Joint Industry Plan; Notice of Filing of Amendment to the National Market System Plan Governing the Consolidated Audit Trail, 17086-17141 [2023-05690]

Download as PDF 17086 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–97151; File No. 4–698] Joint Industry Plan; Notice of Filing of Amendment to the National Market System Plan Governing the Consolidated Audit Trail ddrumheller on DSK120RN23PROD with NOTICES2 I. Introduction On March 13, 2023, the 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 to implement a revised funding model (the ‘‘Funding Proposal’’) for the consolidated audit trail (‘‘CAT’’) and to establish a fee schedule for Participant CAT fees in accordance with the Funding Proposal.4 Exhibit A, attached hereto, contains proposed revisions to Articles I and XI of the CAT NMS Plan as well as proposed Appendix B to the Plan containing the fee schedule. Exhibit B, attached hereto, contains a comparison of the Funding Proposal to the executed share funding proposal filed by CAT LLC on May 13, 2022,5 as amended in 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). 2 15 U.S.C. 78k–1(a)(3). 3 17 CFR 242.608. 4 See Letter from Brandon Becker, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, Commission, dated March 13, 2023 (‘‘Transmittal Letter’’). 5 See Securities Exchange Act Release No. 94984 (May 25, 2022), 87 FR 33226 (June 1, 2022). VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 two partial amendments,6 and later withdrawn on March 1, 2023.7 In addition, CAT LLC provided an example of how a Historical CAT Assessment would be calculated pursuant to the Funding Proposal, for illustrative purposes only, as attached hereto as Exhibit C. The Commission is publishing this notice to solicit comments from interested persons on the amendment.8 II. Description of the Plan Set forth in this Section II is an executive summary of the Funding Proposal, along with information required by Rule 608(a) under the Exchange Act,9 and a description of the proposed revisions to the CAT NMS Plan, substantially as prepared and submitted by the Participants to the Commission.10 Executive Summary CAT LLC proposes to replace the funding model set forth in Article XI of the CAT NMS Plan (the ‘‘Original Funding Model’’) with the Funding Proposal. The Original Funding Model involves a bifurcated approach, where costs associated with building and operating the CAT would be borne by (1) Industry Members (other than alternative trading systems (‘‘ATSs’’) that execute transactions in Eligible Securities (‘‘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. In contrast, the Funding Proposal would charge fees based on executed equivalent share volume of transactions in Eligible Securities rather than based on market share and message traffic. Under the Funding Proposal, CAT LLC proposes to establish two categories of CAT fees. The first category of CAT fees would be fees (‘‘CAT Fees’’) Comments received can be found on the Commission’s website at https://www.sec.gov/ comments/4-698/4-698-a.htm. 6 See Securities Exchange Act Release No. 96394 (Nov. 28, 2022), 87 FR 74183 (Dec. 2, 2022). Comments received can be found on the Commission’s website at https://www.sec.gov/ comments/4-698/4-698-a.htm. See also Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, Commission (Feb. 15, 2023). 7 See Letter from Brandon Becker, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, Commission (Mar. 1, 2023). 8 17 CFR 242.608. 9 See 17 CFR 242.608(a). 10 See Transmittal Letter, supra note 4. Unless otherwise defined herein, capitalized terms used herein are defined as set forth in the CAT NMS Plan. PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 payable by Participants and Industry Members that are CAT Executing Brokers for the Buyer and for the Seller with regard to CAT costs not previously paid by the Participants (‘‘Prospective CAT Costs’’). The CAT Fee for each transaction would be calculated by multiplying the executed equivalent shares in the transaction by one-third and the applicable ‘‘Fee Rate.’’ The Funding Proposal would describe in detail each aspect relevant to the CAT Fees, including a description of the Prospective CAT Costs, the calculation of the Fee Rate, the definition of ‘‘CAT Executing Broker,’’ the fee filings made pursuant to section 19(b) of the Exchange Act for CAT Fees, and information available related to CAT Fees, both publicly and upon request. The second category of CAT fees would be fees (‘‘Historical CAT Assessments’’) to be payable by Industry Members that are CAT Executing Brokers for the Buyer and for the Seller with regard to CAT costs previously paid by the Participants (‘‘Past CAT Costs’’). The Historical CAT Assessment for each transaction would be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and the applicable ‘‘Historical Fee Rate.’’ Like with the CAT Fees related to Prospective CAT Costs, the Funding Proposal would describe in detail each aspect relevant to Historical CAT Assessments, including a description of Historical CAT Costs, the calculation of the Historical Fee Rate, the definition of ‘‘CAT Executing Broker,’’ the fee filings made pursuant to section 19(b) of the Exchange Act for Historical CAT Assessments, and information available related to Historical CAT Assessments, both publicly and upon request. The Participants separately intend to file rule filings under section 19(b) of the Exchange Act and Rule 19b–4(f)(2) thereunder to establish the CAT Fees and Historical CAT Assessments to be charged to Industry Members based on the Funding Proposal set forth in the CAT NMS Plan. CAT LLC has gone through an extensive process of evaluating and seeking comment on various funding models since the inception of CAT. In addition to the variety of alternative models considered by CAT LLC (as described in Section A.10 of this filing), the proposed CAT funding model has been subject to substantial public review and comment via the proposed amendment to the CAT NMS Plan published by the SEC on May 25, 2022 E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES2 (the ‘‘2022 Funding Proposal’’),11 the subsequent order instituting proceedings related to the 2022 Funding Proposal 12 and two partial amendments regarding the 2022 Funding Proposal.13 Thirteen comment letters were submitted in response to the 2022 Funding Proposal, as amended, and CAT LLC submitted three detailed responses to comments.14 CAT LLC withdrew the 2022 Funding Proposal on March 1, 2023.15 Subject to certain minor revisions, the Funding Proposal set forth herein is the same proposal as the 2022 Funding Proposal, as amended in the two partial amendments. The minor changes made to the 2022 Funding Proposal are noted in this filing, and separately identified in Exhibit B to this filing. The Funding Proposal would provide reasonable fees that are equitably allocated, not unfairly discriminatory, and do not impose an undue burden on competition, in that the proposal 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. Moreover, the Funding Proposal would be consistent with past fee structures that have been approved by the Commission. It also 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. The Exchange Act does not require CAT LLC to demonstrate that the Funding Proposal is superior to any other potential proposal. Instead, CAT LLC must demonstrate that the Funding Proposal is consistent with the Exchange Act and the rules and regulations thereunder. CAT LLC believes that the Funding Proposal satisfies the requirements of the 11 Securities Exchange Act Rel. No. 94984 (May 25, 2022), 87 FR 33226 (June 1, 2022) (‘‘2022 Funding Proposal Release’’). 12 Securities Exchange Act Rel. No. 95634 (Aug. 30, 2022), 87 FR 54558 (Sept. 6, 2022). 13 Securities Exchange Act Rel. No. 96394 (Nov. 28, 2022), 87 FR 74183 (Dec. 2, 2022) (‘‘Partial Amendment I’’), and Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, Commission (Feb. 15, 2023) (‘‘February 2023 Proposed Partial Amendment’’). 14 Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, Commission (Aug. 16, 2022); Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, Commission (Nov. 15, 2022); and February 2023 Proposed Partial Amendment. 15 Letter from Brandon Becker, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, Commission (Mar. 1, 2023). VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 Exchange Act and should be approved by the Commission. Requirements Pursuant to Rule 608(a) A. Description of the Proposed Amendments to the CAT NMS Plan CAT LLC describes in detail the Funding Proposal in this Section A: • Definition of CAT Executing Broker: CAT LLC describes the definition of a ‘‘CAT Executing Broker’’ in Section A.1 of this filing. • CAT Budget: Budgeted CAT costs are described in Section A.2 of this filing. • CAT Fees related to Prospective CAT Costs: CAT LLC discusses CAT Fees related to Prospective CAT Costs in Section A.3 of this filing. • Historical CAT Assessments: CAT LLC discusses Historical CAT Assessments related to Historical CAT Costs in Section A.4 of this filing. • CAT Fee Schedule for Participants: To implement the CAT fees to be paid by the Participants under the Funding Proposal, CAT LLC proposes to add a fee schedule, entitled ‘‘Consolidated Audit Trail Funding Fees,’’ to Appendix B of the CAT NMS Plan. This fee schedule is discussed in Section A.5 of this filing. • Additional Changes from Original Funding Model: CAT LLC discusses additional proposed revisions to Article XI of the CAT NMS Plan to implement the change from the Original Funding Model to the Funding Proposal in Section A.6 of this filing. • Billing and Collection of CAT Fees: The billing and collection of CAT fees are discussed in Section A.7 of this filing. • Illustrative Example of Funding Proposal: CAT LLC provides an illustrative example of how a Historical CAT Assessment would be calculated pursuant to the Funding Proposal in Section A.8 of this filing. The illustrative example is set forth in detail in Exhibit C to this filing. • Advantages of and Support for Funding Proposal: CAT LLC proposes to adopt the Funding Proposal as it provides a variety of advantages over the Original Funding Model. CAT LLC discusses the advantages of the Funding Proposal in Section A.9 of this filing. • Alternative Funding Models Considered: CAT LLC discusses the advantages and disadvantages of a variety of alternative funding models to the Funding Proposal in Section A.10 of this filing. • Satisfaction of Exchange Act and CAT NMS Plan Requirements: CAT LLC discusses how the Funding Proposal satisfies each of the funding principles PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 17087 and other requirements of the CAT NMS Plan, as proposed to be revised herein, as well as the applicable requirements of the Exchange Act in Section A.11 of this filing. 1. Definition of CAT Executing Broker Under the Funding Proposal, each Industry Member that is a CAT Executing Broker for the buyer in a transaction in Eligible Securities (‘‘CAT Executing Broker for the Buyer’’ or ‘‘CEBB’’) and each Industry Member that is the CAT Executing Broker for the seller in a transaction in Eligible Securities (‘‘CAT Executing Broker for the Seller’’ or ‘‘CEBS’’) would be required to pay CAT Fees and Historical CAT Assessments. Accordingly, CAT LLC proposes to add a definition of the term ‘‘CAT Executing Broker’’ to Section 1.1 of the CAT NMS Plan. CAT LLC would define ‘‘CAT Executing Broker’’ to mean: (a) with respect to a transaction in an Eligible Security that is executed on an exchange, the Industry Member identified as the Industry Member responsible for the order on the buy-side of the transaction and the Industry Member responsible for the sellside of the transaction in the equity order trade event and option trade event in the CAT Data submitted to the CAT by the relevant exchange pursuant to the Participant Technical Specifications; and (b) with respect to a transaction in an Eligible Security that is executed otherwise than on an exchange and required to be reported to an equity trade reporting facility of a registered national securities association, the Industry Member identified as the executing broker and the Industry Member identified as the contra-side executing broker in the TRF/ ORF/ADF transaction data event in the CAT Data submitted to the CAT by FINRA pursuant to the Participant Technical Specifications; provided, however, in those circumstances where there is a non-Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event or no contra-side executing broker is identified in the TRF/ ORF/ADF transaction data event, then the Industry Member identified as the executing broker in the TRF/ORF/ADF transaction data event would be treated as CAT Executing Broker for the Buyer and for the Seller. Under the Participant Technical Specifications, for transactions occurring on a Participant exchange, there is a field for the exchange to report the market participant identifier (‘‘MPID’’) of ‘‘the member firm that is responsible for the order on this side of the trade.’’ 16 The Industry Members 16 See Section 4.7 (Order Trade Event) and Section 5.2.5.1 (Simple Option Trade Event: Side Details) of the CAT Reporting Technical Specifications for Plan Participants, Version 4.1.0– r17 (Feb. 21, 2023), https://www.catnmsplan.com/ E:\FR\FM\21MRN2.SGM Continued 21MRN2 17088 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices identified in these fields for the transaction reports would be the CAT Executing Brokers for transactions executed on an exchange. Specifically, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed on an exchange. EQUITY ORDER TRADE (EOT) 17 No. Field name Data type Description 12.n.8/13.n.8 ..... member ...................................... Member Alias ............ The identifier for the member firm that is responsible for the order on this side of the trade. Not required if there is no order for the side as indicated by the NOBUYID/NOSELLID instruction. This must be provided if orderID is provided. Include key C OPTION TRADE (OT) 18 No. 16.n.13/17.n.13 Field name Data type member ...................................... Member Alias ............ FINRA is required to report to the CAT transactions in Eligible Securities reported to a FINRA trade reporting facility (i.e., the FINRA Trade Reporting Facilities (‘‘TRF’’), Over-the Counter Reporting Facility (‘‘ORF’’) and Alternative Display Facility (‘‘ADF’’)).19 Under the Participant Technical Description The identifier for the member firm that is responsible for the order. Specifications, for such transactions reported to a FINRA trade reporting facility, FINRA is required to report the MPID of the executing party as well as the MPID of the contra-side executing party. The Industry Members identified in these two fields for the transaction reports would be the CAT Executing Include key R Brokers for over-the-counter transactions. Specifically, the following fields of the Participant Technical Specifications will indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange. ddrumheller on DSK120RN23PROD with NOTICES2 TRF/ORF/ADF TRANSACTION DATA EVENT (TRF) 20 No. Field name Data type Description Include key 26 ...................... 28 ...................... reportingExecutingMpid .............. contraExecutingMpid .................. Member Alias ............ Member Alias ............ MPID of the executing party .......................................... MPID of the contra-side executing party ....................... R C Note that a CAT Executing Broker in over-the-counter transactions identified on the TRF/ORF/ADF Transaction Data Event is determined based on the tape or media report, that is, a trade report that is submitted to a FINRA trade reporting facility and reported to and publicly disseminated by the appropriate exclusive Securities Information Processor. A CAT Executing Broker for over-the-counter transactions is not determined based on a non-tape report (e.g., a regulatory report or a clearing report), which are not publicly disseminated.21 Therefore, with respect to transactions on an exchange and over-the-counter transactions, CAT LLC would use transaction reports reported to the CAT by FINRA or the exchanges to identify the transaction for purposes of calculating the CAT fees as well as the CAT Executing Broker for each transaction for purposes of calculating the CAT fees. Accordingly, all data used to calculate the fees under the Funding Proposal would be CAT Data, and, therefore, it would be available through the CAT for calculating CAT fees. FINRA CAT would be responsible for calculating the CAT fees and submitting invoices to the CAT Executing Brokers based on this CAT Data. Moreover, defining a ‘‘CAT Executing Broker’’ in this way is a simpler analytical approach than other potential approaches for defining the relevant executing broker, such as identifying the originating broker for the order via an evaluation of CAT linkages.22 CAT LLC proposes to make use of the defined term ‘‘CAT Executing Broker’’ in Proposed Section 11.3 in describing the Funding Proposal. CAT LLC believes the proposed definition of CAT Executing Broker and the use of the defined term in Article XI would set forth clearly when and in what situations an Industry Member would be considered a CAT Executing Broker for purposes of the Funding Proposal. sites/default/files/2023-02/02.21.2023-CATReporting-Technical-Specifications-forParticipants-4.1.0-r17.pdf. 17 See Table 23, Section 4.7 (Order Trade Event) of the CAT Reporting Technical Specifications for Plan Participants, Version 4.1.0–r17 (Feb. 21, 2023), https://www.catnmsplan.com/sites/default/files/ 2023-02/02.21.2023-CAT-Reporting-TechnicalSpecifications-for-Participants-4.1.0-r17.pdf. 18 See Table 51, Section 5.2.5.1 (Simple Option Trade Event) of the CAT Reporting Technical Specifications for Plan Participants (Feb. 21, 2023). 19 See Section 6.1 of the CAT Reporting Technical Specifications for Plan Participants (Feb. 21, 2023). 20 See Table 61, Section 6.1 (TRF/ORF/ADF Transaction Data Event) of the CAT Reporting Technical Specifications for Plan Participants (Feb. 21, 2023). 21 There is an exception to this statement for away-from-market trades. These are non-media trades reported to the TRF with an ‘‘SRO Required Modifier Code’’ of ‘‘R’’. 22 Each CAT Executing Broker could determine, but would not be required, to pass their CAT fees through to their clients, who, in turn, could pass their CAT fees to their clients, until the fee is imposed on the ultimate participant in the transaction. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 a. Treatment of ATSs The Funding Proposal would describe how CAT fees would be assessed with E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices regard to transactions executed on ATSs, including clarification as to which party to an ATS transaction would be treated as the CAT Executing Broker for purposes of the Funding Proposal. The definition of a ‘‘CAT Executing Broker’’ as proposed above would determine the CAT Executing Brokers for transactions executed on an ATS. Specifically, if an ATS is identified as the executing party and/or the contra-side executing party in the TRF/ORF/ADF Transaction Data Event, then the ATS would be a CAT Executing Broker for purposes of the Funding Proposal. If the ATS is identified as the executing party for the buyer in such transaction reports, then the ATS would be the CAT Executing Broker for the Buyer, and if the ATS is identified as the executing party for the seller in such transaction reports, then the ATS would be the CAT Executing Broker for the Seller. An ATS also could be identified as both the CAT Executing Broker for the Buyer and the CAT Executing Broker for the Seller. ATSs would determine the executing party and the contra-side executing party reported to FINRA’s equity trading facilities in accordance with the transaction reporting requirements for FINRA’s equity trading facilities. ddrumheller on DSK120RN23PROD with NOTICES2 b. Treatment of Fractional Shares The Funding Proposal also would address how transactions in fractional shares would be treated. As described above, CAT fees would be charged based on the Equity Order Trade Events, Options Trade Events and the ADF/ ORF/TRF Transaction Data Events in the Participant Technical Specifications. None of these transaction reports provide for fractional quantities; the transaction reports must reflect whole shares/contracts. Therefore, under the Funding Proposal, CAT fees would be calculated without reference to fractional shares or fractional share components of executed orders.23 c. Non-Industry Members on Transaction Reports The Funding Proposal also would address how transactions that involve a non-Industry Member would be treated under the Funding Proposal (e.g., for internalized trades or trades with a nonFINRA member). The FINRA trade reporting requirements state that ‘‘[w]hen reporting a trade with a brokerdealer that is not a FINRA member, the non-member should not be identified on 23 To the extent that FINRA’s equity transaction reporting facilities or the exchanges report transactions in fractional shares in the future, then the calculation of CAT fees would reflect fractional shares as well. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 the trade report as the contra party to the trade.’’ 24 Accordingly, when the transaction in these cases is reported to CAT via the TRF/ORF/ADF Transaction Data Event, the field for the reportingExecutingMpid would be populated with the MPID of the executing broker and the field for the contraExecutingMpid would be blank or null. As noted above, the reportingExecutingMpid is a required field (include key = ‘R’) that must be entered on all CAT reports, but the contraExecutingMpid field is conditional; it does not need to be populated, specifically to account for cases like those at issue here (e.g., transactions with a non-FINRA member). Therefore, in those scenarios where the contraExecutingMpid is blank, the FINRA member identified in the reportingExecutingMpid field would be treated as the CAT Executing Broker for both the buy-side and the sell-side of the transaction, that is, as the CEBS and CEBB. In addition, under the FINRA trade reporting requirements, there is a limited exception to the general rule about not reporting a non-member as the contra party to the trade. Specifically, pursuant to FINRA Trade Reporting FAQ 202.1, ‘‘[t]here is a limited exception where a Canadian nonmember firm uses the FINRA/NASDAQ TRF or ORF for purposes of comparing trades pursuant to a valid Non-Member Addendum to the NASDAQ Services Agreement. In that instance, however, the Canadian non-member must appear on the trade report as the contra party to the trade and not as the reporting party. For any trade report on which a Canadian non-member appears as a party to the trade, the FINRA member must appear as the reporting party.’’ In this case involving the Canadian nonmember firm exception, the executing broker identified in the reportingExecutingMpid field would be billed for both sides of the transaction. CAT LLC proposes to include language in the definition of ‘‘CAT Executing Broker’’ to address these scenarios. Specifically, CAT LLC proposes to state the following in the definition of ‘‘CAT Executing Broker: ‘‘in those circumstances where there is a non-Industry Member identified as the contra-side executing broker in the TRF/ ORF/ADF transaction data event or no contra-side executing broker is identified in the TRF/ORF/ADF transaction data event, then the Industry Member identified as the executing broker in the TRF/ORF/ADF transaction data event would be treated as CAT 24 FINRA PO 00000 Trade Reporting FAQ 202.1. Frm 00005 Fmt 4701 Sfmt 4703 17089 Executing Broker for the Buyer and for the Seller.’’ d. Cancellations and Corrections The Funding Proposal also would provide for cancellations and corrections. CAT LLC expects to determine CAT fees based on the transaction reports for a month as of a particular day. To the extent that changes are made to the transaction reports on or before the day the CAT fees are determined for the given month, the changes will be reflected in the monthly bill. To the extent that changes are made to the transaction reports after the day the CAT fees are determined for that month, subsequent bills will reflect any changes via debits or credits, as applicable. As CAT LLC is required under the CAT NMS Plan to adopt policies, procedures, and practices regarding the billing and collection of fees,25 CAT LLC will establish specific policies and procedures regarding the treatment of such adjustments as those related to cancellations and corrections. Furthermore, CAT LLC will inform Industry Members and other market participants of these policies and procedures via FAQs, CAT Alerts and/ or other appropriate methods. 2. CAT Budget Section 11.1(a) of the CAT NMS Plan describes the requirement for the Operating Committee to approve an operating budget for CAT LLC on an annual basis. It requires the budget to ‘‘include the projected costs of the Company, including the costs of developing and operating the CAT for the upcoming year, and the sources of all revenues to cover such costs, as well as the funding of any reserve that the Operating Committee reasonably deems appropriate for prudent operation of the Company.’’ CAT LLC proposes to provide additional detail regarding the CAT LLC operating budget by adding proposed subparagraphs (i) and (ii) to Section 11.1(a) of the CAT NMS Plan. Such detailed information would provide Participants, Industry Members and other interested parties with a clear understanding of the CAT budget, and, in turn, the calculation of the CAT Fees. a. Budgeted CAT Costs CAT LLC proposes to add subparagraph (i) to Section 11.1(a) of the CAT NMS Plan to provide additional clarity regarding the costs to be included in the CAT budget. This proposed provision would list the types of CAT costs to be included in the budget. Specifically, Proposed Section 25 Section E:\FR\FM\21MRN2.SGM 11.1(d) of the CAT NMS Plan. 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 17090 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices 11.1(a)(i) of the CAT NMS Plan would state that ‘‘[w]ithout limiting the foregoing, the reasonably budgeted CAT costs shall include technology (including cloud hosting services, operating fees, CAIS operating fees, change request fees and capitalized developed technology costs), legal, consulting, insurance, professional and administration, and public relations costs, a reserve, and such other categories as reasonably determined by the Operating Committee to be included in the budget.’’ Because technology costs account for more than 90% of CAT costs, CAT LLC proposes to provide more granular information about such costs. Specifically, CAT LLC proposes to require the inclusion of five subcategories of technology costs in the budget: (1) cloud hosting services, (2) operating fees, (3) Customer and Account Information System (‘‘CAIS’’) operating fees, (4) change request fees, and (5) capitalized developed technology costs. Breaking out technology costs in this manner is consistent with how such costs are broken out in the CAT budgets available on the CAT website.26 CAT LLC currently does not propose to require the disclosure of additional subcategories of cost information, such as a further breakdown of the category of cloud hosting services into production costs, including linker costs and storage costs. However, CAT LLC will consider the need to provide additional cost disclosure going forward. Furthermore, CAT LLC has determined not to provide more detailed subcategories for the other cost categories (that is, legal, consulting, insurance, professional and administration, and public relations costs) at this time. Breaking out these costs into further subcategories would establish new subcategories that are not set forth in the budgets. In addition, these costs in the aggregate represent less than seven percent (7%) of total CAT costs, with professional and administration costs and public relations costs, in particular, each representing less than one percent (1%) of overall CAT costs. Therefore, CAT LLC does not believe that these costs warrant additional subcategory disclosure. CAT LLC further notes that it is not considered a best practice to publicly disclose detailed legal or insurance information, which is particularly sensitive. Nevertheless, 26 The CAT LLC budgets are available on the CAT website at https://www.catnmsplan.com/catfinancial-and-operating-budget. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 CAT LLC notes that the CAT NMS Plan requires that detailed cost information be made available to the Commission upon request, and detailed information on CAT costs and operations is regularly made available to the Commission staff and the Advisory Committee on a confidential basis. CAT LLC also intends to determine costs for the operating budget for the CAT in a reasonable manner. Accordingly, CAT LLC proposes to amend Section 11.1(a) of the CAT NMS Plan to refer to a ‘‘reasonable’’ operating budget for CAT LLC.27 Specifically, the first sentence of Section 11.1(a) of the CAT NMS Plan would be revised to read: ‘‘On an annual basis the Operating Committee shall approve a reasonable operating budget for the Company.’’ In addition, CAT LLC proposes to include the term ‘‘reasonably’’ in proposed paragraph (a)(i) of Section 11.1 of the CAT NMS Plan. Specifically, CAT proposes to introduce the term ‘‘reasonably’’ to the following proposed provision of the CAT NMS Plan: ‘‘Without limiting the foregoing, the reasonably budgeted CAT costs shall include technology (including cloud hosting services, operating fees, CAIS operating fees, change request fees, and capitalized developed technology costs), legal, consulting, insurance, professional and administration, and public relations costs, a reserve and such other cost categories as reasonably determined by the Operating Committee to be included in the budget.’’ Finally, CAT LLC proposes to amend Section 11.1(b) of the CAT NMS Plan. Currently, Section 11.1(b) of the CAT NMS Plan states that: Subject to Section 11.2, the Operating Committee shall have discretion to establish funding for the Company, including: (i) establishing fees that the Participants shall pay; and (ii) establishing fees for Industry Members that shall be implemented by Participants. The Participants shall file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves, and such fees shall be labeled as ‘‘Consolidated Audit Trail Funding Fees.’’ CAT LLC proposes to amend Section 11.1(b) to include a reference to Section 11.1 as well as Section 11.2 in the ‘‘subject to’’ clause at the beginning of the provision.28 CAT LLC believes this 27 As highlighted in Exhibit B, this proposed revision of Section 11.1(a) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. 28 As highlighted in Exhibit B, this proposed revision to Section 11.1(b) of the CAT NMS Plan PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 reference is relevant because Section 11.1 sets forth requirements related to the budget, and the budget is used in calculating CAT Fees. b. Reserve Section 11.1(a) of the CAT NMS Plan states that the budget shall include ‘‘the funding of any reserve that the Operating Committee reasonably deems appropriate for prudent operation of the Company.’’ In addition, Proposed Section 11.1(a)(i) of the CAT NMS Plan would state that the budgeted CAT costs shall include a reserve. Section 11.1(c) of the CAT NMS Plan states that ‘‘[a]ny surplus of the Company’s revenues over its expenses shall be treated as an operational reserve to offset future fees.’’ CAT LLC proposes to add subparagraph (ii) to Section 11.1(a) of the CAT NMS Plan to provide additional details regarding the size and use of the reserve. To provide additional clarity regarding the size of the reserve, CAT LLC proposes to add proposed paragraph (ii) to Section 11.1(a) of the CAT NMS Plan to set forth the parameters for the size of the reserve. An analysis of budgeted CAT costs and actual CAT costs for 2020, 2021 and the first nine months of 2022 demonstrates that actual CAT costs were approximately 20% higher than budgeted amounts over this period on a cumulative average basis. Based on the magnitude of historical budget to actual variances as well as the difficulty in accurately predicting various variable CAT costs, CAT LLC believes that a 25% reserve would appear to be reasonable. Accordingly, Proposed Section 11.1(a)(ii) of the CAT NMS Plan would state that ‘‘[f]or the reserve referenced in paragraph (a)(i) of this Section, the budget will include an amount reasonably necessary to allow the Company to maintain a reserve of not more than 25% of the annual budget.’’ CAT LLC also intends to include a reserve in the CAT budget that is reasonably necessary to allow the CAT LLC to maintain a reserve of not more than 25% of the annual budget. Accordingly, CAT LLC proposes to include the term ‘‘reasonably’’ in this sentence. Moreover, CAT LLC would calculate the reserve based on the amount of the budget other than the reserve, as the reserve is intended to provide funds for CAT LLC to pay its bills if necessary. Accordingly, Proposed Section 11.1(a)(ii) of the CAT NMS Plan would state that ‘‘[f]or the avoidance of doubt, the calculation of the amount of the reserve would was not included in the proposed revisions related to the 2022 Funding Proposal. E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES2 exclude the amount of the reserve from the budget.’’ 29 CAT LLC also believes that it is reasonable to base the reserve on a percentage of the budget. First, CAT LLC believes that setting the reserve at 25% of the budget is appropriate in light of the timeline for the collection of CAT fees.30 Many of CAT LLC’s bills must be paid on a monthly basis. However, CAT fees will be collected approximately three months after the activity on which a CAT fee is based—that is, 25% of the year. For example, activity in January would be subject to a bill in February, which would be required to be paid within 30 days,31 which would be in March. Accordingly, the reserve would be available to address the funding needs related to the delay in CAT LLC’s receipt of the CAT fees. Second, CAT LLC has established a number of measures for establishing a reasonable budget for the CAT, thereby providing a reasonable starting point for the reserve calculation. For example, the CAT NMS Plan would require the budget to be ‘‘reasonable.’’ 32 The Fee Rate established at the beginning of the year would be adjusted mid-year to address changes in the actual or budgeted costs or changes in the actual or projected executed equivalent share volume. CAT LLC has established a variety of cost management measures, as discussed in detail in Section A.9.bb of this filing, and has and would provide substantial cost transparency as discussed in detail in Section A.9.l of this filing. The CAT fee filings pursuant to section 19(b) of the Exchange Act would provide a description how the budget is reconciled to the collected fees. CAT LLC proposes to provide additional clarification regarding the collection of the reserve by providing additional information as to how budget surpluses would be treated for purposes of the reserve. CAT LLC proposes to clarify how CAT fees collected in excess of CAT costs, including the reserve, would be used. Specifically, proposed subparagraph (ii) of Section 11.1(a) of the CAT NMS Plan would state that ‘‘[t]o the extent collected CAT fees exceed CAT costs, including the reserve of 25% of the annual budget, such surplus will be used to offset future 29 As highlighted in Exhibit B, this proposed revision to Section 11.1(a)(ii) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. 30 For a discussion of the billing and collection of CAT fees, see Section A.7 of this filing. 31 See Sections 3.7(b) and 11.4 of the CAT NMS Plan. 32 See Proposed Section 11.1(a) of the CAT NMS Plan. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 17091 fees.’’ In addition, CAT LLC further proposes to state in Proposed Section 11.1(a)(ii) of the CAT NMS Plan that ‘‘[f]or the avoidance of doubt, the Company will only include an amount for the reserve in the annual budget if the Company does not have a sufficient reserve (which shall be up to but not more than 25% of the annual budget).’’ The following examples explain the circumstances under which a reserve would be included in the budget: (1) Suppose that the Operating Committee had approved a budget of $100 million for CAT costs for Year X, and a reserve of $25 million, for a total budget of $125 million for Year X. Suppose that CAT Fees of $125 million were collected during Year X, and that actual CAT costs for Year X were $100 million. Therefore, CAT ended Year X with $25 million in reserve. Suppose further that the Operating Committee had approved a budget of $100 million for CAT costs and a reserve of $25 million, for a total budget of $125 million for Year X+1. Because CAT LLC had collected $25 million in excess of costs for the reserve in Year X, and the excess was not necessary to cover additional costs in Year X, CAT LLC would not include any additional amount in the budget for a reserve for Year X+1. CAT LLC would use the excess fees collected for the reserve. (2) Suppose that the Operating Committee had approved a budget of $100 million for CAT costs for Year Y, and a reserve of $25 million, for a total budget of $125 million for Year Y. Suppose that CAT Fees of $110 million were collected during Year Y, and that actual CAT costs for Year Y were $100 million. Therefore, CAT ended Year Y with $10 million in reserve. Suppose further that the Operating Committee had approved a budget of $100 million for CAT costs, and a reserve of $25 million, for a total budget of $125 million for Year Y+1. Because CAT LLC had collected $10 million in excess of costs for the reserve in Year Y, and the entire reserve was not necessary to cover additional costs in Year Y, CAT LLC would only need to collect an additional $15 million for the reserve in Year Y+1, not $25 million. This publicly available budget information describes in detail the budget for the Company. For example, among other things, the budget provides specific budgeted technology costs (including cloud hosting services, operating fees, CAIS operating fees and change request fees) and general and administrative costs (including legal, consulting, insurance, professional and administration, and public relations). The Company provides such budget information on a dedicated web page on the CAT NMS Plan website to make it readily accessible to CAT Reporters and others. c. Publicly Available Budgets CAT LLC publicly provides the annual operating budget for the Company as well as updates to the budget that occur during the year.33 CAT LLC proposes to describe the timing and method for calculating the Fee Rate for the CAT Fees related to Prospective CAT Costs in Proposed 33 To address potential changes related to the CAT during the year, the Operating Committee may adjust the budgeted CAT costs for the year as it reasonably deems appropriate for the prudent operation of the Company. For example, the Operating Committee may determine that an PO 00000 Frm 00007 Fmt 4701 Sfmt 4703 3. CAT Fees Related to Prospective CAT Costs CAT LLC proposes to describe CAT Fees related to Prospective CAT Costs in Section 11.3(a) of the CAT NMS Plan. Proposed Section 11.3(a) of the CAT NMS Plan would describe that the CAT Fees related to Prospective CAT Costs apply to both Participants and Industry Members, the manner of calculating the Fee Rate for CAT Fees, the description of the calculation of the Participant CAT Fees, a description of the calculation of the Industry Member CAT Fees, a description of the fee filings under section 19(b) of the Exchange Act for Industry Member CAT Fees, and details regarding the calculation of the CAT Fees that are available upon request or publicly available. The following describes Proposed Section 11.3(a) of the CAT NMS Plan in detail. a. Introductory Statement CAT LLC proposes to revise Section 11.3(a) of the CAT NMS Plan to address CAT Fees related to Prospective CAT Costs for both Participants and Industry Members. Accordingly, CAT LLC proposes to revise the introductory statement in Proposed Section 11.3(a) of the CAT NMS Plan to state that ‘‘[t]he Operating Committee will establish fees (‘‘CAT Fees) to be payable by Participants and Industry Members with regard to CAT costs not previously paid by the Participants (‘‘Prospective CAT Costs’’) as follows:’’. b. Fee Rate for CAT Fees adjustment to the budget is necessary if actual costs during the year are more or less than the budget, or if unanticipated expenditures are necessary. To the extent that the Operating Committee adjusts the budgeted CAT costs during the year and determines to adjust the Fee Rate, the adjusted budgeted CAT costs would be used in calculating the new Fee Rate for the remaining months of the year. E:\FR\FM\21MRN2.SGM 21MRN2 17092 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices Section 11.3(a)(i) of the CAT NMS Plan, and to provide additional detail regarding the Fee Rate in that provision. Proposed Section 11.3(a)(i) of the CAT NMS Plan would state that CAT Fees related to Prospective CAT Costs would be calculated twice a year. Specifically, this proposed provision would state that ‘‘[t]he Operating Committee will calculate the Fee Rate for the CAT Fee twice per year, once at the beginning of the year and once during the year as follows.’’ CAT LLC recognizes the need to align CAT Fees with CAT costs. Requiring the adjustment of the Fee Rate both at the beginning of the year and once mid-year in response to changes in the budgeted or actual costs or projected or actual total executed equivalent share volume during the year would likely lead to the greater alignment of CAT Fees and CAT costs, thereby potentially avoiding the collection of CAT Fees in excess of CAT costs or CAT Fees that are insufficient to cover CAT costs. Accordingly, CAT LLC proposes to require both an annual and a mid-year adjustment of the Fee Rate for the CAT Fee. ddrumheller on DSK120RN23PROD with NOTICES2 i. General CAT LLC proposes to provide details regarding the calculation of the Fee Rate for the CAT Fees in Proposed Section 11.3(a)(i) of the CAT NMS Plan. The detail provided in Proposed Section 11.3(a)(i) of the CAT NMS Plan would include a description of the calculation of the Fee Rate at the beginning of the year and during the year, the counting method for executed equivalent shares, the budgeted CAT costs, and the projected total executed equivalent share volume of transactions in Eligible Securities for the relevant period. Each of these aspects of the CAT Fees are discussed in more detail below. A. Annual Calculation of Fee Rate Proposed Section 11.3(a)(i)(A)(I) of the CAT NMS Plan would describe the annual calculation of the Fee Rate and the requirement for Participants to file a fee filing for CAT Fees to be charged Industry Members calculated using the Fee Rate. This proposed provision also would state that Participants and Industry Members would be required to pay such CAT Fees once the CAT Fees are in effect with regard to Industry Members. Specifically, this proposed provision would state: For the beginning of each year, the Operating Committee will calculate the Fee Rate by dividing the reasonably budgeted CAT costs for the year by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the year. Once the Operating VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 Committee has approved such Fee Rate, the Participants shall be required to file with the SEC pursuant to section 19(b) of the Exchange Act CAT Fees to be charged to Industry Members calculated using such Fee Rate. Participants and Industry Members will be required to pay CAT Fees calculated using this Fee Rate once such CAT Fees are in effect with regard to Industry Members in accordance with section 19(b) of the Exchange Act. CAT LLC proposes to clarify that the annual calculation of CAT Fees would be performed using reasonably budgeted CAT costs and reasonably projected total executed equivalent share volume.34 Accordingly, CAT LLC proposes to use the term ‘‘reasonably’’ twice in the following sentence: ‘‘For the beginning of each year, the Operating Committee will calculate the Fee Rate by dividing the reasonably budgeted CAT costs for the year by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the year.’’ B. Mid-Year Calculation of Fee Rate Proposed Section 11.3(a)(i)(A)(II) of the CAT NMS Plan describes the mandatory mid-year calculation of a new Fee Rate. This proposed provision would describe the mid-year calculation of the Fee Rate and the requirement for Participants to file a fee filing for CAT Fees to be charged Industry Members calculated using the Fee Rate. This proposed provision also would state that Participants and Industry Members would be required to pay such CAT Fees once the CAT Fees are in effect with regard to Industry Members. Specifically, this proposed provision would state: year using reasonably budgeted CAT costs and reasonably projected total executed equivalent share volume.35 Accordingly, CAT LLC proposes to use the term ‘‘reasonably’’ twice in the following sentence: ‘‘During each year, the Operating Committee will calculate a new Fee Rate by dividing the reasonably budgeted CAT costs for the remainder of the year by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the remainder of the year.’’ C. Continuing CAT Fee CAT LLC also proposes to add Section 11.3(a)(i)(A)(III) to the CAT NMS Plan to clarify that CAT Fees related to Prospective CAT Costs do not sunset automatically; such CAT Fees would remain in place until new CAT Fees are in place with a new Fee Rate. The Funding Proposal is designed to collect CAT fees continuously so as to provide uninterrupted revenue to pay CAT bills. Specifically, this proposed provision would state: For the avoidance of doubt, CAT Fees with a Fee Rate calculated as set forth in this paragraph (a)(i) shall remain in effect until the Operating Committee approves a new Fee Rate as described in this paragraph (a)(i) and CAT Fees with the new Fee Rate are in effect with regard to Industry Members in accordance with section 19(b) of the Exchange Act. D. Commencement of CAT Fee CAT LLC proposes to clarify that CAT Fees would be calculated during the CAT LLC believes that it would be appropriate to commence the first CAT Fee either at the beginning of the year or during the year (due to, for example, mid-year approval of the CAT Fee by the SEC), whichever is closest to the time that such a CAT Fee could become effective, so as to seek prompt recovery of CAT costs. If the CAT Fee were to commence during the year, the first CAT Fee would be calculated in the same way that a mid-year CAT Fee would be calculated. To clarify this approach, CAT LLC proposes to add Proposed Section 11.3(a)(i)(A)(IV) to the CAT NMS Plan. This provision would state that ‘‘[f]or the avoidance of doubt, the first CAT Fee may commence at the beginning of the year or during the year. If it were to commence during the year, the CAT Fee would be calculated as described in paragraph (II) of this Section.’’ 34 As highlighted in Exhibit B, this proposed revision to add the term ‘‘reasonably’’ before ‘‘projected total executed equivalent share volume’’ in Proposed Section 11.3(a)(i)(A)(I) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. 35 As highlighted in Exhibit B, this proposed revision to add the term ‘‘reasonably’’ before ‘‘projected total executed equivalent share volume’’ in Proposed Section 11.3(a)(i)(A)(II) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. During each year, the Operating Committee will calculate a new Fee Rate by dividing the reasonably budgeted CAT costs for the remainder of the year by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the remainder of the year. Once the Operating Committee has approved the new Fee Rate, the Participants shall be required to file with the SEC pursuant to section 19(b) of the Exchange Act CAT Fees to be charged to Industry Members calculated using the new Fee Rate. Participants and Industry Members will be required to pay CAT Fees calculated using this new Fee Rate once such CAT Fees are in effect with regard to Industry Members in accordance with section 19(b) of the Exchange Act. PO 00000 Frm 00008 Fmt 4701 Sfmt 4703 E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices ii. Executed Equivalent Shares CAT LLC proposes to describe in Proposed Section 11.3(a)(i)(B) of the CAT NMS Plan how executed equivalent shares would be counted for purposes of calculating CAT Fees. Under the Funding Proposal, a CAT Fee would be charged with regard to each transaction in Eligible Securities as reported in CAT Data. As set forth in Section 1.1 of the CAT NMS Plan, ‘‘Eligible Securities’’ are defined to include all NMS Securities and all OTC Equity Securities. Section 1.1 of the CAT NMS Plan, in turn, defines an ‘‘NMS Security’’ as ‘‘any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in Listed Options.’’ In addition, Section 1.1 of the CAT NMS Plan defines an ‘‘OTC Equity Security’’ as ‘‘any equity security, other than an NMS Security, subject to prompt last sale reporting rules of a registered national securities association and reported to one of such association’s equity trade reporting facilities.’’ A CAT Fee would be imposed with regard to transactions in Eligible Securities in the CAT Data regardless of whether the trade is executed on an exchange or otherwise than on an exchange. The Funding Proposal uses the concept of executed equivalent shares as the transactions subject to a CAT Fee involve NMS Stocks, Listed Options and OTC Equity Securities, each of which have different trading characteristics. NMS Stocks. Under the Funding Proposal, each executed share for a transaction in NMS Stocks would be counted as one executed equivalent share. Accordingly, Proposed Section 11.3(a)(i)(B)(I) of the CAT NMS Plan would state that ‘‘[f]or purposes of calculating CAT Fees, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows: (I) each executed share for a transaction in NMS Stocks will be counted as one executed equivalent share.’’ Listed Options. Recognizing that Listed Options trade in contracts rather than shares, each executed contract for a transaction in Listed Options will be counted using the contract multiplier applicable to the specific Listed Option in the relevant transaction. Typically, a Listed Option contract represents 100 shares; however, it may also represent another designated number of shares. Accordingly, Proposed Section 11.3(a)(i)(B)(II) of the CAT NMS Plan VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 would state that ‘‘[f]or purposes of calculating CAT Fees, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows: . . . (II) each executed contract for a transaction in Listed Options will be counted based on the multiplier applicable to the specific Listed Option (i.e., 100 executed equivalent shares or such other applicable multiplier).’’ OTC Equity Securities. Similarly, in recognition of the different trading characteristics of OTC Equity Securities as compared to NMS Stocks, the Funding Proposal would discount the share volume of OTC Equity Securities when calculating CAT Fees. Many OTC Equity Securities are priced at less than one dollar—and a significant number are priced at less than one penny—per share and low-priced shares tend to trade in larger quantities. Accordingly, a disproportionately large number of shares are involved in transactions involving OTC Equity Securities versus NMS Stocks.36 Because the Funding Proposal would calculate CAT Fees based on executed share volume, CAT Reporters trading OTC Equity Securities would likely be subject to higher fees than their market activity may warrant. To address this potential concern, the Funding Proposal would count each executed share for a transaction in OTC Equity Securities as 0.01 executed equivalent shares. Accordingly, Proposed Section 11.3(a)(i)(B)(III) of the CAT NMS Plan would state that ‘‘[f]or purposes of calculating CAT Fees, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows: . . . (III) each executed share for a transaction in OTC Equity Securities shall be counted as 0.01 executed equivalent share.’’ The discount to 1% was selected based on a reasoned analysis of a variety of different metrics for comparing the markets for OTC Equity Securities and NMS Stocks, rather than a simple calculation. For example, using 2021 data, the Operating Committee calculated the following metrics: (1) the ratio of total notional dollar value traded for OTC Equity Securities to OTC Equity Securities and NMS Stocks was 0.051%; (2) the ratio of total trades in OTC Equity Securities to total trades in OTC Equity Securities and NMS Stocks 36 For example, based on data from 2021, (1) the average price per executed share of OTC Equity Securities was $0.072 and the average price per executed share for NMS Stocks was $49.51; and (2) the average trade size for OTC Equity Securities was 63,474 and the average trade size for NMS Stocks was 166 shares. Trades in OTC Equity Securities accounted for 77% of the number of all equity shares traded, but only 0.51% of the notional value of all equity shares traded. PO 00000 Frm 00009 Fmt 4701 Sfmt 4703 17093 was 0.90%; and (3) the ratio of average share price per trade of OTC Equity Securities to average share price per trade for OTC Equity Securities and NMS Stocks was 0.065%. In recognition of the fact that these calculations involve averages and for ease of application, the Operating Committee determined to round these metrics to 1%. In calculating CAT Fees, CAT LLC intends for executed equivalent shares in a transaction in Eligible Securities to be reasonably counted. Accordingly, CAT LLC proposes to include the term ‘‘reasonably’’ in the following sentence in Proposed Section 11.3(a)(i)(B) of the CAT NMS Plan: ‘‘For purposes of calculating CAT Fees, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows:’’. iii. Budgeted CAT Costs The calculation of the Fee Rate for CAT Fees related to Prospective CAT Costs requires the determination of the budgeted CAT costs for the year or other relevant period. Proposed Section 11.3(a)(i)(C) of the CAT NMS Plan would describe the budgeted CAT costs for calculating CAT Fees. It would state the following: The budgeted CAT costs for the year shall be comprised of all reasonable fees, costs and expenses reasonably budgeted to be incurred by or for the Company in connection with the development, implementation and operation of the CAT as set forth 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. As discussed above, CAT LLC also proposes to provide additional details regarding what is included in the annual operating budget approved by the Operating Committee pursuant to Section 11.1(a) of the CAT NMS Plan in proposed paragraphs (i) and (ii) of Section 11.1(a) of the CAT NMS Plan. Moreover, CAT LLC proposes to clarify that CAT Fees must be calculated using reasonably budgeted CAT costs.37 Accordingly, CAT proposes to include the terms ‘‘reasonably’’ and ‘‘reasonable’’ the following sentence: ‘‘The budgeted CAT costs for the year shall be comprised of all reasonable fees, costs and expenses reasonably budgeted to be incurred by or for the Company in connection with the development, implementation and 37 As highlighted in Exhibit B, this proposed revision to add the term ‘‘reasonable’’ before ‘‘fees, cost and expenses’’ in Proposed Section 11.3(a)(i)(C) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. E:\FR\FM\21MRN2.SGM 21MRN2 17094 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices operation of the CAT as set forth 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.’’ ddrumheller on DSK120RN23PROD with NOTICES2 iv. Projected Total Executed Equivalent Share Volume The calculation of the Fee Rate for CAT Fees also requires the determination of the projected total executed equivalent share volume of transactions in Eligible Securities for each relevant period. Each year, the Operating Committee would determine this projection based on the total executed equivalent share volume of transactions in Eligible Securities from the prior twelve months. Therefore, Proposed Section 11.3(a)(i)(D) of the CAT NMS Plan would state that ‘‘[t]he Operating Committee shall reasonably determine the projected total executed equivalent share volume of all transactions in Eligible Securities for each relevant period based on the executed equivalent share volume of all transactions in Eligible Securities for the prior twelve months.’’ CAT LLC determined that the use of the data from the prior twelve 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 relevant period. In addition, CAT LLC proposes to allow the Operating Committee to base its projection on the prior twelve months, but to use it discretion to analyze the likely volume for the upcoming year. As set forth in Proposed Section 11.3(a)(iii)(B), Participants will be required to provide a description of the calculation of the projection in their fee filings pursuant to section 19(b) of the Exchange Act. Furthermore, CAT LLC intends to calculate the CAT Fees based on a reasonable determination of the projected total executed equivalent share volume of transactions in Eligible Securities. Accordingly, CAT LLC propose to include the term ‘‘reasonably’’ in the Proposed Section 11.3(a)(i)(D) of the CAT NMS Plan to indicate that the Operating Committee will ‘‘reasonably determine the projected total executed equivalent share volume.’’ c. Participant CAT Fees for Prospective CAT Costs CAT LLC proposes to describe the Participant CAT Fees related to Prospective CAT Costs in Proposed Section 11.3(a)(ii) of the CAT NMS Plan. Proposed Section 11.3(a)(ii) of the CAT NMS Plan would have two paragraphs VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 (A) and (B), where paragraph (A) would describe the CAT Fee obligation for Participants and paragraph (B) would clarify that Participants would only be required to pay CAT Fees when Industry Members are required to pay CAT Fees. i. CAT Fee Obligation of the Participants CAT LLC proposes to add paragraph (A) to Proposed Section 11.3(a)(ii) of the CAT NMS Plan to describe the CAT Fee obligation of the Participants. Specifically, proposed paragraph (A) of Proposed Section 11.3(a)(ii) of the CAT NMS Plan would state the following: Each Participant that is a national securities exchange will be required to pay the CAT Fee for each transaction in Eligible Securities executed on the exchange in the prior month based on CAT Data. Each Participant that is a national securities association will be required to pay the CAT Fee for each transaction in Eligible Securities executed otherwise than on an exchange in the prior month based on CAT Data. The CAT Fee for each transaction in Eligible Securities will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Fee Rate determined pursuant to paragraph (a)(i) of this Section 11.3. CAT LLC intends for the Participant CAT Fee to be calculated using the Fee Rate reasonably determined pursuant to Proposed Section 11.3(a)(i) of the CAT NMS Plan. Accordingly, CAT LLC proposes to include the term ‘‘reasonably’’ in the following sentence: ‘‘[t]he CAT Fee for each transaction in Eligible Securities will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3.’’ ii. Effectiveness of Participant CAT Fees CAT LLC also proposes to include proposed paragraph (B) of Proposed Section 11.3(a)(ii) of the CAT NMS Plan to clarify that Participants would only be required to pay CAT Fees when Industry Members are required to pay CAT Fees. Under the Funding Proposal, CAT Fees are designed to cover 100% of CAT costs by allocating costs between and among Participants and Industry Members. However, the CAT Fees charged to Participants are implemented via a different process than CAT Fees charged to Industry Members. CAT Fees charged to Participants are implemented via an approval of the CAT Fees by the Operating Committee in accordance with the requirements of the CAT NMS Plan. In contrast, CAT Fees charged to Industry Members may only become effective in accordance with the requirements of section 19(b) of the PO 00000 Frm 00010 Fmt 4701 Sfmt 4703 Exchange Act. Accordingly, proposed paragraph (B) of Proposed Section 11.3(a)(ii) of the CAT NMS Plan would state that ‘‘[e]ach Participant will be required to pay the CAT Fee calculated using the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3 and approved by the Operating Committee only if such CAT Fees are in effect with regard to Industry Members in accordance with section 19(b) of the Exchange Act.’’ CAT LLC intends for the Participant CAT Fee to be calculated using the Fee Rate reasonably determined pursuant to Proposed Section 11.3(a)(i) of the CAT NMS Plan. Accordingly, CAT LLC proposes to include the term ‘‘reasonably’’ in the phrase ‘‘the Fee Rate reasonably determined’’ in this provision. d. Industry Member CAT Fees for Prospective CAT Costs CAT LLC proposes to describe the Industry Member CAT Fees related to Prospective CAT Costs in Proposed Section 11.3(a)(iii) of the CAT NMS Plan. Proposed Section 11.3(a)(iii) of the CAT NMS Plan would have three paragraphs, (A), (B) and (C), where paragraph (A) would describe the CAT Fee obligation for Industry Members, paragraph (B) would described the required content of the fee filings required to be filed pursuant to section 19(b) of the Exchange Act regarding the CAT Fees for Industry Members, and paragraph (C) would clarify that Participants would not make CAT fee filings regarding CAT Fees until the Financial Accountability Milestone related to Period 4 as described in Section 11.6 of the CAT NMS Plan has been satisfied. i. Industry Member CAT Fee Obligation CAT LLC proposes to describe the CAT Fees related to Prospective CAT Costs that would be charged to Industry Members in Proposed Section 11.3(a)(iii)(A) of the CAT NMS Plan. Accordingly, Proposed Section 11.3(a)(iii)(A) of the CAT NMS Plan would state the following: Each Industry Member that is the CAT Executing broker for the buyer in a transaction in Eligible Securities (‘‘CAT Executing Broker for the Buyer’’ or ‘‘CEBB’’) and each Industry Member that is the CAT Executing Broker for the seller in a transaction in Eligible Securities (‘‘CAT Executing Broker for the Seller’’ or ‘‘CEBS’’) will be required to pay a CAT Fee for each such transaction in Eligible Securities in the prior month based on CAT Data. The CEBB’s CAT Fee or CEBS’s CAT Fee (as applicable) for each transaction in Eligible Securities will be calculated by multiplying the number of executed equivalent shares in the transaction E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices by one-third and by the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3. CAT LLC intends for the Participant CAT Fee to be calculated using the Fee Rate reasonably determined pursuant to Proposed Section 11.3(a)(i) of the CAT NMS Plan. Accordingly, CAT LLC proposes to include the phrase ‘‘the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3’’ in this provision. ddrumheller on DSK120RN23PROD with NOTICES2 ii. Fee Filings Under Section 19(b) of the Exchange Act for Industry Member CAT Fees CAT LLC proposes to describe the information that Participants would be required to include in their fee filings to be made pursuant to section 19(b) of the Exchange and Rule 19b–4 thereunder for Industry Member CAT Fees in proposed paragraph (B) of Proposed Section 11.3(a)(iii) of the CAT NMS Plan.38 Specifically, such filings would be required to include with regard to the CAT Fee: (A) the Fee Rate; (B) the budget for the upcoming year (or remainder of the year, as applicable), including a brief description of each line item in the budget, including (1) technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration, and (6) public relations costs, a reserve and/or such other categories as reasonably determined by the Operating Committee to be included in the budget and the reason for changes in each such line item from the prior CAT Fee filing; 39 (C) a discussion of how the budget is reconciled to the collected fees; and (D) the projected total executed equivalent share volume of all transactions in Eligible Securities for the year (or remainder of the year, as applicable), and a description of the calculation of the projection. This detail would describe how the Fee Rate is calculated, and explain how the budget used in the calculation is reconciled to the collected fees. Such detailed information would provide Industry Members and other 38 CAT LLC expects the fee filings required to be made by the Participants pursuant to Section 19(b) of the Exchange Act with regard to CAT Fees to be filed pursuant to Section 19(b)(3)(A) of the Exchange Act and Rule 19b–(f)(2) thereunder. In accordance with Section 19(b)(3)(A) of the Exchange Act and Rule 19b–4(f)(2) thereunder, such fee filings would be effective upon filing. 39 CAT LLC intends to include any other categories as reasonably determined by the Operation Committee. Accordingly, this provision refers to ‘‘such other categories as reasonably determined by the Operating Committee to be included in the budget.’’ VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 interested parties with a clear understanding of the calculation of the CAT Fees and their relationship to CAT costs.40 In addition, CAT LLC proposes to clarify that the budgeted CAT costs described in the fee filings must provide sufficient detail to demonstrate that the CAT budget used in calculating the CAT Fees is reasonable and appropriate. Therefore, CAT LLC proposes to add the following sentence to Proposed Section 11.3(a)(iii)(B) of the CAT NMS Plan: ‘‘The information provided in this Section would be provided with sufficient detail to demonstrate that the budget for the upcoming year, or part of year, as applicable, is reasonable and appropriate.’’ iii. Financial Accountability Milestone CAT LLC recognizes that the collection of CAT Fees from Industry Members is subject to Section 11.6 of the CAT NMS Plan regarding the Financial Accountability Milestones. Accordingly, CAT LLC proposes to clarify that Participants will not make fee filings pursuant to Section 19(b) of the Exchange Act regarding CAT Fees until the Financial Accountability Milestone related to Period 4 described in Section 11.6 of the CAT NMS Plan has been satisfied. Specifically, CAT LLC proposes to add proposed paragraph (C) to Proposed Section 11.3(a)(iii) to the CAT NMS Plan to address the Financial Accountability Milestone. This provision would state that ‘‘[n]o Participant will make a filing with the SEC pursuant to section 19(b) of the Exchange Act regarding any CAT Fee related to Prospective CAT Costs until the Financial Accountability Milestone related to Period 4 described in Section 11.6 has been satisfied.’’ e. CAT Fee Details CAT LLC proposes to provide Participants and CAT Executing Brokers with details regarding the calculation of their CAT Fees upon request. Specifically, CAT LLC proposes to add Proposed Section 11.3(a)(iv)(A) to the CAT NMS Plan to describe this disclosure. This provision would state that ‘‘[d]etails regarding the calculation of a Participant or CAT Executing Brokers’ CAT Fees will be provided upon request to such Participant or CAT Executing Broker. At a minimum, such details would include each Participant or CAT Executing Broker’s executed equivalent share volume and 40 As a practical matter, the fee filing would provide the exact fee per executed equivalent share to be paid for the CAT Fees, by multiplying the Fee Rate by one-third and describing the relevant number of decimal places for the fee. PO 00000 Frm 00011 Fmt 4701 Sfmt 4703 17095 corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions.’’ 41 Such information would provide Participants and CAT Executing Brokers with the ability to understand the details regarding the calculation of their CAT Fees. In addition, CAT LLC proposes to make certain aggregate statistics regarding the CAT Fees publicly available. Specifically, CAT LLC proposes to add Proposed Section 11.3(a)(iv)(B) to the CAT NMS Plan to describe this public disclosure. This provision would state that ‘‘[f]or each CAT Fee, at a minimum, CAT LLC will make publicly available the aggregate executed equivalent share volume and corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions.’’ 42 4. Historical CAT Assessment CAT LLC proposes to describe Historical CAT Assessments related to Historical CAT Costs in Proposed Section 11.3(b) of the CAT NMS Plan. Proposed Section 11.3(b) of the CAT NMS Plan would describe that Historical CAT Assessments apply only to Industry Members (not to Participants), the manner of calculating the Historical Fee Rate for the Historical CAT Assessment, a description of the calculation of the Industry Member CAT Fees, a description of the fee filings under section 19(b) of the Exchange Act for Historical CAT Assessments, and details regarding the calculation of the Historical CAT Assessments that are available upon request or publicly available. The following describes in detail Section 11.3(b) of the CAT NMS Plan. a. Introductory Statement CAT LLC proposes to revise Section 11.3(b) of the CAT NMS Plan to address Historical CAT Assessments related to Historical CAT Costs to be charged to Industry Members. Accordingly, CAT LLC proposes to revise the introductory 41 As highlighted in Exhibit B, this second sentence in Proposed Section 11.3(a)(iv)(A) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. 42 As highlighted in Exhibit B, Proposed Section 11.3(a)(iv)(B) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. E:\FR\FM\21MRN2.SGM 21MRN2 17096 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices statement in Proposed Section 11.3(b) of the CAT NMS Plan to state that ‘‘[t]he Operating Committee will establish one or more fees (each a ‘‘Historical CAT Assessment’’) to be payable by Industry Members with regard to CAT costs previously paid by the Participants (‘‘Past CAT Costs’’) as follows:’’.43 With the reference to ‘‘one or more’’ Historical CAT Fees, this provision also clarifies that there may be one or more Historical CAT Assessments. b. Calculation of Historical Fee Rate CAT LLC proposes to provide details regarding the calculation of the Historical CAT Assessment in Proposed Section 11.3(b)(i) of the CAT NMS Plan. These details would include a description of the calculation of the Historical Fee Rate, the counting method for executed equivalent shares, the Historical CAT Costs, the Historical Recovery Period, and the projected total executed equivalent share volume of transactions in Eligible Securities for the Historical Recovery Period. i. General ddrumheller on DSK120RN23PROD with NOTICES2 Proposed paragraph (a) of Proposed Section 11.3(b)(i) of the CAT NMS Plan would describe the calculation of the Historical Fee Rate for each Historical CAT Assessment and the requirement for Participants to file a fee filing for each Historical CAT Assessment. This proposed provision also would state that Industry Members would be required to pay each Historical CAT Assessment once such Historical CAT Assessment is in effect in accordance with section 19(b) of the Exchange Act. Specifically, this proposed provision would state that: The Operating Committee will calculate the Historical Fee Rate for each Historical CAT Assessment by dividing the Historical CAT Costs for each Historical CAT Assessment by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the Historical Recovery Period for each Historical CAT Assessment. Once the Operating Committee has approved such Historical Fee Rate, the Participants shall be required to file with the SEC pursuant to section 19(b) of the Exchange Act such Historical CAT Assessment to be charged Industry Members calculated using such Historical Fee Rate. Industry Members will be required to pay such Historical CAT Assessment calculated using such Historical Fee Rate once such Historical CAT Assessment is in effect in 43 Note that there may be one or more Historical CAT Assessments, depending upon the timing of any approval of the amendment to the CAT NMS Plan and the completion of the Financial Accountability Milestones. For a discussion of the Financial Accountability Milestones, see Section 11.6 of the CAT NMS Plan. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 accordance with section 19(b) of the Exchange Act. CAT LLC proposes to clarify that the calculation of each Historical Fee Rate would be performed using reasonably projected total executed equivalent share volume.44 Accordingly, CAT LLC proposes to use the term ‘‘reasonably’’ to the describe ‘‘projected total executed equivalent share volume’’ in this provision. ii. Executed Equivalent Shares The Historical CAT Assessment would be calculated based on the same executed equivalent share calculation as CAT Fees related to Prospective CAT Costs. Accordingly, Proposed Section 11.3(b)(i)(B) of the CAT NMS Plan would make it clear that the calculation is the same for both types of fees. Specifically, Proposed Section 11.3(b)(i)(B) of the CAT NMS Plan would state that ‘‘[f]or purposes of calculating each Historical CAT Assessment, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted in the same manner as set forth in paragraph (a)(i)(B) of this Section 11.3.’’ iii. Historical CAT Costs The calculation of the Historical CAT Assessment depends upon the determination of the Historical CAT Costs. Proposed Section 11.3(b)(i)(C) of the CAT NMS Plan would describe the Historical CAT Costs for calculating Historical CAT Assessments. The Operating Committee will reasonably determine the Past CAT Costs sought to be recovered through the Historical CAT Assessment. CAT LLC proposes to make this approach clear in the language of the CAT NMS Plan by adding Proposed Section 11.3(b)(i)(C) of the CAT NMS Plan, which would state that ‘‘[t]he Operating Committee will reasonably determine the Historical CAT Costs sought to be recovered by each Historical CAT Assessment, where the Historical CAT Costs will be Past CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT Costs by the Operating Committee.’’ 45 CAT LLC proposes to further clarify the amount to be collected via the Historical CAT Assessments in Proposed Section 11.3(b)(i)(C) of the 44 As highlighted in Exhibit B, this proposed revision to add the term ‘‘reasonably’’ before ‘‘projected total executed equivalent share volume’’ in Proposed Section 11.3(b)(i)(A) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. 45 As highlighted in Exhibit B, this proposed revision to add the term ‘‘reasonably’’ before ‘‘excluded’’ in Proposed Section 11.3(b)(i)(C) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. PO 00000 Frm 00012 Fmt 4701 Sfmt 4703 CAT NMS Plan. Specifically, CAT LLC proposes to add the clarifying statement that ‘‘[e]ach Historical CAT Assessment will seek to recover from CAT Executing Brokers two-thirds of Historical CAT Costs incurred during the period covered by the Historical CAT Assessment.’’ This statement reiterates the requirement set forth in Proposed Section 11.3(b)(iii)(A) of the CAT NMS Plan regarding the calculation of the Historical CAT Assessment, which requires the multiplication of the number of executed equivalent shares in the transaction by one-third and by the Historical Fee Rate. Each CEBS and CEBB pays one-third, and, therefore, two-thirds of the Historical CAT Costs would be collected from CAT Executing Brokers. CAT LLC also proposes to add the term ‘‘reasonably’’ to the following sentence in Section 11.1(c) of the CAT NMS Plan before the word ‘‘incurred’’: ‘‘In determining fees on Participants and Industry Members the Operating Committee shall take into account fees, costs and expenses (including legal and consulting fees) reasonably incurred by the Participants on behalf of the Company prior to the Effective Date in connection with the creation and implementation of the CAT.’’ 46 The addition of the term ‘‘reasonably’’ would require such fees, costs and expenses to be reasonable. iv. Historical Recovery Period The calculation of the Historical CAT Assessment also depends upon the determination of the Historical Recovery Period. As the total amount of the Historical CAT Costs have not yet been determined because the CAT fee model has not yet been approved and CAT LLC continues to incur costs, CAT LLC has not determined the specific recovery period for any particular Historical CAT Assessment. Based on CAT costs incurred to date, however, CAT LLC believes that the Historical Recovery Period should not be less than 24 months or more than five years. In analyzing the potential Historical Recovery Periods, CAT LLC sought to weigh the need for a reasonable Historical Fee Rate that spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the loan notes to the Participants in a timely fashion. CAT LLC analyzed potential recovery periods using the Historical CAT Costs through 2022 and the total executed equivalent 46 As highlighted in Exhibit B, this proposed revision to Section 11.1(c) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices share volume of transactions in Eligible Securities for 2021 to calculate the projected total executed equivalent share volume of transactions. Based on the variables in this analysis, CAT LLC determined that the Historical Fee Rate calculated using a Historical Recovery Period of two to five years would establish a reasonable Historical Fee Rate even if Industry Members were required to pay a Historical CAT Assessment and the ongoing CAT Fee at the same time. CAT LLC notes, however, that the actual Historical CAT Assessment would be calculated using up-to-date Historical CAT Costs and executed equivalent share volume. Proposed Section 11.3(b)(i)(D)(I) of the CAT NMS Plan would describe the Historical Recovery Period used in calculating the Historical Fee Rate. This proposed provision would state that ‘‘[t]he length of the Historical Recovery Period used in calculating each Historical Fee Rate will be reasonably established by the Operating Committee based upon the amount of the Historical CAT Costs to be recovered by the Historical CAT Assessment.’’ 47 This proposed provision, however, would state that ‘‘no Historical Recovery Period used in calculating the Historical Fee Rate shall be less than 24 months or more than five years.’’ As discussed below, the Historical Recovery Period is used to calculate the Historical Fee Rate. The actual recovery period may be longer or shorter than the Historical Recovery Period depending on the actual executed equivalent share volumes during the time that the Historical CAT Assessment is in effect. Any Historical CAT Assessment would remain in effect until the relevant Historical CAT Costs are recovered, whether that time is shorter or longer than the Historical Recovery Period used in calculating the Historical Fee Rate. Proposed Section 11.3(b)(i)(D)(II) of the CAT NMS Plan would describe the length of the time that the Historical CAT Assessment would be in effect, which may be greater than or less than the Historical Recovery Period, depending on the amount of the Historical CAT Assessments collected based on the actual volume during the time that the Historical Assessment is in effect. Any Historical CAT Assessment would remain in effect until the relevant Historical CAT Costs are collected, whether that time is shorter or longer than the Historical Recovery Period used in calculating the Historical Fee 47 This provision would require that the Historical Recovery Period be ‘‘reasonably’’ established by the Operating Committee. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 Rate. Accordingly, this provision states that ‘‘[n]otwithstanding the length of the Historical Recovery Period used in calculating the Historical Fee Rate, each Historical CAT Assessment calculated using the Historical Fee Rate will remain in effect until all Historical CAT Costs for the Historical CAT Assessment are collected.’’ v. Projected Total Executed Equivalent Share Volume The Historical Fee Rate for a Historical CAT Assessment would be calculated by using the projected total executed equivalent share volume of all transactions in Eligible Securities for the Historical Recovery Period for such Historical CAT Assessment. CAT LLC proposes to clarify the manner of calculating the projected total executed equivalent share volume for each Historical CAT Assessment in Proposed Section 11.3(b)(i)(E) to the CAT NMS Plan. CAT LLC proposes to state in this provision that the projection will be determined based on transactions in Eligible Securities for the prior twelve months. Accordingly, Proposed Section 11.3(b)(i)(E) of the CAT NMS Plan would state that ‘‘[t]he Operating Committee shall reasonably determine the projected total executed equivalent share volume of all transactions in Eligible Securities for each Historical Recovery Period based on the executed equivalent share volume of all transactions in Eligible Securities for the prior twelve months.’’ As with the calculation of the projections for CAT Fees, CAT LLC determined that the use of the data from the prior twelve 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 relevant period. In addition, CAT LLC proposes to allow the Operating Committee to base its projection on the prior twelve months, but to use its discretion to analyze the likely volume for the upcoming year. As set forth in Proposed Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan, Participants will be required to provide a description of the calculation of the projection in their fee filings pursuant to section 19(b) of the Exchange Act for Historical CAT Assessments. As noted, this provision would require the Operating Committee to ‘‘reasonably’’ determine the projected total executed equivalent share volume. c. Past CAT Costs and Participants Proposed Section 11.3(b)(ii) of the CAT NMS Plan would clarify that the Participants would not be required to pay the Historical CAT Assessment as PO 00000 Frm 00013 Fmt 4701 Sfmt 4703 17097 the Participants previously have paid all Past CAT Costs. It would state that, ‘‘[b]ecause Participants previously have paid Past CAT Costs via loans to the Company, Participants would not be required to pay any Historical CAT Assessment.’’ In addition, Proposed Section 11.3(b)(ii) of the CAT NMS Plan would clarify that the Historical CAT fees collected from Industry Members would be allocated to Participants for repayment of the outstanding loan notes of the Participants to the Company on a pro rata basis; such fees would not be allocated to Participants based on the executed equivalent share volume of transactions in Eligible Securities. Specifically, Proposed Section 11.3(b)(ii) of the CAT NMS Plan would state that ‘‘[i]n lieu of a Historical CAT Assessment, the Participants’ one-third share of Historical CAT Costs and such other additional Past CAT Costs as reasonably determined by the Operating Committee will be paid by the cancellation of loans made to the Company on a pro rata basis based on the outstanding loan amounts due under the loans.’’ Furthermore, Proposed Section 11.3(b)(ii) of the CAT NMS Plan would emphasize that ‘‘[t]he Historical CAT Assessment is designed to recover two-thirds of the Historical CAT Costs.’’ 48 d. Historical CAT Assessment for Industry Members CAT LLC proposes to describe the Historical CAT Assessment for Industry Members in Proposed Section 11.3(b)(iii) of the CAT NMS Plan. Proposed Section 11.3(b)(iii) of the CAT NMS Plan would have two paragraphs, (A) and (B), where paragraph (A) would describe the Historical CAT Assessment for Industry Member, and paragraph (B) would describe the fee filings required to be filed pursuant to section 19(b) of the Exchange Act regarding the Historical CAT Assessments. 48 As highlighted in Exhibit B, the sentence ‘‘In lieu of a Historical CAT Assessment, the Participants’ one-third share of Historical CAT Costs and such other additional Past CAT Costs as reasonably determined by the Operating Committee will be paid by the cancellation of loans made to the Company on a pro rata basis based on the outstanding loan amounts due under the loans’’ has been revised from the 2022 Funding Proposal. CAT LLC proposes to revise the phrase ‘‘cancellation of the loans made by the Company’’ to ‘‘cancellation of the loans made to the Company’’ as the loans were made to the Company, not by the Company. In addition, CAT LLC proposes to revise the sentence to clarify that Participants will remain responsible via the loan cancellations for one-third of Historical CAT Costs as well as 100% of certain other Past CAT Costs (e.g., the Excluded Costs discussed below). E:\FR\FM\21MRN2.SGM 21MRN2 17098 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices i. Industry Member Obligation for Historical CAT Assessment CAT LLC proposes to describe the Historical CAT Assessment charged to Industry Members in Proposed Section 11.3(b)(iii)(A) of the CAT NMS Plan. Specifically, this proposed paragraph would state that: Each month in which a Historical CAT Assessment is in effect, each CEBB and each CEBS shall pay a fee for each transaction in Eligible Securities executed by the CEBB or CEBS from the prior month as set forth in CAT Data, where the Historical CAT Assessment for each transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Historical Fee Rate reasonably determined pursuant to paragraph (b)(i) of this Section 11.3. As noted, this provision would require the Operating Committee to ‘‘reasonably’’ determine the Historical Fee Rate pursuant to Proposed Section 11.3(b)(i) of the CAT NMS Plan. ii. Historical CAT Assessment Fee Filings CAT LLC proposes to provide additional details regarding the fee filings to be filed by the Participants regarding each Historical CAT Assessment pursuant to section 19(b) of the Exchange Act in Proposed Section 11.3(b)(iii)(B) of the CAT NMS Plan.49 Specifically, this provision would describe that fee filings would be required for each Historical CAT Assessment, the content of such fee filings, and the effect of the Financial Accountability Milestones described in Section 11.6 of the CAT NMS Plan on the fee filings. ddrumheller on DSK120RN23PROD with NOTICES2 A. Number of Fee Filings for Historical CAT Assessments CAT LLC proposes to clarify how many fee filings pursuant to section 19(b) of the Exchange Act Participants would be required to make with regard to Historical CAT Assessments. CAT LLC proposes to clarify that each Participant will be required to file a fee filing pursuant to section 19(b) of the Exchange Act to describe each Historical CAT Assessment. Accordingly, CAT LLC proposes to describe this requirement in Proposed Section 11.3(b)(iii)(B)(I) of the CAT NMS Plan, which would state that ‘‘Participants will be required to file 49 CAT LLC expects the fee filings required to be made by the Participants pursuant to Section 19(b) of the Exchange Act with regard to Historical CAT Assessments to be filed pursuant to Section 19(b)(3)(A) of the Exchange Act. In accordance with Section 19(b)(3)(A) of the Exchange Act, fee filings made pursuant to Section 19(b)(3)(A) of the Exchange Act would be effective upon filing. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 with the SEC pursuant to section 19(b) of the Exchange Act a filing for each Historical CAT Assessment.’’ B. Content of Fee Filings for Historical CAT Assessments CAT LLC proposes to provide additional detail as to the information that Participants would be required to include in their fee filings to be made pursuant to section 19(b) of the Exchange and Rule 19b–4(f)(2) for Historical CAT Assessments in proposed paragraph (b)(iii)(B)(II) of Proposed Section 11.3 of the CAT NMS Plan. The proposed paragraph sets forth the information about the Historical CAT Assessments that should be included in the fee filings required to be made by the Participants pursuant to section 19(b) of the Exchange Act. Specifically, such filings would be required to include: (A) the Historical Fee Rate; (B) a brief description of the amount and type of Historical CAT Costs, including (1) the technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration, and (6) public relations costs; (C) the Historical Recovery Period and the reasons for its length; and (D) the projected total executed equivalent share volume of all transactions in Eligible Securities for the Historical Recovery Period, and a description of the calculation of the projection. Such detailed information would provide Industry Members and other interested parties with a clear understanding of the calculation of each Historical CAT Assessment and its relationship to Historical CAT Costs.50 In addition, CAT LLC proposes to clarify that the Historical CAT Costs described in the fee filings must provide sufficient detail to demonstrate that such costs are reasonable and appropriate. Therefore, CAT LLC proposes to add the following sentence to Proposed Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan: ‘‘The information provided in this Section would be provided with sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate.’’ C. Financial Accountability Milestones CAT LLC recognizes that the collection of Historical CAT Assessments from Industry Members is 50 As a practical matter, the fee filing would provide the exact fee per executed equivalent share to be paid for the Historical CAT Assessment, by multiplying the Historical Fee Rate by one-third and describing the relevant number of decimal places for the fee. PO 00000 Frm 00014 Fmt 4701 Sfmt 4703 subject to Section 11.6 of the CAT NMS Plan regarding the Financial Accountability Milestones. Accordingly, CAT LLC proposes to clarify that Participants will not make CAT fee filings pursuant to section 19(b) of the Exchange Act regarding a Historical CAT Assessment until any applicable Financial Accountability Milestone has been satisfied. Specifically, CAT LLC proposes to add Proposed Section 11.3(b)(iii)(B)(III) to the CAT NMS Plan. This provision would state that ‘‘[n]o Participant will make a filing with the SEC pursuant to section 19(b) of the Exchange Act regarding any Historical CAT Assessment until any applicable Financial Accountability Milestone described in Section 11.6 has been satisfied.’’ e. Historical CAT Assessment Details CAT LLC proposes to provide CAT Executing Brokers with details regarding the calculation of their Historical CAT Assessments upon request. Specifically, CAT LLC proposes to add Proposed Section 11.3(b)(iv)(A) to the CAT NMS Plan, which would state that ‘‘[d]etails regarding the calculation of a CAT Executing Broker’s Historical CAT Assessment will be provided upon request to such CAT Executing Broker. At a minimum, such details would include each CAT Executing Broker’s executed equivalent share volume and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions.’’ 51 Such information would provide CAT Executing Brokers with the ability to understand the details regarding the calculation of their Historical CAT Assessments. In addition, CAT LLC proposes to make certain aggregate statistics regarding Historical CAT Assessments publicly available. Specifically, CAT LLC proposes to add Proposed Section 11.3(b)(iv)(B) to the CAT NMS Plan. This provision would state that ‘‘[f]or each Historical CAT Assessment, at a minimum, CAT LLC will make publicly available the aggregate executed equivalent share volume and corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side 51 As highlighted in Exhibit B, the second sentence of Proposed Section 11.3(b)(iv)(A) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices transactions and sell-side transactions.’’ 52 5. CAT Fee Schedule for Participants To implement the Participant CAT fees, CAT LLC proposes to add a fee schedule, entitled ‘‘Consolidated Audit Trail Funding Fees,’’ to Appendix B of the CAT NMS Plan. Proposed paragraph (a) of the fee schedule would describe the CAT Fees to be paid by the Participants under the Funding Proposal. Specifically, paragraph (a) of the Participant fee schedule would state that ‘‘[e]ach Participant shall pay the CAT Fee set forth in Section 11.3(a) of the CAT NMS Plan to Consolidated Audit Trail, LLC in the manner prescribed by Consolidated Audit Trail, LLC on a monthly basis based on the Participant’s transactions in Eligible Securities in the prior month.’’ ddrumheller on DSK120RN23PROD with NOTICES2 6. Additional Changes From Original Funding Model CAT LLC proposes certain revisions to Article XI of the CAT NMS Plan to implement the Funding Proposal. CAT LLC proposes to make the following changes to the CAT NMS Plan in addition to the proposed changes to the CAT NMS Plan discussed above. a. Elimination of Definition of ‘‘Execution Venue’’ Section 1.1 of the CAT NMS Plan defines the term ‘‘Execution Venue’’ to mean ‘‘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).’’ Currently, the term ‘‘Execution Venue’’ is used in Sections 11.2 and 11.3 of the CAT NMS Plan to describe how CAT costs would be allocated among CAT Reporters under the Original Funding Model. The Original Funding Model would have imposed fees based on market share to CAT Reporters that are Execution Venues, including ATSs, and fees based on message traffic for Industry Members’ non-ATS activities. In contrast, the Funding Proposal would impose fees based on the executed equivalent shares of transactions in Eligible Securities for three categories of CAT Reporters: Participants, CEBBs and CEBSs. Accordingly, as the concept for an ‘‘Execution Venue’’ would not be relevant for the Funding Proposal, CAT LLC proposes to delete this term and its definition from Section 1.1 of the CAT NMS Plan. 52 As highlighted in Exhibit B, Section 11.3(b)(iv)(B) of the CAT NMS Plan was not included in the proposed revisions related to the 2022 Funding Proposal. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 b. Use of Executed Equivalent Share Volume Under Funding Proposal The Original Funding Model set forth in the CAT NMS Plan requires Participants and Execution Venue ATSs to pay CAT fees based on market share and Industry Members (other than Execution Venue ATSs) to pay CAT fees based on message traffic. The CAT NMS Plan also describes how the market share-based fee would be calculated for Participants and other Execution Venue ATSs and how the message traffic-based fee would be calculated for Industry Members (other than Execution Venue ATSs). CAT LLC proposes to amend the CAT NMS Plan to require Participants, CEBBs and CEBSs to pay CAT fees based on the number of executed equivalent shares in a transaction in Eligible Securities, rather than based on market share and message traffic. Accordingly, the Operating Committee proposes to amend Section 11.2(b) and (c) and Section 11.3(a) and (b) of the CAT NMS Plan to reflect the proposed use of the number of executed equivalent shares in transactions in Eligible Securities in calculating CAT fees. Section 11.2(b) of the CAT NMS Plan states that ‘‘[i]n establishing the funding of the Company, the Operating Committee shall seek . . . (b) to establish an allocation of the Company’s related costs among Participants and Industry Members that is consistent with the Exchange Act, taking into account the timeline for implementation of the CAT and distinctions in the securities trading operations of Participants and Industry Members and their relative impact upon Company resources and operations.’’ CAT LLC proposes to delete the requirement to take into account ‘‘distinctions in the securities trading operations of Participants and Industry Members and their relative impact upon Company resources and operations.’’ This requirement related to using message traffic and market share in the calculation of CAT fees, as message traffic and market share were metrics related to the impact of a CAT Reporter on the Company’s resources and operations. With the proposed move to the use of the executed equivalent shares metric instead of message traffic and market share, the requirement is no longer relevant. Section 11.2(c) of the CAT NMS Plan states that ‘‘[i]n establishing the funding of the Company, the Operating Committee shall seek . . . (c) to establish a tiered fee structure in which the fees charged to: (i) CAT Reporters that are Execution Venues, including PO 00000 Frm 00015 Fmt 4701 Sfmt 4703 17099 ATSs, are based upon the level of market share; (ii) Industry Members’ non-ATS activities are based upon message traffic.’’ CAT LLC proposes to delete subparagraphs (i) and (ii) and replace these subparagraphs with the requirement that the fee structure in which the fees charged to ‘‘Participants and Industry Members are based upon the executed equivalent share volume of transactions in Eligible Securities.’’ 53 In addition, CAT LLC proposes to amend the CAT funding principles to clarify that CAT Fees and the Historical CAT Assessments are intended to be cost-based fees—that is, the fees are designed to recover the cost of the creation, implementation and operation of the CAT. CAT LLC proposes to amend the funding principle set forth in Section 11.2(c) by making a specific reference to the costs of the CAT. With this proposed change, Proposed Section 11.2(c) would state that ‘‘[i]n establishing the funding of the Company, the Operating Committee shall seek: . . . to establish a fee structure in which the fees charged to Participants and Industry Members are based upon the executed equivalent share volume of transactions in Eligible Securities, and the costs of the CAT.’’ Section 11.3(a) of the CAT NMS Plan provides additional detail regarding the market share-based fees to be paid by Participants and Execution Venue ATSs under the Original Funding Model. Specifically, Section 11.3(a) of the CAT NMS Plan states: (a) The Operating Committee will establish fixed fees to be payable by Execution Venues as provided in this Section 11.3(a): (i) Each Execution Venue that: (A) executes transactions; or (B) in the case of a national securities association, has trades reported by its members to its trade reporting facility or facilities for reporting transactions effected otherwise than on an exchange, in NMS Stocks or OTC Equity Securities will pay a fixed fee depending on the market share of that Execution Venue in NMS Stocks and OTC Equity Securities, with the Operating Committee establishing at least two and no more than five tiers of fixed fees, based on an Execution Venue’s NMS Stocks and OTC Equity Securities market share. For these purposes, market share for Execution Venues that execute transactions will be calculated by share volume, and market share for a national securities association that has trades reported by its members to its trade reporting facility or facilities for reporting transactions effected otherwise than on an exchange in NMS Stocks or OTC Equity Securities will be calculated based on share volume of trades reported, provided, however, that the share volume reported to such national securities association by an Execution Venue shall not 53 As discussed in the next section, the Operating Committee also proposes to delete the reference to a ‘‘tiered’’ fee structure. E:\FR\FM\21MRN2.SGM 21MRN2 17100 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices be included in the calculation of such national security association’s market share. (ii) Each Execution Venue that executes transactions in Listed Options will pay a fixed fee depending on the Listed Options market share of that Execution Venue, with the Operating Committee establishing at least two and no more than five tiers of fixed fees, based on an Execution Venue’s Listed Options market share. For these purposes, market share will be calculated by contract volume. CAT LLC proposes to delete Section 11.3(a) of the CAT NMS Plan and replace this paragraph with a description of the CAT Fees related to Prospective CAT Costs, as described above. Section 11.3(b) of the CAT NMS Plan provides additional detail regarding the message traffic-based CAT fees to be paid by Industry Members (other than Execution Venue ATSs) under the Original Funding Model. Specifically, Section 11.3(b) of the CAT NMS Plan states: The Operating Committee will establish fixed fees to be payable by Industry Members, based on the message traffic generated by such Industry Member, with the Operating Committee establishing at least five and no more than nine tiers of fixed fees, based on message traffic. For the avoidance of doubt, the fixed fees payable by Industry Members pursuant to this paragraph shall, in addition to any other applicable message traffic, include message traffic generated by: (i) an ATS that does not execute orders that is sponsored by such Industry Member; and (ii) routing orders to and from any ATS sponsored by such Industry Member. CAT LLC proposes to delete Section 11.3(b) of the CAT NMS Plan and replace this paragraph with a description of the Historical CAT Assessments, as described above. ddrumheller on DSK120RN23PROD with NOTICES2 c. Elimination of Tiered Fees CAT LLC proposes to eliminate the use of tiered fees that were included in the Original Funding Model. Instead, under the Funding Proposal, each Participant, CEBB or CEBS would pay a fee based solely on its transactions in Eligible Securities. The Operating Committee therefore proposes to amend Sections 11.1(d), 11.2(c), 11.3(a) and 11.3(b) of the CAT NMS Plan to eliminate tiered fees and related concepts. Utilizing a tiered fee structure, by its nature, would create certain inequities among the CAT fees paid by CAT Reporters. For example, two CAT Reporters with comparable executed equivalent share volume may pay notably different fees if one falls in a higher tier and the other falls within a lower tier. Correspondingly, a tiered fee structure generally would reduce fees VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 for CAT Reporters with higher executed share volume in one tier, while increasing fees for Industry Members with lower executed share volume in the same tier, as compared to a nontiered fee. Furthermore, CAT Reporters in lower tiers potentially pay more than they would without the use of tiers. While tiering appropriately exists in various other self-regulatory fee programs, CAT LLC proposes to eliminate the tiering concept for the Funding Proposal. By charging each Participant, CEBB and CEBS a CAT fee directly based on its own executed equivalent share volume, rather than charging a tiered fee, the Funding Proposal would result in a CAT fee being tied more directly to the CAT Reporter’s executed share volume. In contrast, with a tiered fee, CAT Reporters with different levels of executed equivalent share volume that are placed in the same tier would all pay the same CAT fee, thereby limiting the correlation between a CAT Reporter’s activity and its CAT fee. The proposed non-tiering approach is simpler and more objective to administer than the tiering approach. With a tiering approach, the number of tiers for Participants, CEBBs and CEBSs, the boundaries for each tier and the fees assigned to each tier must be established. In the absence of clear groupings of CAT Reporters, selecting the number of, boundaries for, and the fees associated with each tier would be subject to some level of subjectivity. Furthermore, the establishment of tiers would need to be continually reassessed based on changes in the executed equivalent share volume of transactions in Eligible Securities, thereby requiring regular subjective assessments. Accordingly, the removal of tiering from the Funding Proposal eliminates a variety of subjective analyses and judgments from the model and simplifies the determination of CAT fees. Section 11.1(d) of the CAT NMS Plan states that ‘‘[c]onsistent with this Article XI, the Operating Committee shall adopt policies, procedures, and practices regarding the budget and budgeting process, assignment of tiers, resolution of disputes, billing and collection of fees, and other related matters.’’ With the elimination of tiered fees, the reference to the ‘‘assignment of tiers’’ would no longer be relevant for the Funding Proposal. Therefore, CAT LLC proposes to delete the reference to ‘‘assignment of tiers’’ from Section 11.1(d). Section 11.1(d) of the CAT NMS Plan also states that: PO 00000 Frm 00016 Fmt 4701 Sfmt 4703 For the avoidance of doubt, as part of its regular review of fees for the CAT, the Operating Committee shall have the right to change the tier assigned to any particular Person in accordance with fee schedules previously filed with the Commission that are reasonable, equitable and not unfairly discriminatory and subject to public notice and comment, pursuant to this Article XI. Any such changes will be effective upon reasonable notice to such Person. As noted above, unlike the Original Funding Model, the Funding Proposal would not utilize tiered fees. Accordingly, these two sentences would not be applicable to the Funding Proposal. Therefore, CAT LLC proposes to delete these two sentences from Section 11.1(d) of the CAT NMS Plan. CAT LLC proposes to delete the reference to ‘‘tiered’’ fees from Section 11.2(c) of the CAT NMS Plan. Section 11.2(c) of the CAT NMS Plan states that ‘‘[i]n establishing the funding of the Company, the Operating Committee shall seek: . . . (c) to establish a tiered fee structure . . .’’ CAT LLC propose to delete the word ‘‘tiered’’ from this provision as the CAT fees would not be tiered under the Funding Proposal. CAT LLC also proposes to delete paragraph (iii) of Section 11.2(c) of the CAT NMS Plan. Paragraph (iii) of Section 11.2(c) of the CAT NMS Plan states that the Operating Committee shall seek to establish a tiered fee structure in which fees charged to: the CAT Reporters with the most CAT-related activity (measured by market share and/or message traffic, as applicable) be 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). Under the Original Funding Model, the comparability provision was an important factor in determining the tiers for Industry Members and Execution Venues. In determining the tiers, the Operating Committee sought to establish comparable fees among the CAT Reporters with the most Reportable Events.54 Under the Funding Proposal, however, the comparability provision is no longer necessary, as a tiered fee structure would not be used for Industry Members or Participants. As discussed above, the Operating Committee proposes to replace the language in Sections 11.3(a) and (b) of the CAT NMS Plan with language implementing the Funding Proposal. These proposed changes would remove the references to tiers in Sections 11.3(a)(i) and (ii) and 11.3(b) of the CAT 54 See, e.g., Securities Exchange Act Rel. No. 82451 (Jan. 5, 2018), 83 FR 1399, 1406–07 (Jan. 11, 2018) (‘‘2018 Fee Proposal Release’’). E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices NMS Plan, along with the other proposed changes. Specifically, Section 11.3(a)(i) of the CAT NMS Plan states that the Operating Committee, when establishing fees for Execution Venues for NMS Stocks and OTC Equity Securities, will establish ‘‘at least two and no more than five tiers of fixed fees, based on an Execution Venue’s NMS Stocks and OTC Equity Securities market share.’’ Similarly, Section 11.3(a)(ii) of the CAT NMS Plan states that the Operating Committee, when establishing fees for Execution Venues that execute transactions in Listed Options, will establish ‘‘at least two and no more than five tiers of fixed fees, based on an Execution Venue’s Listed Options market share.’’ Section 11.3(b) of the CAT NMS Plan states that the Operating Committee, when establishing fees to be payable by Industry Members, will establish ‘‘at least five and no more than nine tiers of fixed fees, based on message traffic.’’ CAT LLC proposes to delete each of these references to tiers from the CAT NMS Plan. ddrumheller on DSK120RN23PROD with NOTICES2 d. No Fixed Fees As discussed above, CAT LLC proposes to replace the language in Sections 11.3(a) and (b) of the CAT NMS Plan with language implementing the Funding Proposal. These proposed changes also would remove the references to ‘‘fixed fees’’ in Sections 11.3(a), 11.3(a)(i), 11.3(a)(ii) and 11.3(b) and replaced them with references to ‘‘fees.’’ Under the Funding Proposal, the CAT fees to be paid by Participants, CEBBs and CEBSs will vary in accordance with their executed equivalent share volume of transactions in Eligible Securities, although the Fee Rate will be fixed for a relevant period. Therefore, the concept of a fixed fee— that is, a fee that does not vary depending on circumstances—is not relevant under the Funding Proposal. 7. Billing and Collection of CAT Fees Consistent with Section 11.1(d) of the CAT NMS Plan, CAT LLC will adopt policies, procedures and practices regarding the billing and collection of fees. In addition, pursuant to Section 11.4 of the CAT NMS Plan, CAT LLC will establish a system for the collection of CAT fees from Participants and Industry Members. As set forth in Section 11.4 of the CAT NMS Plan, each Participant would be required to pay its CAT fees authorized under the CAT NMS Plan as required by Section 3.7(b) of the CAT NMS Plan.55 Section 3.7(b) 55 Participants and CAT Executing Brokers would be responsible for a fee each month in which they VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 of the CAT NMS Plan provides the following: Each Participant shall pay all fees or other amounts required to be paid under this Agreement within thirty (30) days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated) (the ‘‘Payment Date’’). The Participant shall pay interest on the outstanding balance from the Payment Date until such fee or amount is paid at a per annum rate equal to the lesser of: (i) the Prime Rate plus 300 basis points; or (ii) the maximum rate permitted by applicable law. If any such remaining outstanding balance is not paid within thirty (30) days after the Payment Date, the Participants shall file an amendment to this Agreement requesting the termination of the participation in the Company of such Participant, and its right to any Company Interest, with the SEC. Such amendment shall be effective only when it is approved by the SEC in accordance with SEC Rule 608 or otherwise becomes effective pursuant to SEC Rule 608. Section 11.4 of the CAT NMS Plan also addresses the payment of CAT fees by Industry Members. Section 11.4 of the CAT NMS Plan states: Participants shall require each Industry Member to pay all applicable fees authorized under this Article XI within thirty (30) days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If an Industry Member fails to pay any such fee when due (as determined in accordance with the preceding sentence), such Industry Member shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (a) the Prime Rate plus 300 basis points; or (b) the maximum rate permitted by applicable law. 8. Illustrative Example of the Funding Proposal CAT LLC has prepared an example of how a Historical CAT Assessment would be calculated pursuant to the Funding Proposal for illustrative purposes only. The illustrative example is set forth in Exhibit C to this filing. Note that the calculation of any actual Historical CAT Assessment for Historical CAT Costs would differ from this example in various ways, as described in more detail in Exhibit C. 9. Advantages of and Support for the Funding Proposal CAT LLC proposes to adopt the Funding Proposal as it provides a variety of advantages over the Original are a CAT Reporter. If a Participant or CAT Executing Broker ceases to the meet the definition of a CAT Reporter during a month, the Participant or CAT Executing Broker would still be responsible for CAT fees associated with its transactions during that month. PO 00000 Frm 00017 Fmt 4701 Sfmt 4703 17101 Funding Model. CAT LLC discusses these advantages in this section of the filing. a. Comparable to Existing Fee Precedent The Funding Proposal would operate in a manner similar to other funding models employed by the SEC and the Participants, including the SEC’s Section 31 fees, FINRA’s trading activity fee (‘‘FINRA TAF’’) and the options regulatory fee (‘‘ORF’’) utilized by options exchanges. The SEC previously has determined that the Participants’ sales value fees related to Section 31, the FINRA TAF and the ORF are consistent with the Exchange Act. i. Section 31 Fees Pursuant to section 31 of the Exchange Act, a national securities exchange must pay the Commission a fee based on the aggregate dollar amount of sales of securities transacted on the exchange, and a national securities association must pay the Commission a fee based on the aggregate dollar amount of sales of securities transacted by or through any member of the association otherwise than on a national securities exchange (collectively, ‘‘covered sales’’). The SEC calculates the amount of section 31 fees due from each exchange or FINRA by multiplying the aggregate dollar amount of its covered sales by the fee rate set by the Commission in a procedure set forth in section 31(j) of the Exchange Act. These fees are designed to recover the costs related to the government’s supervision and regulation of the securities markets and securities professionals. Section 31 requires the SEC to make annual and, in some cases, mid-year adjustments to the fee rate. These adjustments are necessary to make the SEC’s total collection of transaction fees in a given year as close as possible to the amount of the regular appropriation to the Commission by Congress for that fiscal year. To recover the costs of their section 31 fee obligations, each of the national securities exchanges and FINRA have adopted, and the SEC has approved, rules assessing a regulatory transaction fee on their members, the amount of which is set in accordance with section 31 of the Exchange Act.56 Brokerdealers, in turn, often impose fees on their customers that provide the funds to pay the fees owed to the exchanges and FINRA. Like the well-known, longstanding and accepted section 31-related fee model, the Funding Proposal would use 56 See, e.g., Section 3 of Schedule A of FINRA’s By-Laws. E:\FR\FM\21MRN2.SGM 21MRN2 17102 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES2 a predetermined fee rate for the calculation of the fees, seek to recover designated regulatory costs (as CAT provides a solely regulatory function), and allow for the adjustment of the fee rate during the year to seek to match regulatory costs with fees collected. The Funding Proposal, however, would impose fees based on executed equivalent share volume rather than the sales values of certain transactions. Despite the different calculation metric, the Funding Proposal is similar to a model well known, long accepted and justified under the Exchange Act the purpose of which is also to cover costs associated with the regulation of securities markets and securities professionals. ii. FINRA Trading Activity Fee The transaction-based fees charged under the Funding Proposal also would be similar to FINRA’s transaction-based trading activity fee,57 which was modeled on the Commission’s section 31 fee.58 Although the FINRA TAF is designed to cover a subset of the costs of FINRA services (e.g., costs to FINRA of the supervision and regulation of members, including performing examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities) rather than all of FINRA’s costs like the CAT, the transaction-based calculation of the FINRA TAF and the proposed CAT fees are similar. With the FINRA TAF, FINRA members on the sell-side of a transaction are required to pay a per share fee for each sale of covered securities, which includes exchange registered securities, equity securities traded otherwise than on an exchange, security futures, TRACE-Eligible Securities and municipal securities, subject to certain exceptions. In approving the FINRA TAF, the SEC stated that the implementation of the FINRA TAF ‘‘is consistent with section 15A(b)(5) of the Act, in that the proposal is reasonably designed to recover NASD costs related to regulation and oversight of its members.’’ 59 The SEC further stated that ‘‘[t]he Commission recognizes the difficulties inherent in restructuring the NASD’s regulatory fees, and believes that the NASD has done so in a manner that is fair and reasonable.’’ 60 The CAT fees calculated under the Funding Proposal would be similar to the FINRA TAF in that they 57 Section 1 of Schedule A of FINRA’s By-Laws. Securities Exchange Act Rel. No. 46416 (Aug. 23, 2002), 67 FR 55901 (Aug. 30, 2002). 59 Securities Exchange Act Rel. No. 47946 (May 30, 2003), 68 FR 34021, 34023 (June 6, 2003) (‘‘TAF Release’’). 60 Id. would be transaction-based fees intended to provide funding for regulatory costs. iii. Options Regulatory Fee The fees charged under the Funding Proposal also would be similar to the ORF charged by the options exchanges.61 The ORF is a per contract fee charged by an options exchange for certain options transactions to options members of the relevant exchange. The ORF is collected indirectly from exchange members through their clearing firms by the Options Clearing Corporation on behalf of the Exchange. Revenue generated from the ORF is designed to recover a material portion of an options exchange’s regulatory costs related to the supervision and regulation of its members’ options business, including performing routine surveillance, investigations, examinations and financial monitoring as well as policy, rulemaking, interpretive, and enforcement activities. Exchange members generally passthrough the ORF to their customers in the same manner that firms passthrough to their customers the fees charged by self-regulatory organizations (‘‘SROs’’) to help the SROs meet their obligations under section 31 of the Exchange Act.62 The CAT fees calculated under the Funding Proposal would be similar to the ORF in that they would be transaction-based fees intended to provide funding for regulatory costs. b. Fee Metric: Executed Equivalent Share Volume CAT LLC proposes to use the executed equivalent share volume of transactions in Eligible Securities as the means for allocating CAT costs among Participants and Industry Members. The use of executed equivalent share volume would replace the use of message traffic for allocating costs among Industry Members and the use of market share for allocating costs among Participants as set forth in the Original Funding Model. The use of executed equivalent share volume is a reasonable and equitable method for allocating costs for a variety of reasons, and CAT LLC believes it improves upon the use of message traffic. The proposed use of CAT-reported message traffic as set forth in the Original Funding Model raised a variety of issues for allocating CAT costs. First, based on a subsequent study of cost 58 See VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 61 See, e.g., Cboe Fee Schedule, MIAX Fee Schedule, and NYSE Arca Fee Schedule. 62 See, e.g., Securities Exchange Act Rel. No. 58817 (Oct. 20, 2008), 73 FR 63744, 63745 (Oct. 27, 2008). PO 00000 Frm 00018 Fmt 4701 Sfmt 4703 drivers for the CAT, it was determined that message traffic may be a factor in the CAT costs, but it is not the primary factor. CAT costs are dominated by technology costs, and the predominant technology costs are data processing (e.g., linker) and storage costs.63 The data processing and storage costs are related to the level of message traffic, but such costs also relate to other factors. The data processing and storage costs also are directly related to the complexity of the reporting requirements for the market activity. For example, in light of the complexity of market activity, the CAT’s order reporting and linkage scenarios document for Industry Members is over 800 pages in length, addressing nearly 200 scenarios.64 The processing and storage of such a large number of complex reporting scenarios requires very complex algorithms, which, in turn, lead to significant data processing and storage costs. The data processing and storage costs also are driven by the stringent performance, timelines and operational requirements for processing CAT Data. For example, the CAT NMS Plan requires that CAT order events be processed within established timeframes to ensure data can be made available to Participants’ regulatory staff and the SEC in a timely manner. Accordingly, a CAT Reporter’s message traffic may be a factor, but not a primary factor, in terms of the costs of the CAT. Second, in general, Industry Member revenue, including revenue derived from fees Industry Members charge their clients, is often driven by transactions. Because message traffic is separate from whether or not a transaction occurs, fees based on message traffic may not correlate with common revenue or fee models. As a result, CAT fees based on message traffic could impose an outsized adverse financial impact on certain Industry Members. Third, imposing CAT fees on each CAT Reporter based on its message traffic may have an adverse effect on competition, liquidity or other aspects of market structure, and may increase model complexity. For example, the number of messages for any given order, whether or not ultimately executed, could vary depending on how a given order is processed, leading to a lack of predictability on the applicable cost to 63 For a detailed discussion of cost drivers of the CAT, see CAT LLC Webinar, CAT Costs (Sept. 21, 2021), https://www.catnmsplan.com/events/catcosts-september-21-2021. 64 CAT Industry Member Reporting Scenarios, Version 4.10 (Oct. 21, 2022), https:// www.catnmsplan.com/sites/default/files/2022-10/ 10.21.22_Industry_Member_Tech_Specs_Reporting_ Scenarios_v4.10_CLEAN.pdf. E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices process any given order or executions for broker-dealers or non-broker-dealer customers.65 As one example, discussed in the context of the previously proposed funding models,66 market makers in Eligible Securities may have very high levels of message traffic due to their quoting obligations. Such high levels of message traffic may lead to outsized fees for market makers in comparison to their transaction activity, thereby placing an excessive financial burden on market makers. This, in turn, may lead to a decrease in the number of market makers, resulting in a decrease in liquidity and a reduction in market quality. To address this effect on market makers, CAT LLC proposed to discount the fees that market makers would need to pay. However, such a discount adds complexity to the message traffic approach, as the model must determine when a discount is necessary and how much the discount should be. The use of executed equivalent share volume to allocate CAT costs addresses each of these concerns. The fees are not divorced from transactions, the traditional source of revenue for Industry Members; fees based on executed equivalent share volume would not adversely impact certain market participants to the detriment of the markets, and the model is simple to understand and implement. Moreover, in addition to these benefits, the executed equivalent share volume is related to, but not precisely linked to, the CAT Reporter’s burden on the CAT. In 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. Accordingly, CAT LLC has determined 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. This conclusion is consistent with the SEC’s prior recognition of the use of transaction volume in setting regulatory fees. For example, in approving the FINRA TAF, the SEC recognized that transaction volume was closely enough connected to FINRA’s regulatory responsibilities to satisfy the statutory standard in the Exchange Act.67 65 The predictability of fees is discussed further below in Section A.9.u of this filing. 66 See 2018 Fee Proposal Release. 67 TAF Release at 34024. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 c. CAT Executing Brokers i. Charging CAT Executing Brokers CAT LLC proposes to charge CAT fees to CAT Executing Brokers. CAT LLC believes that such an approach is consistent with the requirements of the Exchange Act for a variety of reasons, including the following reasons. First, the proposal to charge executing brokers is broadly supported by the industry.68 For example, SIFMA has supported charging executing brokers, and continues to support charging executing brokers, rather than clearing brokers.69 In one of its comment letters on the 2022 Funding Proposal, SIFMA stated that ‘‘we support the Participants’ decision to allocate CAT costs to executing brokers rather than clearing brokers.’’ 70 Second, the proposal to rely on executing brokers, rather than clearing brokers, was proposed in direct response to comments raised by SIFMA and other commenters on the 2022 Funding Proposal regarding the cost burden that clearing firms may experience if clearing brokers were charged CAT fees.71 As noted by commenters, imposing the fee payment obligation on clearing brokers, rather than on executing brokers more generally, potentially may impose a significant financial burden on clearing firms if the fees imposed on clearing firms are not passed through to their clients. Third, charging the CEBBs and CEBSs would reflect the executing role the CEBB and CEBS have in each transaction. Such a fee model is currently used and well-known in the securities markets. For example, SRO members regularly pay transactionbased fees. As a result, the CAT fees could be paid by Industry Members without requiring significant and potentially costly changes. Fourth, charging CEBBs and CEBSs is in line with the use of transaction 68 See Partial Amendment I at 74185; February 2023 Proposed Partial Amendment at 5. 69 See Letter from Ellen Greene, Managing Director, Equities and Options Market Structure, SIFMA, to Vanessa Countryman, Secretary, SEC (Dec. 14, 2022) (‘‘December 2022 SIFMA Letter’’) at 2; Letter from Ellen Greene, Managing Director, Equities and Options Market Structure, SIFMA, to Vanessa Countryman, Secretary, SEC (Oct. 7, 2022) at 4–5. 70 Letter from Ellen Greene, Managing Director, Equities and Options Market Structure, and Joseph Corcoran, Managing Director, Associate General Counsel, SIFMA, to Vanessa Countryman, Secretary, SEC (Jan. 12, 2023) at 7. See also December 2022 SIFMA Letter at 2 (‘‘[W]e support changing the payment obligation to executing brokers.’’). 71 See Partial Amendment I at 74185; February 2023 Proposed Partial Amendment at 5. PO 00000 Frm 00019 Fmt 4701 Sfmt 4703 17103 reports from the exchanges and FINRA’s equity trading reporting facilities for calculating the CAT fees. The CEBBs and CEBSs are identified on the transaction reports, thereby streamlining the CAT collection process. Fifth, CAT LLC does not believe that the proposal would burden CAT Executing Brokers. The CEBBs and CEBSs could determine, but would not be required, to pass their CAT fees through to their clients, who, in turn, could pass their CAT fees to their clients, until the fee is imposed on the ultimate participant in the transaction. With such a pass-through, the CEBBs and CEBSs would not ultimately incur the cost of all CAT fees related to their transactions. It is common practice in the industry for broker-dealers to pass transaction-based fees through to their clients, and CAT fees would introduce no unique issues for passing the CAT fee on to clients. Finally, the proposal to charge CAT Executing Brokers CAT fees as set forth in the Funding Proposal only addresses the party responsible for the payment of the CAT fee. As an administrative matter regarding the method of payment, each CAT Executing Broker may seek to enter into a bilateral arrangement with its clearing broker for the clearing broker to collect and passthrough the CAT fees as it does in other contexts. ii. Effect on Net Capital of CAT Executing Brokers CAT fees do not raise new or different issues for CAT Executing Brokers with respect to net capital requirements than other transaction-based fees charged to executing brokers. CAT fees will be billed on a monthly basis, and Section 11.4 of the CAT NMS Plan states that ‘‘Participants shall require each Industry Member to pay all applicable fees authorized under this Article XI within thirty (30) days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated).’’ With respect to net capital requirements, CAT Executing Brokers may determine whether to establish arrangements with their brokerage clients to account for costs incurred by the CAT Executing Broker on the client’s behalf, including setting the terms under which they must be repaid by their broker-dealer clients such that receivables need not extend beyond 30 days. E:\FR\FM\21MRN2.SGM 21MRN2 17104 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES2 d. Cost Allocation i. One-Third/One-Third/One-Third Allocation of Prospective CAT Costs Between CEBS, CEBB and Participant When calculating the CAT Fees related to Prospective CAT Costs under the Funding Proposal, CAT LLC proposes to allocate one-third of Prospective CAT Costs to Participants, one-third of Prospective CAT Costs to CEBSs and one-third of Prospective CAT Costs to CEBBs. CAT LLC believes that this proposed allocation satisfies the requirements of the Exchange Act and Rule 608 of Regulation NMS under the Exchange Act. The proposed 1⁄3, 1⁄3, 1⁄3 allocation of Prospective CAT Costs recognizes the three primary roles in each transaction: the buyer, the seller and the market regulator, and assigns an equal one-third share of the fee per transaction to each of these three roles. The Exchange Act itself recognizes the importance of these three roles in a transaction by imposing registration and other regulatory obligations on the broker-dealers and regulator involved in a transaction. This allocation is similar to the approach taken with the FINRA TAF, ORF and section 31 sales value fees, and also recognizes the role of the market regulator and the buyer in the transaction as well as the seller. Furthermore, the allocation of twothirds of the CAT costs to Industry Members and only one-third to Participants recognizes that a substantial portion of CAT costs originates from Industry Members. CAT costs are dominated by technology costs, and the predominant technology costs are data processing (e.g., linker) and storage costs. The data processing and storage costs are related to message traffic and the complexity of the reporting requirements for CAT, which, in turn, are determined by market activity. Industry Members are responsible for originating trading activity that necessitates message traffic to the CAT, and the complexity of Industry Members’ chosen business models contributes substantially to the costs of the CAT. One of the factors driving CAT costs is the complexity of the Industry Members’ CAT reporting requirements, which are driven by the inherent complexity of Industry Members’ chosen business models. For example, in light of the complexity of market activity, the CAT’s reporting scenarios document for Industry Members is over 800 pages in length, addressing almost 200 scenarios, including, for example, scenarios related to representative orders, internal routing, order VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 modification, order cancellation, ATS scenarios, OTC scenarios, foreign scenarios, child orders, proprietary orders, fractional shares, stop and conditional orders, RFQs, floor activity and more.72 The processing and storage of such a large number of complex reporting scenarios requires very complex algorithms, which, in turn, lead to significant data processing and storage costs. In contrast, the Participants do not originate market activity or orders or otherwise bring this level of complexity to the markets. As a result, the technical specifications for the Participants are far less complex than for Industry Members. For example, the technical specifications for Participants have 13 reporting events for stock exchanges compared to 36 equity reporting events in the technical specifications for Industry Members, and the technical specifications for Participants have 14 reporting events for options exchanges compared to 43 reporting options events in the technical specifications for Industry Members.73 Since the complexity of Industry Members’ chosen business models contribute substantially to the costs of the CAT, it is reasonable and equitable to require that Industry Members pay a substantial portion of those costs. Participant activity does not impact CAT costs in the same way that Industry Member activity impacts CAT costs. The analysis regarding the complexity of Industry Member activity is based on the effects of the business models on the costs of the CAT, not on the complexity of the market generally. The complexity of Industry Member activity adds significantly to the cost of the CAT in a way that Participant activity does not. Moreover, allocating a greater percentage of the CAT costs to Participants would raise fairness issues in light of the greater financial resources of Industry Members. There are only 25 Participants and approximately 1,100 Industry Members.74 Moreover, based 72 CAT Industry Member Reporting Scenarios, Version 4.10 (Oct. 21, 2022), https:// www.catnmsplan.com/sites/default/files/2022-10/ 10.21.22_Industry_Member_Tech_Specs_Reporting_ Scenarios_v4.10_CLEAN.pdf. 73 Compare CAT Reporting Technical Specifications for Plan Participants, Version 4.1.0r17 (Feb. 21, 2023), https://www.catnmsplan.com/ sites/default/files/2023-02/02.21.2023-CATReporting-Technical-Specifications-forParticipants-4.1.0-r17.pdf, with CAT Reporting Technical Specifications for Industry Members, Version 4.0.0 r18 (Dec. 16, 2022), https:// www.catnmsplan.com/sites/default/files/2022-12/ 12.16.2022_CAT_Reporting_Technical_ Specifications_for_Industry_Members_v4.0.0r18_ CLEAN.pdf. 74 An average of 1,124 unique CAT Reporters sent transaction data to the CAT from July 1, 2022 to August 8, 2022. PO 00000 Frm 00020 Fmt 4701 Sfmt 4703 upon an analysis of available CAT Reporter revenue, Participants only represented approximately 4% of the total CAT Reporter revenue while Industry Members represented 96% of the total CAT Reporter revenue.75 In addition, various individual Industry Members have revenue in excess of some or all of the Participants. Accordingly, CAT LLC determined that allocating a higher percentage of the total CAT costs to the Participants was not a fair and equitable approach. Finally, CAT LLC analyzed a variety of alternative allocations of CAT costs and continues to support the proposed one-third, one-third, one-third allocation as consistent with the requirements of the Exchange Act and the CAT NMS Plan. Alternative allocations considered by CAT LLC are discussed in detail below in Section A.10 of this filing. ii. 1⁄3, 1⁄3 Allocation for Historical CAT Assessment Under the Funding Proposal, the CEBS and the CEBB would each pay one-third of the fee obligation for each transaction related to Historical CAT Costs. Because the Participants have already paid for Past CAT Costs via loans to CAT LLC, the Participants would not be required to pay any Historical CAT Assessment. As stated in Proposed Section 11.3(b)(ii) of the CAT NMS Plan, ‘‘[i]n lieu of a Historical CAT Assessment, the Participants’ one-third share of Historical CAT Costs and such other additional Past CAT Costs as reasonably determined by the Operating Committee will be paid by the cancellation of loans made to the Company on a pro rata basis based on the outstanding loan amounts due under the loans.’’ Furthermore, Proposed Section 11.3(b)(ii) of the CAT NMS Plan would emphasize that ‘‘[t]he Historical CAT Assessment is designed to recover two-thirds of the Historical CAT Costs.’’ Like with the allocation of Prospective CAT Costs discussed above, CAT LLC believes that the proposed allocation of the Historical CAT Costs is consistent with the requirements of the Exchange Act and the CAT NMS Plan, 75 See Securities Exchange Act Rel. No. 91555 (Apr. 14, 2021), 86 FR 21050, 20155 (Apr. 21, 2021) (‘‘2021 Fee Proposal Release’’). Industry Member revenue was calculated based on the total revenue reported in the Industry Member’s FOCUS reports. Participant revenue was calculated based on revenue information provided in Form 1 amendments and/or publicly reported figures. Participants are not required to file uniform FOCUS-type reports regarding revenue like Industry Members. Accordingly, the revenue calculation for Participants is not as straightforward as for Industry Members. E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES2 iii. Internal Cost of Compliance by Industry Members CAT LLC does not propose to take into consideration the internal costs incurred by Industry Members in complying with CAT requirements in determining how to allocate costs between Industry Members and Participants. There is no precedent for regulatory fees to be determined based on the cost of compliance of the regulated entity. Regulatory fees are intended to cover the regulatory costs of the entity providing the regulation. In the case of the CAT, the Funding Proposal is intended to charge fees to pay for the direct costs of the CAT, not for ancillary compliance costs of Industry Members.76 Moreover, as a practical matter, accurately determining an Industry Member’s compliance costs, without recordkeeping requirements and appropriate standards to determine expenses accurately, would be infeasible. Likewise, the substantial internal compliance costs of the Participants are not taken into consideration in the Funding Proposal. Each Participant incurs its own internal costs to comply with the requirements of the CAT NMS Plan, including, among other things, updating its systems for CAT reporting. Additionally, Participants have expended countless internal hours on the creation, implementation and operation of the CAT. These costs are not included in the cost allocation under the Funding Proposal. iv. Alternative Approach Based on Individualized CAT Reporter Cost to CAT CAT LLC has determined not to propose a funding approach for the CAT in which a CAT Reporter’s fees would be based on each CAT Reporter’s exact cost burden on the CAT. In 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. Moreover, 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. CAT LLC emphasizes that the Exchange Act requires CAT fees to be fair, reasonable and equitably allocated, and CAT LLC believes that the use of executed 76 See CAT NMS Plan Approval Order at 84795, n.1749 (‘‘The Participants stated that the funding model provides a framework for the recovery of the costs to create, develop and maintain the CAT, and is not meant to address the cost of compliance for Industry Members and Participants with the reporting requirements of Rule 613.’’). VerDate Sep<11>2014 21:26 Mar 20, 2023 Jkt 259001 equivalent share volume satisfies these requirements. The Exchange Act does not require each CAT Reporter’s fees to be a proxy for that CAT Reporter’s cost burden on the CAT, let alone an exact proxy. A. Difficulty in Determining Individual CAT Reporter Costs Due to Inter-Related Cost Drivers CAT LLC has analyzed the cost drivers for the CAT, and has concluded that determining the precise cost burden imposed by each individual CAT Reporter on the CAT is not feasible. The computation of a specific CAT Reporter’s burden on the CAT is complicated by the many inter-related factors that contribute to CAT costs, including message traffic, data processing, storage, the complexity of reporting requirements, reporting timelines, infrastructure, connectivity and more. The use of executed equivalent share volume as the metric for the funding model is an improvement over the message traffic model. CAT LLC analyzed the cost drivers of CAT and determined that, although message traffic is one factor in CAT costs, it is not the primary factor. CAT costs are dominated by technology costs, and the predominant technology costs are data processing (e.g., linker) and storage costs. Compute costs represent more than half of all technology costs. While such costs are related in part to message traffic, they are driven by the stringent performance timelines, data complexity and operational requirements in the CAT NMS Plan. The Plan requires that order events be processed, corrected, and made available to regulatory users within established timeframes, including a four-hour window for initial linkage processing. For this reason, among other issues with the message traffic model and other considerations discussed herein, CAT LLC determined to shift its focus to the new metric of executed equivalent share volume from the message traffic and market share metrics set forth in the CAT NMS Plan as approved. B. Trading Activity as Reasonable Proxy for Cost Burden CAT LLC determined 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. CAT LLC analyzed reasonable metrics for determining CAT fees, and determined that, although executed equivalent share volume is not an exact proxy for the cost burden (nor need it be), trading activity provides a reasonable proxy for cost PO 00000 Frm 00021 Fmt 4701 Sfmt 4703 17105 burden on the CAT. Increased trading activity impacts message traffic, data processing, storage and other factors, and thus necessarily correlates with increased cost burden on the CAT. Moreover, Industry Member activity in the market generally is engaged in for the purpose of effecting transactions, and, as a result, it is common for Participants to use transaction-based fees. Therefore, executed share volume is an appropriate metric for allocating CAT costs among CAT Reporters. This conclusion is consistent with the SEC’s prior recognition of the use of transaction volume in setting regulatory fees. For example, in approving FINRA’s TAF, the SEC recognized that transaction volume was closely enough connected to FINRA’s broad regulatory responsibilities to satisfy the statutory standard in the Exchange Act.77 FINRA proposed a transaction-based TAF to fund its member regulatory activities in a variety of areas such as ‘‘sales practices, routine examinations, financial and operational reviews, new member applications, enforcement * * * . . . wherever such member activity occurs.’’ 78 The SEC noted that ‘‘[a]ssessing fees in relation to transactions correlates to heightened NASD responsibilities regarding firms that engage in the trading,’’ but the fees were not an exact proxy for the costs of such regulatory responsibilities.79 The SEC noted this lack of a precise correlation: In most cases, the NASD has direct responsibility to oversee the firm’s dealing with the public in effecting the transactions; the NASD may also have responsibility to oversee the impact of the trading on the firm’s financial condition. In most cases, where responsibility for certain member activities has been allocated to other SROs, the NASD retains responsibility for other member functions.80 Nevertheless, the SEC concluded that ‘‘while trading activity is not wholly correlated to the full range of NASD responsibility for members in all instances, the Commission believes that they are closely enough connected to satisfy the statutory standard.’’ 81 CAT LLC believes that this same logic is applicable to the Funding Proposal. v. Alternative Approach: 50–50 Allocation Between Industry Members and Participant Exchanges CAT LLC has considered and rejected allocating 50% of CAT costs to the 77 TAF Release at 34023. 78 Id. 79 Id. 80 Id. 81 Id. E:\FR\FM\21MRN2.SGM at 34024. 21MRN2 17106 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices Participants and 50% to Industry Members under the Funding Proposal. Although a 50–50 allocation between Industry Members and Participants would provide a mathematically equal split between two groups, it would not provide an equitable allocation between and among Industry Members and Participants. Such an allocation raises fairness issues as 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. e. Fee Pass-Throughs i. General CAT LLC acknowledges that CAT Executing Brokers may choose to pass the CAT fees through to their clients, who, in turn, may pass their CAT fees through to their clients, until the fees are imposed on the account that executed the transaction. Although the Funding Proposal does not require such fee pass-throughs, CAT LLC continues to support the concept of the potential pass-through of fees for various reasons. First, the SEC specifically contemplated and accepted the concept of cost pass-throughs from Participants to their members when it adopted Rule 613: ddrumheller on DSK120RN23PROD with NOTICES2 There also would be costs associated with establishing and operating the central repository that will be jointly owned by the plan sponsors. The Commission believes it is important to understand how the plan sponsors plan to allocate such costs among themselves to help inform the Commission’s decision regarding the possible economic or competitive impact of the NMS plan amongst the SROs. In addition, although the plan sponsors likely would initially incur the costs to establish and fund the central repository directly, they may seek to recover some or all of these costs from their members. If the plan sponsors seek to recover costs from their members, the Commission believes that it is important to understand the plan sponsors’ plans to allocate costs between themselves and their members, to help inform the Commission’s decision regarding the possible economic or competitive impact of the NMS plan.82 Second, CAT LLC does not take a position on whether Industry Members, in turn, should pass CAT fees on to their clients. However, in adopting the CAT NMS Plan, the Commission specifically contemplated and accepted that ‘‘broker-dealers may seek to pass on to investors their costs to build and maintain the CAT, which may include their own costs and any costs passed on 82 See generally Securities Exchange Act Rel. No. 67457 (Jul. 18, 2012), 77 FR 45722, 45795 (Aug. 1, 2012) (‘‘Rule 613 Adopting Release’’) (emphasis added). VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 to them by Participants,’’ noting that the ‘‘extent to which these costs are passed on to investors depends on the materiality of the costs and the ease with which investors can substitute away from any given broker-dealer.’’ 83 Third, CAT LLC notes that the use of pass-through fees is a commonly accepted practice that has been approved by the SEC in the securities markets in some cases. For example, the practice of passing through fees to broker-dealers and their customers is used in the context of section 31 fees. Section 31 of the Exchange Act places obligations only on national securities exchanges, national securities associations, and the Commission. National securities exchanges and national securities associations must pay certain fees and assessments to the Commission. The Commission is required by section 31 of the Exchange Act to collect such fees and assessments. Section 31 of the Exchange Act, however, does not address the manner or extent to which covered SROs may seek to recover the costs of their section 31 obligations from their members. Nor does section 31 of the Exchange Act address the manner or extent to which members of covered SROs may seek to pass any such charges on to their customers. However, as the SEC noted, ‘‘[i]n practice, the covered SROs obtain the funds for these fees and assessments by assessing charges on their members, and the members in turn pass these charges to their customers.’’ 84 Likewise, in adopting the CAT NMS Plan, the Commission explained that under section 31, ‘‘Participants are required to pay transaction fees and assessments to the Commission,’’ that ‘‘Participants, in turn, may collect their section 31 fees and assessments from their brokerdealer members,’’ and, that ‘‘brokerdealers may pass on regulatory charges that support Participant supervision, such as with respect to section 31 fees.’’ 85 Indeed, the language of certain exchange rules regarding section 31 specifically describe the pass-through process related to section 31 fees.86 For 83 CAT NMS Plan Approval Order at 84992. Exchange Act Rel. No. 49928 (June 28, 2004), 69 FR 41060, 41072 (July 7, 2004). See also SEC, Section 31 Transaction Fees, Fast Answers, https://www.sec.gov/fast-answers/ answerssec31htm.html (noting that the ‘‘[t]he SROs have adopted rules that require their broker-dealer members to pay a share of these fees. Brokerdealers, in turn, impose fees on their customers that provide the funds to pay the fees owed to their SROs.)’’ 85 CAT NMS Plan Approval Order at 84992. 86 See, e.g., NYSE American Rule 393.01; and NYSE Rule 440H.03. 84 Securities PO 00000 Frm 00022 Fmt 4701 Sfmt 4703 example, NYSE Arca Rule 2.18.01 states the following: Pursuant to Rule 2.18, the Exchange makes an assessment on ETP Holders that the Exchange uses to pay fees owing to the SEC in accordance with section 31 of the Exchange Act (‘‘the Rule 2.18 assessment’’). The section 31 fees payable by the Exchange to the SEC is determined based on the aggregate dollar amount of ‘‘covered sales,’’ as defined by SEC Rule 31, effected on the Exchange by or through any ETP Holder. ETP Holders, in some cases, have passed along the Rule 2.18 assessment on a trade-by-trade basis to their customers or correspondent firms.’’ The pass-through concept also is applied in the context of other SRO regulatory fees applicable to the SROs’ members. For example, ‘‘it is regular practice among some clearing and trading firms to ‘pass through’ the TAF to the underlying firm executing the trade. Further, FINRA understands that the executing firms commonly pass the TAF directly on to their customers. Typically, TAF fees are reflected on the confirmation statement received by customers.’’ 87 Similarly, the passthrough process is used for ORFs as well. ORFs are collected indirectly from members through their clearing firms by OCC on behalf of the respective options exchange. As noted in rule filings related to ORFs, ‘‘[t]he Exchange expects that [members] will pass through the ORF to their customers in the same manner that firms passthrough to their customers the fees charged by Self-Regulatory Organizations (‘SROs’) to help the SROs meet their obligations under section 31 of the Exchange Act.’’ 88 Fourth, commenters on prior CAT funding proposals have commented in favor of a model similar to the section 31 fees in which the fee could be passed through to Industry Members and ultimate customers.89 For example, one commenter noted the benefits of a 87 Securities Exchange Act Rel. No. 90176 (Oct. 14, 2020), 85 FR 66592, 66603 (Oct. 20, 2020). 88 Securities Exchange Act Rel. No. 67596 (Aug. 6, 2012), 77 FR 47902, 47903 (Aug. 10, 2012). See also Securities Exchange Act Rel. No. 61133 (Dec. 9, 2009), 74 FR 66715, 66716 (Dec. 16, 2009) (noting that ‘‘[t]he Exchange expects that member firms will pass-through the ORF to their customers in the same manner that firms pass-through to their customers the fees charged by SROs to help the SROs meet their obligation under Section 31 of the Exchange Act’’); Securities Exchange Act Rel. No. 83878 (Aug. 17, 2018), 83 FR 42715, 42717 (Aug. 23, 2018) (noting that ‘‘by collecting the ORF in this manner Members and non-Members could more easily pass-through the ORF to their customers’’). 89 See, e.g., Letter from Michael Blaugrund, Chief Operating Officer, NYSE, to Vanessa Countryman, Secretary, SEC (May 10, 2021) at 3; Letter from Andrew Stevens, General Counsel, IMC Chicago, LLC, to Vanessa Countryman, Secretary, SEC (May 20, 2021) at 3. E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices model similar to the section 31 fees, arguing that ‘‘[i]t would also provide transparency into the fees which seek to recoup costs and a vehicle to pass-thru fees to the ultimate beneficiary of each trade.’’ 90 Another commenter similarly advocated for a section 31-type model, noting that ‘‘SROs already have a wellestablished model for recouping their section 31 fees by passing them through to their members.’’ 91 Finally, the proposed pass-through process for CAT fees, like the passthrough process for other regulatory fees, recognizes the reality that regulatory costs incurred to maintain and enhance the quality of the markets will necessarily increase costs for all market participants, including the ultimate investor. Even if such passthroughs were limited or prohibited, CAT costs would be distributed in other ways. A member of the Advisory Committee for the CAT and the former Chief Economist of the Commission, emphasized that ‘‘[b]ecause the markets for exchange, dealing, and brokerage services are all highly competitive in the long run, any fees imposed on any of these groups will ultimately pass through to the retail and institutional traders who use the markets.’’ 92 This commenter reasoned that: In highly competitive markets, prices reflect the costs of doing business in the long run. If those costs rise, they ultimately pass through to the customers. For example, if the Participants (primarily exchanges) were required to fund CAT NMS fully, they will raise their fees (or fail to lower them when costs are falling) to recover their funding costs. And if brokers’ business models require that they pay exchange fees on behalf of their clients, the brokers will raise their commission rates to the customers. And if their business models require zero commissions, brokers will provide fewer services or charge more for non-transaction services to cover their increased costs.93 ddrumheller on DSK120RN23PROD with NOTICES2 ii. Effect of Allocation on Fee PassThroughs CAT LLC determined not to allocate all CAT costs to Participants under the Funding Proposal. Under the Funding Proposal, CEBBs would be allocated one-third of the CAT costs, CEBSs would be allocated one-third of the CAT costs and Participants would be 90 Letter from James Toes, President and CEO, and Andre D’Amore, Chairman of the Board, Securities Trader Association, to Vanessa Countryman, Secretary, SEC (June 10, 2021) at 4. 91 Letter from Joanna Mallers, Secretary, FIA Principal Traders Group, to Vanessa Countryman, Secretary, SEC (May 12, 2021) at 4. 92 Letter from Larry Harris, Fred V. Keenan Chair in Finance, USC Marshal School of Business, to Vanessa Countryman, Secretary, SEC (June 21, 2022) (‘‘Harris Letter’’) at 2. 93 Id. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 allocated one-third of the CAT costs. Under the Funding Proposal, Industry Members may determine to pass their CAT fees on to their clients at their discretion. Participants also may determine to pass their CAT fees on to their members, or to pay the CAT fees charged to the Participant through other means. If Participants were to determine to pass CAT fees on to their members, they may choose to adopt a CATspecific fee that directly passes the CAT fee through to their members, in whole or in part, or they may choose to increase other fees charged to members (e.g., transaction fees). Participants would need to file any such fee proposals with the SEC in accordance with section 19(b) of the Exchange Act. If all CAT costs were allocated to Participants, however, Participants would have the same options for covering the costs of the CAT fees. They may choose to adopt a CAT-specific fee that directly passes through the CAT fee through to their members, in whole or in part, or they may choose to increase other fees charged to members (e.g., transaction fees). Participants would need to file any such fee proposals with the SEC in accordance with section 19(b) of the Exchange Act. For any fee charged to Industry Members, Industry Members may determine to pass their CAT fees on to their clients at their discretion, as with the CAT fees under the Funding Proposal. f. FINRA Fee Under the Funding Proposal, for each transaction in Eligible Securities based on CAT Data, the CEBS, the CEBB and the applicable Participant for the transaction each would pay a CAT Fee calculated by multiplying the number of executed equivalent shares in the transaction and the applicable Fee Rate and dividing the product by three. The applicable Participant for the transaction would be the national securities exchange on which the transaction was executed, or FINRA for each transaction executed otherwise than on an exchange. CAT LLC believes that the proposed CAT fees for FINRA are consistent with the Exchange Act and the CAT NMS Plan. CAT LLC does not believe that the assessment of a CAT fee on FINRA in the same manner as other Participants would result in a burden on competition for FINRA or for Industry Members engaging in activity otherwise than on an exchange. The Funding Proposal is designed to be neutral as to the manner of execution and place of execution. The CAT fees would be the same regardless of whether the transaction is executed on an exchange or in the over-the-counter PO 00000 Frm 00023 Fmt 4701 Sfmt 4703 17107 market. All Participants are selfregulatory organizations that have the same regulatory obligations under the Exchange Act, regardless of whether they operate as a for-profit or not-forprofit entity. Their usage of CAT Data, either directly or indirectly through regulatory services agreements, would be for the same regulatory purposes in accordance with those obligations. By treating each Participant the same, the CAT fees would not become a competitive issue by and among the Participants. In addition, the size of FINRA’s fee is calculated based on the activity in the over-the-counter market, which is substantial. For example, the executed equivalent share volume for over-thecounter trades in Eligible Securities in 2021 was 1,361,484,729,008 out of a total volume of 3,963,697,612,395 executed equivalent shares for trades in Eligible Securities.94 Accordingly, approximately 34% of the executed equivalent share volume in Eligible Securities took place in the over-thecounter market. Moreover, FINRA and the exchanges should not be evaluated differently based upon the potential for any particular Participant to pass its CAT fees onto its members through regulatory, trading or other fees. Each Participant will need to determine for itself how it will obtain the funds to pay for its CAT fees. Because each Participant, not just FINRA, is using CAT Data to satisfy the same selfregulatory obligations, each Participant may determine to charge their members fees to fund their share of the CAT fees, and the Exchange Act specifically permits self-regulatory organizations to do so, provided the fee filing requirements of the Exchange Act are satisfied. Indeed, in approving the CAT NMS Plan, the SEC stated that ‘‘the Exchange Act specifically permits the Participants to charge members fees to fund their self-regulatory obligations.’’ 95 Furthermore, FINRA and the exchanges should not be evaluated differently based upon the potential for a particular Participant to recoup its fees through revenue-generating activity other than fees imposed on its members. FINRA, just like the exchange Participants, has revenue sources other than membership fees. For example, FINRA generates significant revenues via regulatory services agreements with 94 These figures for executed equivalent share volume for 2021 are set forth in the illustrative example in the notice of the 2022 Funding Proposal. See 2022 Funding Proposal Release at 33246. 95 CAT NMS Plan Approval Order at 84794. E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 17108 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices the exchanges, among other sources.96 These sources, too, may be used to pay CAT fees, and, if they are used, it would not lead to an increase in fees for Industry Members, but rather the exchange Participants. Any review of how the Participants obtain their funds to pay CAT fees is beyond the scope of the CAT fee filing. The issues raised regarding the possibility of passing FINRA’s allocation to Industry Members also fail to recognize the basic fact that Industry Members themselves face the same issue that they raise with regard to FINRA. Industry Members may determine to pass their CAT fees through to their customers, just as they may do with section 31-related fees and other fees. Accordingly, the two-thirds allocation of CAT costs to Industry Members may be entirely passed through to investors, thereby alleviating Industry Members of any burden of funding the CAT. As one commenter on the 2022 Funding Proposal, a former member of the Advisory Committee for the CAT and the former Chief Economist of the Commission, noted, ‘‘[b]ecause the markets for exchange, dealing, and brokerage services are all highly competitive in the long run, any fees imposed on any of these groups will ultimately pass through to the retail and institutional traders who use the markets.’’ 97 Finally, CAT LLC does not believe that FINRA should not be treated as a market center for CAT funding purposes merely because FINRA is not treated as a market center for governance purposes under the National Market System Plan Regarding Consolidated Equity Market Data (‘‘CT Plan’’). Although the CT Plan and the CAT Plan are both national market system plans, their purpose and implementation are different. The CAT NMS Plan, as approved by the Commission, explicitly contemplates charging fees to all Participants, including FINRA. For example, Section 11.1(b) of the CAT NMS Plan states that ‘‘[s]ubject to Section 11.2, the Operating Committee shall have discretion to establish funding for the Company, including: (i) establishing fees that the Participants shall pay.’’ 98 In addition, the purpose of the CAT is solely for regulatory purposes; it provides a regulatory system to facilitate the performance of the self-regulatory obligations of all the Participants, including the exchanges and FINRA. In contrast, the CT Plan governs the public dissemination of real-time consolidated equity market data for NMS stocks. g. Impact on Options Versus Equities CAT LLC believes that the Funding Proposal provides for a fair, reasonable and equitable treatment of the equities and options markets. CAT LLC does not believe that the Funding Proposal would burden inappropriately efficiency, competition or capital formation in how it treats equities and options. As a preliminary matter, unlike other previously proposed fee models,99 the Funding Proposal does not allocate costs between the equities and options markets; instead, the fee attributable to a transaction in an equity or option security depends on equivalent executed share volume. In addition, the use of equivalent executed share volume is designed to normalize options and equities in the calculation of fees, and to recognize and address the different trading characteristics of different types of securities. Recognizing that Listed Options trade in contracts rather than shares, the Funding Proposal would count executed equivalent share volume differently for Listed Options. Specifically, each executed contract for a transaction in Listed Options would be counted based on the multiplier applicable to the specific Listed Option contract in the relevant transaction (e.g., 100 executed equivalent shares or such other applicable equivalency). h. Sell-Side and Buy-Side CAT LLC proposes to charge both the buy-side and sell-side of a transaction in Eligible Securities a CAT fee. The proposal to charge both the buy-side and the sell-side of a transaction is consistent with other types of fees charged to both the buyer and the seller that are common in the industry. As such, CAT LLC believes that the proposal would comply with the requirements of the Exchange Act. For example, the ORF, a fee common to the options exchanges, is one example of a regulatory fee charged to both the buyside and sell-side of the transaction. For example, the MIAX fee schedule lists the options regulatory fee as applying ‘‘per executed contract side.’’ 100 Similarly, under its pricing schedule, Nasdaq PHLX charges an options regulatory fee ‘‘per contract side.’’ 101 As set forth in its fee schedule, CBOE EDGX also charges an options regulatory fee to each side of the contract.102 In 99 See, e.g., 2018 Fee Proposal Release at 1400. Options Exchange, Fee Schedule, as of Mar. 3, 2023. 101 Nasdaq PHLX Rules, Options 7, Section 6(D). 102 Cboe EDGX Fee Schedule, effective Mar. 1, 2023. 100 MIAX 96 See 2021 FINRA Annual Financial Report at 43. Letter at 2. 98 See also Sections 11.2 and 11.3 of the CAT NMS Plan. 97 Harris VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4703 addition, the industry is familiar with transaction-based fees charged to both the buyer and the seller by the exchanges and FINRA.103 i. Fee Rate Changes Twice per Year for CAT Fees Related to Prospective CAT Costs CAT LLC proposes to require the calculation of the Fee Rate for CAT Fees related to Prospective CAT Costs twice a year. CAT LLC believes that the proposal to adjust the Fee Rate twice a year, once at the beginning of the year and once during the year, appropriately balances the need to coordinate the Fee Rate with potential changes in the costs and projections with the cost and effort to the industry related to more frequent fee changes. CAT LLC believes its proposal is in keeping with views expressed by the industry in other contexts regarding the appropriate frequency of regulatory rate changes. For example, in the ORF context, the industry requested that rate changes be limited to twice per year. SIFMA stated in a comment letter on one of the ORF fee proposals that ‘‘[r]ates should only be changed two times per year to reduce operational complexity and reduce risk.’’ 104 The exchanges with ORF fees noted that the possibility for fee rate changes only twice per year would also ‘‘better enable [their members] to properly account for ORF charges among their customers.’’ 105 In light of these views on the frequency of the rate changes, exchanges with an ORF have limited the fee rate changes to twice a year.106 j. Plan Amendment Process for Fee Rate Changes Under the Funding Proposal, once any Fee Rate has been established by a majority vote of the Operating Committee in accordance with the Funding Proposal set forth in the CAT NMS Plan,107 each Participant would be required to pay the applicable CAT Fee 103 See, e.g., NYSE Price List 2023 for fees charged to both sides. 104 See, e.g., Letter from Ellen Greene, Managing Director, SIFMA to Vanessa Countryman, Secretary, SEC, re: SIFMA Comment Letter on the Options Regulatory Fee Filings by SR–EMERALD–2019–01 (Apr. 10, 2019) at 5, https://www.sifma.org/wpcontent/uploads/2019/04/MIAX-Emerald-ORF.pdf. 105 See, e.g., Securities Exchange Act Rel. 93667 (Oct. 15, 2021). 106 See, e.g., Cboe BZX Fee Schedule (‘‘The Exchange may only increase or decrease the ORF semi-annually’’); MIAX Fee Schedule (The Exchange may only increase or decrease the ORF semi-annually); and BOX Fee Schedule (‘‘The Exchange may only increase or decrease the ORF semi-annually’’). 107 Participants would be required to pay the CAT Fee once the CAT Fee is in effect with regard to Industry Members in accordance with Section 19(b) of the Exchange Act. E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices calculated in accordance with the requirements set forth in the CAT NMS Plan (subject to the requirement for the Industry Member CAT Fee to be in effect). CAT LLC does not plan to submit an amendment to the CAT NMS Plan each time that the Fee Rate for the CAT Fee is established or adjusted because of the length of time and burden required to amend the CAT NMS Plan for each adjustment to the Fee Rate. Moreover, CAT LLC believes that it is unnecessary to file a new separate amendment for the Participant CAT Fees each time a new Fee Rate is approved because the CAT NMS Plan would set forth in detail the manner in which the CAT fees are established and the inputs for calculating the specific CAT Fees would be published on the CAT website and included in the Participant fee filings under section 19(b) of the Exchange Act for Industry Member CAT fees. Therefore, the amendments to the Plan for a fee rate change would be redundant and impractical in terms of timing. CAT LLC proposes to amend the CAT NMS Plan to describe in detail how CAT Fees would be calculated, including the formula for the calculation and the methods for determining the inputs for the calculation (i.e., the budget, projected executed equivalent share volume, executed equivalent shares per transaction). As such, the Participants would be required to calculate the Fee Rate and the related CAT Fees using the proposed formula; this process would be mandatory, including the mid-year Fee Rate change. Moreover, the budgetary and projection inputs to the calculation would be public, including in public fee filings pursuant to section 19(b) of the Exchange. Accordingly, CAT LLC does not believe that a Plan amendment would be necessary each time a new Fee Rate is calculated in accordance with the Plan. The CAT NMS Plan would require each Participant to pay the proposed CAT Fees determined in accordance with the Funding Proposal. Proposed Section 11.3(a)(ii)(A) sets forth the requirement for Participants to pay the CAT fees. It states that ‘‘[e]ach Participant that is a national securities exchange will be required to pay the CAT Fee for each transaction in Eligible Securities executed on the exchange in the prior month based on CAT Data,’’ and that ‘‘[e]ach Participant that is a national securities association will be required to pay the CAT Fee for each transaction in Eligible Securities executed otherwise than on an exchange in the prior month based on CAT Data.’’ It further states that ‘‘[t]he CAT Fee for VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 each transaction in Eligible Securities will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3.’’ In addition, proposed paragraph (a) of the Participant fee schedule would state that ‘‘[e]ach Participant shall pay the CAT Fee set forth in Section 11.3(a) of the CAT NMS Plan to Consolidated Audit Trail, LLC in the manner prescribed by Consolidated Audit Trail, LLC on a monthly basis based on the Participant’s transactions in the prior month.’’ The Participants would be required to follow the requirements set forth in the CAT NMS Plan for establishing and calculating CAT Fees and requiring the payment of the CAT Fees as both a regulatory and contractual matter. Rule 613(h)(1) of Regulation NMS under the Exchange Act states that ‘‘[e]ach national securities exchange and national securities association shall comply with the provisions of the national market system plan approved by the Commission,’’ that is, the CAT NMS Plan. Rule 613(h)(2) of Regulation NMS under the Exchange Act states that ‘‘[a]ny failure by a national securities exchange or national securities association to comply with the provisions of the national market system plan approved by the Commission shall be considered a violation of this section.’’ Similarly, Rule 608(c) of Regulation NMS under the Exchange Act states that ‘‘[e]ach self-regulatory organization shall comply with the terms of any effective national market system plan of which it is a sponsor or a participant.’’ Section 3.11 of the CAT NMS Plan reiterates this requirement, stating that ‘‘[e]ach Participant shall comply with . . . the provisions of SEC Rule 613 and of this Agreement, as applicable, to the Participant.’’ In addition, each Participant is a signatory to the CAT NMS Plan as a member of the limited liability company. Accordingly, a failure to comply with the requirements of the CAT NMS Plan related to the CAT fees would be a violation of the regulatory obligation to comply with the CAT NMS Plan and a breach of contractual requirements of the CAT NMS Plan. k. Executed Equivalent Shares for NMS Stocks, Listed Options and OTC Equity Securities The Funding Proposal uses the concept of executed equivalent shares as the metric for calculating CAT fees for transactions in NMS Stocks, Listed Options and OTC Equity Securities, each of which have different trading PO 00000 Frm 00025 Fmt 4701 Sfmt 4703 17109 characteristics. Under the Funding Proposal, each executed share for a transaction in NMS Stocks would be counted as one executed equivalent share, each executed contract for a transaction in Listed Options would be counted using the contract multiplier applicable to the specific Listed Option in the relevant transaction, and each executed share for a transaction in OTC Equity Securities would be counted as 0.01 executed equivalent shares. CAT LLC believes that the proposed counting methods for each category of security are appropriate, as discussed in detail above in Section A.3.b.ii of this filing. l. Cost Transparency i. Cost Transparency and Level of Detail of CAT Costs CAT LLC provides substantial cost transparency for Past CAT Costs and Prospective CAT Costs, including transparency above and beyond what is required under the CAT NMS Plan, and more than other national market system plans. Such transparency would include cost descriptions in the fee filings made pursuant to section 19(b) of the Exchange Act and Rule 19b-4(f)(2) thereunder, as well as the public availability of CAT financial and budget information. CAT LLC proposes to require substantial transparency for CAT costs in the fee filings to be made pursuant to section 19(b) of the Exchange Act. For example, Proposed Section 11.3(a)(iii)(B) of the CAT NMS Plan would require such filings for CAT Fees to include, among other things, the budget for the upcoming year (or remainder of the year, as applicable), including a brief description of each line item in the budget, including (1) technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration, and (6) public relations costs, a reserve and/or such other categories as reasonably determined by the Operating Committee to be included in the budget and the reason for changes in each such line item from the prior CAT Fee filing; and a discussion of how the budget is reconciled to the collected fees. Similarly, Proposed Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan would require such filings for Historical CAT Assessments to include, among other things, a brief description of the amount and type of Historical CAT Costs, including (1) technology line items of cloud hosting services, operating fees, CAIS operating fees, E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 17110 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices change request fees and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration, and (6) public relations costs. CAT LLC provides substantial additional financial information regarding the operation of the CAT as required by the CAT NMS Plan. For example, CAT LLC currently makes detailed financial information about the CAT publicly available. Section 9.2(a) of the CAT NMS Plan requires CAT LLC to maintain a system of accounting established and administered in accordance with GAAP and requires ‘‘all financial statements or information that may be supplied to the Participants shall be prepared in accordance with GAAP (except that unaudited statements shall be subject to year-end adjustments and need not include footnotes).’’ Section 9.2(a) of the CAT NMS Plan also requires the Company to prepare and provide to each Participant ‘‘as soon as practicable after the end of each Fiscal Year, a balance sheet, income statement, statement of cash flows and statement of changes in equity for, or as of the end of, such year, audited by an independent public accounting firm.’’ The CAT NMS Plan requires that this audited balance sheet, income statement, statement of cash flows and statement of changes in equity be made publicly available. Among other things, these financial statements provide operating expenses, including technology, legal, consulting, insurance, professional and administration and public relations costs. CAT LLC also maintains a dedicated web page on the CAT NMS Plan website that consolidates its annual financial statements in a public and readily accessible place.108 The Company’s annual financial statements from inception in 2017 through 2021 are currently available on the CAT website. In addition to providing financial information required under the CAT NMS Plan and otherwise, CAT LLC also has voluntarily determined to provide more financial transparency to the public regarding its costs. For example, CAT LLC publicly provides its annual operating budget as well as periodically provides updates to the budget that occur during the year. CAT LLC includes such budget information on a dedicated web page on the CAT NMS Plan website to make it readily accessible to the public, like the CAT financial statements. CAT LLC also has held webinars providing additional 108 See CAT Audited Financial Statements, https://www.catnmsplan.com/audited-financial statements. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 detail about CAT costs and about potential alternative funding models for the CAT, and commenters submitted questions and comments on the webinars.109 ii. Composition and Transparency of Past CAT Costs CAT LLC also provides detailed disclosures regarding Past CAT Costs. The Historical Fee Rate for the Historical CAT Assessment would be calculated based on actual past costs incurred by the CAT (except for certain costs that CAT LLC has determined to exclude from the calculation), rather than budgeted costs. The actual costs for prior to 2022 are set forth in detail in the audited financial statements for the Company and its predecessor CAT NMS, LLC, which are available on the CAT website.110 In addition, the following describes in detail the Historical CAT Costs for prior to 2022. These Historical CAT Costs figures are being provided in this filing for transparency purposes only. The Participants expect to describe these costs in the relevant fee filings that the Participants submit pursuant to section 19(b) under the Exchange Act and Rule 19b–4(f)(2) thereunder regarding Historical CAT Assessments. A. Historical CAT Costs Incurred Prior to June 22, 2020 (i.e., Pre-FAM Costs) The Participants expect to propose that Historical CAT Costs would include costs incurred by CAT prior to June 22, 2020 and already funded by the Participants, excluding Excluded Costs (described further below). The Participants expect to propose that the Historical CAT Costs would include costs for the period prior to June 22, 2020 of $143,919,521. The Participants expect to propose that Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remaining twothirds, with CEBBs paying one-third ($47,973,174) and CEBSs paying onethird ($47,973,174). The following table breaks down the Historical CAT Costs for the period prior to June 22, 2020 into the categories set forth in Proposed 109 See, e.g., CAT LLC Webinar, CAT Costs (Sept. 21, 2021), https://www.catnmsplan.com/events/ catcostsseptember-21-2021; CAT LLC Webinar, CAT Funding (Sept. 22, 2021), https:// www.catnmsplan.com/events/catfundingseptember22-2021; and CAT LLC Webinar, CAT Funding (Apr. 6, 2022), https://www.catnmsplan.com/ events/cat-funding. 110 The audited financial statements for CAT NMS, LLC and Consolidated Audit Trail, LLC are available at https://www.catnmsplan.com/auditedfinancial-statements. PO 00000 Frm 00026 Fmt 4701 Sfmt 4703 Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan. Operating expense Capitalized Developed Technology Costs and Transition Fee * .. Technology Costs: Cloud Hosting Services ........................ Operating Fees ......... CAIS Operating Fees Change Request Fees ....................... Legal ............................. Consulting ..................... Insurance ...................... Professional and administration ...................... Public relations ............. Total Operating Expenses ................... Historical CAT costs for period prior to June 22, 2020 $71,475,941 33,568,579 10,268,840 21,085,485 2,072,908 141,346 19,674,463 17,013,414 880,419 1,082,036 224,669 143,919,521 * 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 the above table. B. CAT Costs Incurred in Period 1 The Participants expect to propose that Historical CAT Costs would 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 Participants expect to propose that the Historical CAT Costs for Period 1 are $6,377,343. The Participants expect to propose that 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 CEBBs paying onethird ($2,125,781) and CEBSs paying one-third ($2,125,781). The following table breaks down the Historical CAT Costs for Period 1 into the categories set forth in Proposed Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan. Operating expense Capitalized Developed Technology Costs * ... Technology Costs: Cloud Hosting Services ........................ Operating Fees ......... CAIS Operating Fees Change Request Fees ....................... Legal ............................. Consulting ..................... Insurance ...................... Professional and administration ...................... E:\FR\FM\21MRN2.SGM 21MRN2 Historical CAT costs for period 1 $1,684,870 3,996,800 2,642,122 1,099,680 254,998 ................................ 481,687 137,209 ................................ 69,077 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices The Participants expect to propose that the Historical CAT Costs for Period 3 are $144,415,268. The Participants expect to propose that Participants would remain Public relations ............. 7,700 responsible for one-third of this cost (which they have previously paid) Total Operating Expenses ................... 6,377,343 ($48,238,423), and Industry Members would be responsible for the remaining * The non-cash amortization of these capital- two-thirds, with CEBBs paying oneized developed technology costs of $362,121 incurred during Period 1 have been appro- third ($48,238,423) and CEBSs paying one-third ($48,238,423). The following priately excluded from the above table. table breaks down the Historical CAT C. CAT Costs Incurred in Period 2 Costs for Period 3 into the categories set forth in Proposed Section The Participants expect to propose that Historical CAT Costs would include 11.3(b)(iii)(B)(II) of the CAT NMS Plan. costs incurred by CAT and already Historical funded by Participants during FAM Operating expense CAT costs Period 2, which covers the period from for period 3 August 1, 2020–December 31, 2020. The Participants expect to propose that the Capitalized Developed Historical CAT Costs for Period 2 are Technology Costs * ... $10,763,372 $42,976,478. The Participants expect to Technology Costs: 123,639,402 Cloud Hosting Servpropose that Participants would remain ices ........................ 94,574,759 responsible for one-third of this cost Operating Fees ......... 23,106,091 (which they have previously paid) CAIS Operating Fees 5,562,383 ($14,325,493), and Industry Members Change Request would be responsible for the remaining Fees ....................... 396,169 two-thirds, with CEBBs paying oneLegal ............................. 6,333,248 third ($14,325,492.70) and CEBSs Consulting ..................... 1,408,209 paying one-third ($14,325,492.70). The Insurance ...................... 1,582,714 following table breaks down the Professional and administration ...................... 595,923 Historical CAT Costs for Period 2 into Public relations ............. 92,400 the categories set forth in Proposed Section 11.3(b)(iii)(B)(II) of the CAT Total Operating ExNMS Plan. Operating expense Operating expense Historical CAT costs for period 1 Historical CAT costs for period 2 Capitalized Developed Technology Costs * ... Technology Costs: Cloud Hosting Services ........................ Operating Fees ......... CAIS Operating Fees Change Request Fees ....................... Legal ............................. Consulting ..................... Insurance ...................... Professional and administration ...................... Public relations ............. ddrumheller on DSK120RN23PROD with NOTICES2 Total Operating Expenses ................... $6,761,094 31,460,033 20,709,212 9,108,700 1,590,298 51,823 2,766,644 532,146 976,098 438,523 41,940 42,976,478 * The non-cash amortization of these capitalized developed technology costs of $1,892,505 incurred during Period 2 have been appropriately excluded from the above table. D. CAT Costs Incurred in Period 3 The Participants expect to propose that Historical CAT Costs would 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. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 17111 the start of reporting to the CAT. The Participants expect to propose that these costs are $48,874,937. The Participants expect to propose that the Participants would remain responsible for 100% of this $48,874,937 in costs. The following table breaks down these costs into the categories set forth in Proposed Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan. Operating expense Capitalized Developed Technology Costs ..... Technology Costs: Cloud Hosting Services ........................ Operating Fees ......... CAIS Operating Fees Change Request Fees ....................... Legal ............................. Consulting ..................... Insurance ...................... Professional and administration ...................... Public relations ............. Total Operating Expenses ................... Excluded costs for November 15, 2017–November 15, 2018 $37,852,083 6,143,278 4,452,106 340,145 87,325 48,874,937 Second, the Participants expect to propose that Historical CAT Costs would not include $14,749,362 of costs related to the conclusion of the penses ................... 144,415,268 relationship with the Initial Plan * The non-cash amortization of these capital- Processor. The Participants expect to ized developed technology costs of propose that Participants would remain $5,108,044 incurred during Period 3 have responsible for 100% of the $14,749,362 been appropriately excluded from the above of these costs. table. Accordingly, the Participants expect to propose that Historical CAT Costs E. Excluded Costs would exclude a total of $63,624,299 of The Participants expect to propose prior CAT costs, and the Participants that Historical CAT Costs would not would remain responsible for 100% of include two categories of CAT costs these costs. (‘‘Excluded Costs’’): (1) $48,874,937, iii. Alternative Transparency Proposals which are all CAT costs incurred from November 15, 2017 through November CAT LLC believes that its proposed 15, 2018, and (2) $14,749,362 of costs methods of cost transparency will related to the termination of the provide Industry Members and other relationship with the Initial Plan interested parties with detailed Processor. The Participants expect to information about the CAT and the CAT propose that the Participants would fees. CAT LLC does not believe that remain responsible for 100% of these additional transparency measures, such costs, which total $63,624,299. CAT as a mechanism to allow for the review LLC believes that the exclusions of these of budget information prior to a fee costs addresses concerns previously filing, or an independent cost review expressed by commenters about costs mechanism, are necessary or incurred related to the period of the appropriate. operation of the Initial Plan Processor. A. Budget Disclosure Prior to Fee First, the Participants expect to Filings propose that Historical CAT Costs would exclude all CAT costs incurred CAT LLC does not believe that it is from November 15, 2017 through necessary to add a requirement to the November 15, 2018. CAT LLC CAT NMS Plan to provide Industry determined to exclude all costs during Members and other members of the this one-year period from fees charged public with an opportunity to review to Industry Members due to the delay in the budget that would be included in PO 00000 Frm 00027 Fmt 4701 Sfmt 4703 E:\FR\FM\21MRN2.SGM 21MRN2 17112 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES2 the SRO fee filings prior to such filings. CAT LLC is currently providing CAT budget information to the public on a continuing basis. CAT LLC publicly provides the annual operating budget for the CAT LLC as well as regular updates to the budget that occur during the year. This budget information is readily accessible to the public on a dedicated web page on the CAT NMS Plan. CAT LLC does not just provide the annual budget, or the mid-year budget, the two budgets that would be necessary for the fee filings; it also provides other updates each year. Accordingly, Industry Members and other members of the public will have the opportunity to review regular updates of the budget more often than is necessary for the fee filings. Such transparency would allow Industry Members and other members of the public to understand the budget and changes thereto throughout the year. Moreover, the fee filing process under section 19(b) of the Exchange Act provides the public with the opportunity to review the budgeted CAT costs that CAT LLC would seek to recover via the CAT Fees. B. Independent Cost Review Mechanism CAT LLC also does not believe that it would be necessary or appropriate to include an independent review mechanism for the cost of proposed CAT expenditures. First, as a preliminary matter, unlike the Commission, CAT LLC is not a governmental entity, with a responsibility to the taxpaying public. It is a private entity subject to the regulatory requirements of the Exchange Act. Second, such a budget review process is unnecessary as any CAT fees proposed to be established pursuant to the CAT NMS Plan are already subject to the existing, well-established review practices under Rule 608 of Regulation NMS under the Exchange Act and section 19(b) of the Exchange Act and Rule 19b–4 thereunder. Under those provisions, CAT fees must be filed with the SEC, thereby providing transparency and an opportunity for comment by the public, and may only be implemented if they satisfy the requirements of the Exchange Act. Third, the SEC has the ability to request budget and financial information from CAT LLC to the extent that it believes that such additional information is necessary for it to evaluate any CAT fee proposals. m. Allocation of Past CAT Costs to Participants: Pro Rata Versus Use of Funding Proposal The Participants have been responsible for all costs related to the CAT to date, and Industry Members VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 have not paid any of the costs to date. Accordingly, under the Funding Proposal, the Participants would not be required to pay a CAT fee related to Past CAT Costs in addition to prior payments. The two-thirds of the Historical CAT Costs collected from Industry Members would be allocated to the Participants pro rata, based on the outstanding amounts due under the notes to the Participants for repayment of outstanding loan notes to the Company. The one-third of Historical CAT Costs that are not allocated to Industry Members would not be allocated to the Participants pursuant to the Funding Proposal based on executed equivalent shares. Instead, such Historical CAT Costs would be allocated to the Participants pro rata based on the outstanding amounts due under the notes (as discussed further below in Section A.9.n of this filing). CAT LLC entered into the loans with the Participants pursuant to its authority under the CAT NMS Plan as approved by the SEC to pay for CAT costs, and, as such, the loans and their repayment terms are consistent with the Exchange Act and Rule 608 of Regulation NMS. The terms of the loans do not need to satisfy the requirements of the funding model set forth in Article XI of the CAT NMS Plan. Section 3.9 of the CAT NMS Plan states that ‘‘[i]f the Company requires additional funds to carry out its purposes, to conduct its business, to meet its obligations, or to make any expenditure authorized by this Agreement, the Company may borrow funds from such one or more of the Participants, or from such third party lender(s), and on such terms and conditions, as may be approved by a Supermajority Vote of the Operating Committee.’’ As the Company—CAT LLC—did not have a source of revenue to fund its activities without a funding model approved by the SEC, CAT LLC determined to borrow funds from the Participants on terms approved by a Supermajority Vote of the Operating Committee. After this vote, CAT LLC entered into loan agreements with the Participants to cover CAT costs. The terms of the loan agreements dictate that repayment of the notes will be pro rata, based on the outstanding amounts loaned to CAT LLC. Accordingly, CAT LLC is obligated by contract, approved in accordance with the terms of the CAT NMS Plan, to repay the notes pro rata, not by another method. Moreover, Section 3.8 of the CAT NMS Plan states that ‘‘[e]xcept as may be determined by the unanimous vote of all the Participants or as may be required by applicable law, no PO 00000 Frm 00028 Fmt 4701 Sfmt 4703 Participant shall be obligated to contribute capital or make loans to the Company.’’ The Participants voluntarily have agreed to provide loans to CAT LLC under the agreed upon terms to fund the CAT until a funding model is approved. Without a unanimous vote of the Participants, however, CAT LLC cannot require the Participants to make a new loan to CAT LLC. Accordingly, without the agreement of the Participants, the loans must be repaid in accordance with their terms. n. Sufficient Detail Regarding Pro Rata Allocation of Past CAT Costs to Participants Further with regard to the pro rata allocation of Past CAT Costs, the manner in which the loans are repaid are governed by the loan agreements between CAT LLC and the Participants, as approved by CAT LLC. The following provides additional detail as to the allocation of Past CAT Costs to Participants in accordance with the loans to CAT LLC. Pending SEC approval of CAT fees to fund the CAT, the Participants voluntarily determined to fund the development and operation of the CAT through quarterly loans to CAT LLC. The Participants determined to use the market share, tier-based funding model applicable to Execution Venues described in the proposed amendment to the CAT NMS Plan submitted to the SEC on December 11, 2017 (without including ATSs as Equity Execution Venues) to allocate loan amounts among Participants (‘‘Tiered Market Share Proposal’’).111 As described in that proposal, each Equity Execution Venue is placed in one of four tiers of fixed fees based on market share, and each Options Execution Venue is placed in one of two tiers of fixed fees based on market share. Equity Execution Venue market share is determined by calculating each Equity Execution Venue’s proportion of the total volume of NMS Stock and OTC Equity shares reported by all Equity Execution Venues during the relevant time period. For purposes of calculating market share, the OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA OTC reporting facility are discounted. Similarly, market share for Options Execution Venues is determined by calculating each Options Execution Venue’s proportion of the total volume of Listed Options contracts reported by all Options Execution Venues during the relevant time period. The tiers are 111 See E:\FR\FM\21MRN2.SGM 2018 Fee Proposal Release. 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES2 refreshed on a quarterly basis in accordance with the Tiered Market Share Proposal. Each of the Participants voluntarily have loaned CAT LLC funds in amounts in accordance with the Tiered Market Share Proposal to cover Past CAT Costs. Accordingly, under the Funding Proposal, the Participants propose to be reimbursed for two-thirds of the Historical CAT Costs pro rata based on the outstanding amounts loaned to CAT LLC pursuant to the Tiered Market Share Proposal, as this is what is required under the loan contract between CAT LLC and the Participants. Correspondingly, for the remaining onethird of the Historical CAT Costs that are not reimbursed via the Historical CAT Assessment, the Participants propose to remain responsible for the amounts loaned to CAT LLC pursuant to the Tiered Market Share Proposal. The Participants’ one-third share of the Historical CAT Costs would be paid by the cancellation of the loans on a pro rata basis. In addition, for any Past CAT Costs that are excluded from Historical CAT Costs, the Participants propose to remain responsible for the amounts loaned to CAT LLC pursuant to the Tiered Market Share Proposal as well. These excluded costs also would be paid by cancellation of the loans on a pro rata basis. o. Past CAT Costs: Collected From Current Versus Past Industry Members and Use of Prior Month’s Transactions CAT LLC believes that Historical CAT Assessments are appropriately assessed to current Industry Members based on current market activity. CAT LLC does not believe that Historical CAT Assessments should be charged to Industry Members that were active at the time when the Past CAT Costs were incurred and based on trading activity from the time when the Past CAT Costs were incurred. CAT LLC believes that it is appropriate to collect the Historical CAT Assessments from current Industry Members based on current market activity because current market participants are the beneficiaries of the regulatory value provided by the CAT to the securities markets. The SEC has emphasized that the CAT provides a benefit to all market participants,112 and, therefore, current Industry Members are benefitting from the efforts to create and operate the CAT. In addition, the approach recognizes the many practical difficulties of imposing fees retroactively on Industry Members’ market activity from the past, 112 See generally Rule 613 Adopting Release. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 sometimes years in the past as the relevant recovery period extends to 2012. For example, one of the practical difficulties may include the fact that some Industry Members that would be subject to such a retroactive fee may no longer be in business or no longer registered as a broker-dealer that is subject to the jurisdiction of the Participants or SEC. Indeed, this is likely to be a substantial issue. For example, in the SEC’s approval order of the CAT NMS Plan, the SEC used an estimate of 1,800 broker-dealers subject to CAT reporting for its cost estimates.113 However, the number of current Industry Members has greatly diminished from these early estimates to approximately 1,100.114 Therefore, at least approximately 40% of the brokerdealers that may have been subject to CAT reporting in 2012 are no longer CAT Reporters. Another practical issue involves the difficulty of accurately determining the transactions in Eligible Securities of the Industry Member for the past decade that would be subject to CAT fees. Because the recovery period for Past CAT Costs spans a period in which the CAT was not in existence yet, as well as periods in which CAT reporting was being phased in, the CAT may not have any record of relevant transactions from earlier periods, and it may not have a complete record of the relevant transactions for later periods. The SEC anticipated the recovery of CAT fees after such costs were incurred, as it contemplated the recovery of CAT costs for the creation of the CAT as well as its implementation and maintenance.115 Moreover, imposing retroactive fees for past market activity could raise fairness issues. For example, because the fee would be retroactive, market participants could not have taken into consideration the CAT fee when they decided to enter into the transactions in the past. In addition, given the passage of time, past CAT Reporters, particularly small CAT Reporters, may not be in a position to pay a fee related to earlier market activity.116 NMS Plan Approval Order at 84862. average of 1,124 unique CAT Reporters sent transaction data to the CAT from July 1, 2022 to August 8, 2022. 115 See, e.g., Rule 613(a)(1)(vii)(D) of Regulation NMS under the Exchange Act. 116 CAT LLC notes, however, that there has been substantial continuity in the largest Industry Members over time. For the illustrative example, the top 10 firms in terms of equivalent executed shares in December 2022 are allocated more than half (52%) of the total Industry Member CAT costs; eight of those 10 firms were also ranked in the top 10 throughout 2021. The remaining two were ranked 14th and 15th, respectively. Similarly, of the top 30 firms in December 2022 (representing an 17113 In addition, CAT LLC notes that the SEC has approved similar funding practices with regard to new Participants for the CAT as well as new participants for other national market system plans. In each case, the new participant is required to pay a fee to join the plan, and the fee is based on past costs for creating, implementing and maintaining the plan at issue.117 As a result, a new participant would be required to pay a fee for costs incurred in the past by the relevant plan. For example, Section 3.3 of the CAT NMS Plan states that, to become a new Participant to the CAT NMS Plan, the applicant must: pay a fee to the Company in an amount determined by a Majority Vote of the Operating Committee as fairly and reasonably compensating the Company and the Participants for costs incurred in creating, implementing, and maintaining the CAT, including such costs incurred in evaluating and selecting the Initial Plan Processor and any subsequent Plan Processor and for costs the Company incurs in providing for the prospective Participant’s participants in the Company, including after consideration of the factors identified in Section 3.3(b) (the ‘‘Participation Fee’’). As this provision indicates, new CAT Participants are required to contribute to paying for costs incurred since the inception of the CAT. Indeed, the costs related to evaluating and selecting the Initial Plan Processor were incurred in 2017 and before.118 For example, a CAT Participant applicant in 2023 may be required to pay a fee that reflects CAT costs incurred years ago. Similarly, the Funding Proposal would require current Industry Members to pay a share of CAT costs from years ago. p. Budgeted Versus Incurred Costs Under the Funding Proposal, the budgeted CAT costs set forth in the annual operating budget would be used to determine the Fee Rate for CAT Fees related to Prospective CAT Costs. The budgeted CAT costs would comprise estimated fees, costs and expenses to be reasonably incurred by the Company for the development, implementation and operation of the CAT during the year, 113 CAT 114 An PO 00000 Frm 00029 Fmt 4701 Sfmt 4703 allocation of 82% of the total Industry Member CAT costs), all but three ranked in the top 30 throughout 2021. The three exceptions were ranked at 31, 33 and 40 in 2021. Furthermore, of the top 10 firms by CAT record volume year to date in 2023, 7 were also top 10 reporters by message volume in 2020. The other three rose from ranks 17, 18, and 35. Of the top 30 firms by CAT record volume year to date in 2023, 25 were in the top 30 reporters of 2020. 117 See, e.g., Section III(b) of the CTA Plan; Section VIII of the UTP Plan. 118 Letter from Participants, to Brent J. Fields, Secretary, SEC re: Selection of Plan Processor for the National Market System Plan Governing Consolidated Audit Trail (Jan. 18, 2017). E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 17114 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices which would include costs for the Plan Processor, insurance, and third-party support, as well as an operational reserve. CAT LLC does not propose to use costs already incurred in calculating the CAT Fees. CAT LLC believes that using budgeted CAT costs, rather than CAT costs already incurred, is critical to ‘‘build[ing] financial stability to support the Company as a going concern.’’ 119 Using budgeted CAT costs to determine the Fee Rate would allow CAT LLC to collect fees before bills become payable. If, however, CAT Fees are only collected after bills become payable, then the Participants would be required to continue to fund 100% of CAT costs to pay the bills as they come due. Making the Participants responsible for all of the CAT costs upfront, rather than one-third of the CAT costs, would change the proposed model in a significant manner. Requiring the calculation of the Fee Rate based on incurred CAT costs, rather than budgeted CAT costs would only be necessary if budgeted and incurred CAT costs were likely to diverge. However, the Funding Proposal has been designed to address this concern. As proposed, CAT LLC would be required to calculate the Fee Rate each year based upon the budget for the upcoming year, and to adjust the fee rate mid-year to reflect changes in the budgeted or actual CAT costs or the projected or actual executed equivalent share volume. Accordingly, CAT LLC would be required to adjust CAT Fees twice a year to ensure that they are closely aligned with CAT costs. Moreover, when establishing the annual budget or its mid-year adjustment, CAT LLC would adjust the budget to reflect any surplus or deficit in CAT Fees collected during the prior period. In addition, the CAT NMS Plan requires that the Company operate on a ‘‘break-even’’ basis, with fees imposed to cover costs and an appropriate reserve. Any surpluses would be treated as an operational reserve to offset future fees and would not be distributed to the Participants as profits. To ensure that the Participants’ operation of the CAT will not contribute to the funding of their other operations, Section 11.1(c) of the CAT NMS Plan specifically states that ‘‘[a]ny surplus of the Company’s revenues over its expenses shall be treated as an operational reserve to offset future fees.’’ In addition, CAT LLC proposes to limit the size of the reserve to not more than 25% of the annual budget. To the extent that collected CAT fees exceed CAT costs, including the reserve of 25% of the annual budget, 119 Section 11.2(f) of the CAT NMS Plan. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 such surplus shall be used to offset future fees.120 Furthermore, CAT LLC is set up as a business league to mitigate concerns that CAT LLC’s earnings could be used to benefit individual Participants.121 q. Continuous Fees Versus Sunsetting Fees CAT LLC does not propose to require the proposed CAT Fees related to Prospective CAT Costs to sunset automatically; instead, a CAT Fee would continue until a new CAT Fee is in place in accordance with the requirements of the CAT NMS Plan and section 19(b) of the Exchange Act. CAT LLC believes that it is critical that a CAT Fee remain in place at all times. Accordingly, CAT LLC proposes to add Section 11.3(a)(i)(A)(III) of the CAT NMS Plan to clarify that CAT Fees related to Prospective CAT Costs do not sunset automatically; such CAT Fees would remain in place until new CAT Fees with a new Fee Rate is in effect. The financial viability of the CAT would be put at risk without a constant source of revenue. CAT LLC pays various bills, including technology bills, on a monthly basis. Accordingly, even short delays in the implementation of new CAT Fees after the sunsetting of a prior CAT Fee may have a deleterious effect on the operation of the CAT. Indeed, adopting sunsetting fees would contradict the funding principle of seeking to ‘‘build financial stability to support the Company as a going concern.’’ 122 Moreover, CAT LLC does not believe that a sunsetting requirement is necessary to ensure that the CAT Fees are closely coordinated with Prospective CAT costs. CAT LLC has proposed a comprehensive, multi-pronged approach to ensure that the CAT Fees are closely tied to CAT costs. First, CAT LLC will be required to calculate the Fee Rates for the CAT Fees based on budgeted CAT costs. In addition, CAT LLC will be required to calculate the Fee Rate twice a year to determine whether the Fee Rate has changed due to changes in the budgeted or actual costs or actual 120 See Proposed 11.1(a)(ii) of the CAT NMS Plan. qualify as a business league under Section 501(c)(6) of the Internal Revenue Code, an organization must ‘‘not [be] organized for profit and no part of the net earnings of [the organization can] inure[ ] to the benefit of any private shareholder or individual.’’ As the SEC stated when approving the CAT NMS Plan, ‘‘the Commission believes that the Company’s application for Section 501(c)(6) business league status addresses issues raised by commenters about the Plan’s proposed allocation of profit and loss by mitigating concerns that the Company’s earnings could be used to benefit individual Participants.’’ CAT NMS Plan Approval Order at 84793. 122 Section 11.2(f) of the CAT NMS Plan. 121 To PO 00000 Frm 00030 Fmt 4701 Sfmt 4703 or projected executed equivalent share volume, and to make a fee filing twice a year to reflect this calculation. Accordingly, the Fee Rate would be required to be updated twice a year, thereby ensuring the CAT Fees are closely tied to CAT costs. Second, the CAT NMS Plan requires that the Company operate on a ‘‘breakeven’’ basis, with fees imposed to cover costs and an appropriate reserve. Any surpluses would be treated as an operational reserve to offset future fees and would not be distributed to the Participants as profits. To ensure that the Participants’ operation of the CAT will not contribute to the funding of their other operations, Section 11.1(c) of the CAT NMS Plan specifically states that ‘‘[a]ny surplus of the Company’s revenues over its expenses shall be treated as an operational reserve to offset future fees.’’ Moreover, CAT LLC proposes to amend the CAT NMS Plan to limit the reserve to no more than 25% of the annual budget and to clarify that CAT fees collected in excess of the CAT costs, including the reserve, will be used to offset future fees.123 Third, CAT LLC proposes to amend the CAT NMS Plan to require Participants to provide significant details in their fee filings regarding Industry Member CAT Fees. Proposed paragraph (a)(iii)(B) of Section 11.3 of the CAT NMS Plan would state that, ‘‘[w]hen the Participants file with the SEC pursuant to section 19(b) of the Exchange Act CAT Fees to be charged to Industry Members calculated using the Fee Rate that the Operating Committee approved in accordance with paragraph (a) of this Section 11.3,’’ such filings would be required to include (A) the Fee Rate; (B) the budget for the upcoming year (or remainder of the year, as applicable), including a brief description of each line item in the budget, including (1) technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration, and (6) public relations costs, a reserve and/or such other categories as reasonably determined by the Operating Committee to be included in the budget, and the reason for changes in each such line item from the prior CAT Fee filing; (C) a discussion of how the budget is reconciled to the collected fees; and (D) the projected total executed equivalent share volume of all transactions in Eligible Securities for the year (or 123 See Proposed Section 11.1(a)(i) and (ii) of the CAT NMS Plan. E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices remainder of the year, as applicable), and a description of the calculation of the projection. This detail would describe how the Fee Rate was calculated and explain how the budget used in the calculation is reconciled to the collected fees. Such detailed information would provide Industry Members and other interested parties with a clear understanding of the calculation of the CAT fees and their relationship to CAT costs. ddrumheller on DSK120RN23PROD with NOTICES2 r. Conflicts of Interest CAT LLC believes that the current process for developing the CAT funding model appropriately addresses potential conflicts of interest related to CAT fees. The CAT NMS Plan, as approved by the SEC, adopts various measures to protect against potential conflicts issues raised by the Participants’ fee-setting authority, including, but not limited to, the fee filing requirements under the Exchange Act and operating the CAT on a breakeven basis. CAT LLC believes that these and other measures address potential conflicts of interest related to CAT fees. s. Effect on Efficiency, Competition or Capital Formation CAT LLC believes that the Funding Proposal would have a positive impact on efficiency, competition and capital formation. The Funding Proposal is designed to provide a predictable revenue stream sufficient to cover CAT costs each year. In doing so, the Funding Proposal would be designed to maintain the CAT as a going concern financially. By providing for the financial viability of the CAT, the Funding Proposal would allow the CAT to provide its intended benefits. For example, the CAT is intended to provide significant improvements in efficiency related to how regulatory data is collected and used. In addition, by providing enhanced regulatory oversight and surveillance, the CAT could result in improvements in market efficiency by deterring violative activity. Similarly, the CAT is intended improve capital formation by improving investor confidence in the market due to enhancements in surveillance. In addition, the Funding Proposal would not impose an inappropriate burden on competition. The Funding Proposal would operate in a manner similar to the funding models employed by the SEC and the Participants related to section 31 of the Exchange Act, the FINRA TAF and the ORF. These fees are long-standing and have been approved by the Commission as satisfying the requirements under the Exchange Act, including not imposing a burden on the competition that is not necessary or VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 appropriate under the Exchange Act. In addition, the Funding Proposal avoids potentially burdensome fees for market makers or other market participants based on message traffic. Furthermore, the Funding Proposal addresses the specific trading characteristics of Listed Options and OTC Equity Securities to avoid adverse effects of the trading of those instruments. For example, the Funding Proposal includes the discounting of transactions involving OTC Equity Shares which, given the volume of shares typically involved in such securities transactions, otherwise may result in disproportionate fees to market participants engaging in transaction in these securities. The Funding Proposal also would not unfairly burden FINRA or any of the exchanges. The Funding Proposal is designed to be neutral as to the manner of execution and place of execution. The CAT fees would be the same regardless of whether the transaction is executed on an exchange or in the over-thecounter market. All Participants are selfregulatory organizations that have the same regulatory responsibilities under the Exchange Act. Their usage of CAT Data will be for the same regulatory purposes. By treating each Participant the same, the CAT fees would not become a competitive issue by and among the Participants. CAT LLC does not believe that this proposal would unfairly burden CEBBs and CEBSs. Such a transaction-based fee is a type of fee that is currently used and well-known in the securities markets. For example, SRO members regularly pay transaction-based fees. As a result, the CAT fees could be paid by Industry Members without requiring significant and potentially costly changes. Moreover, the CEBBs and CEBSs could determine, but would not be required, to pass their CAT fees through to their customers, who, in turn, could pass their CAT fees to their customers, until the fee is imposed on the ultimate participant in the transaction. With such a pass through, the CEBBs and CEBSs would not ultimately incur the cost of all CAT fees related to their transactions. t. Straightforward Approach One advantage of the Funding Proposal is that the approach is simple, straightforward and easy to understand. Using the predetermined Fee Rate or Historical Fee Rate, CAT LLC would calculate CAT fees by multiplying the number of executed equivalent shares in each Participant, CEBB or CEBS’s transactions in Eligible Securities by the Fee Rate or Historical Fee Rate (as applicable) and one-third. The values PO 00000 Frm 00031 Fmt 4701 Sfmt 4703 17115 necessary for the calculation are readily available. The Fee Rates and Historical Fee Rates would be publicly available, and Participants, CEBBs and CEBSs have easy access to their transaction data. Moreover, the two adjustments— one for Listed Options and one for OTC Equity Securities—are similarly straightforward calculations. The Funding Proposal does not include other complexities, such as tiered fees, minimum or maximum fees, excluded types of Eligible Securities or excluded transactions in Eligible Securities. u. Predictable Fees The Funding Proposal also provides CAT Reporters with predictable CAT fees. Because the fee rates would be established in advance, Participants, CEBBs and CEBSs can calculate the CAT fee that applies to each transaction when it occurs. Accordingly, CAT Reporters with a CAT fee obligation may easily estimate and validate their applicable fees based on their own trading data. In addition, to the extent any CAT fees are passed on to customers, such customers also can calculate the applicable CAT fee for each transaction. The predictability of CAT fees under the Funding Proposal improves upon the lack of fee predictability in the Original Funding Model and other message traffic-based models.124 For example, with potential message traffic models,125 CAT Reporters would not know the actual per message rate until after the end of the relevant reporting period for which they were assessed the fee and also could not determine in advance the number of messages that may be associated with a given order or the total number of messages, thereby making it difficult for a CAT Reporter to predict a CAT fee related to its market activity. In addition, this lack of predictability related to message-based fees also could complicate efforts by Industry Members to estimate, explain and directly pass message-based fees back to customers, particularly if no trade has occurred. v. Administrative Ease The Funding Proposal also would allow for ‘‘ease of billing and other administrative functions.’’ 126 As discussed above, the Funding Proposal relies upon a basic calculation using 124 See Securities Exchange Act Rel. No. 92451 (July 20, 2021), 86 FR 40114, 40122 (July 26, 2021) (‘‘2021 Fee Proposal OIP’’). 125 Potential message traffic models, including the 2018 Fee Proposal and 2021 Fee Proposal, and the message traffic only model, are discussed further below in Section A.10 of this filing. 126 Section 11.2(d) of the CAT NMS Plan. E:\FR\FM\21MRN2.SGM 21MRN2 17116 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices predetermined fee rate, thereby making the fee determination a straightforward process. In addition, the CAT fees will be collected in a manner similar to the collection process that Industry Members are already accustomed, thereby further reducing the administrative burden on the industry. w. Equal Treatment of Trading Venues The Funding Proposal also has the benefit of treating transactions in Eligible Securities equally regardless of the trading venue. The Fee Rate or Historical Fee Rate would be the same regardless of whether a trade was executed on an exchange or in the OTC market, or how the trade ultimately occurred more generally (e.g., in a manner that generated more message traffic). As a result, it would not favor or unfairly burden any one type of trading venue or method. ddrumheller on DSK120RN23PROD with NOTICES2 x. Equitable Treatment of Different Eligible Securities The Funding Proposal also recognizes and addresses the different trading characteristics of different types of securities. Recognizing that Listed Options trade in contracts rather than shares, the Funding Proposal would count executed equivalent share volume differently for Listed Options. Specifically, each executed contract for a transaction in Listed Options would be counted based on the multiplier applicable to the specific Listed Option contract in the relevant transaction (e.g., 100 executed equivalent shares or such other applicable equivalency). Similarly, in recognition of the different trading characteristics of OTC Equity Securities as compared to NMS Stocks, the Funding Proposal would discount the share volume of OTC Equity Securities when calculating the CAT fees. Specifically, each executed share for a transaction in OTC Equity Securities would be counted as 0.01 executed equivalent shares. As a result, the Funding Proposal would not favor or unfairly burden any one type of product or product type. y. Contributions by Both Industry Members and Participants The Funding Proposal would require both Participants and Industry Members to contribute to the funding of the CAT. To date, the Participants have paid the full cost of the creation, implementation and maintenance of the CAT since 2012, pending Commission approval of a fee model. The continued funding of the CAT solely by the Participants was and is not contemplated by the CAT NMS Plan, nor is it a financially sustainable approach. As noted by the SEC, the CAT VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 ‘‘substantially enhance[s] the ability of the SROs and the Commission to oversee today’s securities markets,’’ 127 thereby benefiting all market participants. The Funding Proposal would require both Participants and Industry Members to contribute to the cost of the CAT, as contemplated by Rule 613 and the CAT NMS Plan. Rule 613(a)(1)(vii)(D) specifically contemplates Industry Members contributing to the payment of CAT costs. Specifically, this provision requires the CAT NMS Plan to address ‘‘[h]ow the plan sponsors propose to fund the creation, implementation, and maintenance of the consolidated audit trail, including the proposed allocation of such estimated costs among the plan sponsors, and between the plan sponsors and members of the plan sponsors.’’ In approving Rule 613, the SEC noted that ‘‘although the plan sponsors likely would initially incur the costs to establish and fund the central repository directly, they may seek to recover some or all of these costs from their members.’’ 128 In addition, as approved by the SEC, the CAT NMS Plan specifically contemplates CAT fees to be paid by both Industry Members and Participants. Section 11.1(b) of the CAT NMS Plan states that ‘‘the Operating Committee shall have discretion to establish funding for the Company, including: (i) establishing fees that the Participants shall pay; and (ii) establishing fees for Industry Members that shall be implemented by the Participants.’’ 129 The Commission stated in approving the CAT NMS Plan the following: The Commission believes that the proposed funding model reflects a reasonable exercise of the Participants’ funding authority to recover the Participants’ costs related to the CAT. The CAT is a regulatory facility jointly owned by the Participants and, as noted above, the Exchange Act specifically permits the Participants to charge members fees to fund their self-regulatory obligations. The Commission further believes that the proposed funding model is designed to impose fees reasonably related to the Participants’ self-regulatory obligations because the fees would be directly associated with the costs of establishing and maintaining the CAT, and not unrelated SRO services.130 Likewise, the Commission stated that ‘‘the Participants are permitted to recoup their regulatory costs under the Exchange Act through the collection of 613 Adopting Release at 45726. at 45795. 129 See also Sections 11.1(c), 11.2(c), and 11.3(a) and (b) of the CAT NMS Plan. 130 CAT NMS Plan Approval Order at 84794. fees from their members, as long as such fees are reasonable, equitably allocated and not unfairly discriminatory, and otherwise are consistent with Exchange Act standards,’’ 131 and noted that ‘‘Rule 613(a)(1)(vii)(D) requires the Participants to discuss in the CAT NMS Plan how they propose to fund the creation, implementation and maintenance of the CAT, including the proposed allocation of estimated costs among the Participants, and between the Participants and Industry Members.’’ 132 In its amendments to the CAT NMS Plan regarding financial accountability, the SEC reaffirmed the ability for the Participants to charge Industry Members a CAT fee. Specifically, the SEC noted that the amendments were not intended to change the basic funding structure for the CAT, which may include fees established by the Operating Committee, and implemented by the Participants, to recover from Industry Members the costs and expenses incurred by the Participants in connection with the development and implementation of the CAT.133 z. Use of CAT Data CAT Data would be used to calculate the CAT fees under the Funding Proposal. CAT Data would be used to identify each transaction in Eligible Securities for which a CAT fee would be collected. Specifically, CAT fees will be charged with regard to trades reported to CAT by FINRA via the ADF/ORF/TRF and by the exchanges. In addition, the same transaction data in the CAT Data would be used in the calculation of the projected total executed equivalent share volume for the Fee Rate. Furthermore, the transaction data in the CAT Data provides the identity of the relevant CAT Executing Brokers for each transaction for purposes of the CAT fees. Using CAT Data for the CAT fee calculations provides administrative efficiency, as the data will be accessible via the CAT. aa. Twelve Month Look Back for Projected Volume The calculation of the Fee Rate and the Historical Fee Rate requires the determination of the projected total executed equivalent share volume of transactions in Eligible Securities for the year. CAT LLC proposes to determine this projection based on the total executed equivalent share volume of transactions in Eligible Securities from the prior twelve months. CAT LLC 127 Rule 128 Id. PO 00000 Frm 00032 Fmt 4701 Sfmt 4703 131 Id. at 84795. at 84797 (emphasis added). 133 Securities Exchange Act Rel. No. 88890 (May 15, 2020), 85 FR 31322, 31329 (May 22, 2020). 132 Id. E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES2 determined that the use of the data from the prior twelve 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 calculation of the Fee Rate or Historical Fee Rate. In addition, using twelve months, rather a period less than a year, would address the issue of potential seasonality. For example, if the projection were based on a period shorter than one year, the projection could be based on a period that typically has lighter trading volume than the other half of the year, thereby causing the projection to be too low. bb. Cost Discipline Mechanisms The reasonableness of the Funding Proposal and the fees calculated under the Funding Proposal are supported by key cost discipline mechanisms for the CAT—a cost-based funding structure, cost transparency, cost management efforts and oversight. Together, these mechanisms help ensure the ongoing reasonableness of the CAT’s costs and the level of fees assessed to support those costs. First, the CAT NMS Plan requires that the Company operate on a ‘‘break-even’’ basis, with fees imposed to cover costs and an appropriate reserve. Any surpluses would be treated as an operational reserve to offset future fees and would not be distributed to the Participants as profits.134 To ensure that the Participants’ operation of the CAT will not contribute to the funding of their other operations, Section 11.1(c) of the CAT NMS Plan specifically states that ‘‘[a]ny surplus of the Company’s revenues over its expenses shall be treated as an operational reserve to offset future fees.’’ In addition, as set forth in Article VIII of the CAT NMS Plan, the Company ‘‘intends to operate in a manner such that it qualifies as a ‘business league’ within the meaning of section 501(c)(6) of the [Internal Revenue] Code.’’ To qualify as a business league, an organization must ‘‘not [be] organized for profit and no part of the net earnings of [the organization can] inure[ ] to the benefit of any private shareholder or individual.’’ 135 As the SEC stated when approving the CAT NMS Plan, ‘‘the Commission believes that the Company’s application for section 501(c)(6) business league status addresses issues raised by commenters about the Plan’s proposed allocation of profit and loss by mitigating concerns that the Company’s earnings could be used to benefit individual Participants.’’ 136 The Internal Revenue Service has determined that the Company is exempt from federal income tax under section 501(c)(6) of the Internal Revenue Code. Second, the CAT’s commitment to reasonable funding in support of its regulatory obligations is further reinforced by the transparency it has committed to provide on an ongoing basis regarding its financial performance. The Company currently makes detailed financial information about the CAT publicly available. Section 9.2(a) of the CAT NMS Plan requires the Operating Committee to maintain a system of accounting established and administered in accordance with GAAP and requires ‘‘all financial statements or information that may be supplied to the Participants shall be prepared in accordance with GAAP (except that unaudited statements shall be subject to year-end adjustments and need not include footnotes).’’ Section 9.2(a) of the CAT NMS Plan also requires the Company to prepare and provide to each Participant ‘‘as soon as practicable after the end of each Fiscal Year, a balance sheet, income statement, statement of cash flows and statement of changes in equity for, or as of the end of, such year, audited by an independent public accounting firm.’’ The CAT NMS Plan requires that this audited balance sheet, income statement, statement of cash flows and statement of changes in equity be made publicly available. Among other things, these financial statements provide operating expenses, including technology, legal, consulting, insurance, professional and administration and public relations costs. The Company also maintains a dedicated web page on the CAT NMS Plan website that consolidates its annual financial statements in a public and readily accessible place.137 In addition, the Company publicly provides the annual operating budget for the Company as well as periodically provides updates to the budget that occur during the year. The Company includes such budget information on a dedicated web page on the CAT NMS Plan website to make it readily accessible, like the CAT financial statements. CAT LLC also has held webinars providing additional detail about CAT costs and about potential alternative 136 CAT NMS Plan Approval Order at 84793. CAT Audited Financial Statements, https://www.catnmsplan.com/audited-financialstatements. 137 See 134 CAT 135 26 NMS Plan Approval Order at 84792. U.S.C. 501(c)(6). VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00033 Fmt 4701 Sfmt 4703 17117 funding models for the CAT.138 In addition, CAT LLC plans to offer additional webinars on cost and funding for the industry as appropriate going forward. Collectively, these reports and other efforts provide extensive and comprehensive information regarding the CAT’s operations with respect to its budgets, revenues, costs, and financial reserves, among other information. Third, CAT LLC regularly engages in and oversees efforts to reduce CAT costs responsibly while appropriately funding its regulatory obligations. CAT LLC’s efforts to manage its expenses responsibly include oversight of the CAT’s annual budget, including technology and other expenditures and initiatives. This oversight is informed by key CAT working groups, such as the Technology Working Group, Regulatory Working Group and Interpretive Working Group, each of which brings varied expertise to issues of responsible cost management. In particular, the Operating Committee currently utilizes a Cost Management Working Group to analyze opportunities to manage CAT costs responsibly. In addition, the Plan Processor regularly reviews options to lower compute and storage needs and works with CAT technology providers to provide services in a cost-effective manner. These collective efforts have led to a variety of technological changes to reduce costs. Fourth, the CAT’s funding and operations are subject to the oversight of the Commission. The CAT is extensively supervised by the Commission, including regular and continuous attendance at Operating Committee, Subcommittee and working group meetings. In addition, CAT fees as well as cost management efforts that require an amendment of the CAT NMS Plan are subject to review by the Commission’s Division of Trading and Markets, as well as public comment. 10. Alternative Models Considered CAT LLC has determined to propose the Funding Proposal to fund the CAT for the reasons discussed above. In reaching this conclusion, CAT LLC considered the advantages and disadvantages of a variety of possible alternative funding and cost allocation models for the CAT in detail. After analyzing the various alternatives and considering comments on the 138 See, e.g., CAT LLC Webinar CAT Costs (Sept. 21, 2021), https://www.catnmsplan.com/events/catcosts-september-21-2021; CAT LLC Webinar, CAT Funding (Sept. 22, 2021), https:// www.catnmsplan.com/events/cat-fundingseptember-22-2021; and CAT LLC Webinar, CAT Funding (Apr. 6, 2022), https:// www.catnmsplan.com/events/cat-funding. E:\FR\FM\21MRN2.SGM 21MRN2 17118 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices previously proposed models, CAT LLC determined that, although various funding models may be reasonable and appropriate, the Funding Proposal provides a variety of advantages in comparison to the alternatives, and satisfies the requirements of the Exchange Act, including providing for an equitable allocation of reasonable fees among CAT Reporters, not being designed to permit unfair discrimination among CAT Reporters and not imposing any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. ddrumheller on DSK120RN23PROD with NOTICES2 a. 2018 Fee Proposal CAT LLC previously filed a fee proposal in line with the CAT NMS Plan—the 2018 Fee Proposal.139 Under that model, CAT LLC, among other things, proposed a 75%–25% allocation of CAT costs between Execution Venues (which included Participants and Execution Venue ATSs) and Industry Members (other than Execution Venue ATSs), and required Execution Venues to pay fees based on market share, and Industry Members (other than Execution Venue ATSs) to pay fees based on CAT message traffic.140 Each Industry Member (other than Execution Venue ATSs) would be placed into one of seven tiers of fixed fees, based on CAT message traffic in Eligible Securities. Options Market Maker and equity market maker quotes would be discounted when calculating message traffic. CAT LLC determined to allocate 67% of Execution Venue costs recovered to Equity Execution Venues and 33% to Options Execution Venues. Each Equity Execution Venue would be placed in one of four tiers of fixed fees based on market share, and each Options Execution Venue would be placed in one of two tiers of fixed fees based on market share. Equity Execution Venue market share would be determined by calculating each Equity Execution Venue’s proportion of the total volume 139 For a description of the 2018 Fee Proposal, see 2018 Fee Proposal Release. CAT LLC later withdrew this proposed amendment. Securities Exchange Act Rel. No. 82892 (Mar. 16, 2018), 83 FR 12633 (Mar. 22, 2018). 140 In developing the 2018 Fee Proposal, CAT LLC considered many variations of different aspects of that model. For example, CAT LLC evaluated different cost allocations between Industry Members (other than Execution Venue ATSs) and Execution Venues, including 80%–20%, 75%–25%, 70%–30% and 65%–35% allocations, and different cost allocations between Equity and Options Execution Venues. CAT LLC also considered different discounts for equities and options market makers, different numbers of tiers of Industry Members and Execution Venues, different fee levels for each tier, and other aspects of the model. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 of NMS Stock and OTC Equity shares reported by all Equity Execution Venues during the relevant time period. For purposes of calculating market share, the OTC Equity Securities market share of Execution Venue ATSs trading OTC Equity Securities as well as the market share of the FINRA OTC reporting facility would be discounted. Similarly, market share for Options Execution Venues would be determined by calculating each Options Execution Venue’s proportion of the total volume of Listed Options contracts reported by all Options Execution Venues during the relevant time period. The 2018 Fee Proposal was a very complex model with many interrelated parts, including allocation percentages, discounts for certain market behavior, and multiple tiered fees, and the complexity raised concerns from the Commission regarding its use as the CAT funding model. In addition, in response to the proposal, the industry provided a number of other comments related to the proposal, including comments regarding the proposed allocation of CAT costs between Participants and Industry Members, and the ability of certain market segments to afford the proposed CAT fee.141 b. 2021 Fee Proposal In response to the comments on the 2018 Fee Proposal, CAT LLC determined to revise various aspects of the proposed model, thereby developing the 2021 Fee Proposal.142 The 2021 Fee Proposal would have continued to require many of the same elements as the 2018 model, including the bifurcated funding approach, and the use of market share and message traffic for allocating costs, as required by the current CAT NMS Plan. The 2021 Fee Proposal, however, proposed to revise the model in certain ways, including (1) dividing the CAT costs between Participants and Industry Members, rather than between Execution Venues and Industry Members (other than Execution Venue ATSs); (2) eliminating the use of tiers in calculating CAT fees for Participants and Industry Members; (3) adopting certain minimum and maximum CAT fees for Industry Members and Participants; (4) revising the allocation between Equity Execution Venues and Options to be 60%–40%; and (5) excluding, rather than discounting, market share in OTC 141 For a discussion of comments made regarding the Original Funding Model and the 2018 Fee Proposal, see generally 2018 Fee Proposal Release. 142 See 2021 Fee Proposal Release. PO 00000 Frm 00034 Fmt 4701 Sfmt 4703 Equity Shares from the calculation of market share for FINRA. Although the revisions of the 2021 Fee Proposal addressed certain comments on the prior 2018 Fee Proposal, commenters continued to raise issues regarding the proposal. For example, commenters provided feedback regarding the 75%–25% cost allocation between Industry Members and Participants, the 60%–40% cost allocation between Equity Participants and Options Participants, the use of market share and message traffic for allocating costs among Participants and Industry Members, respectively, and the proposed minimum and maximum fees. Noting these and other issues, the SEC determined to institute proceedings to determine whether to disapprove the 2021 Fee Proposal or to approve the proposal with any changes or subject to any conditions the SEC deemed necessary or appropriate after considering public comment.143 Ultimately, the Operating Committee determined to withdraw the 2021 Fee Proposal.144 c. Revenue Funding Model CAT LLC also considered a model in which all CAT Reporters, including both Industry Members and Participants, would pay fees based solely on revenue. The concept underlying this proposal is that CAT costs would be borne by CAT Reporters based on their ability to pay. Under this model, Industry Member revenue would be calculated based on revenue reported in FOCUS reports, and Participant revenue would be calculated based on revenue information in Form 1 amendments and other publicly reported figures. CAT LLC did not select this model for various reasons. Under this approach, Participants as a group would only pay approximately 4% of the total CAT costs. Given their role as SROs and their use of the CAT, CAT LLC did not believe that such a small allocation of the CAT costs to the Participants was appropriate. Using revenue also raised a variety of practical issues. For example, questions were raised as to what revenue was appropriate to include in the calculation of revenue for Industry Members. The gross revenue set forth on FOCUS reports was proposed, as it was similar to an existing FINRA regulatory 143 See 2021 Fee Proposal OIP. See also Securities Exchange Act Rel. No. 93227 (Oct. 1, 2021), 86 FR 55900 (Oct. 7, 2021). 144 Letter from Mike Simon, Chair, CAT NMS Plan Operating Committee, to Vanessa Countryman, Secretary, SEC (Dec. 8, 2021). E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices fee.145 However, questions were raised as to whether revenue unrelated to NMS Securities or OTC Equity Securities, or otherwise unrelated to the CAT, should be included for calculation of the CAT fee. Eliminating revenue unrelated to CAT-related activity would have been difficult or impossible. In addition, the lack of a uniform approach to calculating revenue for the Participants could raise inequities in the collection of a CAT fee. To address the issues regarding the 96%–4% allocation and the calculation of the Participant revenue in the straight revenue model described above, CAT LLC considered an alternative version of the revenue model in which the CAT costs would be allocated between Industry Members and Participants based on a set percentage (e.g., 75%– 25%) and the Industry Member allocation would be allocated among Industry Members based on revenue and the Participant allocation would be allocated among Participants based on market share. However, this alternative revenue model failed to address the issues regarding the appropriate revenue calculations for Industry Members. ddrumheller on DSK120RN23PROD with NOTICES2 d. Message Traffic Only Model CAT LLC considered a funding model in which CAT costs were allocated across all CAT Reporters—both Industry Members and Participants—based on message traffic in the CAT. Specifically, CAT LLC considered eliminating the concepts of a Participant allocation and an Industry Member allocation entirely, and treating Participants and Industry Members the same under the model. The use of message traffic, however, raised issues regarding the predictability of fees. It also introduced complexity to the model, as discounts were necessary for certain types of activity to avoid fees that may adversely impact market making activity and other market activity. e. Alternative Allocation for the Funding Proposal The Operating Committee also discussed an alternative funding model that would calculate fees in a manner similar to the Funding Proposal, but would allocate the fee to one Industry Member, the CEBS, rather than allocating one-third of the fees each to the CEBS, the CEBB and the applicable Participant. This allocation would more closely parallel the existing section 31 fee allocation structure that is already in place. This alternative allocation would 145 See paragraphs (c) and (d) of Section 1 of Schedule A of FINRA’s By-Laws regarding FINRA’s annual Gross Income Assessment. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 eliminate complexity from the fee process, including the process of allocating fees among Industry Members and Participants that are likely to be passed through to the ultimate investors, and would provide for a more transparent funding process for investors. Instead of using this approach, CAT LLC determined to allocate costs among the main participants in a transaction and allow those participants to determine whether and how to recover the costs. f. Sales Value Model CAT LLC also considered a funding model in which fees would be calculated based on transaction sales values, similar to the method used in the section 31/sales value fee programs. Under this model, the per sales value fee rate would be calculated by dividing the annual CAT budget by the projected annual total industry transaction sales values. The fee would be calculated by multiplying the sales value fee rate by a given trade’s sales value. The CEBB, the CEBS and the relevant Participant would each be assessed one-third of the fee, or, in the alternative, the CEBS would be assessed two-thirds of the fee and the relevant Participants would be assessed one-third of the fee. The same rate would apply to all transactions equally, regardless of the type of product in the trade (i.e., NMS Stocks, Listed Options or OTC Equity Securities). Based on an analysis of 2021 data, CAT LLC observed that the sales value model could potentially impose a disproportionate share of the CAT costs on Participants and Industry Members trading NMS Stocks versus Listed Options. In comparison, also based on an analysis of 2021 data, CAT LLC observed that the Funding Proposal would impose an equitable allocation of fees among Participants and Industry Members trading NMS Stocks and Listed Options, as well as OTC Equity Securities. g. Other Models CAT LLC also considered other possible funding models. For example, CAT LLC considered allocating the CAT costs equally among each of the Participants, and then permitting each Participant to charge its own members as it deems appropriate. CAT LLC determined that such an approach raised a variety of issues, including the likely inconsistency of the ensuing charges, potential for lack of transparency, and the impracticality of multiple SROs submitting invoices for CAT charges. CAT LLC also discussed the advantages and disadvantages of various alternative models during the PO 00000 Frm 00035 Fmt 4701 Sfmt 4703 17119 development of the CAT NMS Plan, such as a cost allocation based on a strict pro-rata distribution, regardless of the type or size of the CAT Reporters.146 11. Satisfaction of Exchange Act and CAT NMS Plan Requirements The Funding Proposal offers a variety of benefits over the Original Funding Model and satisfies each of the funding principles and other requirements of the CAT NMS Plan, as proposed to be revised herein, as well as the applicable requirements of the Exchange Act for the reasons discussed below and for the reasons discussed in more detail above. a. Funding Principle: Section 11.2(a) of the CAT NMS Plan The Funding Proposal satisfies the funding principles set forth in Section 11.2(a) of the CAT NMS Plan. Section 11.2(a) of the CAT NMS Plan requires the Operating Committee, in establishing the funding of the Company, to seek ‘‘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.’’ First, by adopting a CAT-specific fee tied directly to CAT costs, CAT LLC would be fully transparent regarding the costs of the CAT and how those costs would be allocated among CAT Reporters. The CAT fees would be designed solely to cover CAT costs, and no other regulatory costs. In contrast, charging a general regulatory fee, which might otherwise be used to cover CAT costs as well as other regulatory costs, would be less transparent than the selected approach of charging a fee designated to cover CAT-related costs only. Such a general regulatory fee could cover a variety of regulatory costs without differentiating those costs related to the CAT. Second, the Funding Proposal would provide a predictable revenue stream for the Company. The Funding Proposal is designed to collect the annual CAT costs each year, thereby providing for a predictable revenue stream. In addition, to address the possibility of some variability in the collected CAT fees, an unexpected increase in costs or variations from the budgeted costs or projected executed equivalent share volume of transactions in Eligible Securities, the CAT costs covered by the Funding Proposal would include an operational reserve. The operational reserve could be used in the event that 146 For a discussion of alternatives considered in the drafting of the CAT NMS Plan, see Appendix C of the CAT NMS Plan at C–88–C–89. E:\FR\FM\21MRN2.SGM 21MRN2 17120 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices the total CAT fees collected differ from the actual CAT costs. Moreover, the Funding Proposal includes a method for adjusting the calculation of the Fee Rate during the year if there are changes in the projected total volume of transactions in Eligible Securities or the CAT costs. Third, the Funding Proposal provides for a revenue stream for the Company that is aligned with the anticipated costs to build, operate and administer the CAT and the other costs of the Company. The total CAT fees to be collected from CAT Reporters are designed to cover the CAT costs. Any surpluses collected would be treated as an operational reserve to offset future fees and would not be distributed to the Participants as profits.147 ddrumheller on DSK120RN23PROD with NOTICES2 b. Funding Principle: Section 11.2(b) of the CAT NMS Plan The Funding Proposal satisfies the funding principle set forth in Section 11.2(b) of the CAT NMS Plan, as proposed to be amended herein, which would require the Operating Committee to seek ‘‘to establish an allocation of the Company’s related costs among Participants and Industry Members that is consistent with the Exchange Act, taking into account the timeline for implementation of the CAT.’’ As discussed in detail above, the Funding Proposal establishes an allocation of CAT costs among Participants and Industry Members that is consistent with the Exchange Act. In addition, the Funding Proposal provides for an equitable allocation of reasonable dues, is not unfairly discriminatory and does not impose a burden on competition that is not necessary or appropriate in furtherance of the Exchange Act. In addition, the Funding Proposal takes into account the timeline for implementation of the CAT. The CAT fees are designed to cover the CAT costs for each relevant period. c. Funding Principle: Section 11.2(c) of the CAT NMS Plan The Funding Proposal satisfies the funding principle set forth in Section 11.2(c) of the CAT NMS Plan, as proposed to be modified herein. Section 11.2(c), as proposed to be modified herein, requires the Operating Committee to seek ‘‘to establish a fee structure in which the fees charged to Participants and Industry Members are based upon the executed equivalent share volume of transactions in Eligible Securities, and the costs of the CAT.’’ The Funding Proposal requires Participants and Industry Members to 147 CAT NMS Plan Approval Order at 84792. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 pay fees based upon the executed equivalent share volume of transactions in Eligible Securities, and the costs of the CAT, as described above. d. Funding Principle: Section 11.2(d) of the CAT NMS Plan The Funding Proposal satisfies the funding principle set forth in Section 11.2(d) of the CAT NMS Plan, which requires the Operating Committee to seek ‘‘to provide for ease of billing and other administrative functions.’’ The Funding Proposal satisfies this principle in several ways. The Funding Proposal is modeled after the existing section 31related fee programs, with which the Participants and Industry Members have a longstanding familiarity. The Funding Proposal relies upon a basic calculation using a predetermined fee rate along with an Industry Member or Participant’s executed equivalent share volume, thereby making the fee determination a straightforward process. Furthermore, the Funding Proposal provides CAT Reporters with predictable CAT fees. Because the Fee Rate is established in advance for a relevant time period, Participants, CEBBs and CEBSs know the CAT fee that applies to each transaction when it occurs. Accordingly, Participants, CEBBs and CEBSs are able to easily estimate and validate their applicable fees based on their own trading data. In addition, to the extent any CAT fees are passed on to customers, the customers, too, can calculate the applicable CAT fee for each transaction. e. Funding Principle: Section 11.2(e) of the CAT NMS Plan The Funding Proposal satisfies the funding principle set forth in Section 11.2(e) of the CAT NMS Plan, which requires the Operating Committee to seek ‘‘to avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality.’’ The Funding Proposal would operate in a manner similar to the funding models employed by the SEC and the Participants related to section 31 of the Exchange Act, the FINRA TAF and the ORF. These fees are longstanding, and have been approved by the Commission as satisfying the requirements under the Exchange Act, including not imposing a burden on competition that is not necessary or appropriate under the Exchange Act. In addition, the Funding Proposal avoids potentially burdensome fees for market makers or other market participants based on message traffic. Furthermore, the Funding Proposal addresses the specific trading characteristics of Listed Options and OTC Equity Securities to PO 00000 Frm 00036 Fmt 4701 Sfmt 4703 avoid adverse effects of the trading of those instruments. For example, the Funding Proposal includes the discounting of transactions involving OTC Equity Shares which, given the volume of shares typically involved in such securities transactions, otherwise may result in disproportionate fees to market participants transaction these securities. The Funding Proposal also would not unfairly burden FINRA or any of the exchanges. The Funding Proposal is designed to be neutral as to the manner of execution and place of execution. The CAT fees would be the same regardless of whether the transaction is executed on an exchange or in the over-thecounter market. All Participants are SROs that have the same regulatory responsibilities under the Exchange Act. Their usage of CAT Data will be for the same regulatory purposes. By treating each Participant the same, the CAT fees would not become a competitive issue by and among the Participants. The Funding Proposal also would not unfairly burden CAT Executing Brokers. CAT LLC determined to charge CEBBs and CEBSs because such a fee collection model is currently used and well-known in the securities markets. As a result, the CAT fees could be paid by Industry Members without requiring significant and potentially costly changes. Moreover, the CEBBs and CEBSs would be permitted, but not required, to pass their CAT fees through to their customers, who, in turn, could pass their CAT fees to their customers, until the fee is imposed on the ultimate participant in the transaction. With such a pass through, the CEBBs and CEBSs would not ultimately incur the cost of all CAT fees related to the transactions that they clear. f. Funding Principle: Section 11.2(f) of the CAT NMS Plan The Funding Proposal satisfies the funding principle set forth in Section 11.2(f) of the CAT NMS Plan, which requires the Operating Committee to seek ‘‘to build financial stability to support the Company as a going concern.’’ CAT LLC believes that the Funding Proposal is structured to collect sufficient funds to pay for the cost of the CAT going forward. In addition, the Funding Proposal would collect an operational reserve for the CAT. This operational reserve is intended to address potential shortfalls in collected CAT fees versus actual CAT costs. Moreover, the Funding Proposal includes a requirement to adjust the Fee Rate during the year in order to address any changes in the projected or actual total volume of transactions in Eligible E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices Securities or the budgeted or actual CAT costs. Furthermore, the Funding Proposal is designed to collect CAT fees continuously so as to provide uninterrupted revenue to pay CAT bills; the CAT Fees related to Prospective CAT Costs are not designed to sunset. that the Company’s earnings could be used to benefit individual Participants.’’ 149 The Internal Revenue Service has determined that the Company is exempt from federal income tax under section 501(c)(6) of the Internal Revenue Code. g. Section 11.1(c) of the CAT NMS Plan The Funding Proposal would satisfy the requirements in Section 11.1(c) of the CAT NMS Plan, as proposed to be modified herein. Section 11.1(c) of the CAT NMS Plan states that ‘‘[t]o fund the development and implementation of the CAT, the Company shall time the imposition and collection of all fees on Participants and Industry Members in a manner reasonably related to the timing when the Company expects to incur such development and implementation costs.’’ The CAT fees are designed to cover the CAT costs for a relevant period. As such, on a going forward basis, they are designed to be imposed close in time to when costs are incurred. In addition, the Historical CAT Assessments are designed to ‘‘take into account fees, costs and expenses (including legal and consulting fees and expenses) reasonably incurred by the Participants on behalf of the Company prior to the Effective Date in connection with the creation and implementation of the CAT, and such fees, costs and expenses shall be fairly and reasonably shared among the Participants and Industry Members.’’ Section 11.1(c) of the CAT NMS Plan also requires that ‘‘[a]ny surplus of the Company’s resources over its expenses shall be treated as an operational reserve to offset future fees.’’ The Company would operate on a ‘‘break-even’’ basis, with fees imposed to cover costs and an appropriate reserve. Any surpluses would not be distributed to the Participants as profits. In addition, as set forth in Article VIII of the CAT NMS Plan, the Company ‘‘intends to operate in a manner such that it qualifies as a ‘business league’ within the meaning of section 501(c)(6) of the [Internal Revenue] Code.’’ To qualify as a business league, an organization must ‘‘not [be] organized for profit and no part of the net earnings of [the organization can] inure[ ] to the benefit of any private shareholder or individual.’’ 148 As the SEC stated when approving the CAT NMS Plan, ‘‘the Commission believes that the Company’s application for section 501(c)(6) business league status addresses issues raised by commenters about the Plan’s proposed allocation of profit and loss by mitigating concerns h. Equitable Allocation of Reasonable Fees 148 26 U.S.C. 501(c)(6). VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 The proposed CAT fees provide for the ‘‘equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities necessary or appropriate in furtherance of the purposes of this chapter,’’ 150 as required by the Exchange Act. CAT LLC believes that the CAT fees equitably allocate CAT costs between and among Participants and Industry Members. For the reasons discussed above, CAT LLC believes that the allocation of one-third of the CAT costs each to Participants, CEBBs and CEBSs in the Funding Proposal as well as the use of the total equivalent share volume of transactions in Eligible Securities for allocating costs provide for an equitable allocation of CAT costs among CAT Reporters. CAT LLC also believes that the Funding Proposal would provide for reasonable fees. The transaction-based fees contemplated by the Funding Proposal are a reasonable fee structure. The SROs have a long history of charging transaction-based fees, as transactions are the intended economic goal of the securities markets. In addition to the transaction-based regulatory fees discussed above (e.g., the SROs’ section 31-related fees, the FINRA TAF and the ORF), the SROs charge a variety of other types of transaction fees to fund their operations.151 Indeed, each of the SROs collect transaction-based fees from their members.152 In each case, the transaction-based fees charged by SROs have been subject to the fee filing process and found to satisfy the requirements of the Exchange Act. Not only is the type of fee reasonable, but the level of the fee is reasonable as well. Although the exact Fee Rate or Historical Fee Rate to be paid for any particular period will be determined at a later date, the illustrative example provides a per-transaction fee rate that 149 CAT NMS Plan Approval Order at 84793. 6(b)(4) and 15A(b)(5) of the Exchange 150 Sections Act. 151 The SEC has noted that SRO transaction fees account for a significant portion of SRO revenue. Securities Exchange Act Rel. No. 50700 (Nov. 18, 2004), 69 FR 71256, 71271 (Dec. 8, 2004). 