Justia Agencies And Commissions Securities And Exchange Commission Joint Industry Plan; Notice of Filing and Immediate Effectiveness of Amendment No. 4 to the National Market System Plan Governing the Consolidated Audit Trail by Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., BOX Options Exchange LLC, Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., Investors' Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, Nasdaq PHLX LLC, The Nasdaq Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., NYSE American, LLC and NYSE National, Inc., 1399-1428 [2018-00314]

Joint Industry Plan; Notice of Filing and Immediate Effectiveness of Amendment No. 4 to the National Market System Plan Governing the Consolidated Audit Trail by Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., BOX Options Exchange LLC, Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., Investors' Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, Nasdaq PHLX LLC, The Nasdaq Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., NYSE American, LLC and NYSE National, Inc., 1399-1428 [2018-00314]

Download as PDF Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices Dated: January 2018. Brent J. Fields, Secretary. [FR Doc. 2018–00387 Filed 1–10–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82451; File No. 4–698] Joint Industry Plan; Notice of Filing and Immediate Effectiveness of Amendment No. 4 to the National Market System Plan Governing the Consolidated Audit Trail by Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., BOX Options Exchange LLC, Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., Investors’ Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, Nasdaq PHLX LLC, The Nasdaq Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., NYSE American, LLC and NYSE National, Inc. January 5, 2018. srobinson on DSK9F5VC42PROD with NOTICES I. Introduction On December 11, 2017, the Operating Committee for CAT NMS, LLC (the ‘‘Company’’), on behalf of the following parties to the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’): 1 1 On February 27, 2015, BATS–Y Exchange, Inc. (n/k/a Cboe BYX Exchange, Inc.), BATS Exchange, Inc. (n/k/a Cboe BZX Exchange, Inc.), BOX Options Exchange LLC, C2 Options Exchange, Incorporated (n/k/a Cboe C2 Exchange, Inc.), Chicago Board Options Exchange, Incorporated (n/k/a Cboe Exchange, Inc.), Chicago Stock Exchange, Inc., EDGA Exchange, Inc. (n/k/a Cboe EDGA Exchange, Inc.), EDGX Exchange, Inc. (n/k/a Cboe EDGX Exchange, Inc.), Financial Industry Regulatory Authority, Inc., International Securities Exchange, LLC (n/k/a Nasdaq ISE, LLC), ISE Gemini, LLC (n/ k/a Nasdaq GEMX, LLC), Miami International Securities Exchange LLC, NASDAQ OMX BX, Inc. (n/k/a Nasdaq BX, Inc.), NASDAQ OMX PHLX LLC (n/k/a Nasdaq PHLX LLC), The NASDAQ Stock Market LLC, National Stock Exchange, Inc. (n/k/a NYSE National, Inc.), New York Stock Exchange LLC, NYSE MKT LLC (n/k/a NYSE American LLC), and NYSE Arca, Inc. filed with the Commission, pursuant to Section 11A of the Exchange Act and Rule 608 of Regulation NMS thereunder, the CAT NMS Plan. 15 U.S.C. 78k–1; 17 CFR 242.608. The Plan was published for comment in the Federal Register on May 17, 2016, and approved by the Commission, as modified, on November 15, 2016. See Securities Exchange Act Release Nos. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016); 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016). On January 30, 2017, the Commission noticed for immediate effectiveness an amendment to the Plan to add MIAX PEARL, LLC as a VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 Cboe BYX Exchange, Inc., (previously known as Bats BYX Exchange, Inc.), Cboe BZX Exchange, Inc. (previously known as Bats BZX Exchange), Inc., Cboe EDGA Exchange, Inc. (previously known as Bats EDGA Exchange, Inc.), Cboe EDGX Exchange, Inc. (previously known as Bats EDGX Exchange, Inc.), BOX Options Exchange LLC, Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., Nasdaq ISE, LLC (previously known as International Securities Exchange, Inc.), Investors’ Exchange, LLC, Nasdaq GEMX (previously known as ISE Gemini, LLC), Nasdaq MRX (previously known as ISE Mercury, LLC), Miami International Securities Exchange, LLC, MIAX PEARL, LLC, Nasdaq BX, Inc. (previously known as NASDAQ BX, Inc.), Nasdaq PHLX LLC (previously known as NASDAQ PHLX LLC), The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE Arca, Inc., and NYSE American (previously known as NYSE MKT, LLC) (collectively, the ‘‘Participants,’’ ‘‘self-regulatory organizations’’ or ‘‘SROs’’) filed with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 2 and Rule 608 thereunder,3 a proposal to amend the Plan (‘‘Amendment No. 4’’).4 The proposed amendment would add a fee schedule to a new Exhibit B of the Plan which sets forth the CAT fees to be paid by the Participants. A copy of proposed Exhibit B to the CAT NMS Plan is attached as Appendix A hereto. The Participants have also included, and as attached Participant. See Securities Exchange Act Release No. 79898, 82 FR 9250 (February 3, 2017). 2 15 U.S.C 78k–1(a)(3). 3 17 CFR 242.608. 4 See Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Brent J. Fields, Secretary, Commission, dated December 11, 2017 (‘‘Transmittal Letter’’). The Participants previously submitted an amendment to the CAT NMS Plan to establish Participant fees (‘‘Amendment No. 2’’). See Letter from Michael Simon, Chair, CAT NMS Plan Operating Committee, to Brent J. Fields, Secretary, Commission, dated May 22, 2017. See also Securities Exchange Act Release No. 80930 (June 14, 2017), 82 FR 28180 (June 20, 2017), available at https://www.sec.gov/rules/sro/nms/ 2017/34-80930.pdf. The Commission issued an Order of Summary Abrogation of Amendment No. 2 on July 21, 2017, concluding that the amendment raised concerns and the justifications provided by the Participants were not sufficient for the Commission to determine whether the amendment was consistent with the Act. See Securities and Exchange Commission Release No. 81189 (July 21, 2017), 82 FR 35005 (July 27, 2017). On October 30, 2017, the Participants filed Amendment No. 3 to the CAT NMS Plan, which has been withdrawn and replaced and superseded in its entirety by Amendment No. 4. PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 1399 hereto, an Appendix B containing 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. The Commission is publishing this notice to solicit comments from interested persons on Amendment No. 4.5 II. Description of the Plan Set forth in this Section II is the statement of the purpose and summary of Amendment No. 4, along with the information required by Rule 608(a)(4) and (5) under the Exchange Act,6 prepared and submitted by the Participants to the Commission.7 A. Description of the Amendments to the CAT NMS Plan (1) Executive Summary The following provides an executive summary of the CAT funding model approved by the Operating Committee, as well as Participants’ 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. • 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 used in calculating 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. Although the CAT costs from November 21, 2016 through November 21, 2017 were used in calculating the CAT Fees, the CAT Fees set forth in this fee filing would be in effect until the automatic sunset date, as discussed below. (See Section A(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 A(2) below) 5 17 CFR 242.608. 17 CFR 242.608(a)(4) and (a)(5). 7 See Transmittal Letter, supra note 4. 6 See E:\FR\FM\11JAN1.SGM 11JAN1 srobinson on DSK9F5VC42PROD with NOTICES 1400 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices • Industry Member Fees. Each Industry Member (other than Execution Venue ATSs) will be placed into one of seven 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, quotes and executions provided by each exchange and the Financial Industry Regulatory Authority, Inc. (‘‘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. To avoid disincentives to quoting behavior, Options Market Maker and equity market maker quotes will be discounted when calculating message traffic. (See Section A(2)(B) below) • Execution Venue Fees. Each Equity Execution Venue will be placed in one of four 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. For purposes of calculating market share, the OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA OTC reporting facility (‘‘ORF’’) will be discounted. 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 A(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 VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 allocated to Execution Venues. In addition, the Operating Committee determined to allocate 67 percent of Execution Venue costs recovered to Equity Execution Venues and 33 percent to Options Execution Venues. (See Section A(2)(D) below) • Comparability of Fees. The CAT funding model charges CAT Reporters with the most CAT-related activity (measured by market share and/or message traffic, as applicable) comparable CAT Fees. (See Section A(2)(F) below) • Fee Schedule. The quarterly CAT Fees for each tier for Participants are set forth in the two fee schedules in proposed Exhibit B to the CAT NMS Plan, one for Execution Venues for NMS Stocks and OTC Equity Securities, and one for Execution Venues for Listed Options. (See Section A(3) below) • Sunset Provision. The CAT Fees set forth in proposed Exhibit B would sunset automatically two years from their operative date. (See Section A(2)(J) 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. In addition to a budget, Article XI of the CAT NMS Plan provides that the Operating Committee has discretion to establish funding for the Company, consistent with 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’’ 8 and ‘‘reflects a reasonable exercise of the Participants’ funding authority to recover the Participants’ costs related to the CAT.’’ 9 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.’’ 10 The Commission further noted the following: 8 Approval Order at 84796. at 84794. 10 Id. at 84795. 9 Id. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 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 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.11 Accordingly, the funding model approved by the Operating Committee imposes fees on both Participants and Industry Members. As discussed in Appendix C of the CAT NMS Plan, in developing and approving the approved funding model, the Operating Committee considered the advantages and disadvantages of a variety of alternative funding and cost allocation models before selecting the proposed model.12 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. In particular, 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. 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. In addition, reviews from varying time periods of current broker-dealer order and trading data submitted under existing reporting requirements showed a wide range in activity among brokerdealers, 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 tiered approach helps ensure that fees are equitably allocated among similarly situated CAT 11 Id. at 84794. B.7, Appendix C of the CAT NMS Plan, Approval Order at 85006. 12 Section E:\FR\FM\11JAN1.SGM 11JAN1 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices srobinson on DSK9F5VC42PROD with NOTICES Reporters and furthers the goal of lessening the impact on smaller firms.13 In addition, in choosing a tiered fee structure, the Operating Committee concluded that the variety of benefits offered by a tiered fee structure, discussed above, outweighed the fact that CAT Reporters in any particular tier would pay different rates per message traffic order event or per market share (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.14 The Operating Committee 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 message traffic which will reflect 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 in order to allocate higher costs to those CAT Reporters that contribute more to the costs of creating, implementing and maintaining the CAT and lower costs to those that contribute less.15 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 will 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.16 Correspondingly, Execution Venues with the highest market shares will be in the top tier, and will be charged higher fees. Execution Venues with the lowest market shares will be in the lowest tier and will be assessed smaller fees for the CAT.17 The CAT NMS Plan states that Industry Members (other than Execution Venue ATSs) will be charged based on message traffic, and that Execution Venues will be charged based on market 13 Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85006. 14 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 may be easier to implement.’’ Approval Order at 84796. 15 Approval Order at 85005. 16 Id. 17 Id. VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 share.18 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.19 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.20 In contrast to Industry Members, which determine the degree to which they produce message traffic that constitute CAT Reportable Events, the CAT Reportable Events of the Execution Venues are largely derivative of quotations and orders received from Industry Members that they are required to display. The business model for Execution Venues (other than FINRA), however, is focused on executions in their markets. As a result, the Operating Committee believes that it is more equitable to charge Execution Venues based on their market share rather than their message traffic. Focusing on message traffic would make it more difficult to draw distinctions between large and small Execution Venues and, in particular, between large and small options exchanges. For instance, the Operating Committee analyzed the message traffic of Execution Venues and Industry Members for the period of April 2017 to June 2017 and placed all CAT Reporters into a nine-tier framework (i.e., a single tier may include both Execution Venues and Industry Members). The Operating Committee’s analysis found that the majority of exchanges (15 total) were grouped in Tiers 1 and 2. Moreover, virtually all of the options exchanges were in Tiers 1 and 2.21 Given the resulting concentration of options exchanges in Tiers 1 and 2 under this approach, the analysis shows that a funding model for Execution Venues based on message traffic would make it more difficult to distinguish between large and small options exchanges, as compared to the proposed fee approach that bases fees for Execution Venues on market share. The CAT NMS Plan’s funding model also is structured to avoid a ‘‘reduction in market quality.’’ 22 The tiered, fixed fee funding model is designed to limit the disincentives to providing liquidity 18 Section 11.3(a) and (b) of the CAT NMS Plan. B.7, Appendix C of the CAT NMS Plan, Approval Order at 85005. 20 Section 11.3(b) of the CAT NMS Plan. 21 The Operating Committee notes that this analysis did not place MIAX PEARL in Tier 1 or Tier 2 since the exchange commenced trading on February 6, 2017. 22 Section 11.2(e) of the CAT NMS Plan. 19 Section PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 1401 to the market. For example, the Operating Committee expects that a firm that has 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 are 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.’’ 23 The funding model also is structured to avoid a reduction market quality because it discounts Options Market Maker and equity market maker quotes when calculating message traffic for Options Market Makers and equity market makers, respectively. As discussed in more detail below, the Operating Committee determined to discount the Options Market Maker quotes by the trade to quote ratio for options when calculating message traffic for Options Market Makers. Similarly, to avoid disincentives to quoting behavior on the equities side as well, the Operating Committee determined to discount equity market maker quotes by the trade to quote ratio for equities when calculating message traffic for equity market makers. The proposed discounts recognize the value of the market makers’ quoting activity to the market as a whole. The CAT NMS Plan is further structured to avoid potential conflicts raised by the Operating Committee determining fees applicable to its own members—the Participants. First, the Company will operate on a ‘‘breakeven’’ 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.24 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 23 Approval 24 Id. E:\FR\FM\11JAN1.SGM Order at 84796. at 84792. 11JAN1 srobinson on DSK9F5VC42PROD with NOTICES 1402 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 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.’’ 25 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.’’ 26 The Internal Revenue Service recently has determined that the Company is exempt from federal income tax under Section 501(c)(6) of the Internal Revenue Code. The funding model also is structured to take into account distinctions in the securities trading operations of Participants and Industry Members. For example, the Operating Committee designed the model to address the different trading characteristics in the OTC Equity Securities market. Specifically, the Operating Committee proposes to discount the OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA ORF by the average shares per trade ratio between NMS Stocks and OTC Equity Securities to adjust for the greater number of shares being traded in the OTC Equity Securities market, which is generally a function of a lower per share price for OTC Equity Securities when compared to NMS Stocks. In addition, the Operating Committee also proposes to discount Options Market Maker and equity market maker message traffic in recognition of their role in the securities markets. Furthermore, the funding model creates separate tiers for Equity and Options Execution Venues due to the different trading characteristics of those markets. Finally, by adopting a CAT-specific fee, the Operating Committee 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 25 26 U.S.C. 501(c)(6). Order at 84793. 26 Approval VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 to how the funding model will be applied in practice, including the number of fee tiers and the applicable fees for each tier. The complete funding model is described below, including those fees that are to be paid by Industry Members. Proposed Exhibit B, however, does not apply to Industry Members; proposed Exhibit B only applies to Participants. The CAT Fees for Industry Members will be imposed separately pursuant to rules adopted by the individual self-regulatory organizations (‘‘SROs[sic]). (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 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. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 (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 seven tiers results in an allocation of fees that distinguishes between Industry Members with differing levels of message traffic. Thus, each such Industry Member will be placed into one of seven tiers of fixed fees, based on ‘‘message traffic’’ for a defined period (as discussed below). A seven tier structure was selected to provide a wide 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 from multiple time periods, 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 E:\FR\FM\11JAN1.SGM 11JAN1 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices srobinson on DSK9F5VC42PROD with NOTICES traffic. Based on this, the Operating Committee determined that seven tiers 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. Furthermore, the selection of seven tiers establishes comparable fees among the largest CAT Reporters. 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 ensure that the total CAT Fees collected recover the expected 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 seven tiers that would group firms with similar levels of message traffic. The percentage of costs recovered by each Industry Member tier will be determined by predefined percentage VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 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 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 seven Industry Member tiers across the monthly average of total equity and equity options orders, PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 1403 cancels, quotes and executions in the second quarter of 2017 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 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 driven by fixed percentages of Industry Members across tiers to account for fluctuating levels of message traffic over time. This approach also provides financial stability for 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 A(2)(I). E:\FR\FM\11JAN1.SGM 11JAN1 1404 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices Approximate Message Traffic per Industry Member (Q2 2017) (orders, quotes, cancels and executions) Industry Member tier 1 2 3 4 5 6 7 ................................................................................................................................................................ ................................................................................................................................................................ ................................................................................................................................................................ ................................................................................................................................................................ ................................................................................................................................................................ ................................................................................................................................................................ ................................................................................................................................................................ Based on the above analysis, the Operating Committee approved the following Industry Member Percentages and Industry Member Recovery Allocations: Percentage of Industry Members Industry Member tier 1 2 3 4 5 6 7 Percentage of Industry Member recovery Percentage of total recovery ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ 0.900 2.150 2.800 7.750 8.300 18.800 59.300 12.00 20.50 18.50 32.00 10.00 6.00 1.00 9.00 15.38 13.88 24.00 7.50 4.50 0.75 Total ...................................................................................................................................... srobinson on DSK9F5VC42PROD with NOTICES Tier Tier Tier Tier Tier Tier Tier >10,000,000,000 1,000,000,000–10,000,000,000 100,000,000–1,000,000,000 1,000,000–100,000,000 100,000–1,000,000 10,000–100,000 <10,000 100 100 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 VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 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 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 and equity options orders, cancels, quotes and executions provided by each exchange and FINRA over the previous three months. Prior to the start of CAT reporting, orders would be comprised of the total number of equity and equity options orders received and originated E:\FR\FM\11JAN1.SGM 11JAN1 EN11JA18.000</GPH> Tier Tier Tier Tier Tier Tier Tier Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices srobinson on DSK9F5VC42PROD with NOTICES 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 executions originated by a member of FINRA, and excluding order rejects, system-modified orders, order routes and implied orders.27 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 threemonth period, excluding order modifications (e.g., order updates, order splits, partial cancels) and multiple cancels of a complex order. 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. Additionally, prior to the start of CAT reporting, executions would be comprised of the total number of equity and equity option executions received or originated by a member of an exchange or FINRA over a 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.28 Quotes of Options Market Makers and equity market makers will be included in the calculation of total message traffic for those market makers for purposes of tiering under the CAT funding model both prior to CAT reporting and once CAT reporting commences.29 To 27 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. 28 If an Industry Member (other than an Execution Venue ATS) has no orders, cancels, quotes and executions 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. 29 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 Rel. No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856 (Mar. 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 VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 address potential concerns regarding burdens on competition or market quality of including quotes in the calculation of message traffic, however, the Operating Committee determined to discount the Options Market Maker quotes by the trade to quote ratio for options when calculating message traffic for Options Market Makers. Based on available data for June 2016 through June 2017, the trade to quote ratio for options is 0.01%. Similarly, to avoid disincentives to quoting behavior on the equities side, the Operating Committee determined to discount equity market maker quotes by the trade to quote ratio for equities. Based on available data for June 2016 through June 2017, the trade to quote ratio for equities is 5.43%.30 The trade to quote ratio for options and the trade to quote ratio for equities will be calculated every three months when tiers are recalculated (as discussed below). 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 Market Makers for purposes of tiering under the CAT funding model both prior to CAT reporting and once CAT reporting commences. 30 The trade to quote ratios were calculated based on the inverse of the average of the monthly equity SIP and OPRA quote to trade ratios from June 2016– June 2017 that were compiled by the Financial Information Forum using data from NASDAQ and SIAC. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 1405 Regulation ATS (excluding any such ATS that does not execute orders).’’ 31 The Operating Committee determined that ATSs should be included within the definition of Execution Venue. The Operating Committee believes that it is appropriate to treat ATSs as Execution Venues under the proposed funding model since ATSs have business models that are similar to those of exchanges, and ATSs also compete with exchanges. 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 such 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 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 31 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. E:\FR\FM\11JAN1.SGM 11JAN1 1406 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 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 four tiers of fixed fees, based on the Execution Venue’s NMS Stocks and OTC Equity Securities market share. In choosing four 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 four tiers for Equity Execution Venues, rather than a larger number of tiers as established for non-Execution Venue Industry Members, because the four tiers were sufficient to distinguish between the smaller number of Equity Execution Venues based on market share. Furthermore, the selection of four tiers serves to help establish comparability among the largest CAT Reporters. 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 reviewed historical market share of share volume for Execution Venues. Equity Execution Venue market shares of share volume were sourced from market statistics made publiclyavailable by Bats Global Markets, Inc. (‘‘Bats’’). ATS market shares of share volume was sourced from market statistics made publicly-available by FINRA. FINRA trade reporting facility (‘‘TRF’’) and ORF market share of share volume was sourced from market statistics made publicly available by FINRA. Based on data from FINRA and otcmarkets.com, ATSs accounted for 39.12% of the share volume across the TRFs and ORFs during the recent tiering period. A 39.12/60.88 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 market share of share volume. The Operating Committee determined to discount the OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA ORF in recognition of the different trading characteristics of the OTC Equity Securities market as compared to the market in NMS Stocks. Many OTC Equity Securities are priced at less than one dollar—and a significant number at less than one penny—per share and low-priced shares tend to trade in larger quantities. Accordingly, a disproportionately large number of shares are involved in transactions involving OTC Equity Securities versus NMS Stocks. Because the proposed fee tiers are based on market share calculated by share volume, Execution Venue ATSs trading OTC Equity Securities and FINRA would likely be subject to higher tiers than their operations may warrant. To address this potential concern, the Operating Committee determined to discount the OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities and the market share of the FINRA ORF by multiplying such market share by the average shares per trade ratio between NMS Stocks and OTC Equity Securities in order to adjust for the greater number of shares being traded in the OTC Equity Securities market. Based on available data for the Percentage of Equity Execution Venues Equity Execution Venue tier srobinson on DSK9F5VC42PROD with NOTICES second quarter of 2017, the average shares per trade ratio between NMS Stocks and OTC Equity Securities is 0.17%.32 The average shares per trade ratio between NMS Stocks and OTC Equity Securities will be recalculated every three months when tiers are recalculated. Based on this, the Operating Committee considered the distribution of Execution Venues, and grouped together Execution Venues with similar levels of market share. 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 to be recovered from 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 cost recovery 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, by using percentages of Equity Execution Venues and cost recovery per tier, the Operating Committee sought to include 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: Tier 1 ............................................................................................................................................ Tier 2 ............................................................................................................................................ Tier 3 ............................................................................................................................................ 32 The average shares per trade ratio for both NMS Stocks and OTC Equity Securities from the second quarter of 2017 was calculated using publicly VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 available market volume data from Bats and OTC Markets Group, and the totals were divided to PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 25.00 42.00 23.00 Percentage of Execution Venue recovery 33.25 25.73 8.00 Percentage of total recovery 8.31 6.43 2.00 determine the average number of shares per trade between NMS Stocks and OTC Equity Securities. E:\FR\FM\11JAN1.SGM 11JAN1 1407 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices Percentage of Equity Execution Venues Equity Execution Venue tier Percentage of Execution Venue recovery Percentage of total recovery Tier 4 ............................................................................................................................................ 10.00 0.02 0.01 Total ...................................................................................................................................... 100 67 16.75 (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, 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. Furthermore, the selection of two tiers served to establish comparable fees among the largest CAT Reporters. 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 to be recovered from 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 cost recovery 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 cost recovery per tier, the Operating Committee sought to include 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 Tier 1 ............................................................................................................................................ Tier 2 ............................................................................................................................................ 75.00 25.00 28.25 4.75 7.06 1.19 Total ...................................................................................................................................... 100 33 8.25 srobinson on DSK9F5VC42PROD with NOTICES (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 Venue ATS volumes will be sourced VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 from market data made publicly available by FINRA and OTC Markets. Set forth in Appendix B to this letter 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. After the commencement of CAT reporting, market share for Execution Venues will be sourced from data PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 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 (with the discounting of OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities as well as the market share of E:\FR\FM\11JAN1.SGM 11JAN1 1408 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices the FINRA ORF, as described above). 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. srobinson on DSK9F5VC42PROD with NOTICES (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 recovery from such Industry Members and Execution Venues, including 80%/20%, 75%/25%, 70%/ 30% and 65%/35% allocations. 