) Information regarding Price Bands
required pursuant to the Plan to Address Extraordinary Market
Volatility . . . (C) Information relating to regulatory halts or
trading pauses (news dissemination/pending, LULD, Market-Wide
Circuit Breakers) and reopenings or resumptions; (D) The official
opening and closing prices of the primary listing exchange; and (E)
An indicator of the applicable round lot size. See 17 CFR
242.600(b)(78)(i). Regulatory data is one element of ``consolidated
market data,'' as defined in Rule 600(b)(19). See supra note 68.
---------------------------------------------------------------------------
The Proposed Amendment also does not include requirements for the
Participants to timestamp every element of data necessary to generate
consolidated market data. Rule 614(e)(2) requires the application of
timestamps by the Participants on all information with respect to
quotations for and transactions in NMS stocks that is necessary to
generate consolidated market data, including the time that such
information was generated by the Participant and the time the
Participant made such information available to competing consolidators
and self-aggregators.\78\ While the Proposed Amendment amends the UTP
Plan's section governing the transmission of Quotation Information to
require any Participant that furnishes bids and offers to competing
consolidators and self-aggregators to timestamp the time the
Participant made such bid and offer
[[Page 58551]]
available to competing consolidators and self-aggregators,\79\ this
proposed timestamp provision does not apply to ``all information with
respect to quotations for and transactions in NMS stocks that is
necessary to generate consolidated market data.'' \80\ Additionally,
the Proposed Amendment does not specifically require that each
Participant timestamp the data necessary to generate consolidated
market data upon generation and upon the time it is made available to
competing consolidators and self-aggregators, as required by Rule
614(e)(2).
---------------------------------------------------------------------------
\78\ 17 CFR 242.614(e)(2).
\79\ See Notice, supra note 7, 86 FR at 67550 (UTP Plan Proposed
Amendment at Section IX.A.).
\80\ In the MDI Rules Release, the Commission stated,
``[s]pecifically, the timestamps applied by the SROs must be to the
individual components of data content underlying consolidated market
data, i.e., all of the individual components of data content
underlying core data, regulatory data, administrative data, self-
regulatory organization-specific program data, and additional
elements defined as `consolidated market data.''' MDI Rules Release,
supra note 6, 86 FR at 18688.
---------------------------------------------------------------------------
And finally, the Commission disagrees with the Participants'
statement that the continued references to the role of the Processor in
the Plan, as amended by the Proposed Amendment, comply with the MDI
Rules Release's implementation schedule for parallel operation of the
exclusive SIP and the competing consolidators.\81\ Rule 614(e)(1)
requires the Participants to amend the Plan to reflect the provision of
information with respect to quotations for and transactions in NMS
stocks that is necessary to generate consolidated market data by the
SROs to competing consolidators and self-aggregators, i.e., to conform
the Plan to reflect the decentralized consolidation model.\82\ However,
the Proposed Amendment is not consistent with the decentralized
consolidation model and does not conform to the fact that a single
processor will no longer be in operation once the decentralized
consolidation model has been fully implemented.
---------------------------------------------------------------------------
\81\ See McGonigle Letter, supra note 66, at 1-2. See also MDI
Rules Release, supra note 6, 86 FR at 18700-01 (discussing the
parallel operation implementation schedule).
\82\ 17 CFR 242.614(e)(1).
---------------------------------------------------------------------------
And while the MDI Rules Release contemplates the filing of a second
amendment by the Plan ``to effectuate a cessation of the operations of
the exclusive SIPs,'' \83\ the current Proposed Amendment was required
to conform the Plan to reflect the provision of information with
respect to quotations for and transactions in NMS stocks that is
necessary to generate consolidated market data by the SROs to competing
consolidators and self-aggregators, which, as discussed above, they
have failed to do. Moreover, the failure of the Participants to explain
in the Proposed Amendment how the Plan will function under the fully
implemented decentralized consolidation model upon cessation of the
exclusive SIPs not only denies market participants the opportunity to
comment on those proposed provisions now, but it increases the
uncertainty that firms face in determining whether to become competing
consolidators or self-aggregators during the initial parallel operation
period, thus hampering the implementation of the decentralized
consolidation model required by the MDI Rules.\84\
---------------------------------------------------------------------------
\83\ MDI Rules Release, supra note 6, 86 FR at 18701.