152 See, e.g., NYSE Price List; Nasdaq Price List. PO 00000 Frm 00037 Fmt 4701 Sfmt 4703 17121 is not excessive in comparison to existing transaction fee rates. i. No Unfair Discrimination The Funding Proposal is ‘‘not designed to permit unfair discrimination between customers, issuers, brokers, or dealers,’’ 153 as required by the Exchange Act. In addition, the Funding Proposal does not unfairly discriminate between Industry Members and Participants, among Industry Members or among Participants. Both Participants and Industry Members would contribute to the cost of the CAT; Participants alone would no longer be required to shoulder the cost burden of the CAT without the contribution of Industry Members. In addition, both Participants and Industry Members would pay a fee based on the executed equivalent share volume of their transactions in Eligible Securities; the type of metric would not vary based on whether the CAT Reporter is an Industry Member or Participant. Furthermore, the Fee Rate or Historical Fee Rate would be the same regardless of the type of venue a trade was executed on, or how the trade ultimately occurred more generally (e.g., in a manner that generated more message traffic). In addition, the Funding Proposal recognizes the different trading characteristics of Listed Options and OTC Equity Securities as compared to NMS Stocks. The Funding Proposal recognizes that Listed Options trade in contracts rather than shares, and, therefore, counts the executed equivalent shares for Listed Options accordingly. Similarly, in recognition of the different trading characteristics of OTC Equity Securities as compared to NMS Stocks, the Funding Proposal would discount the share volume of OTC Equity Securities when calculating the CAT fees. As a result, the Funding Proposal would not favor or unfairly burden any one type of trading venue, product or product type. With the elimination of tiers, fees for Industry Members and Participants are directly related to their executed equivalent share volume of their transactions. With tiers, the relationship between a CAT Reporter’s share volume and the CAT fee would not have been as direct. j. No Burden on Competition The Funding Proposal does ‘‘not impose any burden on competition not necessary or appropriate in furtherance 153 Sections 6(b)(5) and 15A(b)(6) of the Exchange Act. E:\FR\FM\21MRN2.SGM 21MRN2 17122 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices of the purposes of this chapter,’’ 154 as required by the Exchange Act, and it fairly and equitably allocates costs among CAT Reporters. The Funding Proposal would operate in a manner similar to the funding model employed by the SEC and the Participants related to section 31 of the Exchange Act as well as the FINRA TAF 155 and the ORF rules, and these long-standing fees to cover regulatory costs have been approved by the Commission as satisfying the requirements under the Exchange Act, including not imposing a burden on the competition that is not necessary or appropriate under the Exchange Act. Furthermore, the Funding Proposal does not impose a burden on competition for the reasons set forth above, including in Sections A.9.s and A.11.e of this filing above. described above, and is designed to assist the Participants in meeting their regulatory obligations pursuant to the CAT NMS Plan. Because all Participants are subject to the Funding Proposal set forth in the proposed amendment, this is not a competitive filing that raises competition issues between and among the Participants. Furthermore, for the reasons discussed above, including in Sections A.11.e and A.11.j of this filing above, CAT LLC does not believe that the Funding Proposal would result in any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Exchange Act. B. Governing or Constituent Documents Not applicable. G. Approval by Plan Sponsors in Accordance With Plan Section 12.3 of the CAT NMS Plan states that, subject to certain exceptions, the CAT NMS Plan may be amended from time to time only by a written amendment, authorized by the affirmative vote of not less than twothirds of all of the Participants, that has been approved by the SEC pursuant to Rule 608 of Regulation NMS under the Exchange Act or has otherwise become effective under Rule 608 of Regulation NMS under the Exchange Act. In addition, Section 4.3(a)(vi) of the Plan requires the Operating Committee, by Majority Vote, to authorize action to determine the appropriate fundingrelated policies, procedures and practices-consistent with Article XI. The Operating Committee has satisfied both of these requirements. In addition, the Funding Proposal was discussed and voted on during the Operating Committee meetings. C. Implementation of Amendment CAT LLC is filing this proposed amendment pursuant to Rule 608(b)(1) of Regulation NMS under the Exchange Act.156 D. Development and Implementation Phases The Participants expect to implement the proposed CAT fees upon approval by the SEC, subject to applicable requirements for the implementation of the CAT fees, including the requirements of section 19(b) of the Exchange Act with regard to Industry Member CAT Fees, the satisfaction of applicable Financial Accountability Milestones as set forth in Section 11.6 of the CAT NMS Plan, and the implementation of the billing and collection system for the CAT fees. E. Analysis of Impact on Competition CAT LLC does not believe that the proposed amendment would result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. CAT LLC notes that the proposed amendment implements provisions of the CAT NMS Plan approved by the Commission, subject to proposed revisions to the CAT NMS Plan ddrumheller on DSK120RN23PROD with NOTICES2 154 Sections 6(b)(8) and 15A(b)(9) of the Exchange Act. 155 Although the FINRA TAF is designed to cover a subset of the costs of FINRA services (e.g., costs to FINRA of the supervision and regulation of members, including performing examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities) rather than all of FINRA’s costs like the CAT, the transactionbased calculation of the FINRA TAF and the proposed CAT fees are similar. 156 17 CFR 242.608(b)(1). VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 F. Written Understanding or Agreements Relating to Interpretation of, or Participation in, Plan Not applicable. H. Description of Operation of Facility Contemplated by the Proposed Amendment Not applicable. I. Terms and Conditions of Access Not applicable. J. Method of Determination and Imposition, and Amount of, Fees and Charges Section A of this filing describes in detail how CAT LLC developed the Funding Proposal for the CAT. K. Method and Frequency of Processor Evaluation Not applicable. L. Dispute Resolution Section 11.5 of the CAT NMS Plan addresses the resolution of disputes PO 00000 Frm 00038 Fmt 4701 Sfmt 4703 regarding CAT fees charged to Participants and Industry Members. Specifically, Section 11.5 of the CAT NMS Plan states that: [d]isputes with respect to fees the Company charges Participants pursuant to Article XI of the CAT NMS Plan shall be determined by the Operating Committee or a Subcommittee designated by the Operating Committee. Decisions by the Operating Committee or such designated Subcommittee on such matters shall be binding on Participants, without prejudice to the rights of any Participant to seek redress from the SEC pursuant to Rule 608 of Regulation NMS under the Exchange Act or in any other appropriate forum. In addition, the Participants adopted rules to establish the procedures for resolving potential disputes related to CAT fees charged to Industry Members.157 III. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the amendment is consistent with the Exchange Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number 4– 698 on the subject line. Paper Comments • Send paper comments 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 plan amendment that are filed with the Commission, and all written communications relating to the amendment between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 157 See Securities Exchange Act Rel. No. 81500 (Aug. 30, 2017), 82 FR 42143 (Sept. 6, 2017). E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the Participants’ offices. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number 4–698 and should be submitted on or before April 11, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.158 Dated: March 15, 2023. Sherry R. Haywood, Assistant Secretary. EXHIBIT A Proposed Revisions to CAT NMS Plan Additions italicized; deletions [bracketed] * * * * * Article I Definitions ddrumheller on DSK120RN23PROD with NOTICES2 * * * * * ‘‘CAT Executing Broker’’ means (a) with respect to a transaction in an Eligible Security that is executed on an exchange, the Industry Member identified as the Industry Member responsible for the order on the buy-side of the transaction and the Industry Member responsible for the sell-side of the transaction in the equity order trade event and option trade event in the CAT Data submitted to the CAT by the relevant exchange pursuant to the Participant Technical Specifications; and (b) with respect to a transaction in an Eligible Security that is executed otherwise than on an exchange and required to be reported to an equity trade reporting facility of a registered national securities association, the Industry Member identified as the executing broker and the Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event in the CAT Data submitted to the CAT by FINRA pursuant to the Participant Technical Specifications; provided, however, in those circumstances where there is a non-Industry Member identified as the contra-side executing broker in the TRF/ ORF/ADF transaction data event or no contra-side executing broker is identified in the TRF/ORF/ADF 158 17 CFR 200.30–3(a)(85). VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 transaction data event, then the Industry Member identified as the executing broker in the TRF/ORF/ADF transaction data event would be treated as CAT Executing Broker for the Buyer and for the Seller. * * * * * [‘‘Execution Venue’’ means 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).] * * * * * Article XI Funding of the Company Section 11.1. Funding Authority. (a) On an annual basis the Operating Committee shall approve [an] a reasonable operating budget for the Company. The budget shall include the projected costs of the Company, including the costs of developing and operating the CAT for the upcoming year, and the sources of all revenues to cover such costs, as well as the funding of any reserve that the Operating Committee reasonably deems appropriate for prudent operation of the Company. (i) Without limiting the foregoing, the reasonably budgeted CAT costs shall include technology (including cloud hosting services, operating fees, CAIS operating fees, change request fees and capitalized developed technology costs), legal, consulting, insurance, professional and administration, and public relations costs, a reserve and such other cost categories as reasonably determined by the Operating Committee to be included in the budget. (ii) For the reserve referenced in paragraph (a)(i) of this Section, the budget will include an amount reasonably necessary to allow the Company to maintain a reserve of not more than 25% of the annual budget. To the extent collected CAT fees exceed CAT costs, including the reserve of 25% of the annual budget, such surplus shall be used to offset future fees. For the avoidance of doubt, the Company will only include an amount for the reserve in the annual budget if the Company does not have a sufficient reserve (which shall be up to but not more than 25% of the annual budget). For the avoidance of doubt, the calculation of the amount of the reserve would exclude the amount of the reserve from the budget. (b) Subject to Section 11.1 and Section 11.2, the Operating Committee shall have discretion to establish funding for the Company, including: (i) establishing fees that the Participants PO 00000 Frm 00039 Fmt 4701 Sfmt 4703 17123 shall pay; and (ii) establishing fees for Industry Members that shall be implemented by Participants. The Participants shall file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves, and such fees shall be labeled as ‘‘Consolidated Audit Trail Funding Fees.’’ (c) To fund the development and implementation of the CAT, the Company shall time the imposition and collection of all fees on Participants and Industry Members in a manner reasonably related to the timing when the Company expects to incur such development and implementation costs. In determining fees on Participants and Industry Members the Operating Committee shall take into account fees, costs and expenses (including legal and consulting fees and expenses) reasonably incurred by the Participants on behalf of the Company prior to the Effective Date in connection with the creation and implementation of the CAT, and such fees, costs and expenses shall be fairly and reasonably shared among the Participants and Industry Members. Any surplus of the Company’s revenues over its expenses shall be treated as an operational reserve to offset future fees. (d) Consistent with this Article XI, the Operating Committee shall adopt policies, procedures, and practices regarding the budget and budgeting process, [assignment of tiers,] resolution of disputes, billing and collection of fees, and other related matters. [For the avoidance of doubt, as part of its regular review of fees for the CAT, the Operating Committee shall have the right to change the tier assigned to any particular Person in accordance with fee schedules previously filed with the Commission that are reasonable, equitable and not unfairly discriminatory and subject to public notice and comment, pursuant to this Article XI. Any such changes will be effective upon reasonable notice to such Person.] Section 11.2. Funding Principles. In establishing the funding of the Company, the Operating Committee shall seek: (a) 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; (b) to establish an allocation of the Company’s related costs among Participants and Industry Members that is consistent with the Exchange Act, taking into account the timeline for implementation of the CAT [and E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 17124 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices distinctions in the securities trading operations of Participants and Industry Members and their relative impact upon Company resources and operations]; (c) to establish a [tiered] fee structure in which the fees charged to [: (i)] Participants and [CAT Reporters that are Execution Venues, including ATSs, are based upon the level of market share; (ii)] Industry Members[’ non-ATS activities] are based upon the executed equivalent share volume of transactions in Eligible Securities, and the costs of the CAT [message traffic; and (iii) the CAT Reporters with the most CATrelated 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)]. (d) to provide for ease of billing and other administrative functions; (e) to avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality; and (f) to build financial stability to support the Company as a going concern. Section 11.3. Recovery. (a) Prospective CAT Costs. The Operating Committee will establish [fixed] fees (‘‘CAT Fees’’) to be payable by [Execution Venues] Participants and Industry Members with regard to CAT costs not previously paid by the Participants (‘‘Prospective CAT Costs’’) as follows [provided in this Section 11.3(a)]: (i) Fee Rate. The Operating Committee will calculate the Fee Rate for the CAT Fee twice per year, once at the beginning of the year and once during the year as follows. (A) General. (I) For the beginning of each year, the Operating Committee will calculate the Fee Rate by dividing the reasonably budgeted CAT costs for the year by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the year. Once the Operating Committee has approved such Fee Rate, the Participants shall be required to file with the SEC pursuant to Section 19(b) of the Exchange Act CAT Fees to be charged to Industry Members calculated using such Fee Rate. Participants and Industry Members will be required to pay CAT Fees calculated using this Fee Rate once such CAT Fees are in effect with regard to Industry Members in accordance with Section 19(b) of the Exchange Act. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 (II) During each year, the Operating Committee will calculate a new Fee Rate by dividing the reasonably budgeted CAT costs for the remainder of the year by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the remainder of the year. Once the Operating Committee has approved the new Fee Rate, the Participants shall be required to file with the SEC pursuant to Section 19(b) of the Exchange Act CAT Fees to be charged to Industry Members calculated using the new Fee Rate. Participants and Industry Members will be required to pay CAT Fees calculated using this new Fee Rate once such CAT Fees are in effect with regard to Industry Members in accordance with Section 19(b) of the Exchange Act. (III) For the avoidance of doubt, CAT Fees with a Fee Rate calculated as set forth in this paragraph (a)(i) shall remain in effect until the Operating Committee approves a new Fee Rate as described in paragraph (a)(i) and CAT Fees with the new Fee Rate are in effect with regard to Industry Members in accordance with Section 19(b) of the Exchange Act. (IV) For the avoidance of doubt, the first CAT Fee may commence at the beginning of the year or during the year. If it were to commence during the year, the first CAT Fee would be calculated as described in paragraph (II) of this Section. (B) Executed Equivalent Shares. For purposes of calculating CAT Fees, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows: (I) each executed share for a transaction in NMS Stocks will be counted as one executed equivalent share; (II) each executed contract for a transaction in Listed Options will be counted based on the multiplier applicable to the specific Listed Option (i.e., 100 executed equivalent shares or such other applicable multiplier); and (III) each executed share for a transaction in OTC Equity Securities shall be counted as 0.01 executed equivalent share. (C) Budgeted CAT Costs. The budgeted CAT costs for the year shall be comprised of all reasonable fees, costs and expenses reasonably budgeted to be incurred by or for the Company in connection with the development, implementation and operation of the CAT as set forth in the annual operating budget approved by the Operating Committee pursuant to Section 11.1(a) of the CAT NMS Plan, or as adjusted PO 00000 Frm 00040 Fmt 4701 Sfmt 4703 during the year by the Operating Committee. (D) Projected Total Executed Equivalent Share Volume of Transactions in Eligible Securities. The Operating Committee shall reasonably determine the projected total executed equivalent share volume of all transactions in Eligible Securities for each relevant period based on the executed equivalent share volume of all transactions in Eligible Securities for the prior twelve months. (ii) Participant CAT Fees. (A) CAT Fee Obligation. Each Participant that is a national securities exchange will be required to pay the CAT Fee for each transaction in Eligible Securities executed on the exchange in the prior month based on CAT Data. Each Participant that is a national securities association will be required to pay the CAT Fee for each transaction in Eligible Securities executed otherwise than on an exchange in the prior month based on CAT Data. The CAT Fee for each transaction in Eligible Securities will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3. (B) Effectiveness. Each Participant will be required to pay the CAT Fee calculated using the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3 and approved by the Operating Committee only if such CAT Fees are in effect with regard to Industry Members in accordance with Section 19(b) of the Exchange Act. (iii) Industry Member CAT Fees. (A) CAT Fee Obligation. Each Industry Member that is the CAT Executing Broker for the buyer in a transaction in Eligible Securities (‘‘CAT Executing Broker for the Buyer’’ or ‘‘CEBB’’) and each Industry Member that is the CAT Executing Broker for the seller in a transaction in Eligible Securities (‘‘CAT Executing Broker for the Seller’’ or ‘‘CEBS’’) will be required to pay a CAT Fee for each such transaction in Eligible Securities in the prior month based on CAT Data. The CEBB’s CAT Fee or CEBS’s CAT Fee (as applicable) for each transaction in Eligible Securities will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3. (B) Content of Fee Filings. When the Participants file with the SEC pursuant to Section 19(b) of the Exchange Act CAT Fees to be charged to Industry E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices Members calculated using the Fee Rate that the Operating Committee approved in accordance with paragraph (a) of this Section 11.3, such filings shall set forth (A) the Fee Rate; (B) the budget for the upcoming year (or remainder of the year, as applicable), including a brief description of each line item in the budget, including (1) technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration, and (6) public relations costs, a reserve and/or such other categories as reasonably determined by the Operating Committee to be included in the budget, and the reason for changes in each such line item from the prior CAT Fee filing; (C) a discussion of how the budget is reconciled to the collected fees; and (D) the projected total executed equivalent share volume of all transactions in Eligible Securities for the year (or remainder of the year, as applicable), and a description of the calculation of the projection. The information provided in this Section would be provided with sufficient detail to demonstrate that the budget for the upcoming year, or part of year, as applicable, is reasonable and appropriate. (C) No Participant will make a filing with the SEC pursuant to Section 19(b) of the Exchange Act regarding any CAT Fee related to Prospective CAT Costs until the Financial Accountability Milestone related to Period 4 described in Section 11.6 has been satisfied. (iv) CAT Fee Details. (A) Details regarding the calculation of a Participant or CAT Executing Brokers’ CAT Fees will be provided upon request to such Participant or CAT Executing Broker. At a minimum, such details would include each Participant or CAT Executing Broker’s executed equivalent share volume and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions. (B) For each CAT Fee, at a minimum, CAT LLC will make publicly available the aggregate executed equivalent share volume and corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buyside transactions and sell-side transactions. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 [(i) Each Execution Venue that: (A) executes transactions; or (B) in the case of a national securities association, has trades reported by its members to its trade reporting facility or facilities for reporting transactions effected otherwise than on an exchange, in NMS Stocks or OTC Equity Securities will pay a fixed fee depending on the market share of that Execution Venue in NMS Stocks and OTC Equity Securities, with the Operating Committee establishing at least two and no more than five tiers of fixed fees, based on an Execution Venue’s NMS Stocks and OTC Equity Securities market share. For these purposes, market share for Execution Venues that execute transactions will be calculated by share volume, and market share for a national securities association that has trades reported by its members to its trade reporting facility or facilities for reporting transactions effected otherwise than on an exchange in NMS Stocks or OTC Equity Securities will be calculated based on share volume of trades reported, provided, however, that the share volume reported to such national securities association by an Execution Venue shall not be included in the calculation of such national security association’s market share.] [(ii) Each Execution Venue that executes transactions in Listed Options will pay a fixed fee depending on the Listed Options market share of that Execution Venue, with the Operating Committee establishing at least two and no more than five tiers of fixed fees, based on an Execution Venue’s Listed Options market share. For these purposes, market share will be calculated by contract volume.] (b) Past CAT Costs. The Operating Committee will establish [fixed] one or more fees (each a ‘‘Historical CAT Assessment’’) to be payable by Industry Members with regard to CAT costs previously paid by the Participants (‘‘Past CAT Costs’’) as follows: [, based on the message traffic generated by such Industry Member, with the Operating Committee establishing at least five and no more than nine tiers of fixed fees, based on message traffic. For the avoidance of doubt, the fixed fees payable by Industry Members pursuant to this paragraph shall, in addition to any other applicable message traffic, include message traffic generated by: (i) an ATS that does not execute orders that is sponsored by such Industry Member; and (ii) routing orders to and from any ATS sponsored by such Industry Member.] (i) Calculation of Historical Fee Rates. (A) General. The Operating Committee will calculate the Historical PO 00000 Frm 00041 Fmt 4701 Sfmt 4703 17125 Fee Rate for each Historical CAT Assessment by dividing the Historical CAT Costs for each Historical CAT Assessment by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the Historical Recovery Period for each Historical CAT Assessment. Once the Operating Committee has approved such Historical Fee Rate, the Participants shall be required to file with the SEC pursuant to Section 19(b) of the Exchange Act such Historical CAT Assessment to be charged to Industry Members calculated using such Historical Fee Rate. Industry Members will be required to pay such Historical CAT Assessment calculated using such Historical Fee Rate once such Historical CAT Assessment is in effect in accordance with Section 19(b) of the Exchange Act. (B) Executed Equivalent Shares. For purposes of calculating each Historical CAT Assessment, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted in the same manner as set forth in paragraph (a)(i)(B) of this Section 11.3. (C) Historical CAT Costs. The Operating Committee will reasonably determine the Historical CAT Costs sought to be recovered by each Historical CAT Assessment, where the Historical CAT Costs will be Past CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT Costs by the Operating Committee. Each Historical CAT Assessment will seek to recover from CAT Executing Brokers two-thirds of Historical CAT Costs incurred during the period covered by the Historical CAT Assessment. (D) Historical Recovery Period. (I) The length of the Historical Recovery Period used in calculating each Historical Fee Rate will be reasonably established by the Operating Committee based upon the amount of the Historical CAT Costs to be recovered by the Historical CAT Assessment; provided, however, no Historical Recovery Period used in calculating the Historical Fee Rate shall be less than 24 months or more than five years. (II) Notwithstanding the length of the Historical Recovery Period used in calculating the Historical Fee Rate, each Historical CAT Assessment calculated using the Historical Fee Rate will remain in effect until all Historical CAT Costs for the Historical CAT Assessment are collected. (E) Projected Total Executed Equivalent Share Volume of Transactions in Eligible Securities for Historical Recovery Period. The Operating Committee shall reasonably determine the projected total executed E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 17126 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices equivalent share volume of all transactions in Eligible Securities for each Historical Recovery Period based on the executed equivalent share volume of all transactions in Eligible Securities for the prior twelve months. (ii) Past CAT Costs and Participants. Because Participants previously have paid Past CAT Costs via loans to the Company, Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants’ one-third share of Historical CAT Costs and such other additional Past CAT Costs as reasonably determined by the Operating Committee will be paid by the cancellation of loans made to the Company on a pro rata basis based on the outstanding loan amounts due under the loans. Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs. (iii) Historical CAT Assessment for Industry Members. (A) Each month in which a Historical CAT Assessment is in effect, each CEBB and each CEBS shall pay a fee for each transaction in Eligible Securities executed by the CEBB or CEBS from the prior month as set forth in CAT Data, where the Historical CAT Assessment for each transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Historical Fee Rate reasonably determined pursuant to paragraph (b)(i) of this Section 11.3. (B) Historical CAT Assessment Fee Filings. (I) Participants will be required to file with the SEC pursuant to Section 19(b) of the Exchange Act a filing for each Historical CAT Assessment. (II) When the Participants file with the SEC pursuant to Section 19(b) of the Exchange Act a Historical CAT Assessment calculated using the Historical Fee Rate that the Operating Committee approved in accordance with paragraph (b) of this Section 11.3, such filing shall set forth (A) the Historical Fee Rate; (B) a brief description of the amount and type of the Historical CAT Costs, including (1) the technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees, and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration and (6) public relations costs; (C) the Historical Recovery Period and the reasons for its length; and (D) the projected total executed equivalent share volume of all transactions in Eligible Securities for the Historical Recovery Period, and a description of the calculation of the projection. The information provided in VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 this Section would be provided with sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate. (III) No Participant will make a filing with the SEC pursuant to Section 19(b) of the Exchange Act regarding any Historical CAT Assessment until any applicable Financial Accountability Milestone described in Section 11.6 has been satisfied. (iv) Historical CAT Assessment Details. (A) Details regarding the calculation of a CAT Executing Broker’s Historical CAT Assessment will be provided upon request to such CAT Executing Broker. At a minimum, such details would include each CAT Executing Broker’s executed equivalent share volume and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions. (B) For each Historical CAT Assessment, at a minimum, CAT LLC will make publicly available the aggregate executed equivalent share volume and corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buyside transactions and sell-side transactions. (c) The Operating Committee may establish any other fees ancillary to the operation of the CAT that it reasonably determines appropriate, including fees: (i) for the late or inaccurate reporting of information to the CAT; (ii) for correcting submitted information; and (iii) based on access and use of the CAT for regulatory and oversight purposes (and not including any reporting obligations). (d) The Company shall make publicly available a schedule of effective fees and charges adopted pursuant to this Agreement as in effect from time to time. The Operating Committee shall review such fee schedule on at least an annual basis and shall make any changes to such fee schedule that it deems appropriate. The Operating Committee is authorized to review such fee schedule on a more regular basis, but shall not make any changes on more than a semiannual basis unless, pursuant to a Supermajority Vote, the Operating Committee concludes that such change is necessary for the adequate funding of the Company. * * * * * PO 00000 Frm 00042 Fmt 4701 Sfmt 4703 APPENDIX B Fee Schedule Consolidated Audit Trail Funding Fees for Participants (a) CAT Fee. Each Participant shall pay the CAT Fee set forth in Section 11.3(a) of the CAT NMS Plan to Consolidated Audit Trail, LLC in the manner prescribed by Consolidated Audit Trail, LLC on a monthly basis based on the Participant’s transactions in Eligible Securities in the prior month. * * * * * EXHIBIT B Proposed Revisions to CAT NMS Plan as Proposed To Be Revised in the February 2023 Proposed Partial Amendment Additions italicized; deletions [bracketed] * * * * * Article I Definitions * * * * * ‘‘CAT Executing Broker’’ means (a) with respect to a transaction in an Eligible Security that is executed on an exchange, the Industry Member identified as the Industry Member responsible for the order on the buy-side of the transaction and the Industry Member responsible for the sell-side of the transaction in the equity order trade event and option trade event in the CAT Data submitted to the CAT by the relevant exchange pursuant to the Participant Technical Specifications; and (b) with respect to a transaction in an Eligible Security that is executed otherwise than on an exchange and required to be reported to an equity trade reporting facility of a registered national securities association, the Industry Member identified as the executing broker and the Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event in the CAT Data submitted to the CAT by FINRA pursuant to the Participant Technical Specifications; provided, however, in those circumstances where there is a non-Industry Member identified as the contra-side executing broker in the TRF/ ORF/ADF transaction data event or no contra-side executing broker is identified in the TRF/ORF/ADF transaction data event, then the Industry Member identified as the executing broker in the TRF/ORF/ADF transaction data event would be treated as CAT Executing Broker for the Buyer and for the Seller. * * * * * E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES2 Article XI Funding of the Company Section 11.1. Funding Authority. (a) On an annual basis the Operating Committee shall approve [an] a reasonable operating budget for the Company. The budget shall include the projected costs of the Company, including the costs of developing and operating the CAT for the upcoming year, and the sources of all revenues to cover such costs, as well as the funding of any reserve that the Operating Committee reasonably deems appropriate for prudent operation of the Company. (i) Without limiting the foregoing, the reasonably budgeted CAT costs shall include technology (including cloud hosting services, operating fees, CAIS operating fees, change request fees and capitalized developed technology costs), legal, consulting, insurance, professional and administration, and public relations costs, a reserve and such other cost categories as reasonably determined by the Operating Committee to be included in the budget. (ii) For the reserve referenced in paragraph (a)(i) of this Section, the budget will include an amount reasonably necessary to allow the Company to maintain a reserve of not more than 25% of the annual budget. To the extent collected CAT fees exceed CAT costs, including the reserve of 25% of the annual budget, such surplus shall be used to offset future fees. For the avoidance of doubt, the Company will only include an amount for the reserve in the annual budget if the Company does not have a sufficient reserve (which shall be up to but not more than 25% of the annual budget). For the avoidance of doubt, the calculation of the amount of the reserve would exclude the amount of the reserve from the budget. (b) Subject to Section 11.1 and Section 11.2, the Operating Committee shall have discretion to establish funding for the Company, including: (i) establishing fees that the Participants shall pay; and (ii) establishing fees for Industry Members that shall be implemented by Participants. The Participants shall file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves, and such fees shall be labeled as ‘‘Consolidated Audit Trail Funding Fees.’’ (c) To fund the development and implementation of the CAT, the Company shall time the imposition and collection of all fees on Participants and Industry Members in a manner VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 reasonably related to the timing when the Company expects to incur such development and implementation costs. In determining fees on Participants and Industry Members the Operating Committee shall take into account fees, costs and expenses (including legal and consulting fees and expenses) reasonably incurred by the Participants on behalf of the Company prior to the Effective Date in connection with the creation and implementation of the CAT, and such fees, costs and expenses shall be fairly and reasonably shared among the Participants and Industry Members. Any surplus of the Company’s revenues over its expenses shall be treated as an operational reserve to offset future fees. (d) Consistent with this Article XI, the Operating Committee shall adopt policies, procedures, and practices regarding the budget and budgeting process, resolution of disputes, billing and collection of fees, and other related matters. Section 11.2. Funding Principles. In establishing the funding of the Company, the Operating Committee shall seek: (a) 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; (b) to establish an allocation of the Company’s related costs among Participants and Industry Members that is consistent with the Exchange Act, taking into account the timeline for implementation of the CAT; (c) to establish a fee structure in which the fees charged to Participants and Industry Members are based upon the executed equivalent share volume of transactions in Eligible Securities, and the costs of the CAT. (d) to provide for ease of billing and other administrative functions; (e) to avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality; and (f) to build financial stability to support the Company as a going concern. Section 11.3. Recovery. (a) Prospective CAT Costs. The Operating Committee will establish fees (‘‘CAT Fees’’) to be payable by Participants and Industry Members with regard to CAT costs not previously paid by the Participants (‘‘Prospective CAT Costs’’) as follows: (i) Fee Rate. The Operating Committee will calculate the Fee Rate for the CAT Fee twice per year, once at the beginning of the year and once during the year as follows. PO 00000 Frm 00043 Fmt 4701 Sfmt 4703 17127 (A) General. (I) For the beginning of each year, the Operating Committee will calculate the Fee Rate by dividing the reasonably budgeted CAT costs for the year by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the year. Once the Operating Committee has approved such Fee Rate, the Participants shall be required to file with the SEC pursuant to Section 19(b) of the Exchange Act CAT Fees to be charged to Industry Members calculated using such Fee Rate. Participants and Industry Members will be required to pay CAT Fees calculated using this Fee Rate once such CAT Fees are in effect with regard to Industry Members in accordance with Section 19(b) of the Exchange Act. (II) During each year, the Operating Committee will calculate a new Fee Rate by dividing the reasonably budgeted CAT costs for the remainder of the year by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the remainder of the year. Once the Operating Committee has approved the new Fee Rate, the Participants shall be required to file with the SEC pursuant to Section 19(b) of the Exchange Act CAT Fees to be charged to Industry Members calculated using the new Fee Rate. Participants and Industry Members will be required to pay CAT Fees calculated using this new Fee Rate once such CAT Fees are in effect with regard to Industry Members in accordance with Section 19(b) of the Exchange Act. (III) For the avoidance of doubt, CAT Fees with a Fee Rate calculated as set forth in this paragraph (a)(i) shall remain in effect until the Operating Committee approves a new Fee Rate as described in paragraph (a)(i) and CAT Fees with the new Fee Rate are in effect with regard to Industry Members in accordance with Section 19(b) of the Exchange Act. (IV) For the avoidance of doubt, the first CAT Fee may commence at the beginning of the year or during the year. If it were to commence during the year, the first CAT Fee would be calculated as described in paragraph (II) of this Section. (B) Executed Equivalent Shares. For purposes of calculating CAT Fees, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows: (I) each executed share for a transaction in NMS Stocks will be counted as one executed equivalent share; E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 17128 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices (II) each executed contract for a transaction in Listed Options will be counted based on the multiplier applicable to the specific Listed Option (i.e., 100 executed equivalent shares or such other applicable multiplier); and (III) each executed share for a transaction in OTC Equity Securities shall be counted as 0.01 executed equivalent share. (C) Budgeted CAT Costs. The budgeted CAT costs for the year shall be comprised of all reasonable fees, costs and expenses reasonably budgeted to be incurred by or for the Company in connection with the development, implementation and operation of the CAT as set forth 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. (D) Projected Total Executed Equivalent Share Volume of Transactions in Eligible Securities. The Operating Committee shall reasonably determine the projected total executed equivalent share volume of all transactions in Eligible Securities for each relevant period based on the executed equivalent share volume of all transactions in Eligible Securities for the prior twelve months. (ii) Participant CAT Fees. (A) CAT Fee Obligation. Each Participant that is a national securities exchange will be required to pay the CAT Fee for each transaction in Eligible Securities executed on the exchange in the prior month based on CAT Data. Each Participant that is a national securities association will be required to pay the CAT Fee for each transaction in Eligible Securities executed otherwise than on an exchange in the prior month based on CAT Data. The CAT Fee for each transaction in Eligible Securities will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3. (B) Effectiveness. Each Participant will be required to pay the CAT Fee calculated using the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3 and approved by the Operating Committee only if such CAT Fees are in effect with regard to Industry Members in accordance with Section 19(b) of the Exchange Act. (iii) Industry Member CAT Fees. (A) CAT Fee Obligation. Each Industry Member that is the CAT Executing Broker for the buyer in a transaction in Eligible Securities (‘‘CAT Executing Broker for the Buyer’’ or VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 ‘‘CEBB’’) and each Industry Member that is the CAT Executing Broker for the seller in a transaction in Eligible Securities (‘‘CAT Executing Broker for the Seller’’ or ‘‘CEBS’’) will be required to pay a CAT Fee for each such transaction in Eligible Securities in the prior month based on CAT Data. The CEBB’s CAT Fee or CEBS’s CAT Fee (as applicable) for each transaction in Eligible Securities will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Fee Rate reasonably determined pursuant to paragraph (a)(i) of this Section 11.3. (B) Content of Fee Filings. When the Participants file with the SEC pursuant to Section 19(b) of the Exchange Act CAT Fees to be charged to Industry Members calculated using the Fee Rate that the Operating Committee approved in accordance with paragraph (a) of this Section 11.3, such filings shall set forth (A) the Fee Rate; (B) the budget for the upcoming year (or remainder of the year, as applicable), including a brief description of each line item in the budget, including (1) technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration, and (6) public relations costs, a reserve and/or such other categories as reasonably determined by the Operating Committee to be included in the budget, and the reason for changes in each such line item from the prior CAT Fee filing; (C) a discussion of how the budget is reconciled to the collected fees; and (D) the projected total executed equivalent share volume of all transactions in Eligible Securities for the year (or remainder of the year, as applicable), and a description of the calculation of the projection. The information provided in this Section would be provided with sufficient detail to demonstrate that the budget for the upcoming year, or part of year, as applicable, is reasonable and appropriate. (C) No Participant will make a filing with the SEC pursuant to Section 19(b) of the Exchange Act regarding any CAT Fee related to Prospective CAT Costs until the Financial Accountability Milestone related to Period 4 described in Section 11.6 has been satisfied. (iv) CAT Fee Details. (A) Details regarding the calculation of a Participant or CAT Executing Brokers’ CAT Fees will be provided upon request to such Participant or CAT Executing Broker. At a minimum, such details would include each Participant PO 00000 Frm 00044 Fmt 4701 Sfmt 4703 or CAT Executing Broker’s executed equivalent share volume and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions. (B) For each CAT Fee, at a minimum, CAT LLC will make publicly available the aggregate executed equivalent share volume and corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buyside transactions and sell-side transactions. (b) Past CAT Costs. The Operating Committee will establish one or more fees (each a ‘‘Historical CAT Assessment’’) to be payable by Industry Members with regard to CAT costs previously paid by the Participants (‘‘Past CAT Costs’’) as follows: (i) Calculation of Historical Fee Rates. (A) General. The Operating Committee will calculate the Historical Fee Rate for each Historical CAT Assessment by dividing the Historical CAT Costs for each Historical CAT Assessment by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for the Historical Recovery Period for each Historical CAT Assessment. Once the Operating Committee has approved such Historical Fee Rate, the Participants shall be required to file with the SEC pursuant to Section 19(b) of the Exchange Act such Historical CAT Assessment to be charged to Industry Members calculated using such Historical Fee Rate. Industry Members will be required to pay such Historical CAT Assessment calculated using such Historical Fee Rate once such Historical CAT Assessment is in effect in accordance with Section 19(b) of the Exchange Act. (B) Executed Equivalent Shares. For purposes of calculating each Historical CAT Assessment, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted in the same manner as set forth in paragraph (a)(i)(B) of this Section 11.3. (C) Historical CAT Costs. The Operating Committee will reasonably determine the Historical CAT Costs sought to be recovered by each Historical CAT Assessment, where the Historical CAT Costs will be Past CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT Costs by the Operating Committee. Each Historical CAT Assessment will seek to E:\FR\FM\21MRN2.SGM 21MRN2 ddrumheller on DSK120RN23PROD with NOTICES2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices recover from CAT Executing Brokers two-thirds of Historical CAT Costs incurred during the period covered by the Historical CAT Assessment. (D) Historical Recovery Period. (I) The length of the Historical Recovery Period used in calculating each Historical Fee Rate will be reasonably established by the Operating Committee based upon the amount of the Historical CAT Costs to be recovered by the Historical CAT Assessment; provided, however, no Historical Recovery Period used in calculating the Historical Fee Rate shall be less than 24 months or more than five years. (II) Notwithstanding the length of the Historical Recovery Period used in calculating the Historical Fee Rate, each Historical CAT Assessment calculated using the Historical Fee Rate will remain in effect until all Historical CAT Costs for the Historical CAT Assessment are collected. (E) Projected Total Executed Equivalent Share Volume of Transactions in Eligible Securities for Historical Recovery Period. The Operating Committee shall reasonably determine the projected total executed equivalent share volume of all transactions in Eligible Securities for each Historical Recovery Period based on the executed equivalent share volume of all transactions in Eligible Securities for the prior twelve months. (ii) Past CAT Costs and Participants. Because Participants previously have paid Past CAT Costs via loans to the Company, Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants’ one-third share of [Past] Historical CAT Costs and such other additional Past CAT Costs as reasonably determined by the Operating Committee will be paid by the cancellation of loans made to [by] the Company on a pro rata basis based on the outstanding loan amounts due under the loans. Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs. (iii) Historical CAT Assessment for Industry Members. (A) Each month in which a Historical CAT Assessment is in effect, each CEBB and each CEBS shall pay a fee for each transaction in Eligible Securities executed by the CEBB or CEBS from the prior month as set forth in CAT Data, where the Historical CAT Assessment for each transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Historical Fee Rate reasonably determined pursuant to paragraph (b)(i) of this Section 11.3. VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 (B) Historical CAT Assessment Fee Filings. (I) Participants will be required to file with the SEC pursuant to Section 19(b) of the Exchange Act a filing for each Historical CAT Assessment. (II) When the Participants file with the SEC pursuant to Section 19(b) of the Exchange Act a Historical CAT Assessment calculated using the Historical Fee Rate that the Operating Committee approved in accordance with paragraph (b) of this Section 11.3, such filing shall set forth (A) the Historical Fee Rate; (B) a brief description of the amount and type of the Historical CAT Costs, including (1) the technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees, and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration and (6) public relations costs; (C) the Historical Recovery Period and the reasons for its length; and (D) the projected total executed equivalent share volume of all transactions in Eligible Securities for the Historical Recovery Period, and a description of the calculation of the projection. The information provided in this Section would be provided with sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate. (III) No Participant will make a filing with the SEC pursuant to Section 19(b) of the Exchange Act regarding any Historical CAT Assessment until any applicable Financial Accountability Milestone described in Section 11.6 has been satisfied. (iv) Historical CAT Assessment Details. (A) Details regarding the calculation of a CAT Executing Broker’s Historical CAT Assessment will be provided upon request to such CAT Executing Broker. At a minimum, such details would include each CAT Executing Broker’s executed equivalent share volume and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions. (B) For each Historical CAT Assessment, at a minimum, CAT LLC will make publicly available the aggregate executed equivalent share volume and corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy- PO 00000 Frm 00045 Fmt 4701 Sfmt 4703 17129 side transactions and sell-side transactions. (c) The Operating Committee may establish any other fees ancillary to the operation of the CAT that it reasonably determines appropriate, including fees: (i) for the late or inaccurate reporting of information to the CAT; (ii) for correcting submitted information; and (iii) based on access and use of the CAT for regulatory and oversight purposes (and not including any reporting obligations). (d) The Company shall make publicly available a schedule of effective fees and charges adopted pursuant to this Agreement as in effect from time to time. The Operating Committee shall review such fee schedule on at least an annual basis and shall make any changes to such fee schedule that it deems appropriate. The Operating Committee is authorized to review such fee schedule on a more regular basis, but shall not make any changes on more than a semiannual basis unless, pursuant to a Supermajority Vote, the Operating Committee concludes that such change is necessary for the adequate funding of the Company. * * * * * APPENDIX B Fee Schedule Consolidated Audit Trail Funding Fees for Participants (a) CAT Fee. Each Participant shall pay the CAT Fee set forth in Section 11.3(a) of the CAT NMS Plan to Consolidated Audit Trail, LLC in the manner prescribed by Consolidated Audit Trail, LLC on a monthly basis based on the Participant’s transactions in Eligible Securities in the prior month. * * * * * EXHIBIT C CAT Fee Example for Illustrative Purposes Only The following sets forth an example of a Historical CAT Assessment calculated under the Funding Proposal for illustrative purposes only. The example sets forth the Historical CAT Assessment that each CAT Executing Broker would pay related to CAT costs from prior to 2022 based on each CAT Executing Broker’s transactions in December 2022. The first chart, entitled ‘‘Calculation of Historical CAT Assessment,’’ describes how the example fees are calculated. The second chart, entitled ‘‘Aggregate Executed Equivalent Share Volume and Corresponding Aggregate Fee for December 2022 for Certain Categories,’’ sets forth the aggregated amounts of E:\FR\FM\21MRN2.SGM 21MRN2 17130 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices executed equivalent share volume and corresponding fee for December 2022 for the categories set forth in Proposed Section 11.3(b)(iv) of the CAT NMS Plan, which include (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions. The third chart, entitled ‘‘Historical CAT Assessment for Each CAT Executing Broker,’’ sets forth the example fees each CAT Executing Broker would pay based on its transactions in Eligible Securities in December 2022 in accordance with the parameters of the example. Note that Exhibit C only provides an illustrative example of how the Funding Proposal would operate for informational purposes; the calculation of the actual Historical CAT Assessment for CAT costs from prior to 2022 would differ from this example in various ways. For example, the illustrative example calculates the Historical Fee Rate using the projected total executed equivalent share transactions in Eligible Securities for 2023–2024, rather than the projected executed equivalent share volume for the actual Historical Recovery Period, the dates of which will be determined upon approval of the Funding Proposal. In addition, the illustrative example calculates the Historical CAT Assessment based on a CEBB and CEBS’s trading activity from December 2022, rather than trading activity during a relevant month in which the Historical CAT Assessment would be in effect. Moreover, the illustrative example, among other things, calculates the executed equivalent shares for each executed contract for a transaction in Listed Options using a 100 executed equivalent share multiplier, instead of the specific multiplier applicable to each Listed Option; it uses a simple projection calculation of doubling the total executed equivalent share volume for 2022 (rather than a projection that considers volume growth and other relevant factors); and it may include cancelled trades or trades that were later corrected.159 CALCULATION OF HISTORICAL CAT ASSESSMENT Item Value Calculation Proposed plan provision Actual Total Executed Equivalent Share Volume of Transactions in Eligible Securities for 2022. Historical Recovery Period .................... 4,039,821,841,560.31 Executed Equivalent Shares. Calculated using actual transactions in Eligible Securities for 2022. 2 years .................................................. Projected Total Executed Equivalent Share Volume of Transactions in Eligible Securities for 2023–2024. 8,079,643,683,120.62 Executed Equivalent Shares. Historical CAT Costs for Pre-2022 ........ $337,688,610 ........................................ Historical Fee Rate ................................ $0.0000417950 per Executed Equivalent Share. Historical CAT Assessment for CAT Executing Brokers for pre-2022 Historical CAT Costs for December 2022. See ‘‘Historical Fee Assessment for Each CAT Executing Broker’’ chart below. Total Amount to be Collected via Historical CAT Assessment for pre-2022 Historical CAT Costs. $225,125,740 ........................................ Length between 2 and 5 years as determined by Operating Committee. 2*4,039,821,841,560.31 Executed Equivalent Shares (Actual Executed Equivalent Share Volume of Transactions in Eligible Securities for 2022 multiplied by two). $401,312,909–$63,624,299 (Past CAT Costs for pre-2022 minus CAT Costs excluded from Past CAT Costs for pre-2022). $337,688,610/8,079,643,683,120.62 (Historical CAT Costs for pre-2022 divided by Projected Total Executed Equivalent Share Volume of Transactions in Eligible Securities for 2023–2024). Executed Equivalent Share Volume of Transactions in Eligible Securities for December 2022 for each CAT Executing Broker multiplied by Historical Fee Rate multiplied by one-third.160 2/3 * $337,688,610 (Two-thirds of Historical CAT Costs). Proposed Sections 11.3(a)(i)(B) and 11.3(b)(i)(B). Proposed Section 11.3(b)(i)(D)(I). Proposed Section 11.3(b)(i)(E). Proposed Section 11.3(b)(i)(C). Proposed Section 11.3(b)(i)(A). Proposed Section 11.3(b)(iii)(A). Proposed Sections 11.3(b)(i)(C) and 11.3(b)(iii)(A). AGGREGATE EXECUTED EQUIVALENT SHARE VOLUME AND CORRESPONDING AGGREGATE FEE FOR DECEMBER 2022 FOR CERTAIN CATEGORIES Aggregate executed equivalent share volume for December 2022 ddrumheller on DSK120RN23PROD with NOTICES2 Category of transaction Aggregate historical CAT assessment for December 2022 (in dollars) Listed Options .......................................................................................................................... NMS Stocks ............................................................................................................................. OTC Equity Securities ............................................................................................................. 171,596,408,600.00 455,096,327,128.00 2,835,446,929.62 2,390,623.27 6,340,248.50 39,502.49 Buy-Side Transactions ............................................................................................................. Sell-Side Transactions ............................................................................................................. 314,765,626,228.81 314,762,556,428.81 4,385,208.51 4,385,165.75 159 Section A.1.d of this filing discusses how cancellations and corrections would be addressed under the Funding Proposal. Brokers would pay $0.00001393167 per executed equivalent share (that is, $0.0000417950 per executed equivalent share multiplied by one-third). VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 160 Because the Historical Fee Rate is multiplied by one-third in calculating the Historical CAT Assessment for the example, CAT Executing PO 00000 Frm 00046 Fmt 4701 Sfmt 4703 E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices 17131 AGGREGATE EXECUTED EQUIVALENT SHARE VOLUME AND CORRESPONDING AGGREGATE FEE FOR DECEMBER 2022 FOR CERTAIN CATEGORIES—Continued Aggregate executed equivalent share volume for December 2022 Category of transaction Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed Executed on BOX .................................................................................................................... on Cboe BYX ........................................................................................................... on Cboe BZX ........................................................................................................... on Cboe EDGA ........................................................................................................ on Cboe EDGX ........................................................................................................ on Cboe C2 ............................................................................................................. on Cboe ................................................................................................................... on IEX ...................................................................................................................... on LTSE ................................................................................................................... on MEMX ................................................................................................................. on MIAX ................................................................................................................... on MIAX Emerald .................................................................................................... on MIAX PEARL ...................................................................................................... on Nasdaq BX ......................................................................................................... on Nasdaq GEMX ................................................................................................... on Nasdaq ISE ........................................................................................................ on Nasdaq MRX ...................................................................................................... on Nasdaq PHLX ..................................................................................................... on Nasdaq ............................................................................................................... on NYSE .................................................................................................................. on NYSE American ................................................................................................. on NYSE Arca ......................................................................................................... on NYSE Chicago ................................................................................................... on NYSE National ................................................................................................... Otherwise than on an Exchange ............................................................................. 11,476,557,600 5,010,889,784 28,387,794,900 5,987,423,230 35,456,933,206 7,093,009,200 31,832,709,200 10,534,111,236 14,709,130 13,471,198,984 9,473,736,600 4,451,989,200 13,382,643,690 7,033,829,520 2,750,988,600 8,771,296,800 2,373,050,600 22,234,997,366 84,953,835,448 46,589,923,124 12,939,380,646 57,732,682,568 1,851,452,536 2,482,827,634 203,240,211,856 Aggregate historical CAT assessment for December 2022 (in dollars) 159,887.53 69,810.03 395,489.18 83,414.76 493,974.03 98,817.41 443,482.57 146,757.68 204.92 187,676.20 131,984.90 62,023.61 186,442.48 97,992.94 38,325.85 122,198.75 33,060.54 309,770.48 1,183,548.17 649,075.09 180,267.09 804,312.26 25,793.81 34,589.92 2,831,474.07 HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161 Executed equivalent share volume of transactions in eligible securities for December 2022 ddrumheller on DSK120RN23PROD with NOTICES2 CAT 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VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00047 Fmt 4701 Sfmt 4703 86,112,198,133.20 38,481,541,952.55 38,393,700,002.03 38,459,064,211.23 27,384,672,407.15 23,625,876,388.24 22,953,981,909.23 17,620,665,100.45 17,628,940,532.54 20,031,215,101.53 16,301,270,280.00 19,404,461,254.15 11,441,178,404.00 12,179,858,717.98 12,076,770,928.00 11,623,298,048.64 9,955,221,266.53 10,285,573,046.70 10,481,313,179.31 9,456,042,067.81 7,969,275,763.65 5,853,036,941.30 9,044,202,748.00 8,129,937,025.67 9,466,559,704.00 8,098,701,385.00 6,220,173,476.92 4,940,607,300.00 5,496,193,202.99 4,183,004,192.80 3,748,760,073.00 3,930,225,757.70 2,926,196,700.00 4,040,159,976.45 E:\FR\FM\21MRN2.SGM 21MRN2 Historical CAT assessment for December 2022 (in dollars) 1,199,686.09 536,111.86 534,888.08 535,798.71 381,514.02 329,147.74 319,787.13 245,485.16 245,600.45 279,068.13 227,103.80 270,336.41 159,394.64 169,685.68 168,249.50 161,931.87 138,692.78 143,295.13 146,022.12 131,738.39 111,025.26 81,542.54 126,000.78 113,263.54 131,884.92 112,828.38 86,657.36 68,830.87 76,571.11 58,276.20 52,226.46 54,754.58 40,766.79 56,286.15 17132 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161—Continued Executed equivalent share volume of transactions in eligible securities for December 2022 ddrumheller on DSK120RN23PROD with NOTICES2 CAT executing broker 35 ............................................................................................................................................. 36 ............................................................................................................................................. 37 ............................................................................................................................................. 38 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VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00048 Fmt 4701 Sfmt 4703 Historical CAT assessment for December 2022 (in dollars) 2,462,962,342.00 3,255,347,005.69 1,795,144,783.11 1,533,939,983.00 2,462,084,862.71 2,226,415,053.41 1,847,364,910.34 2,416,691,618.00 1,232,981,799.00 2,181,268,648.12 2,131,136,467.07 1,099,857,600.00 1,469,689,428.23 2,168,992,900.00 1,496,908,444.00 1,534,294,028.00 65,606,592.00 1,735,293,007.06 1,307,878,500.00 1,178,185,898.26 1,430,077,857.02 1,151,205,287.63 1,409,986,241.50 1,103,808,027.33 1,029,656,664.02 857,333,700.00 961,305,300.00 1,867,947,700.00 1,039,246,045.38 1,101,469,802.00 562,430,300.00 733,501,357.00 877,224,476.00 34,313.16 45,352.40 25,009.35 21,370.33 34,300.94 31,017.66 25,736.86 33,668.53 17,177.49 30,388.70 29,690.27 15,322.85 20,475.22 30,217.68 20,854.42 21,375.27 914.01 24,175.52 18,220.92 16,414.09 19,923.36 16,038.20 19,643.45 15,377.88 14,344.83 11,944.08 13,392.58 26,023.62 14,478.43 15,345.31 7,835.59 10,218.89 12,221.20 829,161,852.00 966,607,368.00 821,501,400.00 677,405,637.00 1,015,740,702.00 522,418,991.27 989,301,187.72 773,642,309.00 11,551.60 13,466.45 11,444.88 9,437.39 14,150.96 7,278.17 13,782.61 10,778.12 590,057,809.16 737,007,679.37 536,705,303.00 767,854,826.21 635,942,409.58 864,089,556.95 620,860,189.00 700,713,844.00 727,102,431.00 556,678,644.00 581,059,177.09 559,881,462.22 483,502,237.48 413,725,788.00 610,245,108.09 405,594,302.00 353,080,033.04 550,986,110.00 522,200,254.96 452,909,875.00 314,934,600.00 1,172,981,298.00 418,591,392.71 56,226,707.15 444,528,797.00 8,220.49 10,267.74 7,477.20 10,697.49 8,859.74 12,038.20 8,649.61 9,762.11 10,129.75 7,755.46 8,095.12 7,800.08 6,735.99 5,763.89 8,501.73 5,650.60 4,918.99 7,676.15 7,275.12 6,309.79 4,387.56 16,341.58 5,831.67 783.33 6,193.03 E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices 17133 HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161—Continued 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VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00049 Fmt 4701 Sfmt 4703 Historical CAT assessment for December 2022 (in dollars) 243,033,674.00 826,825,093.31 363,355,742.00 319,206,742.76 234,606,209.64 714,493,322.00 313,455,910.25 1,031,910,466.00 258,090,705.06 472,580,692.79 431,793,880.31 337,914,803.56 339,736,815.43 909,158,616.00 290,642,115.00 347,421,063.79 350,667,538.15 318,322,800.00 263,757,425.20 3,385.86 11,519.05 5,062.15 4,447.08 3,268.45 9,954.08 4,366.96 14,376.23 3,595.63 6,583.83 6,015.61 4,707.72 4,733.10 12,666.09 4,049.13 4,840.15 4,885.38 4,434.77 3,674.58 375,530,471.00 53,557,200.00 5,231.76 746.14 283,825,411.16 143,392,400.00 217,718,090.88 165,915,140.89 457,613,070.46 251,132,793.81 219,112,442.00 43,938,745.15 330,967,497.01 188,838,809.00 227,575,404.47 206,478,844.94 3,954.16 1,997.69 3,033.17 2,311.47 6,375.31 3,498.70 3,052.60 612.14 4,610.93 2,630.84 3,170.50 2,876.59 292,467,800.00 165,645,008.32 214,739,622.63 185,617,991.19 165,469,188.00 5,019,600.00 956,355,049.08 64,960,719.00 289,141,549.00 147,498,787.28 158,995,017.79 122,676,294.48 136,312,675.96 27,284,757.00 352,462,000.00 126,212,114.45 4,074.56 2,307.71 2,991.68 2,585.97 2,305.26 69.93 13,323.62 905.01 4,028.22 2,054.90 2,215.06 1,709.08 1,899.06 380.12 4,910.38 1,758.34 128,125,560.32 60,988,464.36 131,730,011.56 74,526,683.59 147,853,117.00 113,883,427.93 1,785.00 849.67 1,835.22 1,038.28 2,059.84 1,586.59 116,699,318.87 129,812,902.58 106,768,335.00 140,139,530.00 82,905,120.00 99,813,775.33 61,257,698.00 265,568,648.00 1,625.82 1,808.51 1,487.46 1,952.38 1,155.01 1,390.57 853.42 3,699.81 E:\FR\FM\21MRN2.SGM 21MRN2 17134 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161—Continued Executed equivalent share volume of transactions in eligible securities for December 2022 ddrumheller on DSK120RN23PROD with NOTICES2 CAT executing broker 171 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VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00050 Fmt 4701 Sfmt 4703 Historical CAT assessment for December 2022 (in dollars) 98,014,634.68 95,296,632.53 52,272,295.77 38,307,460.47 84,787,219.45 79,498,966.79 55,374,006.21 156,404,961.23 60,642,356.86 118,133,629.00 76,062,700.00 248,176,128.68 79,008,100.00 85,278,937.00 70,228,707.00 62,833,390.18 41,480,726.45 176,929,414.00 29,253,925.81 105,263,657.06 77,787,800.00 68,984,712.00 61,335,825.68 67,297,274.77 51,129,783.08 1,365.51 1,327.64 728.24 533.69 1,181.23 1,107.55 771.45 2,178.98 844.85 1,645.80 1,059.68 3,457.51 1,100.71 1,188.08 978.40 875.37 577.90 2,464.92 407.56 1,466.50 1,083.71 961.07 854.51 937.56 712.32 68,089,568.19 40,730,576.79 39,525,291.39 91,093,000.00 57,676,030.00 6,831,789.24 316,923,604.92 56,604,000.00 33,836,692.76 3,686,360.00 87,223,619.59 22,659,425.86 36,155,445.78 27,633,449.00 3,789,049.10 948.60 567.44 550.65 1,269.08 803.52 95.18 4,415.27 788.59 471.40 51.36 1,215.17 315.68 503.71 384.98 52.79 11,802,608.52 39,707,587.00 69,601,570.00 26,765,942.82 32,246,115.00 5,604,885.00 15,282,378.75 21,777,071.28 19,782,551.00 25,665,436.26 24,403,825.19 69,596,229.05 15,677,771.93 25,267,934.00 22,258,692.00 10,262,505.79 164.43 553.19 969.67 372.89 449.24 78.09 212.91 303.39 275.60 357.56 339.99 969.59 218.42 352.02 310.10 142.97 18,989,070.64 14,408,226.00 18,945,600.00 13,376,162.82 20,807,919.37 17,593,056.07 15,126,721.74 13,674,994.00 264.55 200.73 263.94 186.35 289.89 245.10 210.74 190.52 E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices 17135 HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161—Continued Executed equivalent share volume of transactions in eligible securities for December 2022 ddrumheller on DSK120RN23PROD with NOTICES2 CAT executing broker 239 ........................................................................................................................................... 240 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VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00051 Fmt 4701 Sfmt 4703 Historical CAT assessment for December 2022 (in dollars) 6,144,297.00 14,525,850.31 38,208,766.82 14,895,098.80 11,078,635.00 10,226,692.01 11,521,371.11 11,162,808.43 18,083,706.64 15,739,833.71 9,587,210.86 18,980,980.00 5,974,342.18 18,009,063.00 12,371,171.00 16,961,858.62 12,751,377.12 7,665,867.62 14,798,978.38 11,422,776.00 9,486,103.23 18,142,315.00 13,643,800.00 85.60 202.37 532.31 207.51 154.34 142.47 160.51 155.52 251.94 219.28 133.57 264.44 83.23 250.90 172.35 236.31 177.65 106.80 206.17 159.14 132.16 252.75 190.08 21,333,324.60 14,024,523.06 9,609,378.96 3,764,664.51 9,263,917.20 13,514,542.97 7,063,688.49 9,204,383.57 297.21 195.38 133.87 52.45 129.06 188.28 98.41 128.23 4,165,675.24 8,795,482.50 58.03 122.54 7,151,874.00 2,656,709.93 99.64 37.01 11,041,371.25 9,618,241.51 10,409,870.33 2,381,247.97 79,562,536.00 5,028,862.00 3,583,471.00 6,047,686.70 10,121,031.10 153.82 134.00 145.03 33.17 1,108.44 70.06 49.92 84.25 141.00 4,562,944.01 1,995,032.12 3,603,016.17 49,058,772.00 5,326,788.04 5,199,894.30 63.57 27.79 50.20 683.47 74.21 72.44 7,396,224.93 8,377,144.03 10,426,990.00 4,328,332.63 103.04 116.71 145.27 60.30 22,059,594.00 2,719,871.36 307.33 37.89 9,336,370.70 8,250,582.32 11,309,704.54 2,825,954.04 130.07 114.94 157.56 39.37 E:\FR\FM\21MRN2.SGM 21MRN2 17136 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161—Continued Executed equivalent share volume of transactions in eligible securities for December 2022 ddrumheller on DSK120RN23PROD with NOTICES2 CAT executing broker 307 ........................................................................................................................................... 308 ........................................................................................................................................... 309 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VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00052 Fmt 4701 Sfmt 4703 Historical CAT assessment for December 2022 (in dollars) 3,015,453.22 2,985,881.79 3,550,440.79 3,796,542.00 681,600.00 6,701,908.00 7,515,141.47 1,813,867.00 25,693,200.00 8,571,418.81 4,618,323.00 2,871,231.32 1,312,921.00 3,167,425.85 101,019.48 3,859,688.00 4,632,446.85 42.01 41.60 49.46 52.89 9.50 93.37 104.70 25.27 357.95 119.41 64.34 40.00 18.29 44.13 1.41 53.77 64.54 2,755,282.00 3,449,977.69 2,682,536.34 6,303,034.00 1,464,170.44 2,405,671.00 3,837,456.05 2,098,139.00 927,380.00 38.39 48.06 37.37 87.81 20.40 33.51 53.46 29.23 12.92 453,254.09 8,591,832.75 3,385,354.11 6.31 119.70 47.16 1,634,758.00 935,226.00 823,172.38 7,230,086.55 2,994,432.00 5,133,362.77 22.77 13.03 11.47 100.73 41.72 71.52 1,744,000.00 24.30 5,993,119.17 83.49 652,857.00 424,927.00 953,388.28 9.10 5.92 13.28 2,291,065.00 3,155,865.00 374,015.00 1,665,732.44 128,500.00 401,400.00 830,021.00 910,747.00 1,232,435.70 14,888,100.00 1,702,250.00 3,676,612.12 919,741.00 3,712,051.51 635,368.00 447,894.00 2,272,345.00 1,374,837.10 1,552,729.36 2,180,116.97 31.92 43.97 5.21 23.21 1.79 5.59 11.56 12.69 17.17 207.42 23.72 51.22 12.81 51.72 8.85 6.24 31.66 19.15 21.63 30.37 E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices 17137 HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161—Continued Executed equivalent share volume of transactions in eligible securities for December 2022 ddrumheller on DSK120RN23PROD with NOTICES2 CAT executing broker 375 ........................................................................................................................................... 376. 377 ........................................................................................................................................... 378 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VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00053 Fmt 4701 Sfmt 4703 E:\FR\FM\21MRN2.SGM Historical CAT assessment for December 2022 (in dollars) 798,527.92 11.12 1,399,199.54 4,536,762.00 1,061,788.00 2,827,862.97 1,053,097.00 939,300.00 254.00 1,088,114.00 773,060.00 387,116.56 873,812.55 665,749.00 795,558.50 2,597,253.00 948,046.00 1,107,547.00 3,654,035.00 521,279.00 410,769.00 2,622,813.00 554,541.44 179,200.00 841,840.24 523,709.00 19.49 63.20 14.79 39.40 14.67 13.09 0.00 15.16 10.77 5.39 12.17 9.27 11.08 36.18 13.21 15.43 50.91 7.26 5.72 36.54 7.73 2.50 11.73 7.30 462,520.50 379,314.02 217,857.00 513,184.27 130,200.00 480,937.70 658,680.86 1,230,112.99 5,625,111.00 620,200.00 3,879,491.00 852,915.67 468,524.00 338,139.73 86,853.84 382,210.00 6.44 5.28 3.04 7.15 1.81 6.70 9.18 17.14 78.37 8.64 54.05 11.88 6.53 4.71 1.21 5.32 183,173.25 655,954.75 165,639.00 2.55 9.14 2.31 84,016.00 1.17 220,899.00 3.08 38,100.00 78,640.00 212,985.00 79,334.00 0.53 1.10 2.97 1.11 22,991.02 8,120.00 44,988.45 81,718.00 91,513.00 234,239.00 509,039.50 0.32 0.11 0.63 1.14 1.27 3.26 7.09 28,633.00 0.40 21MRN2 17138 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161—Continued Executed equivalent share volume of transactions in eligible securities for December 2022 ddrumheller on DSK120RN23PROD with NOTICES2 CAT executing broker 443. 444 ........................................................................................................................................... 445 ........................................................................................................................................... 446 ........................................................................................................................................... 447 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VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00054 Fmt 4701 Sfmt 4703 E:\FR\FM\21MRN2.SGM Historical CAT assessment for December 2022 (in dollars) 7,497.00 69,548.86 1,243,936.05 111,283.00 0.10 0.97 17.33 1.55 435,740.00 6.07 1,907,630.00 26.58 94,505.19 500,187.00 189,004.00 1.32 6.97 2.63 5,154.00 0.07 426.90 1,065.00 150,058.61 282,990.00 16,625.00 0.01 0.01 2.09 3.94 0.23 139,267.00 49,367.91 330,964.00 6,532.00 1.94 0.69 4.61 0.09 9.00 34,000.00 15,708.00 14,355.00 151,323.00 6,090.28 67,340.20 16,356.00 37.00 94,762.08 16,191.00 30,000.00 17,679.82 3,762.52 0.00 0.47 0.22 0.20 2.11 0.08 0.94 0.23 0.00 1.32 0.23 0.42 0.25 0.05 111,812.00 1.56 30,513.00 86,676.00 0.43 1.21 500.00 98,319.74 36,465.84 20,653.01 29,603.84 0.01 1.37 0.51 0.29 0.41 4,165.29 7,100.00 0.06 0.10 5,582.00 0.08 38,770.00 18,855.43 0.54 0.26 9,817.02 900.00 0.14 0.01 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices 17139 HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161—Continued Executed equivalent share volume of transactions in eligible securities for December 2022 ddrumheller on DSK120RN23PROD with NOTICES2 CAT executing broker 511 ........................................................................................................................................... 512 ........................................................................................................................................... 513 ........................................................................................................................................... 514. 515 ........................................................................................................................................... 516. 517 ........................................................................................................................................... 518 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VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00055 Fmt 4701 Sfmt 4703 E:\FR\FM\21MRN2.SGM Historical CAT assessment for December 2022 (in dollars) 4,472.75 266.00 5,298.16 0.06 0.00 0.07 169.00 0.00 4,646.78 4,646.78 6,417.00 257.00 13,387.78 1,313.00 0.06 0.06 0.09 0.00 0.19 0.02 23,714.00 4,488.00 2,787.00 1,200.00 0.33 0.06 0.04 0.02 1,947.72 2,360.20 200.00 15,261.00 267.00 0.03 0.03 0.00 0.21 0.00 2.00 0.00 1,895.46 1,369.04 1,047.00 1,507.00 0.03 0.02 0.01 0.02 2,183.01 973.00 0.03 0.01 760.01 2,774.00 45.00 747.00 0.01 0.04 0.00 0.01 799.00 257.00 207.00 0.01 0.00 0.00 6.00 0.00 402.00 0.01 164.00 0.00 118.00 5.00 0.00 0.00 68.00 75.00 15.00 34.00 0.00 0.00 0.00 0.00 9.00 0.00 85.00 75.00 0.00 0.00 21MRN2 17140 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161—Continued Executed equivalent share volume of transactions in eligible securities for December 2022 ddrumheller on DSK120RN23PROD with NOTICES2 CAT executing broker 579 ........................................................................................................................................... 580 ........................................................................................................................................... 581 ........................................................................................................................................... 582 ........................................................................................................................................... 583 ........................................................................................................................................... 584. 585 ........................................................................................................................................... 586 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........................................................................................................................................... 623 ........................................................................................................................................... 624 ........................................................................................................................................... 625 ........................................................................................................................................... 626. 627 ........................................................................................................................................... 628. 629 ........................................................................................................................................... 630 ........................................................................................................................................... 631 ........................................................................................................................................... 632. 633 ........................................................................................................................................... 634 ........................................................................................................................................... 635. 636 ........................................................................................................................................... 637 ........................................................................................................................................... 638. 639 ........................................................................................................................................... 640 ........................................................................................................................................... 641. 642. 643 ........................................................................................................................................... 644 ........................................................................................................................................... 645. 646 ........................................................................................................................................... VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 PO 00000 Frm 00056 Fmt 4701 Sfmt 4703 E:\FR\FM\21MRN2.SGM Historical CAT assessment for December 2022 (in dollars) 54.00 26.00 34.00 423.55 6.00 0.00 0.00 0.00 0.01 0.00 91.00 43.00 0.00 0.00 25.00 0.00 16.00 20.00 31.00 0.00 0.00 0.00 25.00 0.00 29.00 22.00 0.00 0.00 3.00 26.00 0.00 0.00 55.02 20.00 0.00 0.00 18.00 0.00 18.00 0.00 27.00 0.00 14.00 8.00 18.00 0.00 0.00 0.00 16.00 3.00 1.00 7.00 0.00 0.00 0.00 0.00 6.00 0.00 8.00 11.00 9.00 0.00 0.00 0.00 2.26 10.00 0.00 0.00 8.00 2.00 0.00 0.00 4.00 15.00 0.00 0.00 6.00 1.00 0.00 0.00 2.00 0.00 21MRN2 Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices 17141 HISTORICAL FEE ASSESSMENT FOR EACH CAT EXECUTING BROKER 161—Continued Executed equivalent share volume of transactions in eligible securities for December 2022 CAT executing broker 647 ........................................................................................................................................... 648 ........................................................................................................................................... 649 ........................................................................................................................................... 650. 651. 652. 653. 654. 655 ........................................................................................................................................... 656 ........................................................................................................................................... 657. 658. 659 ........................................................................................................................................... 660. 661 ........................................................................................................................................... 662 ........................................................................................................................................... 663. 664. 665. 666. 667. 668. 669. 670. 671. 672 ........................................................................................................................................... 673. 674. 675. 676. 677. 678. 679 ........................................................................................................................................... 680. 681. 682. 683. [FR Doc. 2023–05690 Filed 3–20–23; 8:45 am] BILLING CODE 8011–01–P ddrumheller on DSK120RN23PROD with NOTICES2 161 CAT LLC recognizes that an Industry Member’s knowledge of its own fees in the illustrative example would be helpful in analyzing the Funding Proposal. Accordingly, if a CAT Executing Broker is interested in learning which anonymized CAT Executing Broker in the VerDate Sep<11>2014 20:56 Mar 20, 2023 Jkt 259001 illustrative example represents its volume and fees, the CAT Executing Broker may contact the FINRA CAT Helpdesk by email at help@finracat.com. Accordingly, subject to verification of the identity of the requesting party as an authorized representative of the relevant Industry Member, the Helpdesk will provide the authorized representative of the CAT Executing Broker with the number of the applicable anonymized CAT Executing Broker in Exhibit C. In addition, upon request, the PO 00000 Frm 00057 Fmt 4701 Sfmt 9990 Historical CAT assessment for December 2022 (in dollars) 1.00 2.00 3.00 0.00 0.00 0.00 4.00 5.00 0.00 0.00 1.00 0.00 3.00 8.00 0.00 0.00 1.00 0.00 1.00 0.00 Helpdesk also will provide the CAT Executing Broker with a breakdown of its executed equivalent share volume and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sellside transactions. CAT LLC notes that the calculations provided in the table may reflect minor variations due to rounding. E:\FR\FM\21MRN2.SGM 21MRN2