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. For example, the cost allocation establishes fees for the largest Industry Members (i.e., those Industry Members in Tiers 1) that are comparable to the largest Equity Execution Venues and Options Execution Venues (i.e., those Execution Venues in Tier 1). Furthermore, the allocation of total CAT cost recovery 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 23 times more Industry Members expected to report to the CAT than Execution Venues (e.g., an estimated 1541 Industry Members versus 67 Execution Venues as of June 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 67 percent of Execution Venue costs recovered to Equity Execution Venues and 33 percent to Options Execution Venues. The Operating Committee determined that a 67%/33% allocation between Equity and Options Execution Venues maintained 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. Specifically, Tier 1 Equity Execution Venues would pay a quarterly fee of $81,047 and Tier 1 Options Execution Venues would pay a quarterly fee of $81,379. 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, 2016.33 The Plan Processor costs relate to costs incurred and to be incurred through November 21, 2017 by the Plan Processor and consist of the Plan Processor’s current estimates of average yearly ongoing costs, including development costs, which total $37,500,000. This amount is based upon the fees due to the Plan Processor pursuant to the Company’s 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 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 cyber-insurance costs for the year. Based on discussions with potential cyberinsurance providers, assuming $2–5 million cyber-insurance premium on $100 million coverage, the Company has estimated $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 CAT operational reserve, which is comprised of three months of ongoing Plan Processor costs ($9,375,000), third party support costs ($1,300,000) and cyberinsurance costs ($750,000). The Operating Committee aims to accumulate the necessary funds to establish 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 to replenish the operating reserve or other changes to total cost during its annual budgeting process. The following table summarizes the Plan Processor and non- 33 It is anticipated that CAT-related costs incurred prior to November 21, 2016 will be addressed via a separate filing. VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 E:\FR\FM\11JAN1.SGM 11JAN1 1409 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices Plan Processor cost components which comprise the total estimated CAT costs of $50,700,000 for the covered period. Cost category Cost component Plan Processor ............................................................................ Non-Plan Processor .................................................................... Operational Costs ...................................................................... Third Party Support Costs ......................................................... Operational Reserve .................................................................. Cyber-insurance Costs .............................................................. $37,500,000 5,200,000 5,000,000 34 3,000,000 Estimated Total .................................................................... .................................................................................................... $50,700,000 Based on these estimated costs and the calculations for the funding model described above, the Operating Committee determined to impose the following fees: 35 Amount For Industry Members (other than Execution Venue ATSs): Percentage of Industry Members Tier 1 2 3 4 5 6 7 ............................................................................................................................................................................... ............................................................................................................................................................................... ............................................................................................................................................................................... ............................................................................................................................................................................... ............................................................................................................................................................................... ............................................................................................................................................................................... ............................................................................................................................................................................... 0.900 2.150 2.800 7.750 8.300 18.800 59.300 Quarterly CAT fee $81,483 59,055 40,899 25,566 7,428 1,968 105 For Execution Venues for NMS Stocks and OTC Equity Securities: Percentage of Equity Execution Venues Tier 1 2 3 4 ............................................................................................................................................................................... ............................................................................................................................................................................... ............................................................................................................................................................................... ............................................................................................................................................................................... 25.00 42.00 23.00 10.00 Quarterly CAT fee $81,048 37,062 21,126 129 For Execution Venues for Listed Options: Percentage of Options Execution Venues Tier 1 ............................................................................................................................................................................... 2 ............................................................................................................................................................................... srobinson on DSK9F5VC42PROD with NOTICES 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 that the calculation of CAT Fees assumes 52 Equity Execution Venues, 15 Options Execution Venues and 1,541 34 This $5,000,000 represents the gradual accumulation of the funds for a target operating reserve of $11,425,000. 35 Note that all monthly, quarterly and annual CAT Fees have been rounded to the nearest dollar. VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 75.00 25.00 Quarterly CAT fee $81,381 37,629 Industry Members (other than Execution Venue ATSs) as of June 2017. E:\FR\FM\11JAN1.SGM 11JAN1 1410 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices CALCULATION OF ANNUAL TIER FEES FOR INDUSTRY MEMBERS (‘‘IM’’) Percentage of Industry Members Industry Member tier Tier Tier Tier Tier Tier Tier Tier 1 2 3 4 5 6 7 Percentage of Industry Member recovery Percentage of total recovery ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ 0.900 2.150 2.800 7.750 8.300 18.800 59.300 12.00 20.50 18.50 32.00 10.00 6.00 1.00 9.00 15.38 13.88 24.00 7.50 4.50 0.75 Total ...................................................................................................................................... 100 100 75 Estimated number of Industry Members Industry Member tier Tier Tier Tier Tier Tier Tier Tier 1 2 3 4 5 6 7 .................................................................................................................................................................................................... .................................................................................................................................................................................................... .................................................................................................................................................................................................... .................................................................................................................................................................................................... .................................................................................................................................................................................................... .................................................................................................................................................................................................... .................................................................................................................................................................................................... 14 33 43 119 128 290 914 Total .............................................................................................................................................................................................. 1,541 srobinson on DSK9F5VC42PROD with NOTICES BILLING CODE 8001–01–P VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 E:\FR\FM\11JAN1.SGM 11JAN1 1411 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices Calculation 1.1 (Calculation of a Tier 1 Industry Member Monthly Fee) 1,541 [Estimated Tot. /Ms] x 0.9% [%of Tier 1 /Ms] = 14 [Estimated Tier 1 /Ms] $50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]X12% [%of Tier liM Recovery]) ( 12 7 14 [Estimated Tier liMs] [M on th s per year ] = $ , 27 161 Calculation 1.2 (Calculation of a Tier 2 Industry Member Monthly Fee) 1,541 [Estimated Tot. /Ms] x 2.15% [%of Tier 2 /Ms] = 33 [Estimated Tier 2 /Ms] ( 12 [Months er ear] = $19,685 p Y $50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]X20.5% [%of Tier 2IM Recovery]) 7 33 [Estimated Tier 2IMs] Calculation 1.3 (Calculation of a Tier 3 Industry Member Monthly Fee) 1,541 [Estimated Tot./Ms] x 2.125% [%of Tier 3 /Ms] = 43 [Estimated Tier 3 /Ms] $50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]X18.5% [%of Tier 3IM Recovery]) ( 43 [Estimated Tier 3IMs] 12 [Months er ear] = $13,633 p Y 7 Calculation 1.4 (Calculation of a Tier 4 Industry Member Monthly Fee) 1,541 [Estimated Tot. /Ms] x 7.75% [%of Tier 4 /Ms] = 119 [Estimated Tier 4 /Ms] $50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of Tot.Ann.CAT Costs]X32% [%of Tier 4IM Recovery]) ( 1 7 119 [Estimated Tier 4IMs] 2 [Months er ear] = $8522 p Y Calculation 1.5 (Calculation of a Tier 5 Industry Member Annual Fee) 1,541 [Estimated Tot. /Ms] x 8.3% [%of Tier 5 /Ms] = 128 [Estimated Tier 5 /Ms] ( $50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]X7.75% [%of Tier 5 IM Recovery]) 7 128 [Estimated Tier 5 IMs] 12 [Months er ear] = $2476 p Y Calculation 1.6 (Calculation of a Tier 6 Industry Member Monthly Fee) 1,541 [Estimated Tot. /Ms] x 18.8% [%of Tier 6 /Ms] = 290 [Estimated Tier 6 /Ms] ( $50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]X6% [%of Tier 6IM Recovery]) 7 290 [Estimated Tier 6IMs] 1 2 [Months er ear] = $656 p Y Calculation 1.7 (Calculation of a Tier 7 Industry Member Monthly Fee) 1,541 [Estimated Tot. /Ms] x 59.3% [%of Tier 7 /Ms] = 914 [Estimated Tier 7 /Ms] $50,700,000 [Tot.Ann.CAT Costs]x 75% [IM% of TotAnn.CAT Costs]Xl% [%of Tier 7 IM Recovery]) ( 914 [Estimated Tier 7 IMs] 7 12 [M on th ] $ 5 s per year = 3 CALCULATION OF ANNUAL TIER FEES FOR EQUITY EXECUTION VENUES (‘‘EV’’) Percentage of Equity Execution Venues Equity Execution Venue tier Tier 1 ............................................................................................................................................ VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 E:\FR\FM\11JAN1.SGM 25.00 11JAN1 Percentage of Execution Venue recovery 33.25 Percentage of total recovery 8.31 EN11JA18.001</GPH> srobinson on DSK9F5VC42PROD with NOTICES BILLING CODE 8001–01–C 1412 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices CALCULATION OF ANNUAL TIER FEES FOR EQUITY EXECUTION VENUES (‘‘EV’’)—Continued Percentage of Equity Execution Venues Equity Execution Venue tier Percentage of Execution Venue recovery Percentage of total recovery Tier 2 ............................................................................................................................................ Tier 3 ............................................................................................................................................ Tier 4 ............................................................................................................................................ 42.00 23.00 10.00 25.73 8.00 49.00 6.43 2.00 0.01 Total ...................................................................................................................................... 100 67 16.75 Estimated number of Equity Execution Venues Equity Execution Venue tier Tier Tier Tier Tier 1 2 3 4 .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. .............................................................................................................................................................................................. 13 22 12 5 Total ........................................................................................................................................................................................ 52 srobinson on DSK9F5VC42PROD with NOTICES BILLING CODE 8001–01–P VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 E:\FR\FM\11JAN1.SGM 11JAN1 1413 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices BILLING CODE 8001–01–C 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 75.00 25.00 28.25 4.75 7.06 1.19 Total ...................................................................................................................................... 100 33 8.25 Estimated number of Options Execution Venues Options Execution Venue tier Tier 1 .............................................................................................................................................................................................. Tier 2 .............................................................................................................................................................................................. 11 4 Total ........................................................................................................................................................................................ 15 VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 E:\FR\FM\11JAN1.SGM 11JAN1 EN11JA18.002</GPH> srobinson on DSK9F5VC42PROD with NOTICES Tier 1 ............................................................................................................................................ Tier 2 ............................................................................................................................................ 1414 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices TRACEABILITY OF TOTAL CAT FEES Industry Member tier Type 14 33 43 119 128 290 914 $325,932 236,220 163,596 102,264 29,712 7,872 420 $4,563,048 7,795,260 7,034,628 12,169,416 3,803,136 2,282,880 383,880 ........................ 1,541 ........................ 38,032,248 ............. ............. ............. ............. 13 22 12 5 324,192 148,248 84,504 516 4,214,496 3,261,456 1,014,048 2,580 Total .......................................................................................................... ........................ 52 ........................ 8,492,580 Options Execution Venues .............................................................................. Tier 1 ............. Tier 2 ............. 11 4 325,524 150,516 3,580,764 602,064 Total .......................................................................................................... ........................ 15 ........................ 4,182,828 Total .................................................................................................. ........................ ........................ ........................ 50,700,000 Excess 36 ........................................................................................... ........................ ........................ ........................ 7,656 srobinson on DSK9F5VC42PROD with NOTICES Equity Execution Venues ................................................................................ (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 36 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 00:05 Jan 11, 2018 Jkt 244001 Tier Tier Tier Tier 1 2 3 4 5 6 7 Total recovery ............. ............. ............. ............. ............. ............. ............. Total .......................................................................................................... Tier Tier Tier Tier Tier Tier Tier CAT fees paid annually 1 2 3 4 Members). Accordingly, in creating the model, the Operating Committee sought to establish comparable fees for the top tier of Industry Members (other than Execution Venue ATSs), Equity Execution Venues and Options Execution Venues. Specifically, each Tier 1 CAT Reporter would be required to pay a quarterly fee of approximately $81,000. (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 PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 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. In accordance with the CAT NMS Plan, all CAT Reporters, including both Industry Members and Execution Venues (including Participants), will be invoiced as promptly as possible following the latest E:\FR\FM\11JAN1.SGM 11JAN1 EN11JA18.003</GPH> Industry Members ............................................................................................ Estimated number of members 1415 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices of the operative date of this Plan amendment, and the related fee filings for the Industry Member CAT Fees. (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.37 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.38 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 the Operating Committee will file such changes with the SEC pursuant to Rule 608 of the Exchange Act, and the Participants will file such changes with the SEC pursuant to Section 19(b) of the Exchange Act and Rule 19b-4 thereunder, and any such changes will become effective in accordance with the requirements of those provisions. (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. 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, the assignment 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 also 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. Period A Market share rank Options Execution Venue srobinson on DSK9F5VC42PROD with NOTICES Options Options Options Options Options Options Options Options Options Options Options Options Options Options Options Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Period B A ............. B ............. C ............. D ............. E ............. F .............. G ............. H ............. I ............... J .............. K ............. L .............. M ............. N ............. O ............. Tier 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Market share rank Options Execution Venue 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 Options Options Options Options Options Options Options Options Options Options Options Options Options Options Options Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Execution Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue Venue A ............ B ............ C ............ D ............ E ............ F ............. I .............. H ............ G ............ J ............. L ............. K ............ N ............ M ............ O ............ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Tier 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 For each periodic tier reassignment, the Operating Committee will review the new tier assignments, particularly those assignments for CAT Reporters that shift from the lowest tier to a higher tier. This review is intended to evaluate whether potential changes to the market or CAT Reporters (e.g., dissolution of a 37 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. 38 Section B.7, Appendix C of the CAT NMS Plan, Approval Order at 85006. VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 E:\FR\FM\11JAN1.SGM 11JAN1 1416 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices large CAT Reporter) adversely affect the tier reassignments. srobinson on DSK9F5VC42PROD with NOTICES (J) Sunset Provision The Operating Committee developed the proposed funding model by analyzing currently available historical data. Such historical data, however, is not as comprehensive as data that will be submitted to the CAT. Accordingly, the Operating Committee believes that it will be appropriate to revisit the funding model once CAT Reporters have actual experience with the funding model. Accordingly, the Operating Committee determined to include an automatic sunsetting provision for the proposed fees. Specifically, the Operating Committee determined to include a provision in the proposed fee schedule which states that ‘‘[t]hese Participant CAT Fees will automatically expire two years after their operative date.’’ The Operating Committee intends to monitor the operation of the funding model during this two year period and to evaluate its effectiveness during that period. Such a process will inform the Operating Committee’s approach to funding the CAT after the two year period. (3) Proposed CAT Fee Schedule The Operating Committee proposes to add Exhibit B to the CAT NMS Plan to add a fee schedule setting forth the CAT Fees applicable to Participants. Proposed Exhibit B is set forth in Appendix A to this letter. Paragraph (a)(1) of proposed Exhibit B sets forth the CAT Fees applicable to Execution Venues for NMS Stocks and OTC Equity Securities. Specifically, paragraph (a)(1) states that the Company will assign each Execution Venue for NMS Stocks and/ or OTC Equity Securities to a fee tier once every quarter, where such tier assignment is calculated by ranking each such Execution Venue based on its total market share (with a discount for the OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA OTC reporting facility based on the average shares per trade ratio between NMS Stocks and OTC Equity Securities) for the three months prior to the quarterly tier calculation day and assigning each such Execution Venue to a tier based on that ranking and predefined percentages for such Execution Venues. The Execution Venues for NMS Stocks and/or OTC Equity Securities with the higher total quarterly market share will be ranked in Tier 1, and such Execution Venues with the lowest quarterly market share will be ranked in Tier 4. Specifically, paragraph (a)(1) states that, each quarter, VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 each Execution Venue for NMS Stocks and/or OTC Equity Securities shall pay in the manner prescribed by the Company the following CAT Fee corresponding to the tier assigned by the CAT NMS, LLC for such Execution Venue for that quarter: Tier 1 2 3 4 Percentage of Execution Venues for NMS Stocks and/or OTC Equity Securities ................ ................ ................ ................ 25.00 42.00 23.00 10.00 Quarterly CAT fee $81,048 37,062 21,126 129 In addition, paragraph (a)(2) of the proposed Exhibit B states that the Company will assign each Execution Venue for Listed Options to a fee tier once every quarter, where such tier assignment is calculated by ranking each such Execution Venue based on its total market share for the three months prior to the quarterly tier calculation day and assigning each such Execution Venue to a tier based on that ranking and predefined percentages for such Execution Venues. The Execution Venues for Listed Options with the higher total quarterly market share will be ranked in Tier 1, and such Execution Venues with the lower quarterly market share will be ranked in Tier 2. Specifically, paragraph (b)(1) states that, each quarter, each Execution Venue for Listed Options shall pay in the manner prescribed by the Company the following CAT Fee corresponding to the tier assigned by the CAT NMS, LLC for such Execution Venue for that quarter: Tier Percentage of Execution Venues for Listed Options 1 ................ 2 ................ 75.00 25.00 Quarterly CAT fee $81,381 37,629 (4) Changes to Prior CAT Fee Plan Amendment The proposed funding model set forth in this amendment is a revised version of the Plan amendment filed with the Commission on May 9, 2017 (‘‘Original Proposal’’).39 The Commission abrogated the Original Proposal on July 21, 2017.40 Although the Original Proposal did not receive any comments, 39 Securities Exchange Act Rel. No. 80930 (June 14, 2017), 82 FR 28180 (June 20, 2017). 40 Securities Exchange Act Rel. No. 81189 (July 21, 2017), 82 FR 35005 (July 27, 2017) (‘‘Abrogation Order’’). PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 the Commission received a number of comment letters in response to the Participants’ proposed rule changes to adopt CAT Fees to be charged to Industry Members, including Industry Members that are Execution Venue ATSs (‘‘Industry Member Fee Filings’’).41 Because the text of the Industry Member Fee Filings is substantially similar to the Original Proposal, the SEC believed that the comments were relevant to the Original Proposal and summarized them in the Abrogation Order. In addition, the SEC suspended the Industry Member Fee Filings and instituted proceedings to determine whether to approve or disapprove the Industry Member Fee Filings.42 Pursuant to those proceedings, additional comment letters were submitted regarding the proposed funding model.43 In developing this Amendment No. 4, the Operating Committee carefully considered these comments and made a number of changes to the Original Proposal to address these comments where appropriate. This Amendment No. 4 makes the following changes to the Original Proposal: (1) Adds two additional CAT Fee tiers for Equity Execution Venues; (2) discounts the OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA ORF by the average shares per trade ratio between NMS Stocks and OTC Equity Securities (calculated as 0.17% based on available data from the second quarter of 2017) when calculating the market share of Execution Venue ATSs trading OTC Equity Securities and FINRA; (3) discounts the Options Market Maker 41 For a description of the Industry Member Fee Filings and the comments submitted in response to those Filings, see Securities Exchange Act Rel. No. 81067 (June 30, 2017), 82 FR 31656 (July 7, 2017) (‘‘Suspension Order’’). 42 Suspension Order. 43 See Letter from Stuart J. Kaswell, Executive Vice President, Managing Director and General Counsel, Managed Funds Association, to Brent J. Fields, Secretary, SEC (July 28, 2017) (‘‘MFA Letter’’); Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA, to Brent J. Fields, Secretary, SEC (July 28, 2017) (‘‘SIFMA Letter’’); Joanna Mallers, Secretary, FIA Principal Traders Group, to Brent J. Fields, Secretary, SEC (July 28, 2017) (‘‘FIA Principal Traders Group Letter’’); Letter from Kevin Coleman, General Counsel & Chief Compliance Officer, Belvedere Trading LLC, to Brent J. Fields, Secretary, SEC (July 28, 2017) (‘‘Belvedere Letter’’); Letter from W. Hardy Callcott, Sidley Austin LLP, to Brent J. Fields, Secretary, SEC (July 27, 2017) (‘‘Sidley Letter’’); Letter from John Kinahan, Chief Executive Officer, Group One Trading, L.P., to Brent J. Fields, Secretary, SEC (Aug. 10, 2017) (‘‘Group One Letter’’); and Letter from Joseph Molluso, Executive Vice President, Virtu Financial, to Brent J. Fields, Secretary, SEC (Aug. 18, 2017) (‘‘Virtu Financial Letter’’). E:\FR\FM\11JAN1.SGM 11JAN1 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices quotes by the trade to quote ratio for options (calculated as 0.01% based on available data for June 2016 through June 2017) when calculating message traffic for Options Market Makers; (4) discounts equity market maker quotes by the trade to quote ratio for equities (calculated as 5.43% based on available data for June 2016 through June 2017) when calculating message traffic for equity market makers; (5) decreases the number of tiers for Industry Members (other than the Equity ATSs) from nine to seven; (6) changes the allocation of CAT costs between Equity Execution Venues and Options Execution Venues from 75%/25% to 67%/33%; (7) adjusts tier percentages and recovery allocations for Equity Execution Venues, Options Execution Venues and Industry Members (other than Execution Venue ATSs); (8) focuses the comparability of CAT Fees on the individual entity level, rather than primarily on the comparability of affiliated entities; (9) commences invoicing of CAT Reporters as promptly as possible following the latest of the operative date of the Consolidated Audit Trail Funding Fees for each of the Participants as set forth in the Industry Member Fee Filings and the operative date of the CAT NMS Plan amendment adopting CAT Fees for Participants; and (10) requires the proposed fees to automatically expire two years from their operative date. srobinson on DSK9F5VC42PROD with NOTICES (A) Equity Execution Venues (i) Small Equity Execution Venues In the Original Proposal, the Operating Committee proposed to establish two fee tiers for Equity Execution Venues. The Commission and commenters raised the concern that, by establishing only two tiers, smaller Equity Execution Venues (e.g., those Equity ATSs representing less than 1% of NMS market share) would be placed in the same fee tier as larger Equity Execution Venues, thereby imposing an undue or inappropriate burden on competition.44 To address this concern, the Operating Committee proposes to add two additional tiers for Equity Execution Venues, a third tier for smaller Equity Execution Venues and a fourth tier for the smallest Equity Execution Venues. Specifically, the Original Proposal had two tiers of Equity Execution Venues. Tier 1 required the largest Equity Execution Venues to pay a quarterly fee of $63,375. Based on available data, these largest Equity Execution Venues were those that had equity market share of share volume 44 See Abrogation Order at 35012; SIFMA Letter at 3. VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 greater than or equal to 1%.45 Tier 2 required the remaining smaller Equity Execution Venues to pay a quarterly fee of $38,820. To address concerns about the potential for the $38,820 quarterly fee to impose an undue burden on smaller Equity Execution Venues, the Operating Committee determined to move to a four tier structure for Equity Execution Venues. Tier 1 would continue to include the largest Equity Execution Venues by share volume (that is, based on currently available data, those with market share of equity share volume greater than or equal to one percent), and these Equity Execution Venues would be required to pay a quarterly fee of $81,048. The Operating Committee determined to divide the original Tier 2 into three tiers. The new Tier 2 Equity Execution Venues, which would include the next largest Equity Execution Venues by equity share volume, would be required to pay a quarterly fee of $37,062. The new Tier 3 Equity Execution Venues would be required to pay a quarterly fee of $21,126. The new Tier 4 Equity Execution Venues, which would include the smallest Equity Execution Venues by share volume, would be required to pay a quarterly fee of $129. In developing the proposed four tier structure, the Operating Committee considered keeping the existing two tiers, as well as shifting to three, four or five Equity Execution Venue tiers (the maximum number of tiers permitted under the Plan), to address the concerns regarding small Equity Execution Venues. For each of the two, three, four and five tier alternatives, the Operating Committee considered the assignment of various percentages of Equity Execution Venues to each tier as well as various percentage of Equity Execution Venue recovery allocations for each alternative. As discussed below in more detail, each of these options was considered in the context of the full model, as changes in each variable in the model affect other variables in the model when allocating the total CAT costs among CAT Reporters. The Operating Committee determined that the four tier alternative addressed the spectrum of different Equity Execution Venues. The 45 Note that while these equity market share thresholds were referenced as data points 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. PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 1417 Operating Committee determined that neither a two tier structure nor a three tier structure sufficiently accounted for the range of market shares of smaller Equity Execution Venues. The Operating Committee also determined that, given the limited number of Equity Execution Venues, that a fifth tier was unnecessary to address the range of market shares of the Equity Execution Venues. By increasing the number of tiers for Equity Execution Venues and reducing the proposed CAT Fees for the smaller Equity Execution Venues, the Operating Committee believes that the proposed fees for Equity Execution Venues would not impose an undue or inappropriate burden on competition under Section 6 or Section 15A of the Exchange Act. Moreover, the Operating Committee believes that the proposed fees appropriately take into account the distinctions in the securities trading operations of different Equity Execution Venues, as required under the funding principles of the CAT NMS Plan.46 The larger number of tiers more closely tracks the variety of sizes of equity share volume of Equity Execution Venues. In addition, the reduction in the fees for the smaller Equity Execution Venues recognizes the potential burden of larger fees on smaller entities. In particular, the very small quarterly fee of $129 for Tier 4 Equity Execution Venues reflects the fact that certain Equity Execution Venues have a very small share volume due to their typically more focused business models. Accordingly, Amendment No. 4 proposes to amend paragraph (a)(1) of the proposed fee schedule as set forth in the Original Proposal to add the two additional tiers for Equity Execution Venues, to establish the percentages and fees for Tiers 3 and 4 as described, and to revise the percentages and fees for Tiers 1 and 2 as described. (ii) Execution Venues for OTC Equity Securities In the Original Proposal, the Operating Committee proposed to group Execution Venues for OTC Equity Securities and Execution Venues for NMS Stocks in the same tier structure. The Commission and commenters raised concerns as to whether this determination to place Execution Venues for OTC Equity Securities in the same tier structure as Execution Venues for NMS Stocks would result in an undue or inappropriate burden on competition, recognizing that the application of share volume may lead to different outcomes as applied to OTC 46 Section E:\FR\FM\11JAN1.SGM 11.2(b) of the CAT NMS Plan. 11JAN1 srobinson on DSK9F5VC42PROD with NOTICES 1418 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices Equity Securities and NMS Stocks.47 To address this concern, the Operating Committee proposes to discount the OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA ORF by the average shares per trade ratio between NMS Stocks and OTC Equity Securities (0.17% for the second quarter of 2017) in order to adjust for the greater number of shares being traded in the OTC Equity Securities market, which is generally a function of a lower per share price for OTC Equity Securities when compared to NMS Stocks. As commenters noted, many OTC Equity Securities are priced at less than one dollar—and a significant number at less than one penny—and low-priced shares tend to trade in larger quantities. Accordingly, a disproportionately large number of shares are involved in transactions involving OTC Equity Securities versus NMS Stocks, which has the effect of overstating an Execution Venue’s true market share when the Execution Venue is involved in the trading of OTC Equity Securities. Because the proposed fee tiers are based on market share calculated by share volume, Execution Venue ATSs trading OTC Equity Securities and FINRA may be subject to higher tiers than their operations may warrant.48 The Operating Committee proposes to address this concern in two ways. First, the Operating Committee proposes to increase the number of Equity Execution Venue tiers, as discussed above. Second, the Operating Committee determined to discount the OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA ORF when calculating their tier placement. Because the disparity in share volume between Execution Venues trading in OTC Equity Securities and NMS Stocks is based on the different number of shares per trade for OTC Equity Securities and NMS Stocks, the Operating Committee believes that discounting the OTC Equity Securities share volume of such Execution Venue ATSs as well as the market share of the FINRA ORF would address the difference in shares per trade for OTC Equity Securities and NMS Stocks. Specifically, the Operating Committee proposes to impose a discount based on the objective measure of the average shares per trade ratio between NMS Stocks and OTC Equity Securities. Based on available data from the second quarter of 2017, the average shares per 47 See Abrogation Order at 35012–3. Order at 35012. 