December 19, 2023

Ms. Vanessa Countryman
Secretary
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

Re: The Participants’ Request for an Extension of Time Related to Financial Accountability Milestone 4 in the in the National Market System Plan Governing the Consolidated Audit Trail

Dear Ms. Countryman:

The Securities Industry and Financial Markets Association (“SIFMA”)1 is submitting this letter to the U.S. Securities and Exchange Commission (“Commission”) to urge the Commission to deny or reject the May 22, 2023 exemptive relief request (“Exemptive Request”) from the Participants in the National Market System Plan Governing the Consolidated Audit Trail (“CAT NMS Plan” or “Plan”) to “extend until August 31, 2024 the target deadline in Section 11.6(a)(i)(D) of December 30, 2022 for Full Implementation of CAT NMS Plan Requirements.”2 If the Commission were to grant the Exemptive Request, the Participants would be able to recoup 100% of CAT-related costs incurred by them since December 30, 2022 despite failing to deliver a fully functional CAT by this date as required by CAT NMS Plan. As set forth below, we believe the Exemptive Request is contrary to the public interest and the protection of investors, as the Commission is required to find under Section 36 of the Securities Exchange Act of 1934 (“Exchange Act”) and/or Rule 608(e) of Regulation NMS, and therefore should be denied or rejected by the Commission. At a minimum, this issue is of great economic significance to all investors, and must be addressed through the NMS plan amendment process that provides a formal notice and comment period for interested parties.

I. Background

The CAT is a regulatory system designed to allow the Commission and Participants to track equity and listed options order and trading activity across all equity and listed options markets in the U.S.3 Due to significant delays by the Participants in developing the CAT, the Commission amended the CAT NMS Plan in May 2020 (“May 2020 Amendments”) to include financial accountability milestones to increase “the Participants’ financial accountability for the timely completion of the consolidated audit trail.”4 In proposing the financial accountability milestones, the Commission observed that “the Participants had neither met the deadlines set forth in the CAT NMS Plan nor their own proposed extensions of those deadlines.”5 The Commission noted in adopting the milestones that “proposed amendments also will help to ensure that the Participants fulfill their obligations to deliver a functional CAT on a reasonably achievable timeframe.”6

The May 2020 Amendments incorporated four financial accountability milestones in the CAT NMS Plan. Each milestone requires a certain level of development of the CAT system by a certain date. If the Participants fail to achieve that level of development by the milestone date, the amount of money they can recoup from Industry Members (i.e., “Post-Amendment Industry Member Fees”) to cover their expenditures on developing the CAT system to achieve that milestone will be reduced. With regard to each of the second through the fourth milestones, if they fail to achieve that milestone by 270 days after the milestone date, they will not be able to recover any Post-Amendment Industry Member Fees related to that milestone.

The fourth (and final) financial accountability milestone (“FAM 4”) effectively requires the Participants to complete the CAT system by December 30, 2022. The amended CAT NMS Plan refers to this milestone as “Full Implementation of CAT NMS Plan Requirements,” which is defined as:

the point at which the Participants have satisfied all of their obligations to build and implement the CAT, such that all CAT system functionality required by Rule 613 and the CAT NMS Plan has been developed, successfully tested, and fully implemented at the initial Error Rates specified by Section 6.5(d)(i) or less, including functionality that efficiently permits the Participants and the Commission to access all CAT Data required to be stored in the Central Repository pursuant to Section 6.5(a), including Customer Account Information, Customer-ID, Customer Identifying Information, and Allocation
Reports, and to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, including any related allocation information provided in an Allocation Report. This Financial Accountability Milestone shall be considered complete as of the date identified in a Quarterly Progress Report meeting the requirements of Section 6.6(c). [underlining added]

This milestone includes the development of a separate customer database, referred to as the Customer Account and Information System (“CAIS”). As indicated in the underlined part of the definition above, it also includes the ability of the Commission and the Participants to be able to fully use the system for its intended regulatory purposes.

1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.
2 See (https://www.catnmsplan.com/sites/default/files/2023-06/05.22.23-Exemption-Request-Regarding-FAM-4.pdf).
3 See, e.g., Release No. 34-79318 (November 15, 2016), 81 FR 84696 (November 23, 2016).
4 See Release No. 34-88890 (May 15, 2020), 85 FR 31322 (May 22, 2020).
5 Id.
6 Id.