Notice2023-26407
Order Granting an Exemption Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934 and Rule 608(e) of Regulation NMS Under the Exchange Act, Relating to the Recordkeeping Requirements for Industry Test Data, as Required by Rule 17a-1 Under the Exchange Act and Certain Provisions of the National Market System Plan Governing the Consolidated Audit Trail
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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
December 1, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 230 (Friday, December 1, 2023)</title>
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[Federal Register Volume 88, Number 230 (Friday, December 1, 2023)]
[Notices]
[Pages 84026-84028]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-26407]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99023; File No. 4-698]
Order Granting an Exemption Pursuant to Section 36(a)(1) of the
Securities Exchange Act of 1934 and Rule 608(e) of Regulation NMS Under
the Exchange Act, Relating to the Recordkeeping Requirements for
Industry Test Data, as Required by Rule 17a-1 Under the Exchange Act
and Certain Provisions of the National Market System Plan Governing the
Consolidated Audit Trail
November 27, 2023.
I. Introduction
By letter dated June 2, 2023, BOX Exchange LLC, Cboe BYX Exchange,
Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX
Exchange, Inc., Cboe C2 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, LLC, 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., (collectively,
the ``Participants'') requested that the Securities and Exchange
Commission (``Commission'') grant exemptive relief to the
Participants,\1\ pursuant to its authority under section 36(a)(1) of
the Securities Exchange Act of 1934 (``Exchange Act'') \2\ and Rule
608(e) of Regulation NMS \3\ under the Exchange Act, from certain
recordkeeping requirements for retaining data from industry testing, in
Rule 17a-1 \4\ of the Exchange Act and certain provisions of the
National Market System Plan Governing the Consolidated Audit Trail
(``CAT NMS Plan'').\5\
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\1\ See letter from the Participants to Vanessa Countryman,
Secretary, Commission, dated June 2, 2023 (the ``Exemption
Request''). Unless otherwise noted, capitalized terms are used as
defined in the CAT NMS Plan.
\2\ 15 U.S.C. 78mm(a)(1).
\3\ 17 CFR 242.608(e).
\4\ 17 CFR 240.17a-1.
\5\ The CAT NMS Plan was approved by the Commission, as
modified, on Nov. 15, 2016. See Securities Exchange Act Release No.
79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (``CAT NMS Plan
Approval Order'').
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Section 36(a)(1) of the Exchange Act grants the Commission the
authority, with certain limitations, 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.'' \6\ Under Rule 608(e) of Regulation NMS, the
Commission may ``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 mechanism of,
a national market system.'' \7\
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\6\ 15 U.S.C. 78mm(a)(1).
\7\ 17 CFR 242.608(e).
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For the reasons set forth below, the Commission believes that it is
consistent with the purposes of the Exchange Act to grant exemptive
relief relating to the Participants' record-keeping and data retention
requirements in Rule 17a-1 of the Exchange Act, Section 9.1 of the CAT
NMS Plan, Section 1.4 of Appendix D of the CAT NMS Plan and certain
provisions in Appendix C of the CAT NMS Plan (to the extent any may
apply).
II. Background and Request for Relief
In the Exemption Request, the Participants state that CAT
Reporters, including both Participants and Industry Members, engage in
testing related to the reporting of order and transaction data to the
CAT, both pursuant to required testing and testing on a voluntary
basis.\8\ The Participants explain that in connection with this
testing, CAT LLC, through the Plan
[[Page 84027]]
Processor, retains the test data submitted by Industry Members and
Participants, feedback files related to such data, and output files
that hold the detailed transactions (such test data and files are
referred to herein as ``Industry Test Data'').\9\ The Participants
further state that this exemption request only involves Industry Test
Data related to the CAT order and transaction system, not the customer
account and information system.\10\ The Participants request that the
Commission grant exemptive relief from the longer data retention time
periods set forth in Rule 17a-1 of the Exchange Act, Section 9.1 of the
CAT NMS Plan, Section 1.4 of Appendix D of the CAT NMS Plan and certain
provisions in Appendix C of the CAT NMS Plan, only as those retention
requirements pertain to Industry Test Data.\11\ The Participants
request that in granting this relief, the Commission will only require
the Participants, acting through CAT LLC and the Plan Processor, to
retain Industry Test Data for a period of three months.\12\
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\8\ See Exemptive Request, at 2.