\84\ See id. at 18699-700 (discussing the ``first wave''
registration period for competing consolidators, to begin on the
date the Commission approves the amendments to the effective
national market system plan(s) required under Rule 614(e) including
the fees for the SRO data content necessary to generate consolidated
market data).
---------------------------------------------------------------------------
Because the Proposed Amendment clearly does not comply with the
plain terms of the MDI Rules \85\ and is thus inconsistent with the
requirements of Rule 614(e)(1), the Commission also does not find that
the Participants have met their burden to demonstrate that the Proposed
Amendment is consistent with Rule 608 as 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 mechanisms of, a national market system, or otherwise in
furtherance of the purposes of the Act.\86\
---------------------------------------------------------------------------
\85\ Specifically, Rules 603(b), 614(e)(1) and (e)(2). 17 CFR
242.603(b), 17 CFR 242.614(e)(1), 17 CFR 242.614(e)(2).
\86\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
2. Technical Comments
One commenter criticizes the failure of the Proposed Amendment to
incorporate the definitions of the MDI Rules.\87\ This commenter
states, ``[t]he definitions in each of the Plans should be updated to
reflect the decentralized consolidation model. It is insufficient to
simply refer to Rule 600(b), in large part because there seems to be
confusion within the Plans as to the role of competing consolidators,
self-aggregators, the exclusive SIPs and vendors.'' \88\ Specifically,
this commenter suggests that the Proposed Amendment add definitions of
the following terms: competing consolidator, self-aggregator,
consolidated market data, content underlying consolidated market data,
initial parallel period, and parallel period, as well as a definition
of the content that would be disseminated by the exclusive SIP to the
Plan.\89\ This commenter also suggests updating the existing definition
of Processor, and clarifying the existing definitions of Subscriber and
Vendor to reflect the decentralized consolidation model.\90\
---------------------------------------------------------------------------
\87\ See MayStreet Letter II, supra note 55, at 5. This
commenter also recommends that the Commission issue guidance to the
Participants to aid in revising the Proposed Amendment. See id. at
4. The discussion and findings in this Order, in addition to the MDI
Rules Release and the MDI Rules themselves, provide sufficient
guidance to the Participants in amending the Plan.
\88\ Id. at 5.
\89\ See id. at 5-6.
\90\ See id. at 6.
---------------------------------------------------------------------------
This commenter also describes several other technical criticisms of
the Proposed Amendment. The commenter states that the Proposed
Amendment should have removed the addition of a new SRO participant
from the Plan's ministerial amendment list,\91\ arguing that competing
consolidators and self-aggregators would need more time to update their
systems to handle the new Participant's data.\92\ The commenter also
states that the Proposed Amendment needs to support the timestamps
required by the MDI Rules to the microsecond,\93\ and that validation
procedures to be used by competing consolidators need to be added to
the Plan to describe the Participants' and the competing consolidator's
obligations.\94\ The commenter further suggests that the Plan's
capacity planning process needs to apply to competing consolidators and
self-aggregators so that these entities can meet SRO-expected capacity
requirements.\95\ Finally, the commenter states that the Plan's
conflict of interest and confidentiality provisions need to apply to
competing consolidators since they will be replacing the exclusive
SIPs.\96\
---------------------------------------------------------------------------
\91\ A ``ministerial amendment'' permits an amendment to the
Plan that is submitted by the Chairman of the UTP Plan Operating
Committee to the Commission with less than 48 hours advance notice
to the Participants. See Notice, supra note 7, 86 FR at 67554
(Proposed Amendment at Section XVII.).
\92\ See MayStreet Letter II, supra note 55, at 6-7.
\93\ See id. at 5.
\94\ See MayStreet Letter I, supra note 55, at 4; MayStreet
Letter II, supra note 55, at 8.
\95\ See MayStreet Letter II, supra note 55, at 10.
\96\ See id. at 7.
