Notice2024-07967
Joint Industry Plan; Notice of Filing of Amendment to the National Market System Plan Governing the Consolidated Audit Trail Regarding Cost Savings Measures
Primary source
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Published
April 16, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 74 (Tuesday, April 16, 2024)</title>
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[Federal Register Volume 89, Number 74 (Tuesday, April 16, 2024)]
[Notices]
[Pages 26983-26998]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-07967]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99938; File No. 4-698]
Joint Industry Plan; Notice of Filing of Amendment to the
National Market System Plan Governing the Consolidated Audit Trail
Regarding Cost Savings Measures
April 10, 2024.
I. Introduction
On March 27, 2024, the Consolidated Audit Trail, LLC (``CAT LLC''),
on behalf of the following parties to the National Market System Plan
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or
``Plan''):\1\ 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, 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. (collectively, the
``Participants,'' ``self-regulatory organizations,'' or ``SROs'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934
(``Exchange Act''),\2\ and Rule 608 thereunder,\3\ a proposed amendment
to the CAT NMS Plan to amend existing requirements for the consolidated
audit trail (``CAT'') regarding costs saving measures for operating the
CAT (the ``Cost Savings Amendments'').\4\ Set forth in Section II is
the statement of purpose and summary of the amendment, along with
information required by Rules 608(a)(4) and 608(a)(5) under the
Exchange Act,\5\ and Exhibit A, which contains the proposed revisions
to the CAT NMS Plan, all substantially as prepared and submitted by the
Participants to the Commission.\6\ The Commission is publishing this
notice to solicit comments from interested persons on the amendment.\7\
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\1\ The CAT NMS Plan is a national market system plan approved
by the Commission pursuant to Section 11A of the Exchange Act and
the rules and regulations thereunder. See Securities Exchange Act
Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23,
2016). The full text of the CAT NMS Plan is available at
<a href="http://www.catnmsplan.com">www.catnmsplan.com</a>.
\2\ 15 U.S.C 78k-1(a)(3).
\3\ 17 CFR 242.608.
\4\ See Letter from Brandon Becker, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman, Secretary, Commission, dated
March 27, 2024 (the ``Transmittal Letter'').
\5\ See 17 CFR 242.608(a)(4) and 17 CFR 242.608(a)(5).
\6\ See Transmittal Letter, supra note 4. Unless otherwise
defined herein, capitalized terms used herein are defined as set
forth in the CAT NMS Plan.
\7\ 17 CFR 242.608.
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II. Description of the Plan
As described further below, the Cost Savings Amendments are
expected to result in approximately $23.0 million in new annual cost
savings in the first year with limited impact on the regulatory
function of the CAT.\8\ Specifically, the Cost Savings Amendment would:
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\8\ All cost and savings projections are estimates only and
reflect the current state and costs of CAT operations, including the
current number of exchanges. Cost savings estimates are based on,
among other factors: current CAT NMS Plan requirements; reporting by
Participants, Industry Members and market data providers; observed
data rates and volumes; current discounts, reservations and cost
savings plans; and associated cloud fees. Actual future savings
could be more or less than estimated due to changes in any of these
variables. S3 Intelligent Tier storage fees in production are
allocated at a ratio of 1 (S3 Frequent Access): 1 (S3 Infrequent
Access): 8 (S3 Archive Instant Access) based on current operations
and regulatory usage. Savings projections are primarily based on
production environments, which represent approximately two-thirds of
all cloud fees. For additional information on the cost savings
estimates relevant to each proposal, see infra notes 20, 24, 29 and
30.
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[[Page 26984]]
(1) optimize processing and storage requirements for Options Market
Maker \9\ quotes in Listed Options \10\ (``Options Market Maker
Quotes''), without eliminating them entirely from the CAT;
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\9\ Section 1.1 of the CAT NMS Plan defines an ``Options Market
Maker'' as ``a broker-dealer registered with an exchange for the
purpose of making markets in options contracts on the exchange.''
\10\ Section 1.1 of the CAT NMS Plan defines a ``Listed Option''
as having ``the meaning set forth in Rule 600(b)(35) of Regulation
NMS.'' Rule 600(b)(35) has since been redesignated as Rule
600(b)(43), which defines a ``Listed Option'' as ``any option traded
on a registered national securities exchange or automated facility
of a national securities association.''
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(2) permit the Plan Processor to move raw unprocessed data and
interim operational copies of CAT Data older than 15 days to a more
cost-effective storage tier; and
(3) permit the Plan Processor to provide an interim CAT-Order-ID on
an ``as requested'' basis rather than each day.
In addition, the Cost Savings Amendments would incorporate into the
CAT NMS Plan the Commission's recent exemptive order providing that
data from industry testing for both Industry Members and Participants
may be deleted after three months, which is estimated to result in
additional cost savings of approximately $1 million per year, and would
extend such relief to include test data related to the customer account
and information system.\11\
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\11\ Exchange Act Release No. 99023 (Nov. 27, 2023), 88 FR 84026
(Dec. 1, 2023).
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The proposed changes to the CAT NMS Plan to implement the Cost
Savings Amendments are set forth in Exhibit A to this filing.\12\ CAT
LLC continues to explore further changes to the CAT NMS Plan and
expects to file future amendments that would result in additional cost
savings without compromising the regulatory goals of the CAT.