\9\ Id.
\10\ Id. at note 6.
\11\ Id. at 4.
\12\ Id. at 1.
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In support of their request, the Participants state that Appendix D
of the CAT NMS Plan specifically requires the retention of Industry
Test Data for only three months,\13\ and that this specific provision
governs the retention period for Industry Test Data, in spite of the
lengthier general recordkeeping provisions in the CAT NMS Plan and the
even more general recordkeeping requirements of Rule 17a-1 under the
Exchange Act.\14\ The Participants state that Section 9.1 of the CAT
NMS Plan incorporates by reference Rule 17a-1 under the Exchange Act,
which requires every national securities exchange and national
securities association ``to keep and preserve at least one copy of all
documents, including all correspondence, memoranda, papers, books,
notices, accounts, and other such records as shall be made or received
by it in the course of its business as such and in the conduct of its
self-regulatory activity,'' and to keep all such documents ``for a
period of not less than five years, the first two years in an easily
accessible place, subject to the destruction and disposition provisions
of Rule 17a-6.'' \15\ The Participants also state that they do not
believe that Industry Test Data constitutes documents covered by Rule
17a-1 under the Exchange Act because to conclude as much would mean
that the specific provision in Appendix D of the Plan calling for a
three month retention of Industry Test Data would not have any
application and would be rendered meaningless.\16\ The Participants
further state that Section 1.4 of Appendix D, along with certain
sections of Appendix C, of the CAT NMS Plan requires that the CAT have
a record retention policy that makes ``data directly available and
searchable electronically without manual intervention for at least six
years.'' \17\ The Participants argue that this six-year requirement
only applies to CAT data in the production environment of the Central
Repository, and not to Industry Test Data, which has a specific
provision calling for the data to be retained for three months
only.\18\
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\13\ Id. at 2.
\14\ See Exemptive Request, at 3.
\15\ Id. at 2-3.
\16\ Id.
\17\ Id., at 3 (referencing Appendix C of the CAT NMS Plan at C-
13, C-29, C-129).
\18\ Id. The Participants reiterate their belief that the more
specific three month requirement should apply by referring to a
statement in Appendix C that ``[t]he Central Repository will retain
data, including the Raw Data, linked data, and corrected data, for
at least six years,'' to support this view. See id. (referencing
Appendix C of the CAT NMS Plan at C-29 (``All of the data (including
both corrected and uncorrected or rejected data) in the Central
Repository must be kept online for a rolling six year period, which
would create a six year historical audit trail.''); Appendix C of
the CAT NMS Plan at C-129 (``The Participants are requiring data for
six years to be kept online in an easily accessible format to enable
regulators to have access to six years of audit trail materials for
purposes of its regulation.'')).
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The Participants state that retaining Industry Test Data for only
three months would achieve approximately $1 million per year in
savings.\19\ In support of this claim, the Participants note that the
Plan Processor has been accumulating and retaining Industry Test Data
for years, and thus the current size of the Industry Test Data is
approximately 20 petabytes, growing at an average rate of 500 terabytes
per month.\20\ The Participants state that if the Plan Processor were
to remove Industry Test Data older than three months on a rolling
monthly basis, then it estimates that the CAT would reach a steady
state of retaining approximately two petabytes of Industry Test Data
per year.\21\
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\19\ Id. at 3-4.
\20\ Id. at 3.
\21\ Id.
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The Participants further state that the costs of retaining the
Industry Test Data far outweigh any benefits and that there is little
to no regulatory value in retaining the data,\22\ and that the primary
purpose for retaining Industry Test Data for three months is to allow
CAT Reporters access to the data to facilitate their own testing
needs.\23\ While the Participants have used the Industry Test Data for
user acceptance testing related to past CAT releases, to date, the
Participants state that there has been limited use of the Industry Test
Data that adds regulatory value.\24\ The Participants state that on
many days, there are no active queries related to Industry Test Data,
and when there have been limited queries performed in the industry test
environment, these queries generally were concentrated around
Participant user acceptance test periods for releases.\25\ The
Participants state that going forward, such Participant user acceptance
testing would be limited as the CAT functionality is in the
maintenance, not development, phase.\26\ The Participants further state
that the substantial price tag of $1 million per year to retain the
Industry Test Data beyond three months is not warranted by this limited
incidental regulatory use, as the retention of Industry Test Data
beyond three months provides little or no regulatory benefit.\27\ The
Participants also believe that the Commission's prior approval of the
CAT NMS Plan with the specific requirement to retain such data for
three months supports their conclusion that the retention of Industry
Test Data beyond three months is not warranted.\28\
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\22\ Id. at 4.