48 Abrogation VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 trade ratio between NMS Stocks and OTC Equity Securities is 0.17%. The practical effect of applying such a discount for trading in OTC Equity Securities is to shift Execution Venue ATSs trading OTC Equity Securities to tiers for smaller Execution Venues and with lower fees. For example, under the Original Proposal, one Execution Venue ATS trading OTC Equity Securities was placed in the first CAT Fee tier, which had a quarterly fee of $63,375. With the imposition of the proposed tier changes and the discount, this ATS would be ranked in Tier 3 and would owe a quarterly fee of $21,126. In developing the proposed discount for Equity Execution Venue ATSs trading OTC Equity Securities and FINRA, the Operating Committee evaluated different alternatives to address the concerns related to OTC Equity Securities, including creating a separate tier structure for Execution Venues trading OTC Equity Securities (like the separate tier for Options Execution Venues) as well as the proposed discounting method for Execution Venue ATSs trading OTC Equity Securities and FINRA. For these alternatives, the Operating Committee considered how each alternative would affect the recovery allocations. In addition, each of these options was considered in the context of the full model, as changes in each variable in the model affect other variables in the model when allocating the total CAT costs among CAT Reporters. The Operating Committee did not adopt a separate tier structure for Equity Execution Venues trading OTC Equity Securities as they determined that the proposed discount approach appropriately addresses the concern. The Operating Committee determined to adopt the proposed discount because it directly relates to the concern regarding the trading patterns and operations in the OTC Equity Securities markets, and is an objective discounting method. By increasing the number of tiers for Equity Execution Venues and imposing a discount on the market share of share volume calculation for trading in OTC Equity Securities, the Operating Committee believes that the proposed fees for Equity Execution Venues would not impose an undue or inappropriate burden on competition under Section 6 or Section 15A of the Exchange Act. Moreover, the Operating Committee believes that the proposed fees appropriately take into account the distinctions in the securities trading operations of different Equity Execution Venues, as required under the funding PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 principles of the CAT NMS Plan.49 As discussed above, the larger number of tiers more closely tracks the variety of sizes of equity share volume of Equity Execution Venues. In addition, the proposed discount recognizes the different types of trading operations at Equity Execution Venues trading OTC Equity Securities versus those trading NMS Stocks, thereby more closing matching the relative revenue generation by Equity Execution Venues trading OTC Equity Securities to their CAT Fees. Accordingly, Amendment No. 4 proposes to amend paragraph (a)(1) of the proposed fee schedule as set forth in the Original Proposal to indicate that the OTC Equity Securities market share for Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA ORF would be discounted. In addition, as discussed above, to address concerns related to smaller ATSs, including those that trade OTC Equity Securities, the Operating Committee proposes to amend paragraph (a)(1) of the proposed fee schedule to add two additional tiers for Equity Execution Venues, to establish the percentages and fees for Tiers 3 and 4 as described, and to revise the percentages and fees for Tiers 1 and 2 as described. (B) Market Makers In the Original Proposal, the Operating Committee proposed to include both Options Market Maker quotes and equities market maker quotes in the calculation of total message traffic for such market makers for purposes of tiering for Industry Members (other than Execution Venue ATSs). The Commission and commenters raised questions as to whether the proposed treatment of Options Market Maker quotes may result in an undue or inappropriate burden on competition or may lead to a reduction in market quality.50 To address this concern, the Operating Committee determined to discount the Options Market Maker quotes by the trade to quote ratio for options when calculating message traffic for Options Market Makers. Similarly, to avoid disincentives to quoting behavior on the equities side as well, the Operating Committee determined to discount equity market maker quotes by the trade to quote ratio for equities when 49 Section 11.2(b) of the CAT NMS Plan. Abrogation Order at 35011; SIFMA Letter at 4–6; FIA Principal Traders Group Letter at 3; Sidley Letter at 2–6; Group One Letter at 2–6; and Belvedere Letter at 2. 50 See E:\FR\FM\11JAN1.SGM 11JAN1 srobinson on DSK9F5VC42PROD with NOTICES Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices calculating message traffic for equities market makers. In the Original Proposal, market maker quotes were treated the same as other message traffic for purposes of tiering for Industry Members (other than Execution Venue ATSs). Commenters noted, however, that charging Industry Members on the basis of message traffic will impact market makers disproportionately because of their continuous quoting obligations. Moreover, in the context of options market makers, message traffic would include bids and offers for every listed options strikes and series, which are not an issue for equities.51 The Operating Committee proposes to address this concern in two ways. First, the Operating Committee proposes to discount Options Market Maker quotes when calculating the Options Market Makers’ tier placement. Specifically, the Operating Committee proposes to impose a discount based on the objective measure of the trade to quote ratio for options. Based on available data from June 2016 through June 2017, the trade to quote ratio for options is 0.01%. Second, the Operating Committee proposes to discount equities market maker quotes when calculating the equities market makers’ tier placement. Specifically, the Operating Committee proposes to impose a discount based on the objective measure of the trade to quote ratio for equities. Based on available data for June 2016 through June 2017, this trade to quote ratio for equities is 5.43%. The practical effect of applying such discounts for quoting activity is to shift market makers’ calculated message traffic lower, leading to the potential shift to tiers for lower message traffic and reduced fees. Such an approach would move sixteen Industry Member CAT Reporters that are market makers to a lower tier than in the Original Proposal. For example, under the Original Proposal, Broker-Dealer Firm ABC was placed in the first CAT Fee tier, which had a quarterly fee of $101,004. With the imposition of the proposed tier changes and the discount, Broker-Dealer Firm ABC, an options market maker, would be ranked in Tier 3 and would owe a quarterly fee of $40,899. In developing the proposed market maker discounts, the Operating Committee considered various discounts for Options Market Makers and equity market makers, including discounts of 50%, 25%, 0.00002%, as well as the 5.43% for option market 51 Abrogation VerDate Sep<11>2014 Order at 35012. 00:05 Jan 11, 2018 makers and 0.01% for equity market makers. Each of these options were considered in the context of the full model, as changes in each variable in the model affect other variables in the model when allocating the total CAT costs among CAT Reporters. The Operating Committee determined to adopt the proposed discount because it directly relates to the concern regarding the quoting requirement, is an objective discounting method, and has the desired potential to shift market makers to lower fee tiers. By imposing a discount on Options Market Makers and equities market makers’ quoting traffic for the calculation of message traffic, the Operating Committee believes that the proposed fees for market makers would not impose an undue or inappropriate burden on competition under Section 6 or Section 15A of the Exchange Act. Moreover, the Operating Committee believes that the proposed fees appropriately take into account the distinctions in the securities trading operations of different Industry Members, and avoid disincentives, such as a reduction in market quality, as required under the funding principles of the CAT NMS Plan.52 The proposed discounts recognize the different types of trading operations presented by Options Market Makers and equities market makers, as well as the value of the market makers’ quoting activity to the market as a whole. Accordingly, the Operating Committee believes that the proposed discounts will not impact the ability of small Options Market Makers or equities market makers to provide liquidity. (C) Comparability/Allocation of Costs Under the Original Proposal, 75% of CAT costs were allocated to Industry Members (other than Execution Venue ATSs) and 25% of CAT costs were allocated to Execution Venues. This cost allocation sought to maintain the greatest level of comparability across the funding model, where comparability considered affiliations among or between CAT Reporters. The Commission and commenters expressed concerns regarding whether the proposed 75%/25% allocation of CAT costs is consistent with the Plan’s funding principles and the Exchange Act, including whether the allocation places a burden on competition or reduces market quality. The Commission and commenters also questioned whether the approach of accounting for affiliations among CAT Reporters in setting CAT Fees 52 Section Jkt 244001 PO 00000 11.2(b) of the CAT NMS Plan. Frm 00093 Fmt 4703 Sfmt 4703 1419 disadvantages non-affiliated CAT Reporters or otherwise burdens competition in the market for trading services.53 In response to these concerns, the Operating Committee determined to revise the proposed funding model to focus the comparability of CAT Fees on the individual entity level, rather than primarily on the comparability of affiliated entities. In light of the interconnected nature of the various aspects of the funding model, the Operating Committee determined to revise various aspects of the model to enhance comparability at the individual entity level. Specifically, to achieve such comparability, the Operating Committee determined to (1) decrease the number of tiers for Industry Members (other than Execution Venue ATSs) from nine to seven; (2) change the allocation of CAT costs between Equity Execution Venues and Options Execution Venues from 75%/25% to 67%/33%; and (3) adjust tier percentages and recovery allocations for Equity Execution Venues, Options Execution Venues and Industry Members (other than Execution Venue ATSs). With these changes, the proposed funding model provides fee comparability for the largest individual entities, with the largest Industry Members (other than Execution Venue ATSs), Equity Execution Venues and Options Execution Venues each paying a CAT Fee of approximately $81,000 each quarter. (i) Number of Industry Member Tiers In the Original Proposal, the proposed funding model had nine tiers for Industry Members (other than Execution Venue ATSs). The Operating Committee determined that reducing the number of tiers from nine tiers to seven tiers (and adjusting the predefined Industry Member Percentages as well) continues to provide a fair allocation of fees among Industry Members and appropriately distinguishes between Industry Members with differing levels of message traffic. In reaching this conclusion, the Operating Committee considered historical message traffic generated by Industry Members across all exchanges and as submitted to FINRA’s 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 seven tiers would group firms with similar levels of 53 See Abrogation Order at 35010–13; SIFMA Letter at 3; Sidley Letter at 6–7; Group One Letter at 2; and Belvedere Letter at 2. E:\FR\FM\11JAN1.SGM 11JAN1 1420 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices message traffic, while also achieving greater comparability in the model for the individual CAT Reporters with the greatest market share or message traffic. In developing the proposed seven tier structure, the Operating Committee considered remaining at nine tiers, as well as reducing the number of tiers down to seven when considering how to address the concerns raised regarding comparability. For each of the alternatives, the Operating Committee considered the assignment of various percentages of Industry Members to each tier as well as various percentages of Industry Member recovery allocations for each alternative. Each of these options was considered in the context of its effects on the full funding model, as changes in each variable in the model affect other variables in the model when allocating the total CAT costs among CAT Reporters. The Operating Committee determined that the seven tier alternative provided the most fee comparability at the individual entity level for the largest CAT Reporters, while both providing logical breaks in tiering for Industry Members with different levels of message traffic and a sufficient number of tiers to provide for the full spectrum of different levels of message traffic for all Industry Members. srobinson on DSK9F5VC42PROD with NOTICES (ii) Allocation of CAT Costs Between Equity and Options Execution Venues The Operating Committee also determined to adjust the allocation of CAT costs between Equity Execution Venues and Options Execution Venues to enhance comparability at the individual entity level. In the Original Proposal, 75% of Execution Venue CAT costs were allocated to Equity Execution Venues, and 25% of Execution Venue CAT costs were allocated to Options Execution Venues. To achieve the goal of increased comparability at the individual entity level, the Operating Committee analyzed a range of alternative splits for revenue recovery between Equity and Options Execution Venues, along with other changes in the proposed funding model. Based on this analysis, the Operating Committee determined to allocate 67 percent of Execution Venue costs recovered to Equity Execution Venues and 33 percent to Options Execution Venues. The Operating Committee determined that a 67/33 allocation between Equity and Options Execution Venues enhances the level of fee comparability for the largest CAT Reporters. Specifically, the largest Equity and Options Execution Venues would pay a quarterly CAT Fee of approximately $81,000. VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 In developing the proposed allocation of CAT costs between Equity and Options Execution Venues, the Operating Committee considered various different options for such allocation, including keeping the original 75%/25% allocation, as well as shifting to a 70%/30%, 67%/33%, or 57.75%/42.25% allocation. For each of the alternatives, the Operating Committee considered the effect each allocation would have on the assignment of various percentages of Equity Execution Venues to each tier as well as various percentages of Equity Execution Venue recovery allocations for each alternative. Moreover, each of these options was considered in the context of the full model, as changes in each variable in the model affect other variables in the model when allocating the total CAT costs among CAT Reporters. The Operating Committee determined that the 67%/33% allocation between Equity and Options Execution Venues provided the greatest level of fee comparability at the individual entity level for the largest CAT Reporters, while still providing for appropriate fee levels across all tiers for all CAT Reporters. (iii) Allocation of Costs Between Execution Venues and Industry Members The Operating Committee determined to allocate 25% of CAT costs to Execution Venues and 75% to Industry Members (other than Execution Venue ATSs), as it had in the Original Proposal. The Operating Committee determined that this 75%/25% allocation, along with the other changes proposed above, led to the most comparable fees for the largest Equity Execution Venues, Options Execution Venues and Industry Members (other than Execution Venue ATSs). The largest Equity Execution Venues, Options Execution Venues and Industry Members (other than Execution Venue ATSs) would each pay a quarterly CAT Fee of approximately $81,000. As a preliminary matter, the Operating Committee determined that it is appropriate to allocate most of the costs to create, implement and maintain the CAT to Industry Members for several reasons. First, there are many more broker-dealers expected to report to the CAT than Participants (i.e., 1,541 broker-dealer CAT Reporters versus 22 Participants). Second, since most of the costs to process CAT reportable data is generated by Industry Members, Industry Members could be expected to contribute toward such costs. Finally, as noted by the SEC, the CAT ‘‘substantially enhance[s] the ability of PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 the SROs and the Commission to oversee today’s securities markets,’’ 54 thereby benefitting all market participants. After making this determination, the Operating Committee analyzed several different cost allocations, as discussed further below, and determined that an allocation where 75% of the CAT costs should be borne by the Industry Members (other than Execution Venue ATSs) and 25% should be paid by Execution Venues was most appropriate and led to the greatest comparability of CAT Fees for the largest CAT Reporters. In developing the proposed allocation of CAT costs between Execution Venues and Industry Members (other than Execution Venue ATSs), the Operating Committee considered various different options for such allocation, including keeping the original 75%/25% allocation, as well as shifting to an 80%/ 20%, 70%/30%, or 65%/35% allocation. Each of these options was considered in the context of the full model, including the effect on each of the changes discussed above, as changes in each variable in the model affect other variables in the model when allocating the total CAT costs among CAT Reporters. In particular, for each of the alternatives, the Operating Committee considered the effect each allocation had on the assignment of various percentages of Equity Execution Venues, Options Execution Venues and Industry Members (other than Execution Venue ATSs) to each relevant tier as well as various percentages of recovery allocations for each tier. The Operating Committee determined that the 75%/ 25% allocation between Execution Venues and Industry Members (other than Execution Venue ATSs) provided the greatest level of fee comparability at the individual entity level for the largest CAT Reporters, while still providing for appropriate fee levels across all tiers for all CAT Reporters. (iv) Affiliations The funding principles set forth in Section 11.2 of the Plan require that the fees charged to 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). The proposed funding model satisfies this requirement. As discussed 54 Securities Exchange Act Rel. No. 67457 (Jul 18, 2012), 77 FR 45722, 45726 (Aug. 1, 2012) (‘‘Rule 613 Adopting Release’’). E:\FR\FM\11JAN1.SGM 11JAN1 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices above, under the proposed funding model, the largest Equity Execution Venues, Options Execution Venues, and Industry Members (other than Execution Venue ATSs) pay approximately the same fee. Moreover, the Operating Committee believes that the proposed funding model takes into consideration affiliations between or among CAT Reporters as complexes with multiple CAT Reporters will pay the appropriate fee based on the proposed fee schedule for each of the CAT Reporters in the complex. For example, a complex with a Tier 1 Equity Execution Venue and Tier 2 Industry Member will a pay the same as another complex with a Tier 1 Equity Execution Venue and Tier 2 Industry Member. srobinson on DSK9F5VC42PROD with NOTICES (v) Fee Schedule Changes Accordingly, Amendment No. 4 amends paragraphs (a)(1) and (2) of the proposed fee schedule as set forth in the Original Proposal to reflect the changes discussed in this section. Specifically, the Operating Committee proposes to amend paragraph (a)(1) and (2) of the proposed fee schedule to update the number of tiers, and the fees and percentages assigned to each tier to reflect the described changes. (D) Market Share/Message Traffic In the Original Proposal, the Operating Committee proposed to charge Execution Venues based on market share and Industry Members (other than Execution Venue ATSs) based on message traffic. Commenters questioned the use of the two different metrics for calculating CAT Fees.55 The Operating Committee continues to believe that the proposed use of market share and message traffic satisfies the requirements of the Exchange Act and the funding principles set forth in the CAT NMS Plan. Accordingly, the proposed funding model continues to charge Execution Venues based on market share and Industry Members (other than Execution Venue ATSs) based on message traffic. In drafting the Plan and the Original Proposal, the Operating Committee expressed the view that the correlation between message traffic and size does not apply to Execution Venues, which they described as producing similar amounts of message traffic regardless of size. The Operating Committee believed that charging Execution Venues based on message traffic would result in both large and small Execution Venues paying comparable fees, which would be inequitable, so the Operating 55 Abrogation Order at 35011; FIA Principal Traders Group Letter at 2. VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 Committee determined that it would be more appropriate to treat Execution Venues differently from Industry Members in the funding model. Upon a more detailed analysis of available data, however, the Operating Committee noted that Execution Venues have varying levels of message traffic. Nevertheless, the Operating Committee continues to believe that a bifurcated funding model—where Industry Members (other than Execution Venue ATSs) are charged fees based on message traffic and Execution Venues are charged based on market share— complies with the Plan and meets the standards of the Exchange Act for the reasons set forth below. Charging Industry Members based on message traffic is the most equitable means for establishing fees for Industry Members (other than Execution Venue ATSs). This approach will assess fees to Industry Members that create larger volumes of message traffic that are relatively higher than those fees charged to Industry Members that create smaller volumes of message traffic. Since message traffic, along with fixed costs of the Plan Processor, is a key component of the costs of operating the CAT, message traffic is an appropriate criterion for placing Industry Members in a particular fee tier. The Operating Committee also believes that it is appropriate to charge Execution Venues CAT Fees based on their market share. In contrast to Industry Members (other than Execution Venue ATSs), which determine the degree to which they produce the message traffic that constitutes CAT Reportable Events, the CAT Reportable Events of Execution Venues are largely derivative of quotations and orders received from Industry Members that the Execution Venues are required to display. The business model for Execution Venues, however, is focused on executions in their markets. As a result, the Operating Committee believes that it is more equitable to charge Execution Venues based on their market share rather than their message traffic. Similarly, focusing on message traffic would make it more difficult to draw distinctions between large and small exchanges, including options exchanges in particular. For instance, the Operating Committee analyzed the message traffic of Execution Venues and Industry Members for the period of April 2017 to June 2017 and placed all CAT Reporters into a nine-tier framework (i.e., a single tier may include both Execution Venues and Industry Members). The Operating Committee’s analysis found that the PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 1421 majority of exchanges (15 total) were grouped in Tiers 1 and 2. Moreover, virtually all of the options exchanges were in Tiers 1 and 2.56 Given the concentration of options exchanges in Tiers 1 and 2, the Operating Committee believes that using a funding model based purely on message traffic would make it more difficult to distinguish between large and small options exchanges, as compared to the proposed bifurcated fee approach. In addition, the Operating Committee also believes that it is appropriate to treat ATSs as Execution Venues under the proposed funding model since ATSs have business models that are similar to those of exchanges, and ATSs also compete with exchanges. For these reasons, the Operating Committee believes that charging Execution Venues based on market share is more appropriate and equitable than charging Execution Venues based on message traffic. (E) Time Limit In the Original Proposal, the Operating Committee did not impose any time limit on the application of the proposed CAT Fees. As discussed above, the Operating Committee developed the proposed funding model by analyzing currently available historical data. Such historical data, however, is not as comprehensive as data that will be submitted to the CAT. Accordingly, the Operating Committee believes that it will be appropriate to revisit the funding model once CAT Reporters have actual experience with the funding model. Accordingly, the Operating Committee proposes to include a sunsetting provision in the proposed fee model. The proposed CAT Fees will sunset two years after the operative date for the CAT Fees. Such a provision will provide the Operating Committee and other market participants with the opportunity to reevaluate the performance of the proposed funding model. (F) Tier Structure/Decreasing Cost per Unit In the Original Proposal, the Operating Committee determined to use a tiered fee structure. The Commission and commenters questioned whether the decreasing cost per additional unit (of message traffic in the case of Industry Members, or of share volume in the case of Execution Venues) in the proposed fee schedules burdens competition by disadvantaging small 56 The Participants note that this analysis did not place MIAX PEARL in Tier 1 or Tier 2 since the exchange commenced trading on February 6, 2017. E:\FR\FM\11JAN1.SGM 11JAN1 1422 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices srobinson on DSK9F5VC42PROD with NOTICES Industry Members and Execution Venues and/or by creating barriers to entry in the market for trading services and/or the market for broker-dealer services.57 The Operating Committee does not believe that decreasing cost per additional unit in the proposed fee schedules places an unfair competitive burden on Small Industry Members and Execution Venues. While the cost per unit of message traffic or share volume necessarily will decrease as volume increases in any tiered fee model using fixed fee percentages and, as a result, Small Industry Members and small Execution Venues may pay a larger fee per message or share, this comment fails to take account of the substantial differences in the absolute fees paid by Small Industry Members and small Execution Venues as opposed to large Industry Members and large Execution Venues. For example, under the fee proposals, Tier 7 Industry Members would pay a quarterly fee of $105, while Tier 1 Industry Members would pay a quarterly fee of $81,483. Similarly, a Tier 4 Equity Execution Venue would pay a quarterly fee of $129, while a Tier 1 Equity Execution Venue would pay a quarterly fee of $81,048. Thus, Small Industry Members and small Execution Venues are not disadvantaged in terms of the total fees that they actually pay. In contrast to a tiered model using fixed fee percentages, the Operating Committee believes that strictly variable or metered funding models based on message traffic or share volume would be more likely to affect market behavior and may present administrative challenges (e.g., the costs to calculate and monitor fees may exceed the fees charged to the smallest CAT Reporters). (G) Other Alternatives Considered In addition to the various funding model alternatives discussed above regarding discounts, number of tiers and allocation percentages, the Operating Committee also discussed other possible funding models. For example, the Operating Committee considered allocating the total CAT costs equally among each of the Participants, and then permitting each Participant to charge its own members as it deems appropriate.58 The Operating Committee determined that such an approach raised a variety of issues, including the likely inconsistency of the ensuing charges, potential for lack of transparency, and the impracticality of multiple SROs submitting invoices for 57 Suspension Order at 31667. FIA Principal Traders Group Letter at 2; Belvedere Letter at 4[sic]. 58 See VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 CAT charges. The Operating Committee therefore determined that the proposed funding model was preferable to this alternative. (H) Industry Member Input Commenters expressed concern regarding the level of Industry Member input into the development of the proposed funding model, and certain commenters have recommended a greater role in the governance of the CAT.59 The Participants previously addressed this concern in its letters responding to comments on the Plan and the CAT Fees.60 As discussed in those letters, the Participants discussed the funding model with the Development Advisory Group (‘‘DAG’’), the advisory group formed to assist in the development of the Plan, during its original development.61 Moreover, Industry Members currently have a voice in the affairs of the Operating Committee and operation of the CAT generally through the Advisory Committee established pursuant to Rule 613(b)(7) and Section 4.13 of the Plan. The Advisory Committee attends all meetings of the Operating Committee, as well as meetings of various subcommittees and working groups, and provides valuable and critical input for the Participants’ and Operating Committee’s consideration. The Operating Committee continues to believe that that Industry Members have an appropriate voice regarding the funding of the Company. (I) Conflicts of Interest Commenters also raised concerns regarding Participant conflicts of interest in setting the CAT Fees.62 The Participants previously responded to this concern in both the Plan Response Letter and the Fee Rule Response Letter.63 As discussed in those letters, the Plan, as approved by the SEC, adopts various measures to protect against the potential conflicts issues raised by the Participants’ fee-setting authority. Such measures include the operation of the Company as a not for profit business league and on a breakeven basis, and the requirement that the Participants file all CAT Fees under 59 See Abrogation Order at 35010; MFA Letter at 1–2. 60 Letter from Participants to Brent J. Fields, Secretary, SEC (Sept. 23, 2016) (‘‘Plan Response Letter’’); Letter from CAT NMS Plan Participants to Brent J. Fields, Secretary, SEC (June 29, 2017) (‘‘Fee Rule Response Letter’’). 61 Fee Rule Response Letter at 2; Plan Response Letter at 18. 62 See Abrogation Order at 35010; FIA Principal Traders Group at 3. 63 See Plan Response Letter at 16, 17; Fee Rule Response Letter at 10–12. PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 Section 19(b) of the Exchange Act. The Operating Committee continues to believe that these measures adequately protect against concerns regarding conflicts of interest in setting fees, and that additional measures, such as an independent third party to evaluate an appropriate CAT Fee, are unnecessary. (J) Fee Transparency Commenters also argued that they could not adequately assess whether the CAT Fees were fair and equitable because the Operating Committee has not provided details as to what the Participants are receiving in return for the CAT Fees.64 The Operating Committee provided a detailed discussion of the proposed funding model in the Plan, including the expenses to be covered by the CAT Fees. In addition, the agreement between the Company and the Plan Processor sets forth a comprehensive set of services to be provided to the Company with regard to the CAT. Such services include, without limitation: User support services (e.g., a help desk); tools to allow each CAT Reporter to monitor and correct their submissions; a comprehensive compliance program to monitor CAT Reporters’ adherence to Rule 613; publication of detailed Technical Specifications for Industry Members and Participants; performing data linkage functions; creating comprehensive data security and confidentiality safeguards; creating query functionality for regulatory users (i.e., the Participants, and the SEC and SEC staff); and performing billing and collection functions. The Operating Committee further notes that the services provided by the Plan Processor and the costs related thereto were subject to a bidding process. (K) Funding Authority Commenters also questioned the authority of the Operating Committee to impose CAT Fees on Industry Members.65 The Participants previously responded to this same comment in the Plan Response Letter and the Fee Rule Response Letter.66 As the Participants previously noted, SEC Rule 613 specifically contemplates broker-dealers contributing to the funding of the CAT. In addition, as noted by the SEC, the CAT ‘‘substantially enhance[s] the ability of the SROs and the Commission to oversee today’s securities markets,’’ 67 64 See FIA Principal Traders Group at 3; SIFMA Letter at 3. 65 See Abrogation Order at 35009–10; SIFMA Letter at 2. 66 See Plan Response Letter at 9–10; Fee Rule Response Letter at 3–4. 67 Rule 613 Adopting Release at 45726. E:\FR\FM\11JAN1.SGM 11JAN1 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices thereby benefitting all market participants. Therefore, the Operating Committing continues to believe that it is equitable for both Participants and Industry Members to contribute to funding the cost of the CAT. B. Governing or Constituent Documents Not applicable. C. Implementation of Amendment The terms of the proposed amendment will become effective upon filing pursuant to Rule 608(b)(3)(i) of the Exchange Act because it establishes a fee or other charge collected on behalf of all of the Participants in connection with access to, or use of, any facility contemplated by the plan (including changes in any provision with respect to distribution of any net proceeds from such fees or other charges to the sponsors and/or participants).68 At any time within sixty days of the filing of this amendment, the Commission may summarily abrogate the amendment and require that it be refiled pursuant to paragraph (b)(1) [sic] of Rule 608, if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors or the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system or otherwise in furtherance of the purposes of the Exchange Act. srobinson on DSK9F5VC42PROD with NOTICES D. Development and Implementation Phases Not applicable. E. Analysis of Impact on Competition The Operating Committee does not believe that the proposed amendment will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. The Operating Committee notes that the proposed amendment implements provisions of the CAT NMS Plan approved by the Commission, and is designed to assist the Participants in meeting their regulatory obligations pursuant to the Plan. Because all national securities exchanges and FINRA are subject to the proposed CAT Fees set forth in the proposed amendment, this is not a competitive filing that raises competition issues between and among the exchanges and FINRA. Moreover, as previously described, the Operating Committee believes that the proposed fee schedule fairly and equitably allocates costs among CAT 68 17 CFR 242.608(b)(3)(i). VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 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/or market share to the CAT Reporter’s size, smaller CAT Reporters generally pay less than larger CAT Reporters. Accordingly, the Operating Committee 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, the Operating Committee does not believe that the fees will impose any burden on the competition between ATSs and exchanges. Accordingly, the Operating Committee 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. In addition, the Operating Committee believes that the proposed changes to the Original Proposal, as discussed above in detail, address certain competitive concerns raised by commenters, including concerns related to, among other things, smaller ATSs, ATSs trading OTC Equity Securities, market making quoting and fee comparability. As discussed above, the Operating Committee believes that the proposals address the competitive concerns raised by commenters. F. Written Understanding or Agreements Relating to Interpretation of, or Participation in, Plan. Not applicable. G. Approval by Plan Sponsors in Accordance With Plan Section 12.3 of the Plan states that, subject to certain exceptions, the Plan may be amended from time to time only by a written amendment, authorized by the affirmative vote of not less than two- PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 1423 thirds of all of the Participants, that has been approved by the SEC pursuant to Rule 608 or has otherwise become effective under Rule 608. In addition, Section 4.3(a)(vi) of the Plan requires the Operating Committee, by Majority Vote, to authorize action to determine the appropriate funding-related policies, procedures and practices-consistent with Article XI. The Operating Committee has satisfied both of these requirements. H. Description of Operation of Facility Contemplated by the Proposed Amendment Not applicable. I. Terms and Conditions of Access Not applicable. J. Method of Determination and Imposition, and Amount of, Fees and Charges Section A of this letter describes in detail how the Operating Committee developed the proposed CAT Fees, including a detailed discussion of the proposed funding model for the CAT. K. Method and Frequency of Processor Evaluation Not applicable. L. Dispute Resolution Section 11.5 of the CAT NMS Plan addresses the resolution of disputes regarding Participants’ CAT Fees charged to Participants and Industry Members. Specifically, Section 11.5 states that disputes with respect to fees the Company charges Participants pursuant to Article XI of the CAT NMS Plan shall be determined by the Operating Committee or a Subcommittee designated by the Operating Committee. Decisions by the Operating Committee or such designated Subcommittee on such matters shall be binding on Participants, without prejudice to the rights of any Participant to seek redress from the SEC pursuant to Rule 608 or in any other appropriate forum. In addition, the Participants adopted rules to establish the procedures for resolving potential disputes related to CAT Fees charged to Industry Members.69 III. 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. In particular, the Commission seeks comment on the following: 69 See Securities Exchange Act Rel. No. 81500 (Aug. 30, 2017), 82 FR 42143 (Sept. 6, 2017). E:\FR\FM\11JAN1.SGM 11JAN1 1424 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices Allocation of Costs (1) Commenters’ views as to whether the allocation of CAT costs is consistent with the funding principle expressed in the CAT NMS Plan that requires the Operating Committee to ‘‘avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality.’’ 70 (2) Commenters’ views as to whether the allocation of 25% of CAT costs to the Execution Venues (including all the Participants) and 75% to Industry Members, will incentivize or disincentivize the Participants to effectively and efficiently manage the CAT costs incurred by the Participants since they will only bear 25% of such costs. (3) Commenters’ views on the determination to allocate 75% of all costs incurred by the Participants from November 21, 2016 to November 21, 2017 to Industry Members (other than Execution Venue ATSs), when such costs are development and build costs and when Industry Member reporting is scheduled to commence a year later, including views on whether such ‘‘fees, costs and expenses . . . [are] fairly and reasonably shared among the Participants and Industry Members’’ in accordance with the CAT NMS Plan.71 (4) Commenters’ views on whether an analysis of the ratio of the expected Industry Member-reported CAT messages to the expected SRO-reported CAT messages should be the basis for determining the allocation of costs between Industry Members and Execution Venues.72 (5) Any additional data analysis on the allocation of CAT costs, including any existing supporting evidence. srobinson on DSK9F5VC42PROD with NOTICES Comparability (6) Commenters’ views on the shift in the standard used to assess the comparability of CAT Fees, with the emphasis now on comparability of individual entities instead of affiliated entities, including views as to whether this shift is consistent with the funding principle expressed in the CAT NMS Plan that requires the Operating Committee to establish a fee structure in which the fees charged to ‘‘CAT Reporters with the most CAT-related activity (measured by market share and/ 70 Section 11.2(e) of the CAT NMS Plan. 11.1(c) of the CAT NMS Plan. 72 The Notice for the CAT NMS Plan did not provide a comprehensive count of audit trail message traffic from different regulatory data sources, but the Commission did estimate the ratio of all SRO audit trail messages to OATS audit trail messages to be 1.9431. See Securities Exchange Act Release No. 77724 (April 27, 2016), 81 FR 30613, 30721 n.919 and accompanying text (May 17, 2016). 71 Section VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 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).’’ 73 (7) Commenters’ views as to whether the reduction in the number of tiers for Industry Members (other than Execution Venue ATSs) from nine to seven, the revised allocation of CAT costs between Equity Execution Venues and Options Execution Venues from a 75%/25% split to a 67%/33% split, and the adjustment of all tier percentages and recovery allocations achieves comparability across individual entities, and whether these changes should have resulted in a change to the allocation of 75% of total CAT costs to Industry Members (other than Execution Venue ATSs) and 25% of such costs to Execution Venues. Discounts (8) Commenters’ views as to whether the discounts for options marketmakers, equities market-makers, and Equity ATSs trading OTC Equity Securities are clear, reasonable, and consistent with the funding principle expressed in the CAT NMS Plan that requires the Operating Committee to ‘‘avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality,’’ 74 including views as to whether the discounts for marketmakers limit any potential disincentives to act as a market-maker and/or to provide liquidity due to CAT fees. Calculation of Costs and Imposition of CAT Fees (9) Commenters’ views as to whether the amendment provides sufficient information regarding the amount of costs incurred from November 21, 2016 to November 21, 2017, particularly, how those costs were calculated, how those costs relate to the proposed CAT Fees, and how costs incurred after November 21, 2017 will be assessed upon Industry Members and Execution Venues; (10) Commenters’ views as to whether the timing of the imposition and collection of CAT Fees on Execution Venues and Industry Members is reasonably related to the timing of when the Company expects to incur such development and implementation costs.75 (11) Commenters’ views on dividing CAT costs equally among each of the 73 Section 11.2(c) of the CAT NMS Plan. 11.2(e) of the CAT NMS Plan. 75 Section 11.1(c) of the CAT NMS Plan. 74 Section PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 Participants, and then each Participant charging its own members as it deems appropriate, taking into consideration the possibility of inconsistency in charges, the potential for lack of transparency, and the impracticality of multiple SROs submitting invoices for CAT charges. Burden on Competition and Barriers to Entry (12) Commenters’ views as to whether the allocation of 75% of CAT costs to Industry Members (other than Execution Venue ATSs) imposes any burdens on competition to Industry Members, including views on what baseline competitive landscape the Commission should consider when analyzing the proposed allocation of CAT costs. (13) Commenters’ views on the burdens on competition, including the relevant markets and services and the impact of such burdens on the baseline competitive landscape in those relevant markets and services. (14) Commenters’ views on any potential burdens imposed by the fees on competition between and among CAT Reporters, including views on which baseline markets and services the fees could have competitive effects on and whether the fees are designed to minimize such effects. (15) Commenters’ general views on the impact of the proposed fees on economies of scale and barriers to entry. (16) Commenters’ views on the baseline economies of scale and barriers to entry for Industry Members and Execution Venues and the relevant markets and services over which these economies of scale and barriers to entry exist. (17) Commenters’ views as to whether a tiered fee structure necessarily results in less active tiers paying more per unit than those in more active tiers, thus creating economies of scale, with supporting information if possible. (18) Commenters’ views as to how the level of the fees for the least active tiers would or would not affect barriers to entry. (19) Commenters’ views on whether the difference between the cost per unit (messages or market share) in less active tiers compared to the cost per unit in more active tiers creates regulatory economies of scale that favor larger competitors and, if so: (a) How those economies of scale compare to operational economies of scale; and (b) Whether those economies of scale reduce or increase the current advantages enjoyed by larger competitors or otherwise alter the competitive landscape. E:\FR\FM\11JAN1.SGM 11JAN1 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices srobinson on DSK9F5VC42PROD with NOTICES (20) Commenters’ views on whether the fees could affect competition between and among national securities exchanges and FINRA, in light of the fact that implementation of the fees does not require the unanimous consent of all such entities, and, specifically: (a) Whether any of the national securities exchanges or FINRA are disadvantaged by the fees; and (b) If so, whether any such disadvantages would be of a magnitude that would alter the competitive landscape. (21) Commenters’ views on any potential burden imposed by the fees on competitive quoting and other liquidity provision in the market, including, specifically: (a) Commenters’ views on the kinds of disincentives that discourage liquidity provision and/or disincentives that the Commission should consider in its analysis; (b) Commenters’ views as to whether the fees could disincentivize the provision of liquidity; and (c) Commenters’ views as to whether the fees limit any disincentives to provide liquidity. (22) Commenters’ views as to whether the amendment adequately responds to VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 and/or addresses comments received on related filings. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number 4– 698 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. A. All submissions should refer to File Number 4–698.This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed plan amendment that are filed with the PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 1425 Commission, and all written communications relating to the amendment 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 website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the Participants’ offices. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number 4–698 and should be submitted on or before February 1, 2018. By the Commission. Eduardo A. Aleman, Assistant Secretary. BILLING CODE 8011–01–P E:\FR\FM\11JAN1.SGM 11JAN1 1426 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices APPENDIX A [Additions underlined; deletions bracketed] EXHIBITB CAT FEES (a) Participant CAT Fee Schedule. (I) CAT Fees: Execution Venues for NMS Stocks and/or OTC Equity Securities. The CAT NMS, LLC will assign each Execution Venue for NMS Stocks and/or OTC Equity Securities to a fee tier once every quarter, where such tier assignment is calculated by ranking each such Execution Venue based on its total market share (with a discount for the OTC Equity Securities market share ofEquity Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA OTC reporting facility based on the average shares per trade ratio between NMS Stocks and OTC Equity Securities) for the three months prior to the quarterly tier calculation day and assigning each such Execution Venue to a tier based on that ranking and predefined percentages for such Execution Venues. The Execution Venues for NMS Stocks and/or OTC Equity Securities with the higher total quarterly market share will be ranked in Tier 1, and such Execution Venues with the lowest quarterly market share will be ranked in Tier 4. Each quarter, each Execution Venue for NMS Stocks and/or OTC Equity Securities shall pay in the manner prescribed by the CAT NMS, LLC the following CAT Fee corresponding to the tier assigned by the CAT NMS, LLC for such Execution Venue for that quarter: Percentage of Execution Venues for NMS Stocks and/or OTC Eouitv Securities 25.00% 42.00% 23.00% 10.00% Tier 1 2 3 4 CAT Fees: Execution Venues for Listed Options The CAT NMS, LLC will assign each Execution Venue for Listed Options to a fee tier once every quarter, where such tier assignment is calculated by ranking each such Execution Venue based on its total market share for the three months prior to the quarterly tier calculation day and assigning each such Execution Venue to a tier based on that ranking and predefined percentages for such Execution Venues. The Execution Venues for Listed Options with the higher total quarterly market share will be ranked in Tier 1, and such Execution Venues with the lower quarterly market share will be ranked in Tier 2. Each quarter, each Execution Venue for Listed Options shall pay in the manner prescribed by the CAT NMS, LLC the following CAT VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 PO 00000 Frm 00100 Fmt 4703 Sfmt 4725 E:\FR\FM\11JAN1.SGM 11JAN1 EN11JA18.004</GPH> srobinson on DSK9F5VC42PROD with NOTICES (2) Quarterly CAT Fee $81,048 $37,062 $21,126 $129 1427 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices BILLING CODE 8011–01–C Appendix B EQUITY EXECUTION VENUE RANK AND TIER Market share of share volume 76 (%) Financial Industry Regulatory Authority, Inc ........................................................................ The NASDAQ Stock Market LLC ........................................................................................ New York Stock Exchange LLC .......................................................................................... NYSE Arca, Inc .................................................................................................................... Cboe EDGX Exchange, Inc ................................................................................................. Cboe BZX Exchange, Inc .................................................................................................... Cboe BYX Exchange, Inc .................................................................................................... NASDAQ BX, Inc ................................................................................................................. UBS ATS ............................................................................................................................. Investors’ Exchange, LLC .................................................................................................... Cboe EDGA Exchange, Inc ................................................................................................. CROSSFINDER ................................................................................................................... SUPERX .............................................................................................................................. MS POOL (ATS–4) .............................................................................................................. NASDAQ PHLX LLC ........................................................................................................... J.P. MORGAN ATS (‘‘JPM–X’’) ........................................................................................... BARCLAYS ATS (‘‘LX’’) ...................................................................................................... LEVEL ATS .......................................................................................................................... INSTINCT X ......................................................................................................................... BIDS TRADING L.P ............................................................................................................. INSTINET CONTINUOUS BLOCK CROSSING SYSTEM (CBX) ...................................... KCG MATCHING ................................................................................................................. POSIT .................................................................................................................................. Chicago Stock Exchange, Inc ............................................................................................. SIGMA X .............................................................................................................................. MS TRAJECTORY CROSS (ATS–1) .................................................................................. NYSE American LLC ........................................................................................................... IBKR ATS ............................................................................................................................ CROSSSTREAM ................................................................................................................. SIGMA X2 ............................................................................................................................ LIQUIDNET ATS .................................................................................................................. MILLENNIUM ....................................................................................................................... CITICROSS ......................................................................................................................... LIQUIDNET H20 ATS .......................................................................................................... DEALERWEB, INC .............................................................................................................. OTC LINK ATS 77 ................................................................................................................ BLOCKCROSS ATS ............................................................................................................ INSTINET CROSSING ........................................................................................................ CODA MARKETS, INC ........................................................................................................ LUMINEX TRADING & ANALYTICS LLC ........................................................................... MS RETAIL POOL ............................................................................................................... CITIBLOC ............................................................................................................................ USTOCKTRADE SECURITIES, INC ................................................................................... AQUA SECURITIES L.P ..................................................................................................... XE ........................................................................................................................................ 24.4118512850143 14.3221316394514 13.1631222177691 9.3963074291365 6.3267638314653 6.1478229789347 4.7643781647716 3.1401372815484 2.3058693548856 2.1483648334229 1.8513467967001 1.6894565311740 1.0115687555972 0.9188826526803 0.8009596014408 0.7936361365369 0.6719255553783 0.6571986459767 0.5956036029620 0.5837401323782 0.4723979596673 0.4682553983691 0.4435281677014 0.4241409043731 0.3157563290949 0.2654339378079 0.2342627717196 0.2038196304470 0.1772292674940 0.1705392273292 0.1499973113804 0.1365496066290 0.1349428742591 0.1282036311445 0.1156677493258 0.1148240026713 0.0979883294279 0.0763929064441 0.0662166896390 0.0304261486817 0.0295389976553 0.0251235534421 0.0089509616229 0.0052275918715 0.0031219820548 VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 E:\FR\FM\11JAN1.SGM 11JAN1 Rank Tier 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 EN11JA18.005</GPH> srobinson on DSK9F5VC42PROD with NOTICES Market participant 1428 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices EQUITY EXECUTION VENUE RANK AND TIER—Continued Market share of share volume 76 (%) Market participant GLOBAL OTC ...................................................................................................................... BARCLAYS DIRECTEX ...................................................................................................... VARIABLE INVESTMENT ADVISORS, INC. ATS (VIAATS) ............................................. FNC AG STOCK, LLC ......................................................................................................... DBOT ATS, LLC .................................................................................................................. PRO SECURITIES ATS ...................................................................................................... NYSE National, Inc .............................................................................................................. Rank 0.0002467471213 0.0001494994467 0.0000002922675 0.0000000607782 0.0000000429086 0.0000000000004 0.0000000000000 Tier 46 47 48 49 50 51 52 3 3 4 4 4 4 4 OPTIONS EXECUTION VENUE RANK AND TIER Market share of share volume (options contracts) 78 (%) Market participant Cboe Exchange, Inc ............................................................................................................ NASDAQ PHLX LLC ........................................................................................................... Cboe BZX Options Exchange, Inc ...................................................................................... The NASDAQ Options Market LLC ..................................................................................... Nasdaq ISE, LLC ................................................................................................................. NYSE Arca, Inc .................................................................................................................... NYSE American LLC ........................................................................................................... Miami International Securities Exchange, LLC ................................................................... Nasdaq GEMX, LLC ............................................................................................................ Cboe C2 Exchange, Inc ...................................................................................................... BOX Options Exchange LLC ............................................................................................... Cboe EDGX Options Exchange, Inc ................................................................................... NASDAQ BX, Inc ................................................................................................................. MIAX PEARL, LLC .............................................................................................................. Nasdaq MRX, LLC ............................................................................................................... [FR Doc. 2018–00314 Filed 1–10–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82448; File No. SR– NYSEArca–2017–131] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 2 and Order Approving on an Accelerated Basis a Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade Shares of the Sprott Physical Gold and Silver Trust Under NYSE Arca Rule 8.201–E January 5, 2018. srobinson on DSK9F5VC42PROD with NOTICES I. Introduction On November 9, 2017, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed 76 Market share is based on Q2 2017 data made publicly available by Bats (exchange market statistics source), FINRA (ATS market statistics source), and OTC Markets (ATS market statistics source). 77 Market share for OTC Link ATS is based on the Q2 2017 data made publicly available by OTC Markets. VerDate Sep<11>2014 00:05 Jan 11, 2018 Jkt 244001 with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares of the Sprott Physical Gold and Silver Trust under NYSE Arca Rule 8.201–E. The proposed rule change was published for comment in the Federal Register on November 24, 2017.3 On December 21, 2017, the Exchange filed Amendment No. 1 to the proposed rule change, which superseded the proposed rule change as originally filed. On January 4, 2018, the Exchange filed Amendment No. 2 to the proposed rule change, which superseded the proposed rule change as modified by Amendment No. 1.4 The 78 The market share is based on Q2 data made publicly available by Bats. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See See Securities Exchange Act Release No. 82116 (Nov. 17, 2017), 82 FR 55898. 4 In Amendment No. 2, the Exchange: (1) Corrected the definition for Commodity-Based Trust Shares and supplemented its representations relating to the continued listing requirements applicable to the Units (as defined herein); (2) supplemented its description of the assets other than physical gold and silver bullion that may be PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 17.30 16.89 12.36 10.01 9.06 7.74 7.60 5.07 5.04 3.79 2.30 1.40 0.70 0.61 0.13 Rank Tier 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 Commission has not received any comments on the proposed rule change. held by the Trust; (3) provided specific information about the ratio of the value of net assets in gold bullion to the value of net assets in silver bullion to be held by the Trust; (4) provided updated information pertaining to the Arrangement (as defined herein); (5) supplemented its description of how the Trust’s net asset value (‘‘NAV’’) will be calculated; (6) provided information about gold and silver certificates; (7) supplemented its description of the U.S. futures exchanges and the Commodities Futures Trading Commission; (8) added a representation that the NAV will be calculated daily and made available to all market participants at the same time, and that the IIV (as defined herein) will be calculated at least every fifteen seconds and made available to all market participants at the same time; (9) specified that the Exchange may obtain information regarding trading in gold and silver futures from markets trading such futures that are members of ISG (as defined herein) or with which the Exchange has in place a CSSA (as defined herein), including COMEX (as defined herein); (10) specified and confirmed that the Units would trade in all of the Exchange’s trading sessions; (11) referenced additional language to be included in the Information Bulletin relating to the possibility that trading spreads and the resulting premium or discount on the Units (as defined herein) may widen as a result of reduced liquidity of gold or silver trading during the Core and Late Trading Sessions after the close of the major world gold and silver markets; and (12) made certain technical, Exchange rule reference, and other conforming corrections. Amendment No. 2 is available at: https://www.sec.gov/comments/srnysearca-2017-131/nysearca2017131-2873835161766.pdf. E:\FR\FM\11JAN1.SGM 11JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 8 (Thursday, January 11, 2018)]
[Notices]
[Pages 1399-1428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00314]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82451; File No. 4-698]


Joint Industry Plan; Notice of Filing and Immediate Effectiveness 
of Amendment No. 4 to the National Market System Plan Governing the 
Consolidated Audit Trail by Cboe BYX Exchange, Inc., Cboe BZX Exchange, 
Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., BOX Options 
Exchange LLC, Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Chicago 
Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., 
Investors' Exchange LLC, Miami International Securities Exchange, LLC, 
MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, 
Nasdaq MRX, LLC, Nasdaq PHLX LLC, The Nasdaq Stock Market LLC, New York 
Stock Exchange LLC, NYSE Arca, Inc., NYSE American, LLC and NYSE 
National, Inc.

January 5, 2018.

I. Introduction

    On December 11, 2017, the Operating Committee for CAT NMS, LLC (the 
``Company''), on behalf of the following parties to the National Market 
System Plan Governing the Consolidated Audit Trail (the ``CAT NMS 
Plan'' or ``Plan''): \1\ Cboe BYX Exchange, Inc., (previously known as 
Bats BYX Exchange, Inc.), Cboe BZX Exchange, Inc. (previously known as 
Bats BZX Exchange), Inc., Cboe EDGA Exchange, Inc. (previously known as 
Bats EDGA Exchange, Inc.), Cboe EDGX Exchange, Inc. (previously known 
as Bats EDGX Exchange, Inc.), BOX Options Exchange LLC, Cboe C2 
Exchange, Inc., Cboe Exchange, Inc., Chicago Stock Exchange, Inc., 
Financial Industry Regulatory Authority, Inc., Nasdaq ISE, LLC 
(previously known as International Securities Exchange, Inc.), 
Investors' Exchange, LLC, Nasdaq GEMX (previously known as ISE Gemini, 
LLC), Nasdaq MRX (previously known as ISE Mercury, LLC), Miami 
International Securities Exchange, LLC, MIAX PEARL, LLC, Nasdaq BX, 
Inc. (previously known as NASDAQ BX, Inc.), Nasdaq PHLX LLC (previously 
known as NASDAQ PHLX LLC), The NASDAQ Stock Market LLC, National Stock 
Exchange, Inc., New York Stock Exchange LLC, NYSE Arca, Inc., and NYSE 
American (previously known as NYSE MKT, LLC) (collectively, the 
``Participants,'' ``self-regulatory organizations'' or ``SROs'') filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934 
(``Exchange Act'') \2\ and Rule 608 thereunder,\3\ a proposal to amend 
the Plan (``Amendment No. 4'').\4\ The proposed amendment would add a 
fee schedule to a new Exhibit B of the Plan which sets forth the CAT 
fees to be paid by the Participants. A copy of proposed Exhibit B to 
the CAT NMS Plan is attached as Appendix A hereto. The Participants 
have also included, and as attached hereto, an Appendix B containing 
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. The Commission is publishing this 
notice to solicit comments from interested persons on Amendment No. 
4.\5\
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    \1\ On February 27, 2015, BATS-Y Exchange, Inc. (n/k/a Cboe BYX 
Exchange, Inc.), BATS Exchange, Inc. (n/k/a Cboe BZX Exchange, 
Inc.), BOX Options Exchange LLC, C2 Options Exchange, Incorporated 
(n/k/a Cboe C2 Exchange, Inc.), Chicago Board Options Exchange, 
Incorporated (n/k/a Cboe Exchange, Inc.), Chicago Stock Exchange, 
Inc., EDGA Exchange, Inc. (n/k/a Cboe EDGA Exchange, Inc.), EDGX 
Exchange, Inc. (n/k/a Cboe EDGX Exchange, Inc.), Financial Industry 
Regulatory Authority, Inc., International Securities Exchange, LLC 
(n/k/a Nasdaq ISE, LLC), ISE Gemini, LLC (n/k/a Nasdaq GEMX, LLC), 
Miami International Securities Exchange LLC, NASDAQ OMX BX, Inc. (n/
k/a Nasdaq BX, Inc.), NASDAQ OMX PHLX LLC (n/k/a Nasdaq PHLX LLC), 
The NASDAQ Stock Market LLC, National Stock Exchange, Inc. (n/k/a 
NYSE National, Inc.), New York Stock Exchange LLC, NYSE MKT LLC (n/
k/a NYSE American LLC), and NYSE Arca, Inc. filed with the 
Commission, pursuant to Section 11A of the Exchange Act and Rule 608 
of Regulation NMS thereunder, the CAT NMS Plan. 15 U.S.C. 78k-1; 17 
CFR 242.608. The Plan was published for comment in the Federal 
Register on May 17, 2016, and approved by the Commission, as 
modified, on November 15, 2016. See Securities Exchange Act Release 
Nos. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016); 79318 
(November 15, 2016), 81 FR 84696 (November 23, 2016). On January 30, 
2017, the Commission noticed for immediate effectiveness an 
amendment to the Plan to add MIAX PEARL, LLC as a Participant. See 
Securities Exchange Act Release No. 79898, 82 FR 9250 (February 3, 
2017).
    \2\ 15 U.S.C 78k-1(a)(3).
    \3\ 17 CFR 242.608.
    \4\ See Letter from Michael Simon, CAT NMS Plan Operating 
Committee Chair, to Brent J. Fields, Secretary, Commission, dated 
December 11, 2017 (``Transmittal Letter''). The Participants 
previously submitted an amendment to the CAT NMS Plan to establish 
Participant fees (``Amendment No. 2''). See Letter from Michael 
Simon, Chair, CAT NMS Plan Operating Committee, to Brent J. Fields, 
Secretary, Commission, dated May 22, 2017. See also Securities 
Exchange Act Release No. 80930 (June 14, 2017), 82 FR 28180 (June 
20, 2017), available at https://www.sec.gov/rules/sro/nms/2017/34-80930.pdf. The Commission issued an Order of Summary Abrogation of 
Amendment No. 2 on July 21, 2017, concluding that the amendment 
raised concerns and the justifications provided by the Participants 
were not sufficient for the Commission to determine whether the 
amendment was consistent with the Act. See Securities and Exchange 
Commission Release No. 81189 (July 21, 2017), 82 FR 35005 (July 27, 
2017). On October 30, 2017, the Participants filed Amendment No. 3 
to the CAT NMS Plan, which has been withdrawn and replaced and 
superseded in its entirety by Amendment No. 4.
    \5\ 17 CFR 242.608.
---------------------------------------------------------------------------

II. Description of the Plan

    Set forth in this Section II is the statement of the purpose and 
summary of Amendment No. 4, along with the information required by Rule 
608(a)(4) and (5) under the Exchange Act,\6\ prepared and submitted by 
the Participants to the Commission.\7\
---------------------------------------------------------------------------

    \6\ See 17 CFR 242.608(a)(4) and (a)(5).
    \7\ See Transmittal Letter, supra note 4.
---------------------------------------------------------------------------

A. Description of the Amendments to the CAT NMS Plan

(1) Executive Summary
    The following provides an executive summary of the CAT funding 
model approved by the Operating Committee, as well as Participants' 
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.
     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 used in calculating 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. Although the CAT 
costs from November 21, 2016 through November 21, 2017 were used in 
calculating the CAT Fees, the CAT Fees set forth in this fee filing 
would be in effect until the automatic sunset date, as discussed below. 
(See Section A(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 A(2) 
below)

[[Page 1400]]

     Industry Member Fees. Each Industry Member (other than 
Execution Venue ATSs) will be placed into one of seven 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, quotes and executions provided by each 
exchange and the Financial Industry Regulatory Authority, Inc. 
(``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. To avoid disincentives to quoting behavior, Options 
Market Maker and equity market maker quotes will be discounted when 
calculating message traffic. (See Section A(2)(B) below)
     Execution Venue Fees. Each Equity Execution Venue will be 
placed in one of four 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. For purposes of calculating market share, the OTC Equity 
Securities market share of Execution Venue ATSs trading OTC Equity 
Securities as well as the market share of the FINRA OTC reporting 
facility (``ORF'') will be discounted. 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 A(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 67 percent of Execution Venue costs recovered to Equity 
Execution Venues and 33 percent to Options Execution Venues. (See 
Section A(2)(D) below)
     Comparability of Fees. The CAT funding model charges CAT 
Reporters with the most CAT-related activity (measured by market share 
and/or message traffic, as applicable) comparable CAT Fees. (See 
Section A(2)(F) below)
     Fee Schedule. The quarterly CAT Fees for each tier for 
Participants are set forth in the two fee schedules in proposed Exhibit 
B to the CAT NMS Plan, one for Execution Venues for NMS Stocks and OTC 
Equity Securities, and one for Execution Venues for Listed Options. 
(See Section A(3) below)
     Sunset Provision. The CAT Fees set forth in proposed 
Exhibit B would sunset automatically two years from their operative 
date. (See Section A(2)(J) 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. In addition to a budget, 
Article XI of the CAT NMS Plan provides that the Operating Committee 
has discretion to establish funding for the Company, consistent with 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'' \8\ and ``reflects a 
reasonable exercise of the Participants' funding authority to recover 
the Participants' costs related to the CAT.'' \9\
---------------------------------------------------------------------------

    \8\ Approval Order at 84796.
    \9\ Id. 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.'' \10\ The Commission further noted 
the following:
---------------------------------------------------------------------------

    \10\ Id. 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 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.\11\
---------------------------------------------------------------------------

    \11\ Id. at 84794.
---------------------------------------------------------------------------

Accordingly, the funding model approved by the Operating Committee 
imposes fees on both Participants and Industry Members.
    As discussed in Appendix C of the CAT NMS Plan, in developing and 
approving the approved funding model, the Operating Committee 
considered the advantages and disadvantages of a variety of alternative 
funding and cost allocation models before selecting the proposed 
model.\12\ 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.
---------------------------------------------------------------------------

    \12\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
---------------------------------------------------------------------------

    In particular, 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. 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.
    In addition, reviews from varying time periods 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 tiered approach helps ensure that fees are 
equitably allocated among similarly situated CAT

[[Page 1401]]

Reporters and furthers the goal of lessening the impact on smaller 
firms.\13\ In addition, in choosing a tiered fee structure, the 
Operating Committee concluded that the variety of benefits offered by a 
tiered fee structure, discussed above, outweighed the fact that CAT 
Reporters in any particular tier would pay different rates per message 
traffic order event or per market share (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.\14\ The Operating Committee 
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 message traffic which 
will reflect the relative impact of CAT Reporters on the CAT System.
---------------------------------------------------------------------------

    \13\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85006.
    \14\ 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 may be 
easier to implement.'' Approval Order at 84796.
---------------------------------------------------------------------------

    Accordingly, the CAT NMS Plan contemplates that costs will be 
allocated across the CAT Reporters on a tiered basis in order to 
allocate higher costs to those CAT Reporters that contribute more to 
the costs of creating, implementing and maintaining the CAT and lower 
costs to those that contribute less.\15\ 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 will 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.\16\ 
Correspondingly, Execution Venues with the highest market shares will 
be in the top tier, and will be charged higher fees. Execution Venues 
with the lowest market shares will be in the lowest tier and will be 
assessed smaller fees for the CAT.\17\
---------------------------------------------------------------------------

    \15\ Approval Order at 85005.
    \16\ Id.
    \17\ Id.
---------------------------------------------------------------------------

    The CAT NMS Plan states that Industry Members (other than Execution 
Venue ATSs) will be charged based on message traffic, and that 
Execution Venues will be charged based on market share.\18\ 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.\19\ 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.\20\
---------------------------------------------------------------------------

    \18\ Section 11.3(a) and (b) of the CAT NMS Plan.
    \19\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order 
at 85005.
    \20\ Section 11.3(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    In contrast to Industry Members, which determine the degree to 
which they produce message traffic that constitute CAT Reportable 
Events, the CAT Reportable Events of the Execution Venues are largely 
derivative of quotations and orders received from Industry Members that 
they are required to display. The business model for Execution Venues 
(other than FINRA), however, is focused on executions in their markets. 
As a result, the Operating Committee believes that it is more equitable 
to charge Execution Venues based on their market share rather than 
their message traffic.
    Focusing on message traffic would make it more difficult to draw 
distinctions between large and small Execution Venues and, in 
particular, between large and small options exchanges. For instance, 
the Operating Committee analyzed the message traffic of Execution 
Venues and Industry Members for the period of April 2017 to June 2017 
and placed all CAT Reporters into a nine-tier framework (i.e., a single 
tier may include both Execution Venues and Industry Members). The 
Operating Committee's analysis found that the majority of exchanges (15 
total) were grouped in Tiers 1 and 2. Moreover, virtually all of the 
options exchanges were in Tiers 1 and 2.\21\ Given the resulting 
concentration of options exchanges in Tiers 1 and 2 under this 
approach, the analysis shows that a funding model for Execution Venues 
based on message traffic would make it more difficult to distinguish 
between large and small options exchanges, as compared to the proposed 
fee approach that bases fees for Execution Venues on market share.
---------------------------------------------------------------------------

    \21\ The Operating Committee notes that this analysis did not 
place MIAX PEARL in Tier 1 or Tier 2 since the exchange commenced 
trading on February 6, 2017.
---------------------------------------------------------------------------

    The CAT NMS Plan's funding model also is structured to avoid a 
``reduction in market quality.'' \22\ The tiered, fixed fee funding 
model is designed to limit the disincentives to providing liquidity to 
the market. For example, the Operating Committee expects that a firm 
that has 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 are 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.'' \23\
---------------------------------------------------------------------------

    \22\ Section 11.2(e) of the CAT NMS Plan.
    \23\ Approval Order at 84796.
---------------------------------------------------------------------------

    The funding model also is structured to avoid a reduction market 
quality because it discounts Options Market Maker and equity market 
maker quotes when calculating message traffic for Options Market Makers 
and equity market makers, respectively. As discussed in more detail 
below, the Operating Committee determined to discount the Options 
Market Maker quotes by the trade to quote ratio for options when 
calculating message traffic for Options Market Makers. Similarly, to 
avoid disincentives to quoting behavior on the equities side as well, 
the Operating Committee determined to discount equity market maker 
quotes by the trade to quote ratio for equities when calculating 
message traffic for equity market makers. The proposed discounts 
recognize the value of the market makers' quoting activity to the 
market as a whole.
    The CAT NMS Plan is further structured to avoid potential conflicts 
raised by the Operating Committee determining fees applicable to its 
own members--the Participants. First, the Company will operate 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.\24\ 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

[[Page 1402]]

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.'' \25\ 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.'' \26\ The Internal Revenue Service recently 
has determined that the Company is exempt from federal income tax under 
Section 501(c)(6) of the Internal Revenue Code.
---------------------------------------------------------------------------

    \24\ Id. at 84792.
    \25\ 26 U.S.C. 501(c)(6).
    \26\ Approval Order at 84793.
---------------------------------------------------------------------------

    The funding model also is structured to take into account 
distinctions in the securities trading operations of Participants and 
Industry Members. For example, the Operating Committee designed the 
model to address the different trading characteristics in the OTC 
Equity Securities market. Specifically, the Operating Committee 
proposes to discount the OTC Equity Securities market share of 
Execution Venue ATSs trading OTC Equity Securities as well as the 
market share of the FINRA ORF by the average shares per trade ratio 
between NMS Stocks and OTC Equity Securities to adjust for the greater 
number of shares being traded in the OTC Equity Securities market, 
which is generally a function of a lower per share price for OTC Equity 
Securities when compared to NMS Stocks. In addition, the Operating 
Committee also proposes to discount Options Market Maker and equity 
market maker message traffic in recognition of their role in the 
securities markets. Furthermore, the funding model creates separate 
tiers for Equity and Options Execution Venues due to the different 
trading characteristics of those markets.
    Finally, by adopting a CAT-specific fee, the Operating Committee 
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. The complete funding model is described 
below, including those fees that are to be paid by Industry Members. 
Proposed Exhibit B, however, does not apply to Industry Members; 
proposed Exhibit B only applies to Participants. The CAT Fees for 
Industry Members will be imposed separately pursuant to rules adopted 
by the individual self-regulatory organizations (``SROs[sic]).
(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 
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 seven tiers 
results in an allocation of fees that distinguishes between Industry 
Members with differing levels of message traffic. Thus, each such 
Industry Member will be placed into one of seven tiers of fixed fees, 
based on ``message traffic'' for a defined period (as discussed below).
    A seven tier structure was selected to provide a wide 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 from multiple time periods, 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

[[Page 1403]]

traffic. Based on this, the Operating Committee determined that seven 
tiers 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. 
Furthermore, the selection of seven tiers establishes comparable fees 
among the largest CAT Reporters.
    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 ensure that the total CAT Fees collected recover 
the expected 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 seven tiers that would group firms with similar levels of 
message traffic.
    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 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 seven Industry 
Member tiers across the monthly average of total equity and equity 
options orders, cancels, quotes and executions in the second quarter of 
2017 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 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 driven by fixed percentages of Industry 
Members across tiers to account for fluctuating levels of message 
traffic over time. This approach also provides financial stability for 
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 A(2)(I).

[[Page 1404]]

[GRAPHIC] [TIFF OMITTED] TN11JA18.000


------------------------------------------------------------------------
                                        Approximate Message Traffic per
                                           Industry Member (Q2 2017)
        Industry Member tier             (orders, quotes, cancels  and
                                                  executions)
------------------------------------------------------------------------
Tier 1..............................                     >10,000,000,000
Tier 2..............................        1,000,000,000-10,000,000,000
Tier 3..............................           100,000,000-1,000,000,000
Tier 4..............................               1,000,000-100,000,000
Tier 5..............................                   100,000-1,000,000
Tier 6..............................                      10,000-100,000
Tier 7..............................                             <10,000
------------------------------------------------------------------------

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

----------------------------------------------------------------------------------------------------------------
                                                                                   Percentage of
                                                                  Percentage  of     Industry     Percentage  of
                      Industry Member tier                            Industry        Member           total
                                                                      Members        recovery        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.900           12.00            9.00
Tier 2..........................................................           2.150           20.50           15.38
Tier 3..........................................................           2.800           18.50           13.88
Tier 4..........................................................           7.750           32.00           24.00
Tier 5..........................................................           8.300           10.00            7.50
Tier 6..........................................................          18.800            6.00            4.50
Tier 7..........................................................          59.300            1.00            0.75
                                                                 -----------------------------------------------
    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, quotes and executions provided by each 
exchange and FINRA over the previous three months. Prior to the start 
of CAT reporting, orders would be comprised of the total number of 
equity and equity options orders received and originated

[[Page 1405]]

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 executions originated by a member of FINRA, and 
excluding order rejects, system-modified orders, order routes and 
implied orders.\27\ 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) and multiple cancels of a 
complex order. 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. Additionally, prior to the 
start of CAT reporting, executions would be comprised of the total 
number of equity and equity option executions received or originated by 
a member of an exchange or FINRA over a three-month period.
---------------------------------------------------------------------------

    \27\ 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.\28\
---------------------------------------------------------------------------

    \28\ If an Industry Member (other than an Execution Venue ATS) 
has no orders, cancels, quotes and executions 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.
---------------------------------------------------------------------------

    Quotes of Options Market Makers and equity market makers will be 
included in the calculation of total message traffic for those market 
makers for purposes of tiering under the CAT funding model both prior 
to CAT reporting and once CAT reporting commences.\29\ To address 
potential concerns regarding burdens on competition or market quality 
of including quotes in the calculation of message traffic, however, the 
Operating Committee determined to discount the Options Market Maker 
quotes by the trade to quote ratio for options when calculating message 
traffic for Options Market Makers. Based on available data for June 
2016 through June 2017, the trade to quote ratio for options is 0.01%. 
Similarly, to avoid disincentives to quoting behavior on the equities 
side, the Operating Committee determined to discount equity market 
maker quotes by the trade to quote ratio for equities. Based on 
available data for June 2016 through June 2017, the trade to quote 
ratio for equities is 5.43%.\30\ The trade to quote ratio for options 
and the trade to quote ratio for equities will be calculated every 
three months when tiers are recalculated (as discussed below).
---------------------------------------------------------------------------

    \29\ 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 Rel. No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856 (Mar. 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.
    \30\ The trade to quote ratios were calculated based on the 
inverse of the average of the monthly equity SIP and OPRA quote to 
trade ratios from June 2016-June 2017 that were compiled by the 
Financial Information Forum using data from NASDAQ and SIAC.
---------------------------------------------------------------------------

    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).'' 
\31\
---------------------------------------------------------------------------

    \31\ 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 Operating Committee determined that ATSs should be included 
within the definition of Execution Venue. The Operating Committee 
believes that it is appropriate to treat ATSs as Execution Venues under 
the proposed funding model since ATSs have business models that are 
similar to those of exchanges, and ATSs also compete with exchanges.
    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 such 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 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

[[Page 1406]]

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 four tiers of fixed fees, based on the Execution Venue's NMS Stocks 
and OTC Equity Securities market share. In choosing four 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 four tiers for Equity 
Execution Venues, rather than a larger number of tiers as established 
for non-Execution Venue Industry Members, because the four tiers were 
sufficient to distinguish between the smaller number of Equity 
Execution Venues based on market share. Furthermore, the selection of 
four tiers serves to help establish comparability among the largest CAT 
Reporters.
    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 reviewed 
historical market share of share volume for Execution Venues. Equity 
Execution Venue market shares of share volume were sourced from market 
statistics made publicly-available by Bats Global Markets, Inc. 
(``Bats''). ATS market shares of share volume was sourced from market 
statistics made publicly-available by FINRA. FINRA trade reporting 
facility (``TRF'') and ORF market share of share volume was sourced 
from market statistics made publicly available by FINRA. Based on data 
from FINRA and otcmarkets.com, ATSs accounted for 39.12% of the share 
volume across the TRFs and ORFs during the recent tiering period. A 
39.12/60.88 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 market share of share volume.
    The Operating Committee determined to discount the OTC Equity 
Securities market share of Execution Venue ATSs trading OTC Equity 
Securities as well as the market share of the FINRA ORF in recognition 
of the different trading characteristics of the OTC Equity Securities 
market as compared to the market in NMS Stocks. Many OTC Equity 
Securities are priced at less than one dollar--and a significant number 
at less than one penny--per share and low-priced shares tend to trade 
in larger quantities. Accordingly, a disproportionately large number of 
shares are involved in transactions involving OTC Equity Securities 
versus NMS Stocks. Because the proposed fee tiers are based on market 
share calculated by share volume, Execution Venue ATSs trading OTC 
Equity Securities and FINRA would likely be subject to higher tiers 
than their operations may warrant. To address this potential concern, 
the Operating Committee determined to discount the OTC Equity 
Securities market share of Execution Venue ATSs trading OTC Equity 
Securities and the market share of the FINRA ORF by multiplying such 
market share by the average shares per trade ratio between NMS Stocks 
and OTC Equity Securities in order to adjust for the greater number of 
shares being traded in the OTC Equity Securities market. Based on 
available data for the second quarter of 2017, the average shares per 
trade ratio between NMS Stocks and OTC Equity Securities is 0.17%.\32\ 
The average shares per trade ratio between NMS Stocks and OTC Equity 
Securities will be recalculated every three months when tiers are 
recalculated.
---------------------------------------------------------------------------

    \32\ The average shares per trade ratio for both NMS Stocks and 
OTC Equity Securities from the second quarter of 2017 was calculated 
using publicly available market volume data from Bats and OTC 
Markets Group, and the totals were divided to determine the average 
number of shares per trade between NMS Stocks and OTC Equity 
Securities.
---------------------------------------------------------------------------

    Based on this, the Operating Committee considered the distribution 
of Execution Venues, and grouped together Execution Venues with similar 
levels of market share. 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 to be recovered 
from 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 cost recovery 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, by using percentages 
of Equity Execution Venues and cost recovery per tier, the Operating 
Committee sought to include 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  Percentage  of
                                                                      Equity         Execution    Percentage  of
                   Equity Execution Venue tier                       Execution         Venue           total
                                                                      Venues         recovery        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           33.25            8.31
Tier 2..........................................................           42.00           25.73            6.43
Tier 3..........................................................           23.00            8.00            2.00

[[Page 1407]]

 
Tier 4..........................................................           10.00            0.02            0.01
                                                                 -----------------------------------------------
    Total.......................................................             100              67           16.75
----------------------------------------------------------------------------------------------------------------

(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, 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. Furthermore, the selection of 
two tiers served to establish comparable fees among the largest CAT 
Reporters.
    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 to be recovered from 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 cost recovery 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 cost recovery per tier, the 
Operating Committee sought to include 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  Percentage  of
                                                                      Options        Execution    Percentage  of
                  Options Execution Venue tier                       Execution         Venue           total
                                                                      Venues         recovery        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           28.25            7.06
Tier 2..........................................................           25.00            4.75            1.19
                                                                 -----------------------------------------------
    Total.......................................................             100              33            8.25
----------------------------------------------------------------------------------------------------------------

(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 and OTC Markets. Set forth in 
Appendix B to this letter 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.
    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 (with the discounting of OTC Equity Securities 
market share of Execution Venue ATSs trading OTC Equity Securities as 
well as the market share of

[[Page 1408]]

the FINRA ORF, as described above). 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 recovery from 
such Industry Members and Execution Venues, including 80%/20%, 75%/25%, 
70%/30% and 65%/35% allocations. 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. For example, the cost 
allocation establishes fees for the largest Industry Members (i.e., 
those Industry Members in Tiers 1) that are comparable to the largest 
Equity Execution Venues and Options Execution Venues (i.e., those 
Execution Venues in Tier 1).
    Furthermore, the allocation of total CAT cost recovery 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 23 
times more Industry Members expected to report to the CAT than 
Execution Venues (e.g., an estimated 1541 Industry Members versus 67 
Execution Venues as of June 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 67 percent of Execution Venue costs recovered to 
Equity Execution Venues and 33 percent to Options Execution Venues. The 
Operating Committee determined that a 67%/33% allocation between Equity 
and Options Execution Venues maintained 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. Specifically, Tier 1 Equity Execution 
Venues would pay a quarterly fee of $81,047 and Tier 1 Options 
Execution Venues would pay a quarterly fee of $81,379. 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.\33\
---------------------------------------------------------------------------

    \33\ It is anticipated that CAT-related costs incurred prior to 
November 21, 2016 will be addressed via a separate filing.
---------------------------------------------------------------------------

    The Plan Processor costs relate to costs incurred and to be 
incurred through November 21, 2017 by the Plan Processor and consist of 
the Plan Processor's current estimates of average yearly ongoing costs, 
including development costs, which total $37,500,000. This amount is 
based upon the fees due to the Plan Processor pursuant to the Company's 
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 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 cyber-insurance costs for the year. Based on discussions with 
potential cyber-insurance providers, assuming $2-5 million cyber-
insurance premium on $100 million coverage, the Company has estimated 
$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 CAT operational reserve, 
which is comprised of three months of ongoing Plan Processor costs 
($9,375,000), third party support costs ($1,300,000) and cyber-
insurance costs ($750,000). The Operating Committee aims to accumulate 
the necessary funds to establish 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 to replenish the operating reserve or other changes to 
total cost during its annual budgeting process. The following table 
summarizes the Plan Processor and non-

[[Page 1409]]

Plan Processor cost components which comprise the total estimated CAT 
costs of $50,700,000 for the covered period.

 
------------------------------------------------------------------------
         Cost category                Cost component          Amount
------------------------------------------------------------------------
Plan Processor.................  Operational Costs......     $37,500,000
Non-Plan Processor.............  Third Party Support           5,200,000
                                  Costs.
                                 Operational Reserve....  5,000,000 \34\
                                 Cyber-insurance Costs..       3,000,000
                                ----------------------------------------
    Estimated Total............  .......................     $50,700,000
------------------------------------------------------------------------

    Based on these estimated costs and the calculations for the funding 
model described above, the Operating Committee determined to impose the 
following fees: \35\
---------------------------------------------------------------------------

    \34\ This $5,000,000 represents the gradual accumulation of the 
funds for a target operating reserve of $11,425,000.
    \35\ Note that all monthly, quarterly and annual CAT Fees have 
been rounded to the nearest dollar.
---------------------------------------------------------------------------

    For Industry Members (other than Execution Venue ATSs):

------------------------------------------------------------------------
                                          Percentage  of
                  Tier                       Industry     Quarterly  CAT
                                              Members           fee
------------------------------------------------------------------------
1.......................................           0.900         $81,483
2.......................................           2.150          59,055
3.......................................           2.800          40,899
4.......................................           7.750          25,566
5.......................................           8.300           7,428
6.......................................          18.800           1,968
7.......................................          59.300             105
------------------------------------------------------------------------

    For Execution Venues for NMS Stocks and OTC Equity Securities:

------------------------------------------------------------------------
                                          Percentage  of
                                              Equity       Quarterly CAT
                  Tier                       Execution          fee
                                              Venues
------------------------------------------------------------------------
1.......................................           25.00         $81,048
2.......................................           42.00          37,062
3.......................................           23.00          21,126
4.......................................           10.00             129
------------------------------------------------------------------------

    For Execution Venues for Listed Options:

------------------------------------------------------------------------
                                          Percentage  of
                                              Options      Quarterly CAT
                  Tier                       Execution          fee
                                              Venues
------------------------------------------------------------------------
1.......................................           75.00         $81,381
2.......................................           25.00          37,629
------------------------------------------------------------------------

    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 that the calculation of 
CAT Fees assumes 52 Equity Execution Venues, 15 Options Execution 
Venues and 1,541 Industry Members (other than Execution Venue ATSs) as 
of June 2017.

[[Page 1410]]



                          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..........................................................           0.900           12.00            9.00
Tier 2..........................................................           2.150           20.50           15.38
Tier 3..........................................................           2.800           18.50           13.88
Tier 4..........................................................           7.750           32.00           24.00
Tier 5..........................................................           8.300           10.00            7.50
Tier 6..........................................................          18.800            6.00            4.50
Tier 7..........................................................          59.300            1.00            0.75
                                                                 -----------------------------------------------
    Total.......................................................             100             100              75
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                                             Estimated
                                                             number of
                  Industry Member tier                       Industry
                                                              Members
------------------------------------------------------------------------
Tier 1..................................................              14
Tier 2..................................................              33
Tier 3..................................................              43
Tier 4..................................................             119
Tier 5..................................................             128
Tier 6..................................................             290
Tier 7..................................................             914
                                                         ---------------
    Total...............................................           1,541
------------------------------------------------------------------------

BILLING CODE 8001-01-P

[[Page 1411]]

[GRAPHIC] [TIFF OMITTED] TN11JA18.001

BILLING CODE 8001-01-C

                      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           33.25            8.31

[[Page 1412]]

 
Tier 2..........................................................           42.00           25.73            6.43
Tier 3..........................................................           23.00            8.00            2.00
Tier 4..........................................................           10.00           49.00            0.01
                                                                 -----------------------------------------------
    Total.......................................................             100              67           16.75
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                                        Estimated number
             Equity Execution Venue tier                   of Equity
                                                        Execution Venues
------------------------------------------------------------------------
Tier 1...............................................                 13
Tier 2...............................................                 22
Tier 3...............................................                 12
Tier 4...............................................                  5
                                                      ------------------
    Total............................................                 52
------------------------------------------------------------------------

BILLING CODE 8001-01-P

[[Page 1413]]

[GRAPHIC] [TIFF OMITTED] TN11JA18.002

BILLING CODE 8001-01-C

                      Calculation of Annual Tier Fees for Options Execution Venues (``EV'')
----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of   Percentage of
                                                                      Options        Execution     Percentage of
                  Options Execution Venue tier                       Execution         Venue      total recovery
                                                                      Venues         recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           28.25            7.06
Tier 2..........................................................           25.00            4.75            1.19
                                                                 -----------------------------------------------
    Total.......................................................             100              33            8.25
----------------------------------------------------------------------------------------------------------------


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


[[Page 1414]]

[GRAPHIC] [TIFF OMITTED] TN11JA18.003


                                         Traceability of Total CAT Fees
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated
                Type                     Industry  Member tier       number of    CAT  fees paid       Total
                                                                      members         annually       recovery
----------------------------------------------------------------------------------------------------------------
Industry Members....................  Tier 1....................              14        $325,932      $4,563,048
                                      Tier 2....................              33         236,220       7,795,260
                                      Tier 3....................              43         163,596       7,034,628
                                      Tier 4....................             119         102,264      12,169,416
                                      Tier 5....................             128          29,712       3,803,136
                                      Tier 6....................             290           7,872       2,282,880
                                      Tier 7....................             914             420         383,880
                                                                 -----------------------------------------------
    Total...........................  ..........................           1,541  ..............      38,032,248
----------------------------------------------------------------------------------------------------------------
Equity Execution Venues.............  Tier 1....................              13         324,192       4,214,496
                                      Tier 2....................              22         148,248       3,261,456
                                      Tier 3....................              12          84,504       1,014,048
                                      Tier 4....................               5             516           2,580
                                                                 -----------------------------------------------
    Total...........................  ..........................              52  ..............       8,492,580
----------------------------------------------------------------------------------------------------------------
Options Execution Venues............  Tier 1....................              11         325,524       3,580,764
                                      Tier 2....................               4         150,516         602,064
                                                                 -----------------------------------------------
    Total...........................  ..........................              15  ..............       4,182,828
                                                                                 -------------------------------
        Total.......................  ..........................  ..............  ..............      50,700,000
                                                                                 -------------------------------
        Excess \36\.................  ..........................  ..............  ..............           7,656
----------------------------------------------------------------------------------------------------------------

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

    \36\ 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 
establish comparable fees for the top tier of Industry Members (other 
than Execution Venue ATSs), Equity Execution Venues and Options 
Execution Venues. Specifically, each Tier 1 CAT Reporter would be 
required to pay a quarterly fee of approximately $81,000.
(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. In accordance with the CAT NMS Plan, all CAT Reporters, 
including both Industry Members and Execution Venues (including 
Participants), will be invoiced as promptly as possible following the 
latest

[[Page 1415]]

of the operative date of this Plan amendment, and the related fee 
filings for the Industry Member CAT Fees.
(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.\37\ 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.\38\ 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 the Operating Committee will 
file such changes with the SEC pursuant to Rule 608 of the Exchange 
Act, and the Participants will file such changes with the SEC pursuant 
to Section 19(b) of the Exchange Act and Rule 19b-4 thereunder, and any 
such changes will become effective in accordance with the requirements 
of those provisions.
---------------------------------------------------------------------------

    \37\ 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.
    \38\ 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. 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, the assignment 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 also 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.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    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
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
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For each periodic tier reassignment, the Operating Committee will 
review the new tier assignments, particularly those assignments for CAT 
Reporters that shift from the lowest tier to a higher tier. This review 
is intended to evaluate whether potential changes to the market or CAT 
Reporters (e.g., dissolution of a

[[Page 1416]]

large CAT Reporter) adversely affect the tier reassignments.
(J) Sunset Provision
    The Operating Committee developed the proposed funding model by 
analyzing currently available historical data. Such historical data, 
however, is not as comprehensive as data that will be submitted to the 
CAT. Accordingly, the Operating Committee believes that it will be 
appropriate to revisit the funding model once CAT Reporters have actual 
experience with the funding model. Accordingly, the Operating Committee 
determined to include an automatic sunsetting provision for the 
proposed fees. Specifically, the Operating Committee determined to 
include a provision in the proposed fee schedule which states that 
``[t]hese Participant CAT Fees will automatically expire two years 
after their operative date.'' The Operating Committee intends to 
monitor the operation of the funding model during this two year period 
and to evaluate its effectiveness during that period. Such a process 
will inform the Operating Committee's approach to funding the CAT after 
the two year period.
(3) Proposed CAT Fee Schedule
    The Operating Committee proposes to add Exhibit B to the CAT NMS 
Plan to add a fee schedule setting forth the CAT Fees applicable to 
Participants. Proposed Exhibit B is set forth in Appendix A to this 
letter. Paragraph (a)(1) of proposed Exhibit B sets forth the CAT Fees 
applicable to Execution Venues for NMS Stocks and OTC Equity 
Securities. Specifically, paragraph (a)(1) states that the Company will 
assign each Execution Venue for NMS Stocks and/or OTC Equity Securities 
to a fee tier once every quarter, where such tier assignment is 
calculated by ranking each such Execution Venue based on its total 
market share (with a discount for the OTC Equity Securities market 
share of Execution Venue ATSs trading OTC Equity Securities as well as 
the market share of the FINRA OTC reporting facility based on the 
average shares per trade ratio between NMS Stocks and OTC Equity 
Securities) for the three months prior to the quarterly tier 
calculation day and assigning each such Execution Venue to a tier based 
on that ranking and predefined percentages for such Execution Venues. 
The Execution Venues for NMS Stocks and/or OTC Equity Securities with 
the higher total quarterly market share will be ranked in Tier 1, and 
such Execution Venues with the lowest quarterly market share will be 
ranked in Tier 4. Specifically, paragraph (a)(1) states that, each 
quarter, each Execution Venue for NMS Stocks and/or OTC Equity 
Securities shall pay in the manner prescribed by the Company the 
following CAT Fee corresponding to the tier assigned by the CAT NMS, 
LLC for such Execution Venue for that quarter:

------------------------------------------------------------------------
                                          Percentage  of
                                             Execution
                                            Venues for
                  Tier                      NMS Stocks     Quarterly CAT
                                            and/or OTC          fee
                                              Equity
                                            Securities
------------------------------------------------------------------------
1.......................................           25.00         $81,048
2.......................................           42.00          37,062
3.......................................           23.00          21,126
4.......................................           10.00             129
------------------------------------------------------------------------

    In addition, paragraph (a)(2) of the proposed Exhibit B states that 
the Company will assign each Execution Venue for Listed Options to a 
fee tier once every quarter, where such tier assignment is calculated 
by ranking each such Execution Venue based on its total market share 
for the three months prior to the quarterly tier calculation day and 
assigning each such Execution Venue to a tier based on that ranking and 
predefined percentages for such Execution Venues. The Execution Venues 
for Listed Options with the higher total quarterly market share will be 
ranked in Tier 1, and such Execution Venues with the lower quarterly 
market share will be ranked in Tier 2. Specifically, paragraph (b)(1) 
states that, each quarter, each Execution Venue for Listed Options 
shall pay in the manner prescribed by the Company the following CAT Fee 
corresponding to the tier assigned by the CAT NMS, LLC for such 
Execution Venue for that quarter:

------------------------------------------------------------------------
                                          Percentage  of
                                             Execution
                  Tier                      Venues for     Quarterly CAT
                                              Listed            fee
                                              Options
------------------------------------------------------------------------
1.......................................           75.00         $81,381
2.......................................           25.00          37,629
------------------------------------------------------------------------

(4) Changes to Prior CAT Fee Plan Amendment
    The proposed funding model set forth in this amendment is a revised 
version of the Plan amendment filed with the Commission on May 9, 2017 
(``Original Proposal'').\39\ The Commission abrogated the Original 
Proposal on July 21, 2017.\40\ Although the Original Proposal did not 
receive any comments, the Commission received a number of comment 
letters in response to the Participants' proposed rule changes to adopt 
CAT Fees to be charged to Industry Members, including Industry Members 
that are Execution Venue ATSs (``Industry Member Fee Filings'').\41\ 
Because the text of the Industry Member Fee Filings is substantially 
similar to the Original Proposal, the SEC believed that the comments 
were relevant to the Original Proposal and summarized them in the 
Abrogation Order. In addition, the SEC suspended the Industry Member 
Fee Filings and instituted proceedings to determine whether to approve 
or disapprove the Industry Member Fee Filings.\42\ Pursuant to those 
proceedings, additional comment letters were submitted regarding the 
proposed funding model.\43\ In developing this Amendment No. 4, the 
Operating Committee carefully considered these comments and made a 
number of changes to the Original Proposal to address these comments 
where appropriate.
---------------------------------------------------------------------------

    \39\ Securities Exchange Act Rel. No. 80930 (June 14, 2017), 82 
FR 28180 (June 20, 2017).
    \40\ Securities Exchange Act Rel. No. 81189 (July 21, 2017), 82 
FR 35005 (July 27, 2017) (``Abrogation Order'').
    \41\ For a description of the Industry Member Fee Filings and 
the comments submitted in response to those Filings, see Securities 
Exchange Act Rel. No. 81067 (June 30, 2017), 82 FR 31656 (July 7, 
2017) (``Suspension Order'').
    \42\ Suspension Order.
    \43\ See Letter from Stuart J. Kaswell, Executive Vice 
President, Managing Director and General Counsel, Managed Funds 
Association, to Brent J. Fields, Secretary, SEC (July 28, 2017) 
(``MFA Letter''); Letter from Theodore R. Lazo, Managing Director 
and Associate General Counsel, SIFMA, to Brent J. Fields, Secretary, 
SEC (July 28, 2017) (``SIFMA Letter''); Joanna Mallers, Secretary, 
FIA Principal Traders Group, to Brent J. Fields, Secretary, SEC 
(July 28, 2017) (``FIA Principal Traders Group Letter''); Letter 
from Kevin Coleman, General Counsel & Chief Compliance Officer, 
Belvedere Trading LLC, to Brent J. Fields, Secretary, SEC (July 28, 
2017) (``Belvedere Letter''); Letter from W. Hardy Callcott, Sidley 
Austin LLP, to Brent J. Fields, Secretary, SEC (July 27, 2017) 
(``Sidley Letter''); Letter from John Kinahan, Chief Executive 
Officer, Group One Trading, L.P., to Brent J. Fields, Secretary, SEC 
(Aug. 10, 2017) (``Group One Letter''); and Letter from Joseph 
Molluso, Executive Vice President, Virtu Financial, to Brent J. 
Fields, Secretary, SEC (Aug. 18, 2017) (``Virtu Financial Letter'').
---------------------------------------------------------------------------

    This Amendment No. 4 makes the following changes to the Original 
Proposal: (1) Adds two additional CAT Fee tiers for Equity Execution 
Venues; (2) discounts the OTC Equity Securities market share of 
Execution Venue ATSs trading OTC Equity Securities as well as the 
market share of the FINRA ORF by the average shares per trade ratio 
between NMS Stocks and OTC Equity Securities (calculated as 0.17% based 
on available data from the second quarter of 2017) when calculating the 
market share of Execution Venue ATSs trading OTC Equity Securities and 
FINRA; (3) discounts the Options Market Maker

[[Page 1417]]

quotes by the trade to quote ratio for options (calculated as 0.01% 
based on available data for June 2016 through June 2017) when 
calculating message traffic for Options Market Makers; (4) discounts 
equity market maker quotes by the trade to quote ratio for equities 
(calculated as 5.43% based on available data for June 2016 through June 
2017) when calculating message traffic for equity market makers; (5) 
decreases the number of tiers for Industry Members (other than the 
Equity ATSs) from nine to seven; (6) changes the allocation of CAT 
costs between Equity Execution Venues and Options Execution Venues from 
75%/25% to 67%/33%; (7) adjusts tier percentages and recovery 
allocations for Equity Execution Venues, Options Execution Venues and 
Industry Members (other than Execution Venue ATSs); (8) focuses the 
comparability of CAT Fees on the individual entity level, rather than 
primarily on the comparability of affiliated entities; (9) commences 
invoicing of CAT Reporters as promptly as possible following the latest 
of the operative date of the Consolidated Audit Trail Funding Fees for 
each of the Participants as set forth in the Industry Member Fee 
Filings and the operative date of the CAT NMS Plan amendment adopting 
CAT Fees for Participants; and (10) requires the proposed fees to 
automatically expire two years from their operative date.
(A) Equity Execution Venues
(i) Small Equity Execution Venues
    In the Original Proposal, the Operating Committee proposed to 
establish two fee tiers for Equity Execution Venues. The Commission and 
commenters raised the concern that, by establishing only two tiers, 
smaller Equity Execution Venues (e.g., those Equity ATSs representing 
less than 1% of NMS market share) would be placed in the same fee tier 
as larger Equity Execution Venues, thereby imposing an undue or 
inappropriate burden on competition.\44\ To address this concern, the 
Operating Committee proposes to add two additional tiers for Equity 
Execution Venues, a third tier for smaller Equity Execution Venues and 
a fourth tier for the smallest Equity Execution Venues.
---------------------------------------------------------------------------

    \44\ See Abrogation Order at 35012; SIFMA Letter at 3.
---------------------------------------------------------------------------

    Specifically, the Original Proposal had two tiers of Equity 
Execution Venues. Tier 1 required the largest Equity Execution Venues 
to pay a quarterly fee of $63,375. Based on available data, these 
largest Equity Execution Venues were those that had equity market share 
of share volume greater than or equal to 1%.\45\ Tier 2 required the 
remaining smaller Equity Execution Venues to pay a quarterly fee of 
$38,820.
---------------------------------------------------------------------------

    \45\ Note that while these equity market share thresholds were 
referenced as data points 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.
---------------------------------------------------------------------------

    To address concerns about the potential for the $38,820 quarterly 
fee to impose an undue burden on smaller Equity Execution Venues, the 
Operating Committee determined to move to a four tier structure for 
Equity Execution Venues. Tier 1 would continue to include the largest 
Equity Execution Venues by share volume (that is, based on currently 
available data, those with market share of equity share volume greater 
than or equal to one percent), and these Equity Execution Venues would 
be required to pay a quarterly fee of $81,048. The Operating Committee 
determined to divide the original Tier 2 into three tiers. The new Tier 
2 Equity Execution Venues, which would include the next largest Equity 
Execution Venues by equity share volume, would be required to pay a 
quarterly fee of $37,062. The new Tier 3 Equity Execution Venues would 
be required to pay a quarterly fee of $21,126. The new Tier 4 Equity 
Execution Venues, which would include the smallest Equity Execution 
Venues by share volume, would be required to pay a quarterly fee of 
$129.
    In developing the proposed four tier structure, the Operating 
Committee considered keeping the existing two tiers, as well as 
shifting to three, four or five Equity Execution Venue tiers (the 
maximum number of tiers permitted under the Plan), to address the 
concerns regarding small Equity Execution Venues. For each of the two, 
three, four and five tier alternatives, the Operating Committee 
considered the assignment of various percentages of Equity Execution 
Venues to each tier as well as various percentage of Equity Execution 
Venue recovery allocations for each alternative. As discussed below in 
more detail, each of these options was considered in the context of the 
full model, as changes in each variable in the model affect other 
variables in the model when allocating the total CAT costs among CAT 
Reporters. The Operating Committee determined that the four tier 
alternative addressed the spectrum of different Equity Execution 
Venues. The Operating Committee determined that neither a two tier 
structure nor a three tier structure sufficiently accounted for the 
range of market shares of smaller Equity Execution Venues. The 
Operating Committee also determined that, given the limited number of 
Equity Execution Venues, that a fifth tier was unnecessary to address 
the range of market shares of the Equity Execution Venues.
    By increasing the number of tiers for Equity Execution Venues and 
reducing the proposed CAT Fees for the smaller Equity Execution Venues, 
the Operating Committee believes that the proposed fees for Equity 
Execution Venues would not impose an undue or inappropriate burden on 
competition under Section 6 or Section 15A of the Exchange Act. 
Moreover, the Operating Committee believes that the proposed fees 
appropriately take into account the distinctions in the securities 
trading operations of different Equity Execution Venues, as required 
under the funding principles of the CAT NMS Plan.\46\ The larger number 
of tiers more closely tracks the variety of sizes of equity share 
volume of Equity Execution Venues. In addition, the reduction in the 
fees for the smaller Equity Execution Venues recognizes the potential 
burden of larger fees on smaller entities. In particular, the very 
small quarterly fee of $129 for Tier 4 Equity Execution Venues reflects 
the fact that certain Equity Execution Venues have a very small share 
volume due to their typically more focused business models.
---------------------------------------------------------------------------

    \46\ Section 11.2(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Accordingly, Amendment No. 4 proposes to amend paragraph (a)(1) of 
the proposed fee schedule as set forth in the Original Proposal to add 
the two additional tiers for Equity Execution Venues, to establish the 
percentages and fees for Tiers 3 and 4 as described, and to revise the 
percentages and fees for Tiers 1 and 2 as described.
(ii) Execution Venues for OTC Equity Securities
    In the Original Proposal, the Operating Committee proposed to group 
Execution Venues for OTC Equity Securities and Execution Venues for NMS 
Stocks in the same tier structure. The Commission and commenters raised 
concerns as to whether this determination to place Execution Venues for 
OTC Equity Securities in the same tier structure as Execution Venues 
for NMS Stocks would result in an undue or inappropriate burden on 
competition, recognizing that the application of share volume may lead 
to different outcomes as applied to OTC

[[Page 1418]]

Equity Securities and NMS Stocks.\47\ To address this concern, the 
Operating Committee proposes to discount the OTC Equity Securities 
market share of Execution Venue ATSs trading OTC Equity Securities as 
well as the market share of the FINRA ORF by the average shares per 
trade ratio between NMS Stocks and OTC Equity Securities (0.17% for the 
second quarter of 2017) in order to adjust for the greater number of 
shares being traded in the OTC Equity Securities market, which is 
generally a function of a lower per share price for OTC Equity 
Securities when compared to NMS Stocks.
---------------------------------------------------------------------------

    \47\ See Abrogation Order at 35012-3.
---------------------------------------------------------------------------

    As commenters noted, many OTC Equity Securities are priced at less 
than one dollar--and a significant number at less than one penny--and 
low-priced shares tend to trade in larger quantities. Accordingly, a 
disproportionately large number of shares are involved in transactions 
involving OTC Equity Securities versus NMS Stocks, which has the effect 
of overstating an Execution Venue's true market share when the 
Execution Venue is involved in the trading of OTC Equity Securities. 
Because the proposed fee tiers are based on market share calculated by 
share volume, Execution Venue ATSs trading OTC Equity Securities and 
FINRA may be subject to higher tiers than their operations may 
warrant.\48\ The Operating Committee proposes to address this concern 
in two ways. First, the Operating Committee proposes to increase the 
number of Equity Execution Venue tiers, as discussed above. Second, the 
Operating Committee determined to discount the OTC Equity Securities 
market share of Execution Venue ATSs trading OTC Equity Securities as 
well as the market share of the FINRA ORF when calculating their tier 
placement. Because the disparity in share volume between Execution 
Venues trading in OTC Equity Securities and NMS Stocks is based on the 
different number of shares per trade for OTC Equity Securities and NMS 
Stocks, the Operating Committee believes that discounting the OTC 
Equity Securities share volume of such Execution Venue ATSs as well as 
the market share of the FINRA ORF would address the difference in 
shares per trade for OTC Equity Securities and NMS Stocks. 
Specifically, the Operating Committee proposes to impose a discount 
based on the objective measure of the average shares per trade ratio 
between NMS Stocks and OTC Equity Securities. Based on available data 
from the second quarter of 2017, the average shares per trade ratio 
between NMS Stocks and OTC Equity Securities is 0.17%.
---------------------------------------------------------------------------

    \48\ Abrogation Order at 35012.
---------------------------------------------------------------------------

    The practical effect of applying such a discount for trading in OTC 
Equity Securities is to shift Execution Venue ATSs trading OTC Equity 
Securities to tiers for smaller Execution Venues and with lower fees. 
For example, under the Original Proposal, one Execution Venue ATS 
trading OTC Equity Securities was placed in the first CAT Fee tier, 
which had a quarterly fee of $63,375. With the imposition of the 
proposed tier changes and the discount, this ATS would be ranked in 
Tier 3 and would owe a quarterly fee of $21,126.
    In developing the proposed discount for Equity Execution Venue ATSs 
trading OTC Equity Securities and FINRA, the Operating Committee 
evaluated different alternatives to address the concerns related to OTC 
Equity Securities, including creating a separate tier structure for 
Execution Venues trading OTC Equity Securities (like the separate tier 
for Options Execution Venues) as well as the proposed discounting 
method for Execution Venue ATSs trading OTC Equity Securities and 
FINRA. For these alternatives, the Operating Committee considered how 
each alternative would affect the recovery allocations. In addition, 
each of these options was considered in the context of the full model, 
as changes in each variable in the model affect other variables in the 
model when allocating the total CAT costs among CAT Reporters. The 
Operating Committee did not adopt a separate tier structure for Equity 
Execution Venues trading OTC Equity Securities as they determined that 
the proposed discount approach appropriately addresses the concern. The 
Operating Committee determined to adopt the proposed discount because 
it directly relates to the concern regarding the trading patterns and 
operations in the OTC Equity Securities markets, and is an objective 
discounting method.
    By increasing the number of tiers for Equity Execution Venues and 
imposing a discount on the market share of share volume calculation for 
trading in OTC Equity Securities, the Operating Committee believes that 
the proposed fees for Equity Execution Venues would not impose an undue 
or inappropriate burden on competition under Section 6 or Section 15A 
of the Exchange Act. Moreover, the Operating Committee believes that 
the proposed fees appropriately take into account the distinctions in 
the securities trading operations of different Equity Execution Venues, 
as required under the funding principles of the CAT NMS Plan.\49\ As 
discussed above, the larger number of tiers more closely tracks the 
variety of sizes of equity share volume of Equity Execution Venues. In 
addition, the proposed discount recognizes the different types of 
trading operations at Equity Execution Venues trading OTC Equity 
Securities versus those trading NMS Stocks, thereby more closing 
matching the relative revenue generation by Equity Execution Venues 
trading OTC Equity Securities to their CAT Fees.
---------------------------------------------------------------------------

    \49\ Section 11.2(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Accordingly, Amendment No. 4 proposes to amend paragraph (a)(1) of 
the proposed fee schedule as set forth in the Original Proposal to 
indicate that the OTC Equity Securities market share for Execution 
Venue ATSs trading OTC Equity Securities as well as the market share of 
the FINRA ORF would be discounted. In addition, as discussed above, to 
address concerns related to smaller ATSs, including those that trade 
OTC Equity Securities, the Operating Committee proposes to amend 
paragraph (a)(1) of the proposed fee schedule to add two additional 
tiers for Equity Execution Venues, to establish the percentages and 
fees for Tiers 3 and 4 as described, and to revise the percentages and 
fees for Tiers 1 and 2 as described.
(B) Market Makers
    In the Original Proposal, the Operating Committee proposed to 
include both Options Market Maker quotes and equities market maker 
quotes in the calculation of total message traffic for such market 
makers for purposes of tiering for Industry Members (other than 
Execution Venue ATSs). The Commission and commenters raised questions 
as to whether the proposed treatment of Options Market Maker quotes may 
result in an undue or inappropriate burden on competition or may lead 
to a reduction in market quality.\50\ To address this concern, the 
Operating Committee determined to discount the Options Market Maker 
quotes by the trade to quote ratio for options when calculating message 
traffic for Options Market Makers. Similarly, to avoid disincentives to 
quoting behavior on the equities side as well, the Operating Committee 
determined to discount equity market maker quotes by the trade to quote 
ratio for equities when

[[Page 1419]]

calculating message traffic for equities market makers.
---------------------------------------------------------------------------

    \50\ See Abrogation Order at 35011; SIFMA Letter at 4-6; FIA 
Principal Traders Group Letter at 3; Sidley Letter at 2-6; Group One 
Letter at 2-6; and Belvedere Letter at 2.
---------------------------------------------------------------------------

    In the Original Proposal, market maker quotes were treated the same 
as other message traffic for purposes of tiering for Industry Members 
(other than Execution Venue ATSs). Commenters noted, however, that 
charging Industry Members on the basis of message traffic will impact 
market makers disproportionately because of their continuous quoting 
obligations. Moreover, in the context of options market makers, message 
traffic would include bids and offers for every listed options strikes 
and series, which are not an issue for equities.\51\ The Operating 
Committee proposes to address this concern in two ways. First, the 
Operating Committee proposes to discount Options Market Maker quotes 
when calculating the Options Market Makers' tier placement. 
Specifically, the Operating Committee proposes to impose a discount 
based on the objective measure of the trade to quote ratio for options. 
Based on available data from June 2016 through June 2017, the trade to 
quote ratio for options is 0.01%. Second, the Operating Committee 
proposes to discount equities market maker quotes when calculating the 
equities market makers' tier placement. Specifically, the Operating 
Committee proposes to impose a discount based on the objective measure 
of the trade to quote ratio for equities. Based on available data for 
June 2016 through June 2017, this trade to quote ratio for equities is 
5.43%.
---------------------------------------------------------------------------

    \51\ Abrogation Order at 35012.
---------------------------------------------------------------------------

    The practical effect of applying such discounts for quoting 
activity is to shift market makers' calculated message traffic lower, 
leading to the potential shift to tiers for lower message traffic and 
reduced fees. Such an approach would move sixteen Industry Member CAT 
Reporters that are market makers to a lower tier than in the Original 
Proposal. For example, under the Original Proposal, Broker-Dealer Firm 
ABC was placed in the first CAT Fee tier, which had a quarterly fee of 
$101,004. With the imposition of the proposed tier changes and the 
discount, Broker-Dealer Firm ABC, an options market maker, would be 
ranked in Tier 3 and would owe a quarterly fee of $40,899.
    In developing the proposed market maker discounts, the Operating 
Committee considered various discounts for Options Market Makers and 
equity market makers, including discounts of 50%, 25%, 0.00002%, as 
well as the 5.43% for option market makers and 0.01% for equity market 
makers. Each of these options were considered in the context of the 
full model, as changes in each variable in the model affect other 
variables in the model when allocating the total CAT costs among CAT 
Reporters. The Operating Committee determined to adopt the proposed 
discount because it directly relates to the concern regarding the 
quoting requirement, is an objective discounting method, and has the 
desired potential to shift market makers to lower fee tiers.
    By imposing a discount on Options Market Makers and equities market 
makers' quoting traffic for the calculation of message traffic, the 
Operating Committee believes that the proposed fees for market makers 
would not impose an undue or inappropriate burden on competition under 
Section 6 or Section 15A of the Exchange Act. Moreover, the Operating 
Committee believes that the proposed fees appropriately take into 
account the distinctions in the securities trading operations of 
different Industry Members, and avoid disincentives, such as a 
reduction in market quality, as required under the funding principles 
of the CAT NMS Plan.\52\ The proposed discounts recognize the different 
types of trading operations presented by Options Market Makers and 
equities market makers, as well as the value of the market makers' 
quoting activity to the market as a whole. Accordingly, the Operating 
Committee believes that the proposed discounts will not impact the 
ability of small Options Market Makers or equities market makers to 
provide liquidity.
---------------------------------------------------------------------------

    \52\ Section 11.2(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

(C) Comparability/Allocation of Costs
    Under the Original Proposal, 75% of CAT costs were allocated to 
Industry Members (other than Execution Venue ATSs) and 25% of CAT costs 
were allocated to Execution Venues. This cost allocation sought to 
maintain the greatest level of comparability across the funding model, 
where comparability considered affiliations among or between CAT 
Reporters. The Commission and commenters expressed concerns regarding 
whether the proposed 75%/25% allocation of CAT costs is consistent with 
the Plan's funding principles and the Exchange Act, including whether 
the allocation places a burden on competition or reduces market 
quality. The Commission and commenters also questioned whether the 
approach of accounting for affiliations among CAT Reporters in setting 
CAT Fees disadvantages non-affiliated CAT Reporters or otherwise 
burdens competition in the market for trading services.\53\
---------------------------------------------------------------------------

    \53\ See Abrogation Order at 35010-13; SIFMA Letter at 3; Sidley 
Letter at 6-7; Group One Letter at 2; and Belvedere Letter at 2.
---------------------------------------------------------------------------

    In response to these concerns, the Operating Committee determined 
to revise the proposed funding model to focus the comparability of CAT 
Fees on the individual entity level, rather than primarily on the 
comparability of affiliated entities. In light of the interconnected 
nature of the various aspects of the funding model, the Operating 
Committee determined to revise various aspects of the model to enhance 
comparability at the individual entity level. Specifically, to achieve 
such comparability, the Operating Committee determined to (1) decrease 
the number of tiers for Industry Members (other than Execution Venue 
ATSs) from nine to seven; (2) change the allocation of CAT costs 
between Equity Execution Venues and Options Execution Venues from 75%/
25% to 67%/33%; and (3) adjust tier percentages and recovery 
allocations for Equity Execution Venues, Options Execution Venues and 
Industry Members (other than Execution Venue ATSs). With these changes, 
the proposed funding model provides fee comparability for the largest 
individual entities, with the largest Industry Members (other than 
Execution Venue ATSs), Equity Execution Venues and Options Execution 
Venues each paying a CAT Fee of approximately $81,000 each quarter.
(i) Number of Industry Member Tiers
    In the Original Proposal, the proposed funding model had nine tiers 
for Industry Members (other than Execution Venue ATSs). The Operating 
Committee determined that reducing the number of tiers from nine tiers 
to seven tiers (and adjusting the predefined Industry Member 
Percentages as well) continues to provide a fair allocation of fees 
among Industry Members and appropriately distinguishes between Industry 
Members with differing levels of message traffic. In reaching this 
conclusion, the Operating Committee considered historical message 
traffic generated by Industry Members across all exchanges and as 
submitted to FINRA's 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 seven tiers would group firms with similar 
levels of

[[Page 1420]]

message traffic, while also achieving greater comparability in the 
model for the individual CAT Reporters with the greatest market share 
or message traffic.
    In developing the proposed seven tier structure, the Operating 
Committee considered remaining at nine tiers, as well as reducing the 
number of tiers down to seven when considering how to address the 
concerns raised regarding comparability. For each of the alternatives, 
the Operating Committee considered the assignment of various 
percentages of Industry Members to each tier as well as various 
percentages of Industry Member recovery allocations for each 
alternative. Each of these options was considered in the context of its 
effects on the full funding model, as changes in each variable in the 
model affect other variables in the model when allocating the total CAT 
costs among CAT Reporters. The Operating Committee determined that the 
seven tier alternative provided the most fee comparability at the 
individual entity level for the largest CAT Reporters, while both 
providing logical breaks in tiering for Industry Members with different 
levels of message traffic and a sufficient number of tiers to provide 
for the full spectrum of different levels of message traffic for all 
Industry Members.
(ii) Allocation of CAT Costs Between Equity and Options Execution 
Venues
    The Operating Committee also determined to adjust the allocation of 
CAT costs between Equity Execution Venues and Options Execution Venues 
to enhance comparability at the individual entity level. In the 
Original Proposal, 75% of Execution Venue CAT costs were allocated to 
Equity Execution Venues, and 25% of Execution Venue CAT costs were 
allocated to Options Execution Venues. To achieve the goal of increased 
comparability at the individual entity level, the Operating Committee 
analyzed a range of alternative splits for revenue recovery between 
Equity and Options Execution Venues, along with other changes in the 
proposed funding model. Based on this analysis, the Operating Committee 
determined to allocate 67 percent of Execution Venue costs recovered to 
Equity Execution Venues and 33 percent to Options Execution Venues. The 
Operating Committee determined that a 67/33 allocation between Equity 
and Options Execution Venues enhances the level of fee comparability 
for the largest CAT Reporters. Specifically, the largest Equity and 
Options Execution Venues would pay a quarterly CAT Fee of approximately 
$81,000.
    In developing the proposed allocation of CAT costs between Equity 
and Options Execution Venues, the Operating Committee considered 
various different options for such allocation, including keeping the 
original 75%/25% allocation, as well as shifting to a 70%/30%, 67%/33%, 
or 57.75%/42.25% allocation. For each of the alternatives, the 
Operating Committee considered the effect each allocation would have on 
the assignment of various percentages of Equity Execution Venues to 
each tier as well as various percentages of Equity Execution Venue 
recovery allocations for each alternative. Moreover, each of these 
options was considered in the context of the full model, as changes in 
each variable in the model affect other variables in the model when 
allocating the total CAT costs among CAT Reporters. The Operating 
Committee determined that the 67%/33% allocation between Equity and 
Options Execution Venues provided the greatest level of fee 
comparability at the individual entity level for the largest CAT 
Reporters, while still providing for appropriate fee levels across all 
tiers for all CAT Reporters.
(iii) Allocation of Costs Between Execution Venues and Industry Members
    The Operating Committee determined to allocate 25% of CAT costs to 
Execution Venues and 75% to Industry Members (other than Execution 
Venue ATSs), as it had in the Original Proposal. The Operating 
Committee determined that this 75%/25% allocation, along with the other 
changes proposed above, led to the most comparable fees for the largest 
Equity Execution Venues, Options Execution Venues and Industry Members 
(other than Execution Venue ATSs). The largest Equity Execution Venues, 
Options Execution Venues and Industry Members (other than Execution 
Venue ATSs) would each pay a quarterly CAT Fee of approximately 
$81,000.
    As a preliminary matter, the Operating Committee determined that it 
is appropriate to allocate most of the costs to create, implement and 
maintain the CAT to Industry Members for several reasons. First, there 
are many more broker-dealers expected to report to the CAT than 
Participants (i.e., 1,541 broker-dealer CAT Reporters versus 22 
Participants). Second, since most of the costs to process CAT 
reportable data is generated by Industry Members, Industry Members 
could be expected to contribute toward such costs. Finally, as noted by 
the SEC, the CAT ``substantially enhance[s] the ability of the SROs and 
the Commission to oversee today's securities markets,'' \54\ thereby 
benefitting all market participants. After making this determination, 
the Operating Committee analyzed several different cost allocations, as 
discussed further below, and determined that an allocation where 75% of 
the CAT costs should be borne by the Industry Members (other than 
Execution Venue ATSs) and 25% should be paid by Execution Venues was 
most appropriate and led to the greatest comparability of CAT Fees for 
the largest CAT Reporters.
---------------------------------------------------------------------------

    \54\ Securities Exchange Act Rel. No. 67457 (Jul 18, 2012), 77 
FR 45722, 45726 (Aug. 1, 2012) (``Rule 613 Adopting Release'').
---------------------------------------------------------------------------

    In developing the proposed allocation of CAT costs between 
Execution Venues and Industry Members (other than Execution Venue 
ATSs), the Operating Committee considered various different options for 
such allocation, including keeping the original 75%/25% allocation, as 
well as shifting to an 80%/20%, 70%/30%, or 65%/35% allocation. Each of 
these options was considered in the context of the full model, 
including the effect on each of the changes discussed above, as changes 
in each variable in the model affect other variables in the model when 
allocating the total CAT costs among CAT Reporters. In particular, for 
each of the alternatives, the Operating Committee considered the effect 
each allocation had on the assignment of various percentages of Equity 
Execution Venues, Options Execution Venues and Industry Members (other 
than Execution Venue ATSs) to each relevant tier as well as various 
percentages of recovery allocations for each tier. The Operating 
Committee determined that the 75%/25% allocation between Execution 
Venues and Industry Members (other than Execution Venue ATSs) provided 
the greatest level of fee comparability at the individual entity level 
for the largest CAT Reporters, while still providing for appropriate 
fee levels across all tiers for all CAT Reporters.
(iv) Affiliations
    The funding principles set forth in Section 11.2 of the Plan 
require that the fees charged to 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). The proposed funding model satisfies this 
requirement. As discussed

[[Page 1421]]

above, under the proposed funding model, the largest Equity Execution 
Venues, Options Execution Venues, and Industry Members (other than 
Execution Venue ATSs) pay approximately the same fee. Moreover, the 
Operating Committee believes that the proposed funding model takes into 
consideration affiliations between or among CAT Reporters as complexes 
with multiple CAT Reporters will pay the appropriate fee based on the 
proposed fee schedule for each of the CAT Reporters in the complex. For 
example, a complex with a Tier 1 Equity Execution Venue and Tier 2 
Industry Member will a pay the same as another complex with a Tier 1 
Equity Execution Venue and Tier 2 Industry Member.
(v) Fee Schedule Changes
    Accordingly, Amendment No. 4 amends paragraphs (a)(1) and (2) of 
the proposed fee schedule as set forth in the Original Proposal to 
reflect the changes discussed in this section. Specifically, the 
Operating Committee proposes to amend paragraph (a)(1) and (2) of the 
proposed fee schedule to update the number of tiers, and the fees and 
percentages assigned to each tier to reflect the described changes.
(D) Market Share/Message Traffic
    In the Original Proposal, the Operating Committee proposed to 
charge Execution Venues based on market share and Industry Members 
(other than Execution Venue ATSs) based on message traffic. Commenters 
questioned the use of the two different metrics for calculating CAT 
Fees.\55\ The Operating Committee continues to believe that the 
proposed use of market share and message traffic satisfies the 
requirements of the Exchange Act and the funding principles set forth 
in the CAT NMS Plan. Accordingly, the proposed funding model continues 
to charge Execution Venues based on market share and Industry Members 
(other than Execution Venue ATSs) based on message traffic.
---------------------------------------------------------------------------

    \55\ Abrogation Order at 35011; FIA Principal Traders Group 
Letter at 2.
---------------------------------------------------------------------------

    In drafting the Plan and the Original Proposal, the Operating 
Committee expressed the view that the correlation between message 
traffic and size does not apply to Execution Venues, which they 
described as producing similar amounts of message traffic regardless of 
size. The Operating Committee believed that charging Execution Venues 
based on message traffic would result in both large and small Execution 
Venues paying comparable fees, which would be inequitable, so the 
Operating Committee determined that it would be more appropriate to 
treat Execution Venues differently from Industry Members in the funding 
model. Upon a more detailed analysis of available data, however, the 
Operating Committee noted that Execution Venues have varying levels of 
message traffic. Nevertheless, the Operating Committee continues to 
believe that a bifurcated funding model--where Industry Members (other 
than Execution Venue ATSs) are charged fees based on message traffic 
and Execution Venues are charged based on market share--complies with 
the Plan and meets the standards of the Exchange Act for the reasons 
set forth below.
    Charging Industry Members based on message traffic is the most 
equitable means for establishing fees for Industry Members (other than 
Execution Venue ATSs). This approach will assess fees to Industry 
Members that create larger volumes of message traffic that are 
relatively higher than those fees charged to Industry Members that 
create smaller volumes of message traffic. Since message traffic, along 
with fixed costs of the Plan Processor, is a key component of the costs 
of operating the CAT, message traffic is an appropriate criterion for 
placing Industry Members in a particular fee tier.
    The Operating Committee also believes that it is appropriate to 
charge Execution Venues CAT Fees based on their market share. In 
contrast to Industry Members (other than Execution Venue ATSs), which 
determine the degree to which they produce the message traffic that 
constitutes CAT Reportable Events, the CAT Reportable Events of 
Execution Venues are largely derivative of quotations and orders 
received from Industry Members that the Execution Venues are required 
to display. The business model for Execution Venues, however, is 
focused on executions in their markets. As a result, the Operating 
Committee believes that it is more equitable to charge Execution Venues 
based on their market share rather than their message traffic.
    Similarly, focusing on message traffic would make it more difficult 
to draw distinctions between large and small exchanges, including 
options exchanges in particular. For instance, the Operating Committee 
analyzed the message traffic of Execution Venues and Industry Members 
for the period of April 2017 to June 2017 and placed all CAT Reporters 
into a nine-tier framework (i.e., a single tier may include both 
Execution Venues and Industry Members). The Operating Committee's 
analysis found that the majority of exchanges (15 total) were grouped 
in Tiers 1 and 2. Moreover, virtually all of the options exchanges were 
in Tiers 1 and 2.\56\ Given the concentration of options exchanges in 
Tiers 1 and 2, the Operating Committee believes that using a funding 
model based purely on message traffic would make it more difficult to 
distinguish between large and small options exchanges, as compared to 
the proposed bifurcated fee approach.
---------------------------------------------------------------------------

    \56\ The Participants note that this analysis did not place MIAX 
PEARL in Tier 1 or Tier 2 since the exchange commenced trading on 
February 6, 2017.
---------------------------------------------------------------------------

    In addition, the Operating Committee also believes that it is 
appropriate to treat ATSs as Execution Venues under the proposed 
funding model since ATSs have business models that are similar to those 
of exchanges, and ATSs also compete with exchanges. For these reasons, 
the Operating Committee believes that charging Execution Venues based 
on market share is more appropriate and equitable than charging 
Execution Venues based on message traffic.
(E) Time Limit
    In the Original Proposal, the Operating Committee did not impose 
any time limit on the application of the proposed CAT Fees. As 
discussed above, the Operating Committee developed the proposed funding 
model by analyzing currently available historical data. Such historical 
data, however, is not as comprehensive as data that will be submitted 
to the CAT. Accordingly, the Operating Committee believes that it will 
be appropriate to revisit the funding model once CAT Reporters have 
actual experience with the funding model. Accordingly, the Operating 
Committee proposes to include a sunsetting provision in the proposed 
fee model. The proposed CAT Fees will sunset two years after the 
operative date for the CAT Fees. Such a provision will provide the 
Operating Committee and other market participants with the opportunity 
to reevaluate the performance of the proposed funding model.
(F) Tier Structure/Decreasing Cost per Unit
    In the Original Proposal, the Operating Committee determined to use 
a tiered fee structure. The Commission and commenters questioned 
whether the decreasing cost per additional unit (of message traffic in 
the case of Industry Members, or of share volume in the case of 
Execution Venues) in the proposed fee schedules burdens competition by 
disadvantaging small

[[Page 1422]]

Industry Members and Execution Venues and/or by creating barriers to 
entry in the market for trading services and/or the market for broker-
dealer services.\57\
---------------------------------------------------------------------------

    \57\ Suspension Order at 31667.
---------------------------------------------------------------------------

    The Operating Committee does not believe that decreasing cost per 
additional unit in the proposed fee schedules places an unfair 
competitive burden on Small Industry Members and Execution Venues. 
While the cost per unit of message traffic or share volume necessarily 
will decrease as volume increases in any tiered fee model using fixed 
fee percentages and, as a result, Small Industry Members and small 
Execution Venues may pay a larger fee per message or share, this 
comment fails to take account of the substantial differences in the 
absolute fees paid by Small Industry Members and small Execution Venues 
as opposed to large Industry Members and large Execution Venues. For 
example, under the fee proposals, Tier 7 Industry Members would pay a 
quarterly fee of $105, while Tier 1 Industry Members would pay a 
quarterly fee of $81,483. Similarly, a Tier 4 Equity Execution Venue 
would pay a quarterly fee of $129, while a Tier 1 Equity Execution 
Venue would pay a quarterly fee of $81,048. Thus, Small Industry 
Members and small Execution Venues are not disadvantaged in terms of 
the total fees that they actually pay. In contrast to a tiered model 
using fixed fee percentages, the Operating Committee believes that 
strictly variable or metered funding models based on message traffic or 
share volume would be more likely to affect market behavior and may 
present administrative challenges (e.g., the costs to calculate and 
monitor fees may exceed the fees charged to the smallest CAT 
Reporters).
(G) Other Alternatives Considered
    In addition to the various funding model alternatives discussed 
above regarding discounts, number of tiers and allocation percentages, 
the Operating Committee also discussed other possible funding models. 
For example, the Operating Committee considered allocating the total 
CAT costs equally among each of the Participants, and then permitting 
each Participant to charge its own members as it deems appropriate.\58\ 
The Operating Committee determined that such an approach raised a 
variety of issues, including the likely inconsistency of the ensuing 
charges, potential for lack of transparency, and the impracticality of 
multiple SROs submitting invoices for CAT charges. The Operating 
Committee therefore determined that the proposed funding model was 
preferable to this alternative.
---------------------------------------------------------------------------

    \58\ See FIA Principal Traders Group Letter at 2; Belvedere 
Letter at 4[sic].
---------------------------------------------------------------------------

(H) Industry Member Input
    Commenters expressed concern regarding the level of Industry Member 
input into the development of the proposed funding model, and certain 
commenters have recommended a greater role in the governance of the 
CAT.\59\ The Participants previously addressed this concern in its 
letters responding to comments on the Plan and the CAT Fees.\60\ As 
discussed in those letters, the Participants discussed the funding 
model with the Development Advisory Group (``DAG''), the advisory group 
formed to assist in the development of the Plan, during its original 
development.\61\ Moreover, Industry Members currently have a voice in 
the affairs of the Operating Committee and operation of the CAT 
generally through the Advisory Committee established pursuant to Rule 
613(b)(7) and Section 4.13 of the Plan. The Advisory Committee attends 
all meetings of the Operating Committee, as well as meetings of various 
subcommittees and working groups, and provides valuable and critical 
input for the Participants' and Operating Committee's consideration. 
The Operating Committee continues to believe that that Industry Members 
have an appropriate voice regarding the funding of the Company.
---------------------------------------------------------------------------

    \59\ See Abrogation Order at 35010; MFA Letter at 1-2.
    \60\ Letter from Participants to Brent J. Fields, Secretary, SEC 
(Sept. 23, 2016) (``Plan Response Letter''); Letter from CAT NMS 
Plan Participants to Brent J. Fields, Secretary, SEC (June 29, 2017) 
(``Fee Rule Response Letter'').
    \61\ Fee Rule Response Letter at 2; Plan Response Letter at 18.
---------------------------------------------------------------------------

(I) Conflicts of Interest
    Commenters also raised concerns regarding Participant conflicts of 
interest in setting the CAT Fees.\62\ The Participants previously 
responded to this concern in both the Plan Response Letter and the Fee 
Rule Response Letter.\63\ As discussed in those letters, the Plan, as 
approved by the SEC, adopts various measures to protect against the 
potential conflicts issues raised by the Participants' fee-setting 
authority. Such measures include the operation of the Company as a not 
for profit business league and on a break-even basis, and the 
requirement that the Participants file all CAT Fees under Section 19(b) 
of the Exchange Act. The Operating Committee continues to believe that 
these measures adequately protect against concerns regarding conflicts 
of interest in setting fees, and that additional measures, such as an 
independent third party to evaluate an appropriate CAT Fee, are 
unnecessary.
---------------------------------------------------------------------------

    \62\ See Abrogation Order at 35010; FIA Principal Traders Group 
at 3.
    \63\ See Plan Response Letter at 16, 17; Fee Rule Response 
Letter at 10-12.
---------------------------------------------------------------------------

(J) Fee Transparency
    Commenters also argued that they could not adequately assess 
whether the CAT Fees were fair and equitable because the Operating 
Committee has not provided details as to what the Participants are 
receiving in return for the CAT Fees.\64\ The Operating Committee 
provided a detailed discussion of the proposed funding model in the 
Plan, including the expenses to be covered by the CAT Fees. In 
addition, the agreement between the Company and the Plan Processor sets 
forth a comprehensive set of services to be provided to the Company 
with regard to the CAT. Such services include, without limitation: User 
support services (e.g., a help desk); tools to allow each CAT Reporter 
to monitor and correct their submissions; a comprehensive compliance 
program to monitor CAT Reporters' adherence to Rule 613; publication of 
detailed Technical Specifications for Industry Members and 
Participants; performing data linkage functions; creating comprehensive 
data security and confidentiality safeguards; creating query 
functionality for regulatory users (i.e., the Participants, and the SEC 
and SEC staff); and performing billing and collection functions. The 
Operating Committee further notes that the services provided by the 
Plan Processor and the costs related thereto were subject to a bidding 
process.
---------------------------------------------------------------------------

    \64\ See FIA Principal Traders Group at 3; SIFMA Letter at 3.
---------------------------------------------------------------------------

(K) Funding Authority
    Commenters also questioned the authority of the Operating Committee 
to impose CAT Fees on Industry Members.\65\ The Participants previously 
responded to this same comment in the Plan Response Letter and the Fee 
Rule Response Letter.\66\ As the Participants previously noted, SEC 
Rule 613 specifically contemplates broker-dealers contributing to the 
funding of the CAT. In addition, as noted by the SEC, the CAT 
``substantially enhance[s] the ability of the SROs and the Commission 
to oversee today's securities markets,'' \67\

[[Page 1423]]

thereby benefitting all market participants. Therefore, the Operating 
Committing continues to believe that it is equitable for both 
Participants and Industry Members to contribute to funding the cost of 
the CAT.
---------------------------------------------------------------------------

    \65\ See Abrogation Order at 35009-10; SIFMA Letter at 2.
    \66\ See Plan Response Letter at 9-10; Fee Rule Response Letter 
at 3-4.
    \67\ Rule 613 Adopting Release at 45726.
---------------------------------------------------------------------------

B. Governing or Constituent Documents
    Not applicable.
C. Implementation of Amendment
    The terms of the proposed amendment will become effective upon 
filing pursuant to Rule 608(b)(3)(i) of the Exchange Act because it 
establishes a fee or other charge collected on behalf of all of the 
Participants in connection with access to, or use of, any facility 
contemplated by the plan (including changes in any provision with 
respect to distribution of any net proceeds from such fees or other 
charges to the sponsors and/or participants).\68\ At any time within 
sixty days of the filing of this amendment, the Commission may 
summarily abrogate the amendment and require that it be refiled 
pursuant to paragraph (b)(1) [sic] of Rule 608, if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors or the maintenance of fair 
and orderly markets, to remove impediments to, and perfect the 
mechanisms of, a national market system or otherwise in furtherance of 
the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \68\ 17 CFR 242.608(b)(3)(i).
---------------------------------------------------------------------------

D. Development and Implementation Phases
    Not applicable.
E. Analysis of Impact on Competition
    The Operating Committee does not believe that the proposed 
amendment will result in any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. The Operating Committee notes that the proposed amendment 
implements provisions of the CAT NMS Plan approved by the Commission, 
and is designed to assist the Participants in meeting their regulatory 
obligations pursuant to the Plan. Because all national securities 
exchanges and FINRA are subject to the proposed CAT Fees set forth in 
the proposed amendment, this is not a competitive filing that raises 
competition issues between and among the exchanges and FINRA.
    Moreover, as previously described, the Operating Committee believes 
that the proposed fee schedule 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/or market share to the CAT 
Reporter's size, smaller CAT Reporters generally pay less than larger 
CAT Reporters. Accordingly, the Operating Committee 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, the Operating Committee does not 
believe that the fees will impose any burden on the competition between 
ATSs and exchanges. Accordingly, the Operating Committee 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.
    In addition, the Operating Committee believes that the proposed 
changes to the Original Proposal, as discussed above in detail, address 
certain competitive concerns raised by commenters, including concerns 
related to, among other things, smaller ATSs, ATSs trading OTC Equity 
Securities, market making quoting and fee comparability. As discussed 
above, the Operating Committee believes that the proposals address the 
competitive concerns raised by commenters.
F. Written Understanding or Agreements Relating to Interpretation of, 
or Participation in, Plan.
    Not applicable.
G. Approval by Plan Sponsors in Accordance With Plan
    Section 12.3 of the Plan states that, subject to certain 
exceptions, the Plan may be amended from time to time only by a written 
amendment, authorized by the affirmative vote of not less than two-
thirds of all of the Participants, that has been approved by the SEC 
pursuant to Rule 608 or has otherwise become effective under Rule 608. 
In addition, Section 4.3(a)(vi) of the Plan requires the Operating 
Committee, by Majority Vote, to authorize action to determine the 
appropriate funding-related policies, procedures and practices-
consistent with Article XI. The Operating Committee has satisfied both 
of these requirements.
H. Description of Operation of Facility Contemplated by the Proposed 
Amendment
    Not applicable.
I. Terms and Conditions of Access
    Not applicable.
J. Method of Determination and Imposition, and Amount of, Fees and 
Charges
    Section A of this letter describes in detail how the Operating 
Committee developed the proposed CAT Fees, including a detailed 
discussion of the proposed funding model for the CAT.
K. Method and Frequency of Processor Evaluation
    Not applicable.
L. Dispute Resolution
    Section 11.5 of the CAT NMS Plan addresses the resolution of 
disputes regarding Participants' CAT Fees charged to Participants and 
Industry Members. Specifically, Section 11.5 states that disputes with 
respect to fees the Company charges Participants pursuant to Article XI 
of the CAT NMS Plan shall be determined by the Operating Committee or a 
Subcommittee designated by the Operating Committee. Decisions by the 
Operating Committee or such designated Subcommittee on such matters 
shall be binding on Participants, without prejudice to the rights of 
any Participant to seek redress from the SEC pursuant to Rule 608 or in 
any other appropriate forum. In addition, the Participants adopted 
rules to establish the procedures for resolving potential disputes 
related to CAT Fees charged to Industry Members.\69\
---------------------------------------------------------------------------

    \69\ See Securities Exchange Act Rel. No. 81500 (Aug. 30, 2017), 
82 FR 42143 (Sept. 6, 2017).
---------------------------------------------------------------------------

III. 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. In particular, the Commission seeks 
comment on the following:

[[Page 1424]]

Allocation of Costs

    (1) Commenters' views as to whether the allocation of CAT costs is 
consistent with the funding principle expressed in the CAT NMS Plan 
that requires the Operating Committee to ``avoid any disincentives such 
as placing an inappropriate burden on competition and a reduction in 
market quality.'' \70\
---------------------------------------------------------------------------

    \70\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

    (2) Commenters' views as to whether the allocation of 25% of CAT 
costs to the Execution Venues (including all the Participants) and 75% 
to Industry Members, will incentivize or disincentivize the 
Participants to effectively and efficiently manage the CAT costs 
incurred by the Participants since they will only bear 25% of such 
costs.
    (3) Commenters' views on the determination to allocate 75% of all 
costs incurred by the Participants from November 21, 2016 to November 
21, 2017 to Industry Members (other than Execution Venue ATSs), when 
such costs are development and build costs and when Industry Member 
reporting is scheduled to commence a year later, including views on 
whether such ``fees, costs and expenses . . . [are] fairly and 
reasonably shared among the Participants and Industry Members'' in 
accordance with the CAT NMS Plan.\71\
---------------------------------------------------------------------------

    \71\ Section 11.1(c) of the CAT NMS Plan.
---------------------------------------------------------------------------

    (4) Commenters' views on whether an analysis of the ratio of the 
expected Industry Member-reported CAT messages to the expected SRO-
reported CAT messages should be the basis for determining the 
allocation of costs between Industry Members and Execution Venues.\72\
---------------------------------------------------------------------------

    \72\ The Notice for the CAT NMS Plan did not provide a 
comprehensive count of audit trail message traffic from different 
regulatory data sources, but the Commission did estimate the ratio 
of all SRO audit trail messages to OATS audit trail messages to be 
1.9431. See Securities Exchange Act Release No. 77724 (April 27, 
2016), 81 FR 30613, 30721 n.919 and accompanying text (May 17, 
2016).
---------------------------------------------------------------------------

    (5) Any additional data analysis on the allocation of CAT costs, 
including any existing supporting evidence.

Comparability

    (6) Commenters' views on the shift in the standard used to assess 
the comparability of CAT Fees, with the emphasis now on comparability 
of individual entities instead of affiliated entities, including views 
as to whether this shift is consistent with the funding principle 
expressed in the CAT NMS Plan that requires the Operating Committee to 
establish a fee structure in which the fees charged to ``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).'' \73\
---------------------------------------------------------------------------

    \73\ Section 11.2(c) of the CAT NMS Plan.
---------------------------------------------------------------------------

    (7) Commenters' views as to whether the reduction in the number of 
tiers for Industry Members (other than Execution Venue ATSs) from nine 
to seven, the revised allocation of CAT costs between Equity Execution 
Venues and Options Execution Venues from a 75%/25% split to a 67%/33% 
split, and the adjustment of all tier percentages and recovery 
allocations achieves comparability across individual entities, and 
whether these changes should have resulted in a change to the 
allocation of 75% of total CAT costs to Industry Members (other than 
Execution Venue ATSs) and 25% of such costs to Execution Venues.

Discounts

    (8) Commenters' views as to whether the discounts for options 
market-makers, equities market-makers, and Equity ATSs trading OTC 
Equity Securities are clear, reasonable, and consistent with the 
funding principle expressed in the CAT NMS Plan that requires the 
Operating Committee to ``avoid any disincentives such as placing an 
inappropriate burden on competition and a reduction in market 
quality,'' \74\ including views as to whether the discounts for market-
makers limit any potential disincentives to act as a market-maker and/
or to provide liquidity due to CAT fees.
---------------------------------------------------------------------------

    \74\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

Calculation of Costs and Imposition of CAT Fees

    (9) Commenters' views as to whether the amendment provides 
sufficient information regarding the amount of costs incurred from 
November 21, 2016 to November 21, 2017, particularly, how those costs 
were calculated, how those costs relate to the proposed CAT Fees, and 
how costs incurred after November 21, 2017 will be assessed upon 
Industry Members and Execution Venues;
    (10) Commenters' views as to whether the timing of the imposition 
and collection of CAT Fees on Execution Venues and Industry Members is 
reasonably related to the timing of when the Company expects to incur 
such development and implementation costs.\75\
---------------------------------------------------------------------------

    \75\ Section 11.1(c) of the CAT NMS Plan.
---------------------------------------------------------------------------

    (11) Commenters' views on dividing CAT costs equally among each of 
the Participants, and then each Participant charging its own members as 
it deems appropriate, taking into consideration the possibility of 
inconsistency in charges, the potential for lack of transparency, and 
the impracticality of multiple SROs submitting invoices for CAT 
charges.

Burden on Competition and Barriers to Entry

    (12) Commenters' views as to whether the allocation of 75% of CAT 
costs to Industry Members (other than Execution Venue ATSs) imposes any 
burdens on competition to Industry Members, including views on what 
baseline competitive landscape the Commission should consider when 
analyzing the proposed allocation of CAT costs.
    (13) Commenters' views on the burdens on competition, including the 
relevant markets and services and the impact of such burdens on the 
baseline competitive landscape in those relevant markets and services.
    (14) Commenters' views on any potential burdens imposed by the fees 
on competition between and among CAT Reporters, including views on 
which baseline markets and services the fees could have competitive 
effects on and whether the fees are designed to minimize such effects.
    (15) Commenters' general views on the impact of the proposed fees 
on economies of scale and barriers to entry.
    (16) Commenters' views on the baseline economies of scale and 
barriers to entry for Industry Members and Execution Venues and the 
relevant markets and services over which these economies of scale and 
barriers to entry exist.
    (17) Commenters' views as to whether a tiered fee structure 
necessarily results in less active tiers paying more per unit than 
those in more active tiers, thus creating economies of scale, with 
supporting information if possible.
    (18) Commenters' views as to how the level of the fees for the 
least active tiers would or would not affect barriers to entry.
    (19) Commenters' views on whether the difference between the cost 
per unit (messages or market share) in less active tiers compared to 
the cost per unit in more active tiers creates regulatory economies of 
scale that favor larger competitors and, if so:
    (a) How those economies of scale compare to operational economies 
of scale; and
    (b) Whether those economies of scale reduce or increase the current 
advantages enjoyed by larger competitors or otherwise alter the 
competitive landscape.

[[Page 1425]]

    (20) Commenters' views on whether the fees could affect competition 
between and among national securities exchanges and FINRA, in light of 
the fact that implementation of the fees does not require the unanimous 
consent of all such entities, and, specifically:
    (a) Whether any of the national securities exchanges or FINRA are 
disadvantaged by the fees; and
    (b) If so, whether any such disadvantages would be of a magnitude 
that would alter the competitive landscape.
    (21) Commenters' views on any potential burden imposed by the fees 
on competitive quoting and other liquidity provision in the market, 
including, specifically:
    (a) Commenters' views on the kinds of disincentives that discourage 
liquidity provision and/or disincentives that the Commission should 
consider in its analysis;
    (b) Commenters' views as to whether the fees could disincentivize 
the provision of liquidity; and
    (c) Commenters' views as to whether the fees limit any 
disincentives to provide liquidity.
    (22) Commenters' views as to whether the amendment adequately 
responds to and/or addresses comments received on related filings.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number 4-698 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.
    A. All submissions should refer to File Number 4-698.This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed plan amendment that are filed 
with the Commission, and all written communications relating to the 
amendment 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 website viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the Participants' offices. All comments received will be 
posted without change. Persons submitting comments are cautioned that 
we do not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number 4-698 
and should be submitted on or before February 1, 2018.

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
BILLING CODE 8011-01-P

[[Page 1426]]

[GRAPHIC] [TIFF OMITTED] TN11JA18.004


[[Page 1427]]


[GRAPHIC] [TIFF OMITTED] TN11JA18.005

BILLING CODE 8011-01-C

Appendix B



                                      Equity Execution Venue Rank and Tier
----------------------------------------------------------------------------------------------------------------
                                                               Market share  of
                     Market participant                        share volume \76\       Rank            Tier
                                                                      (%)
----------------------------------------------------------------------------------------------------------------
Financial Industry Regulatory Authority, Inc................    24.4118512850143               1               1
The NASDAQ Stock Market LLC.................................    14.3221316394514               2               1
New York Stock Exchange LLC.................................    13.1631222177691               3               1
NYSE Arca, Inc..............................................     9.3963074291365               4               1
Cboe EDGX Exchange, Inc.....................................     6.3267638314653               5               1
Cboe BZX Exchange, Inc......................................     6.1478229789347               6               1
Cboe BYX Exchange, Inc......................................     4.7643781647716               7               1
NASDAQ BX, Inc..............................................     3.1401372815484               8               1
UBS ATS.....................................................     2.3058693548856               9               1
Investors' Exchange, LLC....................................     2.1483648334229              10               1
Cboe EDGA Exchange, Inc.....................................     1.8513467967001              11               1
CROSSFINDER.................................................     1.6894565311740              12               1
SUPERX......................................................     1.0115687555972              13               1
MS POOL (ATS-4).............................................     0.9188826526803              14               2
NASDAQ PHLX LLC.............................................     0.8009596014408              15               2
J.P. MORGAN ATS (``JPM-X'').................................     0.7936361365369              16               2
BARCLAYS ATS (``LX'').......................................     0.6719255553783              17               2
LEVEL ATS...................................................     0.6571986459767              18               2
INSTINCT X..................................................     0.5956036029620              19               2
BIDS TRADING L.P............................................     0.5837401323782              20               2
INSTINET CONTINUOUS BLOCK CROSSING SYSTEM (CBX).............     0.4723979596673              21               2
KCG MATCHING................................................     0.4682553983691              22               2
POSIT.......................................................     0.4435281677014              23               2
Chicago Stock Exchange, Inc.................................     0.4241409043731              24               2
SIGMA X.....................................................     0.3157563290949              25               2
MS TRAJECTORY CROSS (ATS-1).................................     0.2654339378079              26               2
NYSE American LLC...........................................     0.2342627717196              27               2
IBKR ATS....................................................     0.2038196304470              28               2
CROSSSTREAM.................................................     0.1772292674940              29               2
SIGMA X2....................................................     0.1705392273292              30               2
LIQUIDNET ATS...............................................     0.1499973113804              31               2
MILLENNIUM..................................................     0.1365496066290              32               2
CITICROSS...................................................     0.1349428742591              33               2
LIQUIDNET H20 ATS...........................................     0.1282036311445              34               2
DEALERWEB, INC..............................................     0.1156677493258              35               2
OTC LINK ATS \77\...........................................     0.1148240026713              36               3
BLOCKCROSS ATS..............................................     0.0979883294279              37               3
INSTINET CROSSING...........................................     0.0763929064441              38               3
CODA MARKETS, INC...........................................     0.0662166896390              39               3
LUMINEX TRADING & ANALYTICS LLC.............................     0.0304261486817              40               3
MS RETAIL POOL..............................................     0.0295389976553              41               3
CITIBLOC....................................................     0.0251235534421              42               3
USTOCKTRADE SECURITIES, INC.................................     0.0089509616229              43               3
AQUA SECURITIES L.P.........................................     0.0052275918715              44               3
XE..........................................................     0.0031219820548              45               3

[[Page 1428]]

 
GLOBAL OTC..................................................     0.0002467471213              46               3
BARCLAYS DIRECTEX...........................................     0.0001494994467              47               3
VARIABLE INVESTMENT ADVISORS, INC. ATS (VIAATS).............     0.0000002922675              48               4
FNC AG STOCK, LLC...........................................     0.0000000607782              49               4
DBOT ATS, LLC...............................................     0.0000000429086              50               4
PRO SECURITIES ATS..........................................     0.0000000000004              51               4
NYSE National, Inc..........................................     0.0000000000000              52               4
----------------------------------------------------------------------------------------------------------------


                                      Options Execution Venue Rank and Tier
----------------------------------------------------------------------------------------------------------------
                                                                Market share of
                                                                 share volume
                     Market participant                            (options            Rank            Tier
                                                                contracts) \78\
                                                                      (%)
----------------------------------------------------------------------------------------------------------------
Cboe Exchange, Inc..........................................               17.30               1               1
NASDAQ PHLX LLC.............................................               16.89               2               1
Cboe BZX Options Exchange, Inc..............................               12.36               3               1
The NASDAQ Options Market LLC...............................               10.01               4               1
Nasdaq ISE, LLC.............................................                9.06               5               1
NYSE Arca, Inc..............................................                7.74               6               1
NYSE American LLC...........................................                7.60               7               1
Miami International Securities Exchange, LLC................                5.07               8               1
Nasdaq GEMX, LLC............................................                5.04               9               1
Cboe C2 Exchange, Inc.......................................                3.79              10               1
BOX Options Exchange LLC....................................                2.30              11               1
Cboe EDGX Options Exchange, Inc.............................                1.40              12               2
NASDAQ BX, Inc..............................................                0.70              13               2
MIAX PEARL, LLC.............................................                0.61              14               2
Nasdaq MRX, LLC.............................................                0.13              15               2
----------------------------------------------------------------------------------------------------------------

[FR Doc. 2018-00314 Filed 1-10-18; 8:45 am]
 BILLING CODE 8011-01-P

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