Joint Industry Plan; Order Instituting Proceedings To Determine Whether To Approve or Disapprove an Amendment to the National Market System Plan Governing the Consolidated Audit Trail, 54558-54579 [2022-19111]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 87, Number 171 (Tuesday, September 6, 2022)]
[Notices]
[Pages 54558-54579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19111]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95634; File No. 4-698]


Joint Industry Plan; Order Instituting Proceedings To Determine 
Whether To Approve or Disapprove an Amendment to the National Market 
System Plan Governing the Consolidated Audit Trail

August 30, 2022.

I. Introduction

    On May 13, 2022, the Operating Committee for Consolidated Audit 
Trail, LLC (``CAT LLC''), on behalf of the following parties to the 
National Market System Plan Governing the Consolidated Audit Trail (the 
``CAT NMS Plan'' or ``Plan''): \1\ BOX Exchange LLC; Cboe BYX Exchange, 
Inc.; Cboe BZX Exchange, Inc.; Cboe EDGA Exchange, Inc.; Cboe EDGX 
Exchange, Inc.; Cboe C2 Exchange, Inc.; Cboe Exchange, Inc.; Financial 
Industry Regulatory Authority, Inc.; Investors Exchange LLC; Long-Term 
Stock Exchange, Inc.; MEMX, LLC; Miami International Securities 
Exchange LLC; MIAX Emerald, LLC; MIAX PEARL, LLC; Nasdaq BX, Inc.; 
Nasdaq GEMX, LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; Nasdaq PHLX LLC; 
The NASDAQ Stock Market LLC, New York Stock Exchange LLC; NYSE American 
LLC; NYSE Arca, Inc.; NYSE Chicago, Inc.; and NYSE National, Inc. 
(collectively, the ``Participants,'' ``self-regulatory organizations,'' 
or ``SROs'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') pursuant to Section 11A(a)(3) of the Securities 
Exchange Act of 1934 (``Exchange Act''),\2\ and Rule 608 thereunder,\3\ 
a proposed amendment to the CAT NMS Plan (``Proposed Amendment'') to 
implement a revised funding model (``Executed Share Model'') for the 
consolidated audit trail (``CAT'') and to establish a fee schedule for 
Participant CAT fees in accordance with the Executed Share Model 
(``Proposed Participant Fee Schedule'').\4\ The Proposed Amendment was 
published for comment in the Federal Register on June 1, 2022.\5\
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    \1\ The CAT NMS Plan is a national market system plan approved 
by the Commission pursuant to Section 11A of the Exchange Act and 
the rules and regulations thereunder. See Securities Exchange Act 
Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 
2016) (``CAT NMS Plan Approval Order''). The CAT NMS Plan functions 
as the limited liability company agreement of the jointly owned 
limited liability company formed under Delaware state law through 
which the Participants conduct the activities of the CAT 
(``Company''). On August 29, 2019, the Participants replaced the CAT 
NMS Plan in its entirety with the limited liability company 
agreement of a new limited liability company named Consolidated 
Audit Trail, LLC (``CAT LLC''), which became the Company. The latest 
version of the CAT NMS Plan is available at https://catnmsplan.com/about-cat/cat-nms-plan.
    \2\ 15 U.S.C. 78k-1(a)(3).
    \3\ 17 CFR 242.608.
    \4\ See Letter from Michael Simon, CAT NMS Plan Operating 
Committee Chair, to Vanessa Countryman, Secretary, Commission (May 
13, 2022) (``Transmittal Letter'').
    \5\ See Securities Exchange Act Release No. 94984 (May 25, 
2022), 87 FR 33226 (``Notice''). Comments received in response to 
the Notice can be found on the Commission's website at https://www.sec.gov/comments/4-698/4-698-a.htm.
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    This order institutes proceedings, under Rule 608(b)(2)(i) of 
Regulation NMS,\6\ to determine whether to disapprove the Proposed 
Amendment or to approve the Proposed Amendment with any changes or 
subject to any conditions the Commission deems necessary or 
appropriate.
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    \6\ 17 CFR 242.608(b)(2)(i).
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II. Background

    On July 11, 2012, the Commission adopted Rule 613 of Regulation 
NMS, which required the SROs to submit a national market system 
(``NMS'') plan to create, implement and maintain a consolidated audit 
trail that would capture customer and order event information for 
orders in NMS securities.\7\ On November 15, 2016, the Commission 
approved the CAT NMS Plan.\8\ Under the CAT NMS Plan, the Operating 
Committee of the Company, of which each Participant is a member, has 
the discretion (subject to the funding principles set forth in the 
Plan) to establish funding for the Company to operate the CAT, 
including establishing fees to be paid by the Participants and Industry 
Members.\9\
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    \7\ 17 CFR 242.613.
    \8\ See supra note 1.
    \9\ See CAT NMS Plan, supra note 1, at Section 11.1(b). The CAT 
NMS Plan defines ``Industry Member'' as ``a member of a national 
securities exchange or a member of a national securities 
association.'' See also id., at Section 1.1.
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    The Plan specified that, in establishing the funding of the 
Company, the Operating Committee shall establish ``a tiered fee 
structure in which the fees charged to: (1) CAT Reporters \10\ that are 
Execution Venues,\11\ including ATSs,\12\ are based upon the level of 
market share; (2) Industry Members' non-ATS activities

[[Page 54559]]

are based upon message traffic; and (3) the CAT Reporters with the most 
CAT-related activity (measured by market share and/or message traffic, 
as applicable) are generally comparable (where, for these comparability 
purposes, the tiered fee structure takes into consideration 
affiliations between or among CAT Reporters, whether Execution Venues 
and/or Industry Members).'' \13\ Under the Plan, such fees are to be 
implemented in accordance with various funding principles, including an 
``allocation of the Company's related costs among Participants and 
Industry Members that is consistent with the Exchange Act taking into 
account . . . distinctions in the securities trading operations of 
Participants and Industry Members and their relative impact upon the 
Company resources and operations'' and the ``avoid[ance of] any 
disincentives such as placing an inappropriate burden on competition 
and reduction in market quality.'' \14\
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    \10\ The CAT NMS Plan defines ``CAT Reporter'' as ``each 
national securities exchange, national securities association and 
Industry Member that is required to record and report information to 
the Central Repository pursuant to SEC Rule 613(c).'' Id. at Section 
1.1.
    \11\ The CAT NMS Plan defines ``Execution Venue'' as ``a 
Participant or an alternative trading system (`ATS') (as defined in 
Rule 300 of Regulation ATS) that operates pursuant to Rule 301 of 
Regulation ATS (excluding any such ATS that does not execute 
orders).'' Id.
    \12\ Id.
    \13\ Id. at Section 11.2(c). See Article XI of the CAT NMS Plan 
for additional detail.
    \14\ See CAT NMS Plan, supra note 1, at Section 11.2(b) and (e).
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    On May 15, 2020, the Commission adopted amendments to the CAT NMS 
Plan designed to increase the Participants' financial accountability 
for the timely completion of the CAT (``Financial Accountability 
Amendments'').\15\ The Financial Accountability Amendments added 
Section 11.6 to the CAT NMS Plan to govern the recovery from Industry 
Members of any fees, costs, and expenses (including legal and 
consulting fees, costs and expenses) incurred by or for the Company in 
connection with the development, implementation and operation of the 
CAT from June 22, 2020 until such time that the Participants have 
completed Full Implementation of CAT NMS Plan Requirements \16\ 
(``Post-Amendment Expenses''). Section 11.6 establishes target 
deadlines for four critical implementation milestones (Periods 1, 2, 3 
and 4) \17\ and reduces the amount of fee recovery available to the 
Participants if these deadlines are missed.\18\
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    \15\ See Securities Exchange Act Release No. 88890, 85 FR 31322 
(May 22, 2020).
    \16\ ``Full Implementation of CAT NMS Plan Requirements'' means 
``the point at which the Participants have satisfied all of their 
obligations to build and implement the CAT, such that all CAT system 
functionality required by Rule 613 and the CAT NMS Plan has been 
developed, successfully tested, and fully implemented at the initial 
Error Rates specified by Section 6.5(d)(i) or less, including 
functionality that efficiently permits the Participants and the 
Commission to access all CAT Data required to be stored in the 
Central Repository pursuant to Section 6.5(a), including Customer 
Account Information, Customer-ID, Customer Identifying Information, 
and Allocation Reports, and to analyze the full lifecycle of an 
order across the national market system, from order origination 
through order execution or order cancellation, including any related 
allocation information provided in an Allocation Report. This 
Financial Accountability Milestone shall be considered complete as 
of the date identified in a Quarterly Progress Report meeting the 
requirements of Section 6.6(c).'' See CAT NMS Plan, supra note 1, at 
Section 1.1.
    \17\ Id. at Section 11.6(a)(i).
    \18\ Id. at Section 11.6(a)(ii) and (iii).
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III. Summary of Proposal

    The Operating Committee proposes to replace the funding model set 
forth in Article XI of the CAT NMS Plan (the ``Original Funding 
Model'') with the Executed Share Model. The Original Funding Model uses 
a bifurcated funding approach in which costs associated with building 
and operating the CAT would be borne by (1) Industry Members (other 
than ATSs that execute transactions in Eligible Securities \19\ 
(``Execution Venue ATSs'')) through fixed tiered fees based on message 
traffic for Eligible Securities, and (2) Participants and Industry 
Members that are Execution Venue ATSs for Eligible Securities through 
fixed tiered fees based on market share. Unlike the Original Funding 
Model, the Executed Share Model would assess fees on clearing firms and 
Participants based on the executed equivalent share volume of 
transactions in Eligible Securities.
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    \19\ The CAT NMS Plan defines ``Eligible Securities'' as 
including all NMS securities and all OTC Equity Securities. See CAT 
NMS Plan, supra note 1, at Section 1.1. See also Notice, supra note 
5, 87 FR at 33228.
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    The Operating Committee also proposes to adopt a fee schedule to 
establish the CAT fees applicable to Participants based on the Executed 
Share Model. The Participant Fee Schedule would establish the process 
for calculating the CAT fees applicable to Participants under the 
Executed Share Model.

A. Description of Amendments

1. Allocation of Fee Among Participants and Industry Member Clearing 
Brokers
    Pursuant to the Proposed Amendment, a CAT fee would be imposed on 
all transactions in Eligible Securities, whether occurring on-exchange 
or over-the-counter.\20\ For each transaction, the applicable 
Participant,\21\ the Industry Member clearing broker for the seller 
(``CBS'') and the Industry Member clearing broker for the buyer 
(``CBB'') would each pay a fee equal to the number of executed 
equivalent shares in the transaction \22\ multiplied by one-third and a 
specified fee rate (``Fee Rate'').\23\ According to the Operating 
Committee, requiring the CBS, the CBB and the Participant in a 
transaction to pay one-third of the fee recognizes their roles in the 
transaction \24\ and would increase the Participants' cost 
responsibility to 33% from the 25% proposed in the prior fee 
proposals.\25\ The Operating Committee explains that it decided to 
assess fees upon clearing firm Industry Members because this is the 
current practice for fees such as the options regulatory fee (``ORF'') 
and would reduce administrative burdens.\26\ The Operating Committee 
acknowledges that this approach ``may impose an excessive financial 
burden'' on clearing firms and suggests that they pass-through the CAT 
fees to their client, who may pass-through their CAT fees until the 
fees are imposed on the account that executed the transaction.\27\
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    \20\ See Notice, supra note 5, 87 FR at 33228. Specifically, CAT 
fees would be charged with regard to trades reported to CAT by the 
national securities exchanges and by FINRA via the Alternative 
Trading Facility (``ADF''), Over-the-Counter Reporting Facility 
(``ORF'') and the Trade Reporting Facilities (``TRF''). Id. at 
33234.
    \21\ The applicable Participant for the transaction would be the 
national securities exchange on which the transaction was executed 
or FINRA for a transaction that was not executed on an exchange. Id. 
at 33226, 33227.
    \22\ CAT Data would be used to calculate the CAT fees. 
Specifically, CAT Data would be used to identify the clearing 
brokers for each transaction. Id. at 33234. CAT Data is defined as 
``data derived from Participant Data, Industry Member Data, SIP 
Data, and such other data as the Operating Committee may designate 
as `CAT Data' from time to time.'' See CAT NMS Plan, supra note 1, 
at Section 1.1. The Participants explain that using CAT Data for CAT 
fee calculations provides administrative efficiency since the data 
is accessible through the CAT. See Notice, supra note 5, 87 FR at 
33234.
    \23\ See Notice, supra note 5, 87 FR at 33226, 33229.
    \24\ Id. at 33232.
    \25\ Id. at 33233. See also infra note 118.
    \26\ See Notice, supra note 5, 87 FR at 33233.
    \27\ Id. The Operating Committee explains that this pass-through 
process would be similar to how Industry Members handle other fees, 
such as Section 31 fees and the ORF. Id.
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2. Calculation of the Fee Rate
    The Executed Share Model would apply to the recovery of certain CAT 
costs that have already been paid by the Participants (``Past CAT 
Costs'') through the assessment of a fee on the CBS and the CBB in a 
transaction.\28\ Participants, CBSs and CBBs would be subject to fees 
for the ongoing budgeted costs of the CAT, as determined by the 
Operating Committee, after the implementation of

[[Page 54560]]

the CAT fees (``Prospective CAT Costs'').\29\
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    \28\ Id. at 33227.
    \29\ Id. at 33226.
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    For Prospective CAT Costs, under the Proposed Amendment, at the 
beginning of each year, the Operating Committee would set the Fee Rate 
to be used to determine CAT fees \30\ and would announce the applicable 
Fee Rate via a CAT alert.\31\ Specifically, the Operating Committee 
would calculate the Fee Rate applicable to Participants and clearing 
brokers by dividing the CAT costs budgeted for the upcoming year by the 
projected total executed equivalent share volume of all transactions in 
Eligible Securities for that year.\32\ In addition to setting the Fee 
Rate at the beginning of a year, the Operating Committee may, but is 
not required to, adjust the Fee Rate once during the year either to 
coordinate the CAT fees with adjustments to budgeted or actual CAT 
costs or volume projections during the year.\33\ The Operating 
Committee explains that this would avoid too frequent Fee Rate changes 
for CAT Reporters.\34\ Once set, a Fee Rate would remain in effect 
until a new Fee Rate is adopted.\35\ The Operating Committee asserts 
that this would prevent periods without the collection of CAT fees, 
which would ``adversely affect the ability of the CAT to fund its 
operations and, therefore, would have a significant negative effect on 
the CAT's ability to fulfill its regulatory purpose.'' \36\ The 
Operating Committee will not file an amendment to the CAT NMS Plan 
every time it adopts or adjusts the Fee Rate.\37\ However, the 
Participants would each submit fee filings under Section 19(b) to 
implement any new Fee Rates or adjustments to the Fee Rate applicable 
to Industry Members.\38\
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    \30\ The Fee Rate would be established through a majority vote 
of the Operating Committee. See Notice, supra note 5, 87 FR at 
33227.
    \31\ Id.
    \32\ Id. at 33226-27.
    \33\ Id. at 33227.
    \34\ Id.
    \35\ Id. The Operating Committee states that that the Fee Rate 
would not automatically terminate. See Notice, supra note 5, 87 FR 
at 33227.
    \36\ Id. The Operating Committee also states that this would 
ensure that it would have the CAT budget and CAT Data to collect CAT 
fees. Id.
    \37\ Id.
    \38\ Id. at 33227, n.12; id. at 33229. The Participants expect 
to provide advance notice of Fee Rate changes before implementing 
such changes. See Notice, supra note 5, 87 FR at 33229, n.23.
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a. Executed Equivalent Share Volume
    Under the Proposed Amendment, executed equivalent share volume 
would be used both to determine the CAT fee for a transaction in 
Eligible Securities and to calculate the applicable Fee Rate. The 
Operating Committee states that ``trading activity provides a 
reasonable proxy for cost burden on the CAT, and therefore is an 
appropriate metric for allocating CAT costs among CAT Reporters.'' \39\
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    \39\ Id. at 33232.
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    The Operating Committee explains that the Executed Share Model 
would use the concept of executed equivalent share volume because NMS 
Stocks, Listed Options and OTC Equity Securities, which comprise 
Eligible Securities, each have different trading characteristics.\40\ 
For NMS Stocks, each executed share for a transaction would be counted 
as one executed equivalent share.\41\ For Listed Options, each executed 
contract for a transaction would be counted using the contract 
multiplier applicable to the specific Listed Option in the transaction 
(one Listed Option typically represents 100 shares, but it may 
represent a different number of shares).\42\ Each executed share for a 
transaction in OTC Equity Securities would be counted as 0.01 executed 
equivalent shares.\43\ The Operating Committee states that a 
``disproportionately large number of shares are involved in 
transactions involving OTC Equity Securities versus NMS Stocks'' 
because many OTC Equity Securities are priced below one-dollar per 
share and lower priced shares trade in larger quantities.\44\ 
Therefore, the Operating Committee proposes to apply a discount to 
executed shares for transactions in OTC Equity Securities as otherwise, 
CAT Reporters transacting in OTC Equity Securities would incur higher 
CAT fees under the Executed Share Model.\45\ The Operating Committee 
explains that the discount was based on an analysis of different 
metrics comparing the markets for OTC Equity Securities and NMS 
Stocks.\46\
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    \40\ Id. at 33228.
    \41\ Id.
    \42\ Id.
    \43\ Id.
    \44\ See Notice, supra note 5, 87 FR at 33228.
    \45\ Id. at 33228-29.
    \46\ Id. at 33229.
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    As discussed above, the Operating Committee would calculate the Fee 
Rate applicable to Participants and clearing brokers by dividing the 
CAT costs budgeted for the upcoming year by the projected total 
executed equivalent share volume of all transactions in Eligible 
Securities for that year.\47\ To determine the projected total executed 
equivalent share volume of transactions in Eligible Securities for a 
year, the Operating Committee would double the total executed 
equivalent share volume from the prior six months.\48\ The Operating 
Committee explains that data from the prior six months ``provides an 
appropriate balance between using data from a period that is 
sufficiently long to avoid short term fluctuations while providing data 
close in time to the upcoming year.'' \49\ The Operating Committee 
represents that it would regularly monitor the actual total executed 
equivalent share volume for deviations from the projected volume.\50\
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    \47\ Id. at 33226-27.
    \48\ Id. at 33228. The Participants state that CAT Data would be 
used in the calculation of the projected total executed equivalent 
share volume for the Fee Rate. Id. at 33234.
    \49\ See Notice, supra note 5, 87 FR at 33228.
    \50\ Id.
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    The Operating Committee would be permitted to adjust the projected 
volume as it reasonably deems appropriate for the prudent operation of 
the Company, basing the adjusted projection on the total executed 
equivalent share volume of transactions from six months prior to the 
date of the determination of the new projection.\51\ If the Operating 
Committee adjusts the projection during the year and decides to adjust 
the Fee Rate, the adjusted projection would be used to calculate the 
new Fee Rate for the remaining months in the year.\52\ The Operating 
Committee would provide the projected total executed equivalent share 
volume for transactions in Eligible Securities and any adjustments to 
the projections on the CAT NMS Plan website.\53\
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    \51\ Id. The projected volume would be adjusted to address 
potential deviations of the projections from actual transactions 
during the year. Id.
    \52\ Id.
    \53\ Id.
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    The Operating Committee asserts that the use of executed equivalent 
share volume would be an improvement to the Original Funding Model's 
use of message traffic.\54\ First, the Operating Committee states that 
a study of CAT cost drivers demonstrated that, while message traffic is 
a factor in CAT costs, technology costs, such as data processing and 
storage costs, are the primary factors in CAT costs.\55\ Second, the 
Operating Committee explains that fees based on message traffic could 
adversely impact certain Industry