---------------------------------------------------------------------------
The Commission agrees with the commenter that the failure to
include the definitions established by the MDI Rules contributes to
ambiguity within the Plan. In lieu of incorporating the MDI Rules'
definitions, the Proposed Amendment adds a statement that ``[t]erms
used in this plan have the same meaning as the terms defined in Rule
[[Page 58552]]
600(b) under the Act.'' \97\ This creates ambiguity because the
Proposed Amendment uses terms adopted by the MDI Rules but does not
include definitions of those terms, so their applicability and the
obligations they create are unclear or are not reflected in the
Proposed Amendment. For example, the Proposed Amendment adds a
requirement for the collection and transmission of Quotation
Information, stating that each Participant agrees to collect and
transmit to competing consolidators and self-aggregators ``all data
necessary to generated [sic] consolidated market data.'' \98\ However,
the Proposed Amendment does not define ``consolidated market data'' or
even the data necessary to generate it. The Plan thus fails to include
an express requirement for the Participants to disseminate to competing
consolidators and self-aggregators all of the elements of consolidated
market data (e.g., core data,\99\ regulatory data, and administrative
data) in accordance with the definition of ``consolidated market data''
in Rule 600(b)(19) \100\ and Rule 603(b).\101\ The absence of that
definition in the Plan would lead to ambiguity about the Participants'
obligations with respect to consolidated market data.
---------------------------------------------------------------------------
\97\ See Notice, supra note 7, 86 FR at 67543 (Proposed
Amendment at Section III.).
\98\ Id. at 67549 (Proposed Amendment at Section IX.A.).
\99\ Rule 600(b)(21) defines ``core data'' as (i) The following
information with respect to quotations for, and transactions in, NMS
stocks: (A) Quotation sizes; (B) Aggregate quotation sizes; (C) Best
bid and best offer; (D) National best bid and national best offer;
(E) Protected bid and protected offer; (F) Transaction reports; (G)
Last sale data; (H) Odd-lot information; (I) Depth of book data; and
(J) Auction information. See 17 CFR 242.600(b)(21).
\100\ See supra note 68 (defining ``consolidated market data'').
\101\ 17 CFR 242.603(b).
---------------------------------------------------------------------------
Relatedly, Rule 614(e)(2) requires the Participants to amend the
Plan to apply timestamps to all information with respect to quotations
for and transactions in NMS stocks that is necessary to generate
consolidated market data. However, because there is no definition of
``consolidated market data'' in the Plan, there is thus no requirement
in the language of the Plan for the Participants to timestamp the data
components that constitute consolidated market data,\102\ such as the
elements of core data \103\ (another definition established by the MDI
Rules that the Proposed Amendment failed to include in the Plan), which
include auction information, odd-lot information, and depth of book
data. This is another instance in which the absence of definitions in
the Plan would lead to ambiguity about the Participants' obligations
with respect to consolidated market data.
---------------------------------------------------------------------------
\102\ See supra note 68 (defining ``consolidated market data'').
\103\ See supra note 99 (defining ``core data'').
---------------------------------------------------------------------------
In addition, as discussed above, under the MDI Rules, the primary
listing exchanges are required to collect, calculate, and make
available regulatory data to competing consolidators and self-
aggregators in accordance with the definition of ``regulatory data'' in
Rule 600(b)(78)(i).\104\ The Proposed Amendment, however, does not add
the definition of ``regulatory data'' to the Plan. Therefore, there is
no unambiguous requirement in the Plan that the primary listing
exchanges perform these functions.
---------------------------------------------------------------------------
\104\ See supra note 77 (defining ``regulatory data'').
Regulatory data is one element of ``consolidated market data,'' as
defined in Rule 600(b)(19). See supra note 68.
---------------------------------------------------------------------------
V. Conclusion
For the reasons set forth above, the Commission finds, pursuant to
Section 11A of the Act, and Rule 608(b)(2) thereunder, that the
Proposed Amendment is inconsistent with the requirements of the Act and
the rules and regulations thereunder applicable to an NMS plan
amendment.
It is therefore ordered, pursuant to Section 11A of the Act, and
Rule 608(b)(2) thereunder, that the Proposed Amendment (File No. S7-24-
89) be, and hereby is, disapproved.
By the Commission.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20827 Filed 9-26-22; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on September 27, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.