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Federal Register / Vol. 86, No. 171 / Wednesday, September 8, 2021 / Notices
II. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below.
The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose LTSE is filing with the Commission a proposed rule change to eliminate LTSE
Rule 11.420 to reflect that as of September 1, 2021, FINRA will have retired OATS, and Industry Members will be effectively reporting to the CAT
adopted pursuant to the CAT NMS Plan.
I Background
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LTSE, FINRA, and the other national securities exchanges collectively, the Participants 6 filed with the Commission, pursuant to Section 11A of the Exchange Act 7 and Rule 608 of Regulation NMS thereunder,8 the CAT
NMS Plan.9 The Participants filed the Plan to comply with Rule 613 of Regulation NMS under the Exchange Act.10 The Plan was published for comment in the Federal Register on May 17, 2016,11 and approved by the Commission, as modified, on November 15, 2016.12 LTSE Rule Series 11.600
implements provisions of the CAT NMS
Plan that are applicable to LTSE
Members.13
6 For a complete list of Participants, see Exhibit A to the Limited Liability Company Agreement of Consolidated Audit Trail, LLC, available at www.catnmsplan.com/sites/default/files/2020-07/
LLC-Agreement-of-Consolidated-Audit-Trail-LLCas-of-7.24.20.pdf.
7 15 U.S.C. 78k1.
8 17 CFR 242.608.
9 See Letter from the Participants to Brent J.
Fields, Secretary, Commission, dated September 30, 2014; and Letter from Participants to Brent J. Fields, Secretary, Commission, dated February 27, 2015.
On December 24, 2015, the Participants submitted an amendment to the CAT NMS Plan. See Letter from Participants to Brent J. Fields, Secretary, Commission, dated December 23, 2015.
10 17 CFR 242.613.
11 See Securities Exchange Act Rel. No. 77724
Apr. 27, 2016, 81 FR 30614 May 17, 2016.
12 See Securities Exchange Act Rel. No. 79318
Nov. 15, 2016, 81 FR 84696 Nov. 23, 2016.
13 See LTSE Rule 1.160w.

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The CAT NMS Plan is intended to create, implement, and maintain a consolidated audit trail that will capture in a single consolidated data source customer and order event information for orders in NMS Securities and OTC
Equity Securities, across all markets, from the time of order inception through routing, cancellation, modification, or execution.14 Among other things, the CAT NMS Plan, as modified by the Commission, requires each Participant to file with the SEC the relevant rule change filing to eliminate or modify its duplicative rules within six 6 months of the SECs approval of the CAT NMS
Plan. 15 The Plan notes that the elimination of such rules and the retirement of such systems will be effective at such time as CAT Data meets minimum standards of accuracy and reliability. 16 Specifically, the Plan requires the rule filing to discuss the following:
Specific accuracy and reliability standards that will determine when duplicative systems will be retired, including, but not limited to, whether the attainment of a certain Error Rate should determine when a system duplicative of the CAT can be retired;
whether the availability of certain data from Small Industry Members 17
two years after the Effective Date would 14 See, e.g., Securities Exchange Act Release No.
67457 July 18, 2012, 77 FR 45722, 45723 August 1, 2012.
15 See CAT NMS Plan, Appendix C, Section C.9.
LTSE notes that the current filing addresses only the elimination of the OATS rule. Any amendments to the Electronic Blue Sheets rules LTSE Rule 8.220 would be subject to a separate rule filing made in conjunction with SEC rulemaking to amend Rule 17a25 under the Exchange Act. 17
CFR 240.17a25.
16 See CAT NMS Plan, Appendix C, Section C.9.
17 Small Industry Member is defined in LTSE
Rule 11.610pp as an Industry Member that qualifies as a small broker-dealer as defined in Rule 010c of the Exchange Act. On April 20, 2020, the Commission granted exemptive relief from certain provisions of the CAT NMS Plan related to brokerdealers that do not qualify as Small Industry Members solely because such broker-dealers satisfy Rule 010i2 under the Exchange Act in that they introduce transactions on a fully disclosed basis to clearing firms that are not small businesses or small organizations referred to as Introducing Industry Members. Specifically, the Commission provided exemptive relief from requiring Introducing Industry Members to comply with the requirements of the CAT NMS Plan that apply to Industry Members other than Small Industry Members Large Industry Members, provided that the Participants require such Introducing Industry Members to comply with the requirements of the CAT NMS Plan that apply to Small Industry Members. See Securities Exchange Act Release No.
88703 April 20, 2020, 85 FR 23115 April 24, 2020 Order Granting Limited Exemptive Relief Related to Certain Introducing Brokers From the Requirements of the CAT NMS Plan the Introducing Brokers Exemptive Order. As used herein, the term Small Industry Member includes Introducing Industry Members in accordance with the Introducing Brokers Exemptive Order.

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facilitate a more expeditious retirement of duplicative systems; and whether individual Industry Members can be exempted from reporting to duplicative systems once their CAT reporting meets specified accuracy and reliability standards, including, but not limited to, ways in which establishing cross-system regulatory functionality or integrating data from existing systems and the CAT
would facilitate such Individual Industry Member exemptions.18
On November 30, 2020, the Commission approved a FINRA rule filing proposing to eliminate the FINRA
OATS system once FINRA members are effectively reporting to the CAT and the CATs accuracy and reliability meet certain standards.19 Specifically, FINRA
proposed that before OATS could be retired, the CAT generally must achieve a sustained error rate for Industry Member reporting in five categories for a period of at least 180 days 20 of 5% or lower on a pre-correction basis, and 2%
or lower on a post-correction basis measured at T+5. In addition to the maximum error rates and matching thresholds hereafter the threshold requirements, FINRAs use of CAT
Data must confirm that i there are no material issues that have not been corrected, ii the CAT includes all data necessary to allow FINRA to continue to meet its surveillance obligations, and iii the Plan Processor is sufficiently meeting its obligations under the CAT
NMS Plan relating to the reporting and linkage in the initial phase of reporting Phase 2a of Industry Member Data.
In the OATS Retirement Plan Order, the Commission approved FINRAs proposal for how it would measure the CAT Datas accuracy and reliability.
Specifically, the Commission endorsed FINRAs proposal that FINRAs review of CAT Data and error rates would be based on data and linkages in Phase 2a, which replicate the data in OATS today and thus are most relevant for OATS
retirement purposes. Phase 2a Data includes all events and scenarios covered by OATS and applies only to equities. And FINRA would not consider options order events or Phase 2c data and validations, which are not 18 See
supra note 16.
Securities Exchange Act Release No. 90535
November 30, 2020, 85 FR 78395 December 4, 2020 SRFINRA2020024 OATS Retirement Plan Order.
20 As set forth in the OATS Retirement Plan Order, the 180 day applicable period ran from October 26, 2020 to April 26, 2021. October 26, 2020 was the date that Industry Members were required to begin correcting all errors for inter-firm linkages and exchange/TFR/ORF match validations.
19 See
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