[[Page 54561]]

Member because such fees ``may not correlate with common revenue or fee 
models.'' \56\ Third, the Operating Committee asserts that fees based 
on message traffic could increase complexity and adversely impact 
``competition, liquidity, or other aspects of market structure.'' \57\ 
One example would be market makers who typically generate high levels 
of message traffic, and would likely have ``outsized fees'' with 
message traffic-based fees.\58\ Further, the Operating Committee 
explains that because the number of messages vary per order, the use of 
message traffic to determine CAT fees could result in unpredictable 
fees for Industry Members.\59\ The Operating Committee also states that 
the Commission has recognized the use of transaction volume in setting 
fees, providing FINRA's Trading Activity Fee (``TAF'') as an 
example.\60\
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    \54\ The Original Funding Model uses message traffic as the 
basis of Industry Member CAT fees. See Section 11.3(b) of the CAT 
NMS Plan, supra note 1. In a response to comments on the CAT NMS 
Plan Approval Order, the Participants stated that, ``because there 
is a strong correlation between message traffic and the size of a 
broker-dealer and because message traffic is a key component of the 
costs of operating the CAT, message traffic is an appropriate 
criteria for placing broker-dealers in a particular fee tier.'' See 
Letter from the Participants to Brent J. Fields, Secretary, 
Commission, at 23 (Sept. 23, 2016), available at https://www.sec.gov/comments/4-698/4-698.shtml.
    \55\ See Notice, supra note 5, 87 FR at 33232.
    \56\ Id.
    \57\ Id.
    \58\ Id. The Operating Committee states that it had proposed a 
discount on market maker fees in prior models, but such a discount 
would add complexity. Id.
    \59\ Id.
    \60\ See Notice, supra note 5, 87 FR at 33232.
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    In addition, the Operating Committee asserts that the Executed 
Share Model would not unfairly burden or favor a product or product 
type \61\ because the model recognizes the different types of 
securities by counting executed equivalent share volume differently for 
NMS Stocks, Listed Options and OTC Equity Securities.\62\
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    \61\ Id. at 33233-34.
    \62\ Id.
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b. Budgeted Costs
    Section 11.1(a) of the CAT NMS Plan requires the Operating 
Committee to annually approve an operating budget for the Company which 
would include projected costs to develop and operate the CAT for the 
year, the sources of revenue to cover the costs, and the funding of any 
reserve the Operating Committee reasonably deems appropriate for the 
prudent operation of the Company.\63\ The Operating Committee proposes 
that the budgeted costs set forth in the annual operating budget would 
be used to determine the Fee Rate.\64\ The budgeted costs would 
comprise estimated fees, costs and expenses to be incurred by the 
Company for the development, implementation and operation of the CAT 
during the year, which would include costs for the Plan Processor, 
insurance, and third-party support, as well as an operational 
reserve.\65\ The Operating Committee states that using budgeted CAT 
costs to determine the Fee Rate would allow the Company to collect fees 
before bills become payable.\66\
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    \63\ See CAT NMS Plan, supra note 1, at Section 11.1(a).
    \64\ See Notice, supra note 5, 87 FR at 33227.
    \65\ Id. Any surpluses collected will be treated as an 
operational reserve to offset future fees and will not be 
distributed to the Participants as profits, in accordance with 
Section 11.1(c) of the CAT NMS Plan. Id. at 33228.
    \66\ Id. at 33227.
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    Under the Proposed Amendment, the budgeted CAT costs for the year 
could be adjusted to address potential changes related to the CAT as 
the Operating Committee reasonably deems appropriate for the prudent 
operation of the Company.\67\ If the Operating Committee adjusts 
budgeted CAT costs during the year, the adjusted budgeted CAT costs 
would be used to calculate a new Fee Rate for the remaining months of 
the year.\68\
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    \67\ Id. at 33228. The Operating Committee explains that an 
adjustment to the budget may be necessary if actual costs are more 
or less than the budget or if there are unanticipated expenditures. 
Id.
    \68\ See Notice, supra note 5, 87 FR at 33228.
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3. Past CAT Costs
    The Operating Committee proposes that CBBs and CBSs would be 
required to pay CAT fees related to Past CAT Costs, which are certain 
costs that the Participants have already paid prior to the 
effectiveness of the CAT fees pursuant to the Executed Share Model.\69\ 
The Operating Committee states that Past CAT Costs incurred prior to 
January 1, 2022 are $337,688,610, which does not include $48,874,937 of 
excluded costs that the Participants do not intend to collect from 
Industry Members (``Excluded Costs'').\70\ Under the Executed Share 
Model, $225,125,740 of the $337,688,610 in Past CAT Costs would be paid 
by CBBs and CBSs. Specifically, CBBs would pay one-third of 
$337,688,610 ($112,562,870), and CBSs would pay one-third of 
$337,688,610 ($112,562,870).\71\ The Operating Committee states that 
the Participants would not pay the remaining one-third because they 
have already paid this amount,\72\ explaining that they have paid all 
CAT costs to date.\73\ The Participants would not be reimbursed for the 
remaining one-third \74\ and they would be responsible for 100% of the 
Excluded Costs as well as certain costs related to the conclusion of 
the relationship with the Initial Plan Processor.\75\ CBBs and CBSs 
would also be required to pay CAT fees for CAT costs incurred between 
January 1, 2022 and the implementation of the CAT fee.\76\ The actual 
CAT costs for 2022 will be available in audited financial statements 
after the end of the year.\77\
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    \69\ Id. at 33230.
    \70\ Id. The Proposed Amendment states that the Excluded Costs 
were incurred from November 15, 2017 through November 15, 2018 and 
are related to the delay in the start of reporting to the CAT.
    \71\ Id.
    \72\ Id.
    \73\ Id. at 33227.
    \74\ See Notice, supra note 5, 87 FR at 33230.
    \75\ Id.
    \76\ Id.
    \77\ Id.
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    The CAT fee for Past CAT Costs would be calculated by multiplying 
the number of executed equivalent shares in the transaction by one-
third and by the Fee Rate approved by the Operating Committee.\78\ 
Current CBSs and CBBs would pay a CAT fee for Past CAT Costs calculated 
by multiplying the executed equivalent share volume of the transactions 
they cleared in the past month by the applicable Fee Rate (calculated 
based on Past CAT Costs and current projected total equivalent share 
volume) and by one-third.\79\ The Operating Committee explains that it 
is appropriate to impose fees for Past CAT Costs on current Industry 
Members, and not on Industry Members active when the Past CAT Costs 
were incurred, using their current activity since they would be 
benefiting from the CAT.\80\ The Operating Committee further explains 
that it would be difficult to impose fees on Industry Members for their 
activity in the past because some Industry Members may no longer be in 
business and it might be difficult to establish transactions from years 
past.\81\ The Operating Committee adds that Industry Members would not 
have taken into consideration retroactive fees when entering into the 
past transactions.\82\
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    \78\ Id.
    \79\ Id.
    \80\ See Notice, supra note 5, 87 FR at 33230.
    \81\ Id.
    \82\ Id.
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    The Fee Rate for Past CAT Costs would be calculated by dividing the 
Past CAT Costs for a period determined by the Operating Committee 
(``relevant period'') by the projected total executed equivalent share 
volume of all transactions in Eligible Securities for the relevant 
period.\83\ The Fee Rate for CAT fees related to Past CAT Costs would 
be calculated using the actual past costs and not budgeted costs.\84\
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    \83\ Id.
    \84\ Id.
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    The Proposed Amendment states that ``[t]he CAT fees related to past 
CAT Costs would be calculated based on current transactions, not 
transactions that occurred in the past when the costs were incurred, 
and collected from current Industry Members, not Industry

[[Page 54562]]

Members active in the past when the costs were incurred.'' \85\ The 
Proposed Amendment provides the following example of the calculation of 
CAT fees for Past CAT Costs: ``if the CAT fee were in place for June 
2022, each CBB and CBS with transactions in Eligible Securities in May 
2022 would pay a CAT fee related to Past CAT Costs calculated by 
multiplying the executed equivalent share volume of the transactions 
they cleared in May 2022 by the applicable Fee Rate (calculated based 
on Past CAT Costs and current projected total equivalent share volume) 
and by one-third.'' \86\
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    \85\ Id.
    \86\ See Notice, supra note 5, 87 FR at 33230.
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    The one-third of Past CAT Costs that are not allocated to Industry 
Members would not be allocated to the Participants under the Executed 
Share Model.\87\ The Operating Committee instead proposes that CAT fees 
for such Past CAT Costs that are collected from Industry Members would 
be allocated to the Participants on a pro rata basis to repay 
outstanding loan notes of the Participants to the Company.\88\
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    \87\ Id.
    \88\ Id.
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4. Assessment and Collection of Fees
    The Operating Committee proposes to establish a system for the 
collection of CAT fees from Participants and Industry Members in 
compliance with Section 11.4 and Section 3.7(b) of the CAT NMS Plan. 
Participants would be required to pay monthly fees based on 
transactions in Eligible Securities from the prior month.\89\ The Plan 
Processor would calculate the CAT fees for each Participant using 
transaction data based on CAT Data for the Participant.\90\ 
Participants would be required to begin paying CAT fees in the first 
month after the conclusion of the period covered by the Financial 
Accountability Milestones, subject to Commission approval of the 
Proposed Amendment and the CAT fees becoming effective for Participants 
and Industry Members.\91\ Unless a longer period is indicated, within 
thirty days of receiving an invoice or other notice requesting payment, 
each Participant would be required to pay all fees or other amounts 
required to be paid, and interest on an outstanding balance until such 
fee or amount is paid at a per annum rate the lesser of (i) the Prime 
Rate plus 300 basis points, or (ii) the maximum rate permitted by 
applicable law.\92\
---------------------------------------------------------------------------

    \89\ Id. at 33229.
    \90\ Id.
    \91\ Id.
    \92\ See Notice, supra note 5, 87 FR at 33229.
---------------------------------------------------------------------------

5. Industry Member CAT Fees
    As proposed, the Participants would each submit fee filings under 
Section 19(b) to adopt CAT fees for their Industry Members and would 
also submit a fee filings under Section 19(b) to implement any new Fee 
Rates or adjustments to the Fee Rate.\93\ The Participants would submit 
Section 19(b) fee filings for Industry Member CAT fees related to 
Prospective CAT Costs \94\ and Section 19(b) fee filings for Industry 
Member CAT fees related to Past CAT Costs.\95\ For Prospective CAT 
Costs, the fee filings would require CBBs and CBSs to pay a monthly fee 
for each transaction they clear from the prior month.\96\
---------------------------------------------------------------------------

    \93\ Id. at 33226-29. The Participants expect to provide advance 
notice of Fee Rate changes before implementing such changes. Id. at 
33229, n.23.
    \94\ Id. at 33229.
    \95\ Id. at 33230.
    \96\ Id. at 33229. The CAT fees would be calculated by the Plan 
Processor using transaction data in CAT Data. See Notice, supra note 
5, 87 FR at 33229-30.
---------------------------------------------------------------------------

6. Cost Discipline Mechanisms
    The Operating Committee states that CAT cost discipline 
mechanisms--specifically, a cost-based funding structure, cost 
transparency, cost management efforts, and oversight--help ensure the 
ongoing reasonableness of CAT costs and fees.\97\ With respect to the 
funding structure, the Operating Committee states that, pursuant to the 
CAT NMS Plan, the Company operates on a break-even basis and as a 
business league under Section 501(c)(6) of the Internal Revenue 
Code.\98\ On transparency, the Operating Committee states that the 
Company makes detailed financial information about the CAT publicly 
available, including maintaining a web page that makes publicly 
available consolidated annual financial statements.\99\ The Company 
also publishes on the web page the Company's annual operating budget 
and updates to the budget.\100\ In addition, the Operating Committee 
states that it has held webinars for the industry that covered CAT 
costs and potential alternative funding models and that they intend to 
hold additional webinars on cost and funding in the future.
---------------------------------------------------------------------------

    \97\ Id. at 33234.
    \98\ Id. at 33234-35.
    \99\ Id. at 33235.
    \100\ Id.
---------------------------------------------------------------------------

    With respect to cost management efforts, the Operating Committee 
maintains that it regularly undertakes efforts to reduce CAT costs and 
oversees the CAT's annual budget with input from several CAT working 
groups, including a Cost Management Working Group. The Operating 
Committee also states that the Plan Processor engages in efforts to 
provide its services cost-effectively, such as by ``review[ing] options 
to lower computer and storage needs.'' \101\ Finally, the Operating 
Committee explains that the Commission has oversight over the CAT's 
funding and operations and that proposed amendments to the Plan to 
implement fees and cost management efforts are subject to review by the 
Commission and the public.\102\
---------------------------------------------------------------------------

    \101\ Id.
    \102\ See Notice, supra note 5, 87 FR at 33235.
---------------------------------------------------------------------------

7. Conforming Changes to CAT NMS Plan
    In order for the Executed Share Model to be consistent with the 
terms of the CAT NMS Plan, the Operating Commission proposes to amend 
certain sections to the CAT NMS Plan, as described below.
a. Definition of Execution Venue
    The Operating Committee proposes to delete the term ``Execution 
Venue'' from Section 1.1 of the CAT NMS Plan.\103\ The Operating 
Committee explains that the concept of an Execution Venue was relevant 
to the Original Funding Model which would have charged fees to 
Execution Venues fees based on market share, but is not relevant for 
the Executed Share Model because CAT fees would be allocated based on 
executed equivalent shares in transactions by Participants, CBBs and 
CBSs.\104\
---------------------------------------------------------------------------

    \103\ Id. at 33237.
    \104\ Id.
---------------------------------------------------------------------------

b. Use of Executed Equivalent Shares for CAT Fees
    The Operating Committee also proposes to amend Sections 11.2(b) and 
(c) and Sections 11.3(a) and (b) of the CAT NMS Plan to incorporate the 
use of executed equivalent shares in transactions in Eligible 
Securities to calculate CAT fees.\105\ The proposed amendments to 
Section 11.2 of the CAT NMS Plan would revise the CAT NMS Plan's 
funding principles which were intended to be used to establish a fee 
structure that is equitable.\106\ The Operating Committee proposes to 
amend Section 11.2(b) to remove the requirement that in establishing 
funding for the Company, the Operating Committee would seek to take 
into account distinctions in the securities trading operations of 
Participants and Industry Members.\107\ The Operating Committee 
explains that this provision was related to the use of message traffic

[[Page 54563]]

and market share to calculate CAT fees because these related to the 
impact of CAT Reporters on the Company's resources and operations.\108\ 
The Operating Committee states that this provision is not relevant 
under the Executed Share Model, which would not use message traffic or 
market share to calculate CAT fees.\109\
---------------------------------------------------------------------------

    \105\ Id. at 33237-38.
    \106\ See CAT NMS Plan, supra note 1, at Appendix C-85.
    \107\ See Notice, supra note 5, 87 FR at 33238.
    \108\ Id.
    \109\ Id.
---------------------------------------------------------------------------

    The Operating Committee further proposes to amend Section 11.2(c) 
to remove statements that fees charged to Industry Members and 
Execution Venues would be based on message traffic and level of market 
share, respectively.\110\ The statements would be replaced with the 
requirement that fees charged to Industry Members and Participants 
would be based on executed equivalent share volume of transactions in 
Eligible Securities.\111\
---------------------------------------------------------------------------

    \110\ Id.
    \111\ Id.
---------------------------------------------------------------------------

    Section 11.3(a) of the CAT NMS Plan describes how fees will be 
assessed and calculated for Execution Venues and Section 11.3(b) 
describes how fees will be assessed and calculated for Industry 
Members.\112\ The Operating Committee proposes to delete the text of 
Section 11.3(a) and (b) and replace it with a description of how fees 
would be assessed and calculated for Participants and clearing brokers 
under the Executed Share Model.\113\ The Operating Committee also 
proposes to add to Section 11.3(a) new Sections 11.3(a)(ii), (a)(iii) 
and (a)(iv) to require the Participants to pay Prospective CAT Costs, 
to describe how the Fee Rate will be calculated for Prospective CAT 
Costs, and to state that the Participants are not required to pay a CAT 
fee related to Past CAT Costs and that the two-thirds of the Past CAT 
Costs collected from Industry Members would be allocated on a pro rata 
basis to the Participants for repayment of outstanding loan notes to 
the Company.\114\ In addition, the Operating Committee proposes to add 
to Section 11.3(b) new Sections 11.3(b)(iii) and (b)(iv) to require 
clearing brokers to pay CAT fees related to Past CAT Costs, to describe 
how the Fee Rate will be calculated for Past CAT Costs, and to describe 
the clearing brokers' obligation to pay a CAT fee for Prospective CAT 
Costs.\115\
---------------------------------------------------------------------------

    \112\ See CAT NMS Plan, supra note 1, at Sections 11.3(a) and 
11.3(b).
    \113\ See Notice, supra note 5, 87 FR at 33238, 33239.
    \114\ Id. at 33238.
    \115\ Id. at 33239.
---------------------------------------------------------------------------

c. Elimination of Tiered Fees
    The Operating Committee proposes to remove references to tiered 
fees and related concepts from Sections 11.1(d), 11.2(c), 11.3(a) and 
11.3(b) of the CAT NMS Plan.\116\ The Operating Committee explains that 
the Executed Share Model would not charge a tiered fee and would 
instead charge Participants, CBBs and CBSs a CAT fee that is based on 
their executed equivalent share volume.\117\ The Operating Committee 
asserts that this would address commenters' concerns about the use of 
tiering in the Participants' proposed 2018 and 2021 funding 
models.\118\
---------------------------------------------------------------------------