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 88, Number 54 (Tuesday, March 21, 2023)]
[Notices]
[Pages 17086-17141]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05690]

[[Page 17085]]

Vol. 88

Tuesday,

No. 54

March 21, 2023

Part II

Securities and Exchange Commission

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Joint Industry Plan; Notice of Filing of Amendment to the National
Market System Plan Governing the Consolidated Audit Trail; Notice

Federal Register / Vol. 88 , No. 54 / Tuesday, March 21, 2023 /
Notices

[[Page 17086]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97151; File No. 4-698]

Joint Industry Plan; Notice of Filing of Amendment to the
National Market System Plan Governing the Consolidated Audit Trail

I. Introduction

On March 13, 2023, the 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 to implement a revised funding model (the ``Funding
Proposal'') for the consolidated audit trail (``CAT'') and to establish
a fee schedule for Participant CAT fees in accordance with the Funding
Proposal.\4\ Exhibit A, attached hereto, contains proposed revisions to
Articles I and XI of the CAT NMS Plan as well as proposed Appendix B to
the Plan containing the fee schedule. Exhibit B, attached hereto,
contains a comparison of the Funding Proposal to the executed share
funding proposal filed by CAT LLC on May 13, 2022,\5\ as amended in two
partial amendments,\6\ and later withdrawn on March 1, 2023.\7\ In
addition, CAT LLC provided an example of how a Historical CAT
Assessment would be calculated pursuant to the Funding Proposal, for
illustrative purposes only, as attached hereto as Exhibit C. The
Commission is publishing this notice to solicit comments from
interested persons on the amendment.\8\
---------------------------------------------------------------------------

\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).
\2\ 15 U.S.C. 78k-1(a)(3).
\3\ 17 CFR 242.608.
\4\ See Letter from Brandon Becker, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman, Secretary, Commission, dated
March 13, 2023 (``Transmittal Letter'').
\5\ See Securities Exchange Act Release No. 94984 (May 25,
2022), 87 FR 33226 (June 1, 2022). Comments received can be found on
the Commission's website at https://www.sec.gov/comments/4-698/4-698-a.htm.
\6\ See Securities Exchange Act Release No. 96394 (Nov. 28,
2022), 87 FR 74183 (Dec. 2, 2022). Comments received can be found on
the Commission's website at https://www.sec.gov/comments/4-698/4-698-a.htm. See also Letter from Michael Simon, CAT NMS Plan
Operating Committee Chair, to Vanessa Countryman, Secretary,
Commission (Feb. 15, 2023).
\7\ See Letter from Brandon Becker, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman, Secretary, Commission (Mar.
1, 2023).
\8\ 17 CFR 242.608.
---------------------------------------------------------------------------

II. Description of the Plan

Set forth in this Section II is an executive summary of the Funding
Proposal, along with information required by Rule 608(a) under the
Exchange Act,\9\ and a description of the proposed revisions to the CAT
NMS Plan, substantially as prepared and submitted by the Participants
to the Commission.\10\
---------------------------------------------------------------------------

\9\ See 17 CFR 242.608(a).
\10\ See Transmittal Letter, supra note 4. Unless otherwise
defined herein, capitalized terms used herein are defined as set
forth in the CAT NMS Plan.
---------------------------------------------------------------------------

Executive Summary

CAT LLC proposes to replace the funding model set forth in Article
XI of the CAT NMS Plan (the ``Original Funding Model'') with the
Funding Proposal. The Original Funding Model involves a bifurcated
approach, where costs associated with building and operating the CAT
would be borne by (1) Industry Members (other than alternative trading
systems (``ATSs'') that execute transactions in Eligible Securities
(``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. In contrast, the Funding
Proposal would charge fees based on executed equivalent share volume of
transactions in Eligible Securities rather than based on market share
and message traffic.
Under the Funding Proposal, CAT LLC proposes to establish two
categories of CAT fees. The first category of CAT fees would be fees
(``CAT Fees'') payable by Participants and Industry Members that are
CAT Executing Brokers for the Buyer and for the Seller with regard to
CAT costs not previously paid by the Participants (``Prospective CAT
Costs''). The CAT Fee for each transaction would be calculated by
multiplying the executed equivalent shares in the transaction by one-
third and the applicable ``Fee Rate.'' The Funding Proposal would
describe in detail each aspect relevant to the CAT Fees, including a
description of the Prospective CAT Costs, the calculation of the Fee
Rate, the definition of ``CAT Executing Broker,'' the fee filings made
pursuant to section 19(b) of the Exchange Act for CAT Fees, and
information available related to CAT Fees, both publicly and upon
request.
The second category of CAT fees would be fees (``Historical CAT
Assessments'') to be payable by Industry Members that are CAT Executing
Brokers for the Buyer and for the Seller with regard to CAT costs
previously paid by the Participants (``Past CAT Costs''). The
Historical CAT Assessment for each transaction would be calculated by
multiplying the number of executed equivalent shares in the transaction
by one-third and the applicable ``Historical Fee Rate.'' Like with the
CAT Fees related to Prospective CAT Costs, the Funding Proposal would
describe in detail each aspect relevant to Historical CAT Assessments,
including a description of Historical CAT Costs, the calculation of the
Historical Fee Rate, the definition of ``CAT Executing Broker,'' the
fee filings made pursuant to section 19(b) of the Exchange Act for
Historical CAT Assessments, and information available related to
Historical CAT Assessments, both publicly and upon request.
The Participants separately intend to file rule filings under
section 19(b) of the Exchange Act and Rule 19b-4(f)(2) thereunder to
establish the CAT Fees and Historical CAT Assessments to be charged to
Industry Members based on the Funding Proposal set forth in the CAT NMS
Plan.
CAT LLC has gone through an extensive process of evaluating and
seeking comment on various funding models since the inception of CAT.
In addition to the variety of alternative models considered by CAT LLC
(as described in Section A.10 of this filing), the proposed CAT funding
model has been subject to substantial public review and comment via the
proposed amendment to the CAT NMS Plan published by the SEC on May 25,
2022

[[Page 17087]]

(the ``2022 Funding Proposal''),\11\ the subsequent order instituting
proceedings related to the 2022 Funding Proposal \12\ and two partial
amendments regarding the 2022 Funding Proposal.\13\ Thirteen comment
letters were submitted in response to the 2022 Funding Proposal, as
amended, and CAT LLC submitted three detailed responses to
comments.\14\ CAT LLC withdrew the 2022 Funding Proposal on March 1,
2023.\15\ Subject to certain minor revisions, the Funding Proposal set
forth herein is the same proposal as the 2022 Funding Proposal, as
amended in the two partial amendments. The minor changes made to the
2022 Funding Proposal are noted in this filing, and separately
identified in Exhibit B to this filing.
---------------------------------------------------------------------------

\11\ Securities Exchange Act Rel. No. 94984 (May 25, 2022), 87
FR 33226 (June 1, 2022) (``2022 Funding Proposal Release'').
\12\ Securities Exchange Act Rel. No. 95634 (Aug. 30, 2022), 87
FR 54558 (Sept. 6, 2022).
\13\ Securities Exchange Act Rel. No. 96394 (Nov. 28, 2022), 87
FR 74183 (Dec. 2, 2022) (``Partial Amendment I''), and Letter from
Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa
Countryman, Secretary, Commission (Feb. 15, 2023) (``February 2023
Proposed Partial Amendment'').
\14\ Letter from Michael Simon, CAT NMS Plan Operating Committee
Chair, to Vanessa Countryman, Secretary, Commission (Aug. 16, 2022);
Letter from Michael Simon, CAT NMS Plan Operating Committee Chair,
to Vanessa Countryman, Secretary, Commission (Nov. 15, 2022); and
February 2023 Proposed Partial Amendment.
\15\ Letter from Brandon Becker, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman, Secretary, Commission (Mar.
1, 2023).
---------------------------------------------------------------------------

The Funding Proposal would provide reasonable fees that are
equitably allocated, not unfairly discriminatory, and do not impose an
undue burden on competition, in that the proposal 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. Moreover, the Funding Proposal would be consistent with past
fee structures that have been approved by the Commission. It also 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. The Exchange Act
does not require CAT LLC to demonstrate that the Funding Proposal is
superior to any other potential proposal. Instead, CAT LLC must
demonstrate that the Funding Proposal is consistent with the Exchange
Act and the rules and regulations thereunder. CAT LLC believes that the
Funding Proposal satisfies the requirements of the Exchange Act and
should be approved by the Commission.

Requirements Pursuant to Rule 608(a)

A. Description of the Proposed Amendments to the CAT NMS Plan
CAT LLC describes in detail the Funding Proposal in this Section A:
Definition of CAT Executing Broker: CAT LLC describes the
definition of a ``CAT Executing Broker'' in Section A.1 of this filing.
CAT Budget: Budgeted CAT costs are described in Section
A.2 of this filing.
CAT Fees related to Prospective CAT Costs: CAT LLC
discusses CAT Fees related to Prospective CAT Costs in Section A.3 of
this filing.
Historical CAT Assessments: CAT LLC discusses Historical
CAT Assessments related to Historical CAT Costs in Section A.4 of this
filing.
CAT Fee Schedule for Participants: To implement the CAT
fees to be paid by the Participants under the Funding Proposal, CAT LLC
proposes to add a fee schedule, entitled ``Consolidated Audit Trail
Funding Fees,'' to Appendix B of the CAT NMS Plan. This fee schedule is
discussed in Section A.5 of this filing.
Additional Changes from Original Funding Model: CAT LLC
discusses additional proposed revisions to Article XI of the CAT NMS
Plan to implement the change from the Original Funding Model to the
Funding Proposal in Section A.6 of this filing.
Billing and Collection of CAT Fees: The billing and
collection of CAT fees are discussed in Section A.7 of this filing.
Illustrative Example of Funding Proposal: CAT LLC provides
an illustrative example of how a Historical CAT Assessment would be
calculated pursuant to the Funding Proposal in Section A.8 of this
filing. The illustrative example is set forth in detail in Exhibit C to
this filing.
Advantages of and Support for Funding Proposal: CAT LLC
proposes to adopt the Funding Proposal as it provides a variety of
advantages over the Original Funding Model. CAT LLC discusses the
advantages of the Funding Proposal in Section A.9 of this filing.
Alternative Funding Models Considered: CAT LLC discusses
the advantages and disadvantages of a variety of alternative funding
models to the Funding Proposal in Section A.10 of this filing.
Satisfaction of Exchange Act and CAT NMS Plan
Requirements: CAT LLC discusses how the Funding Proposal satisfies each
of the funding principles and other requirements of the CAT NMS Plan,
as proposed to be revised herein, as well as the applicable
requirements of the Exchange Act in Section A.11 of this filing.
1. Definition of CAT Executing Broker
Under the Funding Proposal, each Industry Member that is a CAT
Executing Broker for the buyer in a transaction in Eligible Securities
(``CAT Executing Broker for the Buyer'' or ``CEBB'') and each Industry
Member that is the CAT Executing Broker for the seller in a transaction
in Eligible Securities (``CAT Executing Broker for the Seller'' or
``CEBS'') would be required to pay CAT Fees and Historical CAT
Assessments. Accordingly, CAT LLC proposes to add a definition of the
term ``CAT Executing Broker'' to Section 1.1 of the CAT NMS Plan. CAT
LLC would define ``CAT Executing Broker'' to mean:

(a) with respect to a transaction in an Eligible Security that
is executed on an exchange, the Industry Member identified as the
Industry Member responsible for the order on the buy-side of the
transaction and the Industry Member responsible for the sell-side of
the transaction in the equity order trade event and option trade
event in the CAT Data submitted to the CAT by the relevant exchange
pursuant to the Participant Technical Specifications; and (b) with
respect to a transaction in an Eligible Security that is executed
otherwise than on an exchange and required to be reported to an
equity trade reporting facility of a registered national securities
association, the Industry Member identified as the executing broker
and the Industry Member identified as the contra-side executing
broker in the TRF/ORF/ADF transaction data event in the CAT Data
submitted to the CAT by FINRA pursuant to the Participant Technical
Specifications; provided, however, in those circumstances where
there is a non-Industry Member identified as the contra-side
executing broker in the TRF/ORF/ADF transaction data event or no
contra-side executing broker is identified in the TRF/ORF/ADF
transaction data event, then the Industry Member identified as the
executing broker in the TRF/ORF/ADF transaction data event would be
treated as CAT Executing Broker for the Buyer and for the Seller.

Under the Participant Technical Specifications, for transactions
occurring on a Participant exchange, there is a field for the exchange
to report the market participant identifier (``MPID'') of ``the member
firm that is responsible for the order on this side of the trade.''
\16\ The Industry Members

[[Page 17088]]

identified in these fields for the transaction reports would be the CAT
Executing Brokers for transactions executed on an exchange.
Specifically, the following fields of the Participant Technical
Specifications would indicate the CAT Executing Brokers for the
transactions executed on an exchange.
---------------------------------------------------------------------------

\16\ See Section 4.7 (Order Trade Event) and Section 5.2.5.1
(Simple Option Trade Event: Side Details) of the CAT Reporting
Technical Specifications for Plan Participants, Version 4.1.0-r17
(Feb. 21, 2023), https://www.catnmsplan.com/sites/default/files/2023-02/02.21.2023-CAT-Reporting-Technical-Specifications-for-Participants-4.1.0-r17.pdf.

Equity Order Trade (EOT) \17\
----------------------------------------------------------------------------------------------------------------
Include
No. Field name Data type Description key
----------------------------------------------------------------------------------------------------------------
12.n.8/13.n.8............... member................. Member Alias.......... The identifier for the C
member firm that is
responsible for the
order on this side of
the trade.
Not required if there
is no order for the
side as indicated by
the NOBUYID/NOSELLID
instruction.
This must be provided
if orderID is
provided..
----------------------------------------------------------------------------------------------------------------

Option Trade (OT) \18\
----------------------------------------------------------------------------------------------------------------
Include
No. Field name Data type Description key
----------------------------------------------------------------------------------------------------------------
16.n.13/17.n.13............. member................. Member Alias.......... The identifier for the R
member firm that is
responsible for the
order.
----------------------------------------------------------------------------------------------------------------

FINRA is required to report to the CAT transactions in Eligible
Securities reported to a FINRA trade reporting facility (i.e., the
FINRA Trade Reporting Facilities (``TRF''), Over-the Counter Reporting
Facility (``ORF'') and Alternative Display Facility (``ADF'')).\19\
Under the Participant Technical Specifications, for such transactions
reported to a FINRA trade reporting facility, FINRA is required to
report the MPID of the executing party as well as the MPID of the
contra-side executing party. The Industry Members identified in these
two fields for the transaction reports would be the CAT Executing
Brokers for over-the-counter transactions. Specifically, the following
fields of the Participant Technical Specifications will indicate the
CAT Executing Brokers for the transactions executed otherwise than on
an exchange.
---------------------------------------------------------------------------

\17\ See Table 23, Section 4.7 (Order Trade Event) of the CAT
Reporting Technical Specifications for Plan Participants, Version
4.1.0-r17 (Feb. 21, 2023), https://www.catnmsplan.com/sites/default/files/2023-02/02.21.2023-CAT-Reporting-Technical-Specifications-for-Participants-4.1.0-r17.pdf.
\18\ See Table 51, Section 5.2.5.1 (Simple Option Trade Event)
of the CAT Reporting Technical Specifications for Plan Participants
(Feb. 21, 2023).
\19\ See Section 6.1 of the CAT Reporting Technical
Specifications for Plan Participants (Feb. 21, 2023).

TRF/ORF/ADF Transaction Data Event (TRF) \20\
----------------------------------------------------------------------------------------------------------------
Include
No. Field name Data type Description key
----------------------------------------------------------------------------------------------------------------
26.......................... reportingExecutingMpid. Member Alias.......... MPID of the executing R
party.
28.......................... contraExecutingMpid.... Member Alias.......... MPID of the contra- C
side executing party.
----------------------------------------------------------------------------------------------------------------

Note that a CAT Executing Broker in over-the-counter transactions
identified on the TRF/ORF/ADF Transaction Data Event is determined
based on the tape or media report, that is, a trade report that is
submitted to a FINRA trade reporting facility and reported to and
publicly disseminated by the appropriate exclusive Securities
Information Processor. A CAT Executing Broker for over-the-counter
transactions is not determined based on a non-tape report (e.g., a
regulatory report or a clearing report), which are not publicly
disseminated.\21\
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\20\ See Table 61, Section 6.1 (TRF/ORF/ADF Transaction Data
Event) of the CAT Reporting Technical Specifications for Plan
Participants (Feb. 21, 2023).
\21\ There is an exception to this statement for away-from-
market trades. These are non-media trades reported to the TRF with
an ``SRO Required Modifier Code'' of ``R''.
---------------------------------------------------------------------------

Therefore, with respect to transactions on an exchange and over-
the-counter transactions, CAT LLC would use transaction reports
reported to the CAT by FINRA or the exchanges to identify the
transaction for purposes of calculating the CAT fees as well as the CAT
Executing Broker for each transaction for purposes of calculating the
CAT fees. Accordingly, all data used to calculate the fees under the
Funding Proposal would be CAT Data, and, therefore, it would be
available through the CAT for calculating CAT fees. FINRA CAT would be
responsible for calculating the CAT fees and submitting invoices to the
CAT Executing Brokers based on this CAT Data. Moreover, defining a
``CAT Executing Broker'' in this way is a simpler analytical approach
than other potential approaches for defining the relevant executing
broker, such as identifying the originating broker for the order via an
evaluation of CAT linkages.\22\
---------------------------------------------------------------------------

\22\ Each CAT Executing Broker could determine, but would not be
required, to pass their CAT fees through to their clients, who, in
turn, could pass their CAT fees to their clients, until the fee is
imposed on the ultimate participant in the transaction.
---------------------------------------------------------------------------

CAT LLC proposes to make use of the defined term ``CAT Executing
Broker'' in Proposed Section 11.3 in describing the Funding Proposal.
CAT LLC believes the proposed definition of CAT Executing Broker and
the use of the defined term in Article XI would set forth clearly when
and in what situations an Industry Member would be considered a CAT
Executing Broker for purposes of the Funding Proposal.
a. Treatment of ATSs
The Funding Proposal would describe how CAT fees would be assessed
with

[[Page 17089]]

regard to transactions executed on ATSs, including clarification as to
which party to an ATS transaction would be treated as the CAT Executing
Broker for purposes of the Funding Proposal. The definition of a ``CAT
Executing Broker'' as proposed above would determine the CAT Executing
Brokers for transactions executed on an ATS. Specifically, if an ATS is
identified as the executing party and/or the contra-side executing
party in the TRF/ORF/ADF Transaction Data Event, then the ATS would be
a CAT Executing Broker for purposes of the Funding Proposal. If the ATS
is identified as the executing party for the buyer in such transaction
reports, then the ATS would be the CAT Executing Broker for the Buyer,
and if the ATS is identified as the executing party for the seller in
such transaction reports, then the ATS would be the CAT Executing
Broker for the Seller. An ATS also could be identified as both the CAT
Executing Broker for the Buyer and the CAT Executing Broker for the
Seller. ATSs would determine the executing party and the contra-side
executing party reported to FINRA's equity trading facilities in
accordance with the transaction reporting requirements for FINRA's
equity trading facilities.
b. Treatment of Fractional Shares
The Funding Proposal also would address how transactions in
fractional shares would be treated. As described above, CAT fees would
be charged based on the Equity Order Trade Events, Options Trade Events
and the ADF/ORF/TRF Transaction Data Events in the Participant
Technical Specifications. None of these transaction reports provide for
fractional quantities; the transaction reports must reflect whole
shares/contracts. Therefore, under the Funding Proposal, CAT fees would
be calculated without reference to fractional shares or fractional
share components of executed orders.\23\
---------------------------------------------------------------------------

\23\ To the extent that FINRA's equity transaction reporting
facilities or the exchanges report transactions in fractional shares
in the future, then the calculation of CAT fees would reflect
fractional shares as well.
---------------------------------------------------------------------------

c. Non-Industry Members on Transaction Reports
The Funding Proposal also would address how transactions that
involve a non-Industry Member would be treated under the Funding
Proposal (e.g., for internalized trades or trades with a non-FINRA
member). The FINRA trade reporting requirements state that ``[w]hen
reporting a trade with a broker-dealer that is not a FINRA member, the
non-member should not be identified on the trade report as the contra
party to the trade.'' \24\ Accordingly, when the transaction in these
cases is reported to CAT via the TRF/ORF/ADF Transaction Data Event,
the field for the reportingExecutingMpid would be populated with the
MPID of the executing broker and the field for the contraExecutingMpid
would be blank or null. As noted above, the reportingExecutingMpid is a
required field (include key = `R') that must be entered on all CAT
reports, but the contraExecutingMpid field is conditional; it does not
need to be populated, specifically to account for cases like those at
issue here (e.g., transactions with a non-FINRA member). Therefore, in
those scenarios where the contraExecutingMpid is blank, the FINRA
member identified in the reportingExecutingMpid field would be treated
as the CAT Executing Broker for both the buy-side and the sell-side of
the transaction, that is, as the CEBS and CEBB.
---------------------------------------------------------------------------

\24\ FINRA Trade Reporting FAQ 202.1.
---------------------------------------------------------------------------

In addition, under the FINRA trade reporting requirements, there is
a limited exception to the general rule about not reporting a non-
member as the contra party to the trade. Specifically, pursuant to
FINRA Trade Reporting FAQ 202.1, ``[t]here is a limited exception where
a Canadian non-member firm uses the FINRA/NASDAQ TRF or ORF for
purposes of comparing trades pursuant to a valid Non-Member Addendum to
the NASDAQ Services Agreement. In that instance, however, the Canadian
non-member must appear on the trade report as the contra party to the
trade and not as the reporting party. For any trade report on which a
Canadian non-member appears as a party to the trade, the FINRA member
must appear as the reporting party.'' In this case involving the
Canadian non-member firm exception, the executing broker identified in
the reportingExecutingMpid field would be billed for both sides of the
transaction.
CAT LLC proposes to include language in the definition of ``CAT
Executing Broker'' to address these scenarios. Specifically, CAT LLC
proposes to state the following in the definition of ``CAT Executing
Broker: ``in those circumstances where there is a non-Industry Member
identified as the contra-side executing broker in the TRF/ORF/ADF
transaction data event or no contra-side executing broker is identified
in the TRF/ORF/ADF transaction data event, then the Industry Member
identified as the executing broker in the TRF/ORF/ADF transaction data
event would be treated as CAT Executing Broker for the Buyer and for
the Seller.''
d. Cancellations and Corrections
The Funding Proposal also would provide for cancellations and
corrections. CAT LLC expects to determine CAT fees based on the
transaction reports for a month as of a particular day. To the extent
that changes are made to the transaction reports on or before the day
the CAT fees are determined for the given month, the changes will be
reflected in the monthly bill. To the extent that changes are made to
the transaction reports after the day the CAT fees are determined for
that month, subsequent bills will reflect any changes via debits or
credits, as applicable. As CAT LLC is required under the CAT NMS Plan
to adopt policies, procedures, and practices regarding the billing and
collection of fees,\25\ CAT LLC will establish specific policies and
procedures regarding the treatment of such adjustments as those related
to cancellations and corrections. Furthermore, CAT LLC will inform
Industry Members and other market participants of these policies and
procedures via FAQs, CAT Alerts and/or other appropriate methods.
---------------------------------------------------------------------------

\25\ Section 11.1(d) of the CAT NMS Plan.
---------------------------------------------------------------------------

2. CAT Budget
Section 11.1(a) of the CAT NMS Plan describes the requirement for
the Operating Committee to approve an operating budget for CAT LLC on
an annual basis. It requires the budget to ``include the projected
costs of the Company, including the costs of developing and operating
the CAT for the upcoming year, and the sources of all revenues to cover
such costs, as well as the funding of any reserve that the Operating
Committee reasonably deems appropriate for prudent operation of the
Company.'' CAT LLC proposes to provide additional detail regarding the
CAT LLC operating budget by adding proposed subparagraphs (i) and (ii)
to Section 11.1(a) of the CAT NMS Plan. Such detailed information would
provide Participants, Industry Members and other interested parties
with a clear understanding of the CAT budget, and, in turn, the
calculation of the CAT Fees.
a. Budgeted CAT Costs
CAT LLC proposes to add subparagraph (i) to Section 11.1(a) of the
CAT NMS Plan to provide additional clarity regarding the costs to be
included in the CAT budget. This proposed provision would list the
types of CAT costs to be included in the budget. Specifically, Proposed
Section

[[Page 17090]]

11.1(a)(i) of the CAT NMS Plan would state that ``[w]ithout limiting
the foregoing, the reasonably budgeted CAT costs shall include
technology (including cloud hosting services, operating fees, CAIS
operating fees, change request fees and capitalized developed
technology costs), legal, consulting, insurance, professional and
administration, and public relations costs, a reserve, and such other
categories as reasonably determined by the Operating Committee to be
included in the budget.''
Because technology costs account for more than 90% of CAT costs,
CAT LLC proposes to provide more granular information about such costs.
Specifically, CAT LLC proposes to require the inclusion of five
subcategories of technology costs in the budget: (1) cloud hosting
services, (2) operating fees, (3) Customer and Account Information
System (``CAIS'') operating fees, (4) change request fees, and (5)
capitalized developed technology costs. Breaking out technology costs
in this manner is consistent with how such costs are broken out in the
CAT budgets available on the CAT website.\26\ CAT LLC currently does
not propose to require the disclosure of additional subcategories of
cost information, such as a further breakdown of the category of cloud
hosting services into production costs, including linker costs and
storage costs. However, CAT LLC will consider the need to provide
additional cost disclosure going forward.
---------------------------------------------------------------------------

\26\ The CAT LLC budgets are available on the CAT website at
https://www.catnmsplan.com/cat-financial-and-operating-budget.
---------------------------------------------------------------------------

Furthermore, CAT LLC has determined not to provide more detailed
subcategories for the other cost categories (that is, legal,
consulting, insurance, professional and administration, and public
relations costs) at this time. Breaking out these costs into further
subcategories would establish new subcategories that are not set forth
in the budgets. In addition, these costs in the aggregate represent
less than seven percent (7%) of total CAT costs, with professional and
administration costs and public relations costs, in particular, each
representing less than one percent (1%) of overall CAT costs.
Therefore, CAT LLC does not believe that these costs warrant additional
subcategory disclosure. CAT LLC further notes that it is not considered
a best practice to publicly disclose detailed legal or insurance
information, which is particularly sensitive. Nevertheless, CAT LLC
notes that the CAT NMS Plan requires that detailed cost information be
made available to the Commission upon request, and detailed information
on CAT costs and operations is regularly made available to the
Commission staff and the Advisory Committee on a confidential basis.
CAT LLC also intends to determine costs for the operating budget
for the CAT in a reasonable manner. Accordingly, CAT LLC proposes to
amend Section 11.1(a) of the CAT NMS Plan to refer to a ``reasonable''
operating budget for CAT LLC.\27\ Specifically, the first sentence of
Section 11.1(a) of the CAT NMS Plan would be revised to read: ``On an
annual basis the Operating Committee shall approve a reasonable
operating budget for the Company.'' In addition, CAT LLC proposes to
include the term ``reasonably'' in proposed paragraph (a)(i) of Section
11.1 of the CAT NMS Plan. Specifically, CAT proposes to introduce the
term ``reasonably'' to the following proposed provision of the CAT NMS
Plan: ``Without limiting the foregoing, the reasonably budgeted CAT
costs shall include technology (including cloud hosting services,
operating fees, CAIS operating fees, change request fees, and
capitalized developed technology costs), legal, consulting, insurance,
professional and administration, and public relations costs, a reserve
and such other cost categories as reasonably determined by the
Operating Committee to be included in the budget.''
---------------------------------------------------------------------------

\27\ As highlighted in Exhibit B, this proposed revision of
Section 11.1(a) of the CAT NMS Plan was not included in the proposed
revisions related to the 2022 Funding Proposal.
---------------------------------------------------------------------------

Finally, CAT LLC proposes to amend Section 11.1(b) of the CAT NMS
Plan. Currently, Section 11.1(b) of the CAT NMS Plan states that:
Subject to Section 11.2, the Operating Committee shall have
discretion to establish funding for the Company, including: (i)
establishing fees that the Participants shall pay; and (ii)
establishing fees for Industry Members that shall be implemented by
Participants. The Participants shall file with the SEC under Section
19(b) of the Exchange Act any such fees on Industry Members that the
Operating Committee approves, and such fees shall be labeled as
``Consolidated Audit Trail Funding Fees.''
CAT LLC proposes to amend Section 11.1(b) to include a reference to
Section 11.1 as well as Section 11.2 in the ``subject to'' clause at
the beginning of the provision.\28\ CAT LLC believes this reference is
relevant because Section 11.1 sets forth requirements related to the
budget, and the budget is used in calculating CAT Fees.
---------------------------------------------------------------------------

\28\ As highlighted in Exhibit B, this proposed revision to
Section 11.1(b) of the CAT NMS Plan was not included in the proposed
revisions related to the 2022 Funding Proposal.
---------------------------------------------------------------------------

b. Reserve
Section 11.1(a) of the CAT NMS Plan states that the budget shall
include ``the funding of any reserve that the Operating Committee
reasonably deems appropriate for prudent operation of the Company.'' In
addition, Proposed Section 11.1(a)(i) of the CAT NMS Plan would state
that the budgeted CAT costs shall include a reserve. Section 11.1(c) of
the CAT NMS Plan states that ``[a]ny surplus of the Company's revenues
over its expenses shall be treated as an operational reserve to offset
future fees.'' CAT LLC proposes to add subparagraph (ii) to Section
11.1(a) of the CAT NMS Plan to provide additional details regarding the
size and use of the reserve.
To provide additional clarity regarding the size of the reserve,
CAT LLC proposes to add proposed paragraph (ii) to Section 11.1(a) of
the CAT NMS Plan to set forth the parameters for the size of the
reserve. An analysis of budgeted CAT costs and actual CAT costs for
2020, 2021 and the first nine months of 2022 demonstrates that actual
CAT costs were approximately 20% higher than budgeted amounts over this
period on a cumulative average basis. Based on the magnitude of
historical budget to actual variances as well as the difficulty in
accurately predicting various variable CAT costs, CAT LLC believes that
a 25% reserve would appear to be reasonable. Accordingly, Proposed
Section 11.1(a)(ii) of the CAT NMS Plan would state that ``[f]or the
reserve referenced in paragraph (a)(i) of this Section, the budget will
include an amount reasonably necessary to allow the Company to maintain
a reserve of not more than 25% of the annual budget.'' CAT LLC also
intends to include a reserve in the CAT budget that is reasonably
necessary to allow the CAT LLC to maintain a reserve of not more than
25% of the annual budget. Accordingly, CAT LLC proposes to include the
term ``reasonably'' in this sentence. Moreover, CAT LLC would calculate
the reserve based on the amount of the budget other than the reserve,
as the reserve is intended to provide funds for CAT LLC to pay its
bills if necessary. Accordingly, Proposed Section 11.1(a)(ii) of the
CAT NMS Plan would state that ``[f]or the avoidance of doubt, the
calculation of the amount of the reserve would

[[Page 17091]]

exclude the amount of the reserve from the budget.'' \29\
---------------------------------------------------------------------------

\29\ As highlighted in Exhibit B, this proposed revision to
Section 11.1(a)(ii) of the CAT NMS Plan was not included in the
proposed revisions related to the 2022 Funding Proposal.
---------------------------------------------------------------------------

CAT LLC also believes that it is reasonable to base the reserve on
a percentage of the budget. First, CAT LLC believes that setting the
reserve at 25% of the budget is appropriate in light of the timeline
for the collection of CAT fees.\30\ Many of CAT LLC's bills must be
paid on a monthly basis. However, CAT fees will be collected
approximately three months after the activity on which a CAT fee is
based--that is, 25% of the year. For example, activity in January would
be subject to a bill in February, which would be required to be paid
within 30 days,\31\ which would be in March. Accordingly, the reserve
would be available to address the funding needs related to the delay in
CAT LLC's receipt of the CAT fees.
---------------------------------------------------------------------------

\30\ For a discussion of the billing and collection of CAT fees,
see Section A.7 of this filing.
\31\ See Sections 3.7(b) and 11.4 of the CAT NMS Plan.
---------------------------------------------------------------------------

Second, CAT LLC has established a number of measures for
establishing a reasonable budget for the CAT, thereby providing a
reasonable starting point for the reserve calculation. For example, the
CAT NMS Plan would require the budget to be ``reasonable.'' \32\ The
Fee Rate established at the beginning of the year would be adjusted
mid-year to address changes in the actual or budgeted costs or changes
in the actual or projected executed equivalent share volume. CAT LLC
has established a variety of cost management measures, as discussed in
detail in Section A.9.bb of this filing, and has and would provide
substantial cost transparency as discussed in detail in Section A.9.l
of this filing. The CAT fee filings pursuant to section 19(b) of the
Exchange Act would provide a description how the budget is reconciled
to the collected fees.
---------------------------------------------------------------------------

\32\ See Proposed Section 11.1(a) of the CAT NMS Plan.
---------------------------------------------------------------------------

CAT LLC proposes to provide additional clarification regarding the
collection of the reserve by providing additional information as to how
budget surpluses would be treated for purposes of the reserve. CAT LLC
proposes to clarify how CAT fees collected in excess of CAT costs,
including the reserve, would be used. Specifically, proposed
subparagraph (ii) of Section 11.1(a) of the CAT NMS Plan would state
that ``[t]o the extent collected CAT fees exceed CAT costs, including
the reserve of 25% of the annual budget, such surplus will be used to
offset future fees.'' In addition, CAT LLC further proposes to state in
Proposed Section 11.1(a)(ii) of the CAT NMS Plan that ``[f]or the
avoidance of doubt, the Company will only include an amount for the
reserve in the annual budget if the Company does not have a sufficient
reserve (which shall be up to but not more than 25% of the annual
budget).''
The following examples explain the circumstances under which a
reserve would be included in the budget:
(1) Suppose that the Operating Committee had approved a budget of
$100 million for CAT costs for Year X, and a reserve of $25 million,
for a total budget of $125 million for Year X. Suppose that CAT Fees of
$125 million were collected during Year X, and that actual CAT costs
for Year X were $100 million. Therefore, CAT ended Year X with $25
million in reserve. Suppose further that the Operating Committee had
approved a budget of $100 million for CAT costs and a reserve of $25
million, for a total budget of $125 million for Year X+1. Because CAT
LLC had collected $25 million in excess of costs for the reserve in
Year X, and the excess was not necessary to cover additional costs in
Year X, CAT LLC would not include any additional amount in the budget
for a reserve for Year X+1. CAT LLC would use the excess fees collected
for the reserve.
(2) Suppose that the Operating Committee had approved a budget of
$100 million for CAT costs for Year Y, and a reserve of $25 million,
for a total budget of $125 million for Year Y. Suppose that CAT Fees of
$110 million were collected during Year Y, and that actual CAT costs
for Year Y were $100 million. Therefore, CAT ended Year Y with $10
million in reserve. Suppose further that the Operating Committee had
approved a budget of $100 million for CAT costs, and a reserve of $25
million, for a total budget of $125 million for Year Y+1. Because CAT
LLC had collected $10 million in excess of costs for the reserve in
Year Y, and the entire reserve was not necessary to cover additional
costs in Year Y, CAT LLC would only need to collect an additional $15
million for the reserve in Year Y+1, not $25 million.
c. Publicly Available Budgets
CAT LLC publicly provides the annual operating budget for the
Company as well as updates to the budget that occur during the
year.\33\ This publicly available budget information describes in
detail the budget for the Company. For example, among other things, the
budget provides specific budgeted technology costs (including cloud
hosting services, operating fees, CAIS operating fees and change
request fees) and general and administrative costs (including legal,
consulting, insurance, professional and administration, and public
relations). The Company provides such budget information on a dedicated
web page on the CAT NMS Plan website to make it readily accessible to
CAT Reporters and others.
---------------------------------------------------------------------------

\33\ To address potential changes related to the CAT during the
year, the Operating Committee may adjust the budgeted CAT costs for
the year as it reasonably deems appropriate for the prudent
operation of the Company. For example, the Operating Committee may
determine that an adjustment to the budget is necessary if actual
costs during the year are more or less than the budget, or if
unanticipated expenditures are necessary. To the extent that the
Operating Committee adjusts the budgeted CAT costs during the year
and determines to adjust the Fee Rate, the adjusted budgeted CAT
costs would be used in calculating the new Fee Rate for the
remaining months of the year.
---------------------------------------------------------------------------

3. CAT Fees Related to Prospective CAT Costs
CAT LLC proposes to describe CAT Fees related to Prospective CAT
Costs in Section 11.3(a) of the CAT NMS Plan. Proposed Section 11.3(a)
of the CAT NMS Plan would describe that the CAT Fees related to
Prospective CAT Costs apply to both Participants and Industry Members,
the manner of calculating the Fee Rate for CAT Fees, the description of
the calculation of the Participant CAT Fees, a description of the
calculation of the Industry Member CAT Fees, a description of the fee
filings under section 19(b) of the Exchange Act for Industry Member CAT
Fees, and details regarding the calculation of the CAT Fees that are
available upon request or publicly available. The following describes
Proposed Section 11.3(a) of the CAT NMS Plan in detail.
a. Introductory Statement
CAT LLC proposes to revise Section 11.3(a) of the CAT NMS Plan to
address CAT Fees related to Prospective CAT Costs for both Participants
and Industry Members. Accordingly, CAT LLC proposes to revise the
introductory statement in Proposed Section 11.3(a) of the CAT NMS Plan
to state that ``[t]he Operating Committee will establish fees (``CAT
Fees) to be payable by Participants and Industry Members with regard to
CAT costs not previously paid by the Participants (``Prospective CAT
Costs'') as follows:''.
b. Fee Rate for CAT Fees
CAT LLC proposes to describe the timing and method for calculating
the Fee Rate for the CAT Fees related to Prospective CAT Costs in
Proposed

[[Page 17092]]

Section 11.3(a)(i) of the CAT NMS Plan, and to provide additional
detail regarding the Fee Rate in that provision. Proposed Section
11.3(a)(i) of the CAT NMS Plan would state that CAT Fees related to
Prospective CAT Costs would be calculated twice a year. Specifically,
this proposed provision would state that ``[t]he Operating Committee
will calculate the Fee Rate for the CAT Fee twice per year, once at the
beginning of the year and once during the year as follows.'' CAT LLC
recognizes the need to align CAT Fees with CAT costs. Requiring the
adjustment of the Fee Rate both at the beginning of the year and once
mid-year in response to changes in the budgeted or actual costs or
projected or actual total executed equivalent share volume during the
year would likely lead to the greater alignment of CAT Fees and CAT
costs, thereby potentially avoiding the collection of CAT Fees in
excess of CAT costs or CAT Fees that are insufficient to cover CAT
costs. Accordingly, CAT LLC proposes to require both an annual and a
mid-year adjustment of the Fee Rate for the CAT Fee.
i. General
CAT LLC proposes to provide details regarding the calculation of
the Fee Rate for the CAT Fees in Proposed Section 11.3(a)(i) of the CAT
NMS Plan. The detail provided in Proposed Section 11.3(a)(i) of the CAT
NMS Plan would include a description of the calculation of the Fee Rate
at the beginning of the year and during the year, the counting method
for executed equivalent shares, the budgeted CAT costs, and the
projected total executed equivalent share volume of transactions in
Eligible Securities for the relevant period. Each of these aspects of
the CAT Fees are discussed in more detail below.
A. Annual Calculation of Fee Rate
Proposed Section 11.3(a)(i)(A)(I) of the CAT NMS Plan would
describe the annual calculation of the Fee Rate and the requirement for
Participants to file a fee filing for CAT Fees to be charged Industry
Members calculated using the Fee Rate. This proposed provision also
would state that Participants and Industry Members would be required to
pay such CAT Fees once the CAT Fees are in effect with regard to
Industry Members. Specifically, this proposed provision would state:

For the beginning of each year, the Operating Committee will
calculate the Fee Rate by dividing the reasonably budgeted CAT costs
for the year by the reasonably projected total executed equivalent
share volume of all transactions in Eligible Securities for the
year. Once the Operating Committee has approved such Fee Rate, the
Participants shall be required to file with the SEC pursuant to
section 19(b) of the Exchange Act CAT Fees to be charged to Industry
Members calculated using such Fee Rate. Participants and Industry
Members will be required to pay CAT Fees calculated using this Fee
Rate once such CAT Fees are in effect with regard to Industry
Members in accordance with section 19(b) of the Exchange Act.

CAT LLC proposes to clarify that the annual calculation of CAT Fees
would be performed using reasonably budgeted CAT costs and reasonably
projected total executed equivalent share volume.\34\ Accordingly, CAT
LLC proposes to use the term ``reasonably'' twice in the following
sentence: ``For the beginning of each year, the Operating Committee
will calculate the Fee Rate by dividing the reasonably budgeted CAT
costs for the year by the reasonably projected total executed
equivalent share volume of all transactions in Eligible Securities for
the year.''
---------------------------------------------------------------------------

\34\ As highlighted in Exhibit B, this proposed revision to add
the term ``reasonably'' before ``projected total executed equivalent
share volume'' in Proposed Section 11.3(a)(i)(A)(I) of the CAT NMS
Plan was not included in the proposed revisions related to the 2022
Funding Proposal.
---------------------------------------------------------------------------

B. Mid-Year Calculation of Fee Rate
Proposed Section 11.3(a)(i)(A)(II) of the CAT NMS Plan describes
the mandatory mid-year calculation of a new Fee Rate. This proposed
provision would describe the mid-year calculation of the Fee Rate and
the requirement for Participants to file a fee filing for CAT Fees to
be charged Industry Members calculated using the Fee Rate. This
proposed provision also would state that Participants and Industry
Members would be required to pay such CAT Fees once the CAT Fees are in
effect with regard to Industry Members. Specifically, this proposed
provision would state:

During each year, the Operating Committee will calculate a new
Fee Rate by dividing the reasonably budgeted CAT costs for the
remainder of the year by the reasonably projected total executed
equivalent share volume of all transactions in Eligible Securities
for the remainder of the year. Once the Operating Committee has
approved the new Fee Rate, the Participants shall be required to
file with the SEC pursuant to section 19(b) of the Exchange Act CAT
Fees to be charged to Industry Members calculated using the new Fee
Rate. Participants and Industry Members will be required to pay CAT
Fees calculated using this new Fee Rate once such CAT Fees are in
effect with regard to Industry Members in accordance with section
19(b) of the Exchange Act.

CAT LLC proposes to clarify that CAT Fees would be calculated
during the year using reasonably budgeted CAT costs and reasonably
projected total executed equivalent share volume.\35\ Accordingly, CAT
LLC proposes to use the term ``reasonably'' twice in the following
sentence: ``During each year, the Operating Committee will calculate a
new Fee Rate by dividing the reasonably budgeted CAT costs for the
remainder of the year by the reasonably projected total executed
equivalent share volume of all transactions in Eligible Securities for
the remainder of the year.''
---------------------------------------------------------------------------

\35\ As highlighted in Exhibit B, this proposed revision to add
the term ``reasonably'' before ``projected total executed equivalent
share volume'' in Proposed Section 11.3(a)(i)(A)(II) of the CAT NMS
Plan was not included in the proposed revisions related to the 2022
Funding Proposal.
---------------------------------------------------------------------------

C. Continuing CAT Fee
CAT LLC also proposes to add Section 11.3(a)(i)(A)(III) to the CAT
NMS Plan to clarify that CAT Fees related to Prospective CAT Costs do
not sunset automatically; such CAT Fees would remain in place until new
CAT Fees are in place with a new Fee Rate. The Funding Proposal is
designed to collect CAT fees continuously so as to provide
uninterrupted revenue to pay CAT bills. Specifically, this proposed
provision would state:

For the avoidance of doubt, CAT Fees with a Fee Rate calculated
as set forth in this paragraph (a)(i) shall remain in effect until
the Operating Committee approves a new Fee Rate as described in this
paragraph (a)(i) and CAT Fees with the new Fee Rate are in effect
with regard to Industry Members in accordance with section 19(b) of
the Exchange Act.
D. Commencement of CAT Fee
CAT LLC believes that it would be appropriate to commence the first
CAT Fee either at the beginning of the year or during the year (due to,
for example, mid-year approval of the CAT Fee by the SEC), whichever is
closest to the time that such a CAT Fee could become effective, so as
to seek prompt recovery of CAT costs. If the CAT Fee were to commence
during the year, the first CAT Fee would be calculated in the same way
that a mid-year CAT Fee would be calculated. To clarify this approach,
CAT LLC proposes to add Proposed Section 11.3(a)(i)(A)(IV) to the CAT
NMS Plan. This provision would state that ``[f]or the avoidance of
doubt, the first CAT Fee may commence at the beginning of the year or
during the year. If it were to commence during the year, the CAT Fee
would be calculated as described in paragraph (II) of this Section.''

[[Page 17093]]

ii. Executed Equivalent Shares
CAT LLC proposes to describe in Proposed Section 11.3(a)(i)(B) of
the CAT NMS Plan how executed equivalent shares would be counted for
purposes of calculating CAT Fees. Under the Funding Proposal, a CAT Fee
would be charged with regard to each transaction in Eligible Securities
as reported in CAT Data. As set forth in Section 1.1 of the CAT NMS
Plan, ``Eligible Securities'' are defined to include all NMS Securities
and all OTC Equity Securities. Section 1.1 of the CAT NMS Plan, in
turn, defines an ``NMS Security'' as ``any security or class of
securities for which transaction reports are collected, processed, and
made available pursuant to an effective transaction reporting plan, or
an effective national market system plan for reporting transactions in
Listed Options.'' In addition, Section 1.1 of the CAT NMS Plan defines
an ``OTC Equity Security'' as ``any equity security, other than an NMS
Security, subject to prompt last sale reporting rules of a registered
national securities association and reported to one of such
association's equity trade reporting facilities.'' A CAT Fee would be
imposed with regard to transactions in Eligible Securities in the CAT
Data regardless of whether the trade is executed on an exchange or
otherwise than on an exchange.
The Funding Proposal uses the concept of executed equivalent shares
as the transactions subject to a CAT Fee involve NMS Stocks, Listed
Options and OTC Equity Securities, each of which have different trading
characteristics.
NMS Stocks. Under the Funding Proposal, each executed share for a
transaction in NMS Stocks would be counted as one executed equivalent
share. Accordingly, Proposed Section 11.3(a)(i)(B)(I) of the CAT NMS
Plan would state that ``[f]or purposes of calculating CAT Fees,
executed equivalent shares in a transaction in Eligible Securities will
be reasonably counted as follows: (I) each executed share for a
transaction in NMS Stocks will be counted as one executed equivalent
share.''
Listed Options. Recognizing that Listed Options trade in contracts
rather than shares, each executed contract for a transaction in Listed
Options will be counted using the contract multiplier applicable to the
specific Listed Option in the relevant transaction. Typically, a Listed
Option contract represents 100 shares; however, it may also represent
another designated number of shares. Accordingly, Proposed Section
11.3(a)(i)(B)(II) of the CAT NMS Plan would state that ``[f]or purposes
of calculating CAT Fees, executed equivalent shares in a transaction in
Eligible Securities will be reasonably counted as follows: . . . (II)
each executed contract for a transaction in Listed Options will be
counted based on the multiplier applicable to the specific Listed
Option (i.e., 100 executed equivalent shares or such other applicable
multiplier).''
OTC Equity Securities. Similarly, in recognition of the different
trading characteristics of OTC Equity Securities as compared to NMS
Stocks, the Funding Proposal would discount the share volume of OTC
Equity Securities when calculating CAT Fees. Many OTC Equity Securities
are priced at less than one dollar--and a significant number are priced
at less than one penny--per share and low-priced shares tend to trade
in larger quantities. Accordingly, a disproportionately large number of
shares are involved in transactions involving OTC Equity Securities
versus NMS Stocks.\36\ Because the Funding Proposal would calculate CAT
Fees based on executed share volume, CAT Reporters trading OTC Equity
Securities would likely be subject to higher fees than their market
activity may warrant. To address this potential concern, the Funding
Proposal would count each executed share for a transaction in OTC
Equity Securities as 0.01 executed equivalent shares. Accordingly,
Proposed Section 11.3(a)(i)(B)(III) of the CAT NMS Plan would state
that ``[f]or purposes of calculating CAT Fees, executed equivalent
shares in a transaction in Eligible Securities will be reasonably
counted as follows: . . . (III) each executed share for a transaction
in OTC Equity Securities shall be counted as 0.01 executed equivalent
share.''
---------------------------------------------------------------------------

\36\ For example, based on data from 2021, (1) the average price
per executed share of OTC Equity Securities was $0.072 and the
average price per executed share for NMS Stocks was $49.51; and (2)
the average trade size for OTC Equity Securities was 63,474 and the
average trade size for NMS Stocks was 166 shares. Trades in OTC
Equity Securities accounted for 77% of the number of all equity
shares traded, but only 0.51% of the notional value of all equity
shares traded.
---------------------------------------------------------------------------

The discount to 1% was selected based on a reasoned analysis of a
variety of different metrics for comparing the markets for OTC Equity
Securities and NMS Stocks, rather than a simple calculation. For
example, using 2021 data, the Operating Committee calculated the
following metrics: (1) the ratio of total notional dollar value traded
for OTC Equity Securities to OTC Equity Securities and NMS Stocks was
0.051%; (2) the ratio of total trades in OTC Equity Securities to total
trades in OTC Equity Securities and NMS Stocks was 0.90%; and (3) the
ratio of average share price per trade of OTC Equity Securities to
average share price per trade for OTC Equity Securities and NMS Stocks
was 0.065%. In recognition of the fact that these calculations involve
averages and for ease of application, the Operating Committee
determined to round these metrics to 1%.
In calculating CAT Fees, CAT LLC intends for executed equivalent
shares in a transaction in Eligible Securities to be reasonably
counted. Accordingly, CAT LLC proposes to include the term
``reasonably'' in the following sentence in Proposed Section
11.3(a)(i)(B) of the CAT NMS Plan: ``For purposes of calculating CAT
Fees, executed equivalent shares in a transaction in Eligible
Securities will be reasonably counted as follows:''.
iii. Budgeted CAT Costs
The calculation of the Fee Rate for CAT Fees related to Prospective
CAT Costs requires the determination of the budgeted CAT costs for the
year or other relevant period. Proposed Section 11.3(a)(i)(C) of the
CAT NMS Plan would describe the budgeted CAT costs for calculating CAT
Fees. It would state the following:

The budgeted CAT costs for the year shall be comprised of all
reasonable fees, costs and expenses reasonably budgeted to be
incurred by or for the Company in connection with the development,
implementation and operation of the CAT as set forth 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.

As discussed above, CAT LLC also proposes to provide additional
details regarding what is included in the annual operating budget
approved by the Operating Committee pursuant to Section 11.1(a) of the
CAT NMS Plan in proposed paragraphs (i) and (ii) of Section 11.1(a) of
the CAT NMS Plan.
Moreover, CAT LLC proposes to clarify that CAT Fees must be
calculated using reasonably budgeted CAT costs.\37\ Accordingly, CAT
proposes to include the terms ``reasonably'' and ``reasonable'' the
following sentence: ``The budgeted CAT costs for the year shall be
comprised of all reasonable fees, costs and expenses reasonably
budgeted to be incurred by or for the Company in connection with the
development, implementation and

[[Page 17094]]

operation of the CAT as set forth 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.''
---------------------------------------------------------------------------

\37\ As highlighted in Exhibit B, this proposed revision to add
the term ``reasonable'' before ``fees, cost and expenses'' in
Proposed Section 11.3(a)(i)(C) of the CAT NMS Plan was not included
in the proposed revisions related to the 2022 Funding Proposal.
---------------------------------------------------------------------------

iv. Projected Total Executed Equivalent Share Volume
The calculation of the Fee Rate for CAT Fees also requires the
determination of the projected total executed equivalent share volume
of transactions in Eligible Securities for each relevant period. Each
year, the Operating Committee would determine this projection based on
the total executed equivalent share volume of transactions in Eligible
Securities from the prior twelve months. Therefore, Proposed Section
11.3(a)(i)(D) of the CAT NMS Plan would state that ``[t]he Operating
Committee shall reasonably determine the projected total executed
equivalent share volume of all transactions in Eligible Securities for
each relevant period based on the executed equivalent share volume of
all transactions in Eligible Securities for the prior twelve months.''
CAT LLC determined that the use of the data from the prior twelve
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 relevant period. In
addition, CAT LLC proposes to allow the Operating Committee to base its
projection on the prior twelve months, but to use it discretion to
analyze the likely volume for the upcoming year. As set forth in
Proposed Section 11.3(a)(iii)(B), Participants will be required to
provide a description of the calculation of the projection in their fee
filings pursuant to section 19(b) of the Exchange Act. Furthermore, CAT
LLC intends to calculate the CAT Fees based on a reasonable
determination of the projected total executed equivalent share volume
of transactions in Eligible Securities. Accordingly, CAT LLC propose to
include the term ``reasonably'' in the Proposed Section 11.3(a)(i)(D)
of the CAT NMS Plan to indicate that the Operating Committee will
``reasonably determine the projected total executed equivalent share
volume.''
c. Participant CAT Fees for Prospective CAT Costs
CAT LLC proposes to describe the Participant CAT Fees related to
Prospective CAT Costs in Proposed Section 11.3(a)(ii) of the CAT NMS
Plan. Proposed Section 11.3(a)(ii) of the CAT NMS Plan would have two
paragraphs (A) and (B), where paragraph (A) would describe the CAT Fee
obligation for Participants and paragraph (B) would clarify that
Participants would only be required to pay CAT Fees when Industry
Members are required to pay CAT Fees.
i. CAT Fee Obligation of the Participants
CAT LLC proposes to add paragraph (A) to Proposed Section
11.3(a)(ii) of the CAT NMS Plan to describe the CAT Fee obligation of
the Participants. Specifically, proposed paragraph (A) of Proposed
Section 11.3(a)(ii) of the CAT NMS Plan would state the following:

Each Participant that is a national securities exchange will be
required to pay the CAT Fee for each transaction in Eligible
Securities executed on the exchange in the prior month based on CAT
Data. Each Participant that is a national securities association
will be required to pay the CAT Fee for each transaction in Eligible
Securities executed otherwise than on an exchange in the prior month
based on CAT Data. The CAT Fee for each transaction in Eligible
Securities will be calculated by multiplying the number of executed
equivalent shares in the transaction by one-third and by the Fee
Rate determined pursuant to paragraph (a)(i) of this Section 11.3.

CAT LLC intends for the Participant CAT Fee to be calculated using
the Fee Rate reasonably determined pursuant to Proposed Section
11.3(a)(i) of the CAT NMS Plan. Accordingly, CAT LLC proposes to
include the term ``reasonably'' in the following sentence: ``[t]he CAT
Fee for each transaction in Eligible Securities will be calculated by
multiplying the number of executed equivalent shares in the transaction
by one-third and by the Fee Rate reasonably determined pursuant to
paragraph (a)(i) of this Section 11.3.''
ii. Effectiveness of Participant CAT Fees
CAT LLC also proposes to include proposed paragraph (B) of Proposed
Section 11.3(a)(ii) of the CAT NMS Plan to clarify that Participants
would only be required to pay CAT Fees when Industry Members are
required to pay CAT Fees. Under the Funding Proposal, CAT Fees are
designed to cover 100% of CAT costs by allocating costs between and
among Participants and Industry Members. However, the CAT Fees charged
to Participants are implemented via a different process than CAT Fees
charged to Industry Members. CAT Fees charged to Participants are
implemented via an approval of the CAT Fees by the Operating Committee
in accordance with the requirements of the CAT NMS Plan. In contrast,
CAT Fees charged to Industry Members may only become effective in
accordance with the requirements of section 19(b) of the Exchange Act.
Accordingly, proposed paragraph (B) of Proposed Section 11.3(a)(ii) of
the CAT NMS Plan would state that ``[e]ach Participant will be required
to pay the CAT Fee calculated using the Fee Rate reasonably determined
pursuant to paragraph (a)(i) of this Section 11.3 and approved by the
Operating Committee only if such CAT Fees are in effect with regard to
Industry Members in accordance with section 19(b) of the Exchange
Act.'' CAT LLC intends for the Participant CAT Fee to be calculated
using the Fee Rate reasonably determined pursuant to Proposed Section
11.3(a)(i) of the CAT NMS Plan. Accordingly, CAT LLC proposes to
include the term ``reasonably'' in the phrase ``the Fee Rate reasonably
determined'' in this provision.
d. Industry Member CAT Fees for Prospective CAT Costs
CAT LLC proposes to describe the Industry Member CAT Fees related
to Prospective CAT Costs in Proposed Section 11.3(a)(iii) of the CAT
NMS Plan. Proposed Section 11.3(a)(iii) of the CAT NMS Plan would have
three paragraphs, (A), (B) and (C), where paragraph (A) would describe
the CAT Fee obligation for Industry Members, paragraph (B) would
described the required content of the fee filings required to be filed
pursuant to section 19(b) of the Exchange Act regarding the CAT Fees
for Industry Members, and paragraph (C) would clarify that Participants
would not make CAT fee filings regarding CAT Fees until the Financial
Accountability Milestone related to Period 4 as described in Section
11.6 of the CAT NMS Plan has been satisfied.
i. Industry Member CAT Fee Obligation
CAT LLC proposes to describe the CAT Fees related to Prospective
CAT Costs that would be charged to Industry Members in Proposed Section
11.3(a)(iii)(A) of the CAT NMS Plan. Accordingly, Proposed Section
11.3(a)(iii)(A) of the CAT NMS Plan would state the following:

Each Industry Member that is the CAT Executing broker for the
buyer in a transaction in Eligible Securities (``CAT Executing
Broker for the Buyer'' or ``CEBB'') and each Industry Member that is
the CAT Executing Broker for the seller in a transaction in Eligible
Securities (``CAT Executing Broker for the Seller'' or ``CEBS'')
will be required to pay a CAT Fee for each such transaction in
Eligible Securities in the prior month based on CAT Data. The CEBB's
CAT Fee or CEBS's CAT Fee (as applicable) for each transaction in
Eligible Securities will be calculated by multiplying the number of
executed equivalent shares in the transaction

[[Page 17095]]

by one-third and by the Fee Rate reasonably determined pursuant to
paragraph (a)(i) of this Section 11.3.