\23\ Id.
\24\ See Exemptive Request, at 4.
\25\ Id.
\26\ Id.
\27\ Id.
\28\ Id.
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III. Discussion of Participants' Exemption Request
The Commission has carefully considered the Participants' exemption
request. The Commission believes, for the reasons stated below, that
granting exemptive relief from the recordkeeping and data retention
time periods set forth in Rule 17a-1 of the Exchange Act, Section 9.1
of the CAT NMS Plan, Section 1.4 of Appendix D of the CAT NMS Plan and
certain provisions in Appendix C of the CAT NMS Plan (to the extent any
may apply), for Industry Test Data, is, pursuant to section 36(a)(1) of
the Exchange Act, appropriate in the public interest and consistent
with the protection of investors, and that pursuant to Rule 608(e),
this 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 the perfection of a national market
system.
In their exemption request, the Participants state that they retain
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Industry Test Data through CAT LLC and the Plan Processor, and will
continue to retain such data for three months pursuant to the
requirement in Section 1.2 of Appendix D of the CAT NMS Plan.\29\ The
Commission believes that the regulatory value does not justify the
approximately $1 million per year cost for retaining Industry Test Data
beyond three months. As the Participants note, the primary purpose of
Industry Test Data is to facilitate CAT Reporter testing needs. Indeed,
the Participants stated that over the past fifteen months, queries of
Industry Test Data generally were concentrated around Participant user
acceptance test periods for releases.\30\ Additionally, Section 1.2 of
the CAT NMS Plan requires the operational metrics associated with
industry testing to be retained for six years.\31\
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\29\ Id. at 4.
\30\ Id. at 4. The Participants state that there have been 406
queries in the industry test environment, which is an average of 27
queries per month during this 15-month period. Id.
\31\ Id. at 2. Specifically, Section 1.2 of Appendix D of the
CAT NMS Plan requires that ``[o]perational metrics associated with
industry testing (including but not limited to testing results,
firms who participated, and amount of data reported and linked) must
be stored for the same duration as the CAT production data.'' Id.
Industry Test Data does not include such operational metrics
associated with industry testing, and operational metrics will
continue to be retained for six years.
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Based on the foregoing, pursuant to section 36(a)(1) of the
Exchange Act, it is appropriate in the public interest and consistent
with the protection of investors, and pursuant to Rule 608(e), it is
consistent with the public interest, the protection of investors, the
maintenance of fair and orderly markets and the removal of impediments
to, and the perfection of a national market system to grant exemptive
relief that exempts each Participant from the longer recordkeeping and
data retention requirements for Industry Test Data as set forth in Rule
17a-1 under the Exchange Act, Section 9.1 of the CAT NMS Plan, Section
1.4 of Appendix D of the CAT NMS Plan and Appendix C of the CAT NMS
Plan (to the extent any may apply).
IV. Conclusion
The Commission believes it is appropriate to grant exemptive relief
that exempts each Participant from the longer recordkeeping and data
retention requirements for Industry Test Data as set forth in Rule 17a-
1 under the Exchange Act, Section 9.1 of the CAT NMS Plan, Section 1.4
of Appendix D of the CAT NMS Plan and Appendix C of the CAT NMS Plan
(to the extent any may apply).
Accordingly, it is hereby ordered, pursuant to section 36(a)(1) of
the Exchange Act,\32\ and Rule 608(e) of the Exchange Act \33\ that the
Participants are granted an exemption from the longer recordkeeping and
data retention requirements for Industry Test Data as set forth in Rule
17a-1 under the Exchange Act, Section 9.1 of the CAT NMS Plan, Section
1.4 of Appendix D of the CAT NMS Plan and Appendix C of the CAT NMS
Plan (to the extent any may apply).
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\32\ 15 U.S.C. 78mm(a)(1).
\33\ 17 CFR 242.608(e).
By the Commission.
Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-26407 Filed 11-30-23; 8:45 am]
BILLING CODE 8011-01-P
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