    \116\ Id.
    \117\ Id.
    \118\ Id. See also Securities Exchange Act Release Nos. 82451 
(Jan. 5, 2018), 83 FR 1399 (Jan. 11, 2018) (notice of filing of the 
2018 proposed CAT funding model); 91555 (Apr. 14, 2021), 86 FR 21050 
(Apr. 21, 2021) (notice of filing of the 2021 proposed CAT funding 
model). Both prior funding model proposals were withdrawn by the 
Participants. See Securities Exchange Act Release Nos. 82892 (Mar. 
16, 2018), 83 FR 12633 (Mar. 22, 2018) (withdrawal of the 2018 
proposed CAT funding model); 93817 (Dec. 17, 2021), 86 FR 72656 
(Dec. 22, 2021) (withdrawal of the 2021 proposed CAT funding model).
---------------------------------------------------------------------------

d. No Fixed Fees
    The Operating Committee proposes to replace references to ``fixed 
fees'' in Section 11.3(a) of the CAT NMS Plan with ``fees.'' \119\ The 
Operating Committee explains that the concept of a fixed fee is not 
relevant under the Executed Share Model, under which fees for 
Participants, CBBs and CBSs would vary in accordance with the executed 
equivalent share volume of transactions.\120\
---------------------------------------------------------------------------

    \119\ See Notice, supra note 5, 87 FR at 33240.
    \120\ Id.
---------------------------------------------------------------------------

8. Alternative Models Considered
    The Operating Committee describes several other potential funding 
models that it considered but dismissed and explains why the Executed 
Share Model was the best choice. The alternative models discussed are 
the Participants' proposed 2018 and 2021 funding models,\121\ a model 
in which Industry Members and Participants would pay fees solely based 
on revenue,\122\ a model in which both Industry Members and 
Participants would pay fees based on message traffic in the CAT,\123\ 
and a model that would calculate a CAT fee similar to the proposed 
Executed Share Model except only the CBS would be assessed a fee and 
not the CBB or Participant in a transaction.\124\ The Operating 
Committee also briefly describes other possible funding models it 
considered but concluded that the Executed Share Model was the most 
advantageous model and that it provides an equitable allocation of 
reasonable fees among CAT Reporters.\125\
---------------------------------------------------------------------------

    \121\ Id. at 33235-36.
    \122\ Id. at 33236.
    \123\ Id. at 33237.
    \124\ Id.
    \125\ See Notice, supra note 5, 87 FR at 33237.
---------------------------------------------------------------------------

9. Consistency With the CAT NMS Plan and the Exchange Act
    The Operating Committee attests that the Executed Share Model 
satisfies the CAT NMS Plan funding principles and other requirements, 
as proposed to be amended by the Proposed Amendment, as well as 
requirements of the Exchange Act.\126\ Specifically, the Operating 
Committee explains that the Executed Share Model satisfies the funding 
principles in Section 11.2(a)-(f) of the CAT NMS Plan, as proposed to 
be amended by the Proposed Amendment,\127\ and that the Executed Share 
Model would satisfy Section 11.1(c) of the CAT NMS Plan, which requires 
the Company to time the imposition and collection of fees in a manner 
reasonably related to the timing when the Company expects to incur 
development and implementation costs, and which requires that any 
surplus of Company resources over its expenses be treated as an 
operational reserve to offset future fees.\128\ The Operating Committee 
adds that the Company intends to operate as a business league within 
the meaning of Section 501(c)(6) of the Internal Revenue Code, as 
stated in Article VIII. of the CAT NMS Plan, which requires the Company 
to not be organized for profit and that no part of its net earnings can 
inure to the benefit of any private shareholder or individual.\129\
---------------------------------------------------------------------------

    \126\ Id. at 33241.
    \127\ Id. at 33241-42.
    \128\ Id. at 33242.
    \129\ Id.
---------------------------------------------------------------------------

    The Operating Committee also argues that the Executed Share Model 
is consistent with Exchange Act requirements. Specifically, the 
Operating Committee explains that the proposed CAT fees would provide 
for the equitable allocation of reasonable dues, fees and other 
charges,\130\ that the Executed Share Model would provide for 
reasonable fees,\131\ and that it is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.\132\ 
Further, the Operating Committee attests that the Executed Share Model 
would not impose any burden on competition that

[[Page 54564]]

is not necessary or appropriate,\133\ and that the proposed fee 
schedule fairly and equitably allocates costs among CAT Reporters.\134\
---------------------------------------------------------------------------

    \130\ Id. See also 15 U.S.C. 78f(b)(4), 15 U.S.C. 78o-3(b)(5).
    \131\ See Notice, supra note 5, 87 FR at 33242.
    \132\ Id. at 33243. See also 15 U.S.C. 78f(b)(5), 15 U.S.C. 78o-
3(b)(6).
    \133\ See Notice, supra note 5, 87 FR at 33243. See also 15 
U.S.C. 78f(b)(8), 15 U.S.C. 78o-3(b)(9).
    \134\ See Notice, supra note 5, 87 FR at 33243.
---------------------------------------------------------------------------

    In further support of the Proposed Amendment, the Operating 
Committee asserts that the Executed Share Model is similar to existing 
fees,\135\ is a straightforward approach,\136\ results in predictable 
fees,\137\ is easy to administer,\138\ and treats different trading 
products and venues equally.\139\ The Operating Committee explains that 
the Executed Share Model would operate similarly to sales value fees 
that the Commission previously determined were consistent with the 
Exchange Act: specifically, Section 31 fees, FINRA's TAF, and the 
ORF.\140\ The Operating Committee represents that the number of 
executed equivalent shares in a transaction and the Fee Rate would be 
made readily available and the adjustments for Listed Options and for 
OTC Equity Securities would be straightforward calculations.\141\ The 
Operating Committee further asserts that the fees would be predictable 
because the Fee Rate would be established in advance so CAT Reporters 
could calculate for themselves the applicable fees and can estimate and 
validate their fees using their trading data,\142\ and that customers 
who would be the recipient of pass-through CAT fees could also 
calculate their own fees.\143\ Additionally, the Operating Committee 
represents that administration of CAT fees would be simple because the 
Executed Share Model relies on a basic calculation and a predetermined 
Fee Rate, and fees would be collected in a manner similar to the 
collection of other Industry Member fees.\144\ The Operating Committee 
also attests that the Executed Share Model would treat transactions 
equally regardless of the venue on which they are executed by applying 
the same Fee Rate to securities executed on-exchange or over-the-
counter and regardless of how the trade occurred.\145\ Further, the 
Operating Committee explains that the Executed Share Model would 
recognize the different trading characteristics of different securities 
by counting executed equivalent share volume differently for NMS 
Stocks, Listed Options and OTC Equity Securities.\146\
---------------------------------------------------------------------------

    \135\ Id. at 33231-32.
    \136\ Id. at 33233.
    \137\ Id.
    \138\ Id.
    \139\ Id. at 33233-34.
    \140\ See Notice, supra note 5, 87 FR at 33231-32.
    \141\ Id. at 33233.
    \142\ Id.
    \143\ Id.
    \144\ Id.
    \145\ The Operating Committee states that the Fee Rate would be 
the same even if a trade was completed in a manner that generates 
more message traffic. Id.
    \146\ See Notice, supra note 5, 87 FR at 33233-34.
---------------------------------------------------------------------------

B. Proposed Participant Fee Schedule

    The Operating Committee proposes to adopt a fee schedule that would 
describe how fees for Participants would be calculated and collected.
1. Participant CAT Fee
    Proposed provision (a) of the Proposed Participant Fee Schedule 
describes how the CAT fee for national securities exchange and national 
securities association Participants would be calculated. Specifically, 
provision (a)(1) states that national securities exchange Participants 
would pay a fee for each transaction in Eligible Securities executed on 
the exchange based on CAT Data, where the fee for each transaction 
would be calculated by multiplying the number of executed equivalent 
shares in the transaction by one-third and by the Fee Rate.\147\
---------------------------------------------------------------------------

    \147\ Id. at 33246.
---------------------------------------------------------------------------

    Proposed provision (a)(2) states that national securities 
association Participants would pay a fee for each transaction in 
Eligible Securities executed otherwise than on exchange based on CAT 
Data and, as for national securities exchange Participants, the fee 
would be calculated by multiplying the number of executed equivalent 
shares in the transaction by one-third and by the Fee Rate.\148\
---------------------------------------------------------------------------

    \148\ Id.
---------------------------------------------------------------------------

2. Fee Rate
    Proposed provision (b) of the Proposed Participant Fee Schedule 
would describe how the Fee Rate would be calculated. Proposed provision 
(b)(1) states that the Fee Rate will be calculated by the Operating 
Committee at the start of the year by dividing the budgeted CAT costs 
for the year by the projected total executed equivalent share volume of 
all transactions in Eligible Securities for the year.\149\ The 
provision also states that, if necessary, the Fee Rate may be adjusted 
once in the year due to changes in the budgeted or actual costs or 
projected or actual total executed equivalent share volume during the 
year.\150\
---------------------------------------------------------------------------

    \149\ Id.
    \150\ Id.
---------------------------------------------------------------------------

    Proposed provision (b)(2) explains how executed equivalent shares 
would be counted for transactions in NMS Stocks, Listed Options, and 
OTC Equity Securities. For NMS Stocks, each executed share in a 
transaction would be counted as one executed equivalent share.\151\ For 
Listed Options, each executed contract for a transaction would be 
counted based on the multiplier applicable to the specific Listed 
Option.\152\ For OTC Equity Securities, each executed share for a 
transaction would be counted as 0.01 executed equivalent share.\153\
---------------------------------------------------------------------------

    \151\ Id.
    \152\ See Notice, supra note 5, 87 FR at 33246.
    \153\ Id.
---------------------------------------------------------------------------

    Proposed provision (b)(3) explains the composition of the budgeted 
CAT costs for the year. These would be comprised of all fees, costs and 
expenses budgeted to be incurred by or for the Company in connection 
with the development, implementation and operation of the CAT as set 
for in the annual operating budget approved by the Operating Committee 
pursuant to Section 11.1(a) of the CAT NMS Plan, or as adjusted during 
the year by the Operating Committee.\154\
---------------------------------------------------------------------------

    \154\ Id.
---------------------------------------------------------------------------

    Proposed provision (b)(4) states that the projected total executed 
equivalent share volume of all transactions in Eligible Securities for 
each relevant period would be determined by the Operating Committee 
based on the executed equivalent share volume of all transactions in 
Eligible Securities for the prior six months.\155\
---------------------------------------------------------------------------

    \155\ Id.
---------------------------------------------------------------------------

3. Fee Payments/Collection
    Proposed provision (c) of the Proposed Participant Fee Schedule 
requires that each Participant pay the CAT fee described in proposed 
provision (a) to Consolidated Audit Trail, LLC on a monthly basis based 
on the transactions in the prior month.\156\
---------------------------------------------------------------------------

    \156\ Id.
---------------------------------------------------------------------------

IV. Summary of Comments

A. Consistency With the Exchange Act

    Commenters object to the Proposed Amendment.\157\ Several 
commenters

[[Page 54565]]

argue the Proposed Amendment is generally inconsistent with the 
Exchange Act.\158\ One commenter states that the Proposed Amendment 
lacks sufficient information for the Commission to determine whether 
the Executed Share Model is consistent with the Exchange Act.\159\ 
Another commenter states that the Executed Share Model is arbitrary and 
``largely unfounded on principles upon which the Commission could 
reasonably conclude that CAT NMS would be fairly funded.'' \160\ Two 
commenters disagree with the Participants' assertion that the Executed 
Share Model is similar to other transaction-based fees approved by the 
Commission is adequate justification for consistency with the Exchange 
Act.\161\ One of these commenters states that, although the Proposed 
Amendment asserts that the Executed Share Model is fair because it 
operates in a manner that is similar to other fee rules that the 
Commission found consistent with the Exchange Act, like the TAF, 
Section 31 fee and the ORF, the Proposed Amendment fails to provide 
``insight as to why these other fee frameworks, which apply to 
completely different contexts, should serve as a model here.'' \162\ 
Two commenters state that the Proposed Amendment lacks sufficient 
detail for the Commission to articulate a satisfactory explanation for 
approval, as required by Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d 
442, 443 (D.C. Cir. 2017).\163\
---------------------------------------------------------------------------

    \157\ See Letters to Vanessa Countryman, Secretary, Commission 
from Larry Harris, Fred V. Keenan Chair in Finance, U.S.C. Marshall 
School of Business (June 21, 2022) (``Harris Letter''); Kirsten 
Wegner, Chief Executive Officer, Modern Markets Initiative (June 21, 
2022) (``MMI Letter''); Marcia E. Asquith, Corporate Secretary, 
Executive Vice President, Board and External Relations, FINRA (June 
22, 2022) (``FINRA Letter''); Ellen Greene, Managing Director, 
Equities & Options Market Structure, and Joseph Corcoran, Managing 
Director, Associated General Counsel, Securities Industry and 
Financial Markets Association (June 22, 2022) (``SIFMA Letter''); 
and Thomas M. Merritt, Deputy General Counsel, Virtu Financial, Inc. 
(June 22, 2022) (``Virtu Letter''). All comments received in 
response to the Notice can be found on the Commission's website at 
https://www.sec.gov/comments/4-698/4-698-a.htm.
    \158\ See Harris Letter at 1; FINRA Letter at 4; SIFMA Letter at 
1-2, 3, 4; Virtu Letter at 7.
    \159\ See SIFMA Letter at 1-2, 3.
    \160\ See Harris Letter at 1.
    \161\ See FINRA Letter at 4; SIFMA Letter at 4.
    \162\ See FINRA Letter at 4.
    \163\ See SIFMA Letter at 3; Virtu Letter at 7.
---------------------------------------------------------------------------

    In its response to comments.\164\ CAT LLC maintains that the 
Executed Share Model satisfies the requirements of the Exchange Act and 
should be approved by the Commission.\165\ CAT LLC states, ``[t]he 
Executed Share Model would provide reasonable fees that are equitably 
allocated, not unfairly discriminatory, and do not impose an undue 
burden on competition, in that the model reflects a reasonable effort 
to allocate costs based on the extent to which different CAT Reporters 
participate in and benefit from the equities and options markets.'' 
\166\ CAT LLC reiterates that the Executed Share Model would be 
consistent with past fee structures that have been approved by the 
Commission and argues that the Executed Share Model is ``transparent, 
would be relatively easy to calculate and administer, and is designed 
not to have an impact on market activity because it is neutral as to 
the location and manner of execution.'' \167\ CAT LLC states that its 
obligation is to demonstrate that the proposed model is consistent with 
the Exchange Act and the rules and regulations thereunder, not to prove 
that the proposed model is superior to other proposals.\168\
---------------------------------------------------------------------------

    \164\ See Letter from Michael Simon, Chair, CAT NMS Plan 
Operating Committee, to Vanessa Countryman, Secretary, Commission 
(Aug. 16, 2022) (``Response Letter''). The Response Letter states, 
``CAT LLC notes that these responses represent the consensus of the 
Participants, but that all Participants may not fully agree with 
each response set forth in this letter.'' Id. at 2.
    \165\ Id.
    \166\ Id.
    \167\ Id.
    \168\ Id.
---------------------------------------------------------------------------

    Commenters also argue that the Proposed Amendment generally does 
not result in an equitable allocation of reasonable dues, fees and 
other charges.\169\ One commenter states that the Proposed Amendment 
fails to meet the requirements under the Exchange Act that CAT funding 
provides ``for the equitable allocation of reasonable dues, fees and 
other charges.'' \170\ Another commenter argues that the Proposed 
Amendment provides no support for why using executed share volume as 
the basis for the cost allocation methodology, instead of message 
traffic, is equitable.\171\ The commenter adds that the argument that 
executed share volume is related to cost generation is not enough to 
demonstrate that use of it is reasonable and equitable.\172\ This 
commenter further states that the Executed Share Model is inconsistent 
with the Exchange Act because it abandons cost alignment principles and 
lacks transparency about its impact.\173\
---------------------------------------------------------------------------

    \169\ See FINRA Letter at 2, 3-4; Virtu Letter at 2.
    \170\ See Virtu Letter at 2.
    \171\ See FINRA Letter at 3.
    \172\ Id. at 3-4.
    \173\ Id. at 2.
---------------------------------------------------------------------------

    Several commenters question the proposed cost allocation between 
Industry Members and Participants.\174\ One commenter states that the 
Proposed Amendment offers no justification why allocating costs by 
thirds to the Participant, the buy-side, and the sell-side is equitable 
in the context of the CAT NMS Plan.\175\ The commenter argues that 
``the Proposal also does not provide adequate support for the overall 
allocation between Participants and industry members or the allocation 
of costs between equity and options.'' \176\ Another commenter argues 
that the fee structure disproportionately shifts CAT costs to Industry 
Members and investors.\177\ The commenter states that the proposed 
allocation is arbitrary, lacks justification and does not account for 
the fees the Participants already collect from the industry.\178\ The 
commenter believes the two-thirds allocation was only chosen because it 
appears somewhat better for Industry Members than the 75%/25% (Industry 
Member/Participant) cost allocation proposed in the prior model, and 
that none of the arguments used by the Participants provide a 
reasonable basis why a two-thirds/one-third split is appropriate.\179\
---------------------------------------------------------------------------

    \174\ See FINRA Letter at 3, 4; Virtu Letter at 1-4; SIFMA 
Letter at 1-5.
    \175\ See FINRA Letter at 3.
    \176\ Id. at 4.
    \177\ See Virtu Letter at 1.
    \178\ Id. at 2.
    \179\ Id. at 3-4.
---------------------------------------------------------------------------

    One commenter argues that the proposed cost allocation methodology 
is inconsistent with Exchange Act fee standards because most costs 
would be imposed on Industry Members.\180\ The commenter states that 
the Participants do not account for ``the time and expense Industry 
Members have devoted to developing and maintaining internal systems to 
be able to report the CAT, as well as the time and expense Industry 
Members have devoted to assisting the Operating Committee with its job 
of developing reporting specifications that allow the CAT to achieve 
its regulatory purpose.'' \181\ The commenter states that the 
Participants have not taken Industry Members' time and expenses into 
account when deciding to allocate two-thirds of the CAT costs to 
Industry Members and that ``this omission is a flaw with the 
Participants' decision to allocate two-thirds of the CAT costs to 
Industry Members and its inclusion would demonstrate that the 
Participants' Executed Share Model does not provide for the equitable 
allocation of reasonable fees.'' \182\
---------------------------------------------------------------------------