CAT LLC intends for the Participant CAT Fee to be calculated using
the Fee Rate reasonably determined pursuant to Proposed Section
11.3(a)(i) of the CAT NMS Plan. Accordingly, CAT LLC proposes to
include the phrase ``the Fee Rate reasonably determined pursuant to
paragraph (a)(i) of this Section 11.3'' in this provision.
ii. Fee Filings Under Section 19(b) of the Exchange Act for Industry
Member CAT Fees
CAT LLC proposes to describe the information that Participants
would be required to include in their fee filings to be made pursuant
to section 19(b) of the Exchange and Rule 19b-4 thereunder for Industry
Member CAT Fees in proposed paragraph (B) of Proposed Section
11.3(a)(iii) of the CAT NMS Plan.\38\ Specifically, such filings would
be required to include with regard to the CAT Fee: (A) the Fee Rate;
(B) the budget for the upcoming year (or remainder of the year, as
applicable), including a brief description of each line item in the
budget, including (1) technology line items of cloud hosting services,
operating fees, CAIS operating fees, change request fees and
capitalized developed technology costs, (2) legal, (3) consulting, (4)
insurance, (5) professional and administration, and (6) public
relations costs, a reserve and/or such other categories as reasonably
determined by the Operating Committee to be included in the budget and
the reason for changes in each such line item from the prior CAT Fee
filing; \39\ (C) a discussion of how the budget is reconciled to the
collected fees; and (D) the projected total executed equivalent share
volume of all transactions in Eligible Securities for the year (or
remainder of the year, as applicable), and a description of the
calculation of the projection. This detail would describe how the Fee
Rate is calculated, and explain how the budget used in the calculation
is reconciled to the collected fees. Such detailed information would
provide Industry Members and other interested parties with a clear
understanding of the calculation of the CAT Fees and their relationship
to CAT costs.\40\
---------------------------------------------------------------------------

\38\ CAT LLC expects the fee filings required to be made by the
Participants pursuant to Section 19(b) of the Exchange Act with
regard to CAT Fees to be filed pursuant to Section 19(b)(3)(A) of
the Exchange Act and Rule 19b-(f)(2) thereunder. In accordance with
Section 19(b)(3)(A) of the Exchange Act and Rule 19b-4(f)(2)
thereunder, such fee filings would be effective upon filing.
\39\ CAT LLC intends to include any other categories as
reasonably determined by the Operation Committee. Accordingly, this
provision refers to ``such other categories as reasonably determined
by the Operating Committee to be included in the budget.''
\40\ As a practical matter, the fee filing would provide the
exact fee per executed equivalent share to be paid for the CAT Fees,
by multiplying the Fee Rate by one-third and describing the relevant
number of decimal places for the fee.
---------------------------------------------------------------------------

In addition, CAT LLC proposes to clarify that the budgeted CAT
costs described in the fee filings must provide sufficient detail to
demonstrate that the CAT budget used in calculating the CAT Fees is
reasonable and appropriate. Therefore, CAT LLC proposes to add the
following sentence to Proposed Section 11.3(a)(iii)(B) of the CAT NMS
Plan: ``The information provided in this Section would be provided with
sufficient detail to demonstrate that the budget for the upcoming year,
or part of year, as applicable, is reasonable and appropriate.''
iii. Financial Accountability Milestone
CAT LLC recognizes that the collection of CAT Fees from Industry
Members is subject to Section 11.6 of the CAT NMS Plan regarding the
Financial Accountability Milestones. Accordingly, CAT LLC proposes to
clarify that Participants will not make fee filings pursuant to Section
19(b) of the Exchange Act regarding CAT Fees until the Financial
Accountability Milestone related to Period 4 described in Section 11.6
of the CAT NMS Plan has been satisfied. Specifically, CAT LLC proposes
to add proposed paragraph (C) to Proposed Section 11.3(a)(iii) to the
CAT NMS Plan to address the Financial Accountability Milestone. This
provision would state that ``[n]o Participant will make a filing with
the SEC pursuant to section 19(b) of the Exchange Act regarding any CAT
Fee related to Prospective CAT Costs until the Financial Accountability
Milestone related to Period 4 described in Section 11.6 has been
satisfied.''
e. CAT Fee Details
CAT LLC proposes to provide Participants and CAT Executing Brokers
with details regarding the calculation of their CAT Fees upon request.
Specifically, CAT LLC proposes to add Proposed Section 11.3(a)(iv)(A)
to the CAT NMS Plan to describe this disclosure. This provision would
state that ``[d]etails regarding the calculation of a Participant or
CAT Executing Brokers' CAT Fees will be provided upon request to such
Participant or CAT Executing Broker. At a minimum, such details would
include each Participant or CAT Executing Broker's executed equivalent
share volume and corresponding fee by (1) Listed Options, NMS Stocks
and OTC Equity Securities, (2) by transactions executed on each
exchange and transactions executed otherwise than on an exchange, and
(3) by buy-side transactions and sell-side transactions.'' \41\ Such
information would provide Participants and CAT Executing Brokers with
the ability to understand the details regarding the calculation of
their CAT Fees.
---------------------------------------------------------------------------

\41\ As highlighted in Exhibit B, this second sentence in
Proposed Section 11.3(a)(iv)(A) of the CAT NMS Plan was not included
in the proposed revisions related to the 2022 Funding Proposal.
---------------------------------------------------------------------------

In addition, CAT LLC proposes to make certain aggregate statistics
regarding the CAT Fees publicly available. Specifically, CAT LLC
proposes to add Proposed Section 11.3(a)(iv)(B) to the CAT NMS Plan to
describe this public disclosure. This provision would state that
``[f]or each CAT Fee, at a minimum, CAT LLC will make publicly
available the aggregate executed equivalent share volume and
corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC
Equity Securities, (2) by transactions executed on each exchange and
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions.'' \42\
---------------------------------------------------------------------------

\42\ As highlighted in Exhibit B, Proposed Section
11.3(a)(iv)(B) of the CAT NMS Plan was not included in the proposed
revisions related to the 2022 Funding Proposal.
---------------------------------------------------------------------------

4. Historical CAT Assessment
CAT LLC proposes to describe Historical CAT Assessments related to
Historical CAT Costs in Proposed Section 11.3(b) of the CAT NMS Plan.
Proposed Section 11.3(b) of the CAT NMS Plan would describe that
Historical CAT Assessments apply only to Industry Members (not to
Participants), the manner of calculating the Historical Fee Rate for
the Historical CAT Assessment, a description of the calculation of the
Industry Member CAT Fees, a description of the fee filings under
section 19(b) of the Exchange Act for Historical CAT Assessments, and
details regarding the calculation of the Historical CAT Assessments
that are available upon request or publicly available. The following
describes in detail Section 11.3(b) of the CAT NMS Plan.
a. Introductory Statement
CAT LLC proposes to revise Section 11.3(b) of the CAT NMS Plan to
address Historical CAT Assessments related to Historical CAT Costs to
be charged to Industry Members. Accordingly, CAT LLC proposes to revise
the introductory

[[Page 17096]]

statement in Proposed Section 11.3(b) of the CAT NMS Plan to state that
``[t]he Operating Committee will establish one or more fees (each a
``Historical CAT Assessment'') to be payable by Industry Members with
regard to CAT costs previously paid by the Participants (``Past CAT
Costs'') as follows:''.\43\ With the reference to ``one or more''
Historical CAT Fees, this provision also clarifies that there may be
one or more Historical CAT Assessments.
---------------------------------------------------------------------------

\43\ Note that there may be one or more Historical CAT
Assessments, depending upon the timing of any approval of the
amendment to the CAT NMS Plan and the completion of the Financial
Accountability Milestones. For a discussion of the Financial
Accountability Milestones, see Section 11.6 of the CAT NMS Plan.
---------------------------------------------------------------------------

b. Calculation of Historical Fee Rate
CAT LLC proposes to provide details regarding the calculation of
the Historical CAT Assessment in Proposed Section 11.3(b)(i) of the CAT
NMS Plan. These details would include a description of the calculation
of the Historical Fee Rate, the counting method for executed equivalent
shares, the Historical CAT Costs, the Historical Recovery Period, and
the projected total executed equivalent share volume of transactions in
Eligible Securities for the Historical Recovery Period.
i. General
Proposed paragraph (a) of Proposed Section 11.3(b)(i) of the CAT
NMS Plan would describe the calculation of the Historical Fee Rate for
each Historical CAT Assessment and the requirement for Participants to
file a fee filing for each Historical CAT Assessment. This proposed
provision also would state that Industry Members would be required to
pay each Historical CAT Assessment once such Historical CAT Assessment
is in effect in accordance with section 19(b) of the Exchange Act.
Specifically, this proposed provision would state that:

The Operating Committee will calculate the Historical Fee Rate
for each Historical CAT Assessment by dividing the Historical CAT
Costs for each Historical CAT Assessment by the reasonably projected
total executed equivalent share volume of all transactions in
Eligible Securities for the Historical Recovery Period for each
Historical CAT Assessment. Once the Operating Committee has approved
such Historical Fee Rate, the Participants shall be required to file
with the SEC pursuant to section 19(b) of the Exchange Act such
Historical CAT Assessment to be charged Industry Members calculated
using such Historical Fee Rate. Industry Members will be required to
pay such Historical CAT Assessment calculated using such Historical
Fee Rate once such Historical CAT Assessment is in effect in
accordance with section 19(b) of the Exchange Act.

CAT LLC proposes to clarify that the calculation of each Historical
Fee Rate would be performed using reasonably projected total executed
equivalent share volume.\44\ Accordingly, CAT LLC proposes to use the
term ``reasonably'' to the describe ``projected total executed
equivalent share volume'' in this provision.
---------------------------------------------------------------------------

\44\ As highlighted in Exhibit B, this proposed revision to add
the term ``reasonably'' before ``projected total executed equivalent
share volume'' in Proposed Section 11.3(b)(i)(A) of the CAT NMS Plan
was not included in the proposed revisions related to the 2022
Funding Proposal.
---------------------------------------------------------------------------

ii. Executed Equivalent Shares
The Historical CAT Assessment would be calculated based on the same
executed equivalent share calculation as CAT Fees related to
Prospective CAT Costs. Accordingly, Proposed Section 11.3(b)(i)(B) of
the CAT NMS Plan would make it clear that the calculation is the same
for both types of fees. Specifically, Proposed Section 11.3(b)(i)(B) of
the CAT NMS Plan would state that ``[f]or purposes of calculating each
Historical CAT Assessment, executed equivalent shares in a transaction
in Eligible Securities will be reasonably counted in the same manner as
set forth in paragraph (a)(i)(B) of this Section 11.3.''
iii. Historical CAT Costs
The calculation of the Historical CAT Assessment depends upon the
determination of the Historical CAT Costs. Proposed Section
11.3(b)(i)(C) of the CAT NMS Plan would describe the Historical CAT
Costs for calculating Historical CAT Assessments. The Operating
Committee will reasonably determine the Past CAT Costs sought to be
recovered through the Historical CAT Assessment. CAT LLC proposes to
make this approach clear in the language of the CAT NMS Plan by adding
Proposed Section 11.3(b)(i)(C) of the CAT NMS Plan, which would state
that ``[t]he Operating Committee will reasonably determine the
Historical CAT Costs sought to be recovered by each Historical CAT
Assessment, where the Historical CAT Costs will be Past CAT Costs minus
Past CAT Costs reasonably excluded from Historical CAT Costs by the
Operating Committee.'' \45\
---------------------------------------------------------------------------

\45\ As highlighted in Exhibit B, this proposed revision to add
the term ``reasonably'' before ``excluded'' in Proposed Section
11.3(b)(i)(C) of the CAT NMS Plan was not included in the proposed
revisions related to the 2022 Funding Proposal.
---------------------------------------------------------------------------

CAT LLC proposes to further clarify the amount to be collected via
the Historical CAT Assessments in Proposed Section 11.3(b)(i)(C) of the
CAT NMS Plan. Specifically, CAT LLC proposes to add the clarifying
statement that ``[e]ach Historical CAT Assessment will seek to recover
from CAT Executing Brokers two-thirds of Historical CAT Costs incurred
during the period covered by the Historical CAT Assessment.'' This
statement reiterates the requirement set forth in Proposed Section
11.3(b)(iii)(A) of the CAT NMS Plan regarding the calculation of the
Historical CAT Assessment, which requires the multiplication of the
number of executed equivalent shares in the transaction by one-third
and by the Historical Fee Rate. Each CEBS and CEBB pays one-third, and,
therefore, two-thirds of the Historical CAT Costs would be collected
from CAT Executing Brokers.
CAT LLC also proposes to add the term ``reasonably'' to the
following sentence in Section 11.1(c) of the CAT NMS Plan before the
word ``incurred'': ``In determining fees on Participants and Industry
Members the Operating Committee shall take into account fees, costs and
expenses (including legal and consulting fees) reasonably incurred by
the Participants on behalf of the Company prior to the Effective Date
in connection with the creation and implementation of the CAT.'' \46\
The addition of the term ``reasonably'' would require such fees, costs
and expenses to be reasonable.
---------------------------------------------------------------------------

\46\ As highlighted in Exhibit B, this proposed revision to
Section 11.1(c) of the CAT NMS Plan was not included in the proposed
revisions related to the 2022 Funding Proposal.
---------------------------------------------------------------------------

iv. Historical Recovery Period
The calculation of the Historical CAT Assessment also depends upon
the determination of the Historical Recovery Period. As the total
amount of the Historical CAT Costs have not yet been determined because
the CAT fee model has not yet been approved and CAT LLC continues to
incur costs, CAT LLC has not determined the specific recovery period
for any particular Historical CAT Assessment. Based on CAT costs
incurred to date, however, CAT LLC believes that the Historical
Recovery Period should not be less than 24 months or more than five
years. In analyzing the potential Historical Recovery Periods, CAT LLC
sought to weigh the need for a reasonable Historical Fee Rate that
spreads the Historical CAT Costs over an appropriate amount of time and
the need to repay the loan notes to the Participants in a timely
fashion. CAT LLC analyzed potential recovery periods using the
Historical CAT Costs through 2022 and the total executed equivalent

[[Page 17097]]

share volume of transactions in Eligible Securities for 2021 to
calculate the projected total executed equivalent share volume of
transactions. Based on the variables in this analysis, CAT LLC
determined that the Historical Fee Rate calculated using a Historical
Recovery Period of two to five years would establish a reasonable
Historical Fee Rate even if Industry Members were required to pay a
Historical CAT Assessment and the ongoing CAT Fee at the same time. CAT
LLC notes, however, that the actual Historical CAT Assessment would be
calculated using up-to-date Historical CAT Costs and executed
equivalent share volume.
Proposed Section 11.3(b)(i)(D)(I) of the CAT NMS Plan would
describe the Historical Recovery Period used in calculating the
Historical Fee Rate. This proposed provision would state that ``[t]he
length of the Historical Recovery Period used in calculating each
Historical Fee Rate will be reasonably established by the Operating
Committee based upon the amount of the Historical CAT Costs to be
recovered by the Historical CAT Assessment.'' \47\ This proposed
provision, however, would state that ``no Historical Recovery Period
used in calculating the Historical Fee Rate shall be less than 24
months or more than five years.'' As discussed below, the Historical
Recovery Period is used to calculate the Historical Fee Rate. The
actual recovery period may be longer or shorter than the Historical
Recovery Period depending on the actual executed equivalent share
volumes during the time that the Historical CAT Assessment is in
effect. Any Historical CAT Assessment would remain in effect until the
relevant Historical CAT Costs are recovered, whether that time is
shorter or longer than the Historical Recovery Period used in
calculating the Historical Fee Rate.
---------------------------------------------------------------------------

\47\ This provision would require that the Historical Recovery
Period be ``reasonably'' established by the Operating Committee.
---------------------------------------------------------------------------

Proposed Section 11.3(b)(i)(D)(II) of the CAT NMS Plan would
describe the length of the time that the Historical CAT Assessment
would be in effect, which may be greater than or less than the
Historical Recovery Period, depending on the amount of the Historical
CAT Assessments collected based on the actual volume during the time
that the Historical Assessment is in effect. Any Historical CAT
Assessment would remain in effect until the relevant Historical CAT
Costs are collected, whether that time is shorter or longer than the
Historical Recovery Period used in calculating the Historical Fee Rate.
Accordingly, this provision states that ``[n]otwithstanding the length
of the Historical Recovery Period used in calculating the Historical
Fee Rate, each Historical CAT Assessment calculated using the
Historical Fee Rate will remain in effect until all Historical CAT
Costs for the Historical CAT Assessment are collected.''
v. Projected Total Executed Equivalent Share Volume
The Historical Fee Rate for a Historical CAT Assessment would be
calculated by using the projected total executed equivalent share
volume of all transactions in Eligible Securities for the Historical
Recovery Period for such Historical CAT Assessment. CAT LLC proposes to
clarify the manner of calculating the projected total executed
equivalent share volume for each Historical CAT Assessment in Proposed
Section 11.3(b)(i)(E) to the CAT NMS Plan. CAT LLC proposes to state in
this provision that the projection will be determined based on
transactions in Eligible Securities for the prior twelve months.
Accordingly, Proposed Section 11.3(b)(i)(E) of the CAT NMS Plan would
state that ``[t]he Operating Committee shall reasonably determine the
projected total executed equivalent share volume of all transactions in
Eligible Securities for each Historical Recovery Period based on the
executed equivalent share volume of all transactions in Eligible
Securities for the prior twelve months.'' As with the calculation of
the projections for CAT Fees, CAT LLC determined that the use of the
data from the prior twelve 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 relevant period. In addition, CAT LLC proposes to allow the
Operating Committee to base its projection on the prior twelve months,
but to use its discretion to analyze the likely volume for the upcoming
year. As set forth in Proposed Section 11.3(b)(iii)(B)(II) of the CAT
NMS Plan, Participants will be required to provide a description of the
calculation of the projection in their fee filings pursuant to section
19(b) of the Exchange Act for Historical CAT Assessments. As noted,
this provision would require the Operating Committee to ``reasonably''
determine the projected total executed equivalent share volume.
c. Past CAT Costs and Participants
Proposed Section 11.3(b)(ii) of the CAT NMS Plan would clarify that
the Participants would not be required to pay the Historical CAT
Assessment as the Participants previously have paid all Past CAT Costs.
It would state that, ``[b]ecause Participants previously have paid Past
CAT Costs via loans to the Company, Participants would not be required
to pay any Historical CAT Assessment.'' In addition, Proposed Section
11.3(b)(ii) of the CAT NMS Plan would clarify that the Historical CAT
fees collected from Industry Members would be allocated to Participants
for repayment of the outstanding loan notes of the Participants to the
Company on a pro rata basis; such fees would not be allocated to
Participants based on the executed equivalent share volume of
transactions in Eligible Securities. Specifically, Proposed Section
11.3(b)(ii) of the CAT NMS Plan would state that ``[i]n lieu of a
Historical CAT Assessment, the Participants' one-third share of
Historical CAT Costs and such other additional Past CAT Costs as
reasonably determined by the Operating Committee will be paid by the
cancellation of loans made to the Company on a pro rata basis based on
the outstanding loan amounts due under the loans.'' Furthermore,
Proposed Section 11.3(b)(ii) of the CAT NMS Plan would emphasize that
``[t]he Historical CAT Assessment is designed to recover two-thirds of
the Historical CAT Costs.'' \48\
---------------------------------------------------------------------------

\48\ As highlighted in Exhibit B, the sentence ``In lieu of a
Historical CAT Assessment, the Participants' one-third share of
Historical CAT Costs and such other additional Past CAT Costs as
reasonably determined by the Operating Committee will be paid by the
cancellation of loans made to the Company on a pro rata basis based
on the outstanding loan amounts due under the loans'' has been
revised from the 2022 Funding Proposal. CAT LLC proposes to revise
the phrase ``cancellation of the loans made by the Company'' to
``cancellation of the loans made to the Company'' as the loans were
made to the Company, not by the Company. In addition, CAT LLC
proposes to revise the sentence to clarify that Participants will
remain responsible via the loan cancellations for one-third of
Historical CAT Costs as well as 100% of certain other Past CAT Costs
(e.g., the Excluded Costs discussed below).
---------------------------------------------------------------------------

d. Historical CAT Assessment for Industry Members
CAT LLC proposes to describe the Historical CAT Assessment for
Industry Members in Proposed Section 11.3(b)(iii) of the CAT NMS Plan.
Proposed Section 11.3(b)(iii) of the CAT NMS Plan would have two
paragraphs, (A) and (B), where paragraph (A) would describe the
Historical CAT Assessment for Industry Member, and paragraph (B) would
describe the fee filings required to be filed pursuant to section 19(b)
of the Exchange Act regarding the Historical CAT Assessments.

[[Page 17098]]

i. Industry Member Obligation for Historical CAT Assessment
CAT LLC proposes to describe the Historical CAT Assessment charged
to Industry Members in Proposed Section 11.3(b)(iii)(A) of the CAT NMS
Plan. Specifically, this proposed paragraph would state that:

Each month in which a Historical CAT Assessment is in effect,
each CEBB and each CEBS shall pay a fee for each transaction in
Eligible Securities executed by the CEBB or CEBS from the prior
month as set forth in CAT Data, where the Historical CAT Assessment
for each transaction will be calculated by multiplying the number of
executed equivalent shares in the transaction by one-third and by
the Historical Fee Rate reasonably determined pursuant to paragraph
(b)(i) of this Section 11.3.

As noted, this provision would require the Operating Committee to
``reasonably'' determine the Historical Fee Rate pursuant to Proposed
Section 11.3(b)(i) of the CAT NMS Plan.
ii. Historical CAT Assessment Fee Filings
CAT LLC proposes to provide additional details regarding the fee
filings to be filed by the Participants regarding each Historical CAT
Assessment pursuant to section 19(b) of the Exchange Act in Proposed
Section 11.3(b)(iii)(B) of the CAT NMS Plan.\49\ Specifically, this
provision would describe that fee filings would be required for each
Historical CAT Assessment, the content of such fee filings, and the
effect of the Financial Accountability Milestones described in Section
11.6 of the CAT NMS Plan on the fee filings.
---------------------------------------------------------------------------

\49\ CAT LLC expects the fee filings required to be made by the
Participants pursuant to Section 19(b) of the Exchange Act with
regard to Historical CAT Assessments to be filed pursuant to Section
19(b)(3)(A) of the Exchange Act. In accordance with Section
19(b)(3)(A) of the Exchange Act, fee filings made pursuant to
Section 19(b)(3)(A) of the Exchange Act would be effective upon
filing.
---------------------------------------------------------------------------

A. Number of Fee Filings for Historical CAT Assessments
CAT LLC proposes to clarify how many fee filings pursuant to
section 19(b) of the Exchange Act Participants would be required to
make with regard to Historical CAT Assessments. CAT LLC proposes to
clarify that each Participant will be required to file a fee filing
pursuant to section 19(b) of the Exchange Act to describe each
Historical CAT Assessment. Accordingly, CAT LLC proposes to describe
this requirement in Proposed Section 11.3(b)(iii)(B)(I) of the CAT NMS
Plan, which would state that ``Participants will be required to file
with the SEC pursuant to section 19(b) of the Exchange Act a filing for
each Historical CAT Assessment.''
B. Content of Fee Filings for Historical CAT Assessments
CAT LLC proposes to provide additional detail as to the information
that Participants would be required to include in their fee filings to
be made pursuant to section 19(b) of the Exchange and Rule 19b-4(f)(2)
for Historical CAT Assessments in proposed paragraph (b)(iii)(B)(II) of
Proposed Section 11.3 of the CAT NMS Plan. The proposed paragraph sets
forth the information about the Historical CAT Assessments that should
be included in the fee filings required to be made by the Participants
pursuant to section 19(b) of the Exchange Act. Specifically, such
filings would be required to include: (A) the Historical Fee Rate; (B)
a brief description of the amount and type of Historical CAT Costs,
including (1) the technology line items of cloud hosting services,
operating fees, CAIS operating fees, change request fees and
capitalized developed technology costs, (2) legal, (3) consulting, (4)
insurance, (5) professional and administration, and (6) public
relations costs; (C) the Historical Recovery Period and the reasons for
its length; and (D) the projected total executed equivalent share
volume of all transactions in Eligible Securities for the Historical
Recovery Period, and a description of the calculation of the
projection. Such detailed information would provide Industry Members
and other interested parties with a clear understanding of the
calculation of each Historical CAT Assessment and its relationship to
Historical CAT Costs.\50\
---------------------------------------------------------------------------

\50\ As a practical matter, the fee filing would provide the
exact fee per executed equivalent share to be paid for the
Historical CAT Assessment, by multiplying the Historical Fee Rate by
one-third and describing the relevant number of decimal places for
the fee.
---------------------------------------------------------------------------

In addition, CAT LLC proposes to clarify that the Historical CAT
Costs described in the fee filings must provide sufficient detail to
demonstrate that such costs are reasonable and appropriate. Therefore,
CAT LLC proposes to add the following sentence to Proposed Section
11.3(b)(iii)(B)(II) of the CAT NMS Plan: ``The information provided in
this Section would be provided with sufficient detail to demonstrate
that the Historical CAT Costs are reasonable and appropriate.''
C. Financial Accountability Milestones
CAT LLC recognizes that the collection of Historical CAT
Assessments from Industry Members is subject to Section 11.6 of the CAT
NMS Plan regarding the Financial Accountability Milestones.
Accordingly, CAT LLC proposes to clarify that Participants will not
make CAT fee filings pursuant to section 19(b) of the Exchange Act
regarding a Historical CAT Assessment until any applicable Financial
Accountability Milestone has been satisfied. Specifically, CAT LLC
proposes to add Proposed Section 11.3(b)(iii)(B)(III) to the CAT NMS
Plan. This provision would state that ``[n]o Participant will make a
filing with the SEC pursuant to section 19(b) of the Exchange Act
regarding any Historical CAT Assessment until any applicable Financial
Accountability Milestone described in Section 11.6 has been
satisfied.''
e. Historical CAT Assessment Details
CAT LLC proposes to provide CAT Executing Brokers with details
regarding the calculation of their Historical CAT Assessments upon
request. Specifically, CAT LLC proposes to add Proposed Section
11.3(b)(iv)(A) to the CAT NMS Plan, which would state that ``[d]etails
regarding the calculation of a CAT Executing Broker's Historical CAT
Assessment will be provided upon request to such CAT Executing Broker.
At a minimum, such details would include each CAT Executing Broker's
executed equivalent share volume and corresponding fee by (1) Listed
Options, NMS Stocks and OTC Equity Securities, (2) by transactions
executed on each exchange and transactions executed otherwise than on
an exchange, and (3) by buy-side transactions and sell-side
transactions.'' \51\ Such information would provide CAT Executing
Brokers with the ability to understand the details regarding the
calculation of their Historical CAT Assessments.
---------------------------------------------------------------------------

\51\ As highlighted in Exhibit B, the second sentence of
Proposed Section 11.3(b)(iv)(A) of the CAT NMS Plan was not included
in the proposed revisions related to the 2022 Funding Proposal.
---------------------------------------------------------------------------

In addition, CAT LLC proposes to make certain aggregate statistics
regarding Historical CAT Assessments publicly available. Specifically,
CAT LLC proposes to add Proposed Section 11.3(b)(iv)(B) to the CAT NMS
Plan. This provision would state that ``[f]or each Historical CAT
Assessment, at a minimum, CAT LLC will make publicly available the
aggregate executed equivalent share volume and corresponding aggregate
fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by
transactions executed on each exchange and transactions executed
otherwise than on an exchange, and (3) by buy-side

[[Page 17099]]

transactions and sell-side transactions.'' \52\
---------------------------------------------------------------------------

\52\ As highlighted in Exhibit B, Section 11.3(b)(iv)(B) of the
CAT NMS Plan was not included in the proposed revisions related to
the 2022 Funding Proposal.
---------------------------------------------------------------------------

5. CAT Fee Schedule for Participants
To implement the Participant CAT fees, CAT LLC proposes to add a
fee schedule, entitled ``Consolidated Audit Trail Funding Fees,'' to
Appendix B of the CAT NMS Plan. Proposed paragraph (a) of the fee
schedule would describe the CAT Fees to be paid by the Participants
under the Funding Proposal. Specifically, paragraph (a) of the
Participant fee schedule would state that ``[e]ach Participant shall
pay the CAT Fee set forth in Section 11.3(a) of the CAT NMS Plan to
Consolidated Audit Trail, LLC in the manner prescribed by Consolidated
Audit Trail, LLC on a monthly basis based on the Participant's
transactions in Eligible Securities in the prior month.''
6. Additional Changes From Original Funding Model
CAT LLC proposes certain revisions to Article XI of the CAT NMS
Plan to implement the Funding Proposal. CAT LLC proposes to make the
following changes to the CAT NMS Plan in addition to the proposed
changes to the CAT NMS Plan discussed above.
a. Elimination of Definition of ``Execution Venue''
Section 1.1 of the CAT NMS Plan defines the term ``Execution
Venue'' to mean ``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).'' Currently, the term ``Execution Venue'' is
used in Sections 11.2 and 11.3 of the CAT NMS Plan to describe how CAT
costs would be allocated among CAT Reporters under the Original Funding
Model. The Original Funding Model would have imposed fees based on
market share to CAT Reporters that are Execution Venues, including
ATSs, and fees based on message traffic for Industry Members' non-ATS
activities. In contrast, the Funding Proposal would impose fees based
on the executed equivalent shares of transactions in Eligible
Securities for three categories of CAT Reporters: Participants, CEBBs
and CEBSs. Accordingly, as the concept for an ``Execution Venue'' would
not be relevant for the Funding Proposal, CAT LLC proposes to delete
this term and its definition from Section 1.1 of the CAT NMS Plan.
b. Use of Executed Equivalent Share Volume Under Funding Proposal
The Original Funding Model set forth in the CAT NMS Plan requires
Participants and Execution Venue ATSs to pay CAT fees based on market
share and Industry Members (other than Execution Venue ATSs) to pay CAT
fees based on message traffic. The CAT NMS Plan also describes how the
market share-based fee would be calculated for Participants and other
Execution Venue ATSs and how the message traffic-based fee would be
calculated for Industry Members (other than Execution Venue ATSs). CAT
LLC proposes to amend the CAT NMS Plan to require Participants, CEBBs
and CEBSs to pay CAT fees based on the number of executed equivalent
shares in a transaction in Eligible Securities, rather than based on
market share and message traffic. Accordingly, the Operating Committee
proposes to amend Section 11.2(b) and (c) and Section 11.3(a) and (b)
of the CAT NMS Plan to reflect the proposed use of the number of
executed equivalent shares in transactions in Eligible Securities in
calculating CAT fees.
Section 11.2(b) of the CAT NMS Plan states that ``[i]n establishing
the funding of the Company, the Operating Committee shall seek . . .
(b) to establish an allocation of the Company's related costs among
Participants and Industry Members that is consistent with the Exchange
Act, taking into account the timeline for implementation of the CAT and
distinctions in the securities trading operations of Participants and
Industry Members and their relative impact upon Company resources and
operations.'' CAT LLC proposes to delete the requirement to take into
account ``distinctions in the securities trading operations of
Participants and Industry Members and their relative impact upon
Company resources and operations.'' This requirement related to using
message traffic and market share in the calculation of CAT fees, as
message traffic and market share were metrics related to the impact of
a CAT Reporter on the Company's resources and operations. With the
proposed move to the use of the executed equivalent shares metric
instead of message traffic and market share, the requirement is no
longer relevant.
Section 11.2(c) of the CAT NMS Plan states that ``[i]n establishing
the funding of the Company, the Operating Committee shall seek . . .
(c) to establish a tiered fee structure in which the fees charged to:
(i) CAT Reporters that are Execution Venues, including ATSs, are based
upon the level of market share; (ii) Industry Members' non-ATS
activities are based upon message traffic.'' CAT LLC proposes to delete
subparagraphs (i) and (ii) and replace these subparagraphs with the
requirement that the fee structure in which the fees charged to
``Participants and Industry Members are based upon the executed
equivalent share volume of transactions in Eligible Securities.'' \53\
---------------------------------------------------------------------------

\53\ As discussed in the next section, the Operating Committee
also proposes to delete the reference to a ``tiered'' fee structure.
---------------------------------------------------------------------------

In addition, CAT LLC proposes to amend the CAT funding principles
to clarify that CAT Fees and the Historical CAT Assessments are
intended to be cost-based fees--that is, the fees are designed to
recover the cost of the creation, implementation and operation of the
CAT. CAT LLC proposes to amend the funding principle set forth in
Section 11.2(c) by making a specific reference to the costs of the CAT.
With this proposed change, Proposed Section 11.2(c) would state that
``[i]n establishing the funding of the Company, the Operating Committee
shall seek: . . . to establish a fee structure in which the fees
charged to Participants and Industry Members are based upon the
executed equivalent share volume of transactions in Eligible
Securities, and the costs of the CAT.''
Section 11.3(a) of the CAT NMS Plan provides additional detail
regarding the market share-based fees to be paid by Participants and
Execution Venue ATSs under the Original Funding Model. Specifically,
Section 11.3(a) of the CAT NMS Plan states:

(a) The Operating Committee will establish fixed fees to be
payable by Execution Venues as provided in this Section 11.3(a):
(i) Each Execution Venue that: (A) executes transactions; or (B)
in the case of a national securities association, has trades
reported by its members to its trade reporting facility or
facilities for reporting transactions effected otherwise than on an
exchange, in NMS Stocks or OTC Equity Securities will pay a fixed
fee depending on the market share of that Execution Venue in NMS
Stocks and OTC Equity Securities, with the Operating Committee
establishing at least two and no more than five tiers of fixed fees,
based on an Execution Venue's NMS Stocks and OTC Equity Securities
market share. For these purposes, market share for Execution Venues
that execute transactions will be calculated by share volume, and
market share for a national securities association that has trades
reported by its members to its trade reporting facility or
facilities for reporting transactions effected otherwise than on an
exchange in NMS Stocks or OTC Equity Securities will be calculated
based on share volume of trades reported, provided, however, that
the share volume reported to such national securities association by
an Execution Venue shall not

[[Page 17100]]

be included in the calculation of such national security
association's market share.
(ii) Each Execution Venue that executes transactions in Listed
Options will pay a fixed fee depending on the Listed Options market
share of that Execution Venue, with the Operating Committee
establishing at least two and no more than five tiers of fixed fees,
based on an Execution Venue's Listed Options market share. For these
purposes, market share will be calculated by contract volume.

CAT LLC proposes to delete Section 11.3(a) of the CAT NMS Plan and
replace this paragraph with a description of the CAT Fees related to
Prospective CAT Costs, as described above.
Section 11.3(b) of the CAT NMS Plan provides additional detail
regarding the message traffic-based CAT fees to be paid by Industry
Members (other than Execution Venue ATSs) under the Original Funding
Model. Specifically, Section 11.3(b) of the CAT NMS Plan states:

The Operating Committee will establish fixed fees to be payable
by Industry Members, based on the message traffic generated by such
Industry Member, with the Operating Committee establishing at least
five and no more than nine tiers of fixed fees, based on message
traffic. For the avoidance of doubt, the fixed fees payable by
Industry Members pursuant to this paragraph shall, in addition to
any other applicable message traffic, include message traffic
generated by: (i) an ATS that does not execute orders that is
sponsored by such Industry Member; and (ii) routing orders to and
from any ATS sponsored by such Industry Member.

CAT LLC proposes to delete Section 11.3(b) of the CAT NMS Plan and
replace this paragraph with a description of the Historical CAT
Assessments, as described above.
c. Elimination of Tiered Fees
CAT LLC proposes to eliminate the use of tiered fees that were
included in the Original Funding Model. Instead, under the Funding
Proposal, each Participant, CEBB or CEBS would pay a fee based solely
on its transactions in Eligible Securities. The Operating Committee
therefore proposes to amend Sections 11.1(d), 11.2(c), 11.3(a) and
11.3(b) of the CAT NMS Plan to eliminate tiered fees and related
concepts.
Utilizing a tiered fee structure, by its nature, would create
certain inequities among the CAT fees paid by CAT Reporters. For
example, two CAT Reporters with comparable executed equivalent share
volume may pay notably different fees if one falls in a higher tier and
the other falls within a lower tier. Correspondingly, a tiered fee
structure generally would reduce fees for CAT Reporters with higher
executed share volume in one tier, while increasing fees for Industry
Members with lower executed share volume in the same tier, as compared
to a non-tiered fee. Furthermore, CAT Reporters in lower tiers
potentially pay more than they would without the use of tiers. While
tiering appropriately exists in various other self-regulatory fee
programs, CAT LLC proposes to eliminate the tiering concept for the
Funding Proposal.
By charging each Participant, CEBB and CEBS a CAT fee directly
based on its own executed equivalent share volume, rather than charging
a tiered fee, the Funding Proposal would result in a CAT fee being tied
more directly to the CAT Reporter's executed share volume. In contrast,
with a tiered fee, CAT Reporters with different levels of executed
equivalent share volume that are placed in the same tier would all pay
the same CAT fee, thereby limiting the correlation between a CAT
Reporter's activity and its CAT fee.
The proposed non-tiering approach is simpler and more objective to
administer than the tiering approach. With a tiering approach, the
number of tiers for Participants, CEBBs and CEBSs, the boundaries for
each tier and the fees assigned to each tier must be established. In
the absence of clear groupings of CAT Reporters, selecting the number
of, boundaries for, and the fees associated with each tier would be
subject to some level of subjectivity. Furthermore, the establishment
of tiers would need to be continually reassessed based on changes in
the executed equivalent share volume of transactions in Eligible
Securities, thereby requiring regular subjective assessments.
Accordingly, the removal of tiering from the Funding Proposal
eliminates a variety of subjective analyses and judgments from the
model and simplifies the determination of CAT fees.
Section 11.1(d) of the CAT NMS Plan states that ``[c]onsistent with
this Article XI, the Operating Committee shall adopt policies,
procedures, and practices regarding the budget and budgeting process,
assignment of tiers, resolution of disputes, billing and collection of
fees, and other related matters.'' With the elimination of tiered fees,
the reference to the ``assignment of tiers'' would no longer be
relevant for the Funding Proposal. Therefore, CAT LLC proposes to
delete the reference to ``assignment of tiers'' from Section 11.1(d).
Section 11.1(d) of the CAT NMS Plan also states that:

For the avoidance of doubt, as part of its regular review of
fees for the CAT, the Operating Committee shall have the right to
change the tier assigned to any particular Person in accordance with
fee schedules previously filed with the Commission that are
reasonable, equitable and not unfairly discriminatory and subject to
public notice and comment, pursuant to this Article XI. Any such
changes will be effective upon reasonable notice to such Person.

As noted above, unlike the Original Funding Model, the Funding
Proposal would not utilize tiered fees. Accordingly, these two
sentences would not be applicable to the Funding Proposal. Therefore,
CAT LLC proposes to delete these two sentences from Section 11.1(d) of
the CAT NMS Plan.
CAT LLC proposes to delete the reference to ``tiered'' fees from
Section 11.2(c) of the CAT NMS Plan. Section 11.2(c) of the CAT NMS
Plan states that ``[i]n establishing the funding of the Company, the
Operating Committee shall seek: . . . (c) to establish a tiered fee
structure . . .'' CAT LLC propose to delete the word ``tiered'' from
this provision as the CAT fees would not be tiered under the Funding
Proposal.
CAT LLC also proposes to delete paragraph (iii) of Section 11.2(c)
of the CAT NMS Plan. Paragraph (iii) of Section 11.2(c) of the CAT NMS
Plan states that the Operating Committee shall seek to establish a
tiered fee structure in which fees charged to:

the CAT Reporters with the most CAT-related activity (measured by
market share and/or message traffic, as applicable) be 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).

Under the Original Funding Model, the comparability provision was
an important factor in determining the tiers for Industry Members and
Execution Venues. In determining the tiers, the Operating Committee
sought to establish comparable fees among the CAT Reporters with the
most Reportable Events.\54\ Under the Funding Proposal, however, the
comparability provision is no longer necessary, as a tiered fee
structure would not be used for Industry Members or Participants.
---------------------------------------------------------------------------

\54\ See, e.g., Securities Exchange Act Rel. No. 82451 (Jan. 5,
2018), 83 FR 1399, 1406-07 (Jan. 11, 2018) (``2018 Fee Proposal
Release'').
---------------------------------------------------------------------------

As discussed above, the Operating Committee proposes to replace the
language in Sections 11.3(a) and (b) of the CAT NMS Plan with language
implementing the Funding Proposal. These proposed changes would remove
the references to tiers in Sections 11.3(a)(i) and (ii) and 11.3(b) of
the CAT

[[Page 17101]]

NMS Plan, along with the other proposed changes. Specifically, Section
11.3(a)(i) of the CAT NMS Plan states that the Operating Committee,
when establishing fees for Execution Venues for NMS Stocks and OTC
Equity Securities, will establish ``at least two and no more than five
tiers of fixed fees, based on an Execution Venue's NMS Stocks and OTC
Equity Securities market share.'' Similarly, Section 11.3(a)(ii) of the
CAT NMS Plan states that the Operating Committee, when establishing
fees for Execution Venues that execute transactions in Listed Options,
will establish ``at least two and no more than five tiers of fixed
fees, based on an Execution Venue's Listed Options market share.''
Section 11.3(b) of the CAT NMS Plan states that the Operating
Committee, when establishing fees to be payable by Industry Members,
will establish ``at least five and no more than nine tiers of fixed
fees, based on message traffic.'' CAT LLC proposes to delete each of
these references to tiers from the CAT NMS Plan.
d. No Fixed Fees
As discussed above, CAT LLC proposes to replace the language in
Sections 11.3(a) and (b) of the CAT NMS Plan with language implementing
the Funding Proposal. These proposed changes also would remove the
references to ``fixed fees'' in Sections 11.3(a), 11.3(a)(i),
11.3(a)(ii) and 11.3(b) and replaced them with references to ``fees.''
Under the Funding Proposal, the CAT fees to be paid by Participants,
CEBBs and CEBSs will vary in accordance with their executed equivalent
share volume of transactions in Eligible Securities, although the Fee
Rate will be fixed for a relevant period. Therefore, the concept of a
fixed fee--that is, a fee that does not vary depending on
circumstances--is not relevant under the Funding Proposal.
7. Billing and Collection of CAT Fees
Consistent with Section 11.1(d) of the CAT NMS Plan, CAT LLC will
adopt policies, procedures and practices regarding the billing and
collection of fees. In addition, pursuant to Section 11.4 of the CAT
NMS Plan, CAT LLC will establish a system for the collection of CAT
fees from Participants and Industry Members. As set forth in Section
11.4 of the CAT NMS Plan, each Participant would be required to pay its
CAT fees authorized under the CAT NMS Plan as required by Section
3.7(b) of the CAT NMS Plan.\55\ Section 3.7(b) of the CAT NMS Plan
provides the following:
---------------------------------------------------------------------------

\55\ Participants and CAT Executing Brokers would be responsible
for a fee each month in which they are a CAT Reporter. If a
Participant or CAT Executing Broker ceases to the meet the
definition of a CAT Reporter during a month, the Participant or CAT
Executing Broker would still be responsible for CAT fees associated
with its transactions during that month.

Each Participant shall pay all fees or other amounts required to
be paid under this Agreement within thirty (30) days after receipt
of an invoice or other notice indicating payment is due (unless a
longer payment period is otherwise indicated) (the ``Payment
Date''). The Participant shall pay interest on the outstanding
balance from the Payment Date until such fee or amount is paid at a
per annum rate equal to the lesser of: (i) the Prime Rate plus 300
basis points; or (ii) the maximum rate permitted by applicable law.
If any such remaining outstanding balance is not paid within thirty
(30) days after the Payment Date, the Participants shall file an
amendment to this Agreement requesting the termination of the
participation in the Company of such Participant, and its right to
any Company Interest, with the SEC. Such amendment shall be
effective only when it is approved by the SEC in accordance with SEC
---------------------------------------------------------------------------
Rule 608 or otherwise becomes effective pursuant to SEC Rule 608.

Section 11.4 of the CAT NMS Plan also addresses the payment of CAT
fees by Industry Members. Section 11.4 of the CAT NMS Plan states:

Participants shall require each Industry Member to pay all
applicable fees authorized under this Article XI within thirty (30)
days after receipt of an invoice or other notice indicating payment
is due (unless a longer payment period is otherwise indicated). If
an Industry Member fails to pay any such fee when due (as determined
in accordance with the preceding sentence), such Industry Member
shall pay interest on the outstanding balance from such due date
until such fee is paid at a per annum rate equal to the lesser of:
(a) the Prime Rate plus 300 basis points; or (b) the maximum rate
permitted by applicable law.

8. Illustrative Example of the Funding Proposal
CAT LLC has prepared an example of how a Historical CAT Assessment
would be calculated pursuant to the Funding Proposal for illustrative
purposes only. The illustrative example is set forth in Exhibit C to
this filing. Note that the calculation of any actual Historical CAT
Assessment for Historical CAT Costs would differ from this example in
various ways, as described in more detail in Exhibit C.
9. Advantages of and Support for the Funding Proposal
CAT LLC proposes to adopt the Funding Proposal as it provides a
variety of advantages over the Original Funding Model. CAT LLC
discusses these advantages in this section of the filing.
a. Comparable to Existing Fee Precedent
The Funding Proposal would operate in a manner similar to other
funding models employed by the SEC and the Participants, including the
SEC's Section 31 fees, FINRA's trading activity fee (``FINRA TAF'') and
the options regulatory fee (``ORF'') utilized by options exchanges. The
SEC previously has determined that the Participants' sales value fees
related to Section 31, the FINRA TAF and the ORF are consistent with
the Exchange Act.
i. Section 31 Fees
Pursuant to section 31 of the Exchange Act, a national securities
exchange must pay the Commission a fee based on the aggregate dollar
amount of sales of securities transacted on the exchange, and a
national securities association must pay the Commission a fee based on
the aggregate dollar amount of sales of securities transacted by or
through any member of the association otherwise than on a national
securities exchange (collectively, ``covered sales''). The SEC
calculates the amount of section 31 fees due from each exchange or
FINRA by multiplying the aggregate dollar amount of its covered sales
by the fee rate set by the Commission in a procedure set forth in
section 31(j) of the Exchange Act. These fees are designed to recover
the costs related to the government's supervision and regulation of the
securities markets and securities professionals. Section 31 requires
the SEC to make annual and, in some cases, mid-year adjustments to the
fee rate. These adjustments are necessary to make the SEC's total
collection of transaction fees in a given year as close as possible to
the amount of the regular appropriation to the Commission by Congress
for that fiscal year.
To recover the costs of their section 31 fee obligations, each of
the national securities exchanges and FINRA have adopted, and the SEC
has approved, rules assessing a regulatory transaction fee on their
members, the amount of which is set in accordance with section 31 of
the Exchange Act.\56\ Broker-dealers, in turn, often impose fees on
their customers that provide the funds to pay the fees owed to the
exchanges and FINRA.
---------------------------------------------------------------------------

\56\ See, e.g., Section 3 of Schedule A of FINRA's By-Laws.
---------------------------------------------------------------------------

Like the well-known, longstanding and accepted section 31-related
fee model, the Funding Proposal would use

[[Page 17102]]

a predetermined fee rate for the calculation of the fees, seek to
recover designated regulatory costs (as CAT provides a solely
regulatory function), and allow for the adjustment of the fee rate
during the year to seek to match regulatory costs with fees collected.
The Funding Proposal, however, would impose fees based on executed
equivalent share volume rather than the sales values of certain
transactions. Despite the different calculation metric, the Funding
Proposal is similar to a model well known, long accepted and justified
under the Exchange Act the purpose of which is also to cover costs
associated with the regulation of securities markets and securities
professionals.
ii. FINRA Trading Activity Fee
The transaction-based fees charged under the Funding Proposal also
would be similar to FINRA's transaction-based trading activity fee,\57\
which was modeled on the Commission's section 31 fee.\58\ Although the
FINRA TAF is designed to cover a subset of the costs of FINRA services
(e.g., costs to FINRA of the supervision and regulation of members,
including performing examinations, financial monitoring, and policy,
rulemaking, interpretive, and enforcement activities) rather than all
of FINRA's costs like the CAT, the transaction-based calculation of the
FINRA TAF and the proposed CAT fees are similar. With the FINRA TAF,
FINRA members on the sell-side of a transaction are required to pay a
per share fee for each sale of covered securities, which includes
exchange registered securities, equity securities traded otherwise than
on an exchange, security futures, TRACE-Eligible Securities and
municipal securities, subject to certain exceptions. In approving the
FINRA TAF, the SEC stated that the implementation of the FINRA TAF ``is
consistent with section 15A(b)(5) of the Act, in that the proposal is
reasonably designed to recover NASD costs related to regulation and
oversight of its members.'' \59\ The SEC further stated that ``[t]he
Commission recognizes the difficulties inherent in restructuring the
NASD's regulatory fees, and believes that the NASD has done so in a
manner that is fair and reasonable.'' \60\ The CAT fees calculated
under the Funding Proposal would be similar to the FINRA TAF in that
they would be transaction-based fees intended to provide funding for
regulatory costs.
---------------------------------------------------------------------------

\57\ Section 1 of Schedule A of FINRA's By-Laws.
\58\ See Securities Exchange Act Rel. No. 46416 (Aug. 23, 2002),
67 FR 55901 (Aug. 30, 2002).
\59\ Securities Exchange Act Rel. No. 47946 (May 30, 2003), 68
FR 34021, 34023 (June 6, 2003) (``TAF Release'').
\60\ Id.
---------------------------------------------------------------------------

iii. Options Regulatory Fee
The fees charged under the Funding Proposal also would be similar
to the ORF charged by the options exchanges.\61\ The ORF is a per
contract fee charged by an options exchange for certain options
transactions to options members of the relevant exchange. The ORF is
collected indirectly from exchange members through their clearing firms
by the Options Clearing Corporation on behalf of the Exchange. Revenue
generated from the ORF is designed to recover a material portion of an
options exchange's regulatory costs related to the supervision and
regulation of its members' options business, including performing
routine surveillance, investigations, examinations and financial
monitoring as well as policy, rulemaking, interpretive, and enforcement
activities. Exchange members generally pass-through the ORF to their
customers in the same manner that firms pass-through to their customers
the fees charged by self-regulatory organizations (``SROs'') to help
the SROs meet their obligations under section 31 of the Exchange
Act.\62\ The CAT fees calculated under the Funding Proposal would be
similar to the ORF in that they would be transaction-based fees
intended to provide funding for regulatory costs.
---------------------------------------------------------------------------

\61\ See, e.g., Cboe Fee Schedule, MIAX Fee Schedule, and NYSE
Arca Fee Schedule.
\62\ See, e.g., Securities Exchange Act Rel. No. 58817 (Oct. 20,
2008), 73 FR 63744, 63745 (Oct. 27, 2008).
---------------------------------------------------------------------------

b. Fee Metric: Executed Equivalent Share Volume
CAT LLC proposes to use the executed equivalent share volume of
transactions in Eligible Securities as the means for allocating CAT
costs among Participants and Industry Members. The use of executed
equivalent share volume would replace the use of message traffic for
allocating costs among Industry Members and the use of market share for
allocating costs among Participants as set forth in the Original
Funding Model. The use of executed equivalent share volume is a
reasonable and equitable method for allocating costs for a variety of
reasons, and CAT LLC believes it improves upon the use of message
traffic.
The proposed use of CAT-reported message traffic as set forth in
the Original Funding Model raised a variety of issues for allocating
CAT costs. First, based on a subsequent study of cost drivers for the
CAT, it was determined that message traffic may be a factor in the CAT
costs, but it is not the primary factor. CAT costs are dominated by
technology costs, and the predominant technology costs are data
processing (e.g., linker) and storage costs.\63\ The data processing
and storage costs are related to the level of message traffic, but such
costs also relate to other factors. The data processing and storage
costs also are directly related to the complexity of the reporting
requirements for the market activity. For example, in light of the
complexity of market activity, the CAT's order reporting and linkage
scenarios document for Industry Members is over 800 pages in length,
addressing nearly 200 scenarios.\64\ The processing and storage of such
a large number of complex reporting scenarios requires very complex
algorithms, which, in turn, lead to significant data processing and
storage costs. The data processing and storage costs also are driven by
the stringent performance, timelines and operational requirements for
processing CAT Data. For example, the CAT NMS Plan requires that CAT
order events be processed within established timeframes to ensure data
can be made available to Participants' regulatory staff and the SEC in
a timely manner. Accordingly, a CAT Reporter's message traffic may be a
factor, but not a primary factor, in terms of the costs of the CAT.
---------------------------------------------------------------------------

\63\ For a detailed discussion of cost drivers of the CAT, see
CAT LLC Webinar, CAT Costs (Sept. 21, 2021), https://www.catnmsplan.com/events/cat-costs-september-21-2021.
\64\ CAT Industry Member Reporting Scenarios, Version 4.10 (Oct.
21, 2022), https://www.catnmsplan.com/sites/default/files/2022-10/10.21.22_Industry_Member_Tech_Specs_Reporting_Scenarios_v4.10_CLEAN.pdf.
---------------------------------------------------------------------------

Second, in general, Industry Member revenue, including revenue
derived from fees Industry Members charge their clients, is often
driven by transactions. Because message traffic is separate from
whether or not a transaction occurs, fees based on message traffic may
not correlate with common revenue or fee models. As a result, CAT fees
based on message traffic could impose an outsized adverse financial
impact on certain Industry Members.
Third, imposing CAT fees on each CAT Reporter based on its message
traffic may have an adverse effect on competition, liquidity or other
aspects of market structure, and may increase model complexity. For
example, the number of messages for any given order, whether or not
ultimately executed, could vary depending on how a given order is
processed, leading to a lack of predictability on the applicable cost
to

[[Page 17103]]

process any given order or executions for broker-dealers or non-broker-
dealer customers.\65\ As one example, discussed in the context of the
previously proposed funding models,\66\ market makers in Eligible
Securities may have very high levels of message traffic due to their
quoting obligations. Such high levels of message traffic may lead to
outsized fees for market makers in comparison to their transaction
activity, thereby placing an excessive financial burden on market
makers. This, in turn, may lead to a decrease in the number of market
makers, resulting in a decrease in liquidity and a reduction in market
quality. To address this effect on market makers, CAT LLC proposed to
discount the fees that market makers would need to pay. However, such a
discount adds complexity to the message traffic approach, as the model
must determine when a discount is necessary and how much the discount
should be.
---------------------------------------------------------------------------

\65\ The predictability of fees is discussed further below in
Section A.9.u of this filing.
\66\ See 2018 Fee Proposal Release.
---------------------------------------------------------------------------

The use of executed equivalent share volume to allocate CAT costs
addresses each of these concerns. The fees are not divorced from
transactions, the traditional source of revenue for Industry Members;
fees based on executed equivalent share volume would not adversely
impact certain market participants to the detriment of the markets, and
the model is simple to understand and implement. Moreover, in addition
to these benefits, the executed equivalent share volume is related to,
but not precisely linked to, the CAT Reporter's burden on the CAT. In
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.
Accordingly, CAT LLC has determined 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. This
conclusion is consistent with the SEC's prior recognition of the use of
transaction volume in setting regulatory fees. For example, in
approving the FINRA TAF, the SEC recognized that transaction volume was
closely enough connected to FINRA's regulatory responsibilities to
satisfy the statutory standard in the Exchange Act.\67\
---------------------------------------------------------------------------

\67\ TAF Release at 34024.
---------------------------------------------------------------------------

c. CAT Executing Brokers
i. Charging CAT Executing Brokers
CAT LLC proposes to charge CAT fees to CAT Executing Brokers. CAT
LLC believes that such an approach is consistent with the requirements
of the Exchange Act for a variety of reasons, including the following
reasons.
First, the proposal to charge executing brokers is broadly
supported by the industry.\68\ For example, SIFMA has supported
charging executing brokers, and continues to support charging executing
brokers, rather than clearing brokers.\69\ In one of its comment
letters on the 2022 Funding Proposal, SIFMA stated that ``we support
the Participants' decision to allocate CAT costs to executing brokers
rather than clearing brokers.'' \70\
---------------------------------------------------------------------------

\68\ See Partial Amendment I at 74185; February 2023 Proposed
Partial Amendment at 5.
\69\ See Letter from Ellen Greene, Managing Director, Equities
and Options Market Structure, SIFMA, to Vanessa Countryman,
Secretary, SEC (Dec. 14, 2022) (``December 2022 SIFMA Letter'') at
2; Letter from Ellen Greene, Managing Director, Equities and Options
Market Structure, SIFMA, to Vanessa Countryman, Secretary, SEC (Oct.
7, 2022) at 4-5.
\70\ Letter from Ellen Greene, Managing Director, Equities and
Options Market Structure, and Joseph Corcoran, Managing Director,
Associate General Counsel, SIFMA, to Vanessa Countryman, Secretary,
SEC (Jan. 12, 2023) at 7. See also December 2022 SIFMA Letter at 2
(``[W]e support changing the payment obligation to executing
brokers.'').
---------------------------------------------------------------------------

Second, the proposal to rely on executing brokers, rather than
clearing brokers, was proposed in direct response to comments raised by
SIFMA and other commenters on the 2022 Funding Proposal regarding the
cost burden that clearing firms may experience if clearing brokers were
charged CAT fees.\71\ As noted by commenters, imposing the fee payment
obligation on clearing brokers, rather than on executing brokers more
generally, potentially may impose a significant financial burden on
clearing firms if the fees imposed on clearing firms are not passed
through to their clients.
---------------------------------------------------------------------------

\71\ See Partial Amendment I at 74185; February 2023 Proposed
Partial Amendment at 5.
---------------------------------------------------------------------------

Third, charging the CEBBs and CEBSs would reflect the executing
role the CEBB and CEBS have in each transaction. Such a fee model is
currently used and well-known in the securities markets. For example,
SRO members regularly pay transaction-based fees. As a result, the CAT
fees could be paid by Industry Members without requiring significant
and potentially costly changes.
Fourth, charging CEBBs and CEBSs is in line with the use of
transaction reports from the exchanges and FINRA's equity trading
reporting facilities for calculating the CAT fees. The CEBBs and CEBSs
are identified on the transaction reports, thereby streamlining the CAT
collection process.
Fifth, CAT LLC does not believe that the proposal would burden CAT
Executing Brokers. The CEBBs and CEBSs could determine, but would not
be required, to pass their CAT fees through to their clients, who, in
turn, could pass their CAT fees to their clients, until the fee is
imposed on the ultimate participant in the transaction. With such a
pass-through, the CEBBs and CEBSs would not ultimately incur the cost
of all CAT fees related to their transactions. It is common practice in
the industry for broker-dealers to pass transaction-based fees through
to their clients, and CAT fees would introduce no unique issues for
passing the CAT fee on to clients.
Finally, the proposal to charge CAT Executing Brokers CAT fees as
set forth in the Funding Proposal only addresses the party responsible
for the payment of the CAT fee. As an administrative matter regarding
the method of payment, each CAT Executing Broker may seek to enter into
a bilateral arrangement with its clearing broker for the clearing
broker to collect and pass-through the CAT fees as it does in other
contexts.
ii. Effect on Net Capital of CAT Executing Brokers
CAT fees do not raise new or different issues for CAT Executing
Brokers with respect to net capital requirements than other
transaction-based fees charged to executing brokers. CAT fees will be
billed on a monthly basis, and Section 11.4 of the CAT NMS Plan states
that ``Participants shall require each Industry Member to pay all
applicable fees authorized under this Article XI within thirty (30)
days after receipt of an invoice or other notice indicating payment is
due (unless a longer payment period is otherwise indicated).'' With
respect to net capital requirements, CAT Executing Brokers may
determine whether to establish arrangements with their brokerage
clients to account for costs incurred by the CAT Executing Broker on
the client's behalf, including setting the terms under which they must
be repaid by their broker-dealer clients such that receivables need not
extend beyond 30 days.

[[Page 17104]]

d. Cost Allocation
i. One-Third/One-Third/One-Third Allocation of Prospective CAT Costs
Between CEBS, CEBB and Participant
When calculating the CAT Fees related to Prospective CAT Costs
under the Funding Proposal, CAT LLC proposes to allocate one-third of
Prospective CAT Costs to Participants, one-third of Prospective CAT
Costs to CEBSs and one-third of Prospective CAT Costs to CEBBs. CAT LLC
believes that this proposed allocation satisfies the requirements of
the Exchange Act and Rule 608 of Regulation NMS under the Exchange Act.
The proposed \1/3\, \1/3\, \1/3\ allocation of Prospective CAT
Costs recognizes the three primary roles in each transaction: the
buyer, the seller and the market regulator, and assigns an equal one-
third share of the fee per transaction to each of these three roles.
The Exchange Act itself recognizes the importance of these three roles
in a transaction by imposing registration and other regulatory
obligations on the broker-dealers and regulator involved in a
transaction. This allocation is similar to the approach taken with the
FINRA TAF, ORF and section 31 sales value fees, and also recognizes the
role of the market regulator and the buyer in the transaction as well
as the seller.
Furthermore, the allocation of two-thirds of the CAT costs to
Industry Members and only one-third to Participants recognizes that a
substantial portion of CAT costs originates from Industry Members. CAT
costs are dominated by technology costs, and the predominant technology
costs are data processing (e.g., linker) and storage costs. The data
processing and storage costs are related to message traffic and the
complexity of the reporting requirements for CAT, which, in turn, are
determined by market activity. Industry Members are responsible for
originating trading activity that necessitates message traffic to the
CAT, and the complexity of Industry Members' chosen business models
contributes substantially to the costs of the CAT.
One of the factors driving CAT costs is the complexity of the
Industry Members' CAT reporting requirements, which are driven by the
inherent complexity of Industry Members' chosen business models. For
example, in light of the complexity of market activity, the CAT's
reporting scenarios document for Industry Members is over 800 pages in
length, addressing almost 200 scenarios, including, for example,
scenarios related to representative orders, internal routing, order
modification, order cancellation, ATS scenarios, OTC scenarios, foreign
scenarios, child orders, proprietary orders, fractional shares, stop
and conditional orders, RFQs, floor activity and more.\72\ The
processing and storage of such a large number of complex reporting
scenarios requires very complex algorithms, which, in turn, lead to
significant data processing and storage costs. In contrast, the
Participants do not originate market activity or orders or otherwise
bring this level of complexity to the markets. As a result, the
technical specifications for the Participants are far less complex than
for Industry Members. For example, the technical specifications for
Participants have 13 reporting events for stock exchanges compared to
36 equity reporting events in the technical specifications for Industry
Members, and the technical specifications for Participants have 14
reporting events for options exchanges compared to 43 reporting options
events in the technical specifications for Industry Members.\73\ Since
the complexity of Industry Members' chosen business models contribute
substantially to the costs of the CAT, it is reasonable and equitable
to require that Industry Members pay a substantial portion of those
costs.
---------------------------------------------------------------------------

\72\ CAT Industry Member Reporting Scenarios, Version 4.10 (Oct.
21, 2022), https://www.catnmsplan.com/sites/default/files/2022-10/10.21.22_Industry_Member_Tech_Specs_Reporting_Scenarios_v4.10_CLEAN.pdf.
\73\ Compare CAT Reporting Technical Specifications for Plan
Participants, Version 4.1.0-r17 (Feb. 21, 2023), https://www.catnmsplan.com/sites/default/files/2023-02/02.21.2023-CAT-Reporting-Technical-Specifications-for-Participants-4.1.0-r17.pdf,
with CAT Reporting Technical Specifications for Industry Members,
Version 4.0.0 r18 (Dec. 16, 2022), https://www.catnmsplan.com/sites/default/files/2022-12/12.16.2022_CAT_Reporting_Technical_Specifications_for_Industry_Members_v4.0.0r18_CLEAN.pdf.
---------------------------------------------------------------------------

Participant activity does not impact CAT costs in the same way that
Industry Member activity impacts CAT costs. The analysis regarding the
complexity of Industry Member activity is based on the effects of the
business models on the costs of the CAT, not on the complexity of the
market generally. The complexity of Industry Member activity adds
significantly to the cost of the CAT in a way that Participant activity
does not.
Moreover, allocating a greater percentage of the CAT costs to
Participants would raise fairness issues in light of the greater
financial resources of Industry Members. There are only 25 Participants
and approximately 1,100 Industry Members.\74\ Moreover, based upon an
analysis of available CAT Reporter revenue, Participants only
represented approximately 4% of the total CAT Reporter revenue while
Industry Members represented 96% of the total CAT Reporter revenue.\75\
In addition, various individual Industry Members have revenue in excess
of some or all of the Participants. Accordingly, CAT LLC determined
that allocating a higher percentage of the total CAT costs to the
Participants was not a fair and equitable approach.
---------------------------------------------------------------------------

\74\ An average of 1,124 unique CAT Reporters sent transaction
data to the CAT from July 1, 2022 to August 8, 2022.
\75\ See Securities Exchange Act Rel. No. 91555 (Apr. 14, 2021),
86 FR 21050, 20155 (Apr. 21, 2021) (``2021 Fee Proposal Release'').
Industry Member revenue was calculated based on the total revenue
reported in the Industry Member's FOCUS reports. Participant revenue
was calculated based on revenue information provided in Form 1
amendments and/or publicly reported figures. Participants are not
required to file uniform FOCUS-type reports regarding revenue like
Industry Members. Accordingly, the revenue calculation for
Participants is not as straightforward as for Industry Members.
---------------------------------------------------------------------------

Finally, CAT LLC analyzed a variety of alternative allocations of
CAT costs and continues to support the proposed one-third, one-third,
one-third allocation as consistent with the requirements of the
Exchange Act and the CAT NMS Plan. Alternative allocations considered
by CAT LLC are discussed in detail below in Section A.10 of this
filing.
ii. \1/3\, \1/3\ Allocation for Historical CAT Assessment
Under the Funding Proposal, the CEBS and the CEBB would each pay
one-third of the fee obligation for each transaction related to
Historical CAT Costs. Because the Participants have already paid for
Past CAT Costs via loans to CAT LLC, the Participants would not be
required to pay any Historical CAT Assessment. As stated in Proposed
Section 11.3(b)(ii) of the CAT NMS Plan, ``[i]n lieu of a Historical
CAT Assessment, the Participants' one-third share of Historical CAT
Costs and such other additional Past CAT Costs as reasonably determined
by the Operating Committee will be paid by the cancellation of loans
made to the Company on a pro rata basis based on the outstanding loan
amounts due under the loans.'' Furthermore, Proposed Section
11.3(b)(ii) of the CAT NMS Plan would emphasize that ``[t]he Historical
CAT Assessment is designed to recover two-thirds of the Historical CAT
Costs.'' Like with the allocation of Prospective CAT Costs discussed
above, CAT LLC believes that the proposed allocation of the Historical
CAT Costs is consistent with the requirements of the Exchange Act and
the CAT NMS Plan,

[[Page 17105]]

iii. Internal Cost of Compliance by Industry Members
CAT LLC does not propose to take into consideration the internal
costs incurred by Industry Members in complying with CAT requirements
in determining how to allocate costs between Industry Members and
Participants. There is no precedent for regulatory fees to be
determined based on the cost of compliance of the regulated entity.
Regulatory fees are intended to cover the regulatory costs of the
entity providing the regulation. In the case of the CAT, the Funding
Proposal is intended to charge fees to pay for the direct costs of the
CAT, not for ancillary compliance costs of Industry Members.\76\
Moreover, as a practical matter, accurately determining an Industry
Member's compliance costs, without recordkeeping requirements and
appropriate standards to determine expenses accurately, would be
infeasible.
---------------------------------------------------------------------------

\76\ See CAT NMS Plan Approval Order at 84795, n.1749 (``The
Participants stated that the funding model provides a framework for
the recovery of the costs to create, develop and maintain the CAT,
and is not meant to address the cost of compliance for Industry
Members and Participants with the reporting requirements of Rule
613.'').
---------------------------------------------------------------------------

Likewise, the substantial internal compliance costs of the
Participants are not taken into consideration in the Funding Proposal.
Each Participant incurs its own internal costs to comply with the
requirements of the CAT NMS Plan, including, among other things,
updating its systems for CAT reporting. Additionally, Participants have
expended countless internal hours on the creation, implementation and
operation of the CAT. These costs are not included in the cost
allocation under the Funding Proposal.
iv. Alternative Approach Based on Individualized CAT Reporter Cost to
CAT
CAT LLC has determined not to propose a funding approach for the
CAT in which a CAT Reporter's fees would be based on each CAT
Reporter's exact cost burden on the CAT. In 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. Moreover, 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. CAT LLC emphasizes that the Exchange Act requires CAT fees
to be fair, reasonable and equitably allocated, and CAT LLC believes
that the use of executed equivalent share volume satisfies these
requirements. The Exchange Act does not require each CAT Reporter's
fees to be a proxy for that CAT Reporter's cost burden on the CAT, let
alone an exact proxy.
A. Difficulty in Determining Individual CAT Reporter Costs Due to
Inter-Related Cost Drivers
CAT LLC has analyzed the cost drivers for the CAT, and has
concluded that determining the precise cost burden imposed by each
individual CAT Reporter on the CAT is not feasible. The computation of
a specific CAT Reporter's burden on the CAT is complicated by the many
inter-related factors that contribute to CAT costs, including message
traffic, data processing, storage, the complexity of reporting
requirements, reporting timelines, infrastructure, connectivity and
more. The use of executed equivalent share volume as the metric for the
funding model is an improvement over the message traffic model. CAT LLC
analyzed the cost drivers of CAT and determined that, although message
traffic is one factor in CAT costs, it is not the primary factor. CAT
costs are dominated by technology costs, and the predominant technology
costs are data processing (e.g., linker) and storage costs. Compute
costs represent more than half of all technology costs. While such
costs are related in part to message traffic, they are driven by the
stringent performance timelines, data complexity and operational
requirements in the CAT NMS Plan. The Plan requires that order events
be processed, corrected, and made available to regulatory users within
established timeframes, including a four-hour window for initial
linkage processing. For this reason, among other issues with the
message traffic model and other considerations discussed herein, CAT
LLC determined to shift its focus to the new metric of executed
equivalent share volume from the message traffic and market share
metrics set forth in the CAT NMS Plan as approved.
B. Trading Activity as Reasonable Proxy for Cost Burden
CAT LLC determined 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. CAT LLC analyzed
reasonable metrics for determining CAT fees, and determined that,
although executed equivalent share volume is not an exact proxy for the
cost burden (nor need it be), trading activity provides a reasonable
proxy for cost burden on the CAT. Increased trading activity impacts
message traffic, data processing, storage and other factors, and thus
necessarily correlates with increased cost burden on the CAT. Moreover,
Industry Member activity in the market generally is engaged in for the
purpose of effecting transactions, and, as a result, it is common for
Participants to use transaction-based fees. Therefore, executed share
volume is an appropriate metric for allocating CAT costs among CAT
Reporters.
This conclusion is consistent with the SEC's prior recognition of
the use of transaction volume in setting regulatory fees. For example,
in approving FINRA's TAF, the SEC recognized that transaction volume
was closely enough connected to FINRA's broad regulatory
responsibilities to satisfy the statutory standard in the Exchange
Act.\77\ FINRA proposed a transaction-based TAF to fund its member
regulatory activities in a variety of areas such as ``sales practices,
routine examinations, financial and operational reviews, new member
applications, enforcement * * * . . . wherever such member activity
occurs.'' \78\ The SEC noted that ``[a]ssessing fees in relation to
transactions correlates to heightened NASD responsibilities regarding
firms that engage in the trading,'' but the fees were not an exact
proxy for the costs of such regulatory responsibilities.\79\ The SEC
noted this lack of a precise correlation:
---------------------------------------------------------------------------

\77\ TAF Release at 34023.
\78\ Id.
\79\ Id.

In most cases, the NASD has direct responsibility to oversee the
firm's dealing with the public in effecting the transactions; the
NASD may also have responsibility to oversee the impact of the
trading on the firm's financial condition. In most cases, where
responsibility for certain member activities has been allocated to
other SROs, the NASD retains responsibility for other member
functions.\80\
---------------------------------------------------------------------------

\80\ Id.

Nevertheless, the SEC concluded that ``while trading activity is
not wholly correlated to the full range of NASD responsibility for
members in all instances, the Commission believes that they are closely
enough connected to satisfy the statutory standard.'' \81\ CAT LLC
believes that this same logic is applicable to the Funding Proposal.
---------------------------------------------------------------------------

\81\ Id. at 34024.
---------------------------------------------------------------------------

v. Alternative Approach: 50-50 Allocation Between Industry Members and
Participant Exchanges
CAT LLC has considered and rejected allocating 50% of CAT costs to
the

[[Page 17106]]

Participants and 50% to Industry Members under the Funding Proposal.
Although a 50-50 allocation between Industry Members and Participants
would provide a mathematically equal split between two groups, it would
not provide an equitable allocation between and among Industry Members
and Participants. Such an allocation raises fairness issues as 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.
e. Fee Pass-Throughs
i. General
CAT LLC acknowledges that CAT Executing Brokers may choose to pass
the CAT fees through to their clients, who, in turn, may pass their CAT
fees through to their clients, until the fees are imposed on the
account that executed the transaction. Although the Funding Proposal
does not require such fee pass-throughs, CAT LLC continues to support
the concept of the potential pass-through of fees for various reasons.
First, the SEC specifically contemplated and accepted the concept
of cost pass-throughs from Participants to their members when it
adopted Rule 613:

There also would be costs associated with establishing and
operating the central repository that will be jointly owned by the
plan sponsors. The Commission believes it is important to understand
how the plan sponsors plan to allocate such costs among themselves
to help inform the Commission's decision regarding the possible
economic or competitive impact of the NMS plan amongst the SROs. In
addition, although the plan sponsors likely would initially incur
the costs to establish and fund the central repository directly,
they may seek to recover some or all of these costs from their
members. If the plan sponsors seek to recover costs from their
members, the Commission believes that it is important to understand
the plan sponsors' plans to allocate costs between themselves and
their members, to help inform the Commission's decision regarding
the possible economic or competitive impact of the NMS plan.\82\
---------------------------------------------------------------------------

\82\ See generally Securities Exchange Act Rel. No. 67457 (Jul.
18, 2012), 77 FR 45722, 45795 (Aug. 1, 2012) (``Rule 613 Adopting
Release'') (emphasis added).

