Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt a Fee Schedule To Establish the Fees for Industry Members Related to the National Market System Plan Governing the Consolidated Audit Trail, 23639-23657 [2017-10466]

Download as PDF Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices (‘‘ISG’’).24 The proposed replacement of ‘‘investment company units’’ with ‘‘Investment Company Units’’ in two places in NYSE Arca Equities Rule 5.2(j)(6)(B)(I)(1) is appropriate as such changes conform to other usages of this term in Exchange rules. The proposed replacement of the word ‘‘Index’’ with ‘‘index’’ in two places in Rule 5.2(j)(6)(B)(I)(2)(a)(i) is appropriate as such changes would conform to other usages of this word in Rule 5.2(j)(6)(B)(I)(2). The Exchange has in place surveillance procedures that are adequate to properly monitor trading in Index-Linked Securities in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. All Index-Linked Securities listed pursuant to NYSE Arca Equities Rule 5.2(j)(6) are included within the definition of ‘‘security’’ or ‘‘securities’’ as such terms are used in the Exchange rules and, as such, are subject to Exchange rules and procedures that currently govern the trading of securities on the Exchange. Trading in the securities will be halted under the conditions specified in NYSE Arca Equities Rule 5.2(j)(6)(E). For these reasons, the Exchange believes that the proposal is consistent with the Act. sradovich on DSK3GMQ082PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,25 the Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Instead, the Exchange believes that the proposed change will encourage competition by enabling additional types of Equity Index-Linked Securities to be listed on the Exchange and, by eliminating an unnecessary consideration regarding underlying components, create a more efficient 24 See, e.g., Securities Exchange Act Release No. 76719 (December 21, 2015), 80 FR 80859 (December 28, 2015) (order approving Exchange listing and trading of shares of the Guggenheim Total Return Bond ETF (‘‘Fund’’) under NYSE Arca Equities Rule 8.600), which filing stated: ‘‘Not more than 10% of the net assets of the Fund in the aggregate invested in equity securities (other than non-exchangetraded investment company securities) will consist of equity securities whose principal market is not a member of the ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. In addition, not more than 10% of the net assets of the Fund in the aggregate invested in futures contracts or exchangetraded options contracts will consist of futures contracts or exchange-traded options contracts whose principal market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement.’’ 25 15 U.S.C. 78f(b)(8). VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 process surrounding the listing of Equity Index-Linked Securities. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. SR– NYSEArca–2017–54 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–NYSEArca–2017–54. 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 Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 23639 those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site 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 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–NYSEArca– 2017–54, and should be submitted on or before June 13, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–10463 Filed 5–22–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80710; File No. SR–FINRA– 2017–011] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt a Fee Schedule To Establish the Fees for Industry Members Related to the National Market System Plan Governing the Consolidated Audit Trail May 17, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 8, 2017, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as ‘‘establishing or changing a due, fee or other charge’’ under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b– 4(f)(2) thereunder,4 which renders the 26 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 1 15 E:\FR\FM\23MYN1.SGM 23MYN1 23640 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to adopt a fee schedule to establish the fees for Industry Members related to the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’).5 The text of the proposed rule change is available on FINRA’s Web site at http://www.finra.org, at the principal office of FINRA and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA 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. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change sradovich on DSK3GMQ082PROD with NOTICES 1. Purpose Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), Investors’ Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC,6 NASDAQ PHLX LLC, The NASDAQ 5 Unless otherwise specified, capitalized terms used in this fee filing are defined as set forth herein, the CAT Compliance Rule Series or in the CAT NMS Plan. 6 ISE Gemini, LLC, ISE Mercury, LLC and International Securities Exchange, LLC have been renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC, and Nasdaq ISE, LLC, respectively. See Securities Exchange Act Release No. 80248 (March 15, 2017), 82 FR 14547 (March 21, 2017); Securities Exchange Act Release No. 80326 (March 29, 2017), 82 FR 16460 (April 4, 2017); and Securities Exchange Act Release No. 80325 (March 29, 2017), 82 FR 16445 (April 4, 2017). VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 Stock Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, NYSE Arca, Inc. and NYSE National, Inc.7 (collectively, the ‘‘Participants’’) filed with the Commission, pursuant to Section 11A of the Exchange Act 8 and Rule 608 of Regulation NMS thereunder,9 the CAT NMS Plan.10 The Participants filed the Plan to comply with Rule 613 of Regulation NMS under the Exchange Act. 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 The Plan is designed to create, implement and maintain a consolidated audit trail (‘‘CAT’’) that would capture 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 in a single consolidated data source. The Plan accomplishes this by creating CAT NMS, LLC (the ‘‘Company’’), of which each Participant is a member, to operate the CAT.13 Under the CAT NMS Plan, the Operating Committee of the Company (‘‘Operating Committee’’) has discretion to establish funding for the Company to operate the CAT, including establishing fees that the Participants will pay, and establishing fees for Industry Members that will be implemented by the Participants (‘‘CAT Fees’’).14 The Participants are required to file with the SEC under Section 19(b) of the Exchange Act any such CAT Fees applicable to Industry Members that the Operating Committee approves.15 Accordingly, FINRA submits this fee filing to propose the Consolidated Audit Trail Funding Fees, which will require Industry Members that are FINRA members to pay the CAT Fees 7 National Stock Exchange, Inc. has been renamed NYSE National, Inc. See Securities Exchange Act Release No. 79902 (January 30, 2017), 82 FR 9258 (February 3, 2017). 8 15 U.S.C. 78k–1. 9 17 CFR 242.608. 10 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. 11 Securities Exchange Act Release No. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016). 12 Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) (‘‘Approval Order’’). 13 The Plan also serves as the limited liability company agreement for the Company. 14 Section 11.1(b) of the CAT NMS Plan. 15 See supra note 14. PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 determined by the Operating Committee. (1) Executive Summary The following provides an executive summary of the CAT funding model approved by the Operating Committee, as well as Industry Members’ rights and obligations related to the payment of CAT Fees calculated pursuant to the CAT funding model. A detailed description of the CAT funding model and the CAT Fees follows this executive summary. (A) CAT Funding Model • CAT Costs. The CAT funding model is designed to establish CAT-specific fees to collectively recover the costs of building and operating the CAT from all CAT Reporters, including Industry Members and Participants. The overall CAT costs for the calculation of the CAT Fees in this fee filing are comprised of Plan Processor CAT costs and non-Plan Processor CAT costs incurred, and estimated to be incurred, from November 21, 2016 through November 21, 2017. (See Section II.A.1.(2)(E) below) • Bifurcated Funding Model. The CAT NMS Plan requires a bifurcated funding model, where costs associated with building and operating the CAT would be borne by (1) Participants and Industry Members that are Execution Venues for Eligible Securities through fixed tier fees based on market share, and (2) Industry Members (other than alternative trading systems (‘‘ATSs’’) that execute transactions in Eligible Securities (‘‘Execution Venue ATSs’’)) through fixed tier fees based on message traffic for Eligible Securities. (See Section II.A.1.(2) below) • Industry Member Fees. Each Industry Member (other than Execution Venue ATSs) will be placed into one of nine tiers of fixed fees, based on ‘‘message traffic’’ in Eligible Securities for a defined period (as discussed below). Prior to the start of CAT reporting, ‘‘message traffic’’ will be comprised of historical equity and equity options orders, cancels and quotes provided by each exchange and FINRA over the previous three months. After an Industry Member begins reporting to the CAT, ‘‘message traffic’’ will be calculated based on the Industry Member’s Reportable Events reported to the CAT. Industry Members with lower levels of message traffic will pay a lower fee and Industry Members with higher levels of message traffic will pay a higher fee. (See Section II.A.1.(2)(B) below) • Execution Venue Fees. Each Equity Execution Venue will be placed in one E:\FR\FM\23MYN1.SGM 23MYN1 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices of two tiers of fixed fees based on market share, and each Options Execution Venue will be placed in one of two tiers of fixed fees based on market share. Equity Execution Venue market share will be determined by calculating each Equity Execution Venue’s proportion of the total volume of NMS Stock and OTC Equity shares reported by all Equity Execution Venues during the relevant time period. Similarly, market share for Options Execution Venues will be determined by calculating each Options Execution Venue’s proportion of the total volume of Listed Options contracts reported by all Options Execution Venues during the relevant time period. Equity Execution Venues with a larger market share will pay a larger CAT Fee than Equity Execution Venues with a smaller market share. Similarly, Options Execution Venues with a larger market share will pay a larger CAT Fee than Options Execution Venues with a smaller market share. (See Section II.A.1.(2)(C) below) • Cost Allocation. For the reasons discussed below, in designing the model, the Operating Committee determined that 75 percent of total costs recovered would be allocated to Industry Members (other than Execution Venue ATSs) and 25 percent would be allocated to Execution Venues. In addition, the Operating Committee determined to allocate 75 percent of Execution Venue costs recovered to Equity Execution Venues and 25 percent to Options Execution Venues. (See Section II.A.1.(2)(D) below) • Comparability of Fees. The CAT funding model requires that the CAT Fees charged to the CAT Reporters with the most CAT-related activity (measured by market share and/or message traffic, as applicable) are generally comparable (where, for these comparability purposes, the tiered fee structure takes into consideration affiliations between or among CAT Reporters, whether Execution Venues and/or Industry Members). (See Section II.A.1.(2)(F) below) sradovich on DSK3GMQ082PROD with NOTICES (B) CAT Fees for Industry Members • Fee Schedule. The quarterly CAT Fees for each tier for Industry Members are set forth in the two fee schedules in the Consolidated Audit Trail Funding Fees, one for Equity ATSs and one for Industry Members other than Equity ATSs. (See Section II.A.1.(3)(B) below) • Quarterly Invoices. Industry Members will be billed quarterly for CAT Fees, with the invoices payable within 30 days. The quarterly invoices will identify within which tier the VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 Industry Member falls. (See Section II.A.1.(3)(C) below) • Centralized Payment. Each Industry Member will receive from the Company one invoice for its applicable CAT Fees, not separate invoices from each Participant of which it is a member. The Industry Members will pay its CAT Fees to the Company via the centralized system for the collection of CAT Fees established by the Operating Committee. (See Section II.A.1.(3)(C) below) • Billing Commencement. Industry Members will begin to receive invoices for CAT Fees as promptly as possible following the establishment of a billing mechanism. FINRA will issue a notice to its members when the billing mechanism is established, specifying the date when such invoicing of Industry Members will commence. (See Section II.A.1.(2)(G) below) (2) Description of the CAT Funding Model Article XI of the CAT NMS Plan requires the Operating Committee to approve the operating budget, including projected costs of developing and operating the CAT for the upcoming year. As set forth in Article XI of the CAT NMS Plan, the CAT NMS Plan requires a bifurcated funding model, where costs associated with building and operating the Central Repository would be borne by (1) Participants and Industry Members that are Execution Venues through fixed tier fees based on market share, and (2) Industry Members (other than Execution Venue ATSs) through fixed tier fees based on message traffic. In its order approving the CAT NMS Plan, the Commission determined that the proposed funding model was ‘‘reasonable’’ 16 and ‘‘reflects a reasonable exercise of the Participants’ funding authority to recover the Participants’ costs related to the CAT.’’ 17 More specifically, the Commission stated in approving the CAT NMS Plan that ‘‘[t]he Commission believes that the proposed funding model is reasonably designed to allocate the costs of the CAT between the Participants and Industry Members.’’ 18 The Commission further noted the following: The Commission believes that the proposed funding model reflects a reasonable exercise of the Participants’ funding authority to recover the Participants’ costs related to the CAT. The CAT is a regulatory facility jointly owned by the Participants and . . . the Exchange Act specifically permits the Participants to charge their members fees 16 Approval Order at 84796. Order at 84794. 18 Approval Order at 84795. 17 Approval PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 23641 to fund their self-regulatory obligations. The Commission further believes that the proposed funding model is designed to impose fees reasonably related to the Participants’ self-regulatory obligations because the fees would be directly associated with the costs of establishing and maintaining the CAT, and not unrelated SRO services.19 Accordingly, the funding model imposes fees on both Participants and Industry Members. In addition, as discussed in Appendix C of the CAT NMS Plan, the Operating Committee considered the advantages and disadvantages of a variety of alternative funding and cost allocation models before selecting the proposed model.20 After analyzing the various alternatives, the Operating Committee determined that the proposed tiered, fixed fee funding model provides a variety of advantages in comparison to the alternatives. First, the fixed fee model, as opposed to a variable fee model, provides transparency, ease of calculation, ease of billing and other administrative functions, and predictability of a fixed fee. Such factors are crucial to estimating a reliable revenue stream for the Company and for permitting CAT Reporters to reasonably predict their payment obligations for budgeting purposes.21 Additionally, a strictly variable or metered funding model based on message volume would be far more likely to affect market behavior and place an inappropriate burden on competition. Moreover, as the SEC noted in approving the CAT NMS Plan, ‘‘[t]he Participants also have offered a reasonable basis for establishing a funding model based on broad tiers, in that it be may be easier to implement.’’ 22 In addition, multiple reviews of current broker-dealer order and trading data submitted under existing reporting requirements showed a wide range in activity among broker-dealers, with a number of broker-dealers submitting fewer than 1,000 orders per month and other broker-dealers submitting millions and even billions of orders in the same period. Accordingly, the CAT NMS Plan includes a tiered approach to fees. The 19 Approval Order at 84794. B.7, Appendix C of the CAT NMS Plan, Approval Order at 85006. 21 In choosing a tiered fee structure, the Participants concluded that the variety of benefits offered by a tiered fee structure, discussed above, outweighed the fact that Industry Members in any particular tier would pay different rates per message traffic order event (e.g., an Industry Member with the largest amount of message traffic in one tier would pay a smaller amount per order event than an Industry Member in the same tier with the least amount of message traffic). Such variation is the natural result of a tiered fee structure. 22 Approval Order at 84796. 20 Section E:\FR\FM\23MYN1.SGM 23MYN1 23642 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices sradovich on DSK3GMQ082PROD with NOTICES tiered approach helps ensure that fees are equitably allocated among similarly situated CAT Reporters and furthers the goal of lessening the impact on smaller firms.23 The self-regulatory organizations considered several approaches to developing a tiered model, including defining fee tiers based on such factors as size of firm, message traffic or trading dollar volume. After analyzing the alternatives, it was concluded that the tiering should be based on the relative impact of CAT Reporters on the CAT System. Accordingly, the CAT NMS Plan contemplates that costs will be allocated across the CAT Reporters on a tiered basis to allocate costs to those CAT Reporters that contribute more to the costs of creating, implementing and maintaining the CAT.24 The fees to be assessed at each tier are calculated so as to recoup a proportion of costs appropriate to the message traffic or market share (as applicable) from CAT Reporters in each tier. Therefore, Industry Members generating the most message traffic will be in the higher tiers, and therefore be charged a higher fee. Industry Members with lower levels of message traffic will be in lower tiers and will be assessed a smaller fee for the CAT.25 Correspondingly, Execution Venues with the highest market share will be in the top tier, and therefore will be charged a higher fee. Execution Venues with a lower market share will be in the lower tier and will be assessed a smaller fee for the CAT.26 The Commission also noted in approving the CAT NMS Plan that ‘‘[t]he Participants have offered a credible justification for using different criteria to charge Execution Venues (market share) and Industry Members (message traffic)’’ 27 in the CAT funding model. While there are multiple factors that contribute to the cost of building, maintaining and using the CAT, processing and storage of incoming message traffic is one of the most significant cost drivers for the CAT.28 Thus, the CAT NMS Plan provides that the fees payable by Industry Members (other than Execution Venue ATSs) will be based on the message traffic generated by such Industry Member.29 The CAT NMS Plan provides that the Operating Committee will use different criteria to establish fees for Execution 23 Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85006. 24 Approval Order at 85005. 25 See supra note 24. 26 See supra note 24. 27 Approval Order at 84796. 28 Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85005. 29 Section 11.3(b) of the CAT NMS Plan. VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 Venues and non-Execution Venues due to the fundamental differences between the two types of entities. In particular, the CAT NMS Plan provides that fees charged to CAT Reporters that are Execution Venues will be based on the level of market share and that costs charged to Industry Members (other than Execution Venue ATSs) will be based upon message traffic.30 Because most Participant message traffic consists of quotations, and Participants usually disseminate quotations in all instruments they trade, regardless of execution volume, Execution Venues that are Participants generally disseminate similar amounts of message traffic. Accordingly, basing fees for Execution Venues on message traffic would not provide the same degree of differentiation among Execution Venues that it does among Industry Members (other than Execution Venue ATSs). In contrast, execution volume more accurately delineates the different levels of trading activity of Execution Venues.31 The CAT NMS Plan’s funding model also is structured to avoid a ‘‘reduction in market quality.’’ 32 The tiered, fixed fee funding model is designed to limit the disincentives to providing liquidity to the market. For example, the Participants expect that a firm that had a large volume of quotes would likely be categorized in one of the upper tiers, and would not be assessed a fee for this traffic directly as they would under a more directly metered model. In contrast, strictly variable or metered funding models based on message volume were far more likely to affect market behavior. In approving the CAT NMS Plan, the SEC stated that ‘‘[t]he Participants also offered a reasonable basis for establishing a funding model based on broad tiers, in that it may be . . . less likely to have an incremental deterrent effect on liquidity provision.’’ 33 The CAT NMS Plan is structured to avoid potential conflicts raised by the Operating Committee determining fees applicable to its own members—the Participants. First, the Company will be operated on a ‘‘break-even’’ basis, with fees imposed to cover costs and an appropriate reserve. Any surpluses will be treated as an operational reserve to offset future fees and will not be distributed to the Participants as profits.34 To ensure that the 30 Section 11.2(c) of the CAT NMS Plan. B.7, Appendix C of the CAT NMS Plan, Approval Order at 85005. 32 Section 11.2(e) of the CAT NMS Plan. 33 Approval Order at 84796. 34 Approval Order at 84792. 31 Section PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 Participants’ operation of the CAT will not contribute to the funding of their other operations, Section 11.1(c) of the CAT NMS Plan specifically states that ‘‘[a]ny surplus of the Company’s revenues over its expenses shall be treated as an operational reserve to offset future fees.’’ In addition, as set forth in Article VIII of the CAT NMS Plan, the Company ‘‘intends to operate in a manner such that it qualifies as a ‘business league’ within the meaning of Section 501(c)(6) of the [Internal Revenue] Code.’’ To qualify as a business league, an organization must ‘‘not [be] organized for profit and no part of the net earnings of [the organization can] inure[ ] to the benefit of any private shareholder or individual.’’ 35 As the SEC stated when approving the CAT NMS Plan, ‘‘the Commission believes that the Company’s application for Section 501(c)(6) business league status addresses issues raised by commenters about the Plan’s proposed allocation of profit and loss by mitigating concerns that the Company’s earnings could be used to benefit individual Participants.’’ 36 Finally, by adopting a CAT-specific fee, the Participants will be fully transparent regarding the costs of the CAT. Charging a general regulatory fee, which would be used to cover CAT costs as well as other regulatory costs, would be less transparent than the selected approach of charging a fee designated to cover CAT costs only. A full description of the funding model is set forth below. This description includes the framework for the funding model as set forth in the CAT NMS Plan, as well as the details as to how the funding model will be applied in practice, including the number of fee tiers and the applicable fees for each tier. FINRA notes that the complete funding model is described below, including those fees that are to be paid by the Participants. The proposed Consolidated Audit Trail Funding Fees, however, do not apply to the Participants; the proposed Consolidated Audit Trail Funding Fees only apply to Industry Members. The CAT fees for Participants will be imposed separately by the Operating Committee pursuant to the CAT NMS Plan. (A) Funding Principles Section 11.2 of the CAT NMS Plan sets forth the principles that the Operating Committee applied in establishing the funding for the 35 26 U.S.C. 501(c)(6). Order at 84793. 36 Approval E:\FR\FM\23MYN1.SGM 23MYN1 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices sradovich on DSK3GMQ082PROD with NOTICES Company. The Operating Committee has considered these funding principles as well as the other funding requirements set forth in the CAT NMS Plan and in Rule 613 in developing the proposed funding model. The following are the funding principles in Section 11.2 of the CAT NMS Plan: • To create transparent, predictable revenue streams for the Company that are aligned with the anticipated costs to build, operate and administer the CAT and other costs of the Company; • To establish an allocation of the Company’s related costs among Participants and Industry Members that is consistent with the Exchange Act, taking into account the timeline for implementation of the CAT and distinctions in the securities trading operations of Participants and Industry Members and their relative impact upon the Company’s resources and operations; • To establish a tiered fee structure in which the fees charged to: (i) CAT Reporters that are Execution Venues, including ATSs, are based upon the level of market share; (ii) Industry Members’ non-ATS activities are based upon message traffic; (iii) the CAT Reporters with the most CAT-related activity (measured by market share and/ or message traffic, as applicable) are generally comparable (where, for these comparability purposes, the tiered fee structure takes into consideration affiliations between or among CAT Reporters, whether Execution Venue and/or Industry Members); • To provide for ease of billing and other administrative functions; • To avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality; and • To build financial stability to support the Company as a going concern. (B) Industry Member Tiering Under Section 11.3(b) of the CAT NMS Plan, the Operating Committee is required to establish fixed fees to be payable by Industry Members, based on message traffic generated by such Industry Member, with the Operating Committee establishing at least five and no more than nine tiers. The CAT NMS Plan clarifies that the fixed fees payable by Industry Members pursuant to Section 11.3(b) shall, in addition to any other applicable message traffic, include message traffic generated by: (i) An ATS that does not execute orders that is sponsored by such Industry Member; and (ii) routing orders to and from any ATS sponsored by such Industry Member. In addition, the VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 Industry Member fees will apply to Industry Members that act as routing broker-dealers for exchanges. The Industry Member fees will not be applicable, however, to an ATS that qualifies as an Execution Venue, as discussed in more detail in the section on Execution Venue tiering. In accordance with Section 11.3(b), the Operating Committee approved a tiered fee structure for Industry Members (other than Execution Venue ATSs) as described in this section. In determining the tiers, the Operating Committee considered the funding principles set forth in Section 11.2 of the CAT NMS Plan, seeking to create funding tiers that take into account the relative impact on CAT System resources of different Industry Members, and that establish comparable fees among the CAT Reporters with the most Reportable Events. The Operating Committee has determined that establishing nine tiers results in the fairest allocation of fees, best distinguishing between Industry Members with differing levels of message traffic. Thus, each such Industry Member will be placed into one of nine tiers of fixed fees, based on ‘‘message traffic’’ for a defined period (as discussed below). A nine tier structure was selected to provide the widest range of levels for tiering Industry Members such that Industry Members submitting significantly less message traffic to the CAT would be adequately differentiated from Industry Members submitting substantially more message traffic. The Operating Committee considered historical message traffic generated by Industry Members across all exchanges and as submitted to FINRA’s Order Audit Trail System (‘‘OATS’’), and considered the distribution of firms with similar levels of message traffic, grouping together firms with similar levels of message traffic. Based on this, the Operating Committee determined that nine tiers would best group firms with similar levels of message traffic, charging those firms with higher impact on the CAT more, while lowering the burden of Industry Members that have less CATrelated activity. Each Industry Member (other than Execution Venue ATSs) will be ranked by message traffic and tiered by predefined Industry Member percentages (the ‘‘Industry Member Percentages’’). The Operating Committee determined to use predefined percentages rather than fixed volume thresholds to allow the funding model to ensure that the total CAT fees collected recover the intended CAT costs regardless of changes in the total PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 23643 level of message traffic. To determine the fixed percentage of Industry Members in each tier, the Operating Committee analyzed historical message traffic generated by Industry Members across all exchanges and as submitted to OATS, and considered the distribution of firms with similar levels of message traffic, grouping together firms with similar levels of message traffic. Based on this, the Operating Committee identified tiers that would group firms with similar levels of message traffic, charging those firms with higher impact on the CAT more, while lowering the burden on Industry Members that have less CAT-related activity. The percentage of costs recovered by each Industry Member tier will be determined by predefined percentage allocations (the ‘‘Industry Member Recovery Allocation’’). In determining the fixed percentage allocation of costs recovered for each tier, the Operating Committee considered the impact of CAT Reporter message traffic on the CAT System as well as the distribution of total message volume across Industry Members while seeking to maintain comparable fees among the largest CAT Reporters. Accordingly, following the determination of the percentage of Industry Members in each tier, the Operating Committee identified the percentage of total market volume for each tier based on the historical message traffic upon which Industry Members had been initially ranked. Taking this into account along with the resulting percentage of total recovery, the percentage allocation of costs recovered for each tier were assigned, allocating higher percentages of recovery to tiers with higher levels of message traffic while avoiding any inappropriate burden on competition. Furthermore, by using percentages of Industry Members and costs recovered per tier, the Operating Committee sought to include stability and elasticity within the funding model, allowing the funding model to respond to changes in either the total number of Industry Members or the total level of message traffic. The following chart illustrates the breakdown of nine Industry Member tiers across the monthly average of total equity and equity options orders, cancels and quotes in Q1 2016 and identifies relative gaps across varying levels of Industry Member message traffic as well as message traffic thresholds between the largest of Industry Member message traffic gaps. The Operating Committee referenced similar distribution illustrations to determine the appropriate division of Industry Member percentages in each tier by considering the grouping of firms E:\FR\FM\23MYN1.SGM 23MYN1 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices with similar levels of message traffic and seeking to identify relative breakpoints in the message traffic between such groupings. In reviewing the chart and its corresponding table, note that while these distribution illustrations were referenced to help differentiate between Industry Member tiers, the proposed funding model is directly driven, not by fixed message traffic thresholds, but rather by fixed percentages of Industry Members across tiers to account for fluctuating levels of message traffic across time and to provide for the financial stability of the CAT by ensuring that the funding model will recover the required amounts regardless of changes in the number of Industry Members or the amount of message traffic. Actual messages in any tier will vary based on the actual traffic in a given measurement period, as well as the number of firms included in the measurement period. The Industry Member Percentages and Industry Member Recovery Allocation for each tier will remain fixed with each Industry Member’s tier to be reassigned periodically, as described below in Section II.A.1.(1)(H) [sic]. Monthly average message traffic per industry member (orders, quotes and cancels) Industry member tier Tier Tier Tier Tier Tier Tier Tier Tier Tier 1 2 3 4 5 6 7 8 9 .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. Based on the above analysis, the Operating Committee approved the following Industry Member Percentages and Recovery Allocations: Percentage of industry members sradovich on DSK3GMQ082PROD with NOTICES Industry member tier Tier Tier Tier Tier Tier Tier Tier 1 2 3 4 5 6 7 ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 >10,000,000,000 >1,000,000,000 >100,000,000 >2,500,000 >200,000 >50,000 >5,000 >1,000 ≤1,000 PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 0.500 2.500 2.125 4.625 3.625 4.000 17.500 E:\FR\FM\23MYN1.SGM 23MYN1 Percentage of industry member recovery 8.50 35.00 21.25 15.75 7.75 5.25 4.50 Percentage of total recovery 6.38 26.25 15.94 11.81 5.81 3.94 3.38 EN23MY17.000</GPH> 23644 23645 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices Percentage of industry members Industry member tier Percentage of industry member recovery Percentage of total recovery Tier 8 ............................................................................................................................................ Tier 9 ............................................................................................................................................ 20.125 45.000 1.50 0.50 1.13 0.38 Total ...................................................................................................................................... 100 100 75 sradovich on DSK3GMQ082PROD with NOTICES For the purposes of creating these tiers based on message traffic, the Operating Committee determined to define the term ‘‘message traffic’’ separately for the period before the commencement of CAT reporting and for the period after the start of CAT reporting. The different definition for message traffic is necessary as there will be no Reportable Events as defined in the Plan, prior to the commencement of CAT reporting. Accordingly, prior to the start of CAT reporting, ‘‘message traffic’’ will be comprised of historical equity and equity options orders, cancels and quotes provided by each exchange and FINRA over the previous three months.37 Prior to the start of CAT reporting, orders would be comprised of the total number of equity and equity options orders received and originated by a member of an exchange or FINRA over the previous three-month period, including principal orders, cancel/ replace orders, market maker orders originated by a member of an exchange, and reserve (iceberg) orders as well as order routes and executions originated by a member of FINRA, and excluding order rejects and implied orders.38 In addition, prior to the start of CAT reporting, cancels would be comprised of the total number of equity and equity option cancels received and originated by a member of an exchange or FINRA over a three-month period, excluding order modifications (e.g., order updates, order splits, partial cancels). Furthermore, prior to the start of CAT reporting, quotes would be comprised of 37 The SEC approved exemptive relief permitting Options Market Maker quotes to be reported to the Central Repository by the relevant Options Exchange in lieu of requiring that such reporting be done by both the Options Exchange and the Options Market Maker, as required by Rule 613 of Regulation NMS. See Securities Exchange Act Release No. 77265 (March 1, 2016 [sic], 81 FR 11856 (March 7, 2016). This exemption applies to Options Market Maker quotes for CAT reporting purposes only. Therefore, notwithstanding the reporting exemption provided for Options Market Maker quotes, Options Market Maker quotes will be included in the calculation of total message traffic for Options Market Makers for purposes of tiering under the CAT funding model both prior to CAT reporting and once CAT reporting commences. 38 Consequently, firms that do not have ‘‘message traffic’’ reported to an exchange or OATS before they are reporting to the CAT would not be subject to a fee until they begin to report information to CAT. VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 information readily available to the exchanges and FINRA, such as the total number of historical equity and equity options quotes received and originated by a member of an exchange or FINRA over the prior three-month period. After an Industry Member begins reporting to the CAT, ‘‘message traffic’’ will be calculated based on the Industry Member’s Reportable Events reported to the CAT as will be defined in the Technical Specifications.39 The Operating Committee has determined to calculate fee tiers every three months, on a calendar quarter basis, based on message traffic from the prior three months. Based on its analysis of historical data, the Operating Committee believes that calculating tiers based on three months of data will provide the best balance between reflecting changes in activity by Industry Members while still providing predictability in the tiering for Industry Members. Because fee tiers will be calculated based on message traffic from the prior three months, the Operating Committee will begin calculating message traffic based on an Industry Member’s Reportable Events reported to the CAT once the Industry Member has been reporting to the CAT for three months. Prior to that, fee tiers will be calculated as discussed above with regard to the period prior to CAT reporting. (C) Execution Venue Tiering Under Section 11.3(a) of the CAT NMS Plan, the Operating Committee is required to establish fixed fees payable by Execution Venues. Section 1.1 of the CAT NMS Plan defines an Execution Venue as ‘‘a Participant or an alternative trading system (‘‘ATS’’) (as defined in Rule 300 of Regulation ATS) that operates pursuant to Rule 301 of Regulation ATS (excluding any such ATS that does not execute orders).’’ 40 39 If an Industry Member (other than an Execution Venue ATS) has no orders, cancels or quotes prior to the commencement of CAT Reporting, or no Reportable Events after CAT reporting commences, then the Industry Member would not have a CAT fee obligation. 40 Although FINRA does not operate an execution venue, because it is a Participant, it is considered an ‘‘Execution Venue’’ under the Plan for purposes of determining fees. PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 The Participants determined that ATSs should be included within the definition of Execution Venue. Given the similarity between the activity of exchanges and ATSs, both of which meet the definition of an ‘‘exchange’’ as set forth in the Exchange Act and the fact that the similar trading models would have similar anticipated burdens on the CAT, the Participants determined that ATSs should be treated in the same manner as the exchanges for the purposes of determining the level of fees associated with the CAT.41 Given the differences between Execution Venues that trade NMS Stocks and/or OTC Equity Securities and Execution Venues that trade Listed Options, Section 11.3(a) addresses Execution Venues that trade NMS Stocks and/or OTC Equity Securities separately from Execution Venues that trade Listed Options. Equity and Options Execution Venues are treated separately for two reasons. First, the differing quoting behavior of Equity and Options Execution Venues makes comparison of activity between Execution Venues difficult. Second, Execution Venue tiers are calculated based on market share of share volume, and it is therefore difficult to compare market share between asset classes (i.e., equity shares versus options contracts). Discussed below is how the funding model treats the two types of Execution Venues. (I) NMS Stocks and OTC Equity Securities Section 11.3(a)(i) of the CAT NMS Plan states that each Execution Venue that (i) executes transactions or, (ii) in the case of a national securities association, has trades reported by its members to its trade reporting facility or facilities for reporting transactions effected otherwise than on an exchange, in NMS Stocks or OTC Equity Securities will pay a fixed fee depending on the market share of that Execution Venue in NMS Stocks and OTC Equity Securities, with the Operating Committee establishing at least two and not more than five tiers of fixed fees, based on an Execution Venue’s NMS Stocks and 41 Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85005. E:\FR\FM\23MYN1.SGM 23MYN1 23646 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices OTC Equity Securities market share. For these purposes, market share for Execution Venues that execute transactions will be calculated by share volume, and market share for a national securities association that has trades reported by its members to its trade reporting facility or facilities for reporting transactions effected otherwise than on an exchange in NMS Stocks or OTC Equity Securities will be calculated based on share volume of trades reported, provided, however, that the share volume reported to such national securities association by an Execution Venue shall not be included in the calculation of such national security association’s market share. In accordance with Section 11.3(a)(i) of the CAT NMS Plan, the Operating Committee approved a tiered fee structure for Equity Execution Venues and Option Execution Venues. In determining the Equity Execution Venue Tiers, the Operating Committee considered the funding principles set forth in Section 11.2 of the CAT NMS Plan, seeking to create funding tiers that take into account the relative impact on system resources of different Equity Execution Venues, and that establish comparable fees among the CAT Reporters with the most Reportable Events. Each Equity Execution Venue will be placed into one of two tiers of fixed fees, based on the Execution Venue’s NMS Stocks and OTC Equity Securities market share. In choosing two tiers, the Operating Committee performed an analysis similar to that discussed above with regard to the nonExecution Venue Industry Members to determine the number of tiers for Equity Execution Venues. The Operating Committee determined to establish two tiers for Equity Execution Venues, rather than a larger number of tiers as established for non-Execution Venue Industry Members, because the two tiers were sufficient to distinguish between the smaller number of Equity Execution Venues based on market share. Furthermore, the incorporation of additional Equity Execution Venue tiers would result in significantly higher fees for Tier 1 Equity Execution Venues and diminish comparability between Execution Venues and Industry Members. Each Equity Execution Venue will be ranked by market share and tiered by predefined Execution Venue percentages, (the ‘‘Equity Execution Venue Percentages’’). In determining the fixed percentage of Equity Execution Venues in each tier, the Operating Committee looked at historical market share of share volume for execution venues. Equities Execution Venue market share of share volume were sourced from market statistics made publicly-available by Bats Global Markets, Inc. (‘‘Bats’’). ATS market share of share volume was sourced from market statistics made publiclyavailable by FINRA. FINRA trade reporting facility (‘‘TRF’’) market share of share volume was sourced from market statistics made publicly available by Bats. As indicated by FINRA, ATSs accounted for 37.80% of the share volume across the TRFs during the recent tiering period. A 37.80/62.20 split was applied to the ATS and non-ATS breakdown of FINRA market share, with FINRA tiered based only on the non-ATS portion of its TRF market share of share volume. Based on this, the Operating Committee considered the distribution of Execution Venues, and grouped together Execution Venues with similar levels of market share of share volume. In doing so, the Participants considered that, as previously noted, Execution Venues in many cases have similar levels of message traffic due to quoting activity, and determined that it was simpler and more appropriate to have fewer, rather than more, Execution Venue tiers to distinguish between Execution Venues. The percentage of costs recovered by each Equity Execution Venue tier will be determined by predefined percentage allocations (the ‘‘Equity Execution Venue Recovery Allocation’’). In determining the fixed percentage allocation of costs recovered for each tier, the Operating Committee considered the impact of CAT Reporter market share activity on the CAT System as well as the distribution of total market volume across Equity Execution Venues while seeking to maintain comparable fees among the largest CAT Reporters. Accordingly, following the determination of the percentage of Execution Venues in each tier, the Operating Committee identified the percentage of total market volume for each tier based on the historical market share upon which Execution Venues had been initially ranked. Taking this into account along with the resulting percentage of total recovery, the percentage allocation of costs recovered for each tier were assigned, allocating higher percentages of recovery to the tier with a higher level of market share while avoiding any inappropriate burden on competition. Furthermore, due to the similar levels of impact on the CAT System across Execution Venues, there is less variation in CAT Fees between the highest and lowest of tiers for Execution Venues. Furthermore, by using percentages of Equity Execution Venues and costs recovered per tier, the Operating Committee sought to include stability and elasticity within the funding model, allowing the funding model to respond to changes in either the total number of Equity Execution Venues or changes in market share. Based on this analysis, the Operating Committee approved the following Equity Execution Venue Percentages and Recovery Allocations: Percentage of Equity Execution Venues Equity Execution Venue tier Percentage of Execution Venue Recovery Percentage of total Recovery 25.00 75.00 26.00 49.00 6.50 12.25 Total ...................................................................................................................................... sradovich on DSK3GMQ082PROD with NOTICES Tier 1 ............................................................................................................................................ Tier 2 ............................................................................................................................................ 100 75 18.75 The following table exhibits the relative separation of market share of share volume between Tier 1 and Tier 2 Equity Execution Venues. In reviewing the table, note that while this division was referenced as a data point to help differentiate between Equity VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 Execution Venue tiers, the proposed funding model is directly driven not by market share thresholds, but rather by fixed percentages of Equity Execution Venues across tiers to account for fluctuating levels of market share across time. Actual market share in any tier PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 will vary based on the actual market activity in a given measurement period, as well as the number of Equity Execution Venues included in the measurement period. The Equity Execution Venue Percentages and Equity Execution Venue Recovery E:\FR\FM\23MYN1.SGM 23MYN1 23647 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices Reportable Events. Each Options Execution Venue will be placed into one of two tiers of fixed fees, based on the Execution Venue’s Listed Options market share. In choosing two tiers, the Operating Committee performed an Equity market analysis similar to that discussed above share of with regard to Industry Members (other Equity Execution Venue tier share volume than Execution Venue ATSs) to (%) determine the number of tiers for Tier 1 .................................... ≥1 Options Execution Venues. The Tier 2 .................................... <1 Operating Committee determined to establish two tiers for Options (II) Listed Options Execution Venues, rather than a larger number of tiers as established for Section 11.3(a)(ii) of the CAT NMS Industry Members (other than Execution Plan states that each Execution Venue Venue ATSs), because the two tiers that executes transactions in Listed were sufficient to distinguish between Options will pay a fixed fee depending the smaller number of Options on the Listed Options market share of Execution Venues based on market that Execution Venue, with the share. Furthermore, due to the smaller Operating Committee establishing at number of Options Execution Venues, least two and no more than five tiers of the incorporation of additional Options fixed fees, based on an Execution Execution Venue tiers would result in Venue’s Listed Options market share. For these purposes, market share will be significantly higher fees for Tier 1 Options Execution Venues and reduce calculated by contract volume. In accordance with Section 11.3(a)(ii) comparability between Execution Venues and Industry Members. of the CAT NMS Plan, the Operating Committee approved a tiered fee Each Options Execution Venue will structure for Options Execution Venues. be ranked by market share and tiered by In determining the tiers, the Operating predefined Execution Venue Committee considered the funding percentages, (the ‘‘Options Execution principles set forth in Section 11.2 of Venue Percentages’’). To determine the the CAT NMS Plan, seeking to create fixed percentage of Options Execution funding tiers that take into account the Venues in each tier, the Operating relative impact on system resources of Committee analyzed the historical and different Options Execution Venues, publicly available market share of and that establish comparable fees Options Execution Venues to group among the CAT Reporters with the most Options Execution Venues with similar Allocation for each tier will remain fixed with each Equity Execution Venue tier to be reassigned periodically, as described below in Section II.A.1.(1)(I) [sic]. market shares across the tiers. Options Execution Venue market share of share volume were sourced from market statistics made publicly-available by Bats. The process for developing the Options Execution Venue Percentages was the same as discussed above with regard to Equity Execution Venues. The percentage of costs recovered by each Options Execution Venue tier will be determined by predefined percentage allocations (the ‘‘Options Execution Venue Recovery Allocation’’). In determining the fixed percentage allocation of costs recovered for each tier, the Operating Committee considered the impact of CAT Reporter market share activity on the CAT System as well as the distribution of total market volume across Options Execution Venues while seeking to maintain comparable fees among the largest CAT Reporters. Furthermore, by using percentages of Options Execution Venues and costs recovered per tier, the Operating Committee sought to include stability and elasticity within the funding model, allowing the funding model to respond to changes in either the total number of Options Execution Venues or changes in market share. The process for developing the Options Execution Venue Recovery Allocation was the same as discussed above with regard to Equity Execution Venues. Based on this analysis, the Operating Committee approved the following Options Execution Venue Percentages and Recovery Allocations: Percentage of Options Execution Venues Options Execution Venue tier Percentage of Execution Venue Recovery Percentage of total recovery 75.00 25.00 20.00 5.00 5.00 1.25 Total ...................................................................................................................................... sradovich on DSK3GMQ082PROD with NOTICES Tier 1 ............................................................................................................................................ Tier 2 ............................................................................................................................................ 100 25 6.25 The following table exhibits the relative separation of market share of share volume between Tier 1 and Tier 2 Options Execution Venues. In reviewing the table, note that while this division was referenced as a data point to help differentiate between Options Execution Venue tiers, the proposed funding model is directly driven, not by market share thresholds, but rather by fixed percentages of Options Execution Venues across tiers to account for fluctuating levels of market share across time. Actual market share in any tier will vary based on the actual market activity in a given measurement period, as well as the number of Options Execution Venues included in the VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 measurement period. The Options Execution Venue Percentages and Equity Execution Venue Recovery Allocation for each tier will remain fixed with each Options Execution Venue tier to be reassigned periodically, as described below in Section II.A.1.(1)(I) [sic]. Options Execution Venue Tier Tier 1 .................................... Tier 2 .................................... PO 00000 Frm 00127 Fmt 4703 (III) Market Share/Tier Assignments The Operating Committee determined that, prior to the start of CAT reporting, market share for Execution Venues would be sourced from publiclyavailable market data. Options and equity volumes for Participants will be sourced from market data made publicly available by Bats while Execution Options Venue ATS volumes will be sourced market share of share from market data made publicly volume available by FINRA. Set forth in the (%) Appendix are two charts, one listing the ≥1 current Equity Execution Venues, each <1 with its rank and tier, and one listing the current Options Execution Venues, each with its rank and tier. Sfmt 4703 E:\FR\FM\23MYN1.SGM 23MYN1 23648 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices After the commencement of CAT reporting, market share for Execution Venues will be sourced from data reported to the CAT. Equity Execution Venue market share will be determined by calculating each Equity Execution Venue’s proportion of the total volume of NMS Stock and OTC Equity shares reported by all Equity Execution Venues during the relevant time period. Similarly, market share for Options Execution Venues will be determined by calculating each Options Execution Venue’s proportion of the total volume of Listed Options contracts reported by all Options Execution Venues during the relevant time period. The Operating Committee has determined to calculate fee tiers for Execution Venues every three months based on market share from the prior three months. Based on its analysis of historical data, the Operating Committee believes calculating tiers based on three months of data will provide the best balance between reflecting changes in activity by Execution Venues while still providing predictability in the tiering for Execution Venues. sradovich on DSK3GMQ082PROD with NOTICES (D) Allocation of Costs In addition to the funding principles discussed above, including comparability of fees, Section 11.1(c) of the CAT NMS Plan also requires expenses to be fairly and reasonably shared among the Participants and Industry Members. Accordingly, in developing the proposed fee schedules pursuant to the funding model, the Operating Committee calculated how the CAT costs would be allocated between Industry Members and Execution Venues, and how the portion of CAT costs allocated to Execution Venues would be allocated between Equity Execution Venues and Options Execution Venues. These determinations are described below. (I) Allocation Between Industry Members and Execution Venues In determining the cost allocation between Industry Members (other than Execution Venue ATSs) and Execution Venues, the Operating Committee analyzed a range of possible splits for revenue recovered from such Industry Members and Execution Venues. Based on this analysis, the Operating Committee determined that 75 percent of total costs recovered would be allocated to Industry Members (other than Execution Venue ATSs) and 25 percent would be allocated to Execution Venues. The Operating Committee determined that this 75/25 division maintained the greatest level of comparability across the funding model, VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 keeping in view that comparability should consider affiliations among or between CAT Reporters (e.g., firms with multiple Industry Members and/or exchange licenses). For example, the cost allocation establishes fees for the largest Industry Members (i.e., those Industry Members in Tiers 1, 2 and 3) that are comparable to the largest Equity Execution Venues and Options Execution Venues (i.e., those Execution Venues in Tier 1). In addition, the cost allocation establishes fees for Execution Venue complexes that are comparable to those of Industry Member complexes. For example, when analyzing alternative allocations, other possible allocations led to much higher fees for larger Industry Members than for larger Execution Venues or vice versa, and/or led to much higher fees for Industry Member complexes than Execution Venue complexes or vice versa. Furthermore, the allocation of total CAT costs recovered recognizes the difference in the number of CAT Reporters that are Industry Members versus CAT Reporters that are Execution Venues. Specifically, the cost allocation takes into consideration that there are approximately 25 times more Industry Members expected to report to the CAT than Execution Venues (e.g., an estimated 1,630 Industry Members versus 70 Execution Venues as of January 2017). (II) Allocation Between Equity Execution Venues and Options Execution Venues The Operating Committee also analyzed how the portion of CAT costs allocated to Execution Venues would be allocated between Equity Execution Venues and Options Execution Venues. In considering this allocation of costs, the Operating Committee analyzed a range of alternative splits for revenue recovered between Equity and Options Execution Venues, including a 70/30, 67/33, 65/35, 50/50 and 25/75 split. Based on this analysis, the Operating Committee determined to allocate 75 percent of Execution Venue costs recovered to Equity Execution Venues and 25 percent to Options Execution Venues. The Operating Committee determined that a 75/25 division between Equity and Options Execution Venues maintained elasticity across the funding model as well the greatest level of fee equitability and comparability based on the current number of Equity and Options Execution Venues. For example, the allocation establishes fees for the larger Equity Execution Venues that are comparable to the larger Options Execution Venues, and fees for the smaller Equity Execution Venues PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 that are comparable to the smaller Options Execution Venues. In addition to fee comparability between Equity Execution Venues and Options Execution Venues, the allocation also establishes equitability between larger (Tier 1) and smaller (Tier 2) Execution Venues based upon the level of market share. Furthermore, the allocation is intended to reflect the relative levels of current equity and options order events. (E) Fee Levels The Operating Committee determined to establish a CAT-specific fee to collectively recover the costs of building and operating the CAT. Accordingly, under the funding model, the sum of the CAT Fees is designed to recover the total cost of the CAT. The Operating Committee has determined overall CAT costs to be comprised of Plan Processor costs and non-Plan Processor costs, which are estimated to be $50,700,000 in total for the year beginning November 21, 2016.42 The Plan Processor costs relate to costs incurred by the Plan Processor and consist of the Plan Processor’s current estimates of average yearly ongoing costs, including development cost, which total $37,500,000. This amount is based upon the fees due to the Plan Processor pursuant to the agreement with the Plan Processor. The non-Plan Processor estimated costs incurred and to be incurred by the Company through November 21, 2017 consist of three categories of costs. The first category of such costs are third party support costs, which include historic legal fees, consulting fees and audit fees from November 21, 2016 until the date of filing as well as estimated third party support costs for the rest of the year. These amount to an estimated $5,200,000. The second category of nonPlan Processor costs are estimated insurance costs for the year. Based on discussions with potential insurance providers, assuming $2–5 million insurance premium on $100 million in coverage, the Company has received an estimate of $3,000,000 for the annual cost. The final cost figures will be determined following receipt of final underwriter quotes. The third category of non-Plan Processor costs is the operational reserve, which is comprised of three months of ongoing Plan Processor costs ($9,375,000), third party support costs ($1,300,000) and insurance costs ($750,000). The Operating Committee aims to accumulate the necessary funds for the 42 It is anticipated that CAT-related costs incurred prior to November 21, 2016 will be addressed via a separate fee filing. E:\FR\FM\23MYN1.SGM 23MYN1 23649 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices establishment of the three-month operating reserve for the Company through the CAT Fees charged to CAT Reporters for the year. On an ongoing basis, the Operating Committee will account for any potential need for the replenishment of the operating reserve or other changes to total cost during its annual budgeting process. The following table summarizes the Plan Processor and non-Plan Processor cost components which comprise the total CAT costs of $50,700,000. Cost category Cost component Plan Processor ............................................................................ Non-Plan Processor .................................................................... Operational Costs ...................................................................... Third Party Support Costs ......................................................... Operational Reserve .................................................................. Insurance Costs ......................................................................... $37,500,000 5,200,000 43 5,000,000 3,000,000 Estimated Total .................................................................... .................................................................................................... 50,700,000 Basedon the estimated costs and the calculations for the funding model described above, the Operating Committee determined to impose the following fees: 44 For Industry Members (other than Execution Venue ATSs): Monthly CAT fee Tier 1 2 3 4 5 6 7 8 9 Amount ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... $33,668 27,051 19,239 6,655 4,163 2,560 501 145 22 Quarterly CAT fee $101,004 81,153 57,717 19,965 12,489 7,680 1,503 435 66 CAT fees paid annually 45 $404,016 324,612 230,868 79,860 49,956 30,720 6,012 1,740 264 For Execution Venues for NMS Stocks and OTC Equity Securities: Monthly CAT fee Tier 1 ................................................................................................................................................... 2 ................................................................................................................................................... $21,125 12,940 Quarterly CAT fee $63,375 38,820 CAT fees paid annually 46 $253,500 155,280 For Execution Venues for Listed Options: Monthly CAT fee Tier sradovich on DSK3GMQ082PROD with NOTICES 1 ................................................................................................................................................... 2 ................................................................................................................................................... $19,205 13,204 Quarterly CAT fee $57,615 39,612 CAT fees paid annually 47 $230,460 158,448 As noted above, the fees set forth in the tables reflect the Operating Committee’s decision to ensure comparable fees between Execution Venues and Industry Members. The fees of the top tiers for Industry Members (other than Execution Venue ATSs) are not identical to the top tier for Execution Venues, however, because the Operating Committee also determined that the fees for Execution Venue complexes should be comparable to those of Industry Member complexes. The difference in the fees reflects this decision to recognize affiliations. The Operating Committee has calculated the schedule of effective fees for Industry Members (other than Execution Venue ATSs) and Execution Venues in the following manner. Note 43 This $5,000,000 represents the gradual accumulation of the funds for a target operating reserve of $11,425,000. 44 Note that all monthly, quarterly and annual CAT Fees have been rounded to the nearest dollar. 45 This column represents the approximate total CAT Fees paid each year by each Industry Member (other than Execution Venue ATSs) (i.e., ‘‘CAT Fees Paid Annually’’ = ‘‘Monthly CAT Fee’’ × 12 months). 46 This column represents the approximate total CAT Fees paid each year by each Execution Venue for NMS Stocks and OTC Equity Securities (i.e., ‘‘CAT Fees Paid Annually’’ = ‘‘Monthly CAT Fee’’ × 12 months). 47 This column represents the approximate total CAT Fees paid each year by each Execution Venue for Listed Options (i.e., ‘‘CAT Fees Paid Annually’’ = ‘‘Monthly CAT Fee’’ × 12 months). VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 PO 00000 Frm 00129 Fmt 4703 Sfmt 4703 E:\FR\FM\23MYN1.SGM 23MYN1 23650 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices that the calculation of CAT Reporter fees assumes 53 Equity Execution Venues, 15 Options Execution Venues and 1,631 Industry Members (other than Execution Venue ATSs) as of January 2017. Percentage of industry members Industry member tier Tier Tier Tier Tier Tier Tier Tier Tier Tier 1 2 3 4 5 6 7 8 9 Calculation of Annual Tier Fees for Industry Members (‘‘IM’’) Percentage of industry member recovery Percentage of total recovery ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ 0.500 2.500 2.125 4.625 3.625 4.000 17.500 20.125 45.000 8.50 35.00 21.25 15.75 7.75 5.25 4.50 1.50 0.50 6.38 26.25 15.94 11.81 5.81 3.94 3.38 1.13 0.38 Total ...................................................................................................................................... 100 100 75 Estimated number of industry members Industry member tier .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. 8 41 35 75 59 65 285 328 735 Total ........................................................................................................................................................................................ sradovich on DSK3GMQ082PROD with NOTICES Tier Tier Tier Tier Tier Tier Tier Tier Tier 1 2 3 4 5 6 7 8 9 1,631 VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 PO 00000 Frm 00130 Fmt 4703 Sfmt 4703 E:\FR\FM\23MYN1.SGM 23MYN1 23651 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices Calculation of Annual Tier Fees for Equity Execution Venues (‘‘EV’’) Percentage of Equity Execution Venues Percentage of Execution Venue Recovery Percentage of total recovery Tier 1 ............................................................................................................................................ Tier 2 ............................................................................................................................................ 25.00 75.00 26.00 49.00 6.50 12.25 Total ...................................................................................................................................... 100 75 18.75 VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 E:\FR\FM\23MYN1.SGM 23MYN1 EN23MY17.001</GPH> sradovich on DSK3GMQ082PROD with NOTICES Equity Execution Venue Tier 23652 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices Estimated number of Equity Execution Venues Equity Execution Venue Tier Tier 1 .............................................................................................................................................................................................. Tier 2 .............................................................................................................................................................................................. 13 40 Total ........................................................................................................................................................................................ 53 Calculation of Annual Tier Fees for Options Execution Venues (‘‘EV’’) Percentage of options Execution Venues Options Execution Venue Tier Percentage of execution Venue Recovery Percentage of total recovery Tier 1 ............................................................................................................................................ Tier 2 ............................................................................................................................................ 75.00 25.00 20.00 5.00 5.00 1.25 Total ...................................................................................................................................... 100 25 6.25 Estimated number of Options Execution Venues Options Execution Venue Tier Tier 1 .............................................................................................................................................................................................. Tier 2 .............................................................................................................................................................................................. 11 4 Total ........................................................................................................................................................................................ 15 Traceability of Total CAT Fees VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 PO 00000 Frm 00132 Fmt 4703 Tier Tier Tier Tier Tier Tier Tier Sfmt 4703 1 2 3 4 5 6 7 ............. ............. ............. ............. ............. ............. ............. E:\FR\FM\23MYN1.SGM 8 41 35 75 59 65 285 23MYN1 CAT fees paid annually $404,016 324,612 230,868 79,860 49,956 30,720 6,012 Total recovery $3,232,128 13,309,092 8,080,380 5,989,500 2,947,404 1,996,800 1,713,420 EN23MY17.003</GPH> sradovich on DSK3GMQ082PROD with NOTICES Industry Members ............................................................................................ Estimated number of members EN23MY17.002</GPH> Industry member tier Type 23653 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices Industry member tier Type Estimated number of members CAT fees paid annually Total recovery Tier 8 ............. Tier 9 ............. 328 735 1,740 264 570,720 194,040 Total .......................................................................................................... ........................ 1,631 ........................ 38,033,484 Equity Execution Venues ................................................................................ Tier 1 ............. Tier 2 ............. 13 40 253,500 155,280 3,295,500 6,211,200 Total .......................................................................................................... ........................ 53 ........................ 9,506,700 Options Execution Venues .............................................................................. Tier 1 ............. Tier 2 ............. 11 4 230,460 158,448 2,535,060 633,792 Total .......................................................................................................... ........................ 15 ........................ 3,168,852 Total .................................................................................................. ........................ ........................ ........................ 50,709,036 Excess 48 ........................................................................................... ........................ ........................ ........................ 9,036 (F) Comparability of Fees The funding principles require a funding model in which the fees charged to the CAT Reporters with the most CAT-related activity (measured by market share and/or message traffic, as applicable) are generally comparable (where, for these comparability purposes, the tiered fee structure takes into consideration affiliations between or among CAT Reporters, whether Execution Venue and/or Industry Members). Accordingly, in creating the aggregate fees that would be paid by such firms. While the proposed fees for Tier 1 and Tier 2 Industry Members are relatively higher than those of Tier 1 and Tier 2 Execution Venues, Execution Venue complex fees are relatively higher than those of Industry Member complexes largely due to affiliations between Execution Venues. The tables set forth below describe the largest Execution Venue and Industry Member complexes and their associated fees: 49 model, the Operating Committee sought to take account of the affiliations between or among CAT Reporters—that is, where affiliated entities may have multiple Industry Member and/or Execution Venue licenses, by maintaining relative comparability of fees among such affiliations with the most expected CAT-related activity. To do this, the Participants identified representative affiliations in the largest tier of both Execution Venues and Industry Members and compared the EXECUTION VENUE COMPLEXES Execution Venue Complex Listing of Equity Execution Venue Tiers Execution Venue Complex 1 .................................................... • Tier 1 (x2) ............................ • Tier 2 (x1) ............................ • Tier 1 (x2) ............................ Execution Venue Complex 2 .................................................... Execution Venue Complex 3 .................................................... • Tier 1 (x2) ............................ • Tier 2 (x2) ............................ Listing of Options Execution Venue Tier • • • • • Tier Tier Tier Tier Tier 1 2 1 2 1 (x4) (x2) (x2) (x1) (x2) ............................ ............................ ............................ ............................ ............................ Total fees by EV complex $1,900,962 1,863,801 1,278,447 INDUSTRY MEMBER COMPLEXES Listing of industry member tiers Industry member complex Industry Member Complex 1 .................................................... Industry Member Complex 2 .................................................... Industry Member Complex 3 .................................................... sradovich on DSK3GMQ082PROD with NOTICES Industry Member Complex 4 .................................................... Industry Member Complex 5 .................................................... 48 The amount in excess of the total CAT costs will contribute to the gradual accumulation of the target operating reserve of $11.425 million. VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 • • • • • • • • • • • • Tier Tier Tier Tier Tier Tier Tier Tier Tier Tier Tier Tier 1 1 4 1 2 1 2 4 2 3 4 7 (x2) (x1) (x1) (x1) (x1) (x1) (x1) (x1) (x1) (x1) (x1) (x1) ............................ ............................ ............................ ............................ ............................ ............................ ............................ ............................ ............................ ............................ ............................ ............................ 49 Note that the analysis of the complexes was performed on a best efforts basis, as all affiliations PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 Listing of ATS tiers Total fees by IM complex • Tier 2 (x1) ............................ • Tier 2 (x3) ............................ $963,300 949,674 • Tier 2 (x1) ............................ 883,888 N/A .......................................... 808,472 • Tier 2 (x1) ............................ 796,595 between the 1631 Industry Members may not be included. E:\FR\FM\23MYN1.SGM 23MYN1 23654 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices (G) Billing Onset Under Section 11.1(c) of the CAT NMS Plan, to fund the development and implementation of the CAT, the Company shall time the imposition and collection of all fees on Participants and Industry Members in a manner reasonably related to the timing when the Company expects to incur such development and implementation costs. The Company is currently incurring such development and implementation costs and will continue to do so prior to the commencement of CAT reporting and thereafter. For example, the Plan Processor has required up-front payments to begin building the CAT. In addition, the Company continues to incur consultant and legal expenses on an on-going basis to implement the CAT. Accordingly, the Operating Committee determined that all CAT Reporters, including both Industry Members and Execution Venues (including Participants), would begin to be invoiced as promptly as possible following the establishment of a billing mechanism. FINRA will issue a notice to its members when the billing mechanism is established, specifying the date when such invoicing of Industry Members will commence. (H) Changes to Fee Levels and Tiers Section 11.3(d) of the CAT NMS Plan states that ‘‘[t]he Operating Committee shall review such fee schedule on at least an annual basis and shall make any changes to such fee schedule that it deems appropriate. The Operating Committee is authorized to review such fee schedule on a more regular basis, but shall not make any changes on more than a semi-annual basis unless, pursuant to a Supermajority Vote, the Operating Committee concludes that such change is necessary for the adequate funding of the Company.’’ With such reviews, the Operating Committee will review the distribution of Industry Members and Execution Venues across tiers, and make any updates to the percentage of CAT Reporters allocated to each tier as may be necessary. In addition, the reviews will evaluate the estimated ongoing CAT costs and the level of the operating reserve. To the extent that the total CAT costs decrease, the fees would be adjusted downward, and, to the extent that the total CAT costs increase, the fees would be adjusted upward.50 Furthermore, any surplus of the Company’s revenues over its expenses is to be included within the operational reserve to offset future fees. The limitations on more frequent changes to the fee, however, are intended to provide budgeting certainty for the CAT Reporters and the Company.51 To the extent that the Operating Committee approves changes to the number of tiers in the funding model or the fees assigned to each tier, then FINRA will file such changes with the SEC pursuant to Section 19(b) of the Exchange Act, and any such changes will become effective in accordance with the requirements of Section 19(b). (I) Initial and Periodic Tier Reassignments The Operating Committee has determined to calculate fee tiers every three months based on market share or message traffic, as applicable, from the prior three months. For the initial tier assignments, the Company will calculate the relevant tier for each CAT Reporter using the three months of data prior to the commencement date. As with the initial tier assignment, for the tri-monthly reassignments, the Company will calculate the relevant tier using the three months of data prior to the relevant tri-monthly date. FINRA notes that any movement of CAT Reporters between tiers will not change the criteria for each tier or the fee amount corresponding to each tier. In performing the tri-monthly reassignments, FINRA notes that the percentage of CAT Reporters in each assigned tier is relative. Therefore, a CAT Reporter’s assigned tier will depend, not only on its own message traffic or market share, but it also will depend on the message traffic/market share across all CAT Reporters. For example, the percentage of Industry Members (other than Execution Venue ATSs) in each tier is relative such that such Industry Member’s assigned tier will depend on message traffic generated across all CAT Reporters as well as the total number of CAT Reporters. The Operating Committee will inform CAT Reporters of their assigned tier every three months following the periodic tiering process, as the funding model will compare an individual CAT Reporter’s activity to that of other CAT Reporters in the marketplace. The following demonstrates a tier reassignment. In accordance with the funding model, the top 75% of Options Execution Venues in market share are categorized as Tier 1 while the bottom 25% of Options Execution Venues in market share are categorized as Tier 2. In the sample scenario below, Options Execution Venue L is initially categorized as a Tier 2 Options Execution Venue in Period A due to its market share. When market share is recalculated for Period B, the market share of Execution Venue L increases, and it is therefore subsequently reranked and reassigned to Tier 1 in Period B. Correspondingly, Options Execution Venue K, initially a Tier 1 Options Execution Venue in Period A, is reassigned to Tier 2 in Period B due to decreases in its market share of share volume. Period A Market share rank sradovich on DSK3GMQ082PROD with NOTICES Options Execution Venue Options Options Options Options Options Options Options Options Options Options Options Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Period B A ............. B ............. C ............. D ............. E ............. F .............. G ............. H ............. I ............... J .............. K ............. 1 2 3 4 5 6 7 8 9 10 11 50 The CAT Fees are designed to recover the costs associated with the CAT. Accordingly, CAT Fees would not be affected by increases or decreases in other non-CAT expenses incurred by the VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 Tier 1 1 1 1 1 1 1 1 1 1 1 Options Options Options Options Options Options Options Options Options Options Options Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Participants, such as any changes in costs related to the retirement of existing regulatory systems, such as OATS. PO 00000 Frm 00134 Market share rank Options Execution Venue Fmt 4703 Sfmt 4703 Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue A ............ B ............ C ............ D ............ E ............ F ............. I .............. H ............ G ............ J ............. L ............. 1 2 3 4 5 6 7 8 9 10 11 Tier 1 1 1 1 1 1 1 1 1 1 1 51 Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85006. E:\FR\FM\23MYN1.SGM 23MYN1 23655 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices Period A Market share rank Options Execution Venue Options Options Options Options Execution Execution Execution Execution Venue Venue Venue Venue Period B L .............. M ............. N ............. O ............. 12 13 14 15 sradovich on DSK3GMQ082PROD with NOTICES (3) Proposed CAT Fee Schedule FINRA proposes the Consolidated Audit Trail Funding Fees to implement the CAT Fees determined by the Operating Committee on FINRA’s Industry Members. The proposed fee schedule has three sections, covering definitions, the fee schedule for CAT Fees, and the timing and manner of payments. Each of these sections is discussed in detail below. (A) Definitions Paragraph (a) of the proposed fee schedule sets forth the definitions for the proposed fee schedule. Paragraph (a)(1) states that, for purposes of the Consolidated Audit Trail Funding Fees, the terms ‘‘CAT NMS Plan,’’ ‘‘Industry Member,’’ ‘‘NMS Stock,’’ ‘‘OTC Equity Security’’, and ‘‘Participant’’ are defined as set forth in Rule 6810 (Consolidated Audit Trail—Definitions). The proposed fee schedule imposes different fees on Equity ATSs and Industry Members that are not Equity ATSs. Accordingly, the proposed fee schedule defines the term ‘‘Equity ATS.’’ First, paragraph (a)(2) defines an ‘‘ATS’’ to mean an alternative trading system as defined in Rule 300(a) of SEC Regulation ATS under the Securities Exchange Act of 1934, as amended, that operates pursuant to Rule 301 of SEC Regulation ATS. This is the same definition of an ATS as set forth in Section 1.1 of the CAT NMS Plan in the definition of an ‘‘Execution Venue.’’ Then, paragraph (a)(4) defines an ‘‘Equity ATS’’ as an ATS that executes transactions in NMS Stocks and/or OTC Equity Securities. Paragraph (a)(3) of the proposed fee schedule defines the term ‘‘CAT Fee’’ to mean the Consolidated Audit Trail Funding Fee(s) to be paid by Industry Members as set forth in paragraph (b) in the proposed fee schedule. Finally, Paragraph (a)(6) defines an ‘‘Execution Venue’’ as a Participant or an ATS (excluding any such ATS that does not execute orders). This definition is the same substantive definition as set forth in Section 1.1 of the CAT NMS Plan. Paragraph (a)(5) defines an ‘‘Equity Execution Venue’’ as an Execution Venue that trades NMS Stocks and/or OTC Equity Securities. VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 Tier 2 2 2 2 Options Options Options Options Execution Execution Execution Execution Venue Venue Venue Venue (B) Fee Schedule FINRA proposes to impose the CAT Fees applicable to its Industry Members through paragraph (b) of the proposed fee schedule. Paragraph (b)(1) of the proposed fee schedule sets forth the CAT Fees applicable to Industry Members other than Equity ATSs. Specifically, paragraph (b)(1) states that the Company will assign each Industry Member (other than an Equity ATS) to a fee tier once every quarter, where such tier assignment is calculated by ranking each Industry Member based on its total message traffic for the three months prior to the quarterly tier calculation day and assigning each Industry Member to a tier based on that ranking and predefined Industry Member percentages. The Industry Members with the highest total quarterly message traffic will be ranked in Tier 1, and the Industry Members with lowest quarterly message traffic will be ranked in Tier 9. Each quarter, each Industry Member (other than an Equity ATS) shall pay the following CAT Fee corresponding to the tier assigned by the Company for such Industry Member for that quarter: Percentage of industry members Tier 1 2 3 4 5 6 7 8 9 ........................ ........................ ........................ ........................ ........................ ........................ ........................ ........................ ........................ 0.500 2.500 2.125 4.625 3.625 4.000 17.500 20.125 45.000 Quarterly CAT fee $101,004 81,153 57,717 19,965 12,489 7,680 1,503 435 66 Paragraph (b)(2) of the proposed fee schedule sets forth the CAT Fees applicable to Equity ATSs.52 These are the same fees that Participants that trade NMS Stocks and/or OTC Equity Securities will pay. Specifically, paragraph (b)(2) states that the Company will assign each Equity ATS to a fee tier once every quarter, where such tier assignment is calculated by ranking 52 Note that no fee schedule is provided for Execution Venue ATSs that execute transactions in Listed Options, as no such Execution Venue ATSs currently exist due to trading restrictions related to Listed Options. PO 00000 Frm 00135 Market share rank Options Execution Venue Fmt 4703 Sfmt 4703 K N M O ............ ............ ............ ............ Tier 12 13 14 15 2 2 2 2 each Equity Execution Venue based on its total market share of NMS Stocks and OTC Equity Securities for the three months prior to the quarterly tier calculation day and assigning each Equity Execution Venue to a tier based on that ranking and predefined Equity Execution Venue percentages. The Equity Execution Venues with the higher total quarterly market share will be ranked in Tier 1, and the Equity Execution Venues with the lower quarterly market share will be ranked in Tier 2. Specifically, paragraph (b)(2) states that, each quarter, each Equity ATS shall pay the following CAT Fee corresponding to the tier assigned by the Company for such Equity ATS for that quarter: Tier 1 ........................ 2 ........................ Percentage of equity execution venues 25.00 75.00 Quarterly CAT fee $63,375 38,820 (C) Timing and Manner of Payment Section 11.4 of the CAT NMS Plan states that the Operating Committee shall establish a system for the collection of fees authorized under the CAT NMS Plan. The Operating Committee may include such collection responsibility as a function of the Plan Processor or another administrator. To implement the payment process to be adopted by the Operating Committee, paragraph (c)(1) of the proposed fee schedule states that the Company will provide each Industry Member with one invoice each quarter for its CAT Fees as determined pursuant to paragraph (b) of the proposed fee schedule, regardless of whether the Industry Member is a member of multiple self-regulatory organizations. Paragraph (c)(1) further states that each Industry Member will pay its CAT Fees to the Company via the centralized system for the collection of CAT Fees established by the Company in the manner prescribed by the Company. FINRA will provide Industry Members with details regarding the manner of payment of CAT Fees by Regulatory Notice. Although the exact fee collection system and processes for CAT fees has E:\FR\FM\23MYN1.SGM 23MYN1 23656 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices sradovich on DSK3GMQ082PROD with NOTICES not yet been established, all CAT fees will be billed and collected centrally through the Company, via the Plan Processor or otherwise. Although each Participant will adopt its own fee schedule regarding CAT Fees, no CAT Fees or portion thereof will be collected by the individual Participants. Each Industry Member will receive from the Company one invoice for its applicable CAT fees, not separate invoices from each Participant of which it is a member. The Industry Members will pay the CAT Fees to the Company via the centralized system for the collection of CAT fees established by the Company.53 Section 11.4 of the CAT NMS Plan also states that Participants shall require each Industry Member to pay all applicable authorized CAT Fees within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). Section 11.4 further states that, if an Industry Member fails to pay any such fee when due, such Industry Member shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (i) The Prime Rate plus 300 basis points; or (ii) the maximum rate permitted by applicable law. Therefore, in accordance with Section 11.4 of the CAT NMS Plan, FINRA proposed to adopt paragraph (c)(2) of the proposed fee schedule. Paragraph (c)(2) of the proposed fee schedule states that each Industry Member shall pay CAT Fees within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If an Industry Member fails to pay any such fee when due, such Industry Member shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (i) The Prime Rate plus 300 basis points; or (ii) the maximum rate permitted by applicable law. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,54 which require, among other things, that the FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, and not designed to permit unfair discrimination between customers, issuers, brokers and dealer 11.4 of the CAT NMS Plan. U.S.C. 78o–3(b)(6). [sic], and Section 15A(b)(5) of the Act,55 which requires that FINRA rules provide for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system which the Participants operates or controls. As discussed above, the SEC approved the bifurcated, tiered, fixed fee funding model in the CAT NMS Plan, finding it was reasonable and that it equitably allocated fees among Participants and Industry Members. FINRA believes that the proposed tiered fees adopted pursuant to the funding model approved by the SEC in the CAT NMS Plan are reasonable, equitably allocated and not unfairly discriminatory. FINRA believes that this proposal is consistent with the Act because it implements, interprets or clarifies the provisions of the Plan, and is designed to assist FINRA and its Industry Members in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan ‘‘is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.’’ 56 To the extent that this proposal implements, interprets or clarifies the Plan and applies specific requirements to Industry Members, FINRA believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Act. FINRA believes that the proposed tiered fees are reasonable. First, the total CAT Fees to be collected would be directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to insurance, third party services and the operational reserve. The CAT Fees would not cover Participant services unrelated to the CAT. In addition, any surplus CAT Fees cannot be distributed to the individual Participants; such surpluses must be used as a reserve to offset future fees. Given the direct relationship between the fees and the CAT costs, FINRA believes that the total level of the CAT Fees is reasonable. In addition, FINRA believes that the proposed CAT Fees are reasonably designed to allocate the total costs of the CAT equitably between and among the Participants and Industry Members, and are therefore not unfairly 53 Section 55 15 54 15 56 Approval VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 PO 00000 U.S.C. 78o–3(b)(5). Order at 84697. Frm 00136 Fmt 4703 Sfmt 4703 discriminatory. As discussed in detail above, the proposed tiered fees impose comparable fees on similarly situated CAT Reporters. For example, those with a larger impact on the CAT (measured via message traffic or market share) pay higher fees, whereas CAT Reporters with a smaller impact pay lower fees. Correspondingly, the tiered structure lessens the impact on smaller CAT Reporters by imposing smaller fees on those CAT Reporters with less market share or message traffic. In addition, the funding model takes into consideration affiliations between CAT Reporters, imposing comparable fees on such affiliated entities. Moreover, FINRA believes that the division of the total CAT costs between Industry Members and Execution Venues, and the division of the Execution Venue portion of total costs between Equity and Options Execution Venues, is reasonably designed to allocate CAT costs among CAT Reporters. The 75/25 division between Industry Members and Execution Venues maintains the greatest level of comparability across the funding model, keeping in view that comparability should consider affiliations among or between CAT Reporters (e.g., firms with multiple Industry Members or exchange licenses). Similarly, the 75/25 division between Equity and Options Execution Venues maintains elasticity across the funding model as well as the greatest level of fee equitability and comparability based on the current number of Equity and Options Execution Venues. Finally, FINRA believes that the proposed fees are reasonable because they would provide ease of calculation, ease of billing and other administrative functions, and predictability of a fixed fee. Such factors are crucial to estimating a reliable revenue stream for the Company and for permitting CAT Reporters to reasonably predict their payment obligations for budgeting purposes. B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. FINRA notes that the proposed rule change implements provisions of the CAT NMS Plan approved by the Commission, and is designed to assist FINRA in meeting its regulatory obligations pursuant to the Plan. Similarly, all national securities exchanges and FINRA are proposing this proposed fee schedule to implement the requirements of the CAT E:\FR\FM\23MYN1.SGM 23MYN1 Federal Register / Vol. 82, No. 98 / Tuesday, May 23, 2017 / Notices NMS Plan. Therefore, this is not a competitive fee filing and, therefore, it does not raise competition issues between and among the exchanges and FINRA. Moreover, as previously described, FINRA believes that the proposed rule change fairly and equitably allocates costs among CAT Reporters. In particular, the proposed fee schedule is structured to impose comparable fees on similarly situated CAT Reporters, and lessen the impact on smaller CAT Reporters. CAT Reporters with similar levels of CAT activity will pay similar fees. For example, Industry Members (other than Execution Venue ATSs) with higher levels of message traffic will pay higher fees, and those with lower levels of message traffic will pay lower fees. Similarly, Execution Venue ATSs and other Execution Venues with larger market share will pay higher fees, and those with lower levels of market share will pay lower fees. Therefore, given that there is generally a relationship between message traffic and market share to the CAT Reporter’s size, smaller CAT Reporters generally pay less than larger CAT Reporters. Accordingly, FINRA does not believe that the CAT Fees would have a disproportionate effect on smaller or larger CAT Reporters. In addition, ATSs and exchanges will pay the same fees based on market share. Therefore, FINRA does not believe that the fees will impose any burden on the competition between ATSs and exchanges. Accordingly, FINRA believes that the proposed fees will minimize the potential for adverse effects on competition between CAT Reporters in the market. Furthermore, the tiered, fixed fee funding model limits the disincentives to providing liquidity to the market. Therefore, the proposed fees are structured to limit burdens on competitive quoting and other liquidity provision in the market. sradovich on DSK3GMQ082PROD with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act,57 and paragraph (f)(2) of Rule 19b–4 thereunder.58 At any time within 60 days of the filing of the proposed rule 57 15 58 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). VerDate Sep<11>2014 21:15 May 22, 2017 Jkt 241001 change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– FINRA–2017–011 on the subject line. Paper Comments • 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 SR–FINRA–2017–011. 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 Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site 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 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 23657 available publicly. All submissions should refer to File Number SR–FINRA– 2017–011, and should be submitted on or before June 13, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.59 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–10466 Filed 5–22–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80720; File No. SR–BOX– 2016–48] Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing of Amendment No. 2 to a Proposed Rule Change To Adopt Rules for an Open-Outcry Trading Floor May 18, 2017. On November 16, 2016, BOX Options Exchange LLC (‘‘BOX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt rules for an open-outcry trading floor. The proposed rule change was published for comment in the Federal Register on December 05, 2016.3 The Commission received three comment letters in response to the publication of the Notice.4 On January 10, 2017, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change to March 05, 2017.5 On February 21, 2017, the Commission received a response letter from the Exchange, as well as Amendment No. 1 to the proposed rule change.6 On March 1, 2017, the 59 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 79421 (November 29, 2016), 81 FR 87607 (‘‘Notice’’). 4 See letters to Brent J. Fields, Secretary, Commission, from Angelo Evangelou, Deputy General Counsel, The Chicago Board Options Exchange, Inc. (‘‘CBOE’’), dated January 10, 2017; Steve Crutchfield, Head of Market Structure, CTC Trading Group, LLC (‘‘CTC Trading’’), dated December 31, 2016; and Joan C. Conley, Senior Vice President and Corporate Secretary, The Nasdaq Stock Market LLC (‘‘Nasdaq’’), dated December 22, 2016. 5 See Securities Exchange Act Release No. 79768 (January 10, 2017), 82 FR 4956 (January 17, 2017). 6 See letter to Brent J. Fields, Secretary, Commission, from Lisa J. Fall, President, Exchange, 1 15 E:\FR\FM\23MYN1.SGM Continued 23MYN1

Agencies

[Federal Register Volume 82, Number 98 (Tuesday, May 23, 2017)]
[Notices]
[Pages 23639-23657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10466]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80710; File No. SR-FINRA-2017-011]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Adopt a Fee Schedule To Establish the Fees for 
Industry Members Related to the National Market System Plan Governing 
the Consolidated Audit Trail

May 17, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on May 8, 2017, Financial Industry Regulatory 
Authority, Inc. (``FINRA'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by FINRA. FINRA has designated the proposed rule change as 
``establishing or changing a due, fee or other charge'' under Section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
which renders the

[[Page 23640]]

proposal effective upon receipt of this filing by the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt a fee schedule to establish the fees 
for Industry Members related to the National Market System Plan 
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or 
``Plan'').\5\
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    \5\ Unless otherwise specified, capitalized terms used in this 
fee filing are defined as set forth herein, the CAT Compliance Rule 
Series or in the CAT NMS Plan.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA 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. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA 
Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 
Options Exchange, Incorporated, Chicago Board Options Exchange, 
Incorporated, Chicago Stock Exchange, Inc., Financial Industry 
Regulatory Authority, Inc. (``FINRA''), Investors' Exchange LLC, Miami 
International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, 
Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC,\6\ NASDAQ 
PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, 
NYSE MKT LLC, NYSE Arca, Inc. and NYSE National, Inc.\7\ (collectively, 
the ``Participants'') filed with the Commission, pursuant to Section 
11A of the Exchange Act \8\ and Rule 608 of Regulation NMS 
thereunder,\9\ the CAT NMS Plan.\10\ The Participants filed the Plan to 
comply with Rule 613 of Regulation NMS under the Exchange Act. 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\ 
The Plan is designed to create, implement and maintain a consolidated 
audit trail (``CAT'') that would capture 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 in a single consolidated data 
source. The Plan accomplishes this by creating CAT NMS, LLC (the 
``Company''), of which each Participant is a member, to operate the 
CAT.\13\ Under the CAT NMS Plan, the Operating Committee of the Company 
(``Operating Committee'') has discretion to establish funding for the 
Company to operate the CAT, including establishing fees that the 
Participants will pay, and establishing fees for Industry Members that 
will be implemented by the Participants (``CAT Fees'').\14\ The 
Participants are required to file with the SEC under Section 19(b) of 
the Exchange Act any such CAT Fees applicable to Industry Members that 
the Operating Committee approves.\15\ Accordingly, FINRA submits this 
fee filing to propose the Consolidated Audit Trail Funding Fees, which 
will require Industry Members that are FINRA members to pay the CAT 
Fees determined by the Operating Committee.
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    \6\ ISE Gemini, LLC, ISE Mercury, LLC and International 
Securities Exchange, LLC have been renamed Nasdaq GEMX, LLC, Nasdaq 
MRX, LLC, and Nasdaq ISE, LLC, respectively. See Securities Exchange 
Act Release No. 80248 (March 15, 2017), 82 FR 14547 (March 21, 
2017); Securities Exchange Act Release No. 80326 (March 29, 2017), 
82 FR 16460 (April 4, 2017); and Securities Exchange Act Release No. 
80325 (March 29, 2017), 82 FR 16445 (April 4, 2017).
    \7\ National Stock Exchange, Inc. has been renamed NYSE 
National, Inc. See Securities Exchange Act Release No. 79902 
(January 30, 2017), 82 FR 9258 (February 3, 2017).
    \8\ 15 U.S.C. 78k-1.
    \9\ 17 CFR 242.608.
    \10\ 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.
    \11\ Securities Exchange Act Release No. 77724 (April 27, 2016), 
81 FR 30614 (May 17, 2016).
    \12\ Securities Exchange Act Release No. 79318 (November 15, 
2016), 81 FR 84696 (November 23, 2016) (``Approval Order'').
    \13\ The Plan also serves as the limited liability company 
agreement for the Company.
    \14\ Section 11.1(b) of the CAT NMS Plan.
    \15\ See supra note 14.
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(1) Executive Summary
    The following provides an executive summary of the CAT funding 
model approved by the Operating Committee, as well as Industry Members' 
rights and obligations related to the payment of CAT Fees calculated 
pursuant to the CAT funding model. A detailed description of the CAT 
funding model and the CAT Fees follows this executive summary.
(A) CAT Funding Model
     CAT Costs. The CAT funding model is designed to establish 
CAT-specific fees to collectively recover the costs of building and 
operating the CAT from all CAT Reporters, including Industry Members 
and Participants. The overall CAT costs for the calculation of the CAT 
Fees in this fee filing are comprised of Plan Processor CAT costs and 
non-Plan Processor CAT costs incurred, and estimated to be incurred, 
from November 21, 2016 through November 21, 2017. (See Section 
II.A.1.(2)(E) below)
     Bifurcated Funding Model. The CAT NMS Plan requires a 
bifurcated funding model, where costs associated with building and 
operating the CAT would be borne by (1) Participants and Industry 
Members that are Execution Venues for Eligible Securities through fixed 
tier fees based on market share, and (2) Industry Members (other than 
alternative trading systems (``ATSs'') that execute transactions in 
Eligible Securities (``Execution Venue ATSs'')) through fixed tier fees 
based on message traffic for Eligible Securities. (See Section 
II.A.1.(2) below)
     Industry Member Fees. Each Industry Member (other than 
Execution Venue ATSs) will be placed into one of nine tiers of fixed 
fees, based on ``message traffic'' in Eligible Securities for a defined 
period (as discussed below). Prior to the start of CAT reporting, 
``message traffic'' will be comprised of historical equity and equity 
options orders, cancels and quotes provided by each exchange and FINRA 
over the previous three months. After an Industry Member begins 
reporting to the CAT, ``message traffic'' will be calculated based on 
the Industry Member's Reportable Events reported to the CAT. Industry 
Members with lower levels of message traffic will pay a lower fee and 
Industry Members with higher levels of message traffic will pay a 
higher fee. (See Section II.A.1.(2)(B) below)
     Execution Venue Fees. Each Equity Execution Venue will be 
placed in one

[[Page 23641]]

of two tiers of fixed fees based on market share, and each Options 
Execution Venue will be placed in one of two tiers of fixed fees based 
on market share. Equity Execution Venue market share will be determined 
by calculating each Equity Execution Venue's proportion of the total 
volume of NMS Stock and OTC Equity shares reported by all Equity 
Execution Venues during the relevant time period. Similarly, market 
share for Options Execution Venues will be determined by calculating 
each Options Execution Venue's proportion of the total volume of Listed 
Options contracts reported by all Options Execution Venues during the 
relevant time period. Equity Execution Venues with a larger market 
share will pay a larger CAT Fee than Equity Execution Venues with a 
smaller market share. Similarly, Options Execution Venues with a larger 
market share will pay a larger CAT Fee than Options Execution Venues 
with a smaller market share. (See Section II.A.1.(2)(C) below)
     Cost Allocation. For the reasons discussed below, in 
designing the model, the Operating Committee determined that 75 percent 
of total costs recovered would be allocated to Industry Members (other 
than Execution Venue ATSs) and 25 percent would be allocated to 
Execution Venues. In addition, the Operating Committee determined to 
allocate 75 percent of Execution Venue costs recovered to Equity 
Execution Venues and 25 percent to Options Execution Venues. (See 
Section II.A.1.(2)(D) below)
     Comparability of Fees. The CAT funding model requires that 
the CAT Fees charged to the CAT Reporters with the most CAT-related 
activity (measured by market share and/or message traffic, as 
applicable) are generally comparable (where, for these comparability 
purposes, the tiered fee structure takes into consideration 
affiliations between or among CAT Reporters, whether Execution Venues 
and/or Industry Members). (See Section II.A.1.(2)(F) below)
(B) CAT Fees for Industry Members
     Fee Schedule. The quarterly CAT Fees for each tier for 
Industry Members are set forth in the two fee schedules in the 
Consolidated Audit Trail Funding Fees, one for Equity ATSs and one for 
Industry Members other than Equity ATSs. (See Section II.A.1.(3)(B) 
below)
     Quarterly Invoices. Industry Members will be billed 
quarterly for CAT Fees, with the invoices payable within 30 days. The 
quarterly invoices will identify within which tier the Industry Member 
falls. (See Section II.A.1.(3)(C) below)
     Centralized Payment. Each Industry Member will receive 
from the Company one invoice for its applicable CAT Fees, not separate 
invoices from each Participant of which it is a member. The Industry 
Members will pay its CAT Fees to the Company via the centralized system 
for the collection of CAT Fees established by the Operating Committee. 
(See Section II.A.1.(3)(C) below)
     Billing Commencement. Industry Members will begin to 
receive invoices for CAT Fees as promptly as possible following the 
establishment of a billing mechanism. FINRA will issue a notice to its 
members when the billing mechanism is established, specifying the date 
when such invoicing of Industry Members will commence. (See Section 
II.A.1.(2)(G) below)
(2) Description of the CAT Funding Model
    Article XI of the CAT NMS Plan requires the Operating Committee to 
approve the operating budget, including projected costs of developing 
and operating the CAT for the upcoming year. As set forth in Article XI 
of the CAT NMS Plan, the CAT NMS Plan requires a bifurcated funding 
model, where costs associated with building and operating the Central 
Repository would be borne by (1) Participants and Industry Members that 
are Execution Venues through fixed tier fees based on market share, and 
(2) Industry Members (other than Execution Venue ATSs) through fixed 
tier fees based on message traffic. In its order approving the CAT NMS 
Plan, the Commission determined that the proposed funding model was 
``reasonable'' \16\ and ``reflects a reasonable exercise of the 
Participants' funding authority to recover the Participants' costs 
related to the CAT.'' \17\
---------------------------------------------------------------------------

    \16\ Approval Order at 84796.
    \17\ Approval Order at 84794.
---------------------------------------------------------------------------

    More specifically, the Commission stated in approving the CAT NMS 
Plan that ``[t]he Commission believes that the proposed funding model 
is reasonably designed to allocate the costs of the CAT between the 
Participants and Industry Members.'' \18\ The Commission further noted 
the following:
---------------------------------------------------------------------------

    \18\ Approval Order at 84795.

    The Commission believes that the proposed funding model reflects 
a reasonable exercise of the Participants' funding authority to 
recover the Participants' costs related to the CAT. The CAT is a 
regulatory facility jointly owned by the Participants and . . . the 
Exchange Act specifically permits the Participants to charge their 
members fees to fund their self-regulatory obligations. The 
Commission further believes that the proposed funding model is 
designed to impose fees reasonably related to the Participants' 
self-regulatory obligations because the fees would be directly 
associated with the costs of establishing and maintaining the CAT, 
and not unrelated SRO services.\19\
---------------------------------------------------------------------------

    \19\ Approval Order at 84794.

Accordingly, the funding model imposes fees on both Participants and 
Industry Members.
    In addition, as discussed in Appendix C of the CAT NMS Plan, the 
Operating Committee considered the advantages and disadvantages of a 
variety of alternative funding and cost allocation models before 
selecting the proposed model.\20\ After analyzing the various 
alternatives, the Operating Committee determined that the proposed 
tiered, fixed fee funding model provides a variety of advantages in 
comparison to the alternatives. First, the fixed fee model, as opposed 
to a variable fee model, provides transparency, ease of calculation, 
ease of billing and other administrative functions, and predictability 
of a fixed fee. Such factors are crucial to estimating a reliable 
revenue stream for the Company and for permitting CAT Reporters to 
reasonably predict their payment obligations for budgeting 
purposes.\21\ Additionally, a strictly variable or metered funding 
model based on message volume would be far more likely to affect market 
behavior and place an inappropriate burden on competition. Moreover, as 
the SEC noted in approving the CAT NMS Plan, ``[t]he Participants also 
have offered a reasonable basis for establishing a funding model based 
on broad tiers, in that it be may be easier to implement.'' \22\
---------------------------------------------------------------------------

    \20\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
    \21\ In choosing a tiered fee structure, the Participants 
concluded that the variety of benefits offered by a tiered fee 
structure, discussed above, outweighed the fact that Industry 
Members in any particular tier would pay different rates per message 
traffic order event (e.g., an Industry Member with the largest 
amount of message traffic in one tier would pay a smaller amount per 
order event than an Industry Member in the same tier with the least 
amount of message traffic). Such variation is the natural result of 
a tiered fee structure.
    \22\ Approval Order at 84796.
---------------------------------------------------------------------------

    In addition, multiple reviews of current broker-dealer order and 
trading data submitted under existing reporting requirements showed a 
wide range in activity among broker-dealers, with a number of broker-
dealers submitting fewer than 1,000 orders per month and other broker-
dealers submitting millions and even billions of orders in the same 
period. Accordingly, the CAT NMS Plan includes a tiered approach to 
fees. The

[[Page 23642]]

tiered approach helps ensure that fees are equitably allocated among 
similarly situated CAT Reporters and furthers the goal of lessening the 
impact on smaller firms.\23\ The self-regulatory organizations 
considered several approaches to developing a tiered model, including 
defining fee tiers based on such factors as size of firm, message 
traffic or trading dollar volume. After analyzing the alternatives, it 
was concluded that the tiering should be based on the relative impact 
of CAT Reporters on the CAT System.
---------------------------------------------------------------------------

    \23\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
---------------------------------------------------------------------------

    Accordingly, the CAT NMS Plan contemplates that costs will be 
allocated across the CAT Reporters on a tiered basis to allocate costs 
to those CAT Reporters that contribute more to the costs of creating, 
implementing and maintaining the CAT.\24\ The fees to be assessed at 
each tier are calculated so as to recoup a proportion of costs 
appropriate to the message traffic or market share (as applicable) from 
CAT Reporters in each tier. Therefore, Industry Members generating the 
most message traffic will be in the higher tiers, and therefore be 
charged a higher fee. Industry Members with lower levels of message 
traffic will be in lower tiers and will be assessed a smaller fee for 
the CAT.\25\ Correspondingly, Execution Venues with the highest market 
share will be in the top tier, and therefore will be charged a higher 
fee. Execution Venues with a lower market share will be in the lower 
tier and will be assessed a smaller fee for the CAT.\26\
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    \24\ Approval Order at 85005.
    \25\ See supra note 24.
    \26\ See supra note 24.
---------------------------------------------------------------------------

    The Commission also noted in approving the CAT NMS Plan that 
``[t]he Participants have offered a credible justification for using 
different criteria to charge Execution Venues (market share) and 
Industry Members (message traffic)'' \27\ in the CAT funding model. 
While there are multiple factors that contribute to the cost of 
building, maintaining and using the CAT, processing and storage of 
incoming message traffic is one of the most significant cost drivers 
for the CAT.\28\ Thus, the CAT NMS Plan provides that the fees payable 
by Industry Members (other than Execution Venue ATSs) will be based on 
the message traffic generated by such Industry Member.\29\
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    \27\ Approval Order at 84796.
    \28\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
    \29\ Section 11.3(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    The CAT NMS Plan provides that the Operating Committee will use 
different criteria to establish fees for Execution Venues and non-
Execution Venues due to the fundamental differences between the two 
types of entities. In particular, the CAT NMS Plan provides that fees 
charged to CAT Reporters that are Execution Venues will be based on the 
level of market share and that costs charged to Industry Members (other 
than Execution Venue ATSs) will be based upon message traffic.\30\ 
Because most Participant message traffic consists of quotations, and 
Participants usually disseminate quotations in all instruments they 
trade, regardless of execution volume, Execution Venues that are 
Participants generally disseminate similar amounts of message traffic. 
Accordingly, basing fees for Execution Venues on message traffic would 
not provide the same degree of differentiation among Execution Venues 
that it does among Industry Members (other than Execution Venue ATSs). 
In contrast, execution volume more accurately delineates the different 
levels of trading activity of Execution Venues.\31\
---------------------------------------------------------------------------

    \30\ Section 11.2(c) of the CAT NMS Plan.
    \31\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
---------------------------------------------------------------------------

    The CAT NMS Plan's funding model also is structured to avoid a 
``reduction in market quality.'' \32\ The tiered, fixed fee funding 
model is designed to limit the disincentives to providing liquidity to 
the market. For example, the Participants expect that a firm that had a 
large volume of quotes would likely be categorized in one of the upper 
tiers, and would not be assessed a fee for this traffic directly as 
they would under a more directly metered model. In contrast, strictly 
variable or metered funding models based on message volume were far 
more likely to affect market behavior. In approving the CAT NMS Plan, 
the SEC stated that ``[t]he Participants also offered a reasonable 
basis for establishing a funding model based on broad tiers, in that it 
may be . . . less likely to have an incremental deterrent effect on 
liquidity provision.'' \33\
---------------------------------------------------------------------------

    \32\ Section 11.2(e) of the CAT NMS Plan.
    \33\ Approval Order at 84796.
---------------------------------------------------------------------------

    The CAT NMS Plan is structured to avoid potential conflicts raised 
by the Operating Committee determining fees applicable to its own 
members--the Participants. First, the Company will be operated on a 
``break-even'' basis, with fees imposed to cover costs and an 
appropriate reserve. Any surpluses will be treated as an operational 
reserve to offset future fees and will not be distributed to the 
Participants as profits.\34\ To ensure that the Participants' operation 
of the CAT will not contribute to the funding of their other 
operations, Section 11.1(c) of the CAT NMS Plan specifically states 
that ``[a]ny surplus of the Company's revenues over its expenses shall 
be treated as an operational reserve to offset future fees.'' In 
addition, as set forth in Article VIII of the CAT NMS Plan, the Company 
``intends to operate in a manner such that it qualifies as a `business 
league' within the meaning of Section 501(c)(6) of the [Internal 
Revenue] Code.'' To qualify as a business league, an organization must 
``not [be] organized for profit and no part of the net earnings of [the 
organization can] inure[ ] to the benefit of any private shareholder or 
individual.'' \35\ As the SEC stated when approving the CAT NMS Plan, 
``the Commission believes that the Company's application for Section 
501(c)(6) business league status addresses issues raised by commenters 
about the Plan's proposed allocation of profit and loss by mitigating 
concerns that the Company's earnings could be used to benefit 
individual Participants.'' \36\
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    \34\ Approval Order at 84792.
    \35\ 26 U.S.C. 501(c)(6).
    \36\ Approval Order at 84793.
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    Finally, by adopting a CAT-specific fee, the Participants will be 
fully transparent regarding the costs of the CAT. Charging a general 
regulatory fee, which would be used to cover CAT costs as well as other 
regulatory costs, would be less transparent than the selected approach 
of charging a fee designated to cover CAT costs only.
    A full description of the funding model is set forth below. This 
description includes the framework for the funding model as set forth 
in the CAT NMS Plan, as well as the details as to how the funding model 
will be applied in practice, including the number of fee tiers and the 
applicable fees for each tier. FINRA notes that the complete funding 
model is described below, including those fees that are to be paid by 
the Participants. The proposed Consolidated Audit Trail Funding Fees, 
however, do not apply to the Participants; the proposed Consolidated 
Audit Trail Funding Fees only apply to Industry Members. The CAT fees 
for Participants will be imposed separately by the Operating Committee 
pursuant to the CAT NMS Plan.
(A) Funding Principles
    Section 11.2 of the CAT NMS Plan sets forth the principles that the 
Operating Committee applied in establishing the funding for the

[[Page 23643]]

Company. The Operating Committee has considered these funding 
principles as well as the other funding requirements set forth in the 
CAT NMS Plan and in Rule 613 in developing the proposed funding model. 
The following are the funding principles in Section 11.2 of the CAT NMS 
Plan:
     To create transparent, predictable revenue streams for the 
Company that are aligned with the anticipated costs to build, operate 
and administer the CAT and other costs of the Company;
     To establish an allocation of the Company's related costs 
among Participants and Industry Members that is consistent with the 
Exchange Act, taking into account the timeline for implementation of 
the CAT and distinctions in the securities trading operations of 
Participants and Industry Members and their relative impact upon the 
Company's resources and operations;
     To establish a tiered fee structure in which the fees 
charged to: (i) CAT Reporters that are Execution Venues, including 
ATSs, are based upon the level of market share; (ii) Industry Members' 
non-ATS activities are based upon message traffic; (iii) the CAT 
Reporters with the most CAT-related activity (measured by market share 
and/or message traffic, as applicable) are generally comparable (where, 
for these comparability purposes, the tiered fee structure takes into 
consideration affiliations between or among CAT Reporters, whether 
Execution Venue and/or Industry Members);
     To provide for ease of billing and other administrative 
functions;
     To avoid any disincentives such as placing an 
inappropriate burden on competition and a reduction in market quality; 
and
     To build financial stability to support the Company as a 
going concern.
(B) Industry Member Tiering
    Under Section 11.3(b) of the CAT NMS Plan, the Operating Committee 
is required to establish fixed fees to be payable by Industry Members, 
based on message traffic generated by such Industry Member, with the 
Operating Committee establishing at least five and no more than nine 
tiers.
    The CAT NMS Plan clarifies that the fixed fees payable by Industry 
Members pursuant to Section 11.3(b) shall, in addition to any other 
applicable message traffic, include message traffic generated by: (i) 
An ATS that does not execute orders that is sponsored by such Industry 
Member; and (ii) routing orders to and from any ATS sponsored by such 
Industry Member. In addition, the Industry Member fees will apply to 
Industry Members that act as routing broker-dealers for exchanges. The 
Industry Member fees will not be applicable, however, to an ATS that 
qualifies as an Execution Venue, as discussed in more detail in the 
section on Execution Venue tiering.
    In accordance with Section 11.3(b), the Operating Committee 
approved a tiered fee structure for Industry Members (other than 
Execution Venue ATSs) as described in this section. In determining the 
tiers, the Operating Committee considered the funding principles set 
forth in Section 11.2 of the CAT NMS Plan, seeking to create funding 
tiers that take into account the relative impact on CAT System 
resources of different Industry Members, and that establish comparable 
fees among the CAT Reporters with the most Reportable Events. The 
Operating Committee has determined that establishing nine tiers results 
in the fairest allocation of fees, best distinguishing between Industry 
Members with differing levels of message traffic. Thus, each such 
Industry Member will be placed into one of nine tiers of fixed fees, 
based on ``message traffic'' for a defined period (as discussed below). 
A nine tier structure was selected to provide the widest range of 
levels for tiering Industry Members such that Industry Members 
submitting significantly less message traffic to the CAT would be 
adequately differentiated from Industry Members submitting 
substantially more message traffic. The Operating Committee considered 
historical message traffic generated by Industry Members across all 
exchanges and as submitted to FINRA's Order Audit Trail System 
(``OATS''), and considered the distribution of firms with similar 
levels of message traffic, grouping together firms with similar levels 
of message traffic. Based on this, the Operating Committee determined 
that nine tiers would best group firms with similar levels of message 
traffic, charging those firms with higher impact on the CAT more, while 
lowering the burden of Industry Members that have less CAT-related 
activity.
    Each Industry Member (other than Execution Venue ATSs) will be 
ranked by message traffic and tiered by predefined Industry Member 
percentages (the ``Industry Member Percentages''). The Operating 
Committee determined to use predefined percentages rather than fixed 
volume thresholds to allow the funding model to ensure that the total 
CAT fees collected recover the intended CAT costs regardless of changes 
in the total level of message traffic. To determine the fixed 
percentage of Industry Members in each tier, the Operating Committee 
analyzed historical message traffic generated by Industry Members 
across all exchanges and as submitted to OATS, and considered the 
distribution of firms with similar levels of message traffic, grouping 
together firms with similar levels of message traffic. Based on this, 
the Operating Committee identified tiers that would group firms with 
similar levels of message traffic, charging those firms with higher 
impact on the CAT more, while lowering the burden on Industry Members 
that have less CAT-related activity.
    The percentage of costs recovered by each Industry Member tier will 
be determined by predefined percentage allocations (the ``Industry 
Member Recovery Allocation''). In determining the fixed percentage 
allocation of costs recovered for each tier, the Operating Committee 
considered the impact of CAT Reporter message traffic on the CAT System 
as well as the distribution of total message volume across Industry 
Members while seeking to maintain comparable fees among the largest CAT 
Reporters. Accordingly, following the determination of the percentage 
of Industry Members in each tier, the Operating Committee identified 
the percentage of total market volume for each tier based on the 
historical message traffic upon which Industry Members had been 
initially ranked. Taking this into account along with the resulting 
percentage of total recovery, the percentage allocation of costs 
recovered for each tier were assigned, allocating higher percentages of 
recovery to tiers with higher levels of message traffic while avoiding 
any inappropriate burden on competition. Furthermore, by using 
percentages of Industry Members and costs recovered per tier, the 
Operating Committee sought to include stability and elasticity within 
the funding model, allowing the funding model to respond to changes in 
either the total number of Industry Members or the total level of 
message traffic.
    The following chart illustrates the breakdown of nine Industry 
Member tiers across the monthly average of total equity and equity 
options orders, cancels and quotes in Q1 2016 and identifies relative 
gaps across varying levels of Industry Member message traffic as well 
as message traffic thresholds between the largest of Industry Member 
message traffic gaps. The Operating Committee referenced similar 
distribution illustrations to determine the appropriate division of 
Industry Member percentages in each tier by considering the grouping of 
firms

[[Page 23644]]

with similar levels of message traffic and seeking to identify relative 
breakpoints in the message traffic between such groupings. In reviewing 
the chart and its corresponding table, note that while these 
distribution illustrations were referenced to help differentiate 
between Industry Member tiers, the proposed funding model is directly 
driven, not by fixed message traffic thresholds, but rather by fixed 
percentages of Industry Members across tiers to account for fluctuating 
levels of message traffic across time and to provide for the financial 
stability of the CAT by ensuring that the funding model will recover 
the required amounts regardless of changes in the number of Industry 
Members or the amount of message traffic. Actual messages in any tier 
will vary based on the actual traffic in a given measurement period, as 
well as the number of firms included in the measurement period. The 
Industry Member Percentages and Industry Member Recovery Allocation for 
each tier will remain fixed with each Industry Member's tier to be 
reassigned periodically, as described below in Section II.A.1.(1)(H) 
[sic].
[GRAPHIC] [TIFF OMITTED] TN23MY17.000


------------------------------------------------------------------------
                                                        Monthly average
                                                        message traffic
                                                          per industry
                 Industry member tier                   member (orders,
                                                           quotes and
                                                            cancels)
------------------------------------------------------------------------
Tier 1...............................................    >10,000,000,000
Tier 2...............................................     >1,000,000,000
Tier 3...............................................       >100,000,000
Tier 4...............................................         >2,500,000
Tier 5...............................................           >200,000
Tier 6...............................................            >50,000
Tier 7...............................................             >5,000
Tier 8...............................................             >1,000
Tier 9...............................................            <=1,000
------------------------------------------------------------------------

    Based on the above analysis, the Operating Committee approved the 
following Industry Member Percentages and Recovery Allocations:

----------------------------------------------------------------------------------------------------------------
                                                                                   Percentage of
                                                                   Percentage of     industry      Percentage of
                      Industry member tier                           industry         member      total recovery
                                                                      members        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.500            8.50            6.38
Tier 2..........................................................           2.500           35.00           26.25
Tier 3..........................................................           2.125           21.25           15.94
Tier 4..........................................................           4.625           15.75           11.81
Tier 5..........................................................           3.625            7.75            5.81
Tier 6..........................................................           4.000            5.25            3.94
Tier 7..........................................................          17.500            4.50            3.38

[[Page 23645]]

 
Tier 8..........................................................          20.125            1.50            1.13
Tier 9..........................................................          45.000            0.50            0.38
                                                                 -----------------------------------------------
    Total.......................................................             100             100              75
----------------------------------------------------------------------------------------------------------------

    For the purposes of creating these tiers based on message traffic, 
the Operating Committee determined to define the term ``message 
traffic'' separately for the period before the commencement of CAT 
reporting and for the period after the start of CAT reporting. The 
different definition for message traffic is necessary as there will be 
no Reportable Events as defined in the Plan, prior to the commencement 
of CAT reporting. Accordingly, prior to the start of CAT reporting, 
``message traffic'' will be comprised of historical equity and equity 
options orders, cancels and quotes provided by each exchange and FINRA 
over the previous three months.\37\ Prior to the start of CAT 
reporting, orders would be comprised of the total number of equity and 
equity options orders received and originated by a member of an 
exchange or FINRA over the previous three-month period, including 
principal orders, cancel/replace orders, market maker orders originated 
by a member of an exchange, and reserve (iceberg) orders as well as 
order routes and executions originated by a member of FINRA, and 
excluding order rejects and implied orders.\38\ In addition, prior to 
the start of CAT reporting, cancels would be comprised of the total 
number of equity and equity option cancels received and originated by a 
member of an exchange or FINRA over a three-month period, excluding 
order modifications (e.g., order updates, order splits, partial 
cancels). Furthermore, prior to the start of CAT reporting, quotes 
would be comprised of information readily available to the exchanges 
and FINRA, such as the total number of historical equity and equity 
options quotes received and originated by a member of an exchange or 
FINRA over the prior three-month period.
---------------------------------------------------------------------------

    \37\ The SEC approved exemptive relief permitting Options Market 
Maker quotes to be reported to the Central Repository by the 
relevant Options Exchange in lieu of requiring that such reporting 
be done by both the Options Exchange and the Options Market Maker, 
as required by Rule 613 of Regulation NMS. See Securities Exchange 
Act Release No. 77265 (March 1, 2016 [sic], 81 FR 11856 (March 7, 
2016). This exemption applies to Options Market Maker quotes for CAT 
reporting purposes only. Therefore, notwithstanding the reporting 
exemption provided for Options Market Maker quotes, Options Market 
Maker quotes will be included in the calculation of total message 
traffic for Options Market Makers for purposes of tiering under the 
CAT funding model both prior to CAT reporting and once CAT reporting 
commences.
    \38\ Consequently, firms that do not have ``message traffic'' 
reported to an exchange or OATS before they are reporting to the CAT 
would not be subject to a fee until they begin to report information 
to CAT.
---------------------------------------------------------------------------

    After an Industry Member begins reporting to the CAT, ``message 
traffic'' will be calculated based on the Industry Member's Reportable 
Events reported to the CAT as will be defined in the Technical 
Specifications.\39\
---------------------------------------------------------------------------

    \39\ If an Industry Member (other than an Execution Venue ATS) 
has no orders, cancels or quotes prior to the commencement of CAT 
Reporting, or no Reportable Events after CAT reporting commences, 
then the Industry Member would not have a CAT fee obligation.
---------------------------------------------------------------------------

    The Operating Committee has determined to calculate fee tiers every 
three months, on a calendar quarter basis, based on message traffic 
from the prior three months. Based on its analysis of historical data, 
the Operating Committee believes that calculating tiers based on three 
months of data will provide the best balance between reflecting changes 
in activity by Industry Members while still providing predictability in 
the tiering for Industry Members. Because fee tiers will be calculated 
based on message traffic from the prior three months, the Operating 
Committee will begin calculating message traffic based on an Industry 
Member's Reportable Events reported to the CAT once the Industry Member 
has been reporting to the CAT for three months. Prior to that, fee 
tiers will be calculated as discussed above with regard to the period 
prior to CAT reporting.
(C) Execution Venue Tiering
    Under Section 11.3(a) of the CAT NMS Plan, the Operating Committee 
is required to establish fixed fees payable by Execution Venues. 
Section 1.1 of the CAT NMS Plan defines an Execution Venue as ``a 
Participant or an alternative trading system (``ATS'') (as defined in 
Rule 300 of Regulation ATS) that operates pursuant to Rule 301 of 
Regulation ATS (excluding any such ATS that does not execute orders).'' 
\40\
---------------------------------------------------------------------------

    \40\ Although FINRA does not operate an execution venue, because 
it is a Participant, it is considered an ``Execution Venue'' under 
the Plan for purposes of determining fees.
---------------------------------------------------------------------------

    The Participants determined that ATSs should be included within the 
definition of Execution Venue. Given the similarity between the 
activity of exchanges and ATSs, both of which meet the definition of an 
``exchange'' as set forth in the Exchange Act and the fact that the 
similar trading models would have similar anticipated burdens on the 
CAT, the Participants determined that ATSs should be treated in the 
same manner as the exchanges for the purposes of determining the level 
of fees associated with the CAT.\41\
---------------------------------------------------------------------------

    \41\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
---------------------------------------------------------------------------

    Given the differences between Execution Venues that trade NMS 
Stocks and/or OTC Equity Securities and Execution Venues that trade 
Listed Options, Section 11.3(a) addresses Execution Venues that trade 
NMS Stocks and/or OTC Equity Securities separately from Execution 
Venues that trade Listed Options. Equity and Options Execution Venues 
are treated separately for two reasons. First, the differing quoting 
behavior of Equity and Options Execution Venues makes comparison of 
activity between Execution Venues difficult. Second, Execution Venue 
tiers are calculated based on market share of share volume, and it is 
therefore difficult to compare market share between asset classes 
(i.e., equity shares versus options contracts). Discussed below is how 
the funding model treats the two types of Execution Venues.
(I) NMS Stocks and OTC Equity Securities
    Section 11.3(a)(i) of the CAT NMS Plan states that each Execution 
Venue that (i) executes transactions or, (ii) in the case of a national 
securities association, has trades reported by its members to its trade 
reporting facility or facilities for reporting transactions effected 
otherwise than on an exchange, in NMS Stocks or OTC Equity Securities 
will pay a fixed fee depending on the market share of that Execution 
Venue in NMS Stocks and OTC Equity Securities, with the Operating 
Committee establishing at least two and not more than five tiers of 
fixed fees, based on an Execution Venue's NMS Stocks and

[[Page 23646]]

OTC Equity Securities market share. For these purposes, market share 
for Execution Venues that execute transactions will be calculated by 
share volume, and market share for a national securities association 
that has trades reported by its members to its trade reporting facility 
or facilities for reporting transactions effected otherwise than on an 
exchange in NMS Stocks or OTC Equity Securities will be calculated 
based on share volume of trades reported, provided, however, that the 
share volume reported to such national securities association by an 
Execution Venue shall not be included in the calculation of such 
national security association's market share.
    In accordance with Section 11.3(a)(i) of the CAT NMS Plan, the 
Operating Committee approved a tiered fee structure for Equity 
Execution Venues and Option Execution Venues. In determining the Equity 
Execution Venue Tiers, the Operating Committee considered the funding 
principles set forth in Section 11.2 of the CAT NMS Plan, seeking to 
create funding tiers that take into account the relative impact on 
system resources of different Equity Execution Venues, and that 
establish comparable fees among the CAT Reporters with the most 
Reportable Events. Each Equity Execution Venue will be placed into one 
of two tiers of fixed fees, based on the Execution Venue's NMS Stocks 
and OTC Equity Securities market share. In choosing two tiers, the 
Operating Committee performed an analysis similar to that discussed 
above with regard to the non-Execution Venue Industry Members to 
determine the number of tiers for Equity Execution Venues. The 
Operating Committee determined to establish two tiers for Equity 
Execution Venues, rather than a larger number of tiers as established 
for non-Execution Venue Industry Members, because the two tiers were 
sufficient to distinguish between the smaller number of Equity 
Execution Venues based on market share. Furthermore, the incorporation 
of additional Equity Execution Venue tiers would result in 
significantly higher fees for Tier 1 Equity Execution Venues and 
diminish comparability between Execution Venues and Industry Members.
    Each Equity Execution Venue will be ranked by market share and 
tiered by predefined Execution Venue percentages, (the ``Equity 
Execution Venue Percentages''). In determining the fixed percentage of 
Equity Execution Venues in each tier, the Operating Committee looked at 
historical market share of share volume for execution venues. Equities 
Execution Venue market share of share volume were sourced from market 
statistics made publicly-available by Bats Global Markets, Inc. 
(``Bats''). ATS market share of share volume was sourced from market 
statistics made publicly-available by FINRA. FINRA trade reporting 
facility (``TRF'') market share of share volume was sourced from market 
statistics made publicly available by Bats. As indicated by FINRA, ATSs 
accounted for 37.80% of the share volume across the TRFs during the 
recent tiering period. A 37.80/62.20 split was applied to the ATS and 
non-ATS breakdown of FINRA market share, with FINRA tiered based only 
on the non-ATS portion of its TRF market share of share volume.
    Based on this, the Operating Committee considered the distribution 
of Execution Venues, and grouped together Execution Venues with similar 
levels of market share of share volume. In doing so, the Participants 
considered that, as previously noted, Execution Venues in many cases 
have similar levels of message traffic due to quoting activity, and 
determined that it was simpler and more appropriate to have fewer, 
rather than more, Execution Venue tiers to distinguish between 
Execution Venues.
    The percentage of costs recovered by each Equity Execution Venue 
tier will be determined by predefined percentage allocations (the 
``Equity Execution Venue Recovery Allocation''). In determining the 
fixed percentage allocation of costs recovered for each tier, the 
Operating Committee considered the impact of CAT Reporter market share 
activity on the CAT System as well as the distribution of total market 
volume across Equity Execution Venues while seeking to maintain 
comparable fees among the largest CAT Reporters. Accordingly, following 
the determination of the percentage of Execution Venues in each tier, 
the Operating Committee identified the percentage of total market 
volume for each tier based on the historical market share upon which 
Execution Venues had been initially ranked. Taking this into account 
along with the resulting percentage of total recovery, the percentage 
allocation of costs recovered for each tier were assigned, allocating 
higher percentages of recovery to the tier with a higher level of 
market share while avoiding any inappropriate burden on competition. 
Furthermore, due to the similar levels of impact on the CAT System 
across Execution Venues, there is less variation in CAT Fees between 
the highest and lowest of tiers for Execution Venues. Furthermore, by 
using percentages of Equity Execution Venues and costs recovered per 
tier, the Operating Committee sought to include stability and 
elasticity within the funding model, allowing the funding model to 
respond to changes in either the total number of Equity Execution 
Venues or changes in market share.
    Based on this analysis, the Operating Committee approved the 
following Equity Execution Venue Percentages and Recovery Allocations:

----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      Equity       Percentage of   Percentage of
                   Equity Execution Venue tier                       Execution       Execution    total Recovery
                                                                      Venues      Venue Recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           26.00            6.50
Tier 2..........................................................           75.00           49.00           12.25
                                                                 -----------------------------------------------
    Total.......................................................             100              75           18.75
----------------------------------------------------------------------------------------------------------------

    The following table exhibits the relative separation of market 
share of share volume between Tier 1 and Tier 2 Equity Execution 
Venues. In reviewing the table, note that while this division was 
referenced as a data point to help differentiate between Equity 
Execution Venue tiers, the proposed funding model is directly driven 
not by market share thresholds, but rather by fixed percentages of 
Equity Execution Venues across tiers to account for fluctuating levels 
of market share across time. Actual market share in any tier will vary 
based on the actual market activity in a given measurement period, as 
well as the number of Equity Execution Venues included in the 
measurement period. The Equity Execution Venue Percentages and Equity 
Execution Venue Recovery

[[Page 23647]]

Allocation for each tier will remain fixed with each Equity Execution 
Venue tier to be reassigned periodically, as described below in Section 
II.A.1.(1)(I) [sic].

------------------------------------------------------------------------
                                                           Equity market
               Equity Execution Venue tier                share of share
                                                            volume (%)
------------------------------------------------------------------------
Tier 1..................................................             >=1
Tier 2..................................................              <1
------------------------------------------------------------------------

(II) Listed Options
    Section 11.3(a)(ii) of the CAT NMS Plan states that each Execution 
Venue that executes transactions in Listed Options will pay a fixed fee 
depending on the Listed Options market share of that Execution Venue, 
with the Operating Committee establishing at least two and no more than 
five tiers of fixed fees, based on an Execution Venue's Listed Options 
market share. For these purposes, market share will be calculated by 
contract volume.
    In accordance with Section 11.3(a)(ii) of the CAT NMS Plan, the 
Operating Committee approved a tiered fee structure for Options 
Execution Venues. In determining the tiers, the Operating Committee 
considered the funding principles set forth in Section 11.2 of the CAT 
NMS Plan, seeking to create funding tiers that take into account the 
relative impact on system resources of different Options Execution 
Venues, and that establish comparable fees among the CAT Reporters with 
the most Reportable Events. Each Options Execution Venue will be placed 
into one of two tiers of fixed fees, based on the Execution Venue's 
Listed Options market share. In choosing two tiers, the Operating 
Committee performed an analysis similar to that discussed above with 
regard to Industry Members (other than Execution Venue ATSs) to 
determine the number of tiers for Options Execution Venues. The 
Operating Committee determined to establish two tiers for Options 
Execution Venues, rather than a larger number of tiers as established 
for Industry Members (other than Execution Venue ATSs), because the two 
tiers were sufficient to distinguish between the smaller number of 
Options Execution Venues based on market share. Furthermore, due to the 
smaller number of Options Execution Venues, the incorporation of 
additional Options Execution Venue tiers would result in significantly 
higher fees for Tier 1 Options Execution Venues and reduce 
comparability between Execution Venues and Industry Members.
    Each Options Execution Venue will be ranked by market share and 
tiered by predefined Execution Venue percentages, (the ``Options 
Execution Venue Percentages''). To determine the fixed percentage of 
Options Execution Venues in each tier, the Operating Committee analyzed 
the historical and publicly available market share of Options Execution 
Venues to group Options Execution Venues with similar market shares 
across the tiers. Options Execution Venue market share of share volume 
were sourced from market statistics made publicly-available by Bats. 
The process for developing the Options Execution Venue Percentages was 
the same as discussed above with regard to Equity Execution Venues.
    The percentage of costs recovered by each Options Execution Venue 
tier will be determined by predefined percentage allocations (the 
``Options Execution Venue Recovery Allocation''). In determining the 
fixed percentage allocation of costs recovered for each tier, the 
Operating Committee considered the impact of CAT Reporter market share 
activity on the CAT System as well as the distribution of total market 
volume across Options Execution Venues while seeking to maintain 
comparable fees among the largest CAT Reporters. Furthermore, by using 
percentages of Options Execution Venues and costs recovered per tier, 
the Operating Committee sought to include stability and elasticity 
within the funding model, allowing the funding model to respond to 
changes in either the total number of Options Execution Venues or 
changes in market share. The process for developing the Options 
Execution Venue Recovery Allocation was the same as discussed above 
with regard to Equity Execution Venues.
    Based on this analysis, the Operating Committee approved the 
following Options Execution Venue Percentages and Recovery Allocations:

----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      Options      Percentage of   Percentage of
                  Options Execution Venue tier                       Execution       Execution    total recovery
                                                                      Venues      Venue Recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           20.00            5.00
Tier 2..........................................................           25.00            5.00            1.25
                                                                 -----------------------------------------------
    Total.......................................................             100              25            6.25
----------------------------------------------------------------------------------------------------------------

    The following table exhibits the relative separation of market 
share of share volume between Tier 1 and Tier 2 Options Execution 
Venues. In reviewing the table, note that while this division was 
referenced as a data point to help differentiate between Options 
Execution Venue tiers, the proposed funding model is directly driven, 
not by market share thresholds, but rather by fixed percentages of 
Options Execution Venues across tiers to account for fluctuating levels 
of market share across time. Actual market share in any tier will vary 
based on the actual market activity in a given measurement period, as 
well as the number of Options Execution Venues included in the 
measurement period. The Options Execution Venue Percentages and Equity 
Execution Venue Recovery Allocation for each tier will remain fixed 
with each Options Execution Venue tier to be reassigned periodically, 
as described below in Section II.A.1.(1)(I) [sic].

------------------------------------------------------------------------
                                                          Options market
              Options Execution Venue Tier                share of share
                                                            volume (%)
------------------------------------------------------------------------
Tier 1..................................................             >=1
Tier 2..................................................              <1
------------------------------------------------------------------------

(III) Market Share/Tier Assignments
    The Operating Committee determined that, prior to the start of CAT 
reporting, market share for Execution Venues would be sourced from 
publicly-available market data. Options and equity volumes for 
Participants will be sourced from market data made publicly available 
by Bats while Execution Venue ATS volumes will be sourced from market 
data made publicly available by FINRA. Set forth in the Appendix are 
two charts, one listing the current Equity Execution Venues, each with 
its rank and tier, and one listing the current Options Execution 
Venues, each with its rank and tier.

[[Page 23648]]

    After the commencement of CAT reporting, market share for Execution 
Venues will be sourced from data reported to the CAT. Equity Execution 
Venue market share will be determined by calculating each Equity 
Execution Venue's proportion of the total volume of NMS Stock and OTC 
Equity shares reported by all Equity Execution Venues during the 
relevant time period. Similarly, market share for Options Execution 
Venues will be determined by calculating each Options Execution Venue's 
proportion of the total volume of Listed Options contracts reported by 
all Options Execution Venues during the relevant time period.
    The Operating Committee has determined to calculate fee tiers for 
Execution Venues every three months based on market share from the 
prior three months. Based on its analysis of historical data, the 
Operating Committee believes calculating tiers based on three months of 
data will provide the best balance between reflecting changes in 
activity by Execution Venues while still providing predictability in 
the tiering for Execution Venues.
(D) Allocation of Costs
    In addition to the funding principles discussed above, including 
comparability of fees, Section 11.1(c) of the CAT NMS Plan also 
requires expenses to be fairly and reasonably shared among the 
Participants and Industry Members. Accordingly, in developing the 
proposed fee schedules pursuant to the funding model, the Operating 
Committee calculated how the CAT costs would be allocated between 
Industry Members and Execution Venues, and how the portion of CAT costs 
allocated to Execution Venues would be allocated between Equity 
Execution Venues and Options Execution Venues. These determinations are 
described below.
(I) Allocation Between Industry Members and Execution Venues
    In determining the cost allocation between Industry Members (other 
than Execution Venue ATSs) and Execution Venues, the Operating 
Committee analyzed a range of possible splits for revenue recovered 
from such Industry Members and Execution Venues. Based on this 
analysis, the Operating Committee determined that 75 percent of total 
costs recovered would be allocated to Industry Members (other than 
Execution Venue ATSs) and 25 percent would be allocated to Execution 
Venues. The Operating Committee determined that this 75/25 division 
maintained the greatest level of comparability across the funding 
model, keeping in view that comparability should consider affiliations 
among or between CAT Reporters (e.g., firms with multiple Industry 
Members and/or exchange licenses). For example, the cost allocation 
establishes fees for the largest Industry Members (i.e., those Industry 
Members in Tiers 1, 2 and 3) that are comparable to the largest Equity 
Execution Venues and Options Execution Venues (i.e., those Execution 
Venues in Tier 1). In addition, the cost allocation establishes fees 
for Execution Venue complexes that are comparable to those of Industry 
Member complexes. For example, when analyzing alternative allocations, 
other possible allocations led to much higher fees for larger Industry 
Members than for larger Execution Venues or vice versa, and/or led to 
much higher fees for Industry Member complexes than Execution Venue 
complexes or vice versa.
    Furthermore, the allocation of total CAT costs recovered recognizes 
the difference in the number of CAT Reporters that are Industry Members 
versus CAT Reporters that are Execution Venues. Specifically, the cost 
allocation takes into consideration that there are approximately 25 
times more Industry Members expected to report to the CAT than 
Execution Venues (e.g., an estimated 1,630 Industry Members versus 70 
Execution Venues as of January 2017).
(II) Allocation Between Equity Execution Venues and Options Execution 
Venues
    The Operating Committee also analyzed how the portion of CAT costs 
allocated to Execution Venues would be allocated between Equity 
Execution Venues and Options Execution Venues. In considering this 
allocation of costs, the Operating Committee analyzed a range of 
alternative splits for revenue recovered between Equity and Options 
Execution Venues, including a 70/30, 67/33, 65/35, 50/50 and 25/75 
split. Based on this analysis, the Operating Committee determined to 
allocate 75 percent of Execution Venue costs recovered to Equity 
Execution Venues and 25 percent to Options Execution Venues. The 
Operating Committee determined that a 75/25 division between Equity and 
Options Execution Venues maintained elasticity across the funding model 
as well the greatest level of fee equitability and comparability based 
on the current number of Equity and Options Execution Venues. For 
example, the allocation establishes fees for the larger Equity 
Execution Venues that are comparable to the larger Options Execution 
Venues, and fees for the smaller Equity Execution Venues that are 
comparable to the smaller Options Execution Venues. In addition to fee 
comparability between Equity Execution Venues and Options Execution 
Venues, the allocation also establishes equitability between larger 
(Tier 1) and smaller (Tier 2) Execution Venues based upon the level of 
market share. Furthermore, the allocation is intended to reflect the 
relative levels of current equity and options order events.
(E) Fee Levels
    The Operating Committee determined to establish a CAT-specific fee 
to collectively recover the costs of building and operating the CAT. 
Accordingly, under the funding model, the sum of the CAT Fees is 
designed to recover the total cost of the CAT. The Operating Committee 
has determined overall CAT costs to be comprised of Plan Processor 
costs and non-Plan Processor costs, which are estimated to be 
$50,700,000 in total for the year beginning November 21, 2016.\42\
---------------------------------------------------------------------------

    \42\ It is anticipated that CAT-related costs incurred prior to 
November 21, 2016 will be addressed via a separate fee filing.
---------------------------------------------------------------------------

    The Plan Processor costs relate to costs incurred by the Plan 
Processor and consist of the Plan Processor's current estimates of 
average yearly ongoing costs, including development cost, which total 
$37,500,000. This amount is based upon the fees due to the Plan 
Processor pursuant to the agreement with the Plan Processor.
    The non-Plan Processor estimated costs incurred and to be incurred 
by the Company through November 21, 2017 consist of three categories of 
costs. The first category of such costs are third party support costs, 
which include historic legal fees, consulting fees and audit fees from 
November 21, 2016 until the date of filing as well as estimated third 
party support costs for the rest of the year. These amount to an 
estimated $5,200,000. The second category of non-Plan Processor costs 
are estimated insurance costs for the year. Based on discussions with 
potential insurance providers, assuming $2-5 million insurance premium 
on $100 million in coverage, the Company has received an estimate of 
$3,000,000 for the annual cost. The final cost figures will be 
determined following receipt of final underwriter quotes. The third 
category of non-Plan Processor costs is the operational reserve, which 
is comprised of three months of ongoing Plan Processor costs 
($9,375,000), third party support costs ($1,300,000) and insurance 
costs ($750,000). The Operating Committee aims to accumulate the 
necessary funds for the

[[Page 23649]]

establishment of the three-month operating reserve for the Company 
through the CAT Fees charged to CAT Reporters for the year. On an 
ongoing basis, the Operating Committee will account for any potential 
need for the replenishment of the operating reserve or other changes to 
total cost during its annual budgeting process. The following table 
summarizes the Plan Processor and non-Plan Processor cost components 
which comprise the total CAT costs of $50,700,000.

------------------------------------------------------------------------
         Cost category                Cost component          Amount
------------------------------------------------------------------------
Plan Processor.................  Operational Costs......     $37,500,000
Non-Plan Processor.............  Third Party Support           5,200,000
                                  Costs.
                                 Operational Reserve....  \43\ 5,000,000
                                 Insurance Costs........       3,000,000
                                                         ---------------
    Estimated Total............  .......................      50,700,000
------------------------------------------------------------------------

    Basedon the estimated costs and the calculations for the funding 
model described above, the Operating Committee determined to impose the 
following fees: \44\
---------------------------------------------------------------------------

    \43\ This $5,000,000 represents the gradual accumulation of the 
funds for a target operating reserve of $11,425,000.
    \44\ Note that all monthly, quarterly and annual CAT Fees have 
been rounded to the nearest dollar.
---------------------------------------------------------------------------

    For Industry Members (other than Execution Venue ATSs):

----------------------------------------------------------------------------------------------------------------
                                                                    Monthly CAT    Quarterly CAT   CAT fees paid
                              Tier                                      fee             fee        annually \45\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $33,668        $101,004        $404,016
2...............................................................          27,051          81,153         324,612
3...............................................................          19,239          57,717         230,868
4...............................................................           6,655          19,965          79,860
5...............................................................           4,163          12,489          49,956
6...............................................................           2,560           7,680          30,720
7...............................................................             501           1,503           6,012
8...............................................................             145             435           1,740
9...............................................................              22              66             264
----------------------------------------------------------------------------------------------------------------

    For Execution Venues for NMS Stocks and OTC Equity Securities:

----------------------------------------------------------------------------------------------------------------
                                                                    Monthly CAT    Quarterly CAT   CAT fees paid
                              Tier                                      fee             fee        annually \46\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $21,125         $63,375        $253,500
2...............................................................          12,940          38,820         155,280
----------------------------------------------------------------------------------------------------------------

    For Execution Venues for Listed Options:

----------------------------------------------------------------------------------------------------------------
                                                                    Monthly CAT    Quarterly CAT   CAT fees paid
                              Tier                                      fee             fee        annually \47\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $19,205         $57,615        $230,460
2...............................................................          13,204          39,612         158,448
----------------------------------------------------------------------------------------------------------------

    As noted above, the fees set forth in the tables reflect the 
Operating Committee's decision to ensure comparable fees between 
Execution Venues and Industry Members. The fees of the top tiers for 
Industry Members (other than Execution Venue ATSs) are not identical to 
the top tier for Execution Venues, however, because the Operating 
Committee also determined that the fees for Execution Venue complexes 
should be comparable to those of Industry Member complexes. The 
difference in the fees reflects this decision to recognize 
affiliations.
---------------------------------------------------------------------------

    \45\ This column represents the approximate total CAT Fees paid 
each year by each Industry Member (other than Execution Venue ATSs) 
(i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 
months).
    \46\ This column represents the approximate total CAT Fees paid 
each year by each Execution Venue for NMS Stocks and OTC Equity 
Securities (i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 
12 months).
    \47\ This column represents the approximate total CAT Fees paid 
each year by each Execution Venue for Listed Options (i.e., ``CAT 
Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 months).
---------------------------------------------------------------------------

    The Operating Committee has calculated the schedule of effective 
fees for Industry Members (other than Execution Venue ATSs) and 
Execution Venues in the following manner. Note

[[Page 23650]]

that the calculation of CAT Reporter fees assumes 53 Equity Execution 
Venues, 15 Options Execution Venues and 1,631 Industry Members (other 
than Execution Venue ATSs) as of January 2017.
Calculation of Annual Tier Fees for Industry Members (``IM'')

----------------------------------------------------------------------------------------------------------------
                                                                                   Percentage of
                                                                   Percentage of     industry      Percentage of
                      Industry member tier                           industry         member      total recovery
                                                                      members        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.500            8.50            6.38
Tier 2..........................................................           2.500           35.00           26.25
Tier 3..........................................................           2.125           21.25           15.94
Tier 4..........................................................           4.625           15.75           11.81
Tier 5..........................................................           3.625            7.75            5.81
Tier 6..........................................................           4.000            5.25            3.94
Tier 7..........................................................          17.500            4.50            3.38
Tier 8..........................................................          20.125            1.50            1.13
Tier 9..........................................................          45.000            0.50            0.38
                                                                 -----------------------------------------------
    Total.......................................................             100             100              75
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                                        Estimated number
                 Industry member tier                     of industry
                                                            members
------------------------------------------------------------------------
Tier 1...............................................                  8
Tier 2...............................................                 41
Tier 3...............................................                 35
Tier 4...............................................                 75
Tier 5...............................................                 59
Tier 6...............................................                 65
Tier 7...............................................                285
Tier 8...............................................                328
Tier 9...............................................                735
                                                      ------------------
    Total............................................              1,631
------------------------------------------------------------------------


[[Page 23651]]

[GRAPHIC] [TIFF OMITTED] TN23MY17.001

Calculation of Annual Tier Fees for Equity Execution Venues (``EV'')

----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      Equity       Percentage of   Percentage of
                   Equity Execution Venue Tier                       Execution       Execution    total recovery
                                                                      Venues      Venue Recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           26.00            6.50
Tier 2..........................................................           75.00           49.00           12.25
                                                                 -----------------------------------------------
    Total.......................................................             100              75           18.75
----------------------------------------------------------------------------------------------------------------


[[Page 23652]]


------------------------------------------------------------------------
                                                        Estimated number
             Equity Execution Venue Tier                   of Equity
                                                        Execution Venues
------------------------------------------------------------------------
Tier 1...............................................                 13
Tier 2...............................................                 40
                                                      ------------------
    Total............................................                 53
------------------------------------------------------------------------

                                                       [GRAPHIC] [TIFF OMITTED] TN23MY17.002
                                                       
Calculation of Annual Tier Fees for Options Execution Venues (``EV'')

----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      options      Percentage of   Percentage of
                  Options Execution Venue Tier                       Execution       execution    total recovery
                                                                      Venues      Venue Recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           20.00            5.00
Tier 2..........................................................           25.00            5.00            1.25
                                                                 -----------------------------------------------
    Total.......................................................             100              25            6.25
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                                        Estimated number
             Options Execution Venue Tier                  of Options
                                                        Execution Venues
------------------------------------------------------------------------
Tier 1...............................................                 11
Tier 2...............................................                  4
                                                      ------------------
    Total............................................                 15
------------------------------------------------------------------------

                                                       [GRAPHIC] [TIFF OMITTED] TN23MY17.003
                                                       
Traceability of Total CAT Fees

----------------------------------------------------------------------------------------------------------------
                                                                     Estimated
                Type                     Industry  member tier       number of     CAT fees paid  Total recovery
                                                                      members        annually
----------------------------------------------------------------------------------------------------------------
Industry Members....................  Tier 1....................               8        $404,016      $3,232,128
                                      Tier 2....................              41         324,612      13,309,092
                                      Tier 3....................              35         230,868       8,080,380
                                      Tier 4....................              75          79,860       5,989,500
                                      Tier 5....................              59          49,956       2,947,404
                                      Tier 6....................              65          30,720       1,996,800
                                      Tier 7....................             285           6,012       1,713,420

[[Page 23653]]

 
                                      Tier 8....................             328           1,740         570,720
                                      Tier 9....................             735             264         194,040
                                                                 -----------------------------------------------
    Total...........................  ..........................           1,631  ..............      38,033,484
----------------------------------------------------------------------------------------------------------------
Equity Execution Venues.............  Tier 1....................              13         253,500       3,295,500
                                      Tier 2....................              40         155,280       6,211,200
                                                                 -----------------------------------------------
    Total...........................  ..........................              53  ..............       9,506,700
----------------------------------------------------------------------------------------------------------------
Options Execution Venues............  Tier 1....................              11         230,460       2,535,060
                                      Tier 2....................               4         158,448         633,792
                                                                 -----------------------------------------------
    Total...........................  ..........................              15  ..............       3,168,852
                                                                 -----------------------------------------------
        Total.......................  ..........................  ..............  ..............      50,709,036
                                                                 -----------------------------------------------
        Excess \48\.................  ..........................  ..............  ..............           9,036
----------------------------------------------------------------------------------------------------------------

(F) Comparability of Fees
---------------------------------------------------------------------------

    \48\ The amount in excess of the total CAT costs will contribute 
to the gradual accumulation of the target operating reserve of 
$11.425 million.
---------------------------------------------------------------------------

    The funding principles require a funding model in which the fees 
charged to the CAT Reporters with the most CAT-related activity 
(measured by market share and/or message traffic, as applicable) are 
generally comparable (where, for these comparability purposes, the 
tiered fee structure takes into consideration affiliations between or 
among CAT Reporters, whether Execution Venue and/or Industry Members). 
Accordingly, in creating the model, the Operating Committee sought to 
take account of the affiliations between or among CAT Reporters--that 
is, where affiliated entities may have multiple Industry Member and/or 
Execution Venue licenses, by maintaining relative comparability of fees 
among such affiliations with the most expected CAT-related activity. To 
do this, the Participants identified representative affiliations in the 
largest tier of both Execution Venues and Industry Members and compared 
the aggregate fees that would be paid by such firms.
    While the proposed fees for Tier 1 and Tier 2 Industry Members are 
relatively higher than those of Tier 1 and Tier 2 Execution Venues, 
Execution Venue complex fees are relatively higher than those of 
Industry Member complexes largely due to affiliations between Execution 
Venues. The tables set forth below describe the largest Execution Venue 
and Industry Member complexes and their associated fees: \49\
---------------------------------------------------------------------------

    \49\ Note that the analysis of the complexes was performed on a 
best efforts basis, as all affiliations between the 1631 Industry 
Members may not be included.

                                            Execution Venue Complexes
----------------------------------------------------------------------------------------------------------------
                                               Listing of Equity          Listing of Options       Total fees by
         Execution Venue Complex             Execution Venue Tiers       Execution Venue Tier       EV complex
----------------------------------------------------------------------------------------------------------------
Execution Venue Complex 1...............   Tier 1 (x2)......   Tier 1 (x4)......      $1,900,962
                                           Tier 2 (x1)......   Tier 2 (x2)......
Execution Venue Complex 2...............   Tier 1 (x2)......   Tier 1 (x2)......       1,863,801
                                                                       Tier 2 (x1)......
Execution Venue Complex 3...............   Tier 1 (x2)......   Tier 1 (x2)......       1,278,447
                                           Tier 2 (x2)......
----------------------------------------------------------------------------------------------------------------


                                            Industry Member Complexes
----------------------------------------------------------------------------------------------------------------
                                          Listing of industry member                               Total fees by
         Industry member complex                     tiers               Listing of ATS tiers       IM complex
----------------------------------------------------------------------------------------------------------------
Industry Member Complex 1...............   Tier 1 (x2)......   Tier 2 (x1)......        $963,300
Industry Member Complex 2...............   Tier 1 (x1)......   Tier 2 (x3)......         949,674
                                           Tier 4 (x1)......
Industry Member Complex 3...............   Tier 1 (x1)......   Tier 2 (x1)......         883,888
                                           Tier 2 (x1)......
Industry Member Complex 4...............   Tier 1 (x1)......  N/A.......................         808,472
                                           Tier 2 (x1)......
                                           Tier 4 (x1)......
Industry Member Complex 5...............   Tier 2 (x1)......   Tier 2 (x1)......         796,595
                                           Tier 3 (x1)......
                                           Tier 4 (x1)......
                                           Tier 7 (x1)......
----------------------------------------------------------------------------------------------------------------


[[Page 23654]]

(G) Billing Onset
    Under Section 11.1(c) of the CAT NMS Plan, to fund the development 
and implementation of the CAT, the Company shall time the imposition 
and collection of all fees on Participants and Industry Members in a 
manner reasonably related to the timing when the Company expects to 
incur such development and implementation costs. The Company is 
currently incurring such development and implementation costs and will 
continue to do so prior to the commencement of CAT reporting and 
thereafter. For example, the Plan Processor has required up-front 
payments to begin building the CAT. In addition, the Company continues 
to incur consultant and legal expenses on an on-going basis to 
implement the CAT. Accordingly, the Operating Committee determined that 
all CAT Reporters, including both Industry Members and Execution Venues 
(including Participants), would begin to be invoiced as promptly as 
possible following the establishment of a billing mechanism. FINRA will 
issue a notice to its members when the billing mechanism is 
established, specifying the date when such invoicing of Industry 
Members will commence.
(H) Changes to Fee Levels and Tiers
    Section 11.3(d) of the CAT NMS Plan states that ``[t]he Operating 
Committee shall review such fee schedule on at least an annual basis 
and shall make any changes to such fee schedule that it deems 
appropriate. The Operating Committee is authorized to review such fee 
schedule on a more regular basis, but shall not make any changes on 
more than a semi-annual basis unless, pursuant to a Supermajority Vote, 
the Operating Committee concludes that such change is necessary for the 
adequate funding of the Company.'' With such reviews, the Operating 
Committee will review the distribution of Industry Members and 
Execution Venues across tiers, and make any updates to the percentage 
of CAT Reporters allocated to each tier as may be necessary. In 
addition, the reviews will evaluate the estimated ongoing CAT costs and 
the level of the operating reserve. To the extent that the total CAT 
costs decrease, the fees would be adjusted downward, and, to the extent 
that the total CAT costs increase, the fees would be adjusted 
upward.\50\ Furthermore, any surplus of the Company's revenues over its 
expenses is to be included within the operational reserve to offset 
future fees. The limitations on more frequent changes to the fee, 
however, are intended to provide budgeting certainty for the CAT 
Reporters and the Company.\51\ To the extent that the Operating 
Committee approves changes to the number of tiers in the funding model 
or the fees assigned to each tier, then FINRA will file such changes 
with the SEC pursuant to Section 19(b) of the Exchange Act, and any 
such changes will become effective in accordance with the requirements 
of Section 19(b).
---------------------------------------------------------------------------

    \50\ The CAT Fees are designed to recover the costs associated 
with the CAT. Accordingly, CAT Fees would not be affected by 
increases or decreases in other non-CAT expenses incurred by the 
Participants, such as any changes in costs related to the retirement 
of existing regulatory systems, such as OATS.
    \51\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
---------------------------------------------------------------------------

(I) Initial and Periodic Tier Reassignments
    The Operating Committee has determined to calculate fee tiers every 
three months based on market share or message traffic, as applicable, 
from the prior three months. For the initial tier assignments, the 
Company will calculate the relevant tier for each CAT Reporter using 
the three months of data prior to the commencement date. As with the 
initial tier assignment, for the tri-monthly reassignments, the Company 
will calculate the relevant tier using the three months of data prior 
to the relevant tri-monthly date. FINRA notes that any movement of CAT 
Reporters between tiers will not change the criteria for each tier or 
the fee amount corresponding to each tier.
    In performing the tri-monthly reassignments, FINRA notes that the 
percentage of CAT Reporters in each assigned tier is relative. 
Therefore, a CAT Reporter's assigned tier will depend, not only on its 
own message traffic or market share, but it also will depend on the 
message traffic/market share across all CAT Reporters. For example, the 
percentage of Industry Members (other than Execution Venue ATSs) in 
each tier is relative such that such Industry Member's assigned tier 
will depend on message traffic generated across all CAT Reporters as 
well as the total number of CAT Reporters. The Operating Committee will 
inform CAT Reporters of their assigned tier every three months 
following the periodic tiering process, as the funding model will 
compare an individual CAT Reporter's activity to that of other CAT 
Reporters in the marketplace.
    The following demonstrates a tier reassignment. In accordance with 
the funding model, the top 75% of Options Execution Venues in market 
share are categorized as Tier 1 while the bottom 25% of Options 
Execution Venues in market share are categorized as Tier 2. In the 
sample scenario below, Options Execution Venue L is initially 
categorized as a Tier 2 Options Execution Venue in Period A due to its 
market share. When market share is recalculated for Period B, the 
market share of Execution Venue L increases, and it is therefore 
subsequently reranked and reassigned to Tier 1 in Period B. 
Correspondingly, Options Execution Venue K, initially a Tier 1 Options 
Execution Venue in Period A, is reassigned to Tier 2 in Period B due to 
decreases in its market share of share volume.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Period A                                                                     Period B
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Market share                                                             Market  share
            Options Execution Venue                   rank             Tier               Options Execution Venue              rank            Tier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Options Execution Venue A......................               1               1   Options Execution Venue A.............               1               1
Options Execution Venue B......................               2               1   Options Execution Venue B.............               2               1
Options Execution Venue C......................               3               1   Options Execution Venue C.............               3               1
Options Execution Venue D......................               4               1   Options Execution Venue D.............               4               1
Options Execution Venue E......................               5               1   Options Execution Venue E.............               5               1
Options Execution Venue F......................               6               1   Options Execution Venue F.............               6               1
Options Execution Venue G......................               7               1   Options Execution Venue I.............               7               1
Options Execution Venue H......................               8               1   Options Execution Venue H.............               8               1
Options Execution Venue I......................               9               1   Options Execution Venue G.............               9               1
Options Execution Venue J......................              10               1   Options Execution Venue J.............              10               1
Options Execution Venue K......................              11               1   Options Execution Venue L.............              11               1

[[Page 23655]]

 
Options Execution Venue L......................              12               2   Options Execution Venue K.............              12               2
Options Execution Venue M......................              13               2   Options Execution Venue N.............              13               2
Options Execution Venue N......................              14               2   Options Execution Venue M.............              14               2
Options Execution Venue O......................              15               2   Options Execution Venue O.............              15               2
--------------------------------------------------------------------------------------------------------------------------------------------------------

(3) Proposed CAT Fee Schedule
    FINRA proposes the Consolidated Audit Trail Funding Fees to 
implement the CAT Fees determined by the Operating Committee on FINRA's 
Industry Members. The proposed fee schedule has three sections, 
covering definitions, the fee schedule for CAT Fees, and the timing and 
manner of payments. Each of these sections is discussed in detail 
below.
(A) Definitions
    Paragraph (a) of the proposed fee schedule sets forth the 
definitions for the proposed fee schedule. Paragraph (a)(1) states 
that, for purposes of the Consolidated Audit Trail Funding Fees, the 
terms ``CAT NMS Plan,'' ``Industry Member,'' ``NMS Stock,'' ``OTC 
Equity Security'', and ``Participant'' are defined as set forth in Rule 
6810 (Consolidated Audit Trail--Definitions).
    The proposed fee schedule imposes different fees on Equity ATSs and 
Industry Members that are not Equity ATSs. Accordingly, the proposed 
fee schedule defines the term ``Equity ATS.'' First, paragraph (a)(2) 
defines an ``ATS'' to mean an alternative trading system as defined in 
Rule 300(a) of SEC Regulation ATS under the Securities Exchange Act of 
1934, as amended, that operates pursuant to Rule 301 of SEC Regulation 
ATS. This is the same definition of an ATS as set forth in Section 1.1 
of the CAT NMS Plan in the definition of an ``Execution Venue.'' Then, 
paragraph (a)(4) defines an ``Equity ATS'' as an ATS that executes 
transactions in NMS Stocks and/or OTC Equity Securities.
    Paragraph (a)(3) of the proposed fee schedule defines the term 
``CAT Fee'' to mean the Consolidated Audit Trail Funding Fee(s) to be 
paid by Industry Members as set forth in paragraph (b) in the proposed 
fee schedule.
    Finally, Paragraph (a)(6) defines an ``Execution Venue'' as a 
Participant or an ATS (excluding any such ATS that does not execute 
orders). This definition is the same substantive definition as set 
forth in Section 1.1 of the CAT NMS Plan. Paragraph (a)(5) defines an 
``Equity Execution Venue'' as an Execution Venue that trades NMS Stocks 
and/or OTC Equity Securities.
(B) Fee Schedule
    FINRA proposes to impose the CAT Fees applicable to its Industry 
Members through paragraph (b) of the proposed fee schedule. Paragraph 
(b)(1) of the proposed fee schedule sets forth the CAT Fees applicable 
to Industry Members other than Equity ATSs. Specifically, paragraph 
(b)(1) states that the Company will assign each Industry Member (other 
than an Equity ATS) to a fee tier once every quarter, where such tier 
assignment is calculated by ranking each Industry Member based on its 
total message traffic for the three months prior to the quarterly tier 
calculation day and assigning each Industry Member to a tier based on 
that ranking and predefined Industry Member percentages. The Industry 
Members with the highest total quarterly message traffic will be ranked 
in Tier 1, and the Industry Members with lowest quarterly message 
traffic will be ranked in Tier 9. Each quarter, each Industry Member 
(other than an Equity ATS) shall pay the following CAT Fee 
corresponding to the tier assigned by the Company for such Industry 
Member for that quarter:

------------------------------------------------------------------------
                                                 Percentage
                     Tier                       of industry   Quarterly
                                                  members      CAT fee
------------------------------------------------------------------------
1.............................................        0.500     $101,004
2.............................................        2.500       81,153
3.............................................        2.125       57,717
4.............................................        4.625       19,965
5.............................................        3.625       12,489
6.............................................        4.000        7,680
7.............................................       17.500        1,503
8.............................................       20.125          435
9.............................................       45.000           66
------------------------------------------------------------------------

    Paragraph (b)(2) of the proposed fee schedule sets forth the CAT 
Fees applicable to Equity ATSs.\52\ These are the same fees that 
Participants that trade NMS Stocks and/or OTC Equity Securities will 
pay. Specifically, paragraph (b)(2) states that the Company will assign 
each Equity ATS to a fee tier once every quarter, where such tier 
assignment is calculated by ranking each Equity Execution Venue based 
on its total market share of NMS Stocks and OTC Equity Securities for 
the three months prior to the quarterly tier calculation day and 
assigning each Equity Execution Venue to a tier based on that ranking 
and predefined Equity Execution Venue percentages. The Equity Execution 
Venues with the higher total quarterly market share will be ranked in 
Tier 1, and the Equity Execution Venues with the lower quarterly market 
share will be ranked in Tier 2. Specifically, paragraph (b)(2) states 
that, each quarter, each Equity ATS shall pay the following CAT Fee 
corresponding to the tier assigned by the Company for such Equity ATS 
for that quarter:
---------------------------------------------------------------------------

    \52\ Note that no fee schedule is provided for Execution Venue 
ATSs that execute transactions in Listed Options, as no such 
Execution Venue ATSs currently exist due to trading restrictions 
related to Listed Options.

------------------------------------------------------------------------
                                                 Percentage
                                                 of equity    Quarterly
                     Tier                        execution     CAT fee
                                                   venues
------------------------------------------------------------------------
1.............................................        25.00      $63,375
2.............................................        75.00       38,820
------------------------------------------------------------------------

(C) Timing and Manner of Payment
    Section 11.4 of the CAT NMS Plan states that the Operating 
Committee shall establish a system for the collection of fees 
authorized under the CAT NMS Plan. The Operating Committee may include 
such collection responsibility as a function of the Plan Processor or 
another administrator. To implement the payment process to be adopted 
by the Operating Committee, paragraph (c)(1) of the proposed fee 
schedule states that the Company will provide each Industry Member with 
one invoice each quarter for its CAT Fees as determined pursuant to 
paragraph (b) of the proposed fee schedule, regardless of whether the 
Industry Member is a member of multiple self-regulatory organizations. 
Paragraph (c)(1) further states that each Industry Member will pay its 
CAT Fees to the Company via the centralized system for the collection 
of CAT Fees established by the Company in the manner prescribed by the 
Company. FINRA will provide Industry Members with details regarding the 
manner of payment of CAT Fees by Regulatory Notice.
    Although the exact fee collection system and processes for CAT fees 
has

[[Page 23656]]

not yet been established, all CAT fees will be billed and collected 
centrally through the Company, via the Plan Processor or otherwise. 
Although each Participant will adopt its own fee schedule regarding CAT 
Fees, no CAT Fees or portion thereof will be collected by the 
individual Participants. Each Industry Member will receive from the 
Company one invoice for its applicable CAT fees, not separate invoices 
from each Participant of which it is a member. The Industry Members 
will pay the CAT Fees to the Company via the centralized system for the 
collection of CAT fees established by the Company.\53\
---------------------------------------------------------------------------

    \53\ Section 11.4 of the CAT NMS Plan.
---------------------------------------------------------------------------

    Section 11.4 of the CAT NMS Plan also states that Participants 
shall require each Industry Member to pay all applicable authorized CAT 
Fees within thirty days after receipt of an invoice or other notice 
indicating payment is due (unless a longer payment period is otherwise 
indicated). Section 11.4 further states that, if an Industry Member 
fails to pay any such fee when due, such Industry Member shall pay 
interest on the outstanding balance from such due date until such fee 
is paid at a per annum rate equal to the lesser of: (i) The Prime Rate 
plus 300 basis points; or (ii) the maximum rate permitted by applicable 
law. Therefore, in accordance with Section 11.4 of the CAT NMS Plan, 
FINRA proposed to adopt paragraph (c)(2) of the proposed fee schedule. 
Paragraph (c)(2) of the proposed fee schedule states that each Industry 
Member shall pay CAT Fees within thirty days after receipt of an 
invoice or other notice indicating payment is due (unless a longer 
payment period is otherwise indicated). If an Industry Member fails to 
pay any such fee when due, such Industry Member shall pay interest on 
the outstanding balance from such due date until such fee is paid at a 
per annum rate equal to the lesser of: (i) The Prime Rate plus 300 
basis points; or (ii) the maximum rate permitted by applicable law.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\54\ which require, among 
other things, that the FINRA rules must be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest, and not designed to permit unfair 
discrimination between customers, issuers, brokers and dealer [sic], 
and Section 15A(b)(5) of the Act,\55\ which requires that FINRA rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using any 
facility or system which the Participants operates or controls. As 
discussed above, the SEC approved the bifurcated, tiered, fixed fee 
funding model in the CAT NMS Plan, finding it was reasonable and that 
it equitably allocated fees among Participants and Industry Members. 
FINRA believes that the proposed tiered fees adopted pursuant to the 
funding model approved by the SEC in the CAT NMS Plan are reasonable, 
equitably allocated and not unfairly discriminatory.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78o-3(b)(6).
    \55\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

    FINRA believes that this proposal is consistent with the Act 
because it implements, interprets or clarifies the provisions of the 
Plan, and is designed to assist FINRA and its Industry Members in 
meeting regulatory obligations pursuant to the Plan. In approving the 
Plan, the SEC noted that the Plan ``is necessary and appropriate in the 
public interest, for the protection of investors and the maintenance of 
fair and orderly markets, to remove impediments to, and perfect the 
mechanism of a national market system, or is otherwise in furtherance 
of the purposes of the Act.'' \56\ To the extent that this proposal 
implements, interprets or clarifies the Plan and applies specific 
requirements to Industry Members, FINRA believes that this proposal 
furthers the objectives of the Plan, as identified by the SEC, and is 
therefore consistent with the Act.
---------------------------------------------------------------------------

    \56\ Approval Order at 84697.
---------------------------------------------------------------------------

    FINRA believes that the proposed tiered fees are reasonable. First, 
the total CAT Fees to be collected would be directly associated with 
the costs of establishing and maintaining the CAT, where such costs 
include Plan Processor costs and costs related to insurance, third 
party services and the operational reserve. The CAT Fees would not 
cover Participant services unrelated to the CAT. In addition, any 
surplus CAT Fees cannot be distributed to the individual Participants; 
such surpluses must be used as a reserve to offset future fees. Given 
the direct relationship between the fees and the CAT costs, FINRA 
believes that the total level of the CAT Fees is reasonable.
    In addition, FINRA believes that the proposed CAT Fees are 
reasonably designed to allocate the total costs of the CAT equitably 
between and among the Participants and Industry Members, and are 
therefore not unfairly discriminatory. As discussed in detail above, 
the proposed tiered fees impose comparable fees on similarly situated 
CAT Reporters. For example, those with a larger impact on the CAT 
(measured via message traffic or market share) pay higher fees, whereas 
CAT Reporters with a smaller impact pay lower fees. Correspondingly, 
the tiered structure lessens the impact on smaller CAT Reporters by 
imposing smaller fees on those CAT Reporters with less market share or 
message traffic. In addition, the funding model takes into 
consideration affiliations between CAT Reporters, imposing comparable 
fees on such affiliated entities.
    Moreover, FINRA believes that the division of the total CAT costs 
between Industry Members and Execution Venues, and the division of the 
Execution Venue portion of total costs between Equity and Options 
Execution Venues, is reasonably designed to allocate CAT costs among 
CAT Reporters. The 75/25 division between Industry Members and 
Execution Venues maintains the greatest level of comparability across 
the funding model, keeping in view that comparability should consider 
affiliations among or between CAT Reporters (e.g., firms with multiple 
Industry Members or exchange licenses). Similarly, the 75/25 division 
between Equity and Options Execution Venues maintains elasticity across 
the funding model as well as the greatest level of fee equitability and 
comparability based on the current number of Equity and Options 
Execution Venues.
    Finally, FINRA believes that the proposed fees are reasonable 
because they would provide ease of calculation, ease of billing and 
other administrative functions, and predictability of a fixed fee. Such 
factors are crucial to estimating a reliable revenue stream for the 
Company and for permitting CAT Reporters to reasonably predict their 
payment obligations for budgeting purposes.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. FINRA notes that the proposed 
rule change implements provisions of the CAT NMS Plan approved by the 
Commission, and is designed to assist FINRA in meeting its regulatory 
obligations pursuant to the Plan. Similarly, all national securities 
exchanges and FINRA are proposing this proposed fee schedule to 
implement the requirements of the CAT

[[Page 23657]]

NMS Plan. Therefore, this is not a competitive fee filing and, 
therefore, it does not raise competition issues between and among the 
exchanges and FINRA.
    Moreover, as previously described, FINRA believes that the proposed 
rule change fairly and equitably allocates costs among CAT Reporters. 
In particular, the proposed fee schedule is structured to impose 
comparable fees on similarly situated CAT Reporters, and lessen the 
impact on smaller CAT Reporters. CAT Reporters with similar levels of 
CAT activity will pay similar fees. For example, Industry Members 
(other than Execution Venue ATSs) with higher levels of message traffic 
will pay higher fees, and those with lower levels of message traffic 
will pay lower fees. Similarly, Execution Venue ATSs and other 
Execution Venues with larger market share will pay higher fees, and 
those with lower levels of market share will pay lower fees. Therefore, 
given that there is generally a relationship between message traffic 
and market share to the CAT Reporter's size, smaller CAT Reporters 
generally pay less than larger CAT Reporters. Accordingly, FINRA does 
not believe that the CAT Fees would have a disproportionate effect on 
smaller or larger CAT Reporters. In addition, ATSs and exchanges will 
pay the same fees based on market share. Therefore, FINRA does not 
believe that the fees will impose any burden on the competition between 
ATSs and exchanges. Accordingly, FINRA believes that the proposed fees 
will minimize the potential for adverse effects on competition between 
CAT Reporters in the market.
    Furthermore, the tiered, fixed fee funding model limits the 
disincentives to providing liquidity to the market. Therefore, the 
proposed fees are structured to limit burdens on competitive quoting 
and other liquidity provision in the market.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act,\57\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\58\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act. If 
the Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.
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    \57\ 15 U.S.C. 78s(b)(3)(A).
    \58\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2017-011 on the subject line.

Paper Comments

     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 SR-FINRA-2017-011. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site 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 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2017-011, and should 
be submitted on or before June 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\59\
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    \59\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10466 Filed 5-22-17; 8:45 am]
BILLING CODE 8011-01-P