    \180\ See SIFMA Letter at 1-2.
    \181\ Id. at 4.
    \182\ Id. at 4-5.
---------------------------------------------------------------------------

    In response to comments requesting further justification for the 
proposed allocation of one-third of the CAT fee to the CBB, CBS and 
Participant in a transaction, and for allocating two-thirds of the 
costs to Industry Members,\183\ CAT LLC states that the proposed 
allocation satisfies the Exchange Act and that the proposed allocation 
recognizes the three primary roles in a transaction and assesses an 
equal fee to each role, taking a similar approach to the TAF, ORF and 
Section 31 fees, but also assigning a fee to the

[[Page 54566]]

Participant and the buyer.\184\ CAT LLC adds that the proposed two-
thirds allocation to Industry Members reflects the greater level of CAT 
costs that are created by Industry Members as compared to 
Participants.\185\ CAT LLC explains that Industry Members originate 
trading activity, which necessitates message traffic, and that CAT 
costs are dominated by data processing and storage costs, which are 
related to message traffic.\186\ CAT LLC also states that the 
complexity of Industry Member business models impacts the complexity of 
CAT reporting requirements, and that the processing and storage of 
complex reporting scenarios requires the use of complex algorithms, 
which result in substantial CAT data processing and storage costs.\187\ 
In comparison, CAT LLC represents that Participant activity is not as 
complex.\188\ Accordingly, CAT LLC believes that because the complexity 
of Industry Members' business models contribute significantly to the 
costs of the CAT, it is ``reasonable and equitable to require that 
Industry Members pay a substantial portion of those costs.'' \189\
---------------------------------------------------------------------------

    \183\ See FINRA Letter at 3, 4; SIFMA Letter at 4; Virtu Letter 
at 3-4.
    \184\ See Response Letter at 5.
    \185\ Id.
    \186\ Id.
    \187\ Id. at 6.
    \188\ Id.
    \189\ Id.
---------------------------------------------------------------------------

    CAT LLC further adds that allocating to Participants a greater 
percentage of CAT costs would be inequitable because: (1) there are 25 
Participants and 1,100 Industry Members; (2) Participants only 
represent 4% of total CAT Reporter revenue while Industry Members 
represent 96%; and (3) certain individual Industry Members ``have 
revenue in excess of some or all of the Participants.'' \190\
---------------------------------------------------------------------------

    \190\ See Response Letter at 6.
---------------------------------------------------------------------------

    In response to the comment that the Proposed Amendment does not 
take into account internal costs incurred by Industry Members to comply 
with CAT reporting requirements,\191\ CAT LLC states that ``there is no 
precedent for regulatory fees to be determined based on the cost of 
compliance of the regulated entity'' \192\ and that it disagrees with 
the approach.\193\ CAT LLC states that the CAT funding model is 
designed to assess fees to recover direct CAT costs and not Industry 
Members' costs to comply with CAT.\194\ Additionally, CAT LLC argues 
that it is infeasible to accurate determine each Industry Member's 
compliance costs ``without recordkeeping requirements and appropriate 
standards to determine expenses accurately.'' \195\ CAT LLC adds that 
the Participants' own ``substantial internal compliance costs'' are not 
accounted for by the proposed Executed Share Model.\196\
---------------------------------------------------------------------------

    \191\ See SIFMA Letter at 4-5.
    \192\ See Response Letter at 9.
    \193\ Id.
    \194\ Id.
    \195\ Id.
    \196\ Id. at n.46, at 10.
---------------------------------------------------------------------------

    One commenter objects to the proposed allocation of costs among the 
Participants.\197\ The commenter argues that the Proposed Amendment 
disproportionately allocates the increase in the Participants' 
allocation to FINRA instead of equitably among the Participants.\198\ 
The commenter states that, compared to the prior proposal, FINRA's 
share would increase from 4.1% of total costs to 10.8%, whereas the 
share for options exchanges would decrease from 10.4% to 8.9% and the 
share for equities exchanges would increase modestly from 10.5% to 
13.6%.\199\ The commenter argues that the Proposed Amendment only 
addresses this increase in FINRA's allocation through a footnote 
stating that ``FINRA's contribution would likely increase in comparison 
to prior models.'' \200\ The commenter adds that FINRA would have to 
fund any costs that are not recovered through TRF contractual 
arrangements through increases to FINRA member fees, and that the 
downstream impact of FINRA's allocation is not acknowledged in the 
Proposed Amendment.\201\ The commenter also questions the rationale in 
the Proposed Amendment that FINRA's allocation is appropriate because 
of its ``responsibility for securities traded in the over-the-counter 
market,'' stating that the proposed funding model is supposed to 
recover the costs of CAT's operation as a system and not the costs of 
using CAT data for regulatory purposes.\202\
---------------------------------------------------------------------------

    \197\ See FINRA Letter at 5-8.
    \198\ Id.
    \199\ Id. at 5.
    \200\ Id. at 5-6.
    \201\ Id. at 7.
    \202\ Id. at 6.
---------------------------------------------------------------------------

    In response to the comment objecting to the rationale provided for 
FINRA's allocation in the Proposed Amendment,\203\ CAT LLC states that 
FINRA's allocation is appropriate because it reflects FINRA's role in 
transactions taking place on the over-the-counter market as allocations 
to exchanges under the Executed Share Model reflect their role in 
transactions taking place on their markets.\204\ CAT LLC also responds 
to the criticism that the increase in FINRA's allocation was not made 
readily apparent by stating that the Proposed Amendment explained that 
each Participant's contributions would change under the Executed Share 
Model, based on types and amounts of securities trading on-exchange or 
over-the-counter, and that the Proposed Amendment contained a chart 
listing illustrative fees for the Participants.\205\ CAT LLC also 
states that it could not definitively represent in the Proposed 
Amendment that FINRA's contribution would always be increased over 
prior models in any given time period.\206\
---------------------------------------------------------------------------

    \203\ See FINRA Letter at 6.
    \204\ See Response Letter at 11.
    \205\ Id.
    \206\ Id.
---------------------------------------------------------------------------

    Commenters also express concerns about the allocation of 
Prospective and Past CAT Costs.\207\ Two commenters question whether 
the allocation of Prospective CAT Costs is consistent with the Exchange 
Act.\208\ One commenter argues that the Participants have not provided 
a reasonable basis to conclude that the proposed two-thirds allocation 
to Industry Members and one-third allocation to Participants is 
appropriate in light of the statement in the Proposed Amendment \209\ 
that prospective operational costs are estimated to be $110 million in 
a year and that certain Industry Members would pay almost $12 million 
per year.\210\
---------------------------------------------------------------------------

    \207\ See SIFMA Letter at 4-6, 7; Virtu Letter at 3-5.
    \208\ Id.
    \209\ See Virtu Letter at 3.
    \210\ Id.
---------------------------------------------------------------------------

    Another commenter states that the Participants are unable to show 
that the proposed methodology for Prospective CAT Costs is an equitable 
allocation of reasonable fees \211\ and therefore ``do not address the 
fact that the Executed Share Model for Prospective CAT Costs allocates 
two-thirds of CAT costs to Industry Members for exchange transactions 
and more for off-exchange transactions.'' \212\ The commenter states 
that Industry Members, who would be subject to two-thirds of 
Prospective CAT Costs under the Executed Share Model, already pay 
FINRA's operating costs through regulatory fines and fees; therefore, 
Industry Members would additionally be indirectly assessed FINRA's one-
third CAT fee for off-exchange transactions.\213\ Similarly, another 
commenter notes that the proposed allocation would result in two-thirds 
of CAT costs for exchange transactions being imposed on Industry 
Members, and that this amount would be higher for off-exchange 
transactions

[[Page 54567]]

as FINRA would be assessed one-third as the venue fee and Industry 
Members would be indirectly assessed FINRA's portion of CAT costs as 
they pay the entire costs of operating FINRA.\214\
---------------------------------------------------------------------------

    \211\ See SIFMA Letter at 4.
    \212\ Id.
    \213\ Id.
    \214\ See FINRA Letter at 4.
---------------------------------------------------------------------------

    In response to the comment stating that Industry Members will be 
allocated more than two-thirds of Prospective CAT Costs since they pay 
FINRA's operating costs through regulatory fees and fines,\215\ CAT LLC 
states that ``this argument inappropriately looks to how any fee is 
ultimately paid for, rather than the fee at issue.'' \216\ CAT LLC 
explains that under the proposed Executed Share Model, CAT fees would 
be the same whether a transaction took place over-the-counter or on an 
exchange and all Participants would be subject to the same fee 
treatment to avoid CAT fees becoming a competitive issue among the 
Participants.\217\ CAT LLC states that each Participant, not just 
FINRA, will have to determine how it will pay its CAT fees and may 
pass-through to its members its own CAT fees through regulatory, 
trading or other fees.\218\ CAT LLC asserts that ``[a]ny review of how 
the Participants obtain their funds to pay CAT fees is beyond the scope 
of the CAT fee filing.'' \219\ CAT LLC adds that Industry Members may 
determine themselves to pass their CAT fees to their customers, as they 
do with Section 31 fees; therefore, the Industry Member allocation of 
CAT costs could be passed entirely through to investors.\220\
---------------------------------------------------------------------------

    \215\ See SIFMA Letter at 4.
    \216\ See Response Letter at 7.
    \217\ Id.
    \218\ Id. at 7-8.
    \219\ Id. at 8.
    \220\ Id.
---------------------------------------------------------------------------

    Commenters also question whether the allocation of Past CAT Costs 
is consistent with the Exchange Act.\221\ One commenter argues that 
Industry Members should not be assessed any fees related to the 
decision to employ Thesys Technologies, LLC as the Plan Processor or 
legal or consulting fees incurred by the Participants in the creation 
of the CAT NMS Plan.\222\ The commenter states that the Proposed 
Amendment fails to provide how of much of the allocation to Industry 
Members is related to Thesys Technologies, LLC, and, therefore, the 
Participants have not demonstrated how the Executed Share Model is 
consistent with the Exchange Act.\223\ The commenter also argues that 
Industry Members were not subject to CAT obligations before the CAT NMS 
Plan's approval, had no input into the selection of the service 
providers, and that ``it is difficult to envision how the Participants 
could demonstrate that such an allocation provides for the equitable 
allocation of reasonable fees due to the fact that the CAT NMS Plan did 
not exist during the period prior to its approval.'' \224\
---------------------------------------------------------------------------

    \221\ See SIFMA Letter at 6, 7; Virtu Letter at 4.
    \222\ See SIFMA Letter at 7.
    \223\ Id.
    \224\ Id.
---------------------------------------------------------------------------

    In response to this comment,\225\ CAT LLC states that the 
Participants would be fully responsible for all CAT costs incurred from 
November 15, 2017 through November 15, 2018 due to the one-year delay 
in the start of reporting to the CAT, as well as costs related to the 
conclusion of the relationship with the initial plan processor, which 
were $14,749,362.\226\ CAT LLC adds that Section 11.1(c) of the CAT NMS 
Plan authorizes the imposition of fees on Industry Members for costs 
incurred prior to the data of approval of the CAT NMS Plan, including 
legal and consulting costs.\227\ CAT LLC states that it is therefore 
appropriate to recover these costs from Industry Members.\228\
---------------------------------------------------------------------------

    \225\ See SIFMA Letter at 7.
    \226\ See Response Letter at 28-29. CAT LLC explains that these 
costs could be reasonably identified and are more appropriately 
borne by the Participants. Id. at 29.
    \227\ Id.
    \228\ Id.
---------------------------------------------------------------------------

    Two commenters argue that the Proposed Amendment is deficient in 
justifying why Industry Members should have to pay two-thirds of Past 
CAT Costs because the Participants were solely responsible for the 
decision-making that created the costs.\229\ One commenter states that 
the Participants have mismanaged the CAT project ``with cost overruns 
and problematic spending decisions'' \230\ and that Industry Members 
``had absolutely no decision-making authority.'' \231\
---------------------------------------------------------------------------

    \229\ See SIFMA Letter at 6-7; Virtu Letter at 4.
    \230\ See Virtu Letter at 4.
    \231\ Id.
---------------------------------------------------------------------------

    In response to the comment arguing that Industry Members should not 
be responsible for Past CAT Costs for which they had no decision-making 
authority,\232\ CAT LLC states that Industry Members are expected to 
contribute to the costs of CAT, including historical costs.\233\
---------------------------------------------------------------------------

    \232\ Id.
    \233\ See Response Letter at 22.
---------------------------------------------------------------------------

    Several commenters list additional concerns about the proposed cost 
allocation.\234\ One commenter states that fees should only be assessed 
on the sell-side, not the buy-side as Section 31 fees are assessed only 
on sellers.\235\ The commenter states that charging the buy-side would 
require expensive modifications to existing systems, and recommends 
either the inclusion of a cost-benefit analysis on charging both the 
buy-side and sell-side, or amending the Proposed Amendment to exclude 
the buy-side.\236\ Another commenter contrasts the Executed Share Model 
against existing transaction-based fee models, stating that the 
proposed model requires clearing firms to assess fees on buyers and 
sellers in transactions, unlike fees such as the Section 31 fee, which 
is only assessed on the seller in the transaction.\237\
---------------------------------------------------------------------------

    \234\ See FINRA Letter at 4; Harris Letter at 11-13; Virtu 
Letter at 2-4; MMI Letter at 3, 4; SIFMA Letter at 9-10.
    \235\ See MMI Letter at 4.
    \236\ Id. at 3.
    \237\ See SIFMA Letter at 9-10.
---------------------------------------------------------------------------

    In response to the comments questioning the assessment of CAT fees 
on the buy-side instead of solely on the sell-side,\238\ CAT LLC states 
that transaction-based fees that are charged to both sides of the 
transaction, such as the ORF and Participant-imposed trading fees, are 
regularly used in the industry.\239\
---------------------------------------------------------------------------

    \238\ See MMI Letter at 3; SIFMA Letter at 9-10.
    \239\ See Response Letter at 12.
---------------------------------------------------------------------------

    One commenter states that it is impossible to determine whether the 
allocation to Industry Members and investors is fair and equitable 
because the Proposed Amendment fails to include details about CAT 
operating costs.\240\ This commenter also states that the Proposed 
Amendment fails to address that costs on Industry Members may be passed 
on to investors, which would make it more expensive for investors to 
access the markets.\241\ This commenter additionally questions why 
Industry Members and investors should be responsible for a CAT fee when 
the Participants are already funded by market participants through 
membership fees, registration and licensing fees, regulatory fees, and 
proprietary market data and market access fees.\242\
---------------------------------------------------------------------------

    \240\ See Virtu Letter at 4.
    \241\ Id.
    \242\ Id. at 2-3.
---------------------------------------------------------------------------

    In response to the comment objecting to the imposition of a CAT fee 
on Industry Members because they are already subject to other 
Participant fees,\243\ CAT LLC states that Rule 613 and the CAT NMS 
Plan permit the assessment of a CAT-specific fee on Industry Members to 
contribute to the funding of the CAT.\244\ CAT LLC adds that ``existing 
regulatory fees are not designed to address the substantial

[[Page 54568]]

additional costs related to CAT.'' \245\ CAT LLC also states that 
adopting a CAT-specific fee would be more transparent than a general 
regulatory fee designed to cover a variety of regulatory costs because 
CAT LLC would be fully transparent about the costs of the CAT.\246\
---------------------------------------------------------------------------

    \243\ See Virtu Letter at 2-3.
    \244\ See Response Letter at 13-14.
    \245\ Id. at 13.
    \246\ Id. at 14.
---------------------------------------------------------------------------

    One commenter argues that the Proposed Amendment lacks adequate 
support for the cost allocation between equities and options.\247\ 
Another commenter expresses concerns about the Proposed Amendment's 
treatment of options transactions and the proposed discount for OTC 
Equity Securities.\248\ For example, the commenter states that the 
proposed assignment of equivalent shares to options trades based on 
their nominal multiplier is arbitrary and that options trades would be 
unfairly burdened as fees collected for options would be twice the fees 
for equities.\249\ The commenter also states that the proposed 0.01 
equivalent share factor for OTC Equity Securities is arbitrary \250\ 
and argues that a discount for OTC equities for identical-sized 
transactions in OTC and NMS stocks trading at the same price would 
unfairly subsidize the OTC market.\251\
---------------------------------------------------------------------------

    \247\ See FINRA Letter at 4.
    \248\ See Harris Letter at 11-13.
    \249\ Id. at 12.
    \250\ Id. at 13.
    \251\ Id. at 12.
---------------------------------------------------------------------------

    In response to the comment stating that the Proposed Amendment does 
not provide adequate support for the allocation of costs between 
equities and options,\252\ CAT LLC states that the Executed Share Model 
would use equivalent executed share volume to ``normalize options and 
equities in the calculation of fees.'' \253\ Further, CAT LLC explains 
that the equivalent executed share volume approach recognizes the 
different trading characteristics of options, equities and OTC Equity 
Securities by counting transactions in each of these types of 
securities differently for purposes of calculating CAT fees.\254\
---------------------------------------------------------------------------

    \252\ See FINRA Letter at 4.
    \253\ See Response Letter at 10.
    \254\ Id.
---------------------------------------------------------------------------

    Commenters also question whether other aspects of the Proposed 
Amendment are consistent with the Exchange Act.\255\ One commenter 
states that the Proposed Amendment subjects market participants to 
unfair discrimination because it fails to meet the requirements under 
the Exchange Act that CAT funding not be designed to permit unfair 
discrimination between customers, issuers, brokers or dealers.\256\
---------------------------------------------------------------------------

    \255\ See Virtu Letter at 2; FINRA Letter at 6-8; SIFMA Letter 
at 9-10; Harris Letter at 12.
    \256\ See Virtu Letter at 2.
---------------------------------------------------------------------------