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\12\ Because the Commission has acknowledged that Appendix C was
not intended to be continually updated once the CAT NMS Plan was
approved, CAT LLC is not proposing to update Appendix C to reflect
the proposed amendments. See Exchange Act Release No. 89632 (Aug.
21, 2020), 85 FR 65990 (Oct. 16, 2020).
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Requirements Pursuant to Rule 608(a)
A. Description of the Proposed Amendments to the CAT NMS Plan
1. Optimize Processing and Storage Requirements for Options Market
Maker Quotes
(a) Overview
Options Market Maker Quotes are the single largest data source for
the CAT, comprising approximately 98% of all options exchange events
and approximately 75% of all transaction volume stored in the CAT.\13\
Under the CAT NMS Plan, Options Exchanges are required to report
Options Market Maker Quotes to the CAT, and such quotes must be
processed and assembled to create a complete order lifecycle. The
number of quotes that result in an execution is extremely low; as a
result, the vast majority of Options Market Maker Quote lifecycles
consist of just two events--the quote and its subsequent cancellation.
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\13\ Under Section 1.1 of the CAT NMS Plan, a ``Reportable
Event'' ``includes, but is not limited to, the original receipt or
origination, modification, cancellation, routing, execution (in
whole or in part) and allocation of an order, and receipt of a
routed order.'' Section 1.1 of the CAT NMS Plan states that an
``order'' ``has, with respect to Eligible Securities, the meaning
set forth in SEC Rule 613(j)(8).'' SEC Rule 613(j)(8), in turn,
states that ``[t]he term order shall include: (i) Any order received
by a member of a national securities exchange or national securities
association from any person; (ii) Any order originated by a member
of a national securities exchange or national securities
association; or (iii) Any bid or offer.'' Accordingly, the
definition of an ``order'' includes Options Market Maker Quotes, and
Reportable Events include events related to Options Market Maker
Quotes.
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The costs associated with processing and storing Options Market
Maker Quotes under the CAT NMS Plan are significant--approximately $30
million in 2023.\14\ CAT LLC has been focused on reducing these costs.
In November 2023, the Commission granted exemptive relief that would
allow the Plan Processor to create options quote lifecycles only once;
this options quotes ``single pass'' proposal is expected to result in
annual savings of approximately $5.4 million upon implementation in
April 2024.\15\ Even with these savings, the costs related to Options
Market Maker Quotes continue to far outweigh the regulatory benefit.
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\14\ Although Options Market Maker Quotes are the single largest
data source for the CAT, there is not a linear relationship between
volume and costs; rather, a combination of volume and processing
complexity drive costs. While Options Market Maker Quotes represent
a significant percentage of data volume, life-cycling this data is
less compute intensive because the vast majority of quotes have just
two events and involve only a single venue. Despite this relatively
limited processing complexity, the cost impact of storing and
processing Options Market Maker Quotes remains a significant
percentage of overall CAT costs.
\15\ Exchange Act Release No. 98848 (Nov. 2, 2023); 88 FR 77128
(Nov. 8, 2023). The exemption order allows the Plan Processor to
create lifecycle linkages for Options Market Maker Quotes only once
by T+2 at 8 a.m. ET (as opposed to requiring both an interim
lifecycle by T+1 at 9 p.m. ET and a final lifecycle by T+5 at 8 a.m.
ET). To the extent the proposed amendments are approved, the Plan
Processor would no longer be required to create any lifecycle
linkages for Options Market Maker Quotes.
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Under the proposed amendments, Options Market Maker Quotes in
Listed Options and related Reportable Events will be subject to
ingestion only and will not be subject to any linkage requirements.
These changes would result in approximately $20.0 million in additional
annual savings, without eliminating Options Market Maker Quotes
entirely from the CAT. Options Exchanges will continue to report
Options Market Maker Quotes in the same manner they do today, but the
Plan Processor will only ingest and store them. Options Market Maker
Quotes will no longer be subject to validation, feedback, linkage and
lifecycle processing, or Plan Processor enrichments (e.g., next event
timestamp, lifecycle sequence number, CAT-Lifecycle-ID). The
elimination of linkage and feedback processes will remove Options
Market Maker Quotes from Options Market Replay, OLA Viewer, and All-
Related Lifecycle Event queries. Executions that result from Options
Market Maker Quotes will identify the quoteId of the quote that
resulted in an execution, but will appear as orphaned lifecycle events.
Options Market Maker Quotes will no longer be accessible via DIVER, but
will remain accessible through BDSQL and Direct Read interfaces.
These changes would significantly reduce the costs of the CAT with
limited impact on the regulatory function of the CAT. As noted, the
vast majority of Options Market Maker Quote lifecycles do not involve
any execution or allocation and usage data demonstrates that such data
is very rarely accessed by regulators. Under the proposed amendments,
regulators will still have access to unlinked Options Market Maker
Quotes data by T+1 at 12:00 p.m. ET. All necessary information for the
eliminated enrichments would be available to regulators, but regulators
would need to derive the enrichments themselves; upon request, the Plan
Processor would provide regulators with the code required in order to
do so. As a result of these changes, the cost impact of Options Market
Maker Quotes on the CAT would be reduced from approximately $24.4
million (inclusive of anticipated savings resulting from the
[[Page 26985]]
implementation of the options quotes ``single pass'' proposal
referenced above) to approximately $4.0 million annually.
The Participants believe that the anticipated savings associated
with this proposal substantially outweigh the limited regulatory impact
on the CAT.\16\
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\16\ The Participants continue to evaluate additional cost
savings measures and alternatives, which may include in the future
continuing to evaluate eliminating Options Market Maker Quotes
entirely from the CAT. Any such changes would require the submission
of a proposed Plan amendment or exemption request to the SEC for
consideration and approval.
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(b) Current CAT NMS Plan Requirements
The CAT NMS Plan contains broad requirements relating to the
current reporting of, linkage and lifecycle processing of, and
regulator access to Options Market Maker Quotes and related Reportable
Events.
First, Section 6.3(d) of the CAT NMS Plan requires each Participant
to record and electronically report to the Central Repository details
for each order and each Reportable Event, including all Options Market
Maker Quotes and related Reportable Events.\17\ Under Section
6.4(d)(iii) of the CAT NMS Plan, ``[w]ith respect to the reporting
obligations of an Options Market Maker with regard to its quotes in
Listed Options, Reportable Events required pursuant to Section
6.3(d)(ii) and (iv) shall be reported to the Central Repository by an
Options Exchange in lieu of the reporting of such information by the
Options Market Maker.'' Section 6.4(d)(iii) also requires that,
pursuant to the Compliance Rules of the Options Exchanges, Options
Market Makers are required to report to the Options Exchange the time
at which a quote in a Listed Option is sent to the Options Exchange
(and, if applicable, any subsequent quote modifications and/or
cancellation time when such modification or cancellation is originated
by the Options Market Maker). Such time information shall be reported
to the Central Repository by the Options Exchange in lieu of reporting
by the Options Market Maker.
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\17\ See supra note 13.
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Second, CAT NMS Plan broadly requires all CAT Data reported to the
Central Repository to be processed and assembled to create the complete
lifecycle of each Reportable Event. The Plan Processor uses a ``daisy
chain approach'' to link all Reportable Events and create a complete
lifecycle of each order. Under this approach, ``a series of unique
order identifiers assigned to all order events handled by CAT Reporters
are linked together by the Central Repository and assigned a single
CAT-generated CAT-Order-ID that is associated with each individual
order event and used to create the complete lifecycle of an order.''
\18\ Data processing timelines are described in Section 6.1 and Section
6.2 of Appendix D of the CAT NMS Plan.
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\18\ Appendix D, Section 3 of the CAT NMS Plan at D-8.
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Finally, the CAT NMS Plan provides that regulators will have access
to processed CAT Data through an online-targeted query tool and user-
defined direct queries and bulk extracts. These requirements are
described in Section 8.1 and Section 8.2 of Appendix D of the CAT NMS
Plan.
(c) Estimated Cost Savings
As described above, the proposed changes would result in
approximately $20.0 million in annual cost savings in the first year
with limited impact on the regulatory function of the CAT.\19\ Given
that the vast majority of Options Market Maker Quotes do not involve
any execution or allocation and are used for limited regulatory
purposes, the current cost associated with processing and storing such
quotes--approximately $30 million in 2023--far outweighs the regulatory
value. Although they will no longer be subject to validation, feedback,
linkage and lifecycle processing, or Plan Processor enrichments (e.g.,
next event timestamp, lifecycle sequence number, CAT-Lifecycle-ID),
Options Market Maker Quotes will continue to be reported and ingested
in the same manner they are today, and unlinked data will remain
accessible to regulators by T+1 at 12:00 p.m. through BDSQL and Direct
Read interfaces.
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\19\ For a discussion of how cost savings estimates are
calculated, see supra note 8. This estimate represents additional
savings to be achieved following the implementation of the options
quotes ``single pass'' proposal targeted for the end of April 2024.
This estimate assumes an approximate 65% reduction in compute
runtime associated with options exchange events, and an approximate
80% reduction in storage footprint through the elimination of
versioned options quote data (e.g., interim, final, DIVER-optimized,
OLA copies).
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(d) Proposed Revisions to CAT NMS Plan
Given the scope of requirements relating directly or indirectly to
the current reporting of, linkage and lifecycle processing of, and
regulator access to Options Market Maker Quotes and related Reportable
Events that currently appear throughout the CAT NMS Plan, CAT LLC
proposes to add a general provision to Appendix D that would expressly
override any inconsistency with respect to Options Market Maker Quotes.
The effect of this provision will be to override any requirements that
generally apply to Reportable Events in the specific circumstance of
Options Market Maker Quotes.
New Section 3.4 of Appendix D would be entitled ``Requirements for
Options Market Maker Quotes in Listed Options'' and would state the
following:
``3.4 Requirements for Options Market Maker Quotes in Listed
Options
The provisions of this section shall govern the processing and
storage of Options Market Maker Quotes in Listed Options and related
Reportable Events and shall override any conflicting provisions in
the CAT NMS Plan, this Appendix D, or Exchange Act Rule 17a-1.
Options Market Maker Quotes in Listed Options must be reported
to the Central Repository as provided under Section 6.4(d)(iii) of
the CAT NMS Plan. This data will undergo ingestion only and such
unlinked data will be made available to regulators by T+1 at 12:00
p.m. Eastern Time. Options Market Maker Quotes in Listed Options
will not be subject to any requirement to link and create an order
lifecycle, and will not undergo any validation, feedback, linkage,
or enrichment processing. Options Market Maker Quotes in Listed
Options will be accessible through BDSQL and Direct Read interfaces
only and will not be accessible through the online targeted query
tool.''
In addition, CAT LLC proposes to amend certain provisions of
Appendix D to include cross-references to new Section 3.4. First, CAT
LLC proposes to amend Section 3 of Appendix D of the CAT NMS Plan to
add the following statement: ``As described in Section 3.4 of Appendix
D, Options Market Maker Quotes in Listed Options and related Reportable
Events will be subject to ingestion only and will not be subject to any
linkage requirements.'' Second, CAT LLC proposes to amend Section 6.1
of Appendix D of the CAT NMS Plan to add the following statement: ``For
the avoidance of doubt, processing and storage of Options Market Maker
Quotes in Listed Options and related Reportable Events shall be
governed by Section 3.4 of Appendix D.'' Finally, CAT LLC proposes to
amend Section 8.1.1 of Appendix D of the CAT NMS Plan to add the
following statement: ``As described in Section 3.4 of Appendix D,
Options Market Maker Quotes in Listed Options and related Reportable
Events will be accessible through BDSQL and Direct Read interfaces only
and will not be accessible through the online targeted query tool.''
[[Page 26986]]
2. Move Raw Unprocessed Data and Interim Operational Copies of CAT Data
Older Than 15 Days to a More Cost-Effective Storage Tier
(a) Overview
Under the current CAT NMS Plan, CAT Data must be ``directly
available and searchable electronically without manual intervention for
at least six years,'' and within certain query tool response times.\20\
This requirement applies not only to the final corrected data version
that is delivered to regulators by T+5 at 8 a.m. ET, but also to raw
unprocessed data and the various types of interim operational data that
do not provide any value to CAT Reporters or to regulators after T+5,
as well as copies of all submission and feedback files provided to CAT
Reporters as part of the correction process (collectively,
``Operational Data'').
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\20\ CAT Data is available to the Participants' regulatory staff
and to the SEC for regulatory purposes only.
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Specifically, interim operational data includes all processed,
validated and unlinked data made available to regulators by T+1 at
12:00 p.m. ET, and all iterations of processed data made available to
regulators between T+1 and T+5 (i.e., the interim data version
available at T+1 at 9:00 p.m. ET). Under the CAT NMS Plan, the Plan
Processor is required to make such data directly available and
searchable electronically by regulators without any manual
intervention. When a regulator queries CAT data, the CAT provides the
latest, most current version to the user. Interim operational data is
supplanted in all CAT query tools by the final version of corrected
data that is made available at T+5 at 8:00 a.m. ET, but remains
available to regulators after T+5 ``without manual intervention'' in
accordance with the CAT NMS Plan via the use of CAT data management
APIs. Regulators generally access the latest, corrected version of CAT
data; accordingly, interim operational data generally does not provide
any regulatory value after the final corrected data version is
delivered by T+5 at 8 a.m. ET. After four years of operation, the Plan
Processor has not seen any regulatory usage of this interim operational
data.
Subject to the Commission's approval, significant cost savings
could be achieved by archiving Operational Data older than 15 days to a
more cost-effective storage tier that is optimized for infrequent
access. Operational Data not older than 15 days, as well as all final,
corrected data, would remain accessible ``without manual intervention''
within required query tool response times.
In each case, it would require some ``manual intervention'' by the
Plan Processor to obtain such archived data for regulators. Under
Section 10.3 of Appendix D of the CAT NMS Plan, the Plan Processor
maintains a CAT Help Desk to, among other things, assist Participants'
regulatory staff and the SEC with questions and issues regarding
obtaining and using CAT Data for regulatory purposes. Upon request by
the SEC or one of the Participants to the CAT Help Desk, archived data
would be restored by the Plan Processor to an accessible storage tier,
at which point it would be available and searchable electronically by
regulatory users in the same manner it is today. The Plan Processor
will develop policies and procedures to ensure the confidentiality of
any regulator requests to obtain Operational Data. Archived data will
be restored generally within several hours or business days of a
request, depending on the volume and size of the date range of the
requested data restore. For example, a request to restore a single day
of data may take less than 24 hours, whereas a request to restore a
year's worth of data may take several days. To put this in context,
when the Commission adopted the CAT NMS Plan, it noted that ``[m]ost
current data sources do not provide direct access to most regulators,
and data requests can take as long as weeks or even months to
process.'' \21\
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\21\ Exchange Act Release No. 79318 (Nov. 15, 2016), 81 FR
84696, 84833 (Nov. 23, 2016) (emphasis added). See also Exchange Act
Release No. 67457, 77 FR 45722, 45729 (Aug. 1, 2012) (noting that
obtaining audit trail data ``can take days or weeks, depending on
the scope of the information requested,'' and that the Commission
``must commit a significant amount of time and resources to process
and cross-link the data from the various formats used by different
SROs before it can be analyzed and used for regulatory purposes'').
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Accordingly, the Participants believe that the anticipated savings
associated with optimizing storage costs as described herein
substantially outweigh the minimal impact on regulatory access to CAT
Data.
(b) Current CAT NMS Plan Requirements
Generally, Section 1.4 of Appendix D of the CAT NMS Plan provides
that the Plan Processor must ``[m]ake data directly available and
searchable electronically without manual intervention for at least six
years.'' Section 6.5(b)(i) of the CAT NMS Plan provides that,
``[c]onsistent with Appendix D, Data Retention Requirements, the
Central Repository shall retain the information collected pursuant to
paragraphs (c)(7) and (e)(7) of SEC Rule 613 in a convenient and usable
standard electronic data format that is directly available and
searchable electronically without any manual intervention by the Plan
Processor for a period of not less than six (6) years.''
In addition, with respect to raw unprocessed data and interim
operational copies of data created between T+1 and T+5, Section 6.2 of
Appendix D of the CAT NMS Plan provides that, ``[p]rior to 12:00 p.m.
Eastern Time on T+1, raw unprocessed data that has been ingested by the
Plan Processor must be available to Participants' regulatory staff and
the SEC,'' and ``[b]etween 12:00 p.m. Eastern Time on T+1 and T+5,
access to all iterations of processed data must be available to
Participants' regulatory staff and the SEC.''
Under the current CAT NMS Plan, CAT Data must be accessible to
regulatory users without ``manual intervention.'' Obtaining data from
archive storage initially would require some manual intervention by the
Plan Processor (i.e., via request to the FINRA CAT Help Desk). Upon
request, data would be restored by the Plan Processor to an accessible
storage tier, at which point it would be available and searchable
electronically by regulatory users in the same manner it is today.
In addition, Section 8.1.2 of Appendix D of the CAT NMS Plan sets
forth certain performance requirements for the OTQT, including
timeframes in which results must be returned for various types of
queries.\22\
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\22\ See also Exchange Act Release No. 98848 (Nov. 2, 2023), 88
FR 77128 (Nov. 8, 2023) (granting conditional exemptive relief from
certain performance requirements related to the online targeted
query tool).
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(c) Estimated Cost Savings
Based on current data volumes, archiving Operational Data older
than 15 days is expected to result in approximate annual cost savings
of approximately $1.0 million.\23\ CAT LLC believes that these cost
savings substantially outweigh the minimal impact on regulatory access
to CAT Data.
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\23\ For a discussion of how cost savings estimates are
calculated, see supra note 8. This estimate represents additional
savings to be achieved following the implementation of the options
quotes ``single pass'' proposal targeted for the end of April 2024,
which eliminates interim operational copies of options quotes.
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(d) Proposed Revisions to CAT NMS Plan
CAT LLC proposes to amend the CAT NMS Plan to permit the Plan
Processor
[[Page 26987]]
to move Operational Data older than 15 days to a more cost-effective
storage tier. Specifically, CAT LLC proposes to add new Section 6.3 to
Appendix D of the CAT NMS Plan. New Section 6.3 would be entitled
``Exceptions to Data Availability Requirements'' and would state the
following:
``6.3 Exceptions to Data Availability Requirements
Notwithstanding any other provision of the CAT NMS Plan, this
Appendix D, or Exchange Act Rule 17a-1, the following types of data
may be retained in an archive storage tier, in which case they will
be made available upon request by Participant regulatory staff or
the SEC to the CAT Help Desk. Archived data is not directly
available and searchable electronically without manual intervention
and will not be subject to any query tool performance requirements
until it is restored to an accessible storage tier.
<bullet> All raw unprocessed data (i.e., as submitted data) and
interim operational data older than 15 days. Interim operational
data includes all processed, validated and unlinked data made
available to regulators by T+1 at 12:00 p.m. ET, and all iterations
of processed data made available to regulators between T+1 and T+5,
but excludes the final version of corrected data that is made
available at T+5 at 8:00 a.m. ET.
<bullet> All submission and feedback files older than 15 days.
In addition, CAT LLC proposes to add references to new Section 6.3
of Appendix D throughout the CAT NMS Plan. Specifically, CAT LLC
proposes to add the phrase ``subject to the exceptions in Section 6.3
of Appendix D'' to Section 6.5(d)(i) and Section 1.4 of Appendix D.
3. Provide an Interim CAT-Order-ID on an ``As Requested'' Basis
(a) Overview
CAT LLC proposes to amend the CAT NMS Plan to provide for delivery
of an interim CAT-Order-ID on an ``as requested'' basis, rather than on
a regular ongoing basis. Specifically, where there is an immediate
regulatory need (for example, in the case of a major market event),
upon request of a senior officer of the Division of Trading and
Markets, the Division of Enforcement, or the Division of Examinations
to CAT LLC, the Plan Processor would be directed create an interim CAT-
Order-ID and make it available to regulators by T+1 at 9 p.m. ET if the
request is received prior to T+1 at 8 a.m. ET, or generally within 14
hours of receiving the request if such request was received after T+1
at 8 a.m. ET. This would preserve the SEC's ability to obtain an
interim CAT-Order-ID on an as needed basis, while avoiding the
substantial cost of delivering an interim CAT-Order-ID on a regular
ongoing basis.
Subject to the proposals described above with respect to Options
Market Maker Quotes, there would be no change to any other aspect of
the CAT NMS Plan requirements for the processing of data, error
feedback, and final delivery of data to regulators by T+5 at 8 a.m. ET,
and no impact to Industry Members. Consistent with current CAT NMS Plan
requirements, prior to 12:00 p.m. ET on T+1, regulators will continue
to have access to raw unprocessed data that has been ingested by the
Plan Processor, and between 12:00 p.m. on T+1 and T+5, regulators will
continue to have access to all iterations of unlinked, processed data.
This change is estimated to result in approximately $2 million in
annual compute savings, with minimal regulatory impact. Based on
current data volumes, the estimated cost of an ad hoc interim CAT-
Order-ID delivery is approximately $10,000 to $12,000 per request.\24\
CAT LLC would add a separate line item to its budget to reflect costs
related to any SEC requests to generate an interim CAT-Order-ID.
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\24\ This cost savings estimate has been calculated assuming the
Plan Processor's implementation of functionality to provide a final
CAT-Order-ID and lifecycle linkage for options quotes by T+2 at 8
a.m. ET (in lieu of T+5 at 8 a.m. ET), which is expected in April
2024.
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The Participants believe that the anticipated savings associated
with this change substantially outweigh the minimal regulatory impact.
(b) Current CAT NMS Plan Requirements
Appendix D, Section 6.1 of the CAT NMS Plan states that ``Noon
Eastern Time T+1 (transaction date + one day)'' is the deadline for
``initial data validation, lifecycle linkages and communication of
errors to CAT Reporters.'' The CAT NMS Plan further explains that the
Plan Processor must ``link and create the order lifecycle'' using a
``daisy chain approach,'' in which, ``a series of unique order
identifiers assigned to all order events handled by CAT Reporters are
linked together by the Central Repository and assigned a single CAT-
generated CAT-Order-ID that is associated with each individual order
event and used to create the complete lifecycle of an order.'' \25\
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\25\ Appendix D, Section 3 of the CAT NMS Plan at D-8.
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Pursuant to a Commission exemptive order, the Plan Processor
assigns an interim CAT-Order-ID by T+1 at 9 p.m. ET, rather than by the
T+1 at noon Eastern Time deadline set forth in the CAT NMS Plan.\26\
The Plan Processor subsequently provides a final CAT-Order-ID at T+5 at
8 a.m. ET, pursuant to the following timeline:
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\26\ Exchange Act Release No. 98848 (Nov. 2, 2023), 88 FR 77128
(Nov. 8, 2023). See also Exchange Act Release No. 97530 (May 18,
2023), 88 FR 33655 (May 24, 2023); Exchange Act Release No. 95234
(July 8, 2022), 87 FR 42247 (July 14, 2022); Exchange Act Release
No. 90688 (Dec. 16, 2020), 85 FR 83634 (Dec. 22, 2020).
T+1 @8 a.m. ET: Initial submissions due
T+1 @12 p.m. ET: Initial data validation, communication of errors to
CAT Reporters; unlinked data available to regulators
T+1 @9 p.m. ET: Interim CAT-Order-ID available \27\
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\27\ The Commission's exemptive order provides that the Plan
Processor will no longer be required to provide an interim CAT-
Order-ID for Options Quotes once it has developed and implemented
the functionality to provide a final CAT-Order-ID and lifecycle
linkage for Options Quotes by T+2 at 8 a.m. ET, including all
enrichments currently provided for such order events at T+5 at 8
a.m. ET. When late or corrected data is received for Options Quotes
between T+1 at 8 a.m. ET and T+4 at 8 a.m. ET, the Plan Processor
must run, on an ad hoc basis, a second processing cycle such that
lifecycle linkage and all enrichments currently provided for such
order events are performed by T+5 at 8 a.m. ET. See Exchange Act
Release No. 98848 (Nov. 2, 2023), 88 FR 77128, 77130 (Nov. 8, 2023).
To the extent the proposed amendments are approved, the Plan
Processor would no longer be required to create any lifecycle
linkages for Options Market Maker Quotes.
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T+3 @8 a.m. ET: Resubmission of corrected data
T+4 @8 a.m. ET: Final lifecycle assembly begins, reprocessing of late
submissions and corrections
T+5 @8 a.m. ET: Corrected data available to Participant regulatory
staff and the SEC
CAT LLC proposes to clarify that the Plan does not require
assignment of interim CAT-Order-IDs on a regular ongoing basis; rather,
interim CAT-Order-IDs shall be provided on an ``as requested'' basis.
Specifically, upon request of a senior officer of the Division of
Trading and Markets, the Division of Enforcement, or the Division of
Examinations to CAT LLC, the Plan Processor would be directed create an
interim CAT-Order-ID and make it available to regulators by T+1 at 9
p.m. ET if the request is received prior to T+1 at 8 a.m. ET, or
generally within 14 hours of receiving the request if such request was
received after T+1 at 8 a.m. ET. There would be no change to any other
aspect of the processing timeline.
(c) Estimated Cost Savings
Based on current data volumes, providing for delivery of an interim
CAT-Order-ID on an ``as requested'' basis, rather than on a regular
ongoing basis, is estimated to result in approximately $2 million in
annual
[[Page 26988]]
savings.\28\ CAT LLC believes that these cost savings are readily
justified given the minimal impact on regulatory access to CAT Data.
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\28\ For a discussion of how cost savings estimates are
calculated, see supra note 8. This estimate represents additional
savings to be achieved following the implementation of the options
quotes ``single pass'' proposal targeted for the end of April 2024,
which eliminates options quotes from the interim lifecycle
processing. The average typical daily compute costs for interim
lifecycle processing (Linker and ETL data processing) is estimated
to be approximately $8,000/day to $10,000/day for a typical day
based on current data volumes (including savings attributable to the
daily ODCR and Compute Savings Plans), which totals approximately $2
million per year based on 252 trading days per year.
---------------------------------------------------------------------------
Based on current data volumes, the estimated cost of an ad hoc
interim CAT-Order-ID delivery is approximately $10,000 to $12,000 per
request.\29\ CAT LLC would add a separate line item to its budget to
reflect costs related to any SEC requests to generate an interim CAT-
Order-ID.
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\29\ This estimate includes compute and storage costs for a
daily ad hoc interim lifecycle processing, assuming the
implementation of the options quotes ``single pass'' proposal, and
is based on on demand rates for a typical day with average data
volumes, less options quotes data volumes and their associated
storage needs. The estimated number of authorized ad hoc runs per
year that would be requested by the SEC cannot be predicted by CAT
LLC or the Plan Processor.
---------------------------------------------------------------------------
While CAT LLC believes it would be reasonable and appropriate to
incur such cost to address a pressing regulatory need on an as needed
basis, such as in the event of a market event, the substantial cost of
delivering an interim CAT-Order-ID on a continuous basis outweighs any
regulatory benefit.
(d) Proposed Revisions to CAT NMS Plan
CAT LLC proposes to amend the CAT NMS Plan to eliminate the
requirement to provide an interim CAT-Order-ID on a regular ongoing
basis. Specifically, CAT LLC proposes to delete the phrase ``lifecycle
linkages'' from the following bullet in Section 6.1 of Appendix D of
the CAT NMS Plan: ``Noon Eastern Time T+1 (transaction date + one
day)--Initial data validation, lifecycle linkages and communication of
errors to CAT Reporters.'' Similarly, CAT LLC proposes to delete the
phrase ``Life Cycle Linkage'' from the second box in Figure A in
Section 6.1 of Appendix D of the CAT NMS Plan. The box currently states
the following: ``12:00 p.m. ET T+1 Initial Validation, Life Cycle
Linkage, Communication of Errors.'' With the change, this box would
state ``12:00 p.m. ET T+1 Initial Validation, Communication of
Errors.''
CAT LLC also proposes to amend the CAT NMS Plan to require CAT LLC
to provide an interim CAT-Order-ID on an ``as requested'' basis.
Specifically, CAT LLC proposes to add the following provision to
Section 6.1 of Appendix D of the CAT NMS Plan: ``Where there is an
immediate regulatory need (for example, in the case of a major market
event), upon request of a senior officer of the Division of Trading and
Markets, the Division of Enforcement, or the Division of Examinations
to CAT LLC, the Plan Processor shall be directed to create an interim
CAT-Order-ID and make it available to regulators by T+1 at 9 p.m. ET if
the request is received prior to T+1 at 8 a.m. ET, or generally within
14 hours of receiving the request if such request was received after
T+1 at 8 a.m. ET.''
4. Incorporate Exemptive Relief Permitting Deletion of Industry Test
Data Older Than Three Months and Include CAIS Data
(a) Overview; Prior Commission Exemptive Order
CAT Reporters engage in testing related to the reporting of order
and transaction data to the CAT, both pursuant to required testing and
on a voluntary basis. In connection with this testing, CAT LLC, through
the Plan 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, referred to herein as ``Industry
Test Data''.\30\
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\30\ Separately, CAT LLC, through the Plan Processor, also
retains operational metrics associated with industry testing for six
years in accordance with the Plan. 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.'' The proposed amendments do not affect such
operational metrics.
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On June 2, 2023, CAT LLC requested exemptive relief from Rule 17a-1
under the Exchange Act and certain provisions of the CAT NMS Plan
relating to the retention of Industry Test Data beyond three
months.\31\ On November 27, 2023, the Commission granted the requested
relief.\32\ The exemptive request and the Commission's order apply only
to Industry Test Data related to the CAT order and transaction system,
not to the customer account and information system (``CAIS'').
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\31\ See Letter from Brandon Becker, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman, Secretary, Commission, dated
June 2, 2023, <a href="https://catnmsplan.com/sites/default/files/2023-06/06.02.23-Exemptive-Request-Test-Data-Retention.pdf">https://catnmsplan.com/sites/default/files/2023-06/06.02.23-Exemptive-Request-Test-Data-Retention.pdf</a>. As noted in the
exemptive request, CAT LLC does not believe that Industry Test Data
constitutes documents covered by Rule 17a-1 under the Exchange Act
and adheres to its view that the specific three-month period for
Industry Test Data supersedes the more general, longer retention
periods in the CAT NMS Plan, but submitted the exemptive request to
obtain regulatory clarity in light of the SEC staff's comments that
the longer retention periods set forth in Rule 17a-1 under the
Exchange Act and the CAT NMS Plan may apply to Industry Test Data.
\32\ Exchange Act Release No. 99023 (Nov. 27, 2023), 88 FR 84026
(Dec. 1, 2023).
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CAT LLC is now proposing to incorporate the exemptive relief into
the CAT NMS Plan to clarify that data from industry testing for both
Industry Members and Participants may be deleted after three months. In
addition, the amendments would apply to Industry Test Data related to
both transaction system and CAIS data.
(b) Current CAT NMS Plan Requirements; Exchange Act Rule 17a-1
Appendix D of the CAT NMS Plan specifically requires the retention
of Industry Test Data for three months only.\33\ Specifically, Appendix
D of the CAT NMS Plan states that ``[d]ata from industry testing must
be saved for three months.'' \34\ Separate from this specific three-
month retention requirement in Appendix D of the CAT NMS Plan, Rule
17a-1 under the Exchange Act and other more general recordkeeping
provisions of the CAT NMS Plan set forth lengthier record retention
periods of five and six years, respectively. Rule 17a-1 under the
Exchange Act 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,'' \35\ 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.'' \36\ The CAT is a facility of each of the Participants
to the CAT NMS Plan. In addition, Section 9.1 of the CAT NMS Plan, the
general recordkeeping provision for the CAT NMS Plan, incorporates by
reference the requirements of Rule 17a-1 under the Exchange Act.
Specifically, Section 9.1 of the CAT NMS Plan states, in relevant part,
that ``[t]he Company shall maintain
[[Page 26989]]
complete and accurate books and records of the Company in accordance
with SEC Rule 17a-1.''
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\33\ Ordinarily, specific provisions in a statute or regulation
prevail over general provisions which might appear to the contrary.
See, e.g., RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S.
639, 645 (2012) (citing Morales v. Trans World Airlines, Inc., 504
U.S. 374, 384 (1992)).
\34\ Appendix D, Section 1.2 of the CAT NMS Plan at D-4.
\35\ Rule 17a-1(a) under the Exchange Act.
\36\ Rule 17a-1(b) under the Exchange Act.
---------------------------------------------------------------------------
(c) Estimated Cost Savings
Prior to the Commission's exemptive order, the Plan Processor had
been retaining Industry Test Data beyond the three-month period
prescribed by Appendix D of the CAT NMS Plan; eliminating Industry Test
Data older than three months as permitted by the exemptive order is
expected to achieve approximately $1 million per year in savings. The
proposed amendments would not generate additional cost savings beyond
those achievable pursuant to the exemptive order, but would incorporate
the exemptive relief into the CAT NMS Plan itself.
Proposed Revisions to CAT NMS Plan
CAT LLC proposes to amend the CAT NMS Plan to clarify that Industry
Test Data related to both the CAT order and transaction system and to
CAIS may be deleted after three months. Specifically, CAT LLC proposes
to revise the following bullet in Section 1.2 of Appendix D of the CAT
NMS Plan: ``Data from industry testing must be saved for three months.
Operational 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.'' CAT LLC proposes to add the following as the second
sentence of the bullet: ``Notwithstanding any other provision of the
CAT NMS Plan, this Appendix D, or Exchange Act Rule 17a-1, such test
data (whether related to the CAT order and transaction system or the
customer account and information system) may be deleted by the Plan
Processor after three months.'' With this phrase, the bullet would
state: ``Data from industry testing must be saved for three months.
Notwithstanding any other provision of the CAT NMS Plan, this Appendix
D, or Exchange Act Rule 17a-1, such test data (whether related to the
CAT order and transaction system or the customer account and
information system) may be deleted by the Plan Processor after three
months. Operational 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.''
B. Governing or Constituent Documents
Not applicable.
C. Implementation of Amendment
The Participants propose to implement the proposal upon approval of
the proposed amendment to the CAT NMS Plan.
D. Development and Implementation Phases
Not applicable.
E. Analysis of Impact on Competition
CAT LLC does not believe that the proposed amendment would result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Exchange Act. Indeed, CAT LLC
believes that the proposed amendments will have a positive impact on
competition, efficiency and capital formation. The proposed amendments
will provide substantial savings in CAT costs while providing minimal
impact on the regulatory use of CAT Data. Such substantial savings
would inure to the benefit of all participants in the markets for NMS
Securities and OTC Equity Securities, including Participants, Industry
Members, and most importantly, the investors.
F. Written Understanding or Agreements Relating To Interpretation of,
or Participation in Plan
Not applicable.
G. Approval by Plan Sponsors in Accordance With Plan
Section 12.3 of the CAT NMS Plan states that, subject to certain
exceptions, the CAT NMS Plan may be amended from time to time only by a
written amendment, authorized by the affirmative vote of not less than
two-thirds of all of the Participants, that has been approved by the
SEC pursuant to Rule 608 of Regulation NMS under the Exchange Act or
has otherwise become effective under Rule 608 of Regulation NMS under
the Exchange Act. In addition, the proposed amendment was discussed
during Operating Committee meetings. The Participants, by a vote of the
Operating Committee taken on March 26, 2024, have authorized the filing
of this proposed amendment with the SEC in accordance with the CAT NMS
Plan.
H. Description of Operation of Facility Contemplated by the Proposed
Amendment
Not applicable.
I. Terms and Conditions of Access
Not applicable.
J. Method of Determination and Imposition, and Amount of, Fees and
Charges
Not applicable.
K. Method and Frequency of Processor Evaluation
Not applicable.
L. Dispute Resolution
Not applicable.
* * * * *
Exhibit A
Proposed Revisions to CAT NMS Plan
Additions underlined; deletions [bracketed]
* * * * *
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* * * * *
III. Solicitation of Comments
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\37\ Specific performance requirements will be included in the
SLA.
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Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the amendment is
consistent with the Exchange Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1062657c753d737f7d7d757e6463506375733e777f66"><span class="__cf_email__" data-cfemail="c2b0b7aea7efa1adafafa7acb6b182b1a7a1eca5adb4">[email protected]</span></a>. Please include
file number 4-698 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number 4-698. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed amendment that are filed with
the Commission, and all written communications relating to the proposed
amendment between the Commission and any person, other than those that
may be withheld from the
[[Page 26998]]
public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal offices of the Participants. Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to file number 4-698 and should be submitted on or before May 7,
2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(85).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-07967 Filed 4-15-24; 8:45 am]
BILLING CODE 8011-01-P
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