Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt a Fee Schedule To Establish Fees for Industry Members Related to the National Market System Plan Governing the Consolidated Audit Trail, 24921-24931 [2021-09779]
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Federal Register / Vol. 86, No. 88 / Monday, May 10, 2021 / Notices
determined that the proposed fees do
not impose an unnecessary or
inappropriate burden on competition as
they fairly and equitably allocate costs
among CAT Reporters.55 The Operating
Committee determined that the cost
allocation between Participants and
Industry Members recognizes the greater
number of Industry Members as
compared to the Participants and the
greater collective revenue of Industry
Members as compared to Participants.
In addition, cost allocations among
Industry Members based on message
traffic fairly and equitably distribute
CAT costs. Furthermore, the market
maker discounts and the Maximum
Industry Member CAT Fee address the
potential for burdens on market makers
and Industry Members with outsized
message traffic potentially resulting
from the proposed fee calculations.
Moreover, the Operating Committee
determined that the Minimum Industry
Member CAT Fee would not act as a
barrier to entry for smaller Industry
Member CAT Reporters.
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–91752; File No. SR–
NASDAQ–2021–029]
• 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 SR–
C2–2021–008 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
IV. Solicitation of Comments
All submissions should refer to File
Number SR–C2–2021–008. 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 rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for 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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
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 SR–C2–2021–008 and should
be submitted on or before June 1, 2021.
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.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.58
J. Matthew DeLesDernier,
Assistant Secretary.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 56 and paragraph (f) of Rule
19b–4 57 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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Comments may be submitted by any of
the following methods:
55 See
Proposed CAT Fee Plan Amendment at 78–
79.
U.S.C. 78s(b)(3)(A).
57 17 CFR 240.19b–4(f).
[FR Doc. 2021–09785 Filed 5–7–21; 8:45 am]
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24921
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt a Fee
Schedule To Establish Fees for
Industry Members Related to the
National Market System Plan
Governing the Consolidated Audit Trail
May 4, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 21,
2021, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt a fee
schedule to establish fees for Industry
Members related to the National Market
System Plan Governing the
Consolidated Audit Trail (the ‘‘CAT
NMS Plan’’ or ‘‘Plan’’).3
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Unless otherwise specified, capitalized terms
used in this rule filing are defined as set forth in
Rule General 7 (Consolidated Audit Trail
Compliance).
2 17
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Federal Register / Vol. 86, No. 88 / Monday, May 10, 2021 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Under the CAT NMS Plan, the
Operating Committee of the
Consolidated Audit Trail, LLC
(‘‘Company’’) (‘‘Operating Committee’’)
has discretion to establish funding for
the Company to operate the CAT,
including establishing fees that the
Participants will pay, and establishing
fees for Industry Members that will be
implemented by the Participants.4 The
Operating Committee has filed with the
SEC a proposal to amend the CAT NMS
Plan to implement a revised funding
model for the CAT (‘‘CAT Funding
Model’’) and to establish a fee schedule
for Participant CAT fees (‘‘Proposed
CAT Fee Plan Amendment’’).5 The
Proposed CAT Fee Plan Amendment
describes the CAT Funding Model in
detail, including the proposal to charge
Industry Members CAT fees. The
Participants are required to file with the
SEC under Section 19(b) of the
Exchange Act any CAT fees applicable
to Industry Members that the Operating
Committee approves.6 Accordingly, the
purpose of this proposed rule change is
to implement the required fee schedule
provisions for CAT fees applicable to
Industry Members that are Nasdaq
members in accordance with the CAT
Funding Model. The fee schedule
provisions will become operative upon
the SEC’s approval of the Proposed CAT
Fee Plan Amendment.
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(1) CAT Funding Model
Under the CAT Funding Model set
out in the Proposed CAT Fee Plan
Amendment, the CAT fees applicable to
Participants and Industry Members for
the relevant quarter would be designed
to cover the total CAT costs associated
with developing, implementing and
operating the CAT for the relevant
quarter (‘‘Total CAT Costs’’).7 The CAT
Funding Model would implement a
bifurcated funding model, where these
costs would be borne by both
Participants and Industry Members.
Industry Members as a group would pay
75% of the Total CAT Costs (the
‘‘Industry Member Allocation’’), and
Participants as a group would pay 25%
4 Section
11.1(b) of the CAT NMS Plan.
5 See Securities Exchange Act Release No. 91555
(April 14, 2017), 86 FR 21050 (April 21, 2021)
(‘‘Proposed CAT Fee Plan Amendment’’).
6 Section 11.1(b) of the CAT NMS Plan.
7 Note that certain costs would be excluded from
the Historical CAT Assessment Costs, as discussed
in more detail below. See Proposed CAT Fee Plan
Amendment at 21051 [sic], 21074 [sic].
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of the Total CAT Costs (the ‘‘Participant
Allocation’’).8
Under the CAT Funding Model set
out in the Proposed CAT Fee Plan
Amendment, each Industry Member
will pay a CAT fee that is calculated by
multiplying each Industry Member’s
message traffic percentage of the total
message traffic of all Industry Members
during the relevant time period by the
Industry Member Allocation, subject to
certain market maker message traffic
discounts, a Minimum Industry Member
CAT Fee and a Maximum Industry
Member CAT Fee. Each Industry
Member that is an Options Market
Maker will have a discount based on the
options trade-to-quote ratio applied to
its Options Market Maker message
traffic when calculating that Industry
Member’s message traffic, and each
Industry Member that is an Equity
Market Maker will have a discount
based on the NMS Stock trade-to-quote
ratio applied to its Equity Market Maker
message traffic when calculating that
Industry Member’s message traffic. In
addition, each Industry Member will
pay a Minimum Industry Member CAT
Fee of $125 per quarter if its CAT fee
would be less than $125 per quarter
when calculated based on message
traffic. Furthermore, an Industry
Member’s CAT fee would be subject to
the Maximum Industry Member CAT
Fee. The Maximum Industry Member
CAT Fee would be the fee calculated
based on 8% of the total message traffic
for all Industry Members. If an Industry
Member is subject to the Maximum
Industry Member CAT Fee, any excess
amount which the Industry Member
would have paid as a fee above such
Maximum Industry Member CAT Fee
will be re-allocated among all Industry
Members (including any Industry
Members subject to the Maximum
Industry Member CAT Fee and any
Industry Members subject to the
Minimum Industry Member CAT Fee) in
accordance with each Industry
Member’s percentage of total message
traffic. Each of these aspects of the
Industry Member CAT fee are discussed
in more detail below.
(A) CAT Fees for Both Industry
Members and Participants
Under the CAT Funding Model, both
Participants and Industry Members
would contribute to the funding of the
CAT by paying a CAT fee.9 As permitted
by Rule 613, the CAT NMS Plan
requires Industry Members to pay a CAT
fee. Rule 613(a)(1)(vii)(D) contemplates
Industry Members contributing to the
payment of CAT costs. Specifically, this
provision requires the CAT NMS Plan to
address ‘‘[h]ow the plan sponsors
propose to fund the creation,
implementation, and maintenance of the
consolidated audit trail, including the
proposed allocation of such estimated
costs among the plan sponsors, and
between the plan sponsors and members
of the plan sponsors.’’
In addition, as approved by the SEC,
the CAT NMS Plan specifically
contemplates CAT fees to be paid by
both Industry Members and
Participants. Section 11.1(b) states that
‘‘the Operating Committee shall have
discretion to establish funding for the
Company, including: (i) Establishing
fees that the Participants shall pay; and
(ii) establishing fees for Industry
Members that shall be implemented by
the Participants.’’ 10 The Commission
stated in approving the CAT NMS Plan
the following:
The Commission believes that the
proposed funding model reflects a reasonable
exercise of the Participants’ funding
authority to recover the Participants’ costs
related to the CAT. The CAT is a regulatory
facility jointly owned by the Participants
and, as noted above, 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
In its recent amendments to the CAT
NMS Plan, the SEC reaffirmed the
ability for the Participants to charge
Industry Members a CAT fee.
Specifically, the SEC noted that the
amendments were not intended to
change the basic funding structure for
the CAT, which may include fees
established by the Operating Committee,
and implemented by the Participants, to
recover from Industry Members the
costs and expenses incurred by the
Participants in connection with the
9 Proposed
8 Each
Industry Member and Participant CAT
Reporter would be required to pay CAT fees
established via the CAT Funding Model. CAT
Reporting Agents acting in their role as such would
not have an obligation to pay CAT fees. See
Proposed CAT Fee Plan Amendment at 21051 [sic].
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CAT Fee Plan Amendment at 21054–
55.
10 See
also Sections 11.1(c), 11.2(c), and 11.3(a)
and (b) of the CAT NMS Plan.
11 Securities Exchange Act Rel. No. 79318 (Nov.
15, 2016), 81 FR 84696, 84794 (Nov. 23, 2016)
(‘‘CAT NMS Plan Approval Order’’).
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Federal Register / Vol. 86, No. 88 / Monday, May 10, 2021 / Notices
development and implementation of the
CAT.12
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,’’ 13
thereby benefitting all market
participants. As such, both Participants
and Industry Members should
contribute to covering the cost of the
CAT.
(B) 75%/25% Allocation Between
Industry Members and Participants
The CAT NMS Plan as approved by
the Commission provides the Operating
Committee with discretion to establish
CAT fees to be paid by Participants and
Industry Members. The CAT Funding
Model as set out in the Proposed CAT
Fee Plan Amendment contemplates
allocating CAT costs between
Participants and Industry Members to
permit the calculation of CAT fees based
on market share for Participants and
based on message traffic for Industry
Members.14 Under the CAT Funding
Model as proposed, Industry Members
as a group would pay 75% of the Total
CAT Costs (the ‘‘Industry Member
Allocation’’), and Participants as a
group would pay 25% of the Total CAT
Costs (the ‘‘Participant Allocation’’).15
As discussed in more detail below, the
Industry Member Allocation of 75% of
the Total CAT Costs is included in
proposed paragraphs (a)(2), (b)(2), (c)(2)
and (d)(2) of the fee schedule for the
Consolidated Audit Trail Funding Fees.
In each such paragraph, the calculation
of the Industry Member CAT fees is
based on 75% of the Total CAT Costs.
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(C) Message Traffic
The Industry Member Allocation
would be allocated to each Industry
Member based on message traffic.16
Each Industry Member CAT Reporter
would pay a CAT fee that is calculated
by multiplying each Industry Member’s
percentage of the total message traffic of
all Industry Members each quarter by
12 Securities Exchange Act Rel. No. 88890 (May
15, 2020), 85 FR 31322, 31329 (May 22, 2020)
(‘‘Financial Accountability Release’’).
13 Securities Exchange Act Rel. No. 67457 (Jul. 18,
2012), 77 FR 45722, 45726 (Aug. 1, 2012).
14 See Proposed CAT Fee Plan Amendment at
21055–56 [sic]. Note that, in the funding model set
forth in Article XI of the CAT NMS Plan (‘‘Original
Funding Model’’), costs were allocated between
Execution Venues and certain Industry Members,
whereas the CAT Funding Model would allocate
costs between Participants and Industry Members.
15 For additional discussions regarding the 75%25% allocation, see Proposed CAT Fee Plan
Amendment at 21056–58 [sic].
16 For additional discussions regarding the use of
message traffic for calculating Industry Member
CAT fees, see Proposed CAT Fee Plan Amendment
at 21059 [sic].
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the Industry Member Allocation, subject
to certain market making discounts,
Minimum Industry Member CAT Fees,
and Maximum Industry Member CAT
Fees. To implement the use of message
traffic in the calculation of Industry
Member CAT fees, the Exchange
proposes to describe the use of message
traffic in proposed paragraphs (a)(2),
(b)(2), (c)(2) and (d)(2) of the fee
schedule. In each such paragraph, the
Industry Member CAT fees are
calculated based on Industry Members’
message traffic in the CAT.
As set out in the Proposed CAT Fee
Plan Amendment,17 message traffic
would be calculated based on Industry
Members’ Reportable Events reported to
the CAT as defined in the CAT
Reporting Technical Specifications for
Industry Members (‘‘IM Reporting Tech
Specs’’) as amended from time to time.18
The Reportable Events may vary over
time if the IM Reporting Tech Specs are
amended.19 However, Reportable Events
in the current IM Reporting Tech Specs
that will be counted as message traffic
include, but are not limited to, such
events as the New Order Event, the
Order Route Event and the Trade Event.
In addition, message traffic will not
include reporting activity related to
Customer information as set forth in the
CAT Reporting Customer and Account
Technical Specifications for Industry
Members.20
(D) Market Maker Discounts
As set out in the Proposed CAT Fee
Plan Amendment, the Operating
Committee recognized that treating
Options Market Maker message traffic
and Equity Market Maker message
17 See Proposed CAT Fee Plan Amendment at
21056–57.
18 The CAT Reporting Technical Specifications
for Industry Members are available at
www.catnmsplan.com.
19 Due to the Phased Reporting approach, all
Reportable Events will not be reported until all
Industry Members are reporting all Reportable
Events to the CAT. For example, Phase 2d CAT
Reporting is scheduled for December 2021, and
Small Industry Non-OATS Reporters are not
required to report until December 2021. In addition,
certain Reportable Events, such as simple options
manual orders and OTC link messages, are not
required to be reported until later in the Phased
Reporting. For a detailed description of such
Reportable Events, see CAT Reporting Technical
Specifications for Industry Members (available at
www.catnmsplan.com). For the Industry Member
CAT reporting timeline, see, e.g., FINRA Rule
6895(c). CAT costs will be allocated based on the
Reportable Events reported to the CAT in any
relevant quarter, regardless of whether all Industry
Members are reporting to the CAT or all Reportable
Events are required to be reported to the CAT for
a relevant quarter. See Proposed CAT Fee Plan
Amendment at 27.
20 The CAT Reporting Customer and Account
Technical Specifications for Industry Members are
available at www.catnmsplan.com.
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24923
traffic in the same way as other message
traffic for purposes of calculating
Industry Member CAT fees may result
in an undue or inappropriate burden on
competition or may lead to a reduction
in market quality.21 For example,
charging Industry Members on the basis
of message traffic may 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. Accordingly,
the Operating Committee determined to
discount Options Market Maker message
traffic by the trade-to-quote ratio for
Listed Options when calculating
message traffic for Options Market
Makers, and to discount Equity Market
Maker message traffic by the trade-toquote ratio for NMS Stocks when
calculating message traffic for Equity
Market Makers. The message traffic of
Options Market Makers and Equity
Market Makers, as discounted, would be
counted as part of the total message
traffic for all Industry Members. The
practical effect of applying such
discounts for market making activity
would be to lower the CAT fees for
Options Market Makers and Equity
Market Makers.
(I) Options Market Maker Discount
Each Industry Member that is an
Options Market Maker 22 would have a
discount based on the options trade-toquote ratio applied to its options market
making message traffic when calculating
that Industry Member’s message traffic
to prevent a potentially disproportionate
effect on options market making due to
such message traffic.23 Specifically, for
each Options Market Maker, a discount
would be applied to (1) all message
traffic reported to the CAT by the
Options Market Maker related to an
order originated by a market maker in
its market making account for a security
in which it is registered, regardless of
where the order is ultimately routed or
executed; 24 and (2) all message traffic
21 See Proposed CAT Fee Plan Amendment at
21057–58.
22 Section 1.1 of the CAT NMS Plan; Nasdaq
General 7 Section 1(ee) defines an ‘‘Options Market
Maker’’ as ‘‘a broker-dealer registered with an
exchange for the purpose of making markets in
options contracts traded on the exchange.’’
23 See Proposed CAT Fee Plan Amendment at
21058.
24 Under the current version of the IM Reporting
Tech Specs, the discount would apply to new order
messages and all related messages reported to the
CAT by an Options Market Maker with an
accountHolderType = O. See CAT FAQ C5
(available at www.catnmsplan.com). The discount
would not apply to messages by an Industry
Member that are associated with any other
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Federal Register / Vol. 86, No. 88 / Monday, May 10, 2021 / Notices
for which a ‘‘quote sent time’’ is
reported by an Options Exchange on
behalf of the given Options Market
Maker.
The relevant trade-to-quote ratio for
the Options Market Maker discount
would be calculated each quarter based
on the prior quarter’s SIP Data that is
included in CAT Data. The discount is
calculated by dividing the adjusted
trade count (that is, the total number of
trades for the quarter minus the total
number of trade busts) by the total
number of quotes received by the
securities information processors
(‘‘SIP’’). As an example, the trade-toquote ratio for Listed Options for the
fourth quarter of 2020 was 0.01%.
Accordingly, each Options Market
Maker’s discounted message traffic
count would be calculated by
multiplying its message traffic by the
options trade-to-quote ratio. The
Options Market Maker’s CAT fee then
would be calculated by multiplying its
discounted percentage of the total
message traffic of all Industry Members
during the relevant time period 25 by the
Industry Member Allocation, subject to
the Minimum Industry Member CAT
Fee and the Maximum Industry Member
CAT Fee.
To implement the Options Market
Maker discount, the Exchange proposes
to add paragraph (g)(1) to the fee
schedule. Paragraph (g)(1) would state
that ‘‘[w]hen calculating the message
traffic of an Industry Member that is an
Options Market Maker, the Options
Market Maker’s market making message
traffic would be discounted by
multiplying its Listed Options market
making message traffic by the Listed
Options trade-to-quote ratio.’’ In
addition, proposed paragraphs (a)(2),
(b)(2), (c)(2) and (d)(2) of the fee
schedule would state that the message
traffic calculation would be subject to
applicable discounts for Options Market
Maker message traffic for each of the
four Industry Member CAT fees.
(II) Equity Market Maker Discount
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Similarly, each Industry Member that
is an equity market maker in NMS
Stocks (‘‘Equity Market Maker’’) would
have a discount based on the NMS
Stock trade-to-quote ratio applied to its
market making message traffic in NMS
Stocks when calculating that Industry
accountHolderType. The IM Reporting Tech Specs
may be amended from time to time and this
designation could be changed. See Proposed CAT
Fee Plan Amendment at 21058.
25 Note that the total message traffic of all
Industry Members during the relevant time period
will be calculated using the discounted total for all
Options Market Makers. See Proposed CAT Fee
Plan Amendment at 21058.
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Member’s message traffic to prevent a
potentially disproportionate effect on
market making in NMS Stocks.26
Specifically, for each Equity Market
Maker, a discount would be applied to
all message traffic reported to the CAT
by the Equity Market Maker related to
an order originated by a market maker
in its market making account for a
security in which it is registered,27
regardless of where the order is
ultimately routed or executed.28
The relevant trade-to-quote ratio for
the Equity Market Maker discount
would be calculated each quarter based
on the prior quarter’s SIP Data that is
included in CAT Data. The discount is
calculated by dividing the adjusted
trade count (that is, the total number of
trades for the quarter minus the total
number of trade busts) by the total
number of quotes received by the SIP.
As an example, the trade-to-quote ratio
for NMS Stocks for the fourth quarter of
2020 was 4.77%.
The Equity Market Maker CAT fee
would be calculated in the same manner
as the Options Market Maker CAT fee.
Each Equity Market Maker’s discounted
message traffic count would be
calculated by multiplying its message
traffic by the NMS Stock trade-to-quote
ratio. The Equity Market Maker CAT fee
then would be calculated bymultiplying its discounted percentage of
the total message traffic of all Industry
Members during the relevant time
period 29 by the Industry Member
Allocation, subject to the Minimum
Industry Member CAT Fee and the
Maximum Industry Member CAT Fee.
To implement the Equity Market
Maker discount, the Exchanges proposes
to add paragraph (g)(2) to the fee
schedule. Paragraph (g)(2) would state
that ‘‘[w]hen calculating the message
traffic of an Industry Member that is an
equity market maker in NMS Stocks
(‘‘Equity Market Maker’’), the Equity
26 See Proposed CAT Fee Plan Amendment at
21058.
27 Note that Equity Market Makers do not have a
quote sent time exemption comparable to the
Options Market Maker quote sent time exemption,
as discussed above.
28 Under the current version of the IM Reporting
Tech Specs, the discount would apply to new order
messages and all related messages reported to the
CAT by an Equity Market Maker with an
accountHolderType = O. See CAT FAQ C5
(available at www.catnmsplan.com). The discount
would not apply to messages by the Industry
Member that are associated with any other
accountHolderType. The IM Reporting Tech Specs
may be amended from time to time and this
designation could be changed. See Proposed CAT
Fee Plan Amendment at 21058.
29 Note that the total message traffic of all
Industry Members during the relevant time period
will be calculated using the discounted total for all
Equity Market Makers. See Proposed CAT Fee Plan
Amendment at 21058.
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Market Maker’s market making message
traffic would be a [sic] discounted by
multiplying its market making message
traffic in NMS Stocks by the NMS Stock
trade-to-quote ratio.’’ In addition,
proposed paragraphs (a)(2), (b)(2), (c)(2)
and (d)(2) of the fee schedule would
state that the message traffic calculation
would be subject to applicable
discounts for Equity Market Maker
message traffic for each of the four
Industry Member CAT fees.
(E) Minimum Industry Member CAT Fee
Each Industry Member would be
required to pay a Minimum Industry
Member CAT Fee of $125 per quarter if
its CAT fee would be less than $125 per
quarter when calculated based on
message traffic.30 All Industry Members
required to report to the CAT, including
those that have not yet begun to report
to the CAT due to the phased
implementation schedule for the CAT,
would be subject to the Minimum
Industry Member CAT Fee. If any
Industry Member is required to pay the
Minimum Industry Member CAT Fee,
the total additional amount paid by all
such Industry Members over the amount
they otherwise would have paid as a
result of their message traffic calculation
would be discounted from all Industry
Members other than those that were
subject to a Minimum Industry Member
CAT Fee in accordance with their
message traffic percentage.31
To implement the Minimum Industry
Member CAT Fee, the Exchange
proposes to add paragraph (h) to the fee
schedule. Proposed paragraph (h)(1) of
the fee schedule would state that ‘‘[t]he
Minimum Industry Member CAT Fee is
$125 per quarter.’’ Proposed paragraph
(h)(2) of the fee schedule would state
that ‘‘[i]f any Industry Member is
required to pay the Minimum Industry
Member CAT Fee, the total additional
amount paid by all such Industry
Members over the amount they
otherwise would have paid as a result
of their message traffic calculation
would be discounted from all Industry
Members other than those that were
subject to a Minimum Industry Member
CAT Fee in accordance with their
message traffic percentage (‘‘Minimum
Industry Member CAT Fee ReAllocation’’).’’ In addition, proposed
paragraphs (a)(2), (b)(2), (c)(2) and (d)(2)
of the fee schedule describes the
30 For additional discussions regarding the
Minimum Industry Member CAT Fee, see Proposed
CAT Fee Plan Amendment at 21058–59.
31 Options Market Makers and Equity Market
Makers will be required to pay the Minimum
Industry Member CAT Fee if their quarterly CAT
fee calculated with the market maker discounts is
less than $125 per quarter.
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Minimum Industry Member CAT Fee
Re-Allocation for each of the four
Industry Member CAT fees.
(F) Maximum Industry Member CAT
Fee
An Industry Member’s CAT fee also
would be subject to a Maximum
Industry Member CAT Fee.32 The
Maximum Industry Member CAT Fee
would be the fee calculated based on
8% of the total message traffic for all
Industry Members. If an Industry
Member’s fee is subject to the Maximum
Industry Member CAT Fee, any excess
amount which the Industry Member
would have paid as a fee above such
Maximum Industry Member CAT Fee
will be re-allocated among all Industry
Members (including any Industry
Members subject to the Maximum
Industry Member CAT Fee and any
Industry Members subject to the
Minimum Industry Member CAT Fee) in
accordance with each Industry
Member’s percentage of total message
traffic.
To implement the Maximum Industry
Member CAT Fee, the Exchange
proposes to add proposed paragraph (f)
to the ‘‘Consolidated Audit Trail
Funding Fees’’ section of its fee
schedule. Proposed paragraph (f)(1)
would state that ‘‘[t]he Maximum
Industry Member CAT Fee for each
quarter is 8% of the total CAT costs for
the relevant quarter.’’ In addition,
proposed paragraph (f)(2) would state
that
khammond on DSKJM1Z7X2PROD with NOTICES
If an Industry Member’s CAT Fee that is
calculated pursuant to paragraph (a)(2),
(b)(2), (c)(2), (d)(2), as applicable, without
reference to the Maximum Industry Member
CAT Fee and the Maximum Industry Member
CAT Fee Re-Allocation, is greater than the
Maximum Industry Member CAT Fee, then
the Industry Member will be subject to the
Maximum Industry Member CAT Fee. If any
Industry Member is subject to the Maximum
Industry Member CAT Fee, then any excess
amount which the Industry Member
otherwise would have paid as a fee above
such Maximum Industry Member CAT Fee
will be re-allocated among all Industry
Members, including any Industry Member
that is subject to the Maximum Industry
Member CAT Fee or subject to the Minimum
Industry Member CAT Fee in accordance
with their message traffic percentage
(‘‘Maximum Industry Member CAT Fee ReAllocation’’).
Furthermore, proposed paragraphs
(a)(1), (b)(1), (c)(1) and (d)(1) would
state that an Industry Member’s CAT fee
calculated pursuant to (a)(1), (b)(1),
(c)(1) and (d)(1) would include any
applicable Maximum Industry Member
additional discussions regarding the
Maximum Industry Member CAT Fee, see Proposed
CAT Fee Plan Amendment at 21058–59 [sic].
CAT Fee Re-Allocation. Finally,
proposed paragraphs (a)(2), (b)(2), (c)(2)
and (d)(2) would state that an Industry
Member’s CAT fee calculated pursuant
to paragraph (a)(2), (b)(2), (c)(2) or (d)(2)
is subject to the Maximum Industry
Member CAT Fee and the Maximum
Industry Member CAT Fee ReAllocation.
(G) Total CAT Costs
As set out in the Proposed CAT Fee
Plan Amendment, the Total CAT Costs
for the year would be comprised of all
fees, costs and expenses incurred by or
for the Company in connection with the
development, implementation and
operation of the CAT during this
period.33
For purposes of the Historical CAT
Assessment, the Total CAT Costs would
be $193,273,342, as set forth in the
Proposed CAT Fee Plan Amendment.
Accordingly, the quarterly CAT fee for
the Historical CAT Assessment will be
calculated based on costs of
$36,238,752, which is 1/4 of 75% of the
Total CAT Costs. This amount is set
forth in proposed paragraph (b)(2) of the
fee schedule.
In addition, proposed paragraph (i) of
the ‘‘Consolidated Audit Trail Funding
Fees’’ section of its fee schedule
describes the Total CAT Costs to be
used in calculating the Period 3 CAT
Fee, the Period 4 CAT Fee and the
Quarterly CAT Fees. Proposed
paragraph (i)(1) of the fee schedule
would state that ‘‘[t]he Period 3 CAT
Costs shall be the total CAT costs set
forth in the year-end financial
statements of the Consolidated Audit
Trail, LLC for 2021.’’ Proposed
paragraph (i)(2) of the fee schedule
would state that ‘‘[t]he Period 4 CAT
Costs shall be the total CAT costs set
forth in the year-end financial
statements of the Consolidated Audit
Trail, LLC for 2022.’’ Proposed
paragraph (i)(3) of the fee schedule
would state the following with regard to
the Quarterly CAT Fees:
For purposes of the Quarterly CAT Fee, the
budgeted Total CAT Costs for the relevant
year shall be the total CAT costs set forth in
the annual operating budget approved by the
Operating Committee pursuant to Section
11.1(a) of the CAT NMS Plan for the relevant
year. The budgeted Total CAT Costs for the
relevant year may be adjusted on a quarterly
basis as the Operating Committee reasonably
deems appropriate for the prudent operation
of the Company. To the extent that the
Operating Committee adjusts the total
budgeted costs for the CAT for the relevant
year during its quarterly budget review, the
adjusted budgeted costs for the CAT will be
32 For
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33 See Proposed CAT Fee Plan Amendment at
21063.
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24925
used in calculating the remaining CAT fees
for that year.
(2) Proposed CAT Fees
The Exchange proposes to charge its
Industry Members fees related to CAT
costs. To implement these CAT fees, the
Exchange proposes to add a section
entitled ‘‘Consolidated Audit Trail
Funding Fees’’ to its fee schedule, and
to describe the CAT fees in that section.
(A) Historical CAT Assessment (for PrePeriod 1, Period 1 and Period 2)
As set forth in the Proposed CAT Fee
Plan Amendment, the Operating
Committee determined to charge
Industry Members a historical
assessment (‘‘Historical CAT
Assessment’’) to recover certain CAT
costs incurred prior to January 1, 2021
(‘‘Historical CAT Assessment Costs’’).34
Specifically, as detailed in the Proposed
CAT Fee Plan Amendment, the
Historical CAT Assessment is intended
to collect from Industry Members 75%
of certain costs incurred through June
22, 2020, the effective date for the
Financial Accountability Milestones,35
certain costs from Period 1 of the
Financial Accountability Milestones
(which covered the period from June 22,
2020–July 31, 2020) and certain costs
from Period 2 of the Financial
Accountability Milestones (which
covered the period from August 1,
2020–December 31, 2020). The Total
CAT Costs, excluding Excluded Costs
(as defined below) and certain costs
related to the conclusion of the
relationship with Thesys CAT, LLC is
$193,273,342. The Historical CAT
Assessment is designed to recover 75%
of these CAT costs. Accordingly, the
Historical CAT Assessment Costs would
be $144,955,006.
Using the Historical CAT Assessment
Costs, as set forth in the Proposed CAT
Fee Plan Amendment, the Operating
Committee will calculate the Historical
CAT Assessment owed by each Industry
Member in accordance with the CAT
Funding Model. Per the Proposed CAT
Fee Plan Amendment, the Operating
Committee plans to recover the
Historical CAT Assessment Costs over a
period of four calendar quarters,
commencing upon the SEC’s approval of
the Historical CAT Assessment. Each
quarter, each Industry Member will pay
the greater of the minimum fee of $125
or the Industry Member’s fee calculated
based on message traffic (subject to the
market making discounts and the
maximum fee). The message traffic fee
34 See Proposed CAT Fee Plan Amendment at
21064–65.
35 See Section 11.6 of the CAT NMS Plan; and
Financial Accountability Release.
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would be calculated by multiplying the
percentage of the Industry Member’s
message traffic of the total Industry
Member message traffic by $36,238,752,
which is 1/4 of the Historical CAT
Assessment Costs (subject to applicable
discounts for Options Market Maker
message traffic and Equity Market
Maker message traffic, the Maximum
Industry Member CAT Fee, the
Maximum Industry Member CAT Fee
Re-Allocation, and the Minimum
Industry Member CAT Fee ReAllocation). Each Industry Member’s
message traffic would be calculated
using CAT Data from the prior quarter.
Industry Members would be required to
commence paying the Historical CAT
Assessment in the first quarter after SEC
approval of the Historical CAT
Assessment, based on CAT Data from
the quarter in which the SEC approved
the CAT fees.
To implement the Historical CAT
Assessment, the Exchange proposes to
add proposed paragraph (b) to the
‘‘Consolidated Audit Trail Funding
Fees’’ section of its fee schedule.
Proposed paragraph (b) would state that
‘‘each Industry Member shall pay an
Historical CAT Assessment in the
amount of the greater of the following
each quarter for four quarters
commencing upon approval of the
Historical CAT Assessment by the SEC:
(1) Minimum Industry Member CAT Fee
(plus any applicable Maximum Industry
Member CAT Fee Re-Allocation); or (2)
Quarterly CAT Fee
CAT during the period from June 22,
2020 through July 31, 2020.
As provided in the Proposed CAT Fee
Plan Amendment, the proposed
Historical CAT Assessment seeks to
recover costs that are related to PostAmendment Expenses incurred during
Period 2. Period 2 began on August 1,
2020, and concluded on December 31,
2020, the date of the Full
Implementation of Core Equity
Reporting. As indicated by the
Participants’ Quarterly Progress
Report,37 Full Implementation of Core
Equity Reporting was completed on
schedule by December 31, 2020. As
discussed above, the Historical CAT
Assessment Costs to be recovered via
the Historical CAT Assessment would
include fees, costs and expenses
incurred by or for the Company in
connection with the development,
implementation and operation of the
CAT during the period from August 1,
2020 through December 31, 2020.
Accordingly, proposed paragraph (b) of
the ‘‘Consolidated Audit Trail Funding
Fees’’ section of its fee schedule would
state that Industry Members will be
required to pay the Historical CAT
Assessment ‘‘[s]ubject to the
requirements of Section 11.6 of the CAT
NMS Plan.’’
The following chart summarizes the
imposition of the Historical CAT
Assessment:
CAT data used for message
traffic calculation
Payment due
Quarterly industry
member
allocation
Quarterly CAT Fee #1 ..........
$36,238,752
Quarter of SEC approval of Historical CAT Assessment.
Quarterly CAT Fee #2 ..........
36,238,752
1st quarter after SEC approval of Historical CAT Assessment.
Quarterly CAT Fee #3 ..........
36,238,752
2nd quarter after SEC approval of Historical CAT Assessment.
Quarterly CAT Fee #4 ..........
36,238,752
3rd quarter after SEC approval of Historical CAT Assessment.
(B) Period 3 CAT Fee
khammond on DSKJM1Z7X2PROD with NOTICES
the amount calculated by multiplying
the percentage of the Industry Member’s
message traffic of the total Industry
Member message traffic based on the
prior quarter’s message traffic by
$36,238,752 (subject to applicable
discounts for Options Market Maker
message traffic and Equity Market
Maker message traffic, the Maximum
Industry Member CAT Fee, the
Maximum Industry Member CAT Fee
Re-Allocation and the Minimum
Industry Member CAT Fee ReAllocation).’’
In accordance with Section 11.6(b) of
the CAT NMS Plan and as provided in
the Proposed CAT Fee Plan
Amendment, the proposed Historical
CAT Assessment seeks to recover costs
that are related to Post-Amendment
Expenses incurred during Period 1.
Period 1 began on June 22, 2020, the
effective date of Section 11.6 of the CAT
NMS Plan, and concluded on July 31,
2020, the date of Initial Industry
Member Core Equity and Options
Reporting. As indicated by the
Participants’ Quarterly Progress
Report,36 Initial Industry Member Core
Equity and Option Reporting was
completed on schedule by July 31, 2020.
As discussed above, the Historical CAT
Assessment Costs to be recovered via
the Historical CAT Assessment would
include fees, costs and expenses
incurred by or for the Company in
connection with the development,
implementation and operation of the
1st quarter after SEC approval of
CAT Fees as set forth in the CAT
ment.
2nd quarter after SEC approval of
CAT Fees as set forth in the CAT
ment.
3rd quarter after SEC approval of
CAT Fees as set forth in the CAT
ment.
4th quarter after SEC approval of
CAT Fees as set forth in the CAT
ment.
Industry Member
Fee Plan AmendIndustry Member
Fee Plan AmendIndustry Member
Fee Plan AmendIndustry Member
Fee Plan Amend-
Per the Proposed CAT Fee Plan
Amendment, the Operating Committee
also determined to charge Industry
Members a quarterly fee to recover a
percentage of the Total CAT Costs
incurred from January 1, 2021 through
December 31, 2021, referred to as the
Period 3 CAT Fee.38 The Total CAT
Costs incurred from January 1, 2021
through December 31, 2021 (‘‘Period 3
CAT Costs’’) will be calculated at the
completion of 2021. Specifically, the
Period 3 CAT Costs will be the total
actual costs incurred for the CAT for
2021 as set forth in the 2021 financial
statements for the Company.
Using the Period 3 CAT Costs, as set
forth in the Proposed CAT Fee Plan
Amendment, the Operating Committee
will calculate the Period 3 CAT Fee
owed by each Industry Member in
accordance with the CAT Funding
Model. Per the Proposed CAT Fee Plan
Amendment, the Operating Committee
plans to recover Period 3 CAT Costs
over a period of four calendar quarters,
commencing in 2022. Each quarter, each
Industry Member will pay the greater of
the minimum fee of $125 or the Industry
Member’s fee calculated based on
message traffic. The message traffic fee
would be calculated by multiplying the
percentage of the Industry Member’s
message traffic of the total Industry
36 Q3 2020 Quarterly Progress Report (Oct. 30,
2020) (available at www.catnmsplan.com).
37 Q4 2020 Quarterly Progress Report (Jan. 29,
2021) (available at www.catnmsplan.com).
38 See Proposed CAT Fee Plan Amendment at
21065–66.
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Member message by 1/4 of 75% of the
Period 3 CAT Costs traffic (subject to
applicable discounts for Options Market
Maker message traffic and Equity
Market Maker message traffic, the
Maximum Industry Member CAT Fee,
the Maximum Industry Member CAT
Fee Re-Allocation and the Minimum
Industry Member CAT Fee ReAllocation). Each Industry Member’s
message traffic would be calculated
using CAT Data from the prior quarter.
Industry Members would be required to
commence paying the Period 3 CAT Fee
in the second quarter of 2022, based on
CAT Data from the first quarter of 2022.
The Exchange understands that the
Operating Committee will announce via
a CAT alert after the end of 2021 the
Total CAT Costs for 2021 to be used in
calculating the quarterly Period 3 CAT
Fees. Such Total CAT Costs will be set
forth in the year-end financial
statements of the Consolidated Audit
Trail, LLC. Such financial statements
are required to be prepared in
accordance with Section 9.2 of the CAT
NMS Plan, including requirements
related to compliance with GAAP,
auditing by an independent public
accounting firm and making the
statements publicly available.
To implement the Period 3 CAT Fee,
the Exchange proposes to add proposed
paragraph (c) to the ‘‘Consolidated
Audit Trail Funding Fees’’ section of its
fee schedule. Proposed paragraph (c)
would state that ‘‘each Industry Member
shall pay a Period 3 CAT Fee in the
amount of the greater of the following
each quarter for four quarters
commencing in the second quarter of
2022: (1) Minimum Industry Member
CAT Fee (plus any applicable Maximum
Industry Member CAT Fee ReAllocation); or (2) the amount calculated
by multiplying the percentage of the
Industry Member’s message traffic of the
total Industry Member message traffic
based on the prior quarter’s message
traffic by 1/4 of 75% of the Period 3
Total CAT Costs (subject to applicable
discounts for Options Market Maker
message traffic and Equity Market
Maker message traffic, the Maximum
Industry Member CAT Fee, the
Maximum Industry Member CAT Fee
Re-Allocation and the Minimum
Industry Member CAT Fee ReAllocation).’’
Per the Proposed CAT Fee Plan
Amendment, the proposed Period 3
CAT Fee seeks to recover costs that will
be related to Post-Amendment Expenses
incurred during Period 3. Period 3
Quarterly industry
member allocation
Quarterly CAT Fee
Quarterly
Quarterly
Quarterly
Quarterly
CAT
CAT
CAT
CAT
Fee
Fee
Fee
Fee
#1
#2
#3
#4
...................................
...................................
...................................
...................................
1/4
1/4
1/4
1/4
of
of
of
of
khammond on DSKJM1Z7X2PROD with NOTICES
(C) Period 4 CAT Fee
As set forth in the Proposed CAT Fee
Plan Amendment, the Operating
Committee also determined to charge
Industry Members a quarterly fee to
recover a percentage of the Total CAT
Costs incurred from January 1, 2022
through December 30, 2022, referred to
as the Period 4 CAT Fee.40 The Total
CAT Costs incurred from January 1,
2022 through December 30, 2022
(‘‘Period 4 CAT Costs’’) will be
calculated at the completion of 2022.
Specifically, the Period 4 CAT Costs
will be the total actual costs incurred for
the CAT for 2022 as set forth in the 2022
financial statements of the Company.
Using the Period 4 CAT Costs, as set
forth in the Proposed CAT Fee Plan
Amendment, the Operating Committee
will calculate the Period 4 CAT Fee
39 The Period 3 CAT Costs will be the total actual
costs incurred for the CAT for 2021 as set forth in
the 2021 financial statements for the Company.
40 See Proposed CAT Fee Plan Amendment at
21066–67.
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Jkt 253001
75%
75%
75%
75%
of
of
of
of
the
the
the
the
Period
Period
Period
Period
3
3
3
3
CAT
CAT
CAT
CAT
CAT
CAT
CAT
CAT
Data
Data
Data
Data
from
from
from
from
first quarter of 2022 .............
second quarter of 2022 .......
third quarter of 2022 ...........
fourth quarter of 2022 .........
owed by each Industry Member in
accordance with the CAT Funding
Model. Per the Proposed CAT Fee Plan
Amendment, the Operating Committee
plans to recover Period 4 CAT Costs
over a period of four calendar quarters,
commencing in 2023. Each quarter, each
Industry Member will pay the greater of
the minimum fee of $125 or the Industry
Member’s fee calculated based on
message traffic. The message traffic fee
would be calculated by multiplying the
percentage of the Industry Member’s
message traffic of the total Industry
Member message traffic by 1/4 of 75%
of the Period 4 CAT Costs (subject to
applicable discounts for Options Market
Maker message traffic and Equity
Market Maker message traffic, the
Maximum Industry Member CAT Fee,
the Maximum Industry Member CAT
Fee Re-Allocation and the Minimum
Industry Member CAT Fee ReAllocation). Each Industry Member’s
message traffic would be calculated
using CAT Data from the prior quarter.
Industry Members will be required to
PO 00000
Frm 00089
began on January 1, 2021 and is
expected to conclude on December 31,
2021, the date of Full Availability and
Regulatory Utilization of Transactional
Database Functionality. As discussed
above, the Period 3 CAT Costs to be
recovered via the Period 3 CAT Fee
would include fees, costs and expenses
incurred by or for the Company in
connection with the development,
implementation and operation of the
CAT during the period from January 1,
2020 through December 31, 2021. The
collection of the full amount of the
Period 3 CAT Fee will depend upon
achievement of Full Availability and
Regulatory Utilization of Transaction
Database Functionality by December 31,
2021; if not, the amount of the Period
3 CAT Fee that may be collected from
the Industry Members will depend upon
the fee limitations set forth in Section
11.6(a)(ii) of the CAT NMS Plan.
Accordingly, proposed paragraph (c) of
the ‘‘Consolidated Audit Trail Funding
Fees’’ section of its fee schedule would
state that Industry Members will be
required to pay the Period 3 CAT Fee
‘‘[s]ubject to the requirements of Section
11.6 of the CAT NMS Plan.’’
The following chart summarizes the
imposition of the Period 3 CAT Fee:
CAT data used for message traffic calculation
Costs 39 .....
Costs ........
Costs ........
Costs ........
Fmt 4703
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24927
Payment due
2nd quarter of 2022.
3rd quarter of 2022.
4th quarter of 2022.
1st quarter of 2023.
commence paying the Period 4 CAT Fee
in the second quarter of 2023, based on
data from the first quarter of 2023.
To implement the Period 4 CAT Fee,
the Exchange proposes to add proposed
paragraph (d) to the ‘‘Consolidated
Audit Trail Funding Fees’’ section of its
fee schedule. Proposed paragraph (d)
would state that ‘‘each Industry Member
shall pay a Period 4 CAT Fee in the
amount of the greater of the following
each quarter for four quarters
commencing in the second quarter of
2023: (1) Minimum Industry Member
CAT Fee (plus any applicable Maximum
Industry Member CAT Fee ReAllocation); or (2) the amount calculated
by multiplying the percentage of the
Industry Member’s message traffic of the
total Industry Member message traffic
based on the prior quarter’s message
traffic by 1/4 of 75% of the Period 4
CAT Costs (subject to applicable
discounts for Options Market Maker
message traffic and Equity Market
Maker message traffic, the Maximum
Industry Member CAT Fee, the
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khammond on DSKJM1Z7X2PROD with NOTICES
Maximum Industry Member CAT Fee
Re-Allocation and the Minimum
Industry Member CAT Fee ReAllocation).’’
The Exchange understands that the
Operating Committee will announce via
a CAT alert after the end of 2022 the
Total CAT Costs for 2022 to be used in
calculating the quarterly Period 4 CAT
Fees. Such Total CAT Costs will be set
forth in the year-end financial
statements of the Consolidated Audit
Trail, LLC. As noted above, such
financial statements are required to be
prepared in accordance with the
requirements set forth in Section 9.2 of
the CAT NMS Plan.
The Exchange indicates that the
proposed Period 4 CAT Fee seeks to
recover costs that will be related to PostAmendment Expenses incurred during
Period 4. Period 4 is expected to begin
on January 1, 2022 and conclude on
December 30, 2022, the date of Full
Implementation of CAT NMS Plan
Requirements. As discussed above, the
Period 4 CAT Costs to be recovered via
the Period 4 CAT Fee would include
fees, costs and expenses incurred by or
for the Company in connection with the
development, implementation and
operation of the CAT during the period
from January 1, 2022 through December
30, 2022. The collection of the full
amount of the Period 4 CAT Fee will
depend upon achievement of Full
Implementation of CAT NMS Plan
Requirements by December 30, 2022; if
not, the amount of the Period 4 CAT Fee
that may be collected from the Industry
Members will depend upon the fee
limitations set forth in Section
11.6(a)(ii) of the CAT NMS Plan.
Accordingly, proposed paragraph (e) of
the ‘‘Consolidated Audit Trail Funding
Fees’’ section of its fee schedule would
state that Industry Members will be
required to pay the Period 4 CAT Fee
‘‘[s]ubject to the requirements of Section
11.6 of the CAT NMS Plan.’’
The following chart summarizes the
imposition of the Period 4 CAT Fee:
Quarterly CAT Fee
Quarterly industry
member allocation
CAT data used for message traffic
calculation
Quarterly CAT Fee #1 .........................
CAT Data from first quarter of 2023 ...
2nd quarter of 2023.
Quarterly CAT Fee #2 .........................
1/4 of 75% of the Period 4 CAT
Costs 41.
1/4 of 75% of the Period 4 CAT Costs
3rd quarter of 2023.
Quarterly CAT Fee #3 .........................
Quarterly CAT Fee #4 .........................
1/4 of 75% of the Period 4 CAT Costs
1/4 of 75% of the Period 4 CAT Costs
CAT Data from second quarter of
2023.
CAT Data from third quarter of 2023 ..
CAT Data from fourth quarter of 2023
(D) Quarterly CAT Fee—Beginning 2023
As provided in the Proposed CAT Fee
Plan Amendment, to recover the costs of
the CAT going forward beginning in
2023, the Operating Committee
determined to charge Industry Members
an ongoing quarterly CAT fee calculated
based on the allocation of Total CAT
Costs pursuant to the CAT Funding
Model (‘‘Quarterly CAT Fee’’).42 The
Operating Committee will use the costs
set forth in the annual operating budget
as the Total CAT Costs in the
calculation of the Quarterly CAT Fee.
Specifically, the Total CAT Costs
budgeted for the upcoming year for the
Company required pursuant to Section
11.1(a) of the CAT NMS Plan. Using
these estimated Total CAT Costs, the
Operating Committee will calculate the
Quarterly CAT Fee owed by each
Industry Member in accordance with
the CAT Funding Model. As provided in
the Proposed CAT Fee Plan
Amendment, the Operating Committee
proposes to seek to recover the budgeted
Total CAT Costs over the course of the
year. Each quarter, each Industry
Member will pay the greater of the
minimum fee of $125 or the Industry
Member’s fee calculated based on
message traffic.43 The message traffic fee
41 The Period 4 CAT Costs will be the total actual
costs incurred for the CAT for 2022 as set forth in
the 2022 financial statements for the Company.
42 See Proposed CAT Fee Plan Amendment at
21067–68.
43 To the extent that any two or more of the four
categories of Industry Member CAT fees (i.e., the
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Jkt 253001
would be calculated by multiplying the
percentage of the Industry Member’s
message traffic of the total Industry
Member message traffic by 1/4 of 75%
of the budgeted Total CAT Costs for the
year (subject to applicable discounts for
Options Market Maker message traffic
and Equity Market Maker message
traffic, the Maximum Industry Member
CAT Fee, the Maximum Industry
Member CAT Fee Re-Allocation and the
Minimum Industry Member CAT Fee
Re-Allocation). Each Industry Member’s
message traffic would be calculated
using data from the prior calendar
quarter. The Exchange proposes to
commence charging this CAT fee in the
second quarter of 2023, based on CAT
Data from the first quarter of 2023.
To implement the Quarterly CAT Fee,
the Exchange proposes to add proposed
paragraph (a) to the ‘‘Consolidated
Audit Trail Funding Fees’’ section of its
fee schedule. Proposed paragraph (a)
Historical CAT Assessment, Period 3 CAT Fee,
Period 4 CAT Fee and the Quarterly CAT Fee) are
due during the same quarter, any Industry Member
obligated to pay one or more categories of fees is
required to pay each category of fee for that quarter.
For example, if an Industry Member would be
subject to the Minimum Industry Member CAT Fee
for the Period 4 CAT Fee and the Minimum
Industry Member CAT Fee for the Quarterly CAT
Fee during the same quarter, the Industry Member
would be required to pay two minimum $125 fees
that quarter for a total of $250. As another example,
suppose that an Industry Member owed a CAT fee
(other than the minimum fee of $125) for both the
Historical CAT Assessment and the Period 3 CAT
Fee, the Industry Member would be required to pay
both fees that quarter. See Proposed CAT Fee Plan
Amendment at 21067.
PO 00000
Frm 00090
Fmt 4703
Sfmt 4703
Payment due
4th quarter of 2023.
1st quarter of 2024.
would state that ‘‘[e]ach Industry
Member shall pay a Quarterly CAT Fee
in the amount of the greater of the
following each quarter commencing in
the second quarter of 2023: (1)
Minimum Industry Member CAT Fee
(plus any applicable Maximum Industry
Member CAT Fee Re-Allocation); or (2)
the amount calculated by multiplying
the percentage of the Industry Member’s
message traffic of the total Industry
Member message traffic based on the
prior quarter’s message traffic by 1/4 of
75% of the budgeted Total CAT Costs
for the relevant year (subject to
applicable discounts for Options Market
Maker message traffic and Equity
Market Maker message traffic, the
Maximum Industry Member CAT Fee,
the Maximum Industry Member CAT
Fee Re-Allocation and the Minimum
Industry Member CAT Fee ReAllocation).’’
The Exchange understands the
Operating Committee will announce at
the beginning of the relevant year via a
CAT alert the budgeted Total CAT Costs
to be used in calculating the Quarterly
CAT Fees for that year. The budgeted
Total CAT Costs will be the costs set
forth in the annual operating budget for
the Company required pursuant to
Section 11.1(a) of the CAT NMS Plan.
As discussed above, CAT costs would
include, but not be limited to, Plan
Processor costs, insurance costs, thirdparty support costs and an operational
reserve. As required by Section 11.1(c)
of the CAT NMS Plan, any surpluses
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Federal Register / Vol. 86, No. 88 / Monday, May 10, 2021 / Notices
collected will be treated as an
operational reserve to offset future fees
and will not be distributed to the
Participants as profits.44 In addition, to
address potential changes in the budget
during the year, the total budgeted costs
for the CAT for the relevant year may be
adjusted on a quarterly basis as the
Quarterly industry
member allocation
Quarterly CAT Fee
Quarterly CAT Fee #1 .........................
Quarterly CAT Fee #2 .........................
Quarterly CAT Fee #3 .........................
Quarterly CAT Fee #4 .........................
1/4 of
CAT
1/4 of
CAT
1/4 of
CAT
1/4 of
CAT
khammond on DSKJM1Z7X2PROD with NOTICES
(3) Time and Manner of Payment
The Exchange proposes to add
paragraph (e) to the ‘‘Consolidated
Audit Trail Funding Fees’’ section of its
fee schedule to describe the time and
manner of the payment of the Industry
Member CAT fees as provided in the
Proposed CAT Fee Plan Amendment.45
Proposed paragraph (e)(1) would state
that ‘‘Consolidated Audit Trail, LLC will
provide each Industry Member with an
invoice setting forth the Industry
Member’s Historical CAT Assessment,
Period 3 CAT Fee, Period 4 CAT Fee
and/or Quarterly CAT Fee (as
applicable) (collectively, ‘‘CAT Fees’’)
for each payment period.’’ Proposed
paragraph (e)(2) would state that
‘‘Consolidated Audit Trail, LLC will
provide each Industry Member with one
invoice each payment period for its CAT
Fees as determined pursuant to
paragraph (a)–(d) above, regardless of
whether the Industry Member is a
member of multiple self-regulatory
organizations.’’ Proposed paragraph
(e)(3) would state that ‘‘[e]ach Industry
Member will pay its CAT Fees to the
Consolidated Audit Trail, LLC via the
centralized system for the collection of
CAT Fees established by the
Consolidated Audit Trail, LLC in the
manner prescribed by the Consolidated
Audit Trail, LLC.’’ Finally, proposed
paragraph (e)(4) would require that
Industry Members pay their CAT Fees
within thirty days after receipt of an
invoice or other notice indicating
payment is due (unless a longer
payment period is otherwise indicated).
44 CAT
45 See
NMS Plan Approval Order at 84792.
Proposed CAT Fee Plan Amendment at
21068.
46 CAT Reporters will be responsible for each
quarterly fee in which they are a CAT Reporter. If
VerDate Sep<11>2014
19:05 May 07, 2021
Operating Committee reasonably deems
appropriate for the prudent operation of
the Company. To the extent that the
Operating Committee adjusts the total
budgeted costs for the CAT for the
relevant year during its quarterly budget
review, the adjusted total budgeted costs
for the CAT will be used in calculating
Jkt 253001
75%
costs
75%
costs
75%
costs
75%
costs
of
for
of
for
of
for
of
for
the
the
the
the
the
the
the
the
CAT data used for
message traffic calculation
budgeted annual
relevant year.
budgeted annual
relevant year.
budgeted annual
relevant year.
budgeted annual
relevant year.
CAT Data from first quarter of the
evant year.
CAT Data from second quarter of
relevant year.
CAT Data from third quarter of the
evant year.
CAT Data from fourth quarter of
relevant year.
If an Industry Member fails to pay any
such fee when due, such Industry
Member shall pay interest on the
outstanding balance from such due date
until such fee is paid at a per annum
rate equal to the lesser of (i) the Prime
Rate plus 300 basis points, or (ii) the
maximum rate permitted by applicable
law.46
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
requirements of the Exchange Act. The
Exchange believes that the proposed
rule change is consistent with Section
6(b)(5) of the Act 47, which requires,
among other things, that the Exchange’s
rules must be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest,
and not designed to permit unfair
discrimination between customers,
issuers, brokers and dealers. The
Exchange also believes that the
proposed rule change is consistent with
the provisions of Section 6(b)(4) of the
Act,48 because it provides for the
equitable allocation of reasonable dues,
fees and other charges among members
and issuers and other persons using its
facilities. The Exchange further believes
that the proposed rule change is
consistent with Section 6(b)(8) of the
Act 49 which requires that the
Exchange’s rules not impose any burden
on competition that is not necessary or
a CAT Reporter ceases to the meet the definition of
a CAT Reporter during a quarter, the CAT Reporter
will still be responsible for CAT fees attributable to
its message traffic (or, the minimum fee in the
alternative) during that quarter. See Proposed CAT
Fee Plan Amendment at 21068.
PO 00000
Frm 00091
Fmt 4703
the remaining quarterly CAT fees for
that year.
The following chart summarizes the
imposition of the Quarterly CAT Fee
each year commencing in 2023 and
continuing each year thereafter:
Sfmt 4703
Payment due
relthe
relthe
2nd quarter of the relevant year.
3rd quarter of the relevant year.
4th quarter of the relevant year.
1st quarter of year following the relevant
year.
appropriate in furtherance of the
purpose of the Exchange Act.
Section 11.1(b) of the CAT NMS Plan
states that ‘‘[t]he Participants shall file
with the SEC under Section 19(b) of the
Exchange Act any such fees on Industry
Members that the Operating Committee
approves.’’ Per Section 11.1(b) of the
CAT NMS Plan, the Exchange has filed
this proposed rule change to implement
the Industry Member CAT fees included
in the CAT Funding Model approved by
the Operating Committee. The Exchange
believes that this proposal is consistent
with the Exchange Act because it is
consistent with, and implements, the
CAT Funding Model, and is designed to
assist the Exchange and its Industry
Members in meeting regulatory
obligations pursuant to the CAT NMS
Plan. In approving the CAT NMS Plan,
the SEC noted that the Plan ‘‘is
necessary and appropriate in the public
interest, for the protection of investors
and the maintenance of fair and orderly
markets, to remove impediments to, and
perfect the mechanism of a national
market system, or is otherwise in
furtherance of the purposes of the
Act.’’ 50 To the extent that this proposal
implements the Plan, and applies
specific requirements to Industry
Members, the Exchange believes that
this proposal furthers the objectives of
the Plan, as identified by the SEC, and
is therefore consistent with the
Exchange Act.
The Exchange further notes that, as
provided in the Proposed CAT Fee Plan
Amendment, the Operating Committee
determined that the proposed Industry
47 15
U.S.C. 78f(b)(6).
U.S.C. 78f(b)(4).
49 15 U.S.C. 78f(b)(8).
50 CAT NMS Plan Approval Order at 84696.
48 15
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Federal Register / Vol. 86, No. 88 / Monday, May 10, 2021 / Notices
Member CAT fees comply with the
requirements of the Exchange Act and
the CAT NMS Plan.51 The Operating
Committee determined that the Industry
Member CAT fees provide for the
‘‘equitable allocation of reasonable dues,
fees, and other charges among its
members and issuers and other persons
using its facilities necessary or
appropriate in furtherance of the
purposes of this chapter,’’ 52 as required
by the Exchange Act. The Operating
Committee determined that the CAT
fees equitably allocate CAT costs
between Participants and Industry
Members, and among Industry
Members, as discussed in detailed [sic]
above. For the reasons discussed above,
the Operating Committee determined
that the 75%–25% allocation between
Industry Members and Participants in
the CAT Funding Model as well as the
use of message traffic for allocating costs
among Industry Members provide for an
equitable allocation of CAT costs among
CAT Reporters. In addition, as
discussed above, the Operating
Committee determined that the
imposition of minimum and maximum
fees and market maker discounts would
operate to provide for an equitable
allocation of CAT costs among Industry
Members.
As further provided in the Proposed
CAT Fee Plan Amendment, the
Operating Committee also determined
that the CAT Funding Model is ‘‘not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers,’’ 53 as
required by the Exchange Act, as the
CAT Funding Model does not unfairly
discriminate between Industry Members
and Participants, or among Industry
Members. In making this determination,
the Operating Committee noted that all
Industry Members are grouped together
for the purpose of determining CAT
fees, and Industry Members with similar
levels of activity would pay similar fees.
For example, Industry Members with
higher levels of message traffic would
pay higher fees, and those with lower
levels of message traffic would pay
lower fees. With the elimination of tiers
in the Original Funding Model, fees for
Industry Members are directly related to
their message traffic. With tiers, the
relationship between message traffic
and the CAT fee would not have been
as direct.
In addition, as discussed in the
Proposed CAT Fee Plan Amendment,
51 See Proposed CAT Fee Plan Amendment at
21068–70.
52 Sections 6(b)(4) and 15A(b)(5) of the Exchange
Act.
53 Sections 6(b)(5) and 15A(b)(6) of the Exchange
Act.
VerDate Sep<11>2014
19:05 May 07, 2021
Jkt 253001
where the method of fee calculation
may potentially affect certain groups of
CAT Reporters adversely, the Operating
Committee sought to limit such adverse
effects. For example, the Operating
Committee proposed market maker
discounts to address the high levels of
message traffic generally exhibited by
market makers. As discussed above, the
SEC has recognized repeatedly that such
favorable treatment for market makers in
other contexts was not unfairly
discriminatory or a burden on
competition in light of its positive
effects on market quality, nor was it
considered to involve an inequitable
allocation of fees among members.
As also provided in the Proposed CAT
Fee Plan Amendment, the Operating
Committee also proposed the Maximum
Industry Member CAT Fee to address
the potential for significant fees based
on outsized message traffic for certain
Industry Members. The Maximum
Industry Member CAT Fee would serve
as a method to institute a cap on fees to
fairly allocate costs to Industry
Members. Such a fee would prevent
Industry Members from paying
significantly larger CAT fees than
Participant complexes.
The Proposed CAT Fee Plan
Amendment notes that Operating
Committee also determined that the
proposed Industry Member CAT fees
would promote just and equitable
principles of trade, and, in general,
protect investors and the public interest,
as the fees would be transparent and
relate specifically to CAT activity. The
Operating Committee also determined
that the proposed fees were reasonable
because they would provide ease of
calculation, ease of billing and other
administrative functions. Such factors
are crucial to estimating a reliable
revenue stream for the Company.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Section 6(b)(8) of the Act 54 requires
that the Exchange’s rules not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Exchange Act. The
Exchange does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange notes that the proposed rule
change implements provisions of the
CAT NMS Plan that are subject to
approval by the Commission and is
designed to assist the Exchange in
meeting its regulatory obligations
pursuant to the Plan. The Exchange also
54 15
PO 00000
U.S.C. 78f(b)(8).
Frm 00092
Fmt 4703
Sfmt 4703
notes that the proposed rule changes
will apply equally to all Industry
Members, including its Nasdaq
members. In addition, all national
securities exchanges and FINRA are
proposing a similar proposed fee change
to implement the requirements of the
CAT NMS Plan. Therefore, this is not a
competitive fee filing, and, therefore, it
does not raise competition issues
between and among the exchanges and
FINRA.
Moreover, the Exchange notes that, as
discussed in the Proposed CAT Fee Plan
Amendment, the Operating Committee
determined that the proposed fees do
not impose an unnecessary or
inappropriate burden on competition as
they fairly and equitably allocate costs
among CAT Reporters.55 The Operating
Committee determined that the cost
allocation between Participants and
Industry Members recognizes the greater
number of Industry Members as
compared to the Participants and the
greater collective revenue of Industry
Members as compared to Participants.
In addition, cost allocations among
Industry Members based on message
traffic fairly and equitably distribute
CAT costs. Furthermore, the market
maker discounts and the Maximum
Industry Member CAT Fee address the
potential for burdens on market makers
and Industry Members with outsized
message traffic potentially resulting
from the proposed fee calculations.
Moreover, the Operating Committee
determined that the Minimum Industry
Member CAT Fee would not act as a
barrier to entry for smaller Industry
Member CAT Reporters.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.56
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
55 See Proposed CAT Fee Plan Amendment at
21070.
56 15 U.S.C. 78s(b)(3)(A)(ii).
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If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
[FR Doc. 2021–09779 Filed 5–7–21; 8:45 am]
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2021–029 on the subject line.
khammond on DSKJM1Z7X2PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2021–029. 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 rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for 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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
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 SR–NASDAQ–2021–029 and
should be submitted on or before June
1, 2021.
VerDate Sep<11>2014
19:05 May 07, 2021
Jkt 253001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.57
J. Matthew DeLesDernier,
Assistant Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91762; File No. SR–
CboeBZX–2021–034]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Adopt a Fee
Schedule To Establish Fees for
Industry Members Related to the
National Market System Plan
Governing the Consolidated Audit Trail
May 4, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 21,
2021, Cboe BZX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe BZX’’) proposes to
adopt a fee schedule to establish fees for
Industry Members related to the
National Market System Plan Governing
the Consolidated Audit Trail (the ‘‘CAT
NMS Plan’’ or ‘‘Plan’’).3 The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
57 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Unless otherwise specified, capitalized terms
used in this rule filing are defined as set forth in
the CAT Compliance Rule. See Rules 4.5 through
4.17 of the Exchange’s Rulebook. The Exchange and
each of its affiliated exchanges (Cboe BYX
Exchange, Inc., Cboe C2 Exchange, Inc., Cboe
Exchange, Inc., Cboe EDGA Exchange, Inc., and
Cboe EDGX Exchange, Inc.) are filing to adopt the
CAT fee schedule.
1 15
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
24931
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Under the CAT NMS Plan, the
Operating Committee of the
Consolidated Audit Trail, LLC
(‘‘Company’’) (‘‘Operating Committee’’)
has discretion to establish funding for
the Company to operate the CAT,
including establishing fees that the
Participants will pay, and establishing
fees for Industry Members that will be
implemented by the Participants.4 The
Operating Committee has filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) a proposal to
amend the CAT NMS Plan to implement
a revised funding model for the CAT
(‘‘CAT Funding Model’’) and to
establish a fee schedule for Participant
CAT fees (‘‘Proposed CAT Fee Plan
Amendment’’).5 The Proposed CAT Fee
Plan Amendment describes the CAT
Funding Model in detail, including the
proposal to charge Industry Members
CAT fees. The Participants are required
to file with the SEC under Section 19(b)
of the Exchange Act any CAT fees
applicable to Industry Members that the
Operating Committee approves.6
Accordingly, the purpose of this
proposed rule change is to implement
the required fee schedule provisions for
CAT fees applicable to Industry
Members that are Members in
accordance with the CAT Funding
Model. The fee schedule provisions will
become operative upon the SEC’s
approval of the Proposed CAT Fee Plan
Amendment.
(1) CAT Funding Model
Under the CAT Funding Model set
out in the Proposed CAT Fee Plan
4 Section
11.1(b) of the CAT NMS Plan.
Securities Exchange Act Rel. No. 91555
(Apr. 14, 2021), 86 FR 21050 (April 21, 2021).
6 Section 11.1(b) of the CAT NMS Plan.
5 See
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]]>Agencies
[Federal Register Volume 86, Number 88 (Monday, May 10, 2021)]
[Notices]
[Pages 24921-24931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09779]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91752; File No. SR-NASDAQ-2021-029]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt a Fee Schedule To Establish Fees for Industry Members Related to
the National Market System Plan Governing the Consolidated Audit Trail
May 4, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 21, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt a fee schedule to establish fees for
Industry Members related to the National Market System Plan Governing
the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\3\
---------------------------------------------------------------------------
\3\ Unless otherwise specified, capitalized terms used in this
rule filing are defined as set forth in Rule General 7 (Consolidated
Audit Trail Compliance).
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
[[Page 24922]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Under the CAT NMS Plan, the Operating Committee of the Consolidated
Audit Trail, LLC (``Company'') (``Operating Committee'') has discretion
to establish funding for the Company to operate the CAT, including
establishing fees that the Participants will pay, and establishing fees
for Industry Members that will be implemented by the Participants.\4\
The Operating Committee has filed with the SEC a proposal to amend the
CAT NMS Plan to implement a revised funding model for the CAT (``CAT
Funding Model'') and to establish a fee schedule for Participant CAT
fees (``Proposed CAT Fee Plan Amendment'').\5\ The Proposed CAT Fee
Plan Amendment describes the CAT Funding Model in detail, including the
proposal to charge Industry Members CAT fees. The Participants are
required to file with the SEC under Section 19(b) of the Exchange Act
any CAT fees applicable to Industry Members that the Operating
Committee approves.\6\ Accordingly, the purpose of this proposed rule
change is to implement the required fee schedule provisions for CAT
fees applicable to Industry Members that are Nasdaq members in
accordance with the CAT Funding Model. The fee schedule provisions will
become operative upon the SEC's approval of the Proposed CAT Fee Plan
Amendment.
---------------------------------------------------------------------------
\4\ Section 11.1(b) of the CAT NMS Plan.
\5\ See Securities Exchange Act Release No. 91555 (April 14,
2017), 86 FR 21050 (April 21, 2021) (``Proposed CAT Fee Plan
Amendment'').
\6\ Section 11.1(b) of the CAT NMS Plan.
---------------------------------------------------------------------------
(1) CAT Funding Model
Under the CAT Funding Model set out in the Proposed CAT Fee Plan
Amendment, the CAT fees applicable to Participants and Industry Members
for the relevant quarter would be designed to cover the total CAT costs
associated with developing, implementing and operating the CAT for the
relevant quarter (``Total CAT Costs'').\7\ The CAT Funding Model would
implement a bifurcated funding model, where these costs would be borne
by both Participants and Industry Members. Industry Members as a group
would pay 75% of the Total CAT Costs (the ``Industry Member
Allocation''), and Participants as a group would pay 25% of the Total
CAT Costs (the ``Participant Allocation'').\8\
---------------------------------------------------------------------------
\7\ Note that certain costs would be excluded from the
Historical CAT Assessment Costs, as discussed in more detail below.
See Proposed CAT Fee Plan Amendment at 21051 [sic], 21074 [sic].
\8\ Each Industry Member and Participant CAT Reporter would be
required to pay CAT fees established via the CAT Funding Model. CAT
Reporting Agents acting in their role as such would not have an
obligation to pay CAT fees. See Proposed CAT Fee Plan Amendment at
21051 [sic].
---------------------------------------------------------------------------
Under the CAT Funding Model set out in the Proposed CAT Fee Plan
Amendment, each Industry Member will pay a CAT fee that is calculated
by multiplying each Industry Member's message traffic percentage of the
total message traffic of all Industry Members during the relevant time
period by the Industry Member Allocation, subject to certain market
maker message traffic discounts, a Minimum Industry Member CAT Fee and
a Maximum Industry Member CAT Fee. Each Industry Member that is an
Options Market Maker will have a discount based on the options trade-
to-quote ratio applied to its Options Market Maker message traffic when
calculating that Industry Member's message traffic, and each Industry
Member that is an Equity Market Maker will have a discount based on the
NMS Stock trade-to-quote ratio applied to its Equity Market Maker
message traffic when calculating that Industry Member's message
traffic. In addition, each Industry Member will pay a Minimum Industry
Member CAT Fee of $125 per quarter if its CAT fee would be less than
$125 per quarter when calculated based on message traffic. Furthermore,
an Industry Member's CAT fee would be subject to the Maximum Industry
Member CAT Fee. The Maximum Industry Member CAT Fee would be the fee
calculated based on 8% of the total message traffic for all Industry
Members. If an Industry Member is subject to the Maximum Industry
Member CAT Fee, any excess amount which the Industry Member would have
paid as a fee above such Maximum Industry Member CAT Fee will be re-
allocated among all Industry Members (including any Industry Members
subject to the Maximum Industry Member CAT Fee and any Industry Members
subject to the Minimum Industry Member CAT Fee) in accordance with each
Industry Member's percentage of total message traffic. Each of these
aspects of the Industry Member CAT fee are discussed in more detail
below.
(A) CAT Fees for Both Industry Members and Participants
Under the CAT Funding Model, both Participants and Industry Members
would contribute to the funding of the CAT by paying a CAT fee.\9\ As
permitted by Rule 613, the CAT NMS Plan requires Industry Members to
pay a CAT fee. Rule 613(a)(1)(vii)(D) contemplates Industry Members
contributing to the payment of CAT costs. Specifically, this provision
requires the CAT NMS Plan to address ``[h]ow the plan sponsors propose
to fund the creation, implementation, and maintenance of the
consolidated audit trail, including the proposed allocation of such
estimated costs among the plan sponsors, and between the plan sponsors
and members of the plan sponsors.''
---------------------------------------------------------------------------
\9\ Proposed CAT Fee Plan Amendment at 21054-55.
---------------------------------------------------------------------------
In addition, as approved by the SEC, the CAT NMS Plan specifically
contemplates CAT fees to be paid by both Industry Members and
Participants. Section 11.1(b) states that ``the Operating Committee
shall have discretion to establish funding for the Company, including:
(i) Establishing fees that the Participants shall pay; and (ii)
establishing fees for Industry Members that shall be implemented by the
Participants.'' \10\ The Commission stated in approving the CAT NMS
Plan the following:
---------------------------------------------------------------------------
\10\ See also Sections 11.1(c), 11.2(c), and 11.3(a) and (b) of
the CAT NMS Plan.
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, as noted
above, 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\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81
FR 84696, 84794 (Nov. 23, 2016) (``CAT NMS Plan Approval Order'').
In its recent amendments to the CAT NMS Plan, the SEC reaffirmed
the ability for the Participants to charge Industry Members a CAT fee.
Specifically, the SEC noted that the amendments were not intended to
change the basic funding structure for the CAT, which may include fees
established by the Operating Committee, and implemented by the
Participants, to recover from Industry Members the costs and expenses
incurred by the Participants in connection with the
[[Page 24923]]
development and implementation of the CAT.\12\
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\12\ Securities Exchange Act Rel. No. 88890 (May 15, 2020), 85
FR 31322, 31329 (May 22, 2020) (``Financial Accountability
Release'').
---------------------------------------------------------------------------
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,'' \13\ thereby benefitting all market participants.
As such, both Participants and Industry Members should contribute to
covering the cost of the CAT.
---------------------------------------------------------------------------
\13\ Securities Exchange Act Rel. No. 67457 (Jul. 18, 2012), 77
FR 45722, 45726 (Aug. 1, 2012).
---------------------------------------------------------------------------
(B) 75%/25% Allocation Between Industry Members and Participants
The CAT NMS Plan as approved by the Commission provides the
Operating Committee with discretion to establish CAT fees to be paid by
Participants and Industry Members. The CAT Funding Model as set out in
the Proposed CAT Fee Plan Amendment contemplates allocating CAT costs
between Participants and Industry Members to permit the calculation of
CAT fees based on market share for Participants and based on message
traffic for Industry Members.\14\ Under the CAT Funding Model as
proposed, Industry Members as a group would pay 75% of the Total CAT
Costs (the ``Industry Member Allocation''), and Participants as a group
would pay 25% of the Total CAT Costs (the ``Participant
Allocation'').\15\ As discussed in more detail below, the Industry
Member Allocation of 75% of the Total CAT Costs is included in proposed
paragraphs (a)(2), (b)(2), (c)(2) and (d)(2) of the fee schedule for
the Consolidated Audit Trail Funding Fees. In each such paragraph, the
calculation of the Industry Member CAT fees is based on 75% of the
Total CAT Costs.
---------------------------------------------------------------------------
\14\ See Proposed CAT Fee Plan Amendment at 21055-56 [sic]. Note
that, in the funding model set forth in Article XI of the CAT NMS
Plan (``Original Funding Model''), costs were allocated between
Execution Venues and certain Industry Members, whereas the CAT
Funding Model would allocate costs between Participants and Industry
Members.
\15\ For additional discussions regarding the 75%-25%
allocation, see Proposed CAT Fee Plan Amendment at 21056-58 [sic].
---------------------------------------------------------------------------
(C) Message Traffic
The Industry Member Allocation would be allocated to each Industry
Member based on message traffic.\16\ Each Industry Member CAT Reporter
would pay a CAT fee that is calculated by multiplying each Industry
Member's percentage of the total message traffic of all Industry
Members each quarter by the Industry Member Allocation, subject to
certain market making discounts, Minimum Industry Member CAT Fees, and
Maximum Industry Member CAT Fees. To implement the use of message
traffic in the calculation of Industry Member CAT fees, the Exchange
proposes to describe the use of message traffic in proposed paragraphs
(a)(2), (b)(2), (c)(2) and (d)(2) of the fee schedule. In each such
paragraph, the Industry Member CAT fees are calculated based on
Industry Members' message traffic in the CAT.
---------------------------------------------------------------------------
\16\ For additional discussions regarding the use of message
traffic for calculating Industry Member CAT fees, see Proposed CAT
Fee Plan Amendment at 21059 [sic].
---------------------------------------------------------------------------
As set out in the Proposed CAT Fee Plan Amendment,\17\ message
traffic would be calculated based on Industry Members' Reportable
Events reported to the CAT as defined in the CAT Reporting Technical
Specifications for Industry Members (``IM Reporting Tech Specs'') as
amended from time to time.\18\ The Reportable Events may vary over time
if the IM Reporting Tech Specs are amended.\19\ However, Reportable
Events in the current IM Reporting Tech Specs that will be counted as
message traffic include, but are not limited to, such events as the New
Order Event, the Order Route Event and the Trade Event. In addition,
message traffic will not include reporting activity related to Customer
information as set forth in the CAT Reporting Customer and Account
Technical Specifications for Industry Members.\20\
---------------------------------------------------------------------------
\17\ See Proposed CAT Fee Plan Amendment at 21056-57.
\18\ The CAT Reporting Technical Specifications for Industry
Members are available at www.catnmsplan.com.
\19\ Due to the Phased Reporting approach, all Reportable Events
will not be reported until all Industry Members are reporting all
Reportable Events to the CAT. For example, Phase 2d CAT Reporting is
scheduled for December 2021, and Small Industry Non-OATS Reporters
are not required to report until December 2021. In addition, certain
Reportable Events, such as simple options manual orders and OTC link
messages, are not required to be reported until later in the Phased
Reporting. For a detailed description of such Reportable Events, see
CAT Reporting Technical Specifications for Industry Members
(available at www.catnmsplan.com). For the Industry Member CAT
reporting timeline, see, e.g., FINRA Rule 6895(c). CAT costs will be
allocated based on the Reportable Events reported to the CAT in any
relevant quarter, regardless of whether all Industry Members are
reporting to the CAT or all Reportable Events are required to be
reported to the CAT for a relevant quarter. See Proposed CAT Fee
Plan Amendment at 27.
\20\ The CAT Reporting Customer and Account Technical
Specifications for Industry Members are available at
www.catnmsplan.com.
---------------------------------------------------------------------------
(D) Market Maker Discounts
As set out in the Proposed CAT Fee Plan Amendment, the Operating
Committee recognized that treating Options Market Maker message traffic
and Equity Market Maker message traffic in the same way as other
message traffic for purposes of calculating Industry Member CAT fees
may result in an undue or inappropriate burden on competition or may
lead to a reduction in market quality.\21\ For example, charging
Industry Members on the basis of message traffic may 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. Accordingly, the Operating Committee determined to discount
Options Market Maker message traffic by the trade-to-quote ratio for
Listed Options when calculating message traffic for Options Market
Makers, and to discount Equity Market Maker message traffic by the
trade-to-quote ratio for NMS Stocks when calculating message traffic
for Equity Market Makers. The message traffic of Options Market Makers
and Equity Market Makers, as discounted, would be counted as part of
the total message traffic for all Industry Members. The practical
effect of applying such discounts for market making activity would be
to lower the CAT fees for Options Market Makers and Equity Market
Makers.
---------------------------------------------------------------------------
\21\ See Proposed CAT Fee Plan Amendment at 21057-58.
---------------------------------------------------------------------------
(I) Options Market Maker Discount
Each Industry Member that is an Options Market Maker \22\ would
have a discount based on the options trade-to-quote ratio applied to
its options market making message traffic when calculating that
Industry Member's message traffic to prevent a potentially
disproportionate effect on options market making due to such message
traffic.\23\ Specifically, for each Options Market Maker, a discount
would be applied to (1) all message traffic reported to the CAT by the
Options Market Maker related to an order originated by a market maker
in its market making account for a security in which it is registered,
regardless of where the order is ultimately routed or executed; \24\
and (2) all message traffic
[[Page 24924]]
for which a ``quote sent time'' is reported by an Options Exchange on
behalf of the given Options Market Maker.
---------------------------------------------------------------------------
\22\ Section 1.1 of the CAT NMS Plan; Nasdaq General 7 Section
1(ee) defines an ``Options Market Maker'' as ``a broker-dealer
registered with an exchange for the purpose of making markets in
options contracts traded on the exchange.''
\23\ See Proposed CAT Fee Plan Amendment at 21058.
\24\ Under the current version of the IM Reporting Tech Specs,
the discount would apply to new order messages and all related
messages reported to the CAT by an Options Market Maker with an
accountHolderType = O. See CAT FAQ C5 (available at
www.catnmsplan.com). The discount would not apply to messages by an
Industry Member that are associated with any other
accountHolderType. The IM Reporting Tech Specs may be amended from
time to time and this designation could be changed. See Proposed CAT
Fee Plan Amendment at 21058.
---------------------------------------------------------------------------
The relevant trade-to-quote ratio for the Options Market Maker
discount would be calculated each quarter based on the prior quarter's
SIP Data that is included in CAT Data. The discount is calculated by
dividing the adjusted trade count (that is, the total number of trades
for the quarter minus the total number of trade busts) by the total
number of quotes received by the securities information processors
(``SIP''). As an example, the trade-to-quote ratio for Listed Options
for the fourth quarter of 2020 was 0.01%.
Accordingly, each Options Market Maker's discounted message traffic
count would be calculated by multiplying its message traffic by the
options trade-to-quote ratio. The Options Market Maker's CAT fee then
would be calculated by multiplying its discounted percentage of the
total message traffic of all Industry Members during the relevant time
period \25\ by the Industry Member Allocation, subject to the Minimum
Industry Member CAT Fee and the Maximum Industry Member CAT Fee.
---------------------------------------------------------------------------
\25\ Note that the total message traffic of all Industry Members
during the relevant time period will be calculated using the
discounted total for all Options Market Makers. See Proposed CAT Fee
Plan Amendment at 21058.
---------------------------------------------------------------------------
To implement the Options Market Maker discount, the Exchange
proposes to add paragraph (g)(1) to the fee schedule. Paragraph (g)(1)
would state that ``[w]hen calculating the message traffic of an
Industry Member that is an Options Market Maker, the Options Market
Maker's market making message traffic would be discounted by
multiplying its Listed Options market making message traffic by the
Listed Options trade-to-quote ratio.'' In addition, proposed paragraphs
(a)(2), (b)(2), (c)(2) and (d)(2) of the fee schedule would state that
the message traffic calculation would be subject to applicable
discounts for Options Market Maker message traffic for each of the four
Industry Member CAT fees.
(II) Equity Market Maker Discount
Similarly, each Industry Member that is an equity market maker in
NMS Stocks (``Equity Market Maker'') would have a discount based on the
NMS Stock trade-to-quote ratio applied to its market making message
traffic in NMS Stocks when calculating that Industry Member's message
traffic to prevent a potentially disproportionate effect on market
making in NMS Stocks.\26\ Specifically, for each Equity Market Maker, a
discount would be applied to all message traffic reported to the CAT by
the Equity Market Maker related to an order originated by a market
maker in its market making account for a security in which it is
registered,\27\ regardless of where the order is ultimately routed or
executed.\28\
---------------------------------------------------------------------------
\26\ See Proposed CAT Fee Plan Amendment at 21058.
\27\ Note that Equity Market Makers do not have a quote sent
time exemption comparable to the Options Market Maker quote sent
time exemption, as discussed above.
\28\ Under the current version of the IM Reporting Tech Specs,
the discount would apply to new order messages and all related
messages reported to the CAT by an Equity Market Maker with an
accountHolderType = O. See CAT FAQ C5 (available at
www.catnmsplan.com). The discount would not apply to messages by the
Industry Member that are associated with any other
accountHolderType. The IM Reporting Tech Specs may be amended from
time to time and this designation could be changed. See Proposed CAT
Fee Plan Amendment at 21058.
---------------------------------------------------------------------------
The relevant trade-to-quote ratio for the Equity Market Maker
discount would be calculated each quarter based on the prior quarter's
SIP Data that is included in CAT Data. The discount is calculated by
dividing the adjusted trade count (that is, the total number of trades
for the quarter minus the total number of trade busts) by the total
number of quotes received by the SIP. As an example, the trade-to-quote
ratio for NMS Stocks for the fourth quarter of 2020 was 4.77%.
The Equity Market Maker CAT fee would be calculated in the same
manner as the Options Market Maker CAT fee. Each Equity Market Maker's
discounted message traffic count would be calculated by multiplying its
message traffic by the NMS Stock trade-to-quote ratio. The Equity
Market Maker CAT fee then would be calculated by-multiplying its
discounted percentage of the total message traffic of all Industry
Members during the relevant time period \29\ by the Industry Member
Allocation, subject to the Minimum Industry Member CAT Fee and the
Maximum Industry Member CAT Fee.
---------------------------------------------------------------------------
\29\ Note that the total message traffic of all Industry Members
during the relevant time period will be calculated using the
discounted total for all Equity Market Makers. See Proposed CAT Fee
Plan Amendment at 21058.
---------------------------------------------------------------------------
To implement the Equity Market Maker discount, the Exchanges
proposes to add paragraph (g)(2) to the fee schedule. Paragraph (g)(2)
would state that ``[w]hen calculating the message traffic of an
Industry Member that is an equity market maker in NMS Stocks (``Equity
Market Maker''), the Equity Market Maker's market making message
traffic would be a [sic] discounted by multiplying its market making
message traffic in NMS Stocks by the NMS Stock trade-to-quote ratio.''
In addition, proposed paragraphs (a)(2), (b)(2), (c)(2) and (d)(2) of
the fee schedule would state that the message traffic calculation would
be subject to applicable discounts for Equity Market Maker message
traffic for each of the four Industry Member CAT fees.
(E) Minimum Industry Member CAT Fee
Each Industry Member would be required to pay a Minimum Industry
Member CAT Fee of $125 per quarter if its CAT fee would be less than
$125 per quarter when calculated based on message traffic.\30\ All
Industry Members required to report to the CAT, including those that
have not yet begun to report to the CAT due to the phased
implementation schedule for the CAT, would be subject to the Minimum
Industry Member CAT Fee. If any Industry Member is required to pay the
Minimum Industry Member CAT Fee, the total additional amount paid by
all such Industry Members over the amount they otherwise would have
paid as a result of their message traffic calculation would be
discounted from all Industry Members other than those that were subject
to a Minimum Industry Member CAT Fee in accordance with their message
traffic percentage.\31\
---------------------------------------------------------------------------
\30\ For additional discussions regarding the Minimum Industry
Member CAT Fee, see Proposed CAT Fee Plan Amendment at 21058-59.
\31\ Options Market Makers and Equity Market Makers will be
required to pay the Minimum Industry Member CAT Fee if their
quarterly CAT fee calculated with the market maker discounts is less
than $125 per quarter.
---------------------------------------------------------------------------
To implement the Minimum Industry Member CAT Fee, the Exchange
proposes to add paragraph (h) to the fee schedule. Proposed paragraph
(h)(1) of the fee schedule would state that ``[t]he Minimum Industry
Member CAT Fee is $125 per quarter.'' Proposed paragraph (h)(2) of the
fee schedule would state that ``[i]f any Industry Member is required to
pay the Minimum Industry Member CAT Fee, the total additional amount
paid by all such Industry Members over the amount they otherwise would
have paid as a result of their message traffic calculation would be
discounted from all Industry Members other than those that were subject
to a Minimum Industry Member CAT Fee in accordance with their message
traffic percentage (``Minimum Industry Member CAT Fee Re-
Allocation'').'' In addition, proposed paragraphs (a)(2), (b)(2),
(c)(2) and (d)(2) of the fee schedule describes the
[[Page 24925]]
Minimum Industry Member CAT Fee Re-Allocation for each of the four
Industry Member CAT fees.
(F) Maximum Industry Member CAT Fee
An Industry Member's CAT fee also would be subject to a Maximum
Industry Member CAT Fee.\32\ The Maximum Industry Member CAT Fee would
be the fee calculated based on 8% of the total message traffic for all
Industry Members. If an Industry Member's fee is subject to the Maximum
Industry Member CAT Fee, any excess amount which the Industry Member
would have paid as a fee above such Maximum Industry Member CAT Fee
will be re-allocated among all Industry Members (including any Industry
Members subject to the Maximum Industry Member CAT Fee and any Industry
Members subject to the Minimum Industry Member CAT Fee) in accordance
with each Industry Member's percentage of total message traffic.
---------------------------------------------------------------------------
\32\ For additional discussions regarding the Maximum Industry
Member CAT Fee, see Proposed CAT Fee Plan Amendment at 21058-59
[sic].
---------------------------------------------------------------------------
To implement the Maximum Industry Member CAT Fee, the Exchange
proposes to add proposed paragraph (f) to the ``Consolidated Audit
Trail Funding Fees'' section of its fee schedule. Proposed paragraph
(f)(1) would state that ``[t]he Maximum Industry Member CAT Fee for
each quarter is 8% of the total CAT costs for the relevant quarter.''
In addition, proposed paragraph (f)(2) would state that
If an Industry Member's CAT Fee that is calculated pursuant to
paragraph (a)(2), (b)(2), (c)(2), (d)(2), as applicable, without
reference to the Maximum Industry Member CAT Fee and the Maximum
Industry Member CAT Fee Re-Allocation, is greater than the Maximum
Industry Member CAT Fee, then the Industry Member will be subject to
the Maximum Industry Member CAT Fee. If any Industry Member is
subject to the Maximum Industry Member CAT Fee, then any excess
amount which the Industry Member otherwise would have paid as a fee
above such Maximum Industry Member CAT Fee will be re-allocated
among all Industry Members, including any Industry Member that is
subject to the Maximum Industry Member CAT Fee or subject to the
Minimum Industry Member CAT Fee in accordance with their message
traffic percentage (``Maximum Industry Member CAT Fee Re-
Allocation'').
Furthermore, proposed paragraphs (a)(1), (b)(1), (c)(1) and (d)(1)
would state that an Industry Member's CAT fee calculated pursuant to
(a)(1), (b)(1), (c)(1) and (d)(1) would include any applicable Maximum
Industry Member CAT Fee Re-Allocation. Finally, proposed paragraphs
(a)(2), (b)(2), (c)(2) and (d)(2) would state that an Industry Member's
CAT fee calculated pursuant to paragraph (a)(2), (b)(2), (c)(2) or
(d)(2) is subject to the Maximum Industry Member CAT Fee and the
Maximum Industry Member CAT Fee Re-Allocation.
(G) Total CAT Costs
As set out in the Proposed CAT Fee Plan Amendment, the Total CAT
Costs for the year would be comprised of all fees, costs and expenses
incurred by or for the Company in connection with the development,
implementation and operation of the CAT during this period.\33\
---------------------------------------------------------------------------
\33\ See Proposed CAT Fee Plan Amendment at 21063.
---------------------------------------------------------------------------
For purposes of the Historical CAT Assessment, the Total CAT Costs
would be $193,273,342, as set forth in the Proposed CAT Fee Plan
Amendment. Accordingly, the quarterly CAT fee for the Historical CAT
Assessment will be calculated based on costs of $36,238,752, which is
1/4 of 75% of the Total CAT Costs. This amount is set forth in proposed
paragraph (b)(2) of the fee schedule.
In addition, proposed paragraph (i) of the ``Consolidated Audit
Trail Funding Fees'' section of its fee schedule describes the Total
CAT Costs to be used in calculating the Period 3 CAT Fee, the Period 4
CAT Fee and the Quarterly CAT Fees. Proposed paragraph (i)(1) of the
fee schedule would state that ``[t]he Period 3 CAT Costs shall be the
total CAT costs set forth in the year-end financial statements of the
Consolidated Audit Trail, LLC for 2021.'' Proposed paragraph (i)(2) of
the fee schedule would state that ``[t]he Period 4 CAT Costs shall be
the total CAT costs set forth in the year-end financial statements of
the Consolidated Audit Trail, LLC for 2022.'' Proposed paragraph (i)(3)
of the fee schedule would state the following with regard to the
Quarterly CAT Fees:
For purposes of the Quarterly CAT Fee, the budgeted Total CAT
Costs for the relevant year shall be the total CAT costs set forth
in the annual operating budget approved by the Operating Committee
pursuant to Section 11.1(a) of the CAT NMS Plan for the relevant
year. The budgeted Total CAT Costs for the relevant year may be
adjusted on a quarterly basis as the Operating Committee reasonably
deems appropriate for the prudent operation of the Company. To the
extent that the Operating Committee adjusts the total budgeted costs
for the CAT for the relevant year during its quarterly budget
review, the adjusted budgeted costs for the CAT will be used in
calculating the remaining CAT fees for that year.
(2) Proposed CAT Fees
The Exchange proposes to charge its Industry Members fees related
to CAT costs. To implement these CAT fees, the Exchange proposes to add
a section entitled ``Consolidated Audit Trail Funding Fees'' to its fee
schedule, and to describe the CAT fees in that section.
(A) Historical CAT Assessment (for Pre-Period 1, Period 1 and Period 2)
As set forth in the Proposed CAT Fee Plan Amendment, the Operating
Committee determined to charge Industry Members a historical assessment
(``Historical CAT Assessment'') to recover certain CAT costs incurred
prior to January 1, 2021 (``Historical CAT Assessment Costs'').\34\
Specifically, as detailed in the Proposed CAT Fee Plan Amendment, the
Historical CAT Assessment is intended to collect from Industry Members
75% of certain costs incurred through June 22, 2020, the effective date
for the Financial Accountability Milestones,\35\ certain costs from
Period 1 of the Financial Accountability Milestones (which covered the
period from June 22, 2020-July 31, 2020) and certain costs from Period
2 of the Financial Accountability Milestones (which covered the period
from August 1, 2020-December 31, 2020). The Total CAT Costs, excluding
Excluded Costs (as defined below) and certain costs related to the
conclusion of the relationship with Thesys CAT, LLC is $193,273,342.
The Historical CAT Assessment is designed to recover 75% of these CAT
costs. Accordingly, the Historical CAT Assessment Costs would be
$144,955,006.
---------------------------------------------------------------------------
\34\ See Proposed CAT Fee Plan Amendment at 21064-65.
\35\ See Section 11.6 of the CAT NMS Plan; and Financial
Accountability Release.
---------------------------------------------------------------------------
Using the Historical CAT Assessment Costs, as set forth in the
Proposed CAT Fee Plan Amendment, the Operating Committee will calculate
the Historical CAT Assessment owed by each Industry Member in
accordance with the CAT Funding Model. Per the Proposed CAT Fee Plan
Amendment, the Operating Committee plans to recover the Historical CAT
Assessment Costs over a period of four calendar quarters, commencing
upon the SEC's approval of the Historical CAT Assessment. Each quarter,
each Industry Member will pay the greater of the minimum fee of $125 or
the Industry Member's fee calculated based on message traffic (subject
to the market making discounts and the maximum fee). The message
traffic fee
[[Page 24926]]
would be calculated by multiplying the percentage of the Industry
Member's message traffic of the total Industry Member message traffic
by $36,238,752, which is 1/4 of the Historical CAT Assessment Costs
(subject to applicable discounts for Options Market Maker message
traffic and Equity Market Maker message traffic, the Maximum Industry
Member CAT Fee, the Maximum Industry Member CAT Fee Re-Allocation, and
the Minimum Industry Member CAT Fee Re-Allocation). Each Industry
Member's message traffic would be calculated using CAT Data from the
prior quarter. Industry Members would be required to commence paying
the Historical CAT Assessment in the first quarter after SEC approval
of the Historical CAT Assessment, based on CAT Data from the quarter in
which the SEC approved the CAT fees.
To implement the Historical CAT Assessment, the Exchange proposes
to add proposed paragraph (b) to the ``Consolidated Audit Trail Funding
Fees'' section of its fee schedule. Proposed paragraph (b) would state
that ``each Industry Member shall pay an Historical CAT Assessment in
the amount of the greater of the following each quarter for four
quarters commencing upon approval of the Historical CAT Assessment by
the SEC: (1) Minimum Industry Member CAT Fee (plus any applicable
Maximum Industry Member CAT Fee Re-Allocation); or (2) the amount
calculated by multiplying the percentage of the Industry Member's
message traffic of the total Industry Member message traffic based on
the prior quarter's message traffic by $36,238,752 (subject to
applicable discounts for Options Market Maker message traffic and
Equity Market Maker message traffic, the Maximum Industry Member CAT
Fee, the Maximum Industry Member CAT Fee Re-Allocation and the Minimum
Industry Member CAT Fee Re-Allocation).''
In accordance with Section 11.6(b) of the CAT NMS Plan and as
provided in the Proposed CAT Fee Plan Amendment, the proposed
Historical CAT Assessment seeks to recover costs that are related to
Post-Amendment Expenses incurred during Period 1. Period 1 began on
June 22, 2020, the effective date of Section 11.6 of the CAT NMS Plan,
and concluded on July 31, 2020, the date of Initial Industry Member
Core Equity and Options Reporting. As indicated by the Participants'
Quarterly Progress Report,\36\ Initial Industry Member Core Equity and
Option Reporting was completed on schedule by July 31, 2020. As
discussed above, the Historical CAT Assessment Costs to be recovered
via the Historical CAT Assessment would include fees, costs and
expenses incurred by or for the Company in connection with the
development, implementation and operation of the CAT during the period
from June 22, 2020 through July 31, 2020.
---------------------------------------------------------------------------
\36\ Q3 2020 Quarterly Progress Report (Oct. 30, 2020)
(available at www.catnmsplan.com).
---------------------------------------------------------------------------
As provided in the Proposed CAT Fee Plan Amendment, the proposed
Historical CAT Assessment seeks to recover costs that are related to
Post-Amendment Expenses incurred during Period 2. Period 2 began on
August 1, 2020, and concluded on December 31, 2020, the date of the
Full Implementation of Core Equity Reporting. As indicated by the
Participants' Quarterly Progress Report,\37\ Full Implementation of
Core Equity Reporting was completed on schedule by December 31, 2020.
As discussed above, the Historical CAT Assessment Costs to be recovered
via the Historical CAT Assessment would include fees, costs and
expenses incurred by or for the Company in connection with the
development, implementation and operation of the CAT during the period
from August 1, 2020 through December 31, 2020. Accordingly, proposed
paragraph (b) of the ``Consolidated Audit Trail Funding Fees'' section
of its fee schedule would state that Industry Members will be required
to pay the Historical CAT Assessment ``[s]ubject to the requirements of
Section 11.6 of the CAT NMS Plan.''
---------------------------------------------------------------------------
\37\ Q4 2020 Quarterly Progress Report (Jan. 29, 2021)
(available at www.catnmsplan.com).
---------------------------------------------------------------------------
The following chart summarizes the imposition of the Historical CAT
Assessment:
----------------------------------------------------------------------------------------------------------------
CAT data used for
Quarterly CAT Fee Quarterly industry message traffic Payment due
member allocation calculation
----------------------------------------------------------------------------------------------------------------
Quarterly CAT Fee #1................... $36,238,752 Quarter of SEC approval 1st quarter after SEC
of Historical CAT approval of Industry
Assessment. Member CAT Fees as set
forth in the CAT Fee
Plan Amendment.
Quarterly CAT Fee #2................... 36,238,752 1st quarter after SEC 2nd quarter after SEC
approval of Historical approval of Industry
CAT Assessment. Member CAT Fees as set
forth in the CAT Fee
Plan Amendment.
Quarterly CAT Fee #3................... 36,238,752 2nd quarter after SEC 3rd quarter after SEC
approval of Historical approval of Industry
CAT Assessment. Member CAT Fees as set
forth in the CAT Fee
Plan Amendment.
Quarterly CAT Fee #4................... 36,238,752 3rd quarter after SEC 4th quarter after SEC
approval of Historical approval of Industry
CAT Assessment. Member CAT Fees as set
forth in the CAT Fee
Plan Amendment.
----------------------------------------------------------------------------------------------------------------
(B) Period 3 CAT Fee
Per the Proposed CAT Fee Plan Amendment, the Operating Committee
also determined to charge Industry Members a quarterly fee to recover a
percentage of the Total CAT Costs incurred from January 1, 2021 through
December 31, 2021, referred to as the Period 3 CAT Fee.\38\ The Total
CAT Costs incurred from January 1, 2021 through December 31, 2021
(``Period 3 CAT Costs'') will be calculated at the completion of 2021.
Specifically, the Period 3 CAT Costs will be the total actual costs
incurred for the CAT for 2021 as set forth in the 2021 financial
statements for the Company.
---------------------------------------------------------------------------
\38\ See Proposed CAT Fee Plan Amendment at 21065-66.
---------------------------------------------------------------------------
Using the Period 3 CAT Costs, as set forth in the Proposed CAT Fee
Plan Amendment, the Operating Committee will calculate the Period 3 CAT
Fee owed by each Industry Member in accordance with the CAT Funding
Model. Per the Proposed CAT Fee Plan Amendment, the Operating Committee
plans to recover Period 3 CAT Costs over a period of four calendar
quarters, commencing in 2022. Each quarter, each Industry Member will
pay the greater of the minimum fee of $125 or the Industry Member's fee
calculated based on message traffic. The message traffic fee would be
calculated by multiplying the percentage of the Industry Member's
message traffic of the total Industry
[[Page 24927]]
Member message by 1/4 of 75% of the Period 3 CAT Costs traffic (subject
to applicable discounts for Options Market Maker message traffic and
Equity Market Maker message traffic, the Maximum Industry Member CAT
Fee, the Maximum Industry Member CAT Fee Re-Allocation and the Minimum
Industry Member CAT Fee Re-Allocation). Each Industry Member's message
traffic would be calculated using CAT Data from the prior quarter.
Industry Members would be required to commence paying the Period 3 CAT
Fee in the second quarter of 2022, based on CAT Data from the first
quarter of 2022.
The Exchange understands that the Operating Committee will announce
via a CAT alert after the end of 2021 the Total CAT Costs for 2021 to
be used in calculating the quarterly Period 3 CAT Fees. Such Total CAT
Costs will be set forth in the year-end financial statements of the
Consolidated Audit Trail, LLC. Such financial statements are required
to be prepared in accordance with Section 9.2 of the CAT NMS Plan,
including requirements related to compliance with GAAP, auditing by an
independent public accounting firm and making the statements publicly
available.
To implement the Period 3 CAT Fee, the Exchange proposes to add
proposed paragraph (c) to the ``Consolidated Audit Trail Funding Fees''
section of its fee schedule. Proposed paragraph (c) would state that
``each Industry Member shall pay a Period 3 CAT Fee in the amount of
the greater of the following each quarter for four quarters commencing
in the second quarter of 2022: (1) Minimum Industry Member CAT Fee
(plus any applicable Maximum Industry Member CAT Fee Re-Allocation); or
(2) the amount calculated by multiplying the percentage of the Industry
Member's message traffic of the total Industry Member message traffic
based on the prior quarter's message traffic by 1/4 of 75% of the
Period 3 Total CAT Costs (subject to applicable discounts for Options
Market Maker message traffic and Equity Market Maker message traffic,
the Maximum Industry Member CAT Fee, the Maximum Industry Member CAT
Fee Re-Allocation and the Minimum Industry Member CAT Fee Re-
Allocation).''
Per the Proposed CAT Fee Plan Amendment, the proposed Period 3 CAT
Fee seeks to recover costs that will be related to Post-Amendment
Expenses incurred during Period 3. Period 3 began on January 1, 2021
and is expected to conclude on December 31, 2021, the date of Full
Availability and Regulatory Utilization of Transactional Database
Functionality. As discussed above, the Period 3 CAT Costs to be
recovered via the Period 3 CAT Fee would include fees, costs and
expenses incurred by or for the Company in connection with the
development, implementation and operation of the CAT during the period
from January 1, 2020 through December 31, 2021. The collection of the
full amount of the Period 3 CAT Fee will depend upon achievement of
Full Availability and Regulatory Utilization of Transaction Database
Functionality by December 31, 2021; if not, the amount of the Period 3
CAT Fee that may be collected from the Industry Members will depend
upon the fee limitations set forth in Section 11.6(a)(ii) of the CAT
NMS Plan. Accordingly, proposed paragraph (c) of the ``Consolidated
Audit Trail Funding Fees'' section of its fee schedule would state that
Industry Members will be required to pay the Period 3 CAT Fee
``[s]ubject to the requirements of Section 11.6 of the CAT NMS Plan.''
The following chart summarizes the imposition of the Period 3 CAT
Fee:
----------------------------------------------------------------------------------------------------------------
CAT data used for
Quarterly CAT Fee Quarterly industry message traffic Payment due
member allocation calculation
----------------------------------------------------------------------------------------------------------------
Quarterly CAT Fee #1.............. 1/4 of 75% of the CAT Data from first 2nd quarter of 2022.
Period 3 CAT Costs quarter of 2022.
\39\.
Quarterly CAT Fee #2.............. 1/4 of 75% of the CAT Data from second 3rd quarter of 2022.
Period 3 CAT Costs. quarter of 2022.
Quarterly CAT Fee #3.............. 1/4 of 75% of the CAT Data from third 4th quarter of 2022.
Period 3 CAT Costs. quarter of 2022.
Quarterly CAT Fee #4.............. 1/4 of 75% of the CAT Data from fourth 1st quarter of 2023.
Period 3 CAT Costs. quarter of 2022.
----------------------------------------------------------------------------------------------------------------
(C) Period 4 CAT Fee
---------------------------------------------------------------------------
\39\ The Period 3 CAT Costs will be the total actual costs
incurred for the CAT for 2021 as set forth in the 2021 financial
statements for the Company.
---------------------------------------------------------------------------
As set forth in the Proposed CAT Fee Plan Amendment, the Operating
Committee also determined to charge Industry Members a quarterly fee to
recover a percentage of the Total CAT Costs incurred from January 1,
2022 through December 30, 2022, referred to as the Period 4 CAT
Fee.\40\ The Total CAT Costs incurred from January 1, 2022 through
December 30, 2022 (``Period 4 CAT Costs'') will be calculated at the
completion of 2022. Specifically, the Period 4 CAT Costs will be the
total actual costs incurred for the CAT for 2022 as set forth in the
2022 financial statements of the Company.
---------------------------------------------------------------------------
\40\ See Proposed CAT Fee Plan Amendment at 21066-67.
---------------------------------------------------------------------------
Using the Period 4 CAT Costs, as set forth in the Proposed CAT Fee
Plan Amendment, the Operating Committee will calculate the Period 4 CAT
Fee owed by each Industry Member in accordance with the CAT Funding
Model. Per the Proposed CAT Fee Plan Amendment, the Operating Committee
plans to recover Period 4 CAT Costs over a period of four calendar
quarters, commencing in 2023. Each quarter, each Industry Member will
pay the greater of the minimum fee of $125 or the Industry Member's fee
calculated based on message traffic. The message traffic fee would be
calculated by multiplying the percentage of the Industry Member's
message traffic of the total Industry Member message traffic by 1/4 of
75% of the Period 4 CAT Costs (subject to applicable discounts for
Options Market Maker message traffic and Equity Market Maker message
traffic, the Maximum Industry Member CAT Fee, the Maximum Industry
Member CAT Fee Re-Allocation and the Minimum Industry Member CAT Fee
Re-Allocation). Each Industry Member's message traffic would be
calculated using CAT Data from the prior quarter. Industry Members will
be required to commence paying the Period 4 CAT Fee in the second
quarter of 2023, based on data from the first quarter of 2023.
To implement the Period 4 CAT Fee, the Exchange proposes to add
proposed paragraph (d) to the ``Consolidated Audit Trail Funding Fees''
section of its fee schedule. Proposed paragraph (d) would state that
``each Industry Member shall pay a Period 4 CAT Fee in the amount of
the greater of the following each quarter for four quarters commencing
in the second quarter of 2023: (1) Minimum Industry Member CAT Fee
(plus any applicable Maximum Industry Member CAT Fee Re-Allocation); or
(2) the amount calculated by multiplying the percentage of the Industry
Member's message traffic of the total Industry Member message traffic
based on the prior quarter's message traffic by 1/4 of 75% of the
Period 4 CAT Costs (subject to applicable discounts for Options Market
Maker message traffic and Equity Market Maker message traffic, the
Maximum Industry Member CAT Fee, the
[[Page 24928]]
Maximum Industry Member CAT Fee Re-Allocation and the Minimum Industry
Member CAT Fee Re-Allocation).''
The Exchange understands that the Operating Committee will announce
via a CAT alert after the end of 2022 the Total CAT Costs for 2022 to
be used in calculating the quarterly Period 4 CAT Fees. Such Total CAT
Costs will be set forth in the year-end financial statements of the
Consolidated Audit Trail, LLC. As noted above, such financial
statements are required to be prepared in accordance with the
requirements set forth in Section 9.2 of the CAT NMS Plan.
The Exchange indicates that the proposed Period 4 CAT Fee seeks to
recover costs that will be related to Post-Amendment Expenses incurred
during Period 4. Period 4 is expected to begin on January 1, 2022 and
conclude on December 30, 2022, the date of Full Implementation of CAT
NMS Plan Requirements. As discussed above, the Period 4 CAT Costs to be
recovered via the Period 4 CAT Fee would include fees, costs and
expenses incurred by or for the Company in connection with the
development, implementation and operation of the CAT during the period
from January 1, 2022 through December 30, 2022. The collection of the
full amount of the Period 4 CAT Fee will depend upon achievement of
Full Implementation of CAT NMS Plan Requirements by December 30, 2022;
if not, the amount of the Period 4 CAT Fee that may be collected from
the Industry Members will depend upon the fee limitations set forth in
Section 11.6(a)(ii) of the CAT NMS Plan. Accordingly, proposed
paragraph (e) of the ``Consolidated Audit Trail Funding Fees'' section
of its fee schedule would state that Industry Members will be required
to pay the Period 4 CAT Fee ``[s]ubject to the requirements of Section
11.6 of the CAT NMS Plan.''
The following chart summarizes the imposition of the Period 4 CAT
Fee:
----------------------------------------------------------------------------------------------------------------
CAT data used for
Quarterly CAT Fee Quarterly industry message traffic Payment due
member allocation calculation
----------------------------------------------------------------------------------------------------------------
Quarterly CAT Fee #1.............. 1/4 of 75% of the CAT Data from first 2nd quarter of 2023.
Period 4 CAT Costs quarter of 2023.
\41\.
Quarterly CAT Fee #2.............. 1/4 of 75% of the CAT Data from second 3rd quarter of 2023.
Period 4 CAT Costs. quarter of 2023.
Quarterly CAT Fee #3.............. 1/4 of 75% of the CAT Data from third 4th quarter of 2023.
Period 4 CAT Costs. quarter of 2023.
Quarterly CAT Fee #4.............. 1/4 of 75% of the CAT Data from fourth 1st quarter of 2024.
Period 4 CAT Costs. quarter of 2023.
----------------------------------------------------------------------------------------------------------------
(D) Quarterly CAT Fee--Beginning 2023
---------------------------------------------------------------------------
\41\ The Period 4 CAT Costs will be the total actual costs
incurred for the CAT for 2022 as set forth in the 2022 financial
statements for the Company.
---------------------------------------------------------------------------
As provided in the Proposed CAT Fee Plan Amendment, to recover the
costs of the CAT going forward beginning in 2023, the Operating
Committee determined to charge Industry Members an ongoing quarterly
CAT fee calculated based on the allocation of Total CAT Costs pursuant
to the CAT Funding Model (``Quarterly CAT Fee'').\42\ The Operating
Committee will use the costs set forth in the annual operating budget
as the Total CAT Costs in the calculation of the Quarterly CAT Fee.
Specifically, the Total CAT Costs budgeted for the upcoming year for
the Company required pursuant to Section 11.1(a) of the CAT NMS Plan.
Using these estimated Total CAT Costs, the Operating Committee will
calculate the Quarterly CAT Fee owed by each Industry Member in
accordance with the CAT Funding Model. As provided in the Proposed CAT
Fee Plan Amendment, the Operating Committee proposes to seek to recover
the budgeted Total CAT Costs over the course of the year. Each quarter,
each Industry Member will pay the greater of the minimum fee of $125 or
the Industry Member's fee calculated based on message traffic.\43\ The
message traffic fee would be calculated by multiplying the percentage
of the Industry Member's message traffic of the total Industry Member
message traffic by 1/4 of 75% of the budgeted Total CAT Costs for the
year (subject to applicable discounts for Options Market Maker message
traffic and Equity Market Maker message traffic, the Maximum Industry
Member CAT Fee, the Maximum Industry Member CAT Fee Re-Allocation and
the Minimum Industry Member CAT Fee Re-Allocation). Each Industry
Member's message traffic would be calculated using data from the prior
calendar quarter. The Exchange proposes to commence charging this CAT
fee in the second quarter of 2023, based on CAT Data from the first
quarter of 2023.
---------------------------------------------------------------------------
\42\ See Proposed CAT Fee Plan Amendment at 21067-68.
\43\ To the extent that any two or more of the four categories
of Industry Member CAT fees (i.e., the Historical CAT Assessment,
Period 3 CAT Fee, Period 4 CAT Fee and the Quarterly CAT Fee) are
due during the same quarter, any Industry Member obligated to pay
one or more categories of fees is required to pay each category of
fee for that quarter. For example, if an Industry Member would be
subject to the Minimum Industry Member CAT Fee for the Period 4 CAT
Fee and the Minimum Industry Member CAT Fee for the Quarterly CAT
Fee during the same quarter, the Industry Member would be required
to pay two minimum $125 fees that quarter for a total of $250. As
another example, suppose that an Industry Member owed a CAT fee
(other than the minimum fee of $125) for both the Historical CAT
Assessment and the Period 3 CAT Fee, the Industry Member would be
required to pay both fees that quarter. See Proposed CAT Fee Plan
Amendment at 21067.
---------------------------------------------------------------------------
To implement the Quarterly CAT Fee, the Exchange proposes to add
proposed paragraph (a) to the ``Consolidated Audit Trail Funding Fees''
section of its fee schedule. Proposed paragraph (a) would state that
``[e]ach Industry Member shall pay a Quarterly CAT Fee in the amount of
the greater of the following each quarter commencing in the second
quarter of 2023: (1) Minimum Industry Member CAT Fee (plus any
applicable Maximum Industry Member CAT Fee Re-Allocation); or (2) the
amount calculated by multiplying the percentage of the Industry
Member's message traffic of the total Industry Member message traffic
based on the prior quarter's message traffic by 1/4 of 75% of the
budgeted Total CAT Costs for the relevant year (subject to applicable
discounts for Options Market Maker message traffic and Equity Market
Maker message traffic, the Maximum Industry Member CAT Fee, the Maximum
Industry Member CAT Fee Re-Allocation and the Minimum Industry Member
CAT Fee Re-Allocation).''
The Exchange understands the Operating Committee will announce at
the beginning of the relevant year via a CAT alert the budgeted Total
CAT Costs to be used in calculating the Quarterly CAT Fees for that
year. The budgeted Total CAT Costs will be the costs set forth in the
annual operating budget for the Company required pursuant to Section
11.1(a) of the CAT NMS Plan. As discussed above, CAT costs would
include, but not be limited to, Plan Processor costs, insurance costs,
third-party support costs and an operational reserve. As required by
Section 11.1(c) of the CAT NMS Plan, any surpluses
[[Page 24929]]
collected will be treated as an operational reserve to offset future
fees and will not be distributed to the Participants as profits.\44\ In
addition, to address potential changes in the budget during the year,
the total budgeted costs for the CAT for the relevant year may be
adjusted on a quarterly basis as the Operating Committee reasonably
deems appropriate for the prudent operation of the Company. To the
extent that the Operating Committee adjusts the total budgeted costs
for the CAT for the relevant year during its quarterly budget review,
the adjusted total budgeted costs for the CAT will be used in
calculating the remaining quarterly CAT fees for that year.
---------------------------------------------------------------------------
\44\ CAT NMS Plan Approval Order at 84792.
---------------------------------------------------------------------------
The following chart summarizes the imposition of the Quarterly CAT
Fee each year commencing in 2023 and continuing each year thereafter:
----------------------------------------------------------------------------------------------------------------
CAT data used for
Quarterly CAT Fee Quarterly industry message traffic Payment due
member allocation calculation
----------------------------------------------------------------------------------------------------------------
Quarterly CAT Fee #1.............. 1/4 of 75% of the CAT Data from first 2nd quarter of the relevant
budgeted annual CAT quarter of the year.
costs for the relevant year.
relevant year.
Quarterly CAT Fee #2.............. 1/4 of 75% of the CAT Data from second 3rd quarter of the relevant
budgeted annual CAT quarter of the year.
costs for the relevant year.
relevant year.
Quarterly CAT Fee #3.............. 1/4 of 75% of the CAT Data from third 4th quarter of the relevant
budgeted annual CAT quarter of the year.
costs for the relevant year.
relevant year.
Quarterly CAT Fee #4.............. 1/4 of 75% of the CAT Data from fourth 1st quarter of year following
budgeted annual CAT quarter of the the relevant year.
costs for the relevant year.
relevant year.
----------------------------------------------------------------------------------------------------------------
(3) Time and Manner of Payment
The Exchange proposes to add paragraph (e) to the ``Consolidated
Audit Trail Funding Fees'' section of its fee schedule to describe the
time and manner of the payment of the Industry Member CAT fees as
provided in the Proposed CAT Fee Plan Amendment.\45\ Proposed paragraph
(e)(1) would state that ``Consolidated Audit Trail, LLC will provide
each Industry Member with an invoice setting forth the Industry
Member's Historical CAT Assessment, Period 3 CAT Fee, Period 4 CAT Fee
and/or Quarterly CAT Fee (as applicable) (collectively, ``CAT Fees'')
for each payment period.'' Proposed paragraph (e)(2) would state that
``Consolidated Audit Trail, LLC will provide each Industry Member with
one invoice each payment period for its CAT Fees as determined pursuant
to paragraph (a)-(d) above, regardless of whether the Industry Member
is a member of multiple self-regulatory organizations.'' Proposed
paragraph (e)(3) would state that ``[e]ach Industry Member will pay its
CAT Fees to the Consolidated Audit Trail, LLC via the centralized
system for the collection of CAT Fees established by the Consolidated
Audit Trail, LLC in the manner prescribed by the Consolidated Audit
Trail, LLC.'' Finally, proposed paragraph (e)(4) would require that
Industry Members pay their CAT Fees within thirty days after receipt of
an invoice or other notice indicating payment is due (unless a longer
payment period is otherwise indicated). If an Industry Member fails to
pay any such fee when due, such Industry Member shall pay interest on
the outstanding balance from such due date until such fee is paid at a
per annum rate equal to the lesser of (i) the Prime Rate plus 300 basis
points, or (ii) the maximum rate permitted by applicable law.\46\
---------------------------------------------------------------------------
\45\ See Proposed CAT Fee Plan Amendment at 21068.
\46\ CAT Reporters will be responsible for each quarterly fee in
which they are a CAT Reporter. If a CAT Reporter ceases to the meet
the definition of a CAT Reporter during a quarter, the CAT Reporter
will still be responsible for CAT fees attributable to its message
traffic (or, the minimum fee in the alternative) during that
quarter. See Proposed CAT Fee Plan Amendment at 21068.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirements of the Exchange Act. The Exchange believes that the
proposed rule change is consistent with Section 6(b)(5) of the Act
\47\, which requires, among other things, that the Exchange's rules
must be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest, and not designed
to permit unfair discrimination between customers, issuers, brokers and
dealers. The Exchange also believes that the proposed rule change is
consistent with the provisions of Section 6(b)(4) of the Act,\48\
because it provides for the equitable allocation of reasonable dues,
fees and other charges among members and issuers and other persons
using its facilities. The Exchange further believes that the proposed
rule change is consistent with Section 6(b)(8) of the Act \49\ which
requires that the Exchange's rules not impose any burden on competition
that is not necessary or appropriate in furtherance of the purpose of
the Exchange Act.
---------------------------------------------------------------------------
\47\ 15 U.S.C. 78f(b)(6).
\48\ 15 U.S.C. 78f(b)(4).
\49\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
Section 11.1(b) of the CAT NMS Plan states that ``[t]he
Participants shall file with the SEC under Section 19(b) of the
Exchange Act any such fees on Industry Members that the Operating
Committee approves.'' Per Section 11.1(b) of the CAT NMS Plan, the
Exchange has filed this proposed rule change to implement the Industry
Member CAT fees included in the CAT Funding Model approved by the
Operating Committee. The Exchange believes that this proposal is
consistent with the Exchange Act because it is consistent with, and
implements, the CAT Funding Model, and is designed to assist the
Exchange and its Industry Members in meeting regulatory obligations
pursuant to the CAT NMS Plan. In approving the CAT NMS Plan, the SEC
noted that the Plan ``is necessary and appropriate in the public
interest, for the protection of investors and the maintenance of fair
and orderly markets, to remove impediments to, and perfect the
mechanism of a national market system, or is otherwise in furtherance
of the purposes of the Act.'' \50\ To the extent that this proposal
implements the Plan, and applies specific requirements to Industry
Members, the Exchange believes that this proposal furthers the
objectives of the Plan, as identified by the SEC, and is therefore
consistent with the Exchange Act.
---------------------------------------------------------------------------
\50\ CAT NMS Plan Approval Order at 84696.
---------------------------------------------------------------------------
The Exchange further notes that, as provided in the Proposed CAT
Fee Plan Amendment, the Operating Committee determined that the
proposed Industry
[[Page 24930]]
Member CAT fees comply with the requirements of the Exchange Act and
the CAT NMS Plan.\51\ The Operating Committee determined that the
Industry Member CAT fees provide for the ``equitable allocation of
reasonable dues, fees, and other charges among its members and issuers
and other persons using its facilities necessary or appropriate in
furtherance of the purposes of this chapter,'' \52\ as required by the
Exchange Act. The Operating Committee determined that the CAT fees
equitably allocate CAT costs between Participants and Industry Members,
and among Industry Members, as discussed in detailed [sic] above. For
the reasons discussed above, the Operating Committee determined that
the 75%-25% allocation between Industry Members and Participants in the
CAT Funding Model as well as the use of message traffic for allocating
costs among Industry Members provide for an equitable allocation of CAT
costs among CAT Reporters. In addition, as discussed above, the
Operating Committee determined that the imposition of minimum and
maximum fees and market maker discounts would operate to provide for an
equitable allocation of CAT costs among Industry Members.
---------------------------------------------------------------------------
\51\ See Proposed CAT Fee Plan Amendment at 21068-70.
\52\ Sections 6(b)(4) and 15A(b)(5) of the Exchange Act.
---------------------------------------------------------------------------
As further provided in the Proposed CAT Fee Plan Amendment, the
Operating Committee also determined that the CAT Funding Model is ``not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers,'' \53\ as required by the Exchange Act, as the CAT
Funding Model does not unfairly discriminate between Industry Members
and Participants, or among Industry Members. In making this
determination, the Operating Committee noted that all Industry Members
are grouped together for the purpose of determining CAT fees, and
Industry Members with similar levels of activity would pay similar
fees. For example, Industry Members with higher levels of message
traffic would pay higher fees, and those with lower levels of message
traffic would pay lower fees. With the elimination of tiers in the
Original Funding Model, fees for Industry Members are directly related
to their message traffic. With tiers, the relationship between message
traffic and the CAT fee would not have been as direct.
---------------------------------------------------------------------------
\53\ Sections 6(b)(5) and 15A(b)(6) of the Exchange Act.
---------------------------------------------------------------------------
In addition, as discussed in the Proposed CAT Fee Plan Amendment,
where the method of fee calculation may potentially affect certain
groups of CAT Reporters adversely, the Operating Committee sought to
limit such adverse effects. For example, the Operating Committee
proposed market maker discounts to address the high levels of message
traffic generally exhibited by market makers. As discussed above, the
SEC has recognized repeatedly that such favorable treatment for market
makers in other contexts was not unfairly discriminatory or a burden on
competition in light of its positive effects on market quality, nor was
it considered to involve an inequitable allocation of fees among
members.
As also provided in the Proposed CAT Fee Plan Amendment, the
Operating Committee also proposed the Maximum Industry Member CAT Fee
to address the potential for significant fees based on outsized message
traffic for certain Industry Members. The Maximum Industry Member CAT
Fee would serve as a method to institute a cap on fees to fairly
allocate costs to Industry Members. Such a fee would prevent Industry
Members from paying significantly larger CAT fees than Participant
complexes.
The Proposed CAT Fee Plan Amendment notes that Operating Committee
also determined that the proposed Industry Member CAT fees would
promote just and equitable principles of trade, and, in general,
protect investors and the public interest, as the fees would be
transparent and relate specifically to CAT activity. The Operating
Committee also determined that the proposed fees were reasonable
because they would provide ease of calculation, ease of billing and
other administrative functions. Such factors are crucial to estimating
a reliable revenue stream for the Company.
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 6(b)(8) of the Act \54\ requires that the Exchange's rules
not impose any burden on competition that is not necessary or
appropriate in furtherance of the purpose of the Exchange Act. The
Exchange does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange notes that the
proposed rule change implements provisions of the CAT NMS Plan that are
subject to approval by the Commission and is designed to assist the
Exchange in meeting its regulatory obligations pursuant to the Plan.
The Exchange also notes that the proposed rule changes will apply
equally to all Industry Members, including its Nasdaq members. In
addition, all national securities exchanges and FINRA are proposing a
similar proposed fee change to implement the requirements of the CAT
NMS Plan. Therefore, this is not a competitive fee filing, and,
therefore, it does not raise competition issues between and among the
exchanges and FINRA.
---------------------------------------------------------------------------
\54\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
Moreover, the Exchange notes that, as discussed in the Proposed CAT
Fee Plan Amendment, the Operating Committee determined that the
proposed fees do not impose an unnecessary or inappropriate burden on
competition as they fairly and equitably allocate costs among CAT
Reporters.\55\ The Operating Committee determined that the cost
allocation between Participants and Industry Members recognizes the
greater number of Industry Members as compared to the Participants and
the greater collective revenue of Industry Members as compared to
Participants. In addition, cost allocations among Industry Members
based on message traffic fairly and equitably distribute CAT costs.
Furthermore, the market maker discounts and the Maximum Industry Member
CAT Fee address the potential for burdens on market makers and Industry
Members with outsized message traffic potentially resulting from the
proposed fee calculations. Moreover, the Operating Committee determined
that the Minimum Industry Member CAT Fee would not act as a barrier to
entry for smaller Industry Member CAT Reporters.
---------------------------------------------------------------------------
\55\ See Proposed CAT Fee Plan Amendment at 21070.
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\56\
---------------------------------------------------------------------------
\56\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act.
[[Page 24931]]
If the Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2021-029 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2021-029. 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 rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for 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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. 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 SR-NASDAQ-2021-029 and should be submitted
on or before June 1, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\57\
---------------------------------------------------------------------------
\57\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09779 Filed 5-7-21; 8:45 am]
BILLING CODE 8011-01-P