    Several commenters suggest the Proposed Amendment imposes a burden 
on competition.\257\ One commenter states generally that the Proposed 
Amendment fails to meet the requirements under the Exchange Act that 
CAT funding does not ``impose any burden on competition not necessary 
or appropriate in furtherance of the purposes'' of the Exchange 
Act.\258\ One commenter believes the Proposed Amendment would impose an 
undue burden on FINRA by shifting nearly all of the Participants' 
increased share of the costs to FINRA.\259\ The commenter states that 
FINRA will need to fund the costs through increases to its member fees, 
and that the potential impacts on the industry arising from FINRA's 
allocation are not addressed in the Proposed Amendment.\260\ Another 
commenter states that the Proposed Amendment imposes an undue burden on 
clearing firms by not sufficiently addressing the impact of the 
Executed Share Model on clearing firms, which would have to pay their 
share of costs as well as act as fee collectors, requiring them to 
develop new systems and processes to implement the model.\261\ Finally, 
one commenter argues that the Proposed Amendment imposes an undue 
burden on the options markets, stating that proposed fees for options 
trades under the Executed Share Model would always be greater on a 
risk-transferred basis than fees for equities trades because options 
trades transfer less risk than equity trades of the same number of 
shares in the underlying security.\262\ The commenter states that fees 
collected for options would average twice the fees for equities and 
options trades would be unfairly burdened.\263\
---------------------------------------------------------------------------

    \257\ See Virtu Letter at 2; FINRA Letter at 6-8; SIFMA Letter 
at 9-10; Harris Letter at 12.
    \258\ See Virtu Letter at 2.
    \259\ See FINRA Letter at 6-8.
    \260\ Id.
    \261\ See SIFMA Letter at 9-10.
    \262\ See Harris Letter at 12.
    \263\ Id.
---------------------------------------------------------------------------

    In response to the comment stating that the Executed Share Model 
would impose an undue burden on FINRA,\264\ CAT LLC states that the 
Executed Share Model assesses CAT fees in the same manner regardless of 
whether a transaction is executed over-the-counter or on an 
exchange,\265\ and treats each Participant in the same manner as all 
have the same regulatory obligations under the Exchange Act and use CAT 
Data for the same regulatory purposes,\266\ and that the same treatment 
would avoid making CAT fees a competitive issue among the 
Participants.\267\ CAT LLC states that FINRA's fee is calculated based 
on substantial activity in the over-the-counter market, explaining that 
34% of executed equivalent share volume in Eligible Securities took 
place in the over-the-counter market in 2021.\268\
---------------------------------------------------------------------------

    \264\ See FINRA Letter at 6.
    \265\ See Response Letter at 10.
    \266\ Id.
    \267\ Id. at 11.
    \268\ Id.
---------------------------------------------------------------------------

    In response to the comment arguing that the Proposed Amendment does 
not sufficiently address the impact of the Executed Share Model on 
clearing firms, which would have to act as fee collectors under the 
model and develop new systems and processes accordingly,\269\ CAT LLC 
states that ``CAT LLC proposes to make use of clearing firms for fee 
collection as this proposal would make use of existing industry 
collection systems for efficiency and cost purposes.'' \270\
---------------------------------------------------------------------------

    \269\ See SIFMA Letter at 9.
    \270\ See Response Letter at 12.
---------------------------------------------------------------------------

B. Transparency

    Several commenters discuss a lack of transparency in the Proposed 
Amendment into actual costs and anticipated costs.\271\ Three 
commenters state that the Proposed Amendment is lacking detail about 
the makeup of the actual and anticipated costs that will be incurred in 
operating the CAT.\272\ One commenter states that this lack of detail 
makes it impossible for Industry Members and the Commission to 
determine whether the proposed allocation to the Industry Members is 
fair and equitable.\273\ Another commenter argues that the level of CAT 
cost transparency is insufficient to allow Industry Members and the 
Commission to determine whether the costs incurred and fees imposed by 
the CAT are fair and reasonable.\274\
---------------------------------------------------------------------------

    \271\ See Harris Letter at 14; MMI Letter at 3-5; Virtu Letter 
at 3-6, 7; SIFMA Letter at 8-9.
    \272\ See MMI Letter at 4-5; Virtu Letter at 4; SIFMA Letter at 
8.
    \273\ See Virtu Letter at 4.
    \274\ See SIFMA Letter at 8.
---------------------------------------------------------------------------

    In response to comments arguing that a lack of transparency into 
CAT costs prevents Industry Members and the Commission from determining 
whether the proposed allocation, costs incurred and CAT fees satisfy 
the requirements of the Exchange Act,\275\ CAT LLC attests that ``CAT 
LLC provides substantial cost transparency for CAT costs, including 
transparency above and beyond what is required, and more than other 
national

[[Page 54569]]

market system plans.'' \276\ CAT LLC states that the Commission does 
not need additional public cost transparency, such as the detailed cost 
information requested by the commenters, to evaluate the Proposed 
Amendment under the Exchange Act,\277\ arguing that ``[k]nowledge of 
every minute detail about the inner operation of CAT LLC is not 
necessary to evaluate the proposed fee.'' \278\ CAT LLC states that it 
makes publicly available, in accordance with Section 9.2(a) of the CAT 
NMS Plan, an audited balance sheet, income statement, statement of cash 
flows and statement of changes in equity, and has published on the CAT 
NMS Plan website consolidated annual financial statements from 2017 
through 2021.\279\ Additionally, CAT LLC states that it voluntarily 
provides its annual operating budget and periodical updates to the 
budget on the CAT NMS Plan website.\280\ CAT LLC also states that the 
Commission and the Advisory Committee attend Operating Committee 
meetings, which discuss financial matters,\281\ and adds that it has 
held webinars detailing CAT costs and alternative funding models.\282\
---------------------------------------------------------------------------

    \275\ See SIFMA Letter at 8, Virtu Letter at 4-7.
    \276\ See Response Letter at 18.
    \277\ Id.
    \278\ Id.
    \279\ Id. at 19.
    \280\ Id.
    \281\ Id.
    \282\ See Response Letter at 19-20.
---------------------------------------------------------------------------

    One commenter specifically states that the Proposed Amendment 
``lacks adequate information about the anticipated annual fees and 
costs to run the CAT for Industry Members and investors (i) to project 
with any degree of confidence what they will be obligated to pay each 
year or (ii) to assess the reasonableness of the projected costs . . . 
Furthermore, our understanding is that the budget for 2022 is not a 
fixed amount and could in fact result in significantly higher costs to 
the Industry Members and investors than projected. Without reasonable 
transparency into the costs and drivers of the costs, how will Market 
Participants and investors know how much expense to expect in 2023 or 
beyond?'' \283\ Another commenter suggests that rate-setting be done on 
a rolling 12-month (or longer) basis rather than every year, to ensure 
that fees are more stable while producing financing costs and 
investment returns that the CAT can accommodate.\284\
---------------------------------------------------------------------------

    \283\ See Virtu Letter at 4-5.
    \284\ See Harris Letter at 14.
---------------------------------------------------------------------------

    In response to the comment questioning how market participants 
could budget for costs that significantly exceed projections,\285\ CAT 
LLC states that it provides budget updates on the CAT NMS Plan website 
to inform CAT reporters and investors of any budget changes.\286\
---------------------------------------------------------------------------

    \285\ See Virtu Letter at 5.
    \286\ See Response Letter at 20.
---------------------------------------------------------------------------

    Another commenter states that ``the level of CAT cost transparency 
continues to be insufficient . . . for example, the CAT operating 
budget provides only the following, high-level categories of technology 
costs related to actual and Prospective CAT Costs: (i) cloud hosting 
services; (ii) operating fees; (iii); CAIS operating fees; and (iv) 
change request fees . . . In addition, under general and administrative 
expenses, there is a category for public relations costs. Yet nowhere 
in the budget are these categories further defined or explained.'' 
\287\ In addition, the commenter recommends that the CAT operating 
budget be subject to an annual public review process overseen by the 
Commission.\288\ The commenter suggests that the review process 
includes annual Commission approval of the CAT operating budget, 
similar to how the Commission's annual budget is subject to 
Congressional review.\289\
---------------------------------------------------------------------------

    \287\ See SIFMA Letter at 8.
    \288\ Id. at 8-9.
    \289\ Id. at 9.
---------------------------------------------------------------------------

    In response to the comment recommending that the Commission oversee 
an annual public review process of the CAT operating budget,\290\ CAT 
LLC states that: (1) the suggested budget review process is not 
necessary or appropriate as CAT is a private entity subject to the 
requirements of the Exchange Act, not a governmental entity responsible 
to the taxpaying public; (2) CAT fees are already subject to review and 
public comment under Rule 608 of Regulation NMS and Section 19(b) of 
the Exchange Act and Rule 19b-4 thereunder; and (3) the Commission can 
request budget and financial information if it believes it is necessary 
for the Commission to review any CAT fee proposals.\291\
---------------------------------------------------------------------------

    \290\ See SIFMA Letter at 8-9.
    \291\ See Response Letter at 21.
---------------------------------------------------------------------------

    One commenter states that they asked FINRA for more detailed 
information surrounding both historical and future operational costs, 
but were only provided high-level budget information.\292\ The 
commenter states that the lack of detail on costs that the Industry 
Members are projected to bear causes the commenter to feel that they 
``are being asked to hand over a blank check with the amount to be 
filled in later.'' \293\ The commenter argues that due to the lack of 
detail on the historical and projected costs, ``the Executed Share 
Model lacks sufficient detail to allow the Commission to articulate a 
satisfactory explanation for its approval as required by the D.C. 
Circuit's opinion in Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d 442, 
443 (D.C. Cir. 2017).'' \294\
---------------------------------------------------------------------------

    \292\ See Virtu Letter at 7.
    \293\ Id.
    \294\ Id.
---------------------------------------------------------------------------

    Another commenter addresses the refund mechanism for excess 
collections, stating that the Proposed Amendment does not offer detail 
regarding the reconciliation of fees if actual CAT costs exceed or are 
less than the budgeted CAT costs.\295\ The commenter states that 
because CAT LLC operates as a tax-exempt organization under Section 
501(c)(6) of the Internal Revenue Code, it should not have the ability 
to keep profits by building up excessive reserves for fees paid in 
excess of actual expenses.\296\ The commenter asserts that when 
excessive fees are collected, there should be a refund mechanism,\297\ 
and without such a refund mechanism, the CAT may be able to collect 
excessive reserves from the fees paid by Industry Members that ``would 
allow it, for example, to adopt some form of self-insurance to the 
extent it experienced a data breach.'' \298\ The commenter believes 
that the Participants should provide greater transparency into what 
happens when excess fees are collected so that the Commission can 
understand the fee reconciliation process and determine whether the 
inclusion of a refund mechanism is necessary for the Proposed Amendment 
to meet the Exchange Act fee standards.\299\
---------------------------------------------------------------------------

    \295\ See SIFMA Letter at 9.
    \296\ Id.
    \297\ Id.
    \298\ Id.
    \299\ Id.
---------------------------------------------------------------------------

    In response to the comment,\300\ CAT LLC states that CAT fees 
collected in excess of costs would not be refunded to any CAT 
Reporters.\301\ CAT LLC explains that it operates on a break-even 
process with fees to cover costs and an appropriate reserve.\302\ 
According to CAT LLC, surpluses would not be distributed to the 
Participants as profits \303\ and would be treated as an operational 
reserve to offset future

[[Page 54570]]

fees.\304\ CAT LLC further states that it would be required to 
recalculate the fee rate each year based on the budget for the upcoming 
year, and the budget would include excess fees collected the prior 
year.\305\ CAT LLC also notes that the fee rate would be subject to a 
mid-year review to determine whether an adjustment would be necessary 
and such reviews would take any excess fees collected from the prior 
period into consideration.\306\ With respect to a shortfall in CAT 
fees, CAT LLC explains that the operational reserve may be used in a 
shortfall, and that, in addition to recalculating the Fee Rate every 
year based on the upcoming year's budget (reflecting any shortfall in 
fees collected in the prior year), it may adjust the Fee Rate once per 
year to coordinate the fees with changes to the budget, actual CAT 
costs, or volume projections.\307\
---------------------------------------------------------------------------

    \300\ Id.
    \301\ See Response Letter at 21. CAT LLC also states that, with 
other fees, such as Section 31-related fees, there are no refunds 
for over or under-collection of fees; the fee rate would be adjusted 
going forward. Id. at 22.
    \302\ Id.
    \303\ CAT LLC states that it is organized as a business league 
to mitigate concerns that its earnings could be used to benefit the 
Participants. Id. at 20, 21.
    \304\ Id.
    \305\ Id. at 22.
    \306\ See Response Letter at 22.
    \307\ Id.
---------------------------------------------------------------------------

    Two commenters express concerns about a lack of transparency in the 
Proposed Amendment with respect to Past CAT Costs.\308\ One commenter 
states that the Participants did not provide a detailed breakdown of 
historical costs that would allow one to examine the reasonableness of 
costs incurred.\309\ Rather, according to the commenter, the financial 
statements made available by the Participants ``only include top-line, 
categorical expense information--not a detailed breakdown of costs and 
expenditures that would allow a third-party to make an objective 
determination about the reasonableness and appropriateness of costs 
incurred,'' and lack customary related-party transaction disclosures 
and ``disclosure of how much revenue and profit is generated by Plan 
Participants from services they provide to the CAT.'' \310\
---------------------------------------------------------------------------

    \308\ See SIFMA Letter at 6-7; Virtu Letter at 6, 7.
    \309\ See Virtu Letter at 6.
    \310\ Id.
---------------------------------------------------------------------------

    In response to the comment stating that the Proposed Amendment does 
not provide customary related-party transaction disclosures,\311\ CAT 
LLC states that it has provided ``substantial disclosures about CAT 
costs,'' that it is organized as a business league, which prevents 
earnings from being used to benefit the Participants, and that FINRA 
CAT expenses are disclosed within the public financial statements and 
budget disclosed for the CAT.\312\
---------------------------------------------------------------------------

    \311\ Id. at 6, 7.
    \312\ See Response Letter at 20.
---------------------------------------------------------------------------

    With respect to Past CAT Costs, one commenter argues that the 
Participants are treating Industry Members unfairly by not providing 
them enough detail and transparency to understand the costs they are 
being asked to pay.\313\ The commenter states that the proposed 
allocation of Past CAT Costs cannot be supported under the Exchange Act 
due to the lack of detail provided on such costs.\314\ The commenter 
states that the Participants have not provided any detail or discussion 
of how they concluded that Excluded Costs are $48,874,937 or how CAT 
costs prior to January 1, 2022 are $337,688,610 (two-thirds of which 
Industry Members would be allocated under the Proposed Amendment).\315\ 
The commenter adds, ``in fact, the proposal contains no discussion of 
these cost amounts at all, or even a definition for the term `Excluded 
Costs.''' \316\ According to this commenter, the Proposed Amendment's 
``lack of discussion and information does not afford the Commission or 
the public the ability to evaluate whether the allocation of Past CAT 
Costs meets the Exchange Act fee standards.'' \317\
---------------------------------------------------------------------------

    \313\ See SIFMA Letter at 6-7.
    \314\ Id. at 6.
    \315\ Id.
    \316\ Id.
    \317\ Id.
---------------------------------------------------------------------------

    This commenter states that the Proposed Amendment lacks 
transparency into how much of the Industry Member cost allocation is 
related to ``the Participant's failed decision to initially designate 
Thesys Technologies, LLC as the CAT Plan Processor.'' \318\ The 
commenter states that, given this lack of transparency, the 
Participants have not demonstrated that the Executed Share Model is 
consistent with Exchange Act fee standards.\319\ The commenter also 
argues that the Proposed Amendment lacks a discussion of how quickly 
the Participants plan to recoup Past CAT Costs, stating that if the 
Participants want to recoup the costs over a short period of time, the 
result will be higher fees on Industry Members.\320\ The commenter 
believes that without this discussion, the Commission cannot evaluate 
whether the Executed Share Model meets Exchange Act fee standards.\321\
---------------------------------------------------------------------------

    \318\ Id. at 7.
    \319\ See SIFMA Letter at 7.
    \320\ Id.
    \321\ Id.
---------------------------------------------------------------------------

    In response to the comment about the lack of transparency into the 
amount of costs proposed to be allocated to Industry Members attributed 
to the selection of the initial plan processor,\322\ CAT LLC states 
that the Participants would be fully responsible for all CAT costs 
incurred from November 15, 2017 through November 15, 2018 due to the 
one-year delay in the start of reporting to the CAT, which were 
$48,874,937, as well as costs related to the conclusion of the 
relationship with Thesys Technologies, LLC, which were 
$14,749,362.\323\
---------------------------------------------------------------------------

    \322\ Id.
    \323\ See Response Letter at 28-29. CAT LLC explains that these 
costs could be reasonably identified and are more appropriately 
borne by the Participants. Id. at 29.
---------------------------------------------------------------------------

    In response to the comment noting a lack of detail in the Proposed 
Amendment about how quickly the Participants intend to recoup Past CAT 
Costs,\324\ CAT LLC states that only Industry Members would be subject 
to fees to recover Past CAT Costs and details of those fees, including 
the periods over which the fees would be recovered, would be contained 
in the Participants' fee filings pursuant to Section 19 of the Exchange 
Act and Rule 19b-4 thereunder.\325\ CAT LLC adds that Past CAT Costs 
will be broken out into six periods and provides proposed 
allocations.\326\ CAT LLC also explains how the Fee Rate for Past CAT 
Costs would be calculated.\327\
---------------------------------------------------------------------------

    \324\ See SIFMA Letter at 6, 7 and 9.
    \325\ See Response Letter at 23. CAT LLC explains that it would 
be required to establish any Fee Rate, which would have to be 
approved by a majority of the Operating Committee. Id. at 33. Each 
of the Participants would file fee filings pursuant to Section 19(b) 
and Rule 19b-4 thereunder to establish the initial Fee Rate (for 
fees related to Past CAT Costs or going forward costs) for Industry 
Member CAT fees and for any changes to those initial rates. Id. at 
33-34. CAT LLC states that it does not plan to submit an amendment 
to the CAT NMS Plan each time the Fee Rate is established or changed 
as the Participants are signatories to the Plan and would be 
required to comply with the Fee Rate pursuant to the process set 
forth in the Plan. Id. at 33.
    \326\ Id. at 23-28. See also infra Section IV.H. for detail on 
the Past CAT Costs provided by CAT LLC.
    \327\ See Response Letter at 23.
---------------------------------------------------------------------------

    CAT LLC explains that CAT fees would be designed to collect certain 
costs paid by the Participants prior to the effectiveness of the CAT 
fees pursuant to the Executed Share Model.\328\ CAT LLC states, ``[t]he 
Past CAT Costs would include a portion of certain costs incurred prior 
to January 1, 2022 as well as costs incurred after January 1, 2022 but 
prior to the effectiveness of the CAT fees pursuant to the Executed 
Share Model. With regard to costs incurred prior to January 1, 2022, 
the Participants would remain responsible for 100% of $48,874,937 of 
Excluded Costs and $14,749,362 of costs related to the conclusion of 
the relationship with the Initial Plan Processor.'' \329\ CAT LLC 
states that the actual costs prior to 2022 are detailed in

[[Page 54571]]

audited financial statements provided on the CAT NMS Plan website.\330\
---------------------------------------------------------------------------

    \328\ Id.
    \329\ Id.
    \330\ Id.
---------------------------------------------------------------------------

C. Input From Industry Members

    Four commenters state that the Proposed Amendment lacks Industry 
Member input.\331\ The commenters believe that the Participants and the 
industry should work together to develop a funding model.\332\ Two 
commenters state that the Participants did not allow Industry Member 
involvement in the Proposed Amendment.\333\ Two commenters urge the 
Commission to encourage the Participants to work with the Industry 
Members on developing a funding model.\334\
---------------------------------------------------------------------------

    \331\ See FINRA Letter at 8-9; Virtu Letter at 7; MMI Letter at 
2, 5; SIFMA Letter at 2.
    \332\ Id.
    \333\ See Virtu Letter at 7; SIFMA Letter at 2.
    \334\ See MMI Letter at 2, 5; Virtu Letter at 7.
---------------------------------------------------------------------------

    In response to comments stating that Industry Members were not 
permitted to provide substantive input on the Executed Share 
Model,\335\ CAT LLC states that Industry Members and other market 
participants have been able to provide meaningful input into the 
funding model through participation on the Advisory Committee, which 
has had the opportunity to participate in Operating Committee meetings 
where funding proposals were discussed,\336\ webinars held by CAT LLC 
on CAT costs and potential alternative funding models, and through the 
notice and comment processes afforded by Rule 608 of Regulation NMS and 
Section 19 of the Exchange Act for the CAT NMS Plan, the current and 
prior proposed funding models and the related Participant fee 
filings.\337\
---------------------------------------------------------------------------

    \335\ See FINRA Letter at 8-9; MMI Letter at 2.
    \336\ The Response Letter states ``CAT LLC notes that the 
Advisory Committee has not indicated support for the Executed Share 
Model or any other funding model.'' See Response Letter at 32, 
n.115.
    \337\ Id. at 31-32.
---------------------------------------------------------------------------

D. Comments Regarding Conflict of Interest

    Several commenters assert that the Participants have a conflict of 
interest in assessing fees to fund the CAT.\338\ One commenter states 
that the Participants are ``seeking to advance their own commercial 
interests at the expense of the Industry Members and the investors by 
proposing a fee structure that disproportionately shifts the costs for 
the CAT onto the Industry Members and the investors they serve.'' \339\ 
Two commenters state that the Participants, with the exception of 
FINRA, are for-profit entities.\340\ One commenter states that certain 
Participants, voting as a bloc on the Proposed Amendment, in affiliated 
exchange groups, have substantially greater influence over the funding 
model and how fees will be charged.\341\ The commenter also states that 
Industry Members cannot vote on CAT NMS Plan matters and that pursuant 
to this voting structure, the Operating Committee approved a funding 
model that allocates to FINRA a disproportionate share of CAT 
costs.\342\ Similarly, another commenter argues that the Industry 
Members are not voting members of the Operating Committee, and thus 
have no way to direct the cost control efforts of the Participants or 
change their course if the cost control efforts prove to be 
unsuccessful.\343\
---------------------------------------------------------------------------

    \338\ See FINRA Letter at 8; MMI Letter at 2; SIFMA Letter at 8; 
Virtu Letter at 1, 4.
    \339\ See Virtu Letter at 1.
    \340\ See FINRA Letter at 8, Virtu Letter at 1.
    \341\ See FINRA Letter at 8.
    \342\ Id.
    \343\ See SIFMA Letter at 8.
---------------------------------------------------------------------------

    In response to the comment criticizing the voting structure of the 
Operating Committee and Industry Member representation on the Operating 
Committee,\344\ CAT LLC states that the voting structure and 
composition of the Operating Committee are outside of the scope of the 
Proposed Amendment.\345\ CAT LLC asserts that the composition of the 
Operating Committee is consistent with the Exchange Act.\346\
---------------------------------------------------------------------------

    \344\ See FINRA Letter at 8.
    \345\ See Response Letter at 33.
    \346\ Id. at 32-33.
---------------------------------------------------------------------------

    One commenter states that, while the Proposed Amendment addresses 
the fact that a clearing firm is free to pass its CAT fees through to 
its broker-clients, and the broker-clients are then free to pass them 
through to the end account, it is silent about whether the SROs may do 
the same.\347\ This commenter ``supports the inclusion of clear 
language that SROs may not pass through CAT fees, either directly or as 
an increase to Section 31 fee recapture.'' \348\ The commenter explains 
that if the Participants are permitted to pass through their fees, they 
may bear none of the costs or responsibilities for CAT.\349\ The 
commenter argues proposed funding model will be ``more robust'' if key 
participants have ``skin in the game.'' \350\ Another commenter argues 
that the Proposed Amendment fails to state that the costs imposed on 
Industry Members may ultimately be passed on to the investing 
public.\351\ The commenter states that these would be substantial costs 
that will make it more expensive for investors to access capital 
markets.\352\
---------------------------------------------------------------------------

    \347\ See MMI Letter at 2.
    \348\ Id.
    \349\ Id.
    \350\ Id.
    \351\ See Virtu Letter at 4.
    \352\ Id.
---------------------------------------------------------------------------

    In response to comments expressing concern about passing through 
CAT fees, CAT LLC states that it supports the concept of pass-through 
fees because: (1) in adopting Rule 613, the Commission contemplated 
that the Participants would be able to recover the costs of funding the 
central repository from their members; \353\ (2) the Commission stated 
in the CAT NMS Plan adopting release that Industry Members may seek to 
pass on to investors their costs of building and maintaining the CAT, 
which may include their costs as well as costs passed on to them by the 
Participants; \354\ (3) pass-through fees are commonly used, with 
Section 31 fees and the TAF and ORF fees being current examples of 
other fees that are regularly passed-through; \355\ (4) commenters on 
prior proposals suggested a model similar to the Section 31 fees that 
would allow the fee to be passed through to Industry Members and their 
customers; \356\ and (5) regulatory costs increase costs for all market 
participants and ``[e]ven if such pass throughs were limited or 
prohibited, CAT costs would be distributed in other ways.'' \357\
---------------------------------------------------------------------------

    \353\ See Response Letter at 15.
    \354\ Id.
    \355\ Id. at 15-16.
    \356\ Id. at 17.
    \357\ Id.
---------------------------------------------------------------------------

E. Alternative Models

    Commenters also recommend that the Proposed Amendment pursue 
alternative funding models to the Executed Share Model.\358\ Two 
commenters suggest funding models using message traffic as the basis of 
fees.\359\ One commenter states that it had presented a message traffic 
alternative that would provide for more predictable fees than prior 
message traffic models and was based on prospective rates.\360\ 
However, the commenter states that some Industry Members believe that 
message-traffic models are too complex so the commenter is open to 
alternative models that use ``workable cost proxy metrics'' that are 
consistent with the Exchange Act.\361\
---------------------------------------------------------------------------

    \358\ See FINRA Letter at 4, 8; Harris Letter at 4, 5, 8, 13; 
SIFMA Letter at 5-6.
    \359\ See FINRA Letter at 8; Harris Letter at 4, 5, 8, 13.
    \360\ See FINRA Letter at 8.
    \361\ Id.
---------------------------------------------------------------------------

    In response to the comment presenting a message traffic model, CAT 
LLC states that executed share volume

[[Page 54572]]

is an improvement on the message traffic model suggested by the 
commenter.\362\ CAT LLC states that technology costs, such as data 
processing and storage, comprise the majority of CAT costs, not message 
traffic, and are driven by the CAT NMS Plan requirements, data 
complexity, and timelines.\363\ CAT LLC explains that, due to these 
costs and requirements and ``other issues with the message traffic 
model and other considerations'' \364\ it is focusing instead on the 
Executed Share Model instead of the message traffic and market share 
metrics used in the Original Funding Model.\365\
---------------------------------------------------------------------------

    \362\ See Response Letter at 3.
    \363\ Id. at 4.
    \364\ Id. at 3.
    \365\ Id. at 3-4.
---------------------------------------------------------------------------

    The other commenter states that a model that uses message traffic 
would result in more predictable fees than the Executed Share Model by 
producing less variable cash flow.\366\ The commenter further states 
that the Proposed Amendment dismisses the use of message traffic fees 
because they would require discounting certain activity to avoid fees 
that would adversely impact market making activity.\367\ However, the 
commenter states that not using the Message Traffic Model would result 
in an unfair and inefficient outcome.\368\ The commenter states that if 
options market participants do not pay all of the costs they impose on 
CAT NMS, entities in the equity markets would subsidize options market 
trading and options market entities would have little incentive to 
control their costs.\369\ The commenter recommends that the CAT collect 
a fixed fee per message from all entities creating messages, and 
collect a fee from traders that is proportional to the value of the 
underlying equity risk exchanged under the commenter's suggested Risk 
Transfer Model (in which users would be assigned funding in proportion 
to usage and the fees would be proportional to the dollar value of the 
risk transferred in each transaction).\370\ The commenter states that 
the funding model should allocate 75% of CAT funding to cost recovery 
fees based on message count, putting a substantial fraction of funding 
costs on equity options markets because they generate a 
disproportionate share of messages.\371\ The commenter states that if 
message traffic is not used as a basis for fees, the funding model 
should instead use the commenter's suggested Risk Transfer Model.\372\
---------------------------------------------------------------------------

    \366\ See Harris Letter at 4.
    \367\ Id. at 5.
    \368\ Id.
    \369\ Id.
    \370\ Id. at 13.
    \371\ Id.
    \372\ See Harris Letter at 8, 13.
---------------------------------------------------------------------------

    One commenter suggests an alternative allocation where the 
Participants and Industry Members would be allocated 50% of Prospective 
CAT Costs.\373\ The Industry Member allocation would take into account 
Industry Member funding of FINRA.\374\ The commenter states that this 
alternative would provide for an equal sharing of such CAT costs 
between Participants and Industry Members and would also appear to be 
justifiable under the Exchange Act fee standards because it treats 
Participants and Industry Members the same from a cost allocation 
perspective.\375\
---------------------------------------------------------------------------

    \373\ See SIFMA Letter at 5.
    \374\ Id.
    \375\ Id.
---------------------------------------------------------------------------

    In response to the comment, CAT LLC states that the suggested 
allocation would not equitably allocate costs between and among 
Industry Members and Participants because ``Industry Members have far 
greater financial resources than the Participants, and the complexity 
of Industry Members' chosen business models contribute substantially to 
the costs of the CAT.'' \376\ CAT LLC adds that the commenter did not 
justify why the suggested allocation would satisfy Exchange Act 
standards.\377\
---------------------------------------------------------------------------

    \376\ See Response Letter at 7.
    \377\ Id.
---------------------------------------------------------------------------

    A commenter suggests another alternative allocation where costs 
would be allocated to those Participants and Industry Members most 
directly responsible for the costs.\378\ The commenter states that, 
because Industry Members and their customers are directly responsible 
for creating the order and transactional data that is initially 
ingested into the CAT system, Industry Members should be responsible 
for the cost associated with this initial ingestion of the data into 
the CAT system.\379\ The commenter states that the Participants should 
be responsible for the costs associated with the stages after the data 
is initially ingested into the CAT system because the regulators 
directly control and benefit from these stages of the CAT system after 
ingestion.\380\ The commenter adds that the Participants and the 
Commission designed and imposed on the Industry Members a multitude of 
reports, fields, and data types spelled out in hundreds of pages of 
technical specifications and answers to Frequently Asked Questions for 
the sole benefit of the Participants and Commission, and as Industry 
Members bear the burden of producing the data in this format, the 
Participants should bear the costs of processing the complex data they 
required.\381\ The commenter believes that this allocation would be 
consistent with the Exchange Act fee standard and the CAT NMS Plan 
funding principle that the allocation should ``tak[e] into account the 
timeline for implementation of the CAT and distinctions in the 
securities trading operations of Participants and Industry Members and 
their relative impact upon Company resources and operations.'' \382\
---------------------------------------------------------------------------

    \378\ See SIFMA Letter at 5-6.
    \379\ Id.
    \380\ Id.
    \381\ Id.
    \382\ Id.
---------------------------------------------------------------------------

    In response to the comment,\383\ CAT LLC states that the suggested 
allocation method is impractical and would not result in an equitable 
allocation of reasonable fees.\384\ CAT LLC argues that the suggested 
allocation inaccurately limits Industry Members' responsibility for CAT 
costs to ingestion costs when the complexity of Industry Members' 
business models also results in significant data processing and storage 
costs.\385\ Further, CAT LLC disagrees with the commenter's statement 
that Industry Members will not benefit from the CAT, explaining that 
the CAT is designed to benefit all market participants, with direct 
benefits to Industry Members.\386\
---------------------------------------------------------------------------

    \383\ Id.
    \384\ See Response Letter at 8.
    \385\ Id.
    \386\ Id. at 9.
---------------------------------------------------------------------------

F. Executed Share Model and the Cost Alignment Funding Principle

    One commenter argues that the Executed Share Model is inconsistent 
with the cost alignment funding principle of the CAT NMS Plan.\387\ The 
commenter explains that the Participants are proposing to delete 
language in the CAT NMS Plan funding principles that requires the 
Participants to take into account ``distinctions in the securities 
trading operations of Participants and Industry Members and their 
relative impact upon Company resources and operations.'' \388\ The 
commenter states that the Participants have concluded that the 
principle ``is no longer relevant'' and that it is not feasible to 
determine cost burden imposed by individual CAT Reporters due to the 
inter-related nature of CAT's cost drivers.\389\ The commenter states 
that the Participants merely state that that executed share volume is 
``related to, but not precisely linked to'' CAT

[[Page 54573]]

cost-generation,\390\ and the commenter believes that this is 
inadequate to demonstrate that use of executed share volume is 
reasonable and equitable.\391\ The commenter states that ``the Proposal 
fails to establish a sufficient nexus between executed share volume and 
the technology burdens that generate CAT costs and fails to relate each 
reporter group's allocation to the burden that each reporter group 
imposes on CAT.'' \392\ This commenter states that the Proposed 
Amendment ``seeks to amend the core funding principles to align with an 
unjustified allocation methodology.'' \393\ While the commenter is 
receptive to modifications to the funding principles, it believes that 
changes to the core principles must be ``well-reasoned and transparent 
and must continue to support the achievement of a fair and equitable 
outcome.'' \394\
---------------------------------------------------------------------------

    \387\ See FINRA Letter at 4.
    \388\ Id.
    \389\ Id.
    \390\ Id.
    \391\ Id.
    \392\ Id.
    \393\ See FINRA Letter at 5. The commenter states that the 
Executed Share Model instead places the greatest emphasis on the 
funding principle relating to the ``ease of billing and other 
administrative functions,'' favoring that principle over cost 
alignment.
    \394\ Id.
---------------------------------------------------------------------------

    In response to the comment arguing that the Proposed Amendment 
fails to adequately link executed share volume to the technology 
burdens that create CAT costs,\395\ CAT LLC states that, although the 
Exchange Act does not require a CAT Reporter's fees to be a proxy for 
its cost burden on the CAT,\396\ executed share volume is related to a 
CAT Reporter's cost burden because ``trading activity provides a 
reasonable proxy for cost burden on the CAT'' \397\ as increased 
trading activity is correlated with increased cost burden because it 
impacts message traffic, data processing and storage.\398\ CAT LLC 
explains that it is not feasible to determine the exact cost burden of 
each CAT Reporter so trading activity is a reasonable proxy, and that 
transaction-based fees for Industry Members are commonly used by 
Participants since Industry Members generally effect transactions.\399\ 
CAT LLC adds that the commenter, FINRA, uses the TAF, a transaction-
based trading activity fee, and that in approving the fee, the 
Commission found that transaction volume was sufficiently correlated to 
FINRA's regulatory responsibilities.\400\ CAT LLC believes the same 
logic should apply to the Executed Share Model.\401\ CAT LLC concludes 
that ``executed share volume is an appropriate metric for allocating 
CAT costs among CAT Reporters'' \402\ and that the use of executed 
share volume would result in reasonable and equitably allocated CAT 
fees.\403\
---------------------------------------------------------------------------

    \395\ Id. at 4.
    \396\ See Response Letter at 3.
    \397\ Id.
    \398\ Id.
    \399\ Id.
    \400\ Id. at 4.
    \401\ Id.
    \402\ See Response Letter at 3.
    \403\ Id.
---------------------------------------------------------------------------

G. Other Comments

    The Commission also received comments on other topics related to 
the funding model.
    One commenter states that the proposed funding model should have 
included an explanation of how executed share volume will be calculated 
and should explain which ``trade'' event reported by CAT Reporters will 
be used to determine executed share volume: MEOT, MEOF, or 
allocation.\404\ The commenter recommends that the executed share 
volume count only MEOT shares.\405\ The commenter suggests the Proposed 
Amendment include a set of ``business rules'' for calculating Executed 
Share Volume and that FINRA CAT be required to publish a detailed 
specification for calculating volume.\406\ The commenter states that 
Industry Members should have an opportunity to review both before the 
billing process.\407\
---------------------------------------------------------------------------

    \404\ See MMI Letter at 3-4.
    \405\ Id. at 3, n.2.
    \406\ Id. at 3.
    \407\ Id.
---------------------------------------------------------------------------

    In response to the comment arguing that the Proposed Amendment 
lacks a description of the trades that would be used to calculate 
executed share volume,\408\ CAT LLC explains that the Proposed 
Amendment states that CAT fees will be assessed for trades reported to 
CAT by FINRA via the ADF, the ORF, and the TRF, and by the exchanges, 
and that the same transaction data in the CAT Data would be used to 
calculate the projected total executed equivalent share volume for the 
Fee Rate.\409\ CAT LLC adds that executed share volume would not be 
based on other trade-related data in the CAT, like MEOTs, and that 
Participant-reported trades, rather than MEOTs and other trade data in 
the CAT that is reported by Industry Members would be the ``most 
efficient and effective source for calculating executed share volume.'' 
\410\
---------------------------------------------------------------------------

    \408\ Id. at 3-4.
    \409\ See Response Letter at 18.
    \410\ Id.
---------------------------------------------------------------------------

    One commenter states that the Proposed Amendment should provide 
detail on how the clearing firm for the seller and/or buyer on each 
share traded will be determined and how calculations are proposed to be 
made if the buyer or seller operates with multiple clearing firms.\411\ 
The commenter also asks how the Participants would accurately identify 
the clearing firm in a transaction, providing as an example a CAT 
Reporter with multiple clearing firms.\412\
---------------------------------------------------------------------------

    \411\ See MMI Letter at 4.
    \412\ Id. at 3, n.2.
---------------------------------------------------------------------------

    In response to the comment asking how clearing firms would be 
identified in a transaction, especially when an Industry Member could 
have multiple clearing firms,\413\ CAT LLC states that Section 
6.4(d)(ii)(A)(2) of the CAT NMS Plan requires the reporting of the SRO-
Assigned Market Participant Identifier of the clearing broker in an 
execution and that this information would be provided through the 
transaction data in CAT Data to identify the relevant clearing firm in 
a transaction.\414\
---------------------------------------------------------------------------

    \413\ Id. at 4.
    \414\ See Response Letter at 12-13. CAT LLC also states that it 
will adopt policies, procedures, and practices regarding the billing 
and collection of fees in compliance with Section 11.1(d) of the CAT 
NMS Plan. Id. at 17.
---------------------------------------------------------------------------

    Commenters also suggest protocols that would assist clearing firms 
and Industry Members in determining and validating CAT fees.\415\ One 
commenter recommends that the Operating Committee and FINRA CAT be 
required to provide ``detailed data to each clearing firm and to each 
CAT reporter so that fees may be validated,'' \416\ and suggests that 
the Operating Committee provide estimated fees per CAT Reporter to 
allow CAT Reporters to see the impact of the fees, and that these 
estimates should ``indicate which clearing firm(s) would be charged for 
which portion(s) of the Reporter's traded shares.'' \417\ The commenter 
also recommends that the proposed funding model ``set forth parameters 
to avoid inefficiencies in the calculation of fees that would result in 
a mismatch between fees collected and fees required to cover the cost 
of operating the CAT . . . [and] clear procedures to avoid 
miscollection of fees.'' \418\
---------------------------------------------------------------------------

    \415\ See MMI Letter at 4-5; SIFMA Letter at 10.
    \416\ See MMI Letter at 4-5.
    \417\ Id. at 4.
    \418\ Id. at 4-5.

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

[[Page 54574]]

Similarly, another commenter states that, because under the Executed 
Share Model, clearing firms would be tasked with determining the CAT 
fees attributable to each client from a monthly lump sum based on 
transaction activity, the CAT should break-out for each clearing firm 
the CAT fees attributable to each of the clearing firm's clients.\419\ 
The commenter also suggests that the CAT break-out and share with each 
Industry Member the Industry Member's share of monthly CAT costs.\420\
---------------------------------------------------------------------------

    \419\ See SIFMA Letter at 10.
    \420\ Id.
---------------------------------------------------------------------------

    In response to the comments suggesting that CAT LLC provide 
detailed data to each clearing firm and Industry Member regarding 
Industry Member CAT fees and trading activity,\421\ CAT LLC agrees that 
this data should be made available to clearing firms and their clients 
because ``such data would allow clearing firms to determine which part 
of the CAT fees are attributable to their clearing clients and would 
facilitate any pass throughs of fees.'' \422\
---------------------------------------------------------------------------

    \421\ See MMI Letter at 4-5; SIFMA Letter at 10.
    \422\ See Response Letter at 12.
---------------------------------------------------------------------------

    One commenter states that the Proposed Amendment fails to charge 
regulators for the costs of filling regulatory queries, which will 
result in overuse of the CAT system because regulators will not bear 
the costs they impose on the CAT.\423\ The commenter argues that this 
failure will make operating the CAT more expensive than it should be 
and will result in the inefficient allocation of query resources.\424\
---------------------------------------------------------------------------

    \423\ See Harris Letter at 6.
    \424\ Id.
---------------------------------------------------------------------------

    Two commenters state that the Proposed Amendment lacks a cost-
benefit analysis.\425\ One of the commenters argues that the Proposed 
Amendment fails to balance the regulatory benefits of CAT with the 
costs.\426\ The other commenter states that industry systems are 
currently set up to assess fees, such as Section 31 fees, on sellers, 
but not purchasers, and as a result, changing the existing industry-
wide systems to charge both purchasers and sellers would ``come not 
only at great cost to industry, but also introduce complexity due to 
change, without stated benefit.'' \427\ This commenter believes that 
the Proposed Amendment should include a cost-benefit analysis of 
charging a ``CAT fee on both the purchase and sale of securities, or 
alternatively be amended to a fee solely on sellers, to conform to 
existing frameworks and business practices.'' \428\
---------------------------------------------------------------------------

    \425\ See Virtu Letter at 5; MMI Letter at 3.
    \426\ See Virtu Letter at 4.
    \427\ See MMI Letter at 3.
    \428\ Id.
---------------------------------------------------------------------------

    One commenter agrees with the Proposed Amendment's elimination of 
tiered pricing and fixed fees.\429\ This commenter states that these 
proposed changes would remove a system that is unnecessarily complex, 
creates ``perverse incentives'' in tiering and burdens competition 
because it increases the cost of entry for new entrants.\430\ This 
commenter also recommends two principles that could be used to develop 
a fair funding model: the Cost Recovery Principle and the Benefits 
Received Principle.\431\
---------------------------------------------------------------------------

    \429\ See Harris Letter at 14.
    \430\ Id.
    \431\ Id. at 3.
---------------------------------------------------------------------------

    Two commenters argue that the Proposed Amendment's statement that 
the Executed Share Model is consistent with existing fees is 
irrelevant.\432\ One commenter states that the Participants should have 
explained how the existing fees are an appropriate model for CAT 
fees.\433\ Another commenter states that similarity to other 
transaction-based fees that have been approved by the Commission (e.g., 
TAF, Section 31, ORF) is not an adequate basis to show that the 
Executed Share Model is consistent with relevant standards; each 
proposed fee must be individually supported.\434\
---------------------------------------------------------------------------

    \432\ See FINRA Letter at 4; SIFMA Letter at 4.
    \433\ See FINRA Letter at 4.
    \434\ See SIFMA Letter at 4.
---------------------------------------------------------------------------

    In response to the comments who disagree with the use of existing 
fees as support for the Executed Share Model,\435\ CAT LLC explains 
that it cited the other transaction-based regulatory fees to 
demonstrate that there is precedent for the use of trading activity as 
a metric for calculating fees for a variety of regulatory 
activity,\436\ and that the Commission has found that such fees satisfy 
the requirements of the Exchange Act.\437\ CAT LLC states that the 
proposed CAT fees would operate similar to the precedent.\438\
---------------------------------------------------------------------------

    \435\ See FINRA Letter at 3-4; SIFMA Letter at 4.
    \436\ See Response Letter at 4.
    \437\ Id. at 3-4.
    \438\ Id. at 4. CAT LLC also states that the Original Funding 
Model relied on a transaction-based CAT fee as the Original Funding 
Model based fees for Participants on market share and therefore on 
executed transactions. Id. at 5, n.24.
---------------------------------------------------------------------------

H. Past CAT Costs

    In its response, CAT LLC includes discussion and a table that 
breaks out the Past CAT Costs into six periods.\439\ The discussion and 
tables in this subsection are set forth as substantially prepared by 
CAT LLC.
---------------------------------------------------------------------------

    \439\ Id. at 23-28. CAT LLC states that four of the six periods 
are the Financial Accountability Milestones (``FAM'') periods set 
forth in Section 11.6 of the CAT NMS Plan. Section 11.6 of the CAT 
NMS Plan establishes target deadlines for four implementation 
milestones (1) July 31, 2020--Initial Industry Member Core Equity 
and Option Reporting; (2) December 31, 2020--Full Implementation of 
Core Equity Reporting Requirements; (3) December 31, 2021--Full 
Availability and Regulatory Utilization of Transactional Database 
Functionality; and (4) December 31, 2022--Full Implementation of CAT 
NMS Plan Requirements. Id. at 23-24.
---------------------------------------------------------------------------

    CAT LLC states that Past CAT Costs would include costs related to 
the FAM periods as well as costs from prior to the first FAM period, 
and potentially costs after the FAM periods depending upon the 
effectiveness of the CAT fees pursuant to the Executed Share 
Model.\440\
---------------------------------------------------------------------------

    \440\ See Response Letter at 24. See also id. at 29-31 
(discussing costs that CAT LLC is seeking to recover during the 
first three periods of the FAM). The Commission notes that in May 
2020, the Commission adopted amendments to the CAT NMS Plan that 
establish four Financial Accountability Milestones and set target 
deadlines by which these milestones must be achieved. These 
amendments also reduce the amount of any fees, costs, and expenses 
that the Participants may recover from Industry Members if the 
Participants fail to meet the target deadlines. See supra notes 15-
18 and accompanying text. The Commission believes it is most 
appropriate to consider whether the Participants have met the target 
deadlines established for each Financial Accountability Milestone in 
connection with proposals related to the imposition of CAT fees on 
broker-dealers. For that reason, in issuing this Order, the 
Commission makes no determinations regarding whether the 
Participants have achieved the Financial Accountability Milestones 
set forth in Section 1.1 of the CAT NMS Plan or the potential 
application of fee reduction provisions set forth in Section 11.6 of 
the CAT NMS Plan.

[[Page 54575]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                          Proposed 1/3
                                                                                                         Proposed 1/3    Proposed 1/3     allocation to
           Dates cost incurred                         Period                    Total CAT costs *       allocation to   allocation to    participants
                                                                                                          CBBs *****      CBSs *****     (and previously
                                                                                                                                           paid) *****
--------------------------------------------------------------------------------------------------------------------------------------------------------
Prior to June 22, 2020..................  N/A.............................  ** $143,919,521...........     $47,973,174     $47,973,174       $47,973,174
June 22, 2020-July 31, 2020.............  FAM Period 1....................  $6,377,343................       2,125,781       2,125,781         2,125,781
Aug. 1, 2020-Dec. 31, 2020..............  FAM Period 2....................  $42,976,478...............      14,325,493      14,325,493        14,325,493
Jan. 1, 2021-Dec. 31, 2021..............  FAM Period 3....................  $144,415,268..............      48,238,423      48,238,423        48,238,423
Jan. 1, 2022-Dec. 31, 2022..............  FAM Period 4....................  Budgeted $174,766,871 ***.             TBD             TBD               TBD
Post Dec. 31, 2022......................  TBD ****........................  TBD ****..................         *** TBD         *** TBD           *** TBD
--------------------------------------------------------------------------------------------------------------------------------------------------------
* These costs exclude costs of $14,749,362 related to the conclusion of the relationship with the Initial Plan Processor.
** These costs exclude $48,874,937 of Excluded Costs.
*** As 2022 remains in progress, these costs are budgeted costs, not actual. Past CAT Costs, however, would be based on actual costs, and the costs
  included would depend on the effective date of any CAT fees.
**** Depending on the effective date of any CAT fees, costs from the period after December 31, 2022 may also be included in Past CAT Costs.
***** Total of proposed allocated costs may not agree to total CAT Costs due to rounding.

a. Costs Incurred Prior to June 22, 2020
    Past CAT Costs include costs incurred by CAT prior to June 22, 2020 
and already funded by the Participants. As noted above, the Past CAT 
Costs for the period prior to June 22, 2020 are $143,919,521. 
Participants would remain responsible for one-third of this cost (which 
they have previously paid), and Industry Members would be responsible 
for the remaining two-thirds, with CBBs paying one-third ($47,973,174) 
and CBSs paying one-third ($47,973,174). The following provides 
additional detail about the costs from this period.
     In accordance with Section 11.1(c) of the CAT NMS Plan, 
the Past CAT Costs include ``fees, costs and expenses (including legal 
and consulting fees and expenses) incurred by the Participants on 
behalf of the Company prior to the Effective Date in connection with 
the creation and implementation of the CAT.'' Specifically, Past CAT 
Costs include costs incurred from 2012 through November 20, 2016 
related to the development of the National Market System Plan Governing 
the Process of Selecting a Plan Processor and Developing a Plan for the 
Consolidated Audit Trail (``Selection Plan'') and the CAT NMS Plan as 
well as the Plan Processor selection process pursuant to the Selection 
Plan. The Past CAT Costs incurred during this period are $13,842,881. 
Participants would remain responsible for one-third of this cost (which 
they have previously paid) ($4,614,294), and Industry Members would be 
responsible for the remaining two-thirds, with CBBs paying one-third 
($4,614,294) and CBSs paying one-third ($4,614,294).
     The Past CAT Costs for this period include costs incurred 
after the formation of the CAT NMS Plan and prior to the selection of 
the Initial Plan Processor for the CAT, which covers the period from 
November 21, 2016 through April 5, 2017. The Past CAT Costs for this 
period are $2,933,869. Participants would remain responsible for one-
third of this cost (which they have previously paid) ($977,956), and 
Industry Members would be responsible for the remaining two-thirds, 
with CBBs paying one-third ($977,956) and CBSs paying one-third 
($977,956).
     The Past CAT Costs include a subset of the total costs 
incurred during the period in which Initial Plan Processor for the CAT 
was operating, which was April 6, 2017 through March 28, 2019. The 
total costs for this period are $106,256,258. The Participants, 
however, have determined to exclude from the Past CAT Costs all costs 
incurred from November 15, 2017 through November 15, 2018 (``Excluded 
Costs'') due to the delay in the start of reporting to the CAT. The 
Excluded Costs are $48,874,937. Accordingly, the Past CAT Costs for 
this period are $57,381,321.\441\ Participants would remain responsible 
for Excluded Costs as well as one-third of these Past CAT Costs (both 
of which they have previously paid) ($16,291,646), and Industry Members 
would be responsible for the remaining two-thirds, with CBBs paying 
one-third ($16,291,646) and CBSs paying one-third ($16,291,646).
---------------------------------------------------------------------------

    \441\ Section II(B)(3) below provides further discussion of 
costs related to the Initial Plan Processor. The Commission notes 
that the section cited is in the Response Letter at 28-29.
---------------------------------------------------------------------------

     The Past CAT Costs include the costs incurred from the 
date of FINRA CAT's selection as the Plan Processor on March 29, 2019 
through June 21, 2020. The Past CAT Costs for this period are 
$69,761,450. These costs are net of costs related to the conclusions of 
the relationship with the Initial Plan Processor of $7,337,345. 
Participants would remain responsible for costs related to the 
conclusion of the relationship with the Initial Plan Processor as well 
as one-third of these Past CAT Costs (both of which they have 
previously paid) ($23,253,817), and Industry Members would be 
responsible for the remaining two-thirds, with CBBs paying one-third 
($23,253,817) and CBSs paying one-third ($23,253,817).
    The following table breaks down the Past CAT Costs for the period 
prior to June 22, 2020 into the categories set forth in the audited 
financial statements for the Company:

------------------------------------------------------------------------
                                                          Total past CAT
                                                             costs for
                    Operating expense                      period prior
                                                            to June 22,
                                                               2020
------------------------------------------------------------------------
Technology Costs *......................................    $105,044,520
Legal...................................................      19,674,463
Consulting..............................................      17,013,414
Insurance...............................................         880,419
Professional and administration.........................       1,082,036
Public relations........................................         224,669
------------------------------------------------------------------------
* Capitalized developed technolgy costs are already included in
  ``Technology Costs'' and therefore the non-cash amortization of these
  capitalized developed technology costs of $2,115,545 incurred during
  the period prior to June 22, 2020 have been appropriately excluded
  from ``Operating Expense.''

b. CAT Costs Incurred in Period 1
    Past CAT Costs include costs incurred by CAT and already funded by 
Participants during FAM Period 1, which covers the period from June 22, 
2020-July 31, 2020. The Past CAT Costs for Period 1 are $6,377,343. 
Participants would remain responsible for one-third of this cost (which 
they have previously paid) ($2,125,781), and Industry Members would be 
responsible for the remaining two-thirds, with CBBs paying one-third 
($2,125,781) and CBSs paying one-third ($2,125,781). The following 
table breaks down the Past CAT Costs for Period 1 into the categories 
set forth in the audited financial statements for the Company:

[[Page 54576]]



------------------------------------------------------------------------
                                                          Total past CAT
                    Operating expense                        costs for
                                                             Period 1
------------------------------------------------------------------------
Technology Costs........................................    * $5,681,670
Legal...................................................         481,687
Consulting..............................................         137,209
Insurance...............................................  ..............
Professional and administration.........................          69,077
Public relations........................................           7,700
------------------------------------------------------------------------
* Capitalized developed technolgy costs are already included in
  ``Technology Costs'' and therefore the non-cash amortization of these
  capitalized developed technology costs of $362,121 incurred during
  Period 1 have been appropriately excluded from ``Operating Expense.''

c. CAT Costs Incurred in Period 2
    Past CAT Costs include costs incurred by CAT and already funded by 
Participants during FAM Period 2, which covers the period from August 
1, 2020-December 31, 2020. Participants would remain responsible for 
one-third of this cost (which they have previously paid) ($14,325,493), 
and Industry Members would be responsible for the remaining two-thirds, 
with CBBs paying one-third ($14,325,492.70) and CBSs paying one-third 
($14,325,492.70). The Past CAT Costs for Period 2 are $42,976,478. The 
following table breaks down the Past CAT Costs for Period 2 into the 
categories set forth in the audited financial statements for the 
Company:

------------------------------------------------------------------------
                                                          Total past CAT
                    Operating expense                        costs for
                                                             Period 2
------------------------------------------------------------------------
Technology Costs *......................................     $38,221,127
Legal...................................................       2,766,644
Consulting..............................................         532,146
Insurance...............................................         976,098
Professional and administration.........................         438,523
Public relations........................................          41,940
------------------------------------------------------------------------
* Capitalized developed technolgy costs are already included in
  ``Technology Costs'' and therefore the non-cash amortization of these
  capitalized developed technology costs of $1,892,505 incurred during
  Period 2 have been appropriately excluded from ``Operating Expense.''

d. CAT Costs Incurred in Period 3
    Past CAT Costs include costs incurred by CAT and already funded by 
Participants during FAM Period 3, which covers the period from January 
1, 2021-December 31, 2021. The Past CAT Costs for Period 3 are 
$144,415,268. Participants would remain responsible for one-third of 
this cost (which they have previously paid) ($48,238,423), and Industry 
Members would be responsible for the remaining two-thirds, with CBBs 
paying one-third ($48,238,423) and CBSs paying one-third ($48,238,423). 
The following table breaks down the Past CAT Costs for Period 3 into 
the categories set forth in the audited financial statements for the 
Company:

------------------------------------------------------------------------
                                                          Total past CAT
                    Operating expense                        costs for
                                                             Period 3
------------------------------------------------------------------------
Technology Costs........................................    $134,402,774
Legal...................................................       6,333,248
Consulting..............................................       1,408,209
Insurance...............................................       1,582,714
Professional and administration.........................         595,923
Public relations........................................          92,400
------------------------------------------------------------------------
* Capitalized developed technolgy costs are already included in
  ``Technology Costs'' and therefore the non-cash amortization of these
  capitalized developoed technology costs of $5,108,044 incurred during
  Period 3 have been appropriately excluded from ``Operating Expense.''

e. CAT Costs Incurred in Period 4
    Past CAT Costs would include CAT costs incurred by CAT and already 
funded by Participants (or to be funded by Participants) during FAM 
Period 4, which covers the period from January 1, 2022-December 31, 
2022 (depending on the completion of the FAM for Period 4), and 
incurred prior to the implementation of the CAT fees pursuant to the 
Executed Share Model. Participants would remain responsible for one-
third of this cost (which they have previously paid), and Industry 
Members would be responsible for the remaining two-thirds, with CBBs 
paying one-third and CBSs paying one-third. Given that 2022 remains in 
progress, the following table provides budgeted (as opposed to actual) 
figures for costs for Period 4. The current budgeted CAT costs for 
Period 4 are $174,766,871.

------------------------------------------------------------------------
                                                          Total past CAT
                                                             costs for
                    Operating expense                        Period 4
                                                           through June
                                                               2022
------------------------------------------------------------------------
Technology Costs........................................    $163,609,591
Legal...................................................       7,162,084
Consulting..............................................       1,400,000
Insurance...............................................       1,820,122
Professional and administration.........................         682,674
Public relations........................................          92,400
------------------------------------------------------------------------

    Budgeted CAT costs for 2022 are $174,766,871 and currently 
available on the CAT website; \442\ actual CAT costs for 2022 will be 
available in audited financial statements for the Company after year 
end.
---------------------------------------------------------------------------

    \442\ See Consolidated Audit Trail, LLC 2022 Financial and 
Operating Budget, https://www.catnmsplan.com/sites/default/files/2022-04/04.06.22-CAT-2022-Budget.pdf).
---------------------------------------------------------------------------

V. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Amendment

    The Commission is instituting proceedings pursuant to Rule 
608(b)(2)(i) of Regulation NMS,\443\ and Rules 700 and 701 of the 
Commission's Rules of Practice,\444\ to determine whether to disapprove 
the Proposed Amendment or to approve the Proposed Amendment with any 
changes or subject to any conditions the Commission deems necessary or 
appropriate. Institution of proceedings does not indicate that the 
Commission has reached any conclusions with respect to any of the 
issues involved. Rather, the Commission seeks and encourages interested 
persons to provide additional comment on the Proposed Amendment to 
inform the Commission's analysis.
---------------------------------------------------------------------------

    \443\ 17 CFR 242.608.
    \444\ 17 CFR 201.700; 17 CFR 201.701.
---------------------------------------------------------------------------

    Rule 608(b)(2) of Regulation NMS provides that the Commission 
``shall approve a national market system plan or proposed amendment to 
an effective national market system plan, with such changes or subject 
to such conditions as the Commission may deem necessary or appropriate, 
if it finds that such plan or amendment is necessary or 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 mechanisms of, a national market system, or otherwise in 
furtherance of the purposes of the Exchange Act.'' \445\ Rule 608(b)(2) 
further provides that the Commission shall disapprove a national market 
system plan or proposed amendment if it does not make such a 
finding.\446\ In the Notice, the Commission sought comment on the 
Proposed Amendment, including whether the Proposed Amendment is 
consistent with the Exchange Act.\447\ In this order, pursuant to Rule 
608(b)(2)(i) of Regulation NMS,\448\ the Commission is providing notice 
of the grounds for disapproval under consideration:
---------------------------------------------------------------------------

    \445\ 17 CFR 242.608(b)(2).
    \446\ Id.
    \447\ See Notice, supra note 5.
    \448\ 17 CFR 242.608(b)(2)(i).
---------------------------------------------------------------------------

     Whether, consistent with Rule 608 of Regulation NMS, the 
Participants have demonstrated how the Proposed Amendment is necessary 
or 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 mechanisms of, a national market

[[Page 54577]]

system, or otherwise in furtherance of the purposes of the Exchange 
Act; \449\
---------------------------------------------------------------------------

    \449\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

     Whether the Participants have demonstrated how the 
Proposed Amendment is consistent with Section 6(b)(4) \450\ and Section 
15A(b)(5),\451\ of the Exchange Act, which require that the rules of a 
national securities exchange ``provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other persons using its facilities'' and that the rules of a 
national securities association ``provide for the equitable allocation 
of reasonable dues, fees, and other charges among members and issuers 
and other persons using any facility or system which the association 
operates or controls;''
---------------------------------------------------------------------------

    \450\ 15 U.S.C. 78f(b)(4).
    \451\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

     Whether the Participants have demonstrated how the 
Proposed Amendment is consistent with Section 6(b)(5) \452\ and Section 
15A(b)(6),\453\ of the Exchange Act, which require that the rules of a 
national securities exchange or national securities association 
``promote just and equitable principles of trade . . . protect 
investors and the public interest; and [to be] not designed to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers;''
---------------------------------------------------------------------------

    \452\ 15 U.S.C. 78f(b)(5).
    \453\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

     Whether the Participants have demonstrated how the 
Proposed Amendment is consistent with Section 6(b)(8) \454\ and Section 
15A(b)(9) \455\ of the Exchange Act, which require that the rules of a 
national securities exchange or national securities association ``do 
not impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of [the Exchange Act];''
---------------------------------------------------------------------------

    \454\ 15 U.S.C. 78f(b)(8).
    \455\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

     Whether the Participants have demonstrated how the 
Proposed Amendment is consistent with the funding principles of the CAT 
NMS Plan that are not proposed to be amended by the Proposed Amendment, 
which principles state that the Operating Committee shall seek, among 
other things, ``to create transparent, predictable revenue streams for 
the Company that are aligned with the anticipated costs to build, 
operate and administer the CAT and the other costs of the Company,'' 
\456\ ``to provide for ease of billing and other administrative 
functions,'' \457\ ``to avoid any disincentives such as placing an 
inappropriate burden on competition and a reduction in market 
quality,'' \458\ and ``to build financial stability to support the 
Company as a going concern;'' \459\
---------------------------------------------------------------------------

    \456\ See CAT NMS Plan, supra note 1, at Section 11.2(a).
    \457\ Id. at Section 11.2(d).
    \458\ Id. at Section 11.2(e).
    \459\ Id. at Section 11.2(f).
---------------------------------------------------------------------------

    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a NMS plan filing is consistent with the Exchange Act 
and the rules and regulations issued thereunder . . . is on the plan 
participants that filed the NMS plan filing.'' \460\ The description of 
the NMS plan filing, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding.\461\ Any failure of the plan participants that filed the NMS 
plan filing to provide such detail and specificity may result in the 
Commission not having a sufficient basis to make an affirmative finding 
that the NMS plan filing is consistent with the Exchange Act and the 
applicable rules and regulations thereunder.\462\
---------------------------------------------------------------------------

    \460\ 17 CFR 201.701(b)(3)(ii).
    \461\ Id.
    \462\ Id.
---------------------------------------------------------------------------

VI. Commission's Solicitation of Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the Proposed Amendment. In particular, the Commission invites the 
written views of interested persons concerning whether the Proposed 
Amendment is consistent with Section 11A, Section 6(b)(4), Section 
6(b)(5), Section 6(b)(8), Section 15A(b)(5), Section 15A(b)(6), Section 
15A(b)(9), or any other provision of the Exchange Act, or the rules and 
regulations thereunder, or the funding principles of the CAT NMS Plan. 
Although there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
608(b)(2)(i) of Regulation NMS,\463\ any request for an opportunity to 
make an oral presentation.\464\ The Commission asks that commenters 
address the sufficiency and merit of the Participants' statements in 
support of the Proposed Amendment,\465\ in addition to any other 
comments they may wish to submit about the proposed rule changes. In 
particular, the Commission seeks comment on the following:
---------------------------------------------------------------------------

    \463\ 17 CFR 242.608(b)(2)(i).
    \464\ Rule 700(c)(ii) of the Commission's Rules of Practice 
provides that ``[t]he Commission, in its sole discretion, may 
determine whether any issues relevant to approval or disapproval 
would be facilitated by the opportunity for an oral presentation of 
views.'' 17 CFR 201.700(c)(ii).
    \465\ See Notice, supra note 5.
---------------------------------------------------------------------------

    1. Commenters' views on whether the Executed Share Model is 
consistent with the funding principles in the CAT NMS Plan that are not 
proposed to be amended by the Proposed Amendment, which principles 
state that the Operating Committee shall seek, among other things, ``to 
create transparent, predictable revenue streams for the Company that 
are aligned with the anticipated costs to build, operate and administer 
the CAT and the other costs of the Company,'' \466\ ``to provide for 
ease of billing and other administrative functions,'' \467\ ``to avoid 
any disincentives such as placing an inappropriate burden on 
competition and a reduction in market quality,'' \468\ and ``to build 
financial stability to support the Company as a going concern;'' \469\
---------------------------------------------------------------------------

    \466\ See CAT NMS Plan, supra note 1, at Section 11.2(a).
    \467\ Id. at Section 11.2(d).
    \468\ Id. at Section 11.2(e).
    \469\ Id. at Section 11.2(f).
---------------------------------------------------------------------------

    2. Commenters' views on whether the Participants have demonstrated 
why it consistent with the Exchange Act and Rule 608 of Regulation NMS 
for the Executed Share Model to allocate one-third of Prospective CAT 
Costs to Participants, one-third of Prospective CAT Costs to CBS and 
one-third of Prospective CAT Costs to CBBs;
    3. Commenters' views on potential alternative allocations of CAT 
costs to Industry Members and Participants, including the allocations 
considered, but rejected, by the Participants, and the alternative 
allocations suggested by commenters as discussed in this order;
    4. Commenters' views on whether a cost-based approach would be 
preferable to the proposed Executed Share Model. Commenters' views on 
the Operating Committee's statement that ``[i]n light of the many 
inter-related cost drivers of the CAT (e.g., storage, message traffic, 
processing), determining the precise cost burden imposed by each 
individual CAT Reporter on the CAT is not feasible,'' \470\ and that 
``trading activity provides a reasonable proxy for cost burden on the 
CAT, and therefore is an appropriate metric for allocating CAT costs 
among CAT Reporters;'' \471\
---------------------------------------------------------------------------

    \470\ See Notice, supra note 5, 87 FR at 33232.
    \471\ Id.

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

[[Page 54578]]

    5. Commenters' views on how fees would be passed on to Industry 
Members and investors if all CAT costs were allocated to Participants; 
views on how this outcome would be different than under the 
Participants' proposal; views on whether such an approach would benefit 
or harm efficiency, competition, and capital formation; and any views 
on whether there are other benefits or costs of adopting such an 
approach;
    6. Commenters' views on whether the proposed assessment of a CAT 
fee on FINRA would indirectly impose FINRA's CAT fee on Industry 
Members, and therefore increase Industry Members' share of CAT fees. If 
so, commenters' views on whether this would result in a burden on 
competition for FINRA and for Industry Members, particularly those who 
trade OTC Equity Securities. Additionally, commenters' views on whether 
FINRA should be assessed a CAT fee in the same manner as the national 
securities exchanges;
    7. Commenters' views on whether equities Participants and Industry 
Members that transact in equities would subsidize the activity of 
options Participants and Industry Members that transact in options 
under the proposal; views on how this subsidization would benefit or 
harm efficiency, competition, and capital formation; views on whether 
there are other benefits or costs of adopting such an approach; and any 
views (in detail) on whether there is an alternative approach that 
would be more beneficial to efficiency, competition, or capital 
formation;
    8. Commenters' views on whether the Participants have demonstrated 
why imposing CAT fees only on clearing brokers, instead of on all 
Industry Members is consistent with the Exchange Act and Rule 608 of 
Regulation NMS, and whether such allocation is an unreasonable burden 
on competition; commenters' views on the proposed imposition of the 
Industry Member portion of the CAT fee on both buy- and sell-side 
clearing brokers instead of solely on sell-side clearing brokers;
    9. Commenters' views on whether the Participants should be required 
to change the Fee Rate when the budget or projected executed equivalent 
share volume changes;
    10. Commenters' views on whether the Fee Rate should be permitted 
to be recalculated if the budgeted CAT costs or the projected total 
executed equivalent share volume of transactions change more than once 
in a year;
    11. Commenters' views on whether it is necessary or appropriate in 
the public interest for the Proposed Amendment to permit the Fee Rate 
to potentially remain in effect even if the budget or projected 
executed equivalent share volume changes (both would be used to 
calculate the Fee Rate under the Executed Share Model) or if the Fee 
Rate should sunset after a year. For example, if the Commission 
temporarily suspends and institutes proceedings to determine whether to 
approve or to disapprove a Section 19(b) fee filing to institute a new 
Fee Rate, the old Fee Rate could remain in effect during the 
proceedings;
    12. Commenters' views on whether the Proposed Amendment's statement 
that the Participants do not intend to file a new separate amendment to 
the CAT NMS Plan for Participants each time a new Fee Rate is approved 
by the Operating Committee is consistent with the Exchange Act;
    13. Commenters' views on whether the Proposed Amendment provides 
sufficient clarity and detail regarding the content and process 
relating to the fee filing pursuant to Section 19(b) and Rule 19b-4 
thereunder with regard to Fee Rate changes applicable to Industry 
Members;
    14. Commenters' views on the proposed Participant CAT fee, 
including views on its calculation; any views on whether the proposed 
fee raises any competitive issues; and any views on whether the 
proposed fee is consistent with the funding principles expressed in the 
CAT NMS Plan;
    15. Commenters' views on the Proposed Amendment's methods of 
counting executed equivalent shares for NMS Stocks, Listed Options, and 
OTC Equity Securities, including the appropriateness of the discount to 
1% for OTC Equity Security share volume;
    16. Commenters' views on the Proposed Amendment's use of total 
executed equivalent share volume from the prior six months to determine 
a projected total for the year instead of using the past year's total 
executed equivalent share volume;
    17. Commenters' views on the calculation of the Past CAT Costs Fee 
Rate, including any views on the relevant period to be used by the 
Operating Committee to calculate the Fee Rate for Past CAT Costs;
    18. Commenters' views on whether it is appropriate to allocate one-
third of Past CAT Costs to CBBs and one-third of Past CAT Costs to 
CBSs. Commenters' views on the composition and transparency of Past CAT 
Costs to be so allocated;
    19. Commenters' views on whether the Participants have demonstrated 
why allowing the Participants to be responsible for one-third of Past 
CAT Costs and to collect two-thirds of Past CAT Costs from clearing 
brokers on a pro rata basis, rather than based on the executed 
equivalent share volume of transactions in Eligible Securities, is 
consistent with the Exchange Act and Rule 608 of Regulation NMS;
    20. Commenters' views on whether the Proposed Amendment contains 
sufficient detail on how CAT fees for Past CAT Costs would be allocated 
to Participants on a pro rata basis;
    21. Commenters' views on whether it is appropriate to use 
transaction activity from the past month to determine the CAT fee for 
Past CAT Costs (that were incurred months or years before);
    22. Commenters' views on the Proposed Amendment's requirement that 
CAT fees related to Past CAT Costs would be collected from current 
Industry Members and not Industry Members that were active at the time 
when the Past CAT Costs were incurred;
    23. Commenters' views on the transparency of the Proposed Amendment 
and the level of detail made available into Past CAT Costs and 
Prospective CAT Costs;
    24. Commenters' views on the costs that would be included in the 
proposed definition of Budgeted CAT Costs in the Proposed Participant 
Fee Schedule; commenters' views on whether the Proposed Amendment needs 
a discussion of how the budget will be reconciled to fees;
    25. Commenters' views on the decision to use total budgeted costs 
for the CAT for the relevant year to calculate fees related to 
Prospective CAT Costs for Participants and Industry Members, rather 
than costs already incurred; and views on the treatment of any 
surpluses;
    26. Commenters' views on how any inherent conflicts of interest may 
be addressed in the Proposed Amendment;
    27. Commenters' views on whether, and if so how, the Proposed 
Amendment would affect efficiency, competition or capital formation;
    28. Commenters' views on whether modifications to the Proposed 
Amendment, or conditions to its approval, would be necessary or 
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 mechanisms of, a national market system, or otherwise 
in furtherance of the purposes of the Exchange Act;
    29. Commenters' views on the proposed changes to the funding 
principle in Section 11.2(b) of the CAT NMS Plan to eliminate the 
requirement that the Operating Committee shall seek to take into 
account distinctions in the

[[Page 54579]]

securities trading operations of Participants and Industry Members and 
their relative impact upon Company resources and operations;
    30. Commenters' views on the proposed changes to the funding 
principle in Section 11.2(c) of the CAT NMS Plan, including the 
elimination of requirements related to a tiered fee structure in which 
the fees charged are based on market share for Participants and 
Industry Members based on message traffic, and comparability between or 
among CAT Reporters;
    31. Commenters' views on the proposed changes to Section 11.1(d) of 
the CAT NMS Plan to remove references to the assignment of tiers in 
order to conform the Plan to the Executed Shares Model; and
    32. Commenters' views on the proposed changes to Section 11.3 of 
the CAT NMS Plan in order to conform the Plan to the Executed Shares 
Model by revising the manner in which fees to recover costs will be 
assessed on Participants and Industry Members.
    The Commission also requests that commenters provide analysis to 
support their views, if possible.
    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposals should be approved or 
disapproved by September 27, 2022. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal 
October 11, 2022. 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. Please include File Number 4-698 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 4-698. This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed 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 Participants' principal offices. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number 4-698 and should be submitted on or before 
September 27, 2022.
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    \472\ 17 CFR 200.30-3(a)(85).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\472\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19111 Filed 9-2-22; 8:45 am]
BILLING CODE 8011-01-P