Second, CAT LLC does not take a position on whether Industry
Members, in turn, should pass CAT fees on to their clients. However, in
adopting the CAT NMS Plan, the Commission specifically contemplated and
accepted that ``broker-dealers may seek to pass on to investors their
costs to build and maintain the CAT, which may include their own costs
and any costs passed on to them by Participants,'' noting that the
``extent to which these costs are passed on to investors depends on the
materiality of the costs and the ease with which investors can
substitute away from any given broker-dealer.'' \83\
---------------------------------------------------------------------------

\83\ CAT NMS Plan Approval Order at 84992.
---------------------------------------------------------------------------

Third, CAT LLC notes that the use of pass-through fees is a
commonly accepted practice that has been approved by the SEC in the
securities markets in some cases. For example, the practice of passing
through fees to broker-dealers and their customers is used in the
context of section 31 fees. Section 31 of the Exchange Act places
obligations only on national securities exchanges, national securities
associations, and the Commission. National securities exchanges and
national securities associations must pay certain fees and assessments
to the Commission. The Commission is required by section 31 of the
Exchange Act to collect such fees and assessments. Section 31 of the
Exchange Act, however, does not address the manner or extent to which
covered SROs may seek to recover the costs of their section 31
obligations from their members. Nor does section 31 of the Exchange Act
address the manner or extent to which members of covered SROs may seek
to pass any such charges on to their customers. However, as the SEC
noted, ``[i]n practice, the covered SROs obtain the funds for these
fees and assessments by assessing charges on their members, and the
members in turn pass these charges to their customers.'' \84\ Likewise,
in adopting the CAT NMS Plan, the Commission explained that under
section 31, ``Participants are required to pay transaction fees and
assessments to the Commission,'' that ``Participants, in turn, may
collect their section 31 fees and assessments from their broker-dealer
members,'' and, that ``broker-dealers may pass on regulatory charges
that support Participant supervision, such as with respect to section
31 fees.'' \85\
---------------------------------------------------------------------------

\84\ Securities Exchange Act Rel. No. 49928 (June 28, 2004), 69
FR 41060, 41072 (July 7, 2004). See also SEC, Section 31 Transaction
Fees, Fast Answers, https://www.sec.gov/fast-answers/answerssec31htm.html (noting that the ``[t]he SROs have adopted
rules that require their broker-dealer members to pay a share of
these fees. Broker-dealers, in turn, impose fees on their customers
that provide the funds to pay the fees owed to their SROs.)''
\85\ CAT NMS Plan Approval Order at 84992.
---------------------------------------------------------------------------

Indeed, the language of certain exchange rules regarding section 31
specifically describe the pass-through process related to section 31
fees.\86\ For example, NYSE Arca Rule 2.18.01 states the following:
---------------------------------------------------------------------------

\86\ See, e.g., NYSE American Rule 393.01; and NYSE Rule
440H.03.

Pursuant to Rule 2.18, the Exchange makes an assessment on ETP
Holders that the Exchange uses to pay fees owing to the SEC in
accordance with section 31 of the Exchange Act (``the Rule 2.18
assessment''). The section 31 fees payable by the Exchange to the
SEC is determined based on the aggregate dollar amount of ``covered
sales,'' as defined by SEC Rule 31, effected on the Exchange by or
through any ETP Holder. ETP Holders, in some cases, have passed
along the Rule 2.18 assessment on a trade-by-trade basis to their
---------------------------------------------------------------------------
customers or correspondent firms.''

The pass-through concept also is applied in the context of other
SRO regulatory fees applicable to the SROs' members. For example, ``it
is regular practice among some clearing and trading firms to `pass
through' the TAF to the underlying firm executing the trade. Further,
FINRA understands that the executing firms commonly pass the TAF
directly on to their customers. Typically, TAF fees are reflected on
the confirmation statement received by customers.'' \87\ Similarly, the
pass-through process is used for ORFs as well. ORFs are collected
indirectly from members through their clearing firms by OCC on behalf
of the respective options exchange. As noted in rule filings related to
ORFs, ``[t]he Exchange expects that [members] will pass through the ORF
to their customers in the same manner that firms pass-through to their
customers the fees charged by Self-Regulatory Organizations (`SROs') to
help the SROs meet their obligations under section 31 of the Exchange
Act.'' \88\
---------------------------------------------------------------------------

\87\ Securities Exchange Act Rel. No. 90176 (Oct. 14, 2020), 85
FR 66592, 66603 (Oct. 20, 2020).
\88\ Securities Exchange Act Rel. No. 67596 (Aug. 6, 2012), 77
FR 47902, 47903 (Aug. 10, 2012). See also Securities Exchange Act
Rel. No. 61133 (Dec. 9, 2009), 74 FR 66715, 66716 (Dec. 16, 2009)
(noting that ``[t]he Exchange expects that member firms will pass-
through the ORF to their customers in the same manner that firms
pass-through to their customers the fees charged by SROs to help the
SROs meet their obligation under Section 31 of the Exchange Act'');
Securities Exchange Act Rel. No. 83878 (Aug. 17, 2018), 83 FR 42715,
42717 (Aug. 23, 2018) (noting that ``by collecting the ORF in this
manner Members and non-Members could more easily pass-through the
ORF to their customers'').
---------------------------------------------------------------------------

Fourth, commenters on prior CAT funding proposals have commented in
favor of a model similar to the section 31 fees in which the fee could
be passed through to Industry Members and ultimate customers.\89\ For
example, one commenter noted the benefits of a

[[Page 17107]]

model similar to the section 31 fees, arguing that ``[i]t would also
provide transparency into the fees which seek to recoup costs and a
vehicle to pass-thru fees to the ultimate beneficiary of each trade.''
\90\ Another commenter similarly advocated for a section 31-type model,
noting that ``SROs already have a well-established model for recouping
their section 31 fees by passing them through to their members.'' \91\
---------------------------------------------------------------------------

\89\ See, e.g., Letter from Michael Blaugrund, Chief Operating
Officer, NYSE, to Vanessa Countryman, Secretary, SEC (May 10, 2021)
at 3; Letter from Andrew Stevens, General Counsel, IMC Chicago, LLC,
to Vanessa Countryman, Secretary, SEC (May 20, 2021) at 3.
\90\ Letter from James Toes, President and CEO, and Andre
D'Amore, Chairman of the Board, Securities Trader Association, to
Vanessa Countryman, Secretary, SEC (June 10, 2021) at 4.
\91\ Letter from Joanna Mallers, Secretary, FIA Principal
Traders Group, to Vanessa Countryman, Secretary, SEC (May 12, 2021)
at 4.
---------------------------------------------------------------------------

Finally, the proposed pass-through process for CAT fees, like the
pass-through process for other regulatory fees, recognizes the reality
that regulatory costs incurred to maintain and enhance the quality of
the markets will necessarily increase costs for all market
participants, including the ultimate investor. Even if such pass-
throughs were limited or prohibited, CAT costs would be distributed in
other ways. A member of the Advisory Committee for the CAT and the
former Chief Economist of the Commission, emphasized that ``[b]ecause
the markets for exchange, dealing, and brokerage services are all
highly competitive in the long run, any fees imposed on any of these
groups will ultimately pass through to the retail and institutional
traders who use the markets.'' \92\ This commenter reasoned that:
---------------------------------------------------------------------------

\92\ Letter from Larry Harris, Fred V. Keenan Chair in Finance,
USC Marshal School of Business, to Vanessa Countryman, Secretary,
SEC (June 21, 2022) (``Harris Letter'') at 2.

In highly competitive markets, prices reflect the costs of doing
business in the long run. If those costs rise, they ultimately pass
through to the customers. For example, if the Participants
(primarily exchanges) were required to fund CAT NMS fully, they will
raise their fees (or fail to lower them when costs are falling) to
recover their funding costs. And if brokers' business models require
that they pay exchange fees on behalf of their clients, the brokers
will raise their commission rates to the customers. And if their
business models require zero commissions, brokers will provide fewer
services or charge more for non-transaction services to cover their
increased costs.\93\
---------------------------------------------------------------------------

\93\ Id.
---------------------------------------------------------------------------

ii. Effect of Allocation on Fee Pass-Throughs
CAT LLC determined not to allocate all CAT costs to Participants
under the Funding Proposal. Under the Funding Proposal, CEBBs would be
allocated one-third of the CAT costs, CEBSs would be allocated one-
third of the CAT costs and Participants would be allocated one-third of
the CAT costs. Under the Funding Proposal, Industry Members may
determine to pass their CAT fees on to their clients at their
discretion. Participants also may determine to pass their CAT fees on
to their members, or to pay the CAT fees charged to the Participant
through other means. If Participants were to determine to pass CAT fees
on to their members, they may choose to adopt a CAT-specific fee that
directly passes the CAT fee through to their members, in whole or in
part, or they may choose to increase other fees charged to members
(e.g., transaction fees). Participants would need to file any such fee
proposals with the SEC in accordance with section 19(b) of the Exchange
Act.
If all CAT costs were allocated to Participants, however,
Participants would have the same options for covering the costs of the
CAT fees. They may choose to adopt a CAT-specific fee that directly
passes through the CAT fee through to their members, in whole or in
part, or they may choose to increase other fees charged to members
(e.g., transaction fees). Participants would need to file any such fee
proposals with the SEC in accordance with section 19(b) of the Exchange
Act. For any fee charged to Industry Members, Industry Members may
determine to pass their CAT fees on to their clients at their
discretion, as with the CAT fees under the Funding Proposal.
f. FINRA Fee
Under the Funding Proposal, for each transaction in Eligible
Securities based on CAT Data, the CEBS, the CEBB and the applicable
Participant for the transaction each would pay a CAT Fee calculated by
multiplying the number of executed equivalent shares in the transaction
and the applicable Fee Rate and dividing the product by three. The
applicable Participant for the transaction would be the national
securities exchange on which the transaction was executed, or FINRA for
each transaction executed otherwise than on an exchange. CAT LLC
believes that the proposed CAT fees for FINRA are consistent with the
Exchange Act and the CAT NMS Plan. CAT LLC does not believe that the
assessment of a CAT fee on FINRA in the same manner as other
Participants would result in a burden on competition for FINRA or for
Industry Members engaging in activity otherwise than on an exchange.
The Funding Proposal is designed to be neutral as to the manner of
execution and place of execution. The CAT fees would be the same
regardless of whether the transaction is executed on an exchange or in
the over-the-counter market. All Participants are self-regulatory
organizations that have the same regulatory obligations under the
Exchange Act, regardless of whether they operate as a for-profit or
not-for-profit entity. Their usage of CAT Data, either directly or
indirectly through regulatory services agreements, would be for the
same regulatory purposes in accordance with those obligations. By
treating each Participant the same, the CAT fees would not become a
competitive issue by and among the Participants.
In addition, the size of FINRA's fee is calculated based on the
activity in the over-the-counter market, which is substantial. For
example, the executed equivalent share volume for over-the-counter
trades in Eligible Securities in 2021 was 1,361,484,729,008 out of a
total volume of 3,963,697,612,395 executed equivalent shares for trades
in Eligible Securities.\94\ Accordingly, approximately 34% of the
executed equivalent share volume in Eligible Securities took place in
the over-the-counter market.
---------------------------------------------------------------------------

\94\ These figures for executed equivalent share volume for 2021
are set forth in the illustrative example in the notice of the 2022
Funding Proposal. See 2022 Funding Proposal Release at 33246.
---------------------------------------------------------------------------

Moreover, FINRA and the exchanges should not be evaluated
differently based upon the potential for any particular Participant to
pass its CAT fees onto its members through regulatory, trading or other
fees. Each Participant will need to determine for itself how it will
obtain the funds to pay for its CAT fees. Because each Participant, not
just FINRA, is using CAT Data to satisfy the same self-regulatory
obligations, each Participant may determine to charge their members
fees to fund their share of the CAT fees, and the Exchange Act
specifically permits self-regulatory organizations to do so, provided
the fee filing requirements of the Exchange Act are satisfied. Indeed,
in approving the CAT NMS Plan, the SEC stated that ``the Exchange Act
specifically permits the Participants to charge members fees to fund
their self-regulatory obligations.'' \95\
---------------------------------------------------------------------------

\95\ CAT NMS Plan Approval Order at 84794.
---------------------------------------------------------------------------

Furthermore, FINRA and the exchanges should not be evaluated
differently based upon the potential for a particular Participant to
recoup its fees through revenue-generating activity other than fees
imposed on its members. FINRA, just like the exchange Participants, has
revenue sources other than membership fees. For example, FINRA
generates significant revenues via regulatory services agreements with

[[Page 17108]]

the exchanges, among other sources.\96\ These sources, too, may be used
to pay CAT fees, and, if they are used, it would not lead to an
increase in fees for Industry Members, but rather the exchange
Participants. Any review of how the Participants obtain their funds to
pay CAT fees is beyond the scope of the CAT fee filing.
---------------------------------------------------------------------------

\96\ See 2021 FINRA Annual Financial Report at 43.
---------------------------------------------------------------------------

The issues raised regarding the possibility of passing FINRA's
allocation to Industry Members also fail to recognize the basic fact
that Industry Members themselves face the same issue that they raise
with regard to FINRA. Industry Members may determine to pass their CAT
fees through to their customers, just as they may do with section 31-
related fees and other fees. Accordingly, the two-thirds allocation of
CAT costs to Industry Members may be entirely passed through to
investors, thereby alleviating Industry Members of any burden of
funding the CAT. As one commenter on the 2022 Funding Proposal, a
former member of the Advisory Committee for the CAT and the former
Chief Economist of the Commission, noted, ``[b]ecause the markets for
exchange, dealing, and brokerage services are all highly competitive in
the long run, any fees imposed on any of these groups will ultimately
pass through to the retail and institutional traders who use the
markets.'' \97\
---------------------------------------------------------------------------

\97\ Harris Letter at 2.
---------------------------------------------------------------------------

Finally, CAT LLC does not believe that FINRA should not be treated
as a market center for CAT funding purposes merely because FINRA is not
treated as a market center for governance purposes under the National
Market System Plan Regarding Consolidated Equity Market Data (``CT
Plan''). Although the CT Plan and the CAT Plan are both national market
system plans, their purpose and implementation are different. The CAT
NMS Plan, as approved by the Commission, explicitly contemplates
charging fees to all Participants, including FINRA. For example,
Section 11.1(b) of the CAT NMS Plan states that ``[s]ubject to Section
11.2, the Operating Committee shall have discretion to establish
funding for the Company, including: (i) establishing fees that the
Participants shall pay.'' \98\ In addition, the purpose of the CAT is
solely for regulatory purposes; it provides a regulatory system to
facilitate the performance of the self-regulatory obligations of all
the Participants, including the exchanges and FINRA. In contrast, the
CT Plan governs the public dissemination of real-time consolidated
equity market data for NMS stocks.
---------------------------------------------------------------------------

\98\ See also Sections 11.2 and 11.3 of the CAT NMS Plan.
---------------------------------------------------------------------------

g. Impact on Options Versus Equities
CAT LLC believes that the Funding Proposal provides for a fair,
reasonable and equitable treatment of the equities and options markets.
CAT LLC does not believe that the Funding Proposal would burden
inappropriately efficiency, competition or capital formation in how it
treats equities and options. As a preliminary matter, unlike other
previously proposed fee models,\99\ the Funding Proposal does not
allocate costs between the equities and options markets; instead, the
fee attributable to a transaction in an equity or option security
depends on equivalent executed share volume. In addition, the use of
equivalent executed share volume is designed to normalize options and
equities in the calculation of fees, and to recognize and address the
different trading characteristics of different types of securities.
Recognizing that Listed Options trade in contracts rather than shares,
the Funding Proposal would count executed equivalent share volume
differently for Listed Options. Specifically, each executed contract
for a transaction in Listed Options would be counted based on the
multiplier applicable to the specific Listed Option contract in the
relevant transaction (e.g., 100 executed equivalent shares or such
other applicable equivalency).
---------------------------------------------------------------------------

\99\ See, e.g., 2018 Fee Proposal Release at 1400.
---------------------------------------------------------------------------

h. Sell-Side and Buy-Side
CAT LLC proposes to charge both the buy-side and sell-side of a
transaction in Eligible Securities a CAT fee. The proposal to charge
both the buy-side and the sell-side of a transaction is consistent with
other types of fees charged to both the buyer and the seller that are
common in the industry. As such, CAT LLC believes that the proposal
would comply with the requirements of the Exchange Act. For example,
the ORF, a fee common to the options exchanges, is one example of a
regulatory fee charged to both the buy-side and sell-side of the
transaction. For example, the MIAX fee schedule lists the options
regulatory fee as applying ``per executed contract side.'' \100\
Similarly, under its pricing schedule, Nasdaq PHLX charges an options
regulatory fee ``per contract side.'' \101\ As set forth in its fee
schedule, CBOE EDGX also charges an options regulatory fee to each side
of the contract.\102\ In addition, the industry is familiar with
transaction-based fees charged to both the buyer and the seller by the
exchanges and FINRA.\103\
---------------------------------------------------------------------------

\100\ MIAX Options Exchange, Fee Schedule, as of Mar. 3, 2023.
\101\ Nasdaq PHLX Rules, Options 7, Section 6(D).
\102\ Cboe EDGX Fee Schedule, effective Mar. 1, 2023.
\103\ See, e.g., NYSE Price List 2023 for fees charged to both
sides.
---------------------------------------------------------------------------

i. Fee Rate Changes Twice per Year for CAT Fees Related to Prospective
CAT Costs
CAT LLC proposes to require the calculation of the Fee Rate for CAT
Fees related to Prospective CAT Costs twice a year. CAT LLC believes
that the proposal to adjust the Fee Rate twice a year, once at the
beginning of the year and once during the year, appropriately balances
the need to coordinate the Fee Rate with potential changes in the costs
and projections with the cost and effort to the industry related to
more frequent fee changes.
CAT LLC believes its proposal is in keeping with views expressed by
the industry in other contexts regarding the appropriate frequency of
regulatory rate changes. For example, in the ORF context, the industry
requested that rate changes be limited to twice per year. SIFMA stated
in a comment letter on one of the ORF fee proposals that ``[r]ates
should only be changed two times per year to reduce operational
complexity and reduce risk.'' \104\ The exchanges with ORF fees noted
that the possibility for fee rate changes only twice per year would
also ``better enable [their members] to properly account for ORF
charges among their customers.'' \105\ In light of these views on the
frequency of the rate changes, exchanges with an ORF have limited the
fee rate changes to twice a year.\106\
---------------------------------------------------------------------------

\104\ See, e.g., Letter from Ellen Greene, Managing Director,
SIFMA to Vanessa Countryman, Secretary, SEC, re: SIFMA Comment
Letter on the Options Regulatory Fee Filings by SR-EMERALD-2019-01
(Apr. 10, 2019) at 5, https://www.sifma.org/wp-content/uploads/2019/04/MIAX-Emerald-ORF.pdf.
\105\ See, e.g., Securities Exchange Act Rel. 93667 (Oct. 15,
2021).
\106\ See, e.g., Cboe BZX Fee Schedule (``The Exchange may only
increase or decrease the ORF semi-annually''); MIAX Fee Schedule
(The Exchange may only increase or decrease the ORF semi-annually);
and BOX Fee Schedule (``The Exchange may only increase or decrease
the ORF semi-annually'').
---------------------------------------------------------------------------

j. Plan Amendment Process for Fee Rate Changes
Under the Funding Proposal, once any Fee Rate has been established
by a majority vote of the Operating Committee in accordance with the
Funding Proposal set forth in the CAT NMS Plan,\107\ each Participant
would be required to pay the applicable CAT Fee

[[Page 17109]]

calculated in accordance with the requirements set forth in the CAT NMS
Plan (subject to the requirement for the Industry Member CAT Fee to be
in effect). CAT LLC does not plan to submit an amendment to the CAT NMS
Plan each time that the Fee Rate for the CAT Fee is established or
adjusted because of the length of time and burden required to amend the
CAT NMS Plan for each adjustment to the Fee Rate. Moreover, CAT LLC
believes that it is unnecessary to file a new separate amendment for
the Participant CAT Fees each time a new Fee Rate is approved because
the CAT NMS Plan would set forth in detail the manner in which the CAT
fees are established and the inputs for calculating the specific CAT
Fees would be published on the CAT website and included in the
Participant fee filings under section 19(b) of the Exchange Act for
Industry Member CAT fees. Therefore, the amendments to the Plan for a
fee rate change would be redundant and impractical in terms of timing.
---------------------------------------------------------------------------

\107\ Participants would be required to pay the CAT Fee once the
CAT Fee is in effect with regard to Industry Members in accordance
with Section 19(b) of the Exchange Act.
---------------------------------------------------------------------------

CAT LLC proposes to amend the CAT NMS Plan to describe in detail
how CAT Fees would be calculated, including the formula for the
calculation and the methods for determining the inputs for the
calculation (i.e., the budget, projected executed equivalent share
volume, executed equivalent shares per transaction). As such, the
Participants would be required to calculate the Fee Rate and the
related CAT Fees using the proposed formula; this process would be
mandatory, including the mid-year Fee Rate change. Moreover, the
budgetary and projection inputs to the calculation would be public,
including in public fee filings pursuant to section 19(b) of the
Exchange. Accordingly, CAT LLC does not believe that a Plan amendment
would be necessary each time a new Fee Rate is calculated in accordance
with the Plan.
The CAT NMS Plan would require each Participant to pay the proposed
CAT Fees determined in accordance with the Funding Proposal. Proposed
Section 11.3(a)(ii)(A) sets forth the requirement for Participants to
pay the CAT fees. It states that ``[e]ach Participant that is a
national securities exchange will be required to pay the CAT Fee for
each transaction in Eligible Securities executed on the exchange in the
prior month based on CAT Data,'' and that ``[e]ach Participant that is
a national securities association will be required to pay the CAT Fee
for each transaction in Eligible Securities executed otherwise than on
an exchange in the prior month based on CAT Data.'' It further states
that ``[t]he CAT Fee for each transaction in Eligible Securities will
be calculated by multiplying the number of executed equivalent shares
in the transaction by one-third and by the Fee Rate reasonably
determined pursuant to paragraph (a)(i) of this Section 11.3.'' In
addition, proposed paragraph (a) of the Participant fee schedule would
state that ``[e]ach Participant shall pay the CAT Fee set forth in
Section 11.3(a) of the CAT NMS Plan to Consolidated Audit Trail, LLC in
the manner prescribed by Consolidated Audit Trail, LLC on a monthly
basis based on the Participant's transactions in the prior month.''
The Participants would be required to follow the requirements set
forth in the CAT NMS Plan for establishing and calculating CAT Fees and
requiring the payment of the CAT Fees as both a regulatory and
contractual matter. Rule 613(h)(1) of Regulation NMS under the Exchange
Act states that ``[e]ach national securities exchange and national
securities association shall comply with the provisions of the national
market system plan approved by the Commission,'' that is, the CAT NMS
Plan. Rule 613(h)(2) of Regulation NMS under the Exchange Act states
that ``[a]ny failure by a national securities exchange or national
securities association to comply with the provisions of the national
market system plan approved by the Commission shall be considered a
violation of this section.'' Similarly, Rule 608(c) of Regulation NMS
under the Exchange Act states that ``[e]ach self-regulatory
organization shall comply with the terms of any effective national
market system plan of which it is a sponsor or a participant.'' Section
3.11 of the CAT NMS Plan reiterates this requirement, stating that
``[e]ach Participant shall comply with . . . the provisions of SEC Rule
613 and of this Agreement, as applicable, to the Participant.'' In
addition, each Participant is a signatory to the CAT NMS Plan as a
member of the limited liability company. Accordingly, a failure to
comply with the requirements of the CAT NMS Plan related to the CAT
fees would be a violation of the regulatory obligation to comply with
the CAT NMS Plan and a breach of contractual requirements of the CAT
NMS Plan.
k. Executed Equivalent Shares for NMS Stocks, Listed Options and OTC
Equity Securities
The Funding Proposal uses the concept of executed equivalent shares
as the metric for calculating CAT fees for transactions in NMS Stocks,
Listed Options and OTC Equity Securities, each of which have different
trading characteristics. Under the Funding Proposal, each executed
share for a transaction in NMS Stocks would be counted as one executed
equivalent share, each executed contract for a transaction in Listed
Options would be counted using the contract multiplier applicable to
the specific Listed Option in the relevant transaction, and each
executed share for a transaction in OTC Equity Securities would be
counted as 0.01 executed equivalent shares. CAT LLC believes that the
proposed counting methods for each category of security are
appropriate, as discussed in detail above in Section A.3.b.ii of this
filing.
l. Cost Transparency
i. Cost Transparency and Level of Detail of CAT Costs
CAT LLC provides substantial cost transparency for Past CAT Costs
and Prospective CAT Costs, including transparency above and beyond what
is required under the CAT NMS Plan, and more than other national market
system plans. Such transparency would include cost descriptions in the
fee filings made pursuant to section 19(b) of the Exchange Act and Rule
19b-4(f)(2) thereunder, as well as the public availability of CAT
financial and budget information.
CAT LLC proposes to require substantial transparency for CAT costs
in the fee filings to be made pursuant to section 19(b) of the Exchange
Act. For example, Proposed Section 11.3(a)(iii)(B) of the CAT NMS Plan
would require such filings for CAT Fees to include, among other things,
the budget for the upcoming year (or remainder of the year, as
applicable), including a brief description of each line item in the
budget, including (1) technology line items of cloud hosting services,
operating fees, CAIS operating fees, change request fees and
capitalized developed technology costs, (2) legal, (3) consulting, (4)
insurance, (5) professional and administration, and (6) public
relations costs, a reserve and/or such other categories as reasonably
determined by the Operating Committee to be included in the budget and
the reason for changes in each such line item from the prior CAT Fee
filing; and a discussion of how the budget is reconciled to the
collected fees. Similarly, Proposed Section 11.3(b)(iii)(B)(II) of the
CAT NMS Plan would require such filings for Historical CAT Assessments
to include, among other things, a brief description of the amount and
type of Historical CAT Costs, including (1) technology line items of
cloud hosting services, operating fees, CAIS operating fees,

[[Page 17110]]

change request fees and capitalized developed technology costs, (2)
legal, (3) consulting, (4) insurance, (5) professional and
administration, and (6) public relations costs.
CAT LLC provides substantial additional financial information
regarding the operation of the CAT as required by the CAT NMS Plan. For
example, CAT LLC currently makes detailed financial information about
the CAT publicly available. Section 9.2(a) of the CAT NMS Plan requires
CAT LLC to maintain a system of accounting established and administered
in accordance with GAAP and requires ``all financial statements or
information that may be supplied to the Participants shall be prepared
in accordance with GAAP (except that unaudited statements shall be
subject to year-end adjustments and need not include footnotes).''
Section 9.2(a) of the CAT NMS Plan also requires the Company to prepare
and provide to each Participant ``as soon as practicable after the end
of each Fiscal Year, a balance sheet, income statement, statement of
cash flows and statement of changes in equity for, or as of the end of,
such year, audited by an independent public accounting firm.'' The CAT
NMS Plan requires that this audited balance sheet, income statement,
statement of cash flows and statement of changes in equity be made
publicly available. Among other things, these financial statements
provide operating expenses, including technology, legal, consulting,
insurance, professional and administration and public relations costs.
CAT LLC also maintains a dedicated web page on the CAT NMS Plan website
that consolidates its annual financial statements in a public and
readily accessible place.\108\ The Company's annual financial
statements from inception in 2017 through 2021 are currently available
on the CAT website.
---------------------------------------------------------------------------

\108\ See CAT Audited Financial Statements, https://www.catnmsplan.com/audited-financialstatements.
---------------------------------------------------------------------------

In addition to providing financial information required under the
CAT NMS Plan and otherwise, CAT LLC also has voluntarily determined to
provide more financial transparency to the public regarding its costs.
For example, CAT LLC publicly provides its annual operating budget as
well as periodically provides updates to the budget that occur during
the year. CAT LLC includes such budget information on a dedicated web
page on the CAT NMS Plan website to make it readily accessible to the
public, like the CAT financial statements. CAT LLC also has held
webinars providing additional detail about CAT costs and about
potential alternative funding models for the CAT, and commenters
submitted questions and comments on the webinars.\109\
---------------------------------------------------------------------------

\109\ See, e.g., CAT LLC Webinar, CAT Costs (Sept. 21, 2021),
https://www.catnmsplan.com/events/catcostsseptember-21-2021; CAT LLC
Webinar, CAT Funding (Sept. 22, 2021), https://www.catnmsplan.com/events/catfundingseptember-22-2021; and CAT LLC Webinar, CAT Funding
(Apr. 6, 2022), https://www.catnmsplan.com/events/cat-funding.
---------------------------------------------------------------------------

ii. Composition and Transparency of Past CAT Costs
CAT LLC also provides detailed disclosures regarding Past CAT
Costs. The Historical Fee Rate for the Historical CAT Assessment would
be calculated based on actual past costs incurred by the CAT (except
for certain costs that CAT LLC has determined to exclude from the
calculation), rather than budgeted costs. The actual costs for prior to
2022 are set forth in detail in the audited financial statements for
the Company and its predecessor CAT NMS, LLC, which are available on
the CAT website.\110\ In addition, the following describes in detail
the Historical CAT Costs for prior to 2022. These Historical CAT Costs
figures are being provided in this filing for transparency purposes
only. The Participants expect to describe these costs in the relevant
fee filings that the Participants submit pursuant to section 19(b)
under the Exchange Act and Rule 19b-4(f)(2) thereunder regarding
Historical CAT Assessments.
---------------------------------------------------------------------------

\110\ The audited financial statements for CAT NMS, LLC and
Consolidated Audit Trail, LLC are available at https://www.catnmsplan.com/audited-financial-statements.
---------------------------------------------------------------------------

A. Historical CAT Costs Incurred Prior to June 22, 2020 (i.e., Pre-FAM
Costs)
The Participants expect to propose that Historical CAT Costs would
include costs incurred by CAT prior to June 22, 2020 and already funded
by the Participants, excluding Excluded Costs (described further
below). The Participants expect to propose that the Historical CAT
Costs would include costs for the period prior to June 22, 2020 of
$143,919,521. The Participants expect to propose that 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 CEBBs paying one-third ($47,973,174) and
CEBSs paying one-third ($47,973,174). The following table breaks down
the Historical CAT Costs for the period prior to June 22, 2020 into the
categories set forth in Proposed Section 11.3(b)(iii)(B)(II) of the CAT
NMS Plan.

------------------------------------------------------------------------
Historical CAT
costs for period
Operating expense prior to June 22,
2020
------------------------------------------------------------------------
Capitalized Developed Technology Costs and $71,475,941
Transition Fee *...................................
Technology Costs: 33,568,579
Cloud Hosting Services............................ 10,268,840
Operating Fees.................................... 21,085,485
CAIS Operating Fees............................... 2,072,908
Change Request Fees............................... 141,346
Legal............................................... 19,674,463
Consulting.......................................... 17,013,414
Insurance........................................... 880,419
Professional and administration..................... 1,082,036
Public relations.................................... 224,669
-------------------
Total Operating Expenses.......................... 143,919,521
------------------------------------------------------------------------
* 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 the above table.

B. CAT Costs Incurred in Period 1
The Participants expect to propose that Historical CAT Costs would
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 Participants expect to propose that the Historical CAT Costs for
Period 1 are $6,377,343. The Participants expect to propose that
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 CEBBs paying one-third
($2,125,781) and CEBSs paying one-third ($2,125,781). The following
table breaks down the Historical CAT Costs for Period 1 into the
categories set forth in Proposed Section 11.3(b)(iii)(B)(II) of the CAT
NMS Plan.

------------------------------------------------------------------------
Historical CAT
Operating expense costs for period 1
------------------------------------------------------------------------
Capitalized Developed Technology Costs *............ $1,684,870
Technology Costs: 3,996,800
Cloud Hosting Services............................ 2,642,122
Operating Fees.................................... 1,099,680
CAIS Operating Fees............................... 254,998
Change Request Fees............................... ..................
Legal............................................... 481,687
Consulting.......................................... 137,209
Insurance........................................... ..................
Professional and administration..................... 69,077

[[Page 17111]]

Public relations.................................... 7,700
-------------------
Total Operating Expenses.......................... 6,377,343
------------------------------------------------------------------------
* The non-cash amortization of these capitalized developed technology
costs of $362,121 incurred during Period 1 have been appropriately
excluded from the above table.

C. CAT Costs Incurred in Period 2
The Participants expect to propose that Historical CAT Costs would
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. The Participants expect to propose that the Historical CAT Costs
for Period 2 are $42,976,478. The Participants expect to propose that
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 CEBBs paying one-third
($14,325,492.70) and CEBSs paying one-third ($14,325,492.70). The
following table breaks down the Historical CAT Costs for Period 2 into
the categories set forth in Proposed Section 11.3(b)(iii)(B)(II) of the
CAT NMS Plan.

------------------------------------------------------------------------
Historical CAT
Operating expense costs for period 2
------------------------------------------------------------------------
Capitalized Developed Technology Costs *............ $6,761,094
Technology Costs: 31,460,033
Cloud Hosting Services............................ 20,709,212
Operating Fees.................................... 9,108,700
CAIS Operating Fees............................... 1,590,298
Change Request Fees............................... 51,823
Legal............................................... 2,766,644
Consulting.......................................... 532,146
Insurance........................................... 976,098
Professional and administration..................... 438,523
Public relations.................................... 41,940
-------------------
Total Operating Expenses.......................... 42,976,478
------------------------------------------------------------------------
* The non-cash amortization of these capitalized developed technology
costs of $1,892,505 incurred during Period 2 have been appropriately
excluded from the above table.

D. CAT Costs Incurred in Period 3
The Participants expect to propose that Historical CAT Costs would
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 Participants expect to propose that the Historical CAT Costs
for Period 3 are $144,415,268. The Participants expect to propose that
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 CEBBs paying one-third
($48,238,423) and CEBSs paying one-third ($48,238,423). The following
table breaks down the Historical CAT Costs for Period 3 into the
categories set forth in Proposed Section 11.3(b)(iii)(B)(II) of the CAT
NMS Plan.

------------------------------------------------------------------------
Historical CAT
Operating expense costs for period 3
------------------------------------------------------------------------
Capitalized Developed Technology Costs *............ $10,763,372
Technology Costs: 123,639,402
Cloud Hosting Services............................ 94,574,759
Operating Fees.................................... 23,106,091
CAIS Operating Fees............................... 5,562,383
Change Request Fees............................... 396,169
Legal............................................... 6,333,248
Consulting.......................................... 1,408,209
Insurance........................................... 1,582,714
Professional and administration..................... 595,923
Public relations.................................... 92,400
-------------------
Total Operating Expenses.......................... 144,415,268
------------------------------------------------------------------------
* The non-cash amortization of these capitalized developed technology
costs of $5,108,044 incurred during Period 3 have been appropriately
excluded from the above table.

E. Excluded Costs
The Participants expect to propose that Historical CAT Costs would
not include two categories of CAT costs (``Excluded Costs''): (1)
$48,874,937, which are all CAT costs incurred from November 15, 2017
through November 15, 2018, and (2) $14,749,362 of costs related to the
termination of the relationship with the Initial Plan Processor. The
Participants expect to propose that the Participants would remain
responsible for 100% of these costs, which total $63,624,299. CAT LLC
believes that the exclusions of these costs addresses concerns
previously expressed by commenters about costs incurred related to the
period of the operation of the Initial Plan Processor.
First, the Participants expect to propose that Historical CAT Costs
would exclude all CAT costs incurred from November 15, 2017 through
November 15, 2018. CAT LLC determined to exclude all costs during this
one-year period from fees charged to Industry Members due to the delay
in the start of reporting to the CAT. The Participants expect to
propose that these costs are $48,874,937. The Participants expect to
propose that the Participants would remain responsible for 100% of this
$48,874,937 in costs. The following table breaks down these costs into
the categories set forth in Proposed Section 11.3(b)(iii)(B)(II) of the
CAT NMS Plan.

------------------------------------------------------------------------
Excluded costs for
November 15, 2017-
Operating expense November 15, 2018

------------------------------------------------------------------------
Capitalized Developed Technology Costs.............. $37,852,083
Technology Costs:
Cloud Hosting Services............................
Operating Fees....................................
CAIS Operating Fees...............................
Change Request Fees...............................
Legal............................................... 6,143,278
Consulting.......................................... 4,452,106
Insurance...........................................
Professional and administration..................... 340,145
Public relations.................................... 87,325
-------------------
Total Operating Expenses.......................... 48,874,937
------------------------------------------------------------------------

Second, the Participants expect to propose that Historical CAT
Costs would not include $14,749,362 of costs related to the conclusion
of the relationship with the Initial Plan Processor. The Participants
expect to propose that Participants would remain responsible for 100%
of the $14,749,362 of these costs.
Accordingly, the Participants expect to propose that Historical CAT
Costs would exclude a total of $63,624,299 of prior CAT costs, and the
Participants would remain responsible for 100% of these costs.
iii. Alternative Transparency Proposals
CAT LLC believes that its proposed methods of cost transparency
will provide Industry Members and other interested parties with
detailed information about the CAT and the CAT fees. CAT LLC does not
believe that additional transparency measures, such as a mechanism to
allow for the review of budget information prior to a fee filing, or an
independent cost review mechanism, are necessary or appropriate.
A. Budget Disclosure Prior to Fee Filings
CAT LLC does not believe that it is necessary to add a requirement
to the CAT NMS Plan to provide Industry Members and other members of
the public with an opportunity to review the budget that would be
included in

[[Page 17112]]

the SRO fee filings prior to such filings. CAT LLC is currently
providing CAT budget information to the public on a continuing basis.
CAT LLC publicly provides the annual operating budget for the CAT LLC
as well as regular updates to the budget that occur during the year.
This budget information is readily accessible to the public on a
dedicated web page on the CAT NMS Plan. CAT LLC does not just provide
the annual budget, or the mid-year budget, the two budgets that would
be necessary for the fee filings; it also provides other updates each
year. Accordingly, Industry Members and other members of the public
will have the opportunity to review regular updates of the budget more
often than is necessary for the fee filings. Such transparency would
allow Industry Members and other members of the public to understand
the budget and changes thereto throughout the year. Moreover, the fee
filing process under section 19(b) of the Exchange Act provides the
public with the opportunity to review the budgeted CAT costs that CAT
LLC would seek to recover via the CAT Fees.
B. Independent Cost Review Mechanism
CAT LLC also does not believe that it would be necessary or
appropriate to include an independent review mechanism for the cost of
proposed CAT expenditures. First, as a preliminary matter, unlike the
Commission, CAT LLC is not a governmental entity, with a responsibility
to the taxpaying public. It is a private entity subject to the
regulatory requirements of the Exchange Act. Second, such a budget
review process is unnecessary as any CAT fees proposed to be
established pursuant to the CAT NMS Plan are already subject to the
existing, well-established review practices under Rule 608 of
Regulation NMS under the Exchange Act and section 19(b) of the Exchange
Act and Rule 19b-4 thereunder. Under those provisions, CAT fees must be
filed with the SEC, thereby providing transparency and an opportunity
for comment by the public, and may only be implemented if they satisfy
the requirements of the Exchange Act. Third, the SEC has the ability to
request budget and financial information from CAT LLC to the extent
that it believes that such additional information is necessary for it
to evaluate any CAT fee proposals.
m. Allocation of Past CAT Costs to Participants: Pro Rata Versus Use of
Funding Proposal
The Participants have been responsible for all costs related to the
CAT to date, and Industry Members have not paid any of the costs to
date. Accordingly, under the Funding Proposal, the Participants would
not be required to pay a CAT fee related to Past CAT Costs in addition
to prior payments. The two-thirds of the Historical CAT Costs collected
from Industry Members would be allocated to the Participants pro rata,
based on the outstanding amounts due under the notes to the
Participants for repayment of outstanding loan notes to the Company.
The one-third of Historical CAT Costs that are not allocated to
Industry Members would not be allocated to the Participants pursuant to
the Funding Proposal based on executed equivalent shares. Instead, such
Historical CAT Costs would be allocated to the Participants pro rata
based on the outstanding amounts due under the notes (as discussed
further below in Section A.9.n of this filing). CAT LLC entered into
the loans with the Participants pursuant to its authority under the CAT
NMS Plan as approved by the SEC to pay for CAT costs, and, as such, the
loans and their repayment terms are consistent with the Exchange Act
and Rule 608 of Regulation NMS. The terms of the loans do not need to
satisfy the requirements of the funding model set forth in Article XI
of the CAT NMS Plan.
Section 3.9 of the CAT NMS Plan states that ``[i]f the Company
requires additional funds to carry out its purposes, to conduct its
business, to meet its obligations, or to make any expenditure
authorized by this Agreement, the Company may borrow funds from such
one or more of the Participants, or from such third party lender(s),
and on such terms and conditions, as may be approved by a Supermajority
Vote of the Operating Committee.'' As the Company--CAT LLC--did not
have a source of revenue to fund its activities without a funding model
approved by the SEC, CAT LLC determined to borrow funds from the
Participants on terms approved by a Supermajority Vote of the Operating
Committee. After this vote, CAT LLC entered into loan agreements with
the Participants to cover CAT costs. The terms of the loan agreements
dictate that repayment of the notes will be pro rata, based on the
outstanding amounts loaned to CAT LLC. Accordingly, CAT LLC is
obligated by contract, approved in accordance with the terms of the CAT
NMS Plan, to repay the notes pro rata, not by another method.
Moreover, Section 3.8 of the CAT NMS Plan states that ``[e]xcept as
may be determined by the unanimous vote of all the Participants or as
may be required by applicable law, no Participant shall be obligated to
contribute capital or make loans to the Company.'' The Participants
voluntarily have agreed to provide loans to CAT LLC under the agreed
upon terms to fund the CAT until a funding model is approved. Without a
unanimous vote of the Participants, however, CAT LLC cannot require the
Participants to make a new loan to CAT LLC. Accordingly, without the
agreement of the Participants, the loans must be repaid in accordance
with their terms.
n. Sufficient Detail Regarding Pro Rata Allocation of Past CAT Costs to
Participants
Further with regard to the pro rata allocation of Past CAT Costs,
the manner in which the loans are repaid are governed by the loan
agreements between CAT LLC and the Participants, as approved by CAT
LLC. The following provides additional detail as to the allocation of
Past CAT Costs to Participants in accordance with the loans to CAT LLC.
Pending SEC approval of CAT fees to fund the CAT, the Participants
voluntarily determined to fund the development and operation of the CAT
through quarterly loans to CAT LLC. The Participants determined to use
the market share, tier-based funding model applicable to Execution
Venues described in the proposed amendment to the CAT NMS Plan
submitted to the SEC on December 11, 2017 (without including ATSs as
Equity Execution Venues) to allocate loan amounts among Participants
(``Tiered Market Share Proposal'').\111\ As described in that proposal,
each Equity Execution Venue is placed in one of four tiers of fixed
fees based on market share, and each Options Execution Venue is placed
in one of two tiers of fixed fees based on market share. Equity
Execution Venue market share is determined by calculating each Equity
Execution Venue's proportion of the total volume of NMS Stock and OTC
Equity shares reported by all Equity Execution Venues during the
relevant time period. For purposes of calculating market share, the OTC
Equity Securities market share of Execution Venue ATSs trading OTC
Equity Securities as well as the market share of the FINRA OTC
reporting facility are discounted. Similarly, market share for Options
Execution Venues is determined by calculating each Options Execution
Venue's proportion of the total volume of Listed Options contracts
reported by all Options Execution Venues during the relevant time
period. The tiers are

[[Page 17113]]

refreshed on a quarterly basis in accordance with the Tiered Market
Share Proposal.
---------------------------------------------------------------------------

\111\ See 2018 Fee Proposal Release.
---------------------------------------------------------------------------

Each of the Participants voluntarily have loaned CAT LLC funds in
amounts in accordance with the Tiered Market Share Proposal to cover
Past CAT Costs. Accordingly, under the Funding Proposal, the
Participants propose to be reimbursed for two-thirds of the Historical
CAT Costs pro rata based on the outstanding amounts loaned to CAT LLC
pursuant to the Tiered Market Share Proposal, as this is what is
required under the loan contract between CAT LLC and the Participants.
Correspondingly, for the remaining one-third of the Historical CAT
Costs that are not reimbursed via the Historical CAT Assessment, the
Participants propose to remain responsible for the amounts loaned to
CAT LLC pursuant to the Tiered Market Share Proposal. The Participants'
one-third share of the Historical CAT Costs would be paid by the
cancellation of the loans on a pro rata basis. In addition, for any
Past CAT Costs that are excluded from Historical CAT Costs, the
Participants propose to remain responsible for the amounts loaned to
CAT LLC pursuant to the Tiered Market Share Proposal as well. These
excluded costs also would be paid by cancellation of the loans on a pro
rata basis.
o. Past CAT Costs: Collected From Current Versus Past Industry Members
and Use of Prior Month's Transactions
CAT LLC believes that Historical CAT Assessments are appropriately
assessed to current Industry Members based on current market activity.
CAT LLC does not believe that Historical CAT Assessments should be
charged to Industry Members that were active at the time when the Past
CAT Costs were incurred and based on trading activity from the time
when the Past CAT Costs were incurred.
CAT LLC believes that it is appropriate to collect the Historical
CAT Assessments from current Industry Members based on current market
activity because current market participants are the beneficiaries of
the regulatory value provided by the CAT to the securities markets. The
SEC has emphasized that the CAT provides a benefit to all market
participants,\112\ and, therefore, current Industry Members are
benefitting from the efforts to create and operate the CAT.
---------------------------------------------------------------------------

\112\ See generally Rule 613 Adopting Release.
---------------------------------------------------------------------------

In addition, the approach recognizes the many practical
difficulties of imposing fees retroactively on Industry Members' market
activity from the past, sometimes years in the past as the relevant
recovery period extends to 2012. For example, one of the practical
difficulties may include the fact that some Industry Members that would
be subject to such a retroactive fee may no longer be in business or no
longer registered as a broker-dealer that is subject to the
jurisdiction of the Participants or SEC. Indeed, this is likely to be a
substantial issue. For example, in the SEC's approval order of the CAT
NMS Plan, the SEC used an estimate of 1,800 broker-dealers subject to
CAT reporting for its cost estimates.\113\ However, the number of
current Industry Members has greatly diminished from these early
estimates to approximately 1,100.\114\ Therefore, at least
approximately 40% of the broker-dealers that may have been subject to
CAT reporting in 2012 are no longer CAT Reporters.
---------------------------------------------------------------------------

\113\ CAT NMS Plan Approval Order at 84862.
\114\ An average of 1,124 unique CAT Reporters sent transaction
data to the CAT from July 1, 2022 to August 8, 2022.
---------------------------------------------------------------------------

Another practical issue involves the difficulty of accurately
determining the transactions in Eligible Securities of the Industry
Member for the past decade that would be subject to CAT fees. Because
the recovery period for Past CAT Costs spans a period in which the CAT
was not in existence yet, as well as periods in which CAT reporting was
being phased in, the CAT may not have any record of relevant
transactions from earlier periods, and it may not have a complete
record of the relevant transactions for later periods. The SEC
anticipated the recovery of CAT fees after such costs were incurred, as
it contemplated the recovery of CAT costs for the creation of the CAT
as well as its implementation and maintenance.\115\
---------------------------------------------------------------------------

\115\ See, e.g., Rule 613(a)(1)(vii)(D) of Regulation NMS under
the Exchange Act.
---------------------------------------------------------------------------

Moreover, imposing retroactive fees for past market activity could
raise fairness issues. For example, because the fee would be
retroactive, market participants could not have taken into
consideration the CAT fee when they decided to enter into the
transactions in the past. In addition, given the passage of time, past
CAT Reporters, particularly small CAT Reporters, may not be in a
position to pay a fee related to earlier market activity.\116\
---------------------------------------------------------------------------

\116\ CAT LLC notes, however, that there has been substantial
continuity in the largest Industry Members over time. For the
illustrative example, the top 10 firms in terms of equivalent
executed shares in December 2022 are allocated more than half (52%)
of the total Industry Member CAT costs; eight of those 10 firms were
also ranked in the top 10 throughout 2021. The remaining two were
ranked 14th and 15th, respectively. Similarly, of the top 30 firms
in December 2022 (representing an allocation of 82% of the total
Industry Member CAT costs), all but three ranked in the top 30
throughout 2021. The three exceptions were ranked at 31, 33 and 40
in 2021. Furthermore, of the top 10 firms by CAT record volume year
to date in 2023, 7 were also top 10 reporters by message volume in
2020. The other three rose from ranks 17, 18, and 35. Of the top 30
firms by CAT record volume year to date in 2023, 25 were in the top
30 reporters of 2020.
---------------------------------------------------------------------------

In addition, CAT LLC notes that the SEC has approved similar
funding practices with regard to new Participants for the CAT as well
as new participants for other national market system plans. In each
case, the new participant is required to pay a fee to join the plan,
and the fee is based on past costs for creating, implementing and
maintaining the plan at issue.\117\ As a result, a new participant
would be required to pay a fee for costs incurred in the past by the
relevant plan. For example, Section 3.3 of the CAT NMS Plan states
that, to become a new Participant to the CAT NMS Plan, the applicant
must:
---------------------------------------------------------------------------

\117\ See, e.g., Section III(b) of the CTA Plan; Section VIII of
the UTP Plan.

pay a fee to the Company in an amount determined by a Majority Vote
of the Operating Committee as fairly and reasonably compensating the
Company and the Participants for costs incurred in creating,
implementing, and maintaining the CAT, including such costs incurred
in evaluating and selecting the Initial Plan Processor and any
subsequent Plan Processor and for costs the Company incurs in
providing for the prospective Participant's participants in the
Company, including after consideration of the factors identified in
---------------------------------------------------------------------------
Section 3.3(b) (the ``Participation Fee'').

As this provision indicates, new CAT Participants are required to
contribute to paying for costs incurred since the inception of the CAT.
Indeed, the costs related to evaluating and selecting the Initial Plan
Processor were incurred in 2017 and before.\118\ For example, a CAT
Participant applicant in 2023 may be required to pay a fee that
reflects CAT costs incurred years ago. Similarly, the Funding Proposal
would require current Industry Members to pay a share of CAT costs from
years ago.
---------------------------------------------------------------------------

\118\ Letter from Participants, to Brent J. Fields, Secretary,
SEC re: Selection of Plan Processor for the National Market System
Plan Governing Consolidated Audit Trail (Jan. 18, 2017).
---------------------------------------------------------------------------

p. Budgeted Versus Incurred Costs
Under the Funding Proposal, the budgeted CAT costs set forth in the
annual operating budget would be used to determine the Fee Rate for CAT
Fees related to Prospective CAT Costs. The budgeted CAT costs would
comprise estimated fees, costs and expenses to be reasonably incurred
by the Company for the development, implementation and operation of the
CAT during the year,

[[Page 17114]]

which would include costs for the Plan Processor, insurance, and third-
party support, as well as an operational reserve. CAT LLC does not
propose to use costs already incurred in calculating the CAT Fees.
CAT LLC believes that using budgeted CAT costs, rather than CAT
costs already incurred, is critical to ``build[ing] financial stability
to support the Company as a going concern.'' \119\ Using budgeted CAT
costs to determine the Fee Rate would allow CAT LLC to collect fees
before bills become payable. If, however, CAT Fees are only collected
after bills become payable, then the Participants would be required to
continue to fund 100% of CAT costs to pay the bills as they come due.
Making the Participants responsible for all of the CAT costs upfront,
rather than one-third of the CAT costs, would change the proposed model
in a significant manner.
---------------------------------------------------------------------------

\119\ Section 11.2(f) of the CAT NMS Plan.
---------------------------------------------------------------------------

Requiring the calculation of the Fee Rate based on incurred CAT
costs, rather than budgeted CAT costs would only be necessary if
budgeted and incurred CAT costs were likely to diverge. However, the
Funding Proposal has been designed to address this concern. As
proposed, CAT LLC would be required to calculate the Fee Rate each year
based upon the budget for the upcoming year, and to adjust the fee rate
mid-year to reflect changes in the budgeted or actual CAT costs or the
projected or actual executed equivalent share volume. Accordingly, CAT
LLC would be required to adjust CAT Fees twice a year to ensure that
they are closely aligned with CAT costs. Moreover, when establishing
the annual budget or its mid-year adjustment, CAT LLC would adjust the
budget to reflect any surplus or deficit in CAT Fees collected during
the prior period.
In addition, the CAT NMS Plan requires that the Company operate on
a ``break-even'' basis, with fees imposed to cover costs and an
appropriate reserve. Any surpluses would be treated as an operational
reserve to offset future fees and would not be distributed to the
Participants as profits. To ensure that the Participants' operation of
the CAT will not contribute to the funding of their other operations,
Section 11.1(c) of the CAT NMS Plan specifically states that ``[a]ny
surplus of the Company's revenues over its expenses shall be treated as
an operational reserve to offset future fees.'' In addition, CAT LLC
proposes to limit the size of the reserve to not more than 25% of the
annual budget. To the extent that collected CAT fees exceed CAT costs,
including the reserve of 25% of the annual budget, such surplus shall
be used to offset future fees.\120\ Furthermore, CAT LLC is set up as a
business league to mitigate concerns that CAT LLC's earnings could be
used to benefit individual Participants.\121\
---------------------------------------------------------------------------

\120\ See Proposed 11.1(a)(ii) of the CAT NMS Plan.
\121\ To qualify as a business league under Section 501(c)(6) of
the Internal Revenue Code, an organization must ``not [be] organized
for profit and no part of the net earnings of [the organization can]
inure[ ] to the benefit of any private shareholder or individual.''
As the SEC stated when approving the CAT NMS Plan, ``the Commission
believes that the Company's application for Section 501(c)(6)
business league status addresses issues raised by commenters about
the Plan's proposed allocation of profit and loss by mitigating
concerns that the Company's earnings could be used to benefit
individual Participants.'' CAT NMS Plan Approval Order at 84793.
---------------------------------------------------------------------------

q. Continuous Fees Versus Sunsetting Fees
CAT LLC does not propose to require the proposed CAT Fees related
to Prospective CAT Costs to sunset automatically; instead, a CAT Fee
would continue until a new CAT Fee is in place in accordance with the
requirements of the CAT NMS Plan and section 19(b) of the Exchange Act.
CAT LLC believes that it is critical that a CAT Fee remain in place at
all times. Accordingly, CAT LLC proposes to add Section
11.3(a)(i)(A)(III) of the CAT NMS Plan to clarify that CAT Fees related
to Prospective CAT Costs do not sunset automatically; such CAT Fees
would remain in place until new CAT Fees with a new Fee Rate is in
effect.
The financial viability of the CAT would be put at risk without a
constant source of revenue. CAT LLC pays various bills, including
technology bills, on a monthly basis. Accordingly, even short delays in
the implementation of new CAT Fees after the sunsetting of a prior CAT
Fee may have a deleterious effect on the operation of the CAT. Indeed,
adopting sunsetting fees would contradict the funding principle of
seeking to ``build financial stability to support the Company as a
going concern.'' \122\
---------------------------------------------------------------------------

\122\ Section 11.2(f) of the CAT NMS Plan.
---------------------------------------------------------------------------

Moreover, CAT LLC does not believe that a sunsetting requirement is
necessary to ensure that the CAT Fees are closely coordinated with
Prospective CAT costs. CAT LLC has proposed a comprehensive, multi-
pronged approach to ensure that the CAT Fees are closely tied to CAT
costs. First, CAT LLC will be required to calculate the Fee Rates for
the CAT Fees based on budgeted CAT costs. In addition, CAT LLC will be
required to calculate the Fee Rate twice a year to determine whether
the Fee Rate has changed due to changes in the budgeted or actual costs
or actual or projected executed equivalent share volume, and to make a
fee filing twice a year to reflect this calculation. Accordingly, the
Fee Rate would be required to be updated twice a year, thereby ensuring
the CAT Fees are closely tied to CAT costs.
Second, the CAT NMS Plan requires that the Company operate on a
``break-even'' basis, with fees imposed to cover costs and an
appropriate reserve. Any surpluses would be treated as an operational
reserve to offset future fees and would not be distributed to the
Participants as profits. To ensure that the Participants' operation of
the CAT will not contribute to the funding of their other operations,
Section 11.1(c) of the CAT NMS Plan specifically states that ``[a]ny
surplus of the Company's revenues over its expenses shall be treated as
an operational reserve to offset future fees.'' Moreover, CAT LLC
proposes to amend the CAT NMS Plan to limit the reserve to no more than
25% of the annual budget and to clarify that CAT fees collected in
excess of the CAT costs, including the reserve, will be used to offset
future fees.\123\
---------------------------------------------------------------------------

\123\ See Proposed Section 11.1(a)(i) and (ii) of the CAT NMS
Plan.
---------------------------------------------------------------------------

Third, CAT LLC proposes to amend the CAT NMS Plan to require
Participants to provide significant details in their fee filings
regarding Industry Member CAT Fees. Proposed paragraph (a)(iii)(B) of
Section 11.3 of the CAT NMS Plan would state that, ``[w]hen the
Participants file with the SEC pursuant to section 19(b) of the
Exchange Act CAT Fees to be charged to Industry Members calculated
using the Fee Rate that the Operating Committee approved in accordance
with paragraph (a) of this Section 11.3,'' such filings would be
required to include (A) the Fee Rate; (B) the budget for the upcoming
year (or remainder of the year, as applicable), including a brief
description of each line item in the budget, including (1) technology
line items of cloud hosting services, operating fees, CAIS operating
fees, change request fees and capitalized developed technology costs,
(2) legal, (3) consulting, (4) insurance, (5) professional and
administration, and (6) public relations costs, a reserve and/or such
other categories as reasonably determined by the Operating Committee to
be included in the budget, and the reason for changes in each such line
item from the prior CAT Fee filing; (C) a discussion of how the budget
is reconciled to the collected fees; and (D) the projected total
executed equivalent share volume of all transactions in Eligible
Securities for the year (or

[[Page 17115]]

remainder of the year, as applicable), and a description of the
calculation of the projection. This detail would describe how the Fee
Rate was calculated and explain how the budget used in the calculation
is reconciled to the collected fees. Such detailed information would
provide Industry Members and other interested parties with a clear
understanding of the calculation of the CAT fees and their relationship
to CAT costs.
r. Conflicts of Interest
CAT LLC believes that the current process for developing the CAT
funding model appropriately addresses potential conflicts of interest
related to CAT fees. The CAT NMS Plan, as approved by the SEC, adopts
various measures to protect against potential conflicts issues raised
by the Participants' fee-setting authority, including, but not limited
to, the fee filing requirements under the Exchange Act and operating
the CAT on a break-even basis. CAT LLC believes that these and other
measures address potential conflicts of interest related to CAT fees.
s. Effect on Efficiency, Competition or Capital Formation
CAT LLC believes that the Funding Proposal would have a positive
impact on efficiency, competition and capital formation. The Funding
Proposal is designed to provide a predictable revenue stream sufficient
to cover CAT costs each year. In doing so, the Funding Proposal would
be designed to maintain the CAT as a going concern financially. By
providing for the financial viability of the CAT, the Funding Proposal
would allow the CAT to provide its intended benefits. For example, the
CAT is intended to provide significant improvements in efficiency
related to how regulatory data is collected and used. In addition, by
providing enhanced regulatory oversight and surveillance, the CAT could
result in improvements in market efficiency by deterring violative
activity. Similarly, the CAT is intended improve capital formation by
improving investor confidence in the market due to enhancements in
surveillance.
In addition, the Funding Proposal would not impose an inappropriate
burden on competition. The Funding Proposal would operate in a manner
similar to the funding models employed by the SEC and the Participants
related to section 31 of the Exchange Act, the FINRA TAF and the ORF.
These fees are long-standing and have been approved by the Commission
as satisfying the requirements under the Exchange Act, including not
imposing a burden on the competition that is not necessary or
appropriate under the Exchange Act. In addition, the Funding Proposal
avoids potentially burdensome fees for market makers or other market
participants based on message traffic. Furthermore, the Funding
Proposal addresses the specific trading characteristics of Listed
Options and OTC Equity Securities to avoid adverse effects of the
trading of those instruments. For example, the Funding Proposal
includes the discounting of transactions involving OTC Equity Shares
which, given the volume of shares typically involved in such securities
transactions, otherwise may result in disproportionate fees to market
participants engaging in transaction in these securities.
The Funding Proposal also would not unfairly burden FINRA or any of
the exchanges. The Funding Proposal is designed to be neutral as to the
manner of execution and place of execution. The CAT fees would be the
same regardless of whether the transaction is executed on an exchange
or in the over-the-counter market. All Participants are self-regulatory
organizations that have the same regulatory responsibilities under the
Exchange Act. Their usage of CAT Data will be for the same regulatory
purposes. By treating each Participant the same, the CAT fees would not
become a competitive issue by and among the Participants.
CAT LLC does not believe that this proposal would unfairly burden
CEBBs and CEBSs. Such a transaction-based fee is a type of fee that is
currently used and well-known in the securities markets. For example,
SRO members regularly pay transaction-based fees. As a result, the CAT
fees could be paid by Industry Members without requiring significant
and potentially costly changes. Moreover, the CEBBs and CEBSs could
determine, but would not be required, to pass their CAT fees through to
their customers, who, in turn, could pass their CAT fees to their
customers, until the fee is imposed on the ultimate participant in the
transaction. With such a pass through, the CEBBs and CEBSs would not
ultimately incur the cost of all CAT fees related to their
transactions.
t. Straightforward Approach
One advantage of the Funding Proposal is that the approach is
simple, straightforward and easy to understand. Using the predetermined
Fee Rate or Historical Fee Rate, CAT LLC would calculate CAT fees by
multiplying the number of executed equivalent shares in each
Participant, CEBB or CEBS's transactions in Eligible Securities by the
Fee Rate or Historical Fee Rate (as applicable) and one-third. The
values necessary for the calculation are readily available. The Fee
Rates and Historical Fee Rates would be publicly available, and
Participants, CEBBs and CEBSs have easy access to their transaction
data. Moreover, the two adjustments--one for Listed Options and one for
OTC Equity Securities--are similarly straightforward calculations. The
Funding Proposal does not include other complexities, such as tiered
fees, minimum or maximum fees, excluded types of Eligible Securities or
excluded transactions in Eligible Securities.
u. Predictable Fees
The Funding Proposal also provides CAT Reporters with predictable
CAT fees. Because the fee rates would be established in advance,
Participants, CEBBs and CEBSs can calculate the CAT fee that applies to
each transaction when it occurs. Accordingly, CAT Reporters with a CAT
fee obligation may easily estimate and validate their applicable fees
based on their own trading data. In addition, to the extent any CAT
fees are passed on to customers, such customers also can calculate the
applicable CAT fee for each transaction.
The predictability of CAT fees under the Funding Proposal improves
upon the lack of fee predictability in the Original Funding Model and
other message traffic-based models.\124\ For example, with potential
message traffic models,\125\ CAT Reporters would not know the actual
per message rate until after the end of the relevant reporting period
for which they were assessed the fee and also could not determine in
advance the number of messages that may be associated with a given
order or the total number of messages, thereby making it difficult for
a CAT Reporter to predict a CAT fee related to its market activity. In
addition, this lack of predictability related to message-based fees
also could complicate efforts by Industry Members to estimate, explain
and directly pass message-based fees back to customers, particularly if
no trade has occurred.
---------------------------------------------------------------------------

\124\ See Securities Exchange Act Rel. No. 92451 (July 20,
2021), 86 FR 40114, 40122 (July 26, 2021) (``2021 Fee Proposal
OIP'').
\125\ Potential message traffic models, including the 2018 Fee
Proposal and 2021 Fee Proposal, and the message traffic only model,
are discussed further below in Section A.10 of this filing.
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v. Administrative Ease
The Funding Proposal also would allow for ``ease of billing and
other administrative functions.'' \126\ As discussed above, the Funding
Proposal relies upon a basic calculation using

[[Page 17116]]

predetermined fee rate, thereby making the fee determination a
straightforward process. In addition, the CAT fees will be collected in
a manner similar to the collection process that Industry Members are
already accustomed, thereby further reducing the administrative burden
on the industry.
---------------------------------------------------------------------------

\126\ Section 11.2(d) of the CAT NMS Plan.
---------------------------------------------------------------------------

w. Equal Treatment of Trading Venues
The Funding Proposal also has the benefit of treating transactions
in Eligible Securities equally regardless of the trading venue. The Fee
Rate or Historical Fee Rate would be the same regardless of whether a
trade was executed on an exchange or in the OTC market, or how the
trade ultimately occurred more generally (e.g., in a manner that
generated more message traffic). As a result, it would not favor or
unfairly burden any one type of trading venue or method.
x. Equitable Treatment of Different Eligible Securities
The Funding Proposal also recognizes and addresses the different
trading characteristics of different types of securities. Recognizing
that Listed Options trade in contracts rather than shares, the Funding
Proposal would count executed equivalent share volume differently for
Listed Options. Specifically, each executed contract for a transaction
in Listed Options would be counted based on the multiplier applicable
to the specific Listed Option contract in the relevant transaction
(e.g., 100 executed equivalent shares or such other applicable
equivalency). Similarly, in recognition of the different trading
characteristics of OTC Equity Securities as compared to NMS Stocks, the
Funding Proposal would discount the share volume of OTC Equity
Securities when calculating the CAT fees. Specifically, each executed
share for a transaction in OTC Equity Securities would be counted as
0.01 executed equivalent shares. As a result, the Funding Proposal
would not favor or unfairly burden any one type of product or product
type.
y. Contributions by Both Industry Members and Participants
The Funding Proposal would require both Participants and Industry
Members to contribute to the funding of the CAT. To date, the
Participants have paid the full cost of the creation, implementation
and maintenance of the CAT since 2012, pending Commission approval of a
fee model. The continued funding of the CAT solely by the Participants
was and is not contemplated by the CAT NMS Plan, nor is it a
financially sustainable approach. As noted by the SEC, the CAT
``substantially enhance[s] the ability of the SROs and the Commission
to oversee today's securities markets,'' \127\ thereby benefiting all
market participants. The Funding Proposal would require both
Participants and Industry Members to contribute to the cost of the CAT,
as contemplated by Rule 613 and the CAT NMS Plan.
---------------------------------------------------------------------------

\127\ Rule 613 Adopting Release at 45726.
---------------------------------------------------------------------------

Rule 613(a)(1)(vii)(D) specifically contemplates Industry Members
contributing to the payment of CAT costs. Specifically, this provision
requires the CAT NMS Plan to address ``[h]ow the plan sponsors propose
to fund the creation, implementation, and maintenance of the
consolidated audit trail, including the proposed allocation of such
estimated costs among the plan sponsors, and between the plan sponsors
and members of the plan sponsors.'' In approving Rule 613, the SEC
noted that ``although the plan sponsors likely would initially incur
the costs to establish and fund the central repository directly, they
may seek to recover some or all of these costs from their members.''
\128\
---------------------------------------------------------------------------

\128\ Id. at 45795.
---------------------------------------------------------------------------

In addition, as approved by the SEC, the CAT NMS Plan specifically
contemplates CAT fees to be paid by both Industry Members and
Participants. Section 11.1(b) of the CAT NMS Plan states that ``the
Operating Committee shall have discretion to establish funding for the
Company, including: (i) establishing fees that the Participants shall
pay; and (ii) establishing fees for Industry Members that shall be
implemented by the Participants.'' \129\ The Commission stated in
approving the CAT NMS Plan the following:
---------------------------------------------------------------------------

\129\ See also Sections 11.1(c), 11.2(c), and 11.3(a) and (b) of
the CAT NMS Plan.

The Commission believes that the proposed funding model reflects
a reasonable exercise of the Participants' funding authority to
recover the Participants' costs related to the CAT. The CAT is a
regulatory facility jointly owned by the Participants and, as noted
above, the Exchange Act specifically permits the Participants to
charge members fees to fund their self-regulatory obligations. The
Commission further believes that the proposed funding model is
designed to impose fees reasonably related to the Participants'
self-regulatory obligations because the fees would be directly
associated with the costs of establishing and maintaining the CAT,
and not unrelated SRO services.\130\
---------------------------------------------------------------------------

\130\ CAT NMS Plan Approval Order at 84794.

Likewise, the Commission stated that ``the Participants are
permitted to recoup their regulatory costs under the Exchange Act
through the collection of fees from their members, as long as such fees
are reasonable, equitably allocated and not unfairly discriminatory,
and otherwise are consistent with Exchange Act standards,'' \131\ and
noted that ``Rule 613(a)(1)(vii)(D) requires the Participants to
discuss in the CAT NMS Plan how they propose to fund the creation,
implementation and maintenance of the CAT, including the proposed
allocation of estimated costs among the Participants, and between the
Participants and Industry Members.'' \132\
---------------------------------------------------------------------------

\131\ Id. at 84795.
\132\ Id. at 84797 (emphasis added).
---------------------------------------------------------------------------

In its amendments to the CAT NMS Plan regarding financial
accountability, the SEC reaffirmed the ability for the Participants to
charge Industry Members a CAT fee. Specifically, the SEC noted that the
amendments were not intended to change the basic funding structure for
the CAT, which may include fees established by the Operating Committee,
and implemented by the Participants, to recover from Industry Members
the costs and expenses incurred by the Participants in connection with
the development and implementation of the CAT.\133\
---------------------------------------------------------------------------

\133\ Securities Exchange Act Rel. No. 88890 (May 15, 2020), 85
FR 31322, 31329 (May 22, 2020).
---------------------------------------------------------------------------

z. Use of CAT Data
CAT Data would be used to calculate the CAT fees under the Funding
Proposal. CAT Data would be used to identify each transaction in
Eligible Securities for which a CAT fee would be collected.
Specifically, CAT fees will be charged with regard to trades reported
to CAT by FINRA via the ADF/ORF/TRF and by the exchanges. In addition,
the same transaction data in the CAT Data would be used in the
calculation of the projected total executed equivalent share volume for
the Fee Rate. Furthermore, the transaction data in the CAT Data
provides the identity of the relevant CAT Executing Brokers for each
transaction for purposes of the CAT fees. Using CAT Data for the CAT
fee calculations provides administrative efficiency, as the data will
be accessible via the CAT.
aa. Twelve Month Look Back for Projected Volume
The calculation of the Fee Rate and the Historical Fee Rate
requires the determination of the projected total executed equivalent
share volume of transactions in Eligible Securities for the year. CAT
LLC proposes to determine this projection based on the total executed
equivalent share volume of transactions in Eligible Securities from the
prior twelve months. CAT LLC

[[Page 17117]]

determined that the use of the data from the prior twelve 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 calculation of the Fee Rate or Historical Fee
Rate. In addition, using twelve months, rather a period less than a
year, would address the issue of potential seasonality. For example, if
the projection were based on a period shorter than one year, the
projection could be based on a period that typically has lighter
trading volume than the other half of the year, thereby causing the
projection to be too low.
bb. Cost Discipline Mechanisms
The reasonableness of the Funding Proposal and the fees calculated
under the Funding Proposal are supported by key cost discipline
mechanisms for the CAT--a cost-based funding structure, cost
transparency, cost management efforts and oversight. Together, these
mechanisms help ensure the ongoing reasonableness of the CAT's costs
and the level of fees assessed to support those costs.
First, the CAT NMS Plan requires that the Company operate on a
``break-even'' basis, with fees imposed to cover costs and an
appropriate reserve. Any surpluses would be treated as an operational
reserve to offset future fees and would not be distributed to the
Participants as profits.\134\ To ensure that the Participants'
operation of the CAT will not contribute to the funding of their other
operations, Section 11.1(c) of the CAT NMS Plan specifically states
that ``[a]ny surplus of the Company's revenues over its expenses shall
be treated as an operational reserve to offset future fees.'' In
addition, as set forth in Article VIII of the CAT NMS Plan, the Company
``intends to operate in a manner such that it qualifies as a `business
league' within the meaning of section 501(c)(6) of the [Internal
Revenue] Code.'' To qualify as a business league, an organization must
``not [be] organized for profit and no part of the net earnings of [the
organization can] inure[ ] to the benefit of any private shareholder or
individual.'' \135\ As the SEC stated when approving the CAT NMS Plan,
``the Commission believes that the Company's application for section
501(c)(6) business league status addresses issues raised by commenters
about the Plan's proposed allocation of profit and loss by mitigating
concerns that the Company's earnings could be used to benefit
individual Participants.'' \136\ The Internal Revenue Service has
determined that the Company is exempt from federal income tax under
section 501(c)(6) of the Internal Revenue Code.
---------------------------------------------------------------------------

\134\ CAT NMS Plan Approval Order at 84792.
\135\ 26 U.S.C. 501(c)(6).
\136\ CAT NMS Plan Approval Order at 84793.
---------------------------------------------------------------------------

Second, the CAT's commitment to reasonable funding in support of
its regulatory obligations is further reinforced by the transparency it
has committed to provide on an ongoing basis regarding its financial
performance. The Company currently makes detailed financial information
about the CAT publicly available. Section 9.2(a) of the CAT NMS Plan
requires the Operating Committee to maintain a system of accounting
established and administered in accordance with GAAP and requires ``all
financial statements or information that may be supplied to the
Participants shall be prepared in accordance with GAAP (except that
unaudited statements shall be subject to year-end adjustments and need
not include footnotes).'' Section 9.2(a) of the CAT NMS Plan also
requires the Company to prepare and provide to each Participant ``as
soon as practicable after the end of each Fiscal Year, a balance sheet,
income statement, statement of cash flows and statement of changes in
equity for, or as of the end of, such year, audited by an independent
public accounting firm.'' The CAT NMS Plan requires that this audited
balance sheet, income statement, statement of cash flows and statement
of changes in equity be made publicly available. Among other things,
these financial statements provide operating expenses, including
technology, legal, consulting, insurance, professional and
administration and public relations costs. The Company also maintains a
dedicated web page on the CAT NMS Plan website that consolidates its
annual financial statements in a public and readily accessible
place.\137\
---------------------------------------------------------------------------

\137\ See CAT Audited Financial Statements, https://www.catnmsplan.com/audited-financial-statements.
---------------------------------------------------------------------------

In addition, the Company publicly provides the annual operating
budget for the Company as well as periodically provides updates to the
budget that occur during the year. The Company includes such budget
information on a dedicated web page on the CAT NMS Plan website to make
it readily accessible, like the CAT financial statements.
CAT LLC also has held webinars providing additional detail about
CAT costs and about potential alternative funding models for the
CAT.\138\ In addition, CAT LLC plans to offer additional webinars on
cost and funding for the industry as appropriate going forward.
Collectively, these reports and other efforts provide extensive and
comprehensive information regarding the CAT's operations with respect
to its budgets, revenues, costs, and financial reserves, among other
information.
---------------------------------------------------------------------------

\138\ See, e.g., CAT LLC Webinar CAT Costs (Sept. 21, 2021),
https://www.catnmsplan.com/events/cat-costs-september-21-2021; CAT
LLC Webinar, CAT Funding (Sept. 22, 2021), https://www.catnmsplan.com/events/cat-funding-september-22-2021; and CAT LLC
Webinar, CAT Funding (Apr. 6, 2022), https://www.catnmsplan.com/events/cat-funding.
---------------------------------------------------------------------------

Third, CAT LLC regularly engages in and oversees efforts to reduce
CAT costs responsibly while appropriately funding its regulatory
obligations. CAT LLC's efforts to manage its expenses responsibly
include oversight of the CAT's annual budget, including technology and
other expenditures and initiatives. This oversight is informed by key
CAT working groups, such as the Technology Working Group, Regulatory
Working Group and Interpretive Working Group, each of which brings
varied expertise to issues of responsible cost management. In
particular, the Operating Committee currently utilizes a Cost
Management Working Group to analyze opportunities to manage CAT costs
responsibly. In addition, the Plan Processor regularly reviews options
to lower compute and storage needs and works with CAT technology
providers to provide services in a cost-effective manner. These
collective efforts have led to a variety of technological changes to
reduce costs.
Fourth, the CAT's funding and operations are subject to the
oversight of the Commission. The CAT is extensively supervised by the
Commission, including regular and continuous attendance at Operating
Committee, Subcommittee and working group meetings. In addition, CAT
fees as well as cost management efforts that require an amendment of
the CAT NMS Plan are subject to review by the Commission's Division of
Trading and Markets, as well as public comment.
10. Alternative Models Considered
CAT LLC has determined to propose the Funding Proposal to fund the
CAT for the reasons discussed above. In reaching this conclusion, CAT
LLC considered the advantages and disadvantages of a variety of
possible alternative funding and cost allocation models for the CAT in
detail. After analyzing the various alternatives and considering
comments on the

[[Page 17118]]

previously proposed models, CAT LLC determined that, although various
funding models may be reasonable and appropriate, the Funding Proposal
provides a variety of advantages in comparison to the alternatives, and
satisfies the requirements of the Exchange Act, including providing for
an equitable allocation of reasonable fees among CAT Reporters, not
being designed to permit unfair discrimination among CAT Reporters and
not imposing any burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act.
a. 2018 Fee Proposal
CAT LLC previously filed a fee proposal in line with the CAT NMS
Plan--the 2018 Fee Proposal.\139\ Under that model, CAT LLC, among
other things, proposed a 75%-25% allocation of CAT costs between
Execution Venues (which included Participants and Execution Venue ATSs)
and Industry Members (other than Execution Venue ATSs), and required
Execution Venues to pay fees based on market share, and Industry
Members (other than Execution Venue ATSs) to pay fees based on CAT
message traffic.\140\
---------------------------------------------------------------------------

\139\ For a description of the 2018 Fee Proposal, see 2018 Fee
Proposal Release. CAT LLC later withdrew this proposed amendment.
Securities Exchange Act Rel. No. 82892 (Mar. 16, 2018), 83 FR 12633
(Mar. 22, 2018).
\140\ In developing the 2018 Fee Proposal, CAT LLC considered
many variations of different aspects of that model. For example, CAT
LLC evaluated different cost allocations between Industry Members
(other than Execution Venue ATSs) and Execution Venues, including
80%-20%, 75%-25%, 70%-30% and 65%-35% allocations, and different
cost allocations between Equity and Options Execution Venues. CAT
LLC also considered different discounts for equities and options
market makers, different numbers of tiers of Industry Members and
Execution Venues, different fee levels for each tier, and other
aspects of the model.
---------------------------------------------------------------------------

Each Industry Member (other than Execution Venue ATSs) would be
placed into one of seven tiers of fixed fees, based on CAT message
traffic in Eligible Securities. Options Market Maker and equity market
maker quotes would be discounted when calculating message traffic.
CAT LLC determined to allocate 67% of Execution Venue costs
recovered to Equity Execution Venues and 33% to Options Execution
Venues. Each Equity Execution Venue would be placed in one of four
tiers of fixed fees based on market share, and each Options Execution
Venue would be placed in one of two tiers of fixed fees based on market
share. Equity Execution Venue market share would be determined by
calculating each Equity Execution Venue's proportion of the total
volume of NMS Stock and OTC Equity shares reported by all Equity
Execution Venues during the relevant time period. For purposes of
calculating market share, the OTC Equity Securities market share of
Execution Venue ATSs trading OTC Equity Securities as well as the
market share of the FINRA OTC reporting facility would be discounted.
Similarly, market share for Options Execution Venues would be
determined by calculating each Options Execution Venue's proportion of
the total volume of Listed Options contracts reported by all Options
Execution Venues during the relevant time period.
The 2018 Fee Proposal was a very complex model with many
interrelated parts, including allocation percentages, discounts for
certain market behavior, and multiple tiered fees, and the complexity
raised concerns from the Commission regarding its use as the CAT
funding model. In addition, in response to the proposal, the industry
provided a number of other comments related to the proposal, including
comments regarding the proposed allocation of CAT costs between
Participants and Industry Members, and the ability of certain market
segments to afford the proposed CAT fee.\141\
---------------------------------------------------------------------------

\141\ For a discussion of comments made regarding the Original
Funding Model and the 2018 Fee Proposal, see generally 2018 Fee
Proposal Release.
---------------------------------------------------------------------------

b. 2021 Fee Proposal
In response to the comments on the 2018 Fee Proposal, CAT LLC
determined to revise various aspects of the proposed model, thereby
developing the 2021 Fee Proposal.\142\ The 2021 Fee Proposal would have
continued to require many of the same elements as the 2018 model,
including the bifurcated funding approach, and the use of market share
and message traffic for allocating costs, as required by the current
CAT NMS Plan. The 2021 Fee Proposal, however, proposed to revise the
model in certain ways, including (1) dividing the CAT costs between
Participants and Industry Members, rather than between Execution Venues
and Industry Members (other than Execution Venue ATSs); (2) eliminating
the use of tiers in calculating CAT fees for Participants and Industry
Members; (3) adopting certain minimum and maximum CAT fees for Industry
Members and Participants; (4) revising the allocation between Equity
Execution Venues and Options to be 60%-40%; and (5) excluding, rather
than discounting, market share in OTC Equity Shares from the
calculation of market share for FINRA.
---------------------------------------------------------------------------

\142\ See 2021 Fee Proposal Release.
---------------------------------------------------------------------------

Although the revisions of the 2021 Fee Proposal addressed certain
comments on the prior 2018 Fee Proposal, commenters continued to raise
issues regarding the proposal. For example, commenters provided
feedback regarding the 75%-25% cost allocation between Industry Members
and Participants, the 60%-40% cost allocation between Equity
Participants and Options Participants, the use of market share and
message traffic for allocating costs among Participants and Industry
Members, respectively, and the proposed minimum and maximum fees.
Noting these and other issues, the SEC determined to institute
proceedings to determine whether to disapprove the 2021 Fee Proposal or
to approve the proposal with any changes or subject to any conditions
the SEC deemed necessary or appropriate after considering public
comment.\143\ Ultimately, the Operating Committee determined to
withdraw the 2021 Fee Proposal.\144\
---------------------------------------------------------------------------

\143\ See 2021 Fee Proposal OIP. See also Securities Exchange
Act Rel. No. 93227 (Oct. 1, 2021), 86 FR 55900 (Oct. 7, 2021).
\144\ Letter from Mike Simon, Chair, CAT NMS Plan Operating
Committee, to Vanessa Countryman, Secretary, SEC (Dec. 8, 2021).
---------------------------------------------------------------------------

c. Revenue Funding Model
CAT LLC also considered a model in which all CAT Reporters,
including both Industry Members and Participants, would pay fees based
solely on revenue. The concept underlying this proposal is that CAT
costs would be borne by CAT Reporters based on their ability to pay.
Under this model, Industry Member revenue would be calculated based on
revenue reported in FOCUS reports, and Participant revenue would be
calculated based on revenue information in Form 1 amendments and other
publicly reported figures.
CAT LLC did not select this model for various reasons. Under this
approach, Participants as a group would only pay approximately 4% of
the total CAT costs. Given their role as SROs and their use of the CAT,
CAT LLC did not believe that such a small allocation of the CAT costs
to the Participants was appropriate. Using revenue also raised a
variety of practical issues. For example, questions were raised as to
what revenue was appropriate to include in the calculation of revenue
for Industry Members. The gross revenue set forth on FOCUS reports was
proposed, as it was similar to an existing FINRA regulatory

[[Page 17119]]

fee.\145\ However, questions were raised as to whether revenue
unrelated to NMS Securities or OTC Equity Securities, or otherwise
unrelated to the CAT, should be included for calculation of the CAT
fee. Eliminating revenue unrelated to CAT-related activity would have
been difficult or impossible. In addition, the lack of a uniform
approach to calculating revenue for the Participants could raise
inequities in the collection of a CAT fee.
---------------------------------------------------------------------------

\145\ See paragraphs (c) and (d) of Section 1 of Schedule A of
FINRA's By-Laws regarding FINRA's annual Gross Income Assessment.
---------------------------------------------------------------------------

To address the issues regarding the 96%-4% allocation and the
calculation of the Participant revenue in the straight revenue model
described above, CAT LLC considered an alternative version of the
revenue model in which the CAT costs would be allocated between
Industry Members and Participants based on a set percentage (e.g., 75%-
25%) and the Industry Member allocation would be allocated among
Industry Members based on revenue and the Participant allocation would
be allocated among Participants based on market share. However, this
alternative revenue model failed to address the issues regarding the
appropriate revenue calculations for Industry Members.
d. Message Traffic Only Model
CAT LLC considered a funding model in which CAT costs were
allocated across all CAT Reporters--both Industry Members and
Participants--based on message traffic in the CAT. Specifically, CAT
LLC considered eliminating the concepts of a Participant allocation and
an Industry Member allocation entirely, and treating Participants and
Industry Members the same under the model. The use of message traffic,
however, raised issues regarding the predictability of fees. It also
introduced complexity to the model, as discounts were necessary for
certain types of activity to avoid fees that may adversely impact
market making activity and other market activity.
e. Alternative Allocation for the Funding Proposal
The Operating Committee also discussed an alternative funding model
that would calculate fees in a manner similar to the Funding Proposal,
but would allocate the fee to one Industry Member, the CEBS, rather
than allocating one-third of the fees each to the CEBS, the CEBB and
the applicable Participant. This allocation would more closely parallel
the existing section 31 fee allocation structure that is already in
place. This alternative allocation would eliminate complexity from the
fee process, including the process of allocating fees among Industry
Members and Participants that are likely to be passed through to the
ultimate investors, and would provide for a more transparent funding
process for investors. Instead of using this approach, CAT LLC
determined to allocate costs among the main participants in a
transaction and allow those participants to determine whether and how
to recover the costs.
f. Sales Value Model
CAT LLC also considered a funding model in which fees would be
calculated based on transaction sales values, similar to the method
used in the section 31/sales value fee programs. Under this model, the
per sales value fee rate would be calculated by dividing the annual CAT
budget by the projected annual total industry transaction sales values.
The fee would be calculated by multiplying the sales value fee rate by
a given trade's sales value. The CEBB, the CEBS and the relevant
Participant would each be assessed one-third of the fee, or, in the
alternative, the CEBS would be assessed two-thirds of the fee and the
relevant Participants would be assessed one-third of the fee. The same
rate would apply to all transactions equally, regardless of the type of
product in the trade (i.e., NMS Stocks, Listed Options or OTC Equity
Securities). Based on an analysis of 2021 data, CAT LLC observed that
the sales value model could potentially impose a disproportionate share
of the CAT costs on Participants and Industry Members trading NMS
Stocks versus Listed Options. In comparison, also based on an analysis
of 2021 data, CAT LLC observed that the Funding Proposal would impose
an equitable allocation of fees among Participants and Industry Members
trading NMS Stocks and Listed Options, as well as OTC Equity
Securities.
g. Other Models
CAT LLC also considered other possible funding models. For example,
CAT LLC considered allocating the CAT costs equally among each of the
Participants, and then permitting each Participant to charge its own
members as it deems appropriate. CAT LLC determined that such an
approach raised a variety of issues, including the likely inconsistency
of the ensuing charges, potential for lack of transparency, and the
impracticality of multiple SROs submitting invoices for CAT charges.
CAT LLC also discussed the advantages and disadvantages of various
alternative models during the development of the CAT NMS Plan, such as
a cost allocation based on a strict pro-rata distribution, regardless
of the type or size of the CAT Reporters.\146\
---------------------------------------------------------------------------

\146\ For a discussion of alternatives considered in the
drafting of the CAT NMS Plan, see Appendix C of the CAT NMS Plan at
C-88-C-89.
---------------------------------------------------------------------------

11. Satisfaction of Exchange Act and CAT NMS Plan Requirements
The Funding Proposal offers a variety of benefits over the Original
Funding Model and satisfies each of the funding principles and other
requirements of the CAT NMS Plan, as proposed to be revised herein, as
well as the applicable requirements of the Exchange Act for the reasons
discussed below and for the reasons discussed in more detail above.
a. Funding Principle: Section 11.2(a) of the CAT NMS Plan
The Funding Proposal satisfies the funding principles set forth in
Section 11.2(a) of the CAT NMS Plan. Section 11.2(a) of the CAT NMS
Plan requires the Operating Committee, in establishing the funding of
the Company, to seek ``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.''
First, by adopting a CAT-specific fee tied directly to CAT costs,
CAT LLC would be fully transparent regarding the costs of the CAT and
how those costs would be allocated among CAT Reporters. The CAT fees
would be designed solely to cover CAT costs, and no other regulatory
costs. In contrast, charging a general regulatory fee, which might
otherwise be used to cover CAT costs as well as other regulatory costs,
would be less transparent than the selected approach of charging a fee
designated to cover CAT-related costs only. Such a general regulatory
fee could cover a variety of regulatory costs without differentiating
those costs related to the CAT.
Second, the Funding Proposal would provide a predictable revenue
stream for the Company. The Funding Proposal is designed to collect the
annual CAT costs each year, thereby providing for a predictable revenue
stream. In addition, to address the possibility of some variability in
the collected CAT fees, an unexpected increase in costs or variations
from the budgeted costs or projected executed equivalent share volume
of transactions in Eligible Securities, the CAT costs covered by the
Funding Proposal would include an operational reserve. The operational
reserve could be used in the event that

[[Page 17120]]

the total CAT fees collected differ from the actual CAT costs.
Moreover, the Funding Proposal includes a method for adjusting the
calculation of the Fee Rate during the year if there are changes in the
projected total volume of transactions in Eligible Securities or the
CAT costs.
Third, the Funding Proposal provides for a revenue stream for the
Company that is aligned with the anticipated costs to build, operate
and administer the CAT and the other costs of the Company. The total
CAT fees to be collected from CAT Reporters are designed to cover the
CAT costs. Any surpluses collected would be treated as an operational
reserve to offset future fees and would not be distributed to the
Participants as profits.\147\
---------------------------------------------------------------------------

\147\ CAT NMS Plan Approval Order at 84792.
---------------------------------------------------------------------------

b. Funding Principle: Section 11.2(b) of the CAT NMS Plan
The Funding Proposal satisfies the funding principle set forth in
Section 11.2(b) of the CAT NMS Plan, as proposed to be amended herein,
which would require the Operating Committee to seek ``to establish an
allocation of the Company's related costs among Participants and
Industry Members that is consistent with the Exchange Act, taking into
account the timeline for implementation of the CAT.'' As discussed in
detail above, the Funding Proposal establishes an allocation of CAT
costs among Participants and Industry Members that is consistent with
the Exchange Act. In addition, the Funding Proposal provides for an
equitable allocation of reasonable dues, is not unfairly discriminatory
and does not impose a burden on competition that is not necessary or
appropriate in furtherance of the Exchange Act. In addition, the
Funding Proposal takes into account the timeline for implementation of
the CAT. The CAT fees are designed to cover the CAT costs for each
relevant period.
c. Funding Principle: Section 11.2(c) of the CAT NMS Plan
The Funding Proposal satisfies the funding principle set forth in
Section 11.2(c) of the CAT NMS Plan, as proposed to be modified herein.
Section 11.2(c), as proposed to be modified herein, requires the
Operating Committee to seek ``to establish a fee structure in which the
fees charged to Participants and Industry Members are based upon the
executed equivalent share volume of transactions in Eligible
Securities, and the costs of the CAT.'' The Funding Proposal requires
Participants and Industry Members to pay fees based upon the executed
equivalent share volume of transactions in Eligible Securities, and the
costs of the CAT, as described above.
d. Funding Principle: Section 11.2(d) of the CAT NMS Plan
The Funding Proposal satisfies the funding principle set forth in
Section 11.2(d) of the CAT NMS Plan, which requires the Operating
Committee to seek ``to provide for ease of billing and other
administrative functions.'' The Funding Proposal satisfies this
principle in several ways. The Funding Proposal is modeled after the
existing section 31-related fee programs, with which the Participants
and Industry Members have a longstanding familiarity. The Funding
Proposal relies upon a basic calculation using a predetermined fee rate
along with an Industry Member or Participant's executed equivalent
share volume, thereby making the fee determination a straightforward
process.
Furthermore, the Funding Proposal provides CAT Reporters with
predictable CAT fees. Because the Fee Rate is established in advance
for a relevant time period, Participants, CEBBs and CEBSs know the CAT
fee that applies to each transaction when it occurs. Accordingly,
Participants, CEBBs and CEBSs are able to easily estimate and validate
their applicable fees based on their own trading data. In addition, to
the extent any CAT fees are passed on to customers, the customers, too,
can calculate the applicable CAT fee for each transaction.
e. Funding Principle: Section 11.2(e) of the CAT NMS Plan
The Funding Proposal satisfies the funding principle set forth in
Section 11.2(e) of the CAT NMS Plan, which requires the Operating
Committee to seek ``to avoid any disincentives such as placing an
inappropriate burden on competition and a reduction in market
quality.'' The Funding Proposal would operate in a manner similar to
the funding models employed by the SEC and the Participants related to
section 31 of the Exchange Act, the FINRA TAF and the ORF. These fees
are long-standing, and have been approved by the Commission as
satisfying the requirements under the Exchange Act, including not
imposing a burden on competition that is not necessary or appropriate
under the Exchange Act. In addition, the Funding Proposal avoids
potentially burdensome fees for market makers or other market
participants based on message traffic. Furthermore, the Funding
Proposal addresses the specific trading characteristics of Listed
Options and OTC Equity Securities to avoid adverse effects of the
trading of those instruments. For example, the Funding Proposal
includes the discounting of transactions involving OTC Equity Shares
which, given the volume of shares typically involved in such securities
transactions, otherwise may result in disproportionate fees to market
participants transaction these securities.
The Funding Proposal also would not unfairly burden FINRA or any of
the exchanges. The Funding Proposal is designed to be neutral as to the
manner of execution and place of execution. The CAT fees would be the
same regardless of whether the transaction is executed on an exchange
or in the over-the-counter market. All Participants are SROs that have
the same regulatory responsibilities under the Exchange Act. Their
usage of CAT Data will be for the same regulatory purposes. By treating
each Participant the same, the CAT fees would not become a competitive
issue by and among the Participants.
The Funding Proposal also would not unfairly burden CAT Executing
Brokers. CAT LLC determined to charge CEBBs and CEBSs because such a
fee collection model is currently used and well-known in the securities
markets. As a result, the CAT fees could be paid by Industry Members
without requiring significant and potentially costly changes. Moreover,
the CEBBs and CEBSs would be permitted, but not required, to pass their
CAT fees through to their customers, who, in turn, could pass their CAT
fees to their customers, until the fee is imposed on the ultimate
participant in the transaction. With such a pass through, the CEBBs and
CEBSs would not ultimately incur the cost of all CAT fees related to
the transactions that they clear.
f. Funding Principle: Section 11.2(f) of the CAT NMS Plan
The Funding Proposal satisfies the funding principle set forth in
Section 11.2(f) of the CAT NMS Plan, which requires the Operating
Committee to seek ``to build financial stability to support the Company
as a going concern.'' CAT LLC believes that the Funding Proposal is
structured to collect sufficient funds to pay for the cost of the CAT
going forward. In addition, the Funding Proposal would collect an
operational reserve for the CAT. This operational reserve is intended
to address potential shortfalls in collected CAT fees versus actual CAT
costs. Moreover, the Funding Proposal includes a requirement to adjust
the Fee Rate during the year in order to address any changes in the
projected or actual total volume of transactions in Eligible

[[Page 17121]]

Securities or the budgeted or actual CAT costs. Furthermore, the
Funding Proposal is designed to collect CAT fees continuously so as to
provide uninterrupted revenue to pay CAT bills; the CAT Fees related to
Prospective CAT Costs are not designed to sunset.
g. Section 11.1(c) of the CAT NMS Plan
The Funding Proposal would satisfy the requirements in Section
11.1(c) of the CAT NMS Plan, as proposed to be modified herein. Section
11.1(c) of the CAT NMS Plan states that ``[t]o fund the development and
implementation of the CAT, the Company shall time the imposition and
collection of all fees on Participants and Industry Members in a manner
reasonably related to the timing when the Company expects to incur such
development and implementation costs.'' The CAT fees are designed to
cover the CAT costs for a relevant period. As such, on a going forward
basis, they are designed to be imposed close in time to when costs are
incurred. In addition, the Historical CAT Assessments are designed to
``take into account fees, costs and expenses (including legal and
consulting fees and expenses) reasonably incurred by the Participants
on behalf of the Company prior to the Effective Date in connection with
the creation and implementation of the CAT, and such fees, costs and
expenses shall be fairly and reasonably shared among the Participants
and Industry Members.''
Section 11.1(c) of the CAT NMS Plan also requires that ``[a]ny
surplus of the Company's resources over its expenses shall be treated
as an operational reserve to offset future fees.'' The Company would
operate on a ``break-even'' basis, with fees imposed to cover costs and
an appropriate reserve. Any surpluses would not be distributed to the
Participants as profits. In addition, as set forth in Article VIII of
the CAT NMS Plan, the Company ``intends to operate in a manner such
that it qualifies as a `business league' within the meaning of section
501(c)(6) of the [Internal Revenue] Code.'' To qualify as a business
league, an organization must ``not [be] organized for profit and no
part of the net earnings of [the organization can] inure[ ] to the
benefit of any private shareholder or individual.'' \148\ As the SEC
stated when approving the CAT NMS Plan, ``the Commission believes that
the Company's application for section 501(c)(6) business league status
addresses issues raised by commenters about the Plan's proposed
allocation of profit and loss by mitigating concerns that the Company's
earnings could be used to benefit individual Participants.'' \149\ The
Internal Revenue Service has determined that the Company is exempt from
federal income tax under section 501(c)(6) of the Internal Revenue
Code.
---------------------------------------------------------------------------

\148\ 26 U.S.C. 501(c)(6).
\149\ CAT NMS Plan Approval Order at 84793.
---------------------------------------------------------------------------

h. Equitable Allocation of Reasonable Fees
The proposed CAT fees provide for the ``equitable allocation of
reasonable dues, fees, and other charges among its members and issuers
and other persons using its facilities necessary or appropriate in
furtherance of the purposes of this chapter,'' \150\ as required by the
Exchange Act. CAT LLC believes that the CAT fees equitably allocate CAT
costs between and among Participants and Industry Members. For the
reasons discussed above, CAT LLC believes that the allocation of one-
third of the CAT costs each to Participants, CEBBs and CEBSs in the
Funding Proposal as well as the use of the total equivalent share
volume of transactions in Eligible Securities for allocating costs
provide for an equitable allocation of CAT costs among CAT Reporters.
---------------------------------------------------------------------------

\150\ Sections 6(b)(4) and 15A(b)(5) of the Exchange Act.
---------------------------------------------------------------------------

CAT LLC also believes that the Funding Proposal would provide for
reasonable fees. The transaction-based fees contemplated by the Funding
Proposal are a reasonable fee structure. The SROs have a long history
of charging transaction-based fees, as transactions are the intended
economic goal of the securities markets. In addition to the
transaction-based regulatory fees discussed above (e.g., the SROs'
section 31-related fees, the FINRA TAF and the ORF), the SROs charge a
variety of other types of transaction fees to fund their
operations.\151\ Indeed, each of the SROs collect transaction-based
fees from their members.\152\ In each case, the transaction-based fees
charged by SROs have been subject to the fee filing process and found
to satisfy the requirements of the Exchange Act. Not only is the type
of fee reasonable, but the level of the fee is reasonable as well.
Although the exact Fee Rate or Historical Fee Rate to be paid for any
particular period will be determined at a later date, the illustrative
example provides a per-transaction fee rate that is not excessive in
comparison to existing transaction fee rates.
---------------------------------------------------------------------------

\151\ The SEC has noted that SRO transaction fees account for a
significant portion of SRO revenue. Securities Exchange Act Rel. No.
50700 (Nov. 18, 2004), 69 FR 71256, 71271 (Dec. 8, 2004).
\152\ See, e.g., NYSE Price List; Nasdaq Price List.
---------------------------------------------------------------------------

i. No Unfair Discrimination
The Funding Proposal is ``not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers,'' \153\
as required by the Exchange Act. In addition, the Funding Proposal does
not unfairly discriminate between Industry Members and Participants,
among Industry Members or among Participants. Both Participants and
Industry Members would contribute to the cost of the CAT; Participants
alone would no longer be required to shoulder the cost burden of the
CAT without the contribution of Industry Members. In addition, both
Participants and Industry Members would pay a fee based on the executed
equivalent share volume of their transactions in Eligible Securities;
the type of metric would not vary based on whether the CAT Reporter is
an Industry Member or Participant.
---------------------------------------------------------------------------

\153\ Sections 6(b)(5) and 15A(b)(6) of the Exchange Act.
---------------------------------------------------------------------------

Furthermore, the Fee Rate or Historical Fee Rate would be the same
regardless of the type of venue a trade was executed on, or how the
trade ultimately occurred more generally (e.g., in a manner that
generated more message traffic). In addition, the Funding Proposal
recognizes the different trading characteristics of Listed Options and
OTC Equity Securities as compared to NMS Stocks. The Funding Proposal
recognizes that Listed Options trade in contracts rather than shares,
and, therefore, counts the executed equivalent shares for Listed
Options accordingly. Similarly, in recognition of the different trading
characteristics of OTC Equity Securities as compared to NMS Stocks, the
Funding Proposal would discount the share volume of OTC Equity
Securities when calculating the CAT fees. As a result, the Funding
Proposal would not favor or unfairly burden any one type of trading
venue, product or product type.
With the elimination of tiers, fees for Industry Members and
Participants are directly related to their executed equivalent share
volume of their transactions. With tiers, the relationship between a
CAT Reporter's share volume and the CAT fee would not have been as
direct.
j. No Burden on Competition
The Funding Proposal does ``not impose any burden on competition
not necessary or appropriate in furtherance

[[Page 17122]]

of the purposes of this chapter,'' \154\ as required by the Exchange
Act, and it fairly and equitably allocates costs among CAT Reporters.
The Funding Proposal would operate in a manner similar to the funding
model employed by the SEC and the Participants related to section 31 of
the Exchange Act as well as the FINRA TAF \155\ and the ORF rules, and
these long-standing fees to cover regulatory costs have been approved
by the Commission as satisfying the requirements under the Exchange
Act, including not imposing a burden on the competition that is not
necessary or appropriate under the Exchange Act. Furthermore, the
Funding Proposal does not impose a burden on competition for the
reasons set forth above, including in Sections A.9.s and A.11.e of this
filing above.
---------------------------------------------------------------------------

\154\ Sections 6(b)(8) and 15A(b)(9) of the Exchange Act.
\155\ Although the FINRA TAF is designed to cover a subset of
the costs of FINRA services (e.g., costs to FINRA of the supervision
and regulation of members, including performing examinations,
financial monitoring, and policy, rulemaking, interpretive, and
enforcement activities) rather than all of FINRA's costs like the
CAT, the transaction-based calculation of the FINRA TAF and the
proposed CAT fees are similar.
---------------------------------------------------------------------------

B. Governing or Constituent Documents
Not applicable.
C. Implementation of Amendment
CAT LLC is filing this proposed amendment pursuant to Rule
608(b)(1) of Regulation NMS under the Exchange Act.\156\
---------------------------------------------------------------------------

\156\ 17 CFR 242.608(b)(1).
---------------------------------------------------------------------------

D. Development and Implementation Phases
The Participants expect to implement the proposed CAT fees upon
approval by the SEC, subject to applicable requirements for the
implementation of the CAT fees, including the requirements of section
19(b) of the Exchange Act with regard to Industry Member CAT Fees, the
satisfaction of applicable Financial Accountability Milestones as set
forth in Section 11.6 of the CAT NMS Plan, and the implementation of
the billing and collection system for the CAT fees.
E. Analysis of Impact on Competition
CAT LLC does not believe that the proposed amendment would result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Exchange Act. CAT LLC notes that the
proposed amendment implements provisions of the CAT NMS Plan approved
by the Commission, subject to proposed revisions to the CAT NMS Plan
described above, and is designed to assist the Participants in meeting
their regulatory obligations pursuant to the CAT NMS Plan. Because all
Participants are subject to the Funding Proposal set forth in the
proposed amendment, this is not a competitive filing that raises
competition issues between and among the Participants. Furthermore, for
the reasons discussed above, including in Sections A.11.e and A.11.j of
this filing above, CAT LLC does not believe that the Funding Proposal
would result in any burden on competition that is not necessary or
appropriate in furtherance of the purpose of the Exchange Act.
F. Written Understanding or Agreements Relating to Interpretation of,
or Participation in, Plan
Not applicable.
G. Approval by Plan Sponsors in Accordance With Plan
Section 12.3 of the CAT NMS Plan states that, subject to certain
exceptions, the CAT NMS Plan may be amended from time to time only by a
written amendment, authorized by the affirmative vote of not less than
two-thirds of all of the Participants, that has been approved by the
SEC pursuant to Rule 608 of Regulation NMS under the Exchange Act or
has otherwise become effective under Rule 608 of Regulation NMS under
the Exchange Act. In addition, Section 4.3(a)(vi) of the Plan requires
the Operating Committee, by Majority Vote, to authorize action to
determine the appropriate funding-related policies, procedures and
practices-consistent with Article XI. The Operating Committee has
satisfied both of these requirements. In addition, the Funding Proposal
was discussed and voted on during the Operating Committee meetings.
H. Description of Operation of Facility Contemplated by the Proposed
Amendment
Not applicable.
I. Terms and Conditions of Access
Not applicable.
J. Method of Determination and Imposition, and Amount of, Fees and
Charges
Section A of this filing describes in detail how CAT LLC developed
the Funding Proposal for the CAT.
K. Method and Frequency of Processor Evaluation
Not applicable.
L. Dispute Resolution
Section 11.5 of the CAT NMS Plan addresses the resolution of
disputes regarding CAT fees charged to Participants and Industry
Members. Specifically, Section 11.5 of the CAT NMS Plan states that:

[d]isputes with respect to fees the Company charges Participants
pursuant to Article XI of the CAT NMS Plan shall be determined by
the Operating Committee or a Subcommittee designated by the
Operating Committee. Decisions by the Operating Committee or such
designated Subcommittee on such matters shall be binding on
Participants, without prejudice to the rights of any Participant to
seek redress from the SEC pursuant to Rule 608 of Regulation NMS
under the Exchange Act or in any other appropriate forum.

In addition, the Participants adopted rules to establish the
procedures for resolving potential disputes related to CAT fees charged
to Industry Members.\157\
---------------------------------------------------------------------------

\157\ See Securities Exchange Act Rel. No. 81500 (Aug. 30,
2017), 82 FR 42143 (Sept. 6, 2017).
---------------------------------------------------------------------------

III. Solicitation of Comments

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

Electronic Comments

Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number 4-698 on the subject line.

Paper Comments

Send paper comments 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 plan amendment that are filed
with the Commission, and all written communications relating to the
amendment between the Commission and any person, other than those that
may be withheld from the public in accordance with the provisions of 5
U.S.C. 552, will be available for website viewing and printing in the
Commission's Public Reference Room,

[[Page 17123]]

100 F Street NE, Washington, DC 20549, on official business days
between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing
also will be available for inspection and copying at the Participants'
offices. All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number 4-698 and should be submitted
on or before April 11, 2023.
---------------------------------------------------------------------------

\158\ 17 CFR 200.30-3(a)(85).

For the Commission, by the Division of Trading and Markets,
---------------------------------------------------------------------------
pursuant to delegated authority.\158\

Dated: March 15, 2023.
Sherry R. Haywood,
Assistant Secretary.

EXHIBIT A

Proposed Revisions to CAT NMS Plan

Additions italicized; deletions [bracketed]
* * * * *

Article I

Definitions

* * * * *
``CAT Executing Broker'' means (a) with respect to a transaction in
an Eligible Security that is executed on an exchange, the Industry
Member identified as the Industry Member responsible for the order on
the buy-side of the transaction and the Industry Member responsible for
the sell-side of the transaction in the equity order trade event and
option trade event in the CAT Data submitted to the CAT by the relevant
exchange pursuant to the Participant Technical Specifications; and (b)
with respect to a transaction in an Eligible Security that is executed
otherwise than on an exchange and required to be reported to an equity
trade reporting facility of a registered national securities
association, the Industry Member identified as the executing broker and
the Industry Member identified as the contra-side executing broker in
the TRF/ORF/ADF transaction data event in the CAT Data submitted to the
CAT by FINRA pursuant to the Participant Technical Specifications;
provided, however, in those circumstances where there is a non-Industry
Member identified as the contra-side executing broker in the TRF/ORF/
ADF transaction data event or no contra-side executing broker is
identified in the TRF/ORF/ADF transaction data event, then the Industry
Member identified as the executing broker in the TRF/ORF/ADF
transaction data event would be treated as CAT Executing Broker for the
Buyer and for the Seller.
* * * * *
[``Execution Venue'' means 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).]
* * * * *

Article XI

Funding of the Company

[[Page 17124]]

distinctions in the securities trading operations of Participants and
Industry Members and their relative impact upon Company resources and
operations];
(c) to establish a [tiered] fee structure in which the fees charged
to [: (i)] Participants and [CAT Reporters that are Execution Venues,
including ATSs, are based upon the level of market share; (ii)]
Industry Members[' non-ATS activities] are based upon the executed
equivalent share volume of transactions in Eligible Securities, and the
costs of the CAT [message traffic; and (iii) the CAT Reporters with the
most CAT-related activity (measured by market share and/or message
traffic, as applicable) are generally comparable (where, for these
comparability purposes, the tiered fee structure takes into
consideration affiliations between or among CAT Reporters, whether
Execution Venues and/or Industry Members)].
(d) to provide for ease of billing and other administrative
functions;
(e) to avoid any disincentives such as placing an inappropriate
burden on competition and a reduction in market quality; and
(f) to build financial stability to support the Company as a going
concern.
Section 11.3. Recovery.
(a) Prospective CAT Costs. The Operating Committee will establish
[fixed] fees (``CAT Fees'') to be payable by [Execution Venues]
Participants and Industry Members with regard to CAT costs not
previously paid by the Participants (``Prospective CAT Costs'') as
follows [provided in this Section 11.3(a)]:
(i) Fee Rate. The Operating Committee will calculate the Fee Rate
for the CAT Fee twice per year, once at the beginning of the year and
once during the year as follows.
(A) General.
(I) For the beginning of each year, the Operating Committee will
calculate the Fee Rate by dividing the reasonably budgeted CAT costs
for the year by the reasonably projected total executed equivalent
share volume of all transactions in Eligible Securities for the year.
Once the Operating Committee has approved such Fee Rate, the
Participants shall be required to file with the SEC pursuant to Section
19(b) of the Exchange Act CAT Fees to be charged to Industry Members
calculated using such Fee Rate. Participants and Industry Members will
be required to pay CAT Fees calculated using this Fee Rate once such
CAT Fees are in effect with regard to Industry Members in accordance
with Section 19(b) of the Exchange Act.
(II) During each year, the Operating Committee will calculate a new
Fee Rate by dividing the reasonably budgeted CAT costs for the
remainder of the year by the reasonably projected total executed
equivalent share volume of all transactions in Eligible Securities for
the remainder of the year. Once the Operating Committee has approved
the new Fee Rate, the Participants shall be required to file with the
SEC pursuant to Section 19(b) of the Exchange Act CAT Fees to be
charged to Industry Members calculated using the new Fee Rate.
Participants and Industry Members will be required to pay CAT Fees
calculated using this new Fee Rate once such CAT Fees are in effect
with regard to Industry Members in accordance with Section 19(b) of the
Exchange Act.
(III) For the avoidance of doubt, CAT Fees with a Fee Rate
calculated as set forth in this paragraph (a)(i) shall remain in effect
until the Operating Committee approves a new Fee Rate as described in
paragraph (a)(i) and CAT Fees with the new Fee Rate are in effect with
regard to Industry Members in accordance with Section 19(b) of the
Exchange Act.
(IV) For the avoidance of doubt, the first CAT Fee may commence at
the beginning of the year or during the year. If it were to commence
during the year, the first CAT Fee would be calculated as described in
paragraph (II) of this Section.
(B) Executed Equivalent Shares. For purposes of calculating CAT
Fees, executed equivalent shares in a transaction in Eligible
Securities will be reasonably counted as follows:
(I) each executed share for a transaction in NMS Stocks will be
counted as one executed equivalent share;
(II) each executed contract for a transaction in Listed Options
will be counted based on the multiplier applicable to the specific
Listed Option (i.e., 100 executed equivalent shares or such other
applicable multiplier); and
(III) each executed share for a transaction in OTC Equity
Securities shall be counted as 0.01 executed equivalent share.
(C) Budgeted CAT Costs. The budgeted CAT costs for the year shall
be comprised of all reasonable fees, costs and expenses reasonably
budgeted to be incurred by or for the Company in connection with the
development, implementation and operation of the CAT as set forth 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.
(D) Projected Total Executed Equivalent Share Volume of
Transactions in Eligible Securities. The Operating Committee shall
reasonably determine the projected total executed equivalent share
volume of all transactions in Eligible Securities for each relevant
period based on the executed equivalent share volume of all
transactions in Eligible Securities for the prior twelve months.
(ii) Participant CAT Fees.
(A) CAT Fee Obligation. Each Participant that is a national
securities exchange will be required to pay the CAT Fee for each
transaction in Eligible Securities executed on the exchange in the
prior month based on CAT Data. Each Participant that is a national
securities association will be required to pay the CAT Fee for each
transaction in Eligible Securities executed otherwise than on an
exchange in the prior month based on CAT Data. The CAT Fee for each
transaction in Eligible Securities will be calculated by multiplying
the number of executed equivalent shares in the transaction by one-
third and by the Fee Rate reasonably determined pursuant to paragraph
(a)(i) of this Section 11.3.
(B) Effectiveness. Each Participant will be required to pay the CAT
Fee calculated using the Fee Rate reasonably determined pursuant to
paragraph (a)(i) of this Section 11.3 and approved by the Operating
Committee only if such CAT Fees are in effect with regard to Industry
Members in accordance with Section 19(b) of the Exchange Act.
(iii) Industry Member CAT Fees.
(A) CAT Fee Obligation. Each Industry Member that is the CAT
Executing Broker for the buyer in a transaction in Eligible Securities
(``CAT Executing Broker for the Buyer'' or ``CEBB'') and each Industry
Member that is the CAT Executing Broker for the seller in a transaction
in Eligible Securities (``CAT Executing Broker for the Seller'' or
``CEBS'') will be required to pay a CAT Fee for each such transaction
in Eligible Securities in the prior month based on CAT Data. The CEBB's
CAT Fee or CEBS's CAT Fee (as applicable) for each transaction in
Eligible Securities will be calculated by multiplying the number of
executed equivalent shares in the transaction by one-third and by the
Fee Rate reasonably determined pursuant to paragraph (a)(i) of this
Section 11.3.
(B) Content of Fee Filings. When the Participants file with the SEC
pursuant to Section 19(b) of the Exchange Act CAT Fees to be charged to
Industry

[[Page 17125]]

Members calculated using the Fee Rate that the Operating Committee
approved in accordance with paragraph (a) of this Section 11.3, such
filings shall set forth (A) the Fee Rate; (B) the budget for the
upcoming year (or remainder of the year, as applicable), including a
brief description of each line item in the budget, including (1)
technology line items of cloud hosting services, operating fees, CAIS
operating fees, change request fees and capitalized developed
technology costs, (2) legal, (3) consulting, (4) insurance, (5)
professional and administration, and (6) public relations costs, a
reserve and/or such other categories as reasonably determined by the
Operating Committee to be included in the budget, and the reason for
changes in each such line item from the prior CAT Fee filing; (C) a
discussion of how the budget is reconciled to the collected fees; and
(D) the projected total executed equivalent share volume of all
transactions in Eligible Securities for the year (or remainder of the
year, as applicable), and a description of the calculation of the
projection. The information provided in this Section would be provided
with sufficient detail to demonstrate that the budget for the upcoming
year, or part of year, as applicable, is reasonable and appropriate.
(C) No Participant will make a filing with the SEC pursuant to
Section 19(b) of the Exchange Act regarding any CAT Fee related to
Prospective CAT Costs until the Financial Accountability Milestone
related to Period 4 described in Section 11.6 has been satisfied.
(iv) CAT Fee Details.
(A) Details regarding the calculation of a Participant or CAT
Executing Brokers' CAT Fees will be provided upon request to such
Participant or CAT Executing Broker. At a minimum, such details would
include each Participant or CAT Executing Broker's executed equivalent
share volume and corresponding fee by (1) Listed Options, NMS Stocks
and OTC Equity Securities, (2) by transactions executed on each
exchange and transactions executed otherwise than on an exchange, and
(3) by buy-side transactions and sell-side transactions.
(B) For each CAT Fee, at a minimum, CAT LLC will make publicly
available the aggregate executed equivalent share volume and
corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC
Equity Securities, (2) by transactions executed on each exchange and
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions.
[(i) Each Execution Venue that: (A) executes transactions; or (B)
in the case of a national securities association, has trades reported
by its members to its trade reporting facility or facilities for
reporting transactions effected otherwise than on an exchange, in NMS
Stocks or OTC Equity Securities will pay a fixed fee depending on the
market share of that Execution Venue in NMS Stocks and OTC Equity
Securities, with the Operating Committee establishing at least two and
no more than five tiers of fixed fees, based on an Execution Venue's
NMS Stocks and OTC Equity Securities market share. For these purposes,
market share for Execution Venues that execute transactions will be
calculated by share volume, and market share for a national securities
association that has trades reported by its members to its trade
reporting facility or facilities for reporting transactions effected
otherwise than on an exchange in NMS Stocks or OTC Equity Securities
will be calculated based on share volume of trades reported, provided,
however, that the share volume reported to such national securities
association by an Execution Venue shall not be included in the
calculation of such national security association's market share.]
[(ii) Each Execution Venue that executes transactions in Listed
Options will pay a fixed fee depending on the Listed Options market
share of that Execution Venue, with the Operating Committee
establishing at least two and no more than five tiers of fixed fees,
based on an Execution Venue's Listed Options market share. For these
purposes, market share will be calculated by contract volume.]
(b) Past CAT Costs. The Operating Committee will establish [fixed]
one or more fees (each a ``Historical CAT Assessment'') to be payable
by Industry Members with regard to CAT costs previously paid by the
Participants (``Past CAT Costs'') as follows: [, based on the message
traffic generated by such Industry Member, with the Operating Committee
establishing at least five and no more than nine tiers of fixed fees,
based on message traffic. For the avoidance of doubt, the fixed fees
payable by Industry Members pursuant to this paragraph shall, in
addition to any other applicable message traffic, include message
traffic generated by: (i) an ATS that does not execute orders that is
sponsored by such Industry Member; and (ii) routing orders to and from
any ATS sponsored by such Industry Member.]
(i) Calculation of Historical Fee Rates.
(A) General. The Operating Committee will calculate the Historical
Fee Rate for each Historical CAT Assessment by dividing the Historical
CAT Costs for each Historical CAT Assessment by the reasonably
projected total executed equivalent share volume of all transactions in
Eligible Securities for the Historical Recovery Period for each
Historical CAT Assessment. Once the Operating Committee has approved
such Historical Fee Rate, the Participants shall be required to file
with the SEC pursuant to Section 19(b) of the Exchange Act such
Historical CAT Assessment to be charged to Industry Members calculated
using such Historical Fee Rate. Industry Members will be required to
pay such Historical CAT Assessment calculated using such Historical Fee
Rate once such Historical CAT Assessment is in effect in accordance
with Section 19(b) of the Exchange Act.
(B) Executed Equivalent Shares. For purposes of calculating each
Historical CAT Assessment, executed equivalent shares in a transaction
in Eligible Securities will be reasonably counted in the same manner as
set forth in paragraph (a)(i)(B) of this Section 11.3.
(C) Historical CAT Costs. The Operating Committee will reasonably
determine the Historical CAT Costs sought to be recovered by each
Historical CAT Assessment, where the Historical CAT Costs will be Past
CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT
Costs by the Operating Committee. Each Historical CAT Assessment will
seek to recover from CAT Executing Brokers two-thirds of Historical CAT
Costs incurred during the period covered by the Historical CAT
Assessment.
(D) Historical Recovery Period.
(I) The length of the Historical Recovery Period used in
calculating each Historical Fee Rate will be reasonably established by
the Operating Committee based upon the amount of the Historical CAT
Costs to be recovered by the Historical CAT Assessment; provided,
however, no Historical Recovery Period used in calculating the
Historical Fee Rate shall be less than 24 months or more than five
years.
(II) Notwithstanding the length of the Historical Recovery Period
used in calculating the Historical Fee Rate, each Historical CAT
Assessment calculated using the Historical Fee Rate will remain in
effect until all Historical CAT Costs for the Historical CAT Assessment
are collected.
(E) Projected Total Executed Equivalent Share Volume of
Transactions in Eligible Securities for Historical Recovery Period. The
Operating Committee shall reasonably determine the projected total
executed

[[Page 17126]]

equivalent share volume of all transactions in Eligible Securities for
each Historical Recovery Period based on the executed equivalent share
volume of all transactions in Eligible Securities for the prior twelve
months.
(ii) Past CAT Costs and Participants. Because Participants
previously have paid Past CAT Costs via loans to the Company,
Participants would not be required to pay any Historical CAT
Assessment. In lieu of a Historical CAT Assessment, the Participants'
one-third share of Historical CAT Costs and such other additional Past
CAT Costs as reasonably determined by the Operating Committee will be
paid by the cancellation of loans made to the Company on a pro rata
basis based on the outstanding loan amounts due under the loans.
Historical CAT Assessments are designed to recover two-thirds of the
Historical CAT Costs.
(iii) Historical CAT Assessment for Industry Members.
(A) Each month in which a Historical CAT Assessment is in effect,
each CEBB and each CEBS shall pay a fee for each transaction in
Eligible Securities executed by the CEBB or CEBS from the prior month
as set forth in CAT Data, where the Historical CAT Assessment for each
transaction will be calculated by multiplying the number of executed
equivalent shares in the transaction by one-third and by the Historical
Fee Rate reasonably determined pursuant to paragraph (b)(i) of this
Section 11.3.
(B) Historical CAT Assessment Fee Filings.
(I) Participants will be required to file with the SEC pursuant to
Section 19(b) of the Exchange Act a filing for each Historical CAT
Assessment.
(II) When the Participants file with the SEC pursuant to Section
19(b) of the Exchange Act a Historical CAT Assessment calculated using
the Historical Fee Rate that the Operating Committee approved in
accordance with paragraph (b) of this Section 11.3, such filing shall
set forth (A) the Historical Fee Rate; (B) a brief description of the
amount and type of the Historical CAT Costs, including (1) the
technology line items of cloud hosting services, operating fees, CAIS
operating fees, change request fees, and capitalized developed
technology costs, (2) legal, (3) consulting, (4) insurance, (5)
professional and administration and (6) public relations costs; (C) the
Historical Recovery Period and the reasons for its length; and (D) the
projected total executed equivalent share volume of all transactions in
Eligible Securities for the Historical Recovery Period, and a
description of the calculation of the projection. The information
provided in this Section would be provided with sufficient detail to
demonstrate that the Historical CAT Costs are reasonable and
appropriate.
(III) No Participant will make a filing with the SEC pursuant to
Section 19(b) of the Exchange Act regarding any Historical CAT
Assessment until any applicable Financial Accountability Milestone
described in Section 11.6 has been satisfied.
(iv) Historical CAT Assessment Details.
(A) Details regarding the calculation of a CAT Executing Broker's
Historical CAT Assessment will be provided upon request to such CAT
Executing Broker. At a minimum, such details would include each CAT
Executing Broker's executed equivalent share volume and corresponding
fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by
transactions executed on each exchange and transactions executed
otherwise than on an exchange, and (3) by buy-side transactions and
sell-side transactions.
(B) For each Historical CAT Assessment, at a minimum, CAT LLC will
make publicly available the aggregate executed equivalent share volume
and corresponding aggregate fee by (1) Listed Options, NMS Stocks and
OTC Equity Securities, (2) by transactions executed on each exchange
and transactions executed otherwise than on an exchange, and (3) by
buy-side transactions and sell-side transactions.
(c) The Operating Committee may establish any other fees ancillary
to the operation of the CAT that it reasonably determines appropriate,
including fees: (i) for the late or inaccurate reporting of information
to the CAT; (ii) for correcting submitted information; and (iii) based
on access and use of the CAT for regulatory and oversight purposes (and
not including any reporting obligations).
(d) The Company shall make publicly available a schedule of
effective fees and charges adopted pursuant to this Agreement as in
effect from time to time. The Operating Committee shall review such fee
schedule on at least an annual basis and shall make any changes to such
fee schedule that it deems appropriate. The Operating Committee is
authorized to review such fee schedule on a more regular basis, but
shall not make any changes on more than a semiannual basis unless,
pursuant to a Supermajority Vote, the Operating Committee concludes
that such change is necessary for the adequate funding of the Company.
* * * * *

APPENDIX B

Fee Schedule

Consolidated Audit Trail Funding Fees for Participants

(a) CAT Fee. Each Participant shall pay the CAT Fee set forth in
Section 11.3(a) of the CAT NMS Plan to Consolidated Audit Trail, LLC in
the manner prescribed by Consolidated Audit Trail, LLC on a monthly
basis based on the Participant's transactions in Eligible Securities in
the prior month.
* * * * *

EXHIBIT B

Proposed Revisions to CAT NMS Plan as Proposed To Be Revised in the
February 2023 Proposed Partial Amendment

Additions italicized; deletions [bracketed]
* * * * *

Article I

Definitions

[[Page 17127]]

Article XI

Funding of the Company

Section 11.1. Funding Authority.
(a) On an annual basis the Operating Committee shall approve [an] a
reasonable operating budget for the Company. The budget shall include
the projected costs of the Company, including the costs of developing
and operating the CAT for the upcoming year, and the sources of all
revenues to cover such costs, as well as the funding of any reserve
that the Operating Committee reasonably deems appropriate for prudent
operation of the Company.
(i) Without limiting the foregoing, the reasonably budgeted CAT
costs shall include technology (including cloud hosting services,
operating fees, CAIS operating fees, change request fees and
capitalized developed technology costs), legal, consulting, insurance,
professional and administration, and public relations costs, a reserve
and such other cost categories as reasonably determined by the
Operating Committee to be included in the budget.
(ii) For the reserve referenced in paragraph (a)(i) of this
Section, the budget will include an amount reasonably necessary to
allow the Company to maintain a reserve of not more than 25% of the
annual budget. To the extent collected CAT fees exceed CAT costs,
including the reserve of 25% of the annual budget, such surplus shall
be used to offset future fees. For the avoidance of doubt, the Company
will only include an amount for the reserve in the annual budget if the
Company does not have a sufficient reserve (which shall be up to but
not more than 25% of the annual budget). For the avoidance of doubt,
the calculation of the amount of the reserve would exclude the amount
of the reserve from the budget.
(b) Subject to Section 11.1 and Section 11.2, the Operating
Committee shall have discretion to establish funding for the Company,
including: (i) establishing fees that the Participants shall pay; and
(ii) establishing fees for Industry Members that shall be implemented
by Participants. The Participants shall file with the SEC under Section
19(b) of the Exchange Act any such fees on Industry Members that the
Operating Committee approves, and such fees shall be labeled as
``Consolidated Audit Trail Funding Fees.''
(c) To fund the development and implementation of the CAT, the
Company shall time the imposition and collection of all fees on
Participants and Industry Members in a manner reasonably related to the
timing when the Company expects to incur such development and
implementation costs. In determining fees on Participants and Industry
Members the Operating Committee shall take into account fees, costs and
expenses (including legal and consulting fees and expenses) reasonably
incurred by the Participants on behalf of the Company prior to the
Effective Date in connection with the creation and implementation of
the CAT, and such fees, costs and expenses shall be fairly and
reasonably shared among the Participants and Industry Members. Any
surplus of the Company's revenues over its expenses shall be treated as
an operational reserve to offset future fees.
(d) Consistent with this Article XI, the Operating Committee shall
adopt policies, procedures, and practices regarding the budget and
budgeting process, resolution of disputes, billing and collection of
fees, and other related matters.
Section 11.2. Funding Principles. In establishing the funding of
the Company, the Operating Committee shall seek:
(a) 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;
(b) to establish an allocation of the Company's related costs among
Participants and Industry Members that is consistent with the Exchange
Act, taking into account the timeline for implementation of the CAT;
(c) to establish a fee structure in which the fees charged to
Participants and Industry Members are based upon the executed
equivalent share volume of transactions in Eligible Securities, and the
costs of the CAT.
(d) to provide for ease of billing and other administrative
functions;
(e) to avoid any disincentives such as placing an inappropriate
burden on competition and a reduction in market quality; and
(f) to build financial stability to support the Company as a going
concern.
Section 11.3. Recovery.
(a) Prospective CAT Costs. The Operating Committee will establish
fees (``CAT Fees'') to be payable by Participants and Industry Members
with regard to CAT costs not previously paid by the Participants
(``Prospective CAT Costs'') as follows:
(i) Fee Rate. The Operating Committee will calculate the Fee Rate
for the CAT Fee twice per year, once at the beginning of the year and
once during the year as follows.
(A) General.
(I) For the beginning of each year, the Operating Committee will
calculate the Fee Rate by dividing the reasonably budgeted CAT costs
for the year by the reasonably projected total executed equivalent
share volume of all transactions in Eligible Securities for the year.
Once the Operating Committee has approved such Fee Rate, the
Participants shall be required to file with the SEC pursuant to Section
19(b) of the Exchange Act CAT Fees to be charged to Industry Members
calculated using such Fee Rate. Participants and Industry Members will
be required to pay CAT Fees calculated using this Fee Rate once such
CAT Fees are in effect with regard to Industry Members in accordance
with Section 19(b) of the Exchange Act.
(II) During each year, the Operating Committee will calculate a new
Fee Rate by dividing the reasonably budgeted CAT costs for the
remainder of the year by the reasonably projected total executed
equivalent share volume of all transactions in Eligible Securities for
the remainder of the year. Once the Operating Committee has approved
the new Fee Rate, the Participants shall be required to file with the
SEC pursuant to Section 19(b) of the Exchange Act CAT Fees to be
charged to Industry Members calculated using the new Fee Rate.
Participants and Industry Members will be required to pay CAT Fees
calculated using this new Fee Rate once such CAT Fees are in effect
with regard to Industry Members in accordance with Section 19(b) of the
Exchange Act.
(III) For the avoidance of doubt, CAT Fees with a Fee Rate
calculated as set forth in this paragraph (a)(i) shall remain in effect
until the Operating Committee approves a new Fee Rate as described in
paragraph (a)(i) and CAT Fees with the new Fee Rate are in effect with
regard to Industry Members in accordance with Section 19(b) of the
Exchange Act.
(IV) For the avoidance of doubt, the first CAT Fee may commence at
the beginning of the year or during the year. If it were to commence
during the year, the first CAT Fee would be calculated as described in
paragraph (II) of this Section.
(B) Executed Equivalent Shares. For purposes of calculating CAT
Fees, executed equivalent shares in a transaction in Eligible
Securities will be reasonably counted as follows:
(I) each executed share for a transaction in NMS Stocks will be
counted as one executed equivalent share;

[[Page 17128]]

(II) each executed contract for a transaction in Listed Options
will be counted based on the multiplier applicable to the specific
Listed Option (i.e., 100 executed equivalent shares or such other
applicable multiplier); and
(III) each executed share for a transaction in OTC Equity
Securities shall be counted as 0.01 executed equivalent share.
(C) Budgeted CAT Costs. The budgeted CAT costs for the year shall
be comprised of all reasonable fees, costs and expenses reasonably
budgeted to be incurred by or for the Company in connection with the
development, implementation and operation of the CAT as set forth 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.
(D) Projected Total Executed Equivalent Share Volume of
Transactions in Eligible Securities. The Operating Committee shall
reasonably determine the projected total executed equivalent share
volume of all transactions in Eligible Securities for each relevant
period based on the executed equivalent share volume of all
transactions in Eligible Securities for the prior twelve months.
(ii) Participant CAT Fees.
(A) CAT Fee Obligation. Each Participant that is a national
securities exchange will be required to pay the CAT Fee for each
transaction in Eligible Securities executed on the exchange in the
prior month based on CAT Data. Each Participant that is a national
securities association will be required to pay the CAT Fee for each
transaction in Eligible Securities executed otherwise than on an
exchange in the prior month based on CAT Data. The CAT Fee for each
transaction in Eligible Securities will be calculated by multiplying
the number of executed equivalent shares in the transaction by one-
third and by the Fee Rate reasonably determined pursuant to paragraph
(a)(i) of this Section 11.3.
(B) Effectiveness. Each Participant will be required to pay the CAT
Fee calculated using the Fee Rate reasonably determined pursuant to
paragraph (a)(i) of this Section 11.3 and approved by the Operating
Committee only if such CAT Fees are in effect with regard to Industry
Members in accordance with Section 19(b) of the Exchange Act.
(iii) Industry Member CAT Fees.
(A) CAT Fee Obligation. Each Industry Member that is the CAT
Executing Broker for the buyer in a transaction in Eligible Securities
(``CAT Executing Broker for the Buyer'' or ``CEBB'') and each Industry
Member that is the CAT Executing Broker for the seller in a transaction
in Eligible Securities (``CAT Executing Broker for the Seller'' or
``CEBS'') will be required to pay a CAT Fee for each such transaction
in Eligible Securities in the prior month based on CAT Data. The CEBB's
CAT Fee or CEBS's CAT Fee (as applicable) for each transaction in
Eligible Securities will be calculated by multiplying the number of
executed equivalent shares in the transaction by one-third and by the
Fee Rate reasonably determined pursuant to paragraph (a)(i) of this
Section 11.3.
(B) Content of Fee Filings. When the Participants file with the SEC
pursuant to Section 19(b) of the Exchange Act CAT Fees to be charged to
Industry Members calculated using the Fee Rate that the Operating
Committee approved in accordance with paragraph (a) of this Section
11.3, such filings shall set forth (A) the Fee Rate; (B) the budget for
the upcoming year (or remainder of the year, as applicable), including
a brief description of each line item in the budget, including (1)
technology line items of cloud hosting services, operating fees, CAIS
operating fees, change request fees and capitalized developed
technology costs, (2) legal, (3) consulting, (4) insurance, (5)
professional and administration, and (6) public relations costs, a
reserve and/or such other categories as reasonably determined by the
Operating Committee to be included in the budget, and the reason for
changes in each such line item from the prior CAT Fee filing; (C) a
discussion of how the budget is reconciled to the collected fees; and
(D) the projected total executed equivalent share volume of all
transactions in Eligible Securities for the year (or remainder of the
year, as applicable), and a description of the calculation of the
projection. The information provided in this Section would be provided
with sufficient detail to demonstrate that the budget for the upcoming
year, or part of year, as applicable, is reasonable and appropriate.
(C) No Participant will make a filing with the SEC pursuant to
Section 19(b) of the Exchange Act regarding any CAT Fee related to
Prospective CAT Costs until the Financial Accountability Milestone
related to Period 4 described in Section 11.6 has been satisfied.
(iv) CAT Fee Details.
(A) Details regarding the calculation of a Participant or CAT
Executing Brokers' CAT Fees will be provided upon request to such
Participant or CAT Executing Broker. At a minimum, such details would
include each Participant or CAT Executing Broker's executed equivalent
share volume and corresponding fee by (1) Listed Options, NMS Stocks
and OTC Equity Securities, (2) by transactions executed on each
exchange and transactions executed otherwise than on an exchange, and
(3) by buy-side transactions and sell-side transactions.
(B) For each CAT Fee, at a minimum, CAT LLC will make publicly
available the aggregate executed equivalent share volume and
corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC
Equity Securities, (2) by transactions executed on each exchange and
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions.
(b) Past CAT Costs. The Operating Committee will establish one or
more fees (each a ``Historical CAT Assessment'') to be payable by
Industry Members with regard to CAT costs previously paid by the
Participants (``Past CAT Costs'') as follows:
(i) Calculation of Historical Fee Rates.
(A) General. The Operating Committee will calculate the Historical
Fee Rate for each Historical CAT Assessment by dividing the Historical
CAT Costs for each Historical CAT Assessment by the reasonably
projected total executed equivalent share volume of all transactions in
Eligible Securities for the Historical Recovery Period for each
Historical CAT Assessment. Once the Operating Committee has approved
such Historical Fee Rate, the Participants shall be required to file
with the SEC pursuant to Section 19(b) of the Exchange Act such
Historical CAT Assessment to be charged to Industry Members calculated
using such Historical Fee Rate. Industry Members will be required to
pay such Historical CAT Assessment calculated using such Historical Fee
Rate once such Historical CAT Assessment is in effect in accordance
with Section 19(b) of the Exchange Act.
(B) Executed Equivalent Shares. For purposes of calculating each
Historical CAT Assessment, executed equivalent shares in a transaction
in Eligible Securities will be reasonably counted in the same manner as
set forth in paragraph (a)(i)(B) of this Section 11.3.
(C) Historical CAT Costs. The Operating Committee will reasonably
determine the Historical CAT Costs sought to be recovered by each
Historical CAT Assessment, where the Historical CAT Costs will be Past
CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT
Costs by the Operating Committee. Each Historical CAT Assessment will
seek to

[[Page 17129]]

recover from CAT Executing Brokers two-thirds of Historical CAT Costs
incurred during the period covered by the Historical CAT Assessment.
(D) Historical Recovery Period.
(I) The length of the Historical Recovery Period used in
calculating each Historical Fee Rate will be reasonably established by
the Operating Committee based upon the amount of the Historical CAT
Costs to be recovered by the Historical CAT Assessment; provided,
however, no Historical Recovery Period used in calculating the
Historical Fee Rate shall be less than 24 months or more than five
years.
(II) Notwithstanding the length of the Historical Recovery Period
used in calculating the Historical Fee Rate, each Historical CAT
Assessment calculated using the Historical Fee Rate will remain in
effect until all Historical CAT Costs for the Historical CAT Assessment
are collected.
(E) Projected Total Executed Equivalent Share Volume of
Transactions in Eligible Securities for Historical Recovery Period. The
Operating Committee shall reasonably determine the projected total
executed equivalent share volume of all transactions in Eligible
Securities for each Historical Recovery Period based on the executed
equivalent share volume of all transactions in Eligible Securities for
the prior twelve months.
(ii) Past CAT Costs and Participants. Because Participants
previously have paid Past CAT Costs via loans to the Company,
Participants would not be required to pay any Historical CAT
Assessment. In lieu of a Historical CAT Assessment, the Participants'
one-third share of [Past] Historical CAT Costs and such other
additional Past CAT Costs as reasonably determined by the Operating
Committee will be paid by the cancellation of loans made to [by] