On 21 November, SEC designated longer period to take action, ending 27 January 2018.
Background:
On 15 May, FINRA proposed rules for retiring OATS due to CAT system.
- To eliminate order audit trail system (OATS) in FINRA Rule 7400, for CAT reporting.
- Amend FINRA electronic blue sheet (EBS) Rules 8211, 8213 to meet CAT standards.
- Follows FINRA final rule on consolidated audit trail (CAT) compliance.
- Requirements make necessary to eliminate old OATS system, and further changes.
CAT NMS Plan Changes
- Report consolidated data source of customer, order information in NMS, OTC equity.
- Once CAT reports has met specific reliability standard, eliminate duplicate systems.
- Proposed rule change deletes Rule 7400 series, and Rule 4554 from FINRA rulebook.
- Added new supplementary material to FINRA EBS rules, Rules 8211, 8213 standards.
Accuracy and Reliability
- CAT error rates are the main but not sole metric, to determine if retire as duplicate.
- if 5% error rate on initial or pre-correction data, FINRA to measure more granularly.
- Also based on the minimum error rate of post-correction, option, equity separately.
- Before retiring OATS, need 180 days of 5%, on pre-correction or as-submitted basis,
and 2% or lower on a post-correction basis to be sustained as measured over period. - Rejection rates must be equivalently low, and sustained over 180-day period as well.
- Data links, includes intra-firm, inter-firm, and order linkages, subject to error rates.
Small Member Data
- Small industry reporters report two years after effective date, rather than three.
- Burden on current OATS Reporters that are small industry members not significant
if firms are required to report to CAT beginning in November 2018, instead of 2019. - For those not currently reporting to OATS, is no acceleration, and will stay at 2019.
EBS Rules
- Automated submission of trading data to FINRA upon request, use the EBS system.
- CAT, will contain most data participants would otherwise have requested using EBS.
- Will not need EBS for NMS or OTC equity securities, after CAT reporting is in place.
- No complete elimination, remains in use for non-CAT securities, e.g. fixed-income.
FINRA Effectiveness
- On June 1, 2017, FINRA published in federal register, comment period until June 22.
- FINRA will announce the implementation date of rule change in a regulatory notice.
- Publish notice after FINRA concludes thresholds on accuracy and reliability are met.
Parallel Exchange Rules
- Exchanges including NYSE MKT and ISE, issued parallel rules to implement change.
- On May 15, 2017, Nasdaq, and May 30, 2017, NASDAQ PHLX also parallel CAT rule.
- On June 1, 2017, NYSE Arca, IEX, Jun. 2, NYSE and NYSE Arca issued parallel rules.
- On June 12, 2017, NYSE MKT issued final rules on OATS, in Jun. 16 federal register.
- On July 14, 2017, NYSE, Phlx, NYSE Arca and 2017-57 deferred action until August 30.
- On August 2, 2017, NYSE filed UTP rule in federal register, effective quarter 4, 2017.
- On August 25, 2017, ISE issued Amendment No. 2 material, on submitting trade data.
- How ISE will request data under Rule 1404 after members are reporting to the CAT.
August 2017 SEC Response
- On August 30, 2017, SEC provided notice of grounds it is considering for disapproval.
- On Sep. 6, 2017, exchange notice in federal register, comment until September 27, 2017.
- Asked SROs to respond to issues from four comment letters, and estimate of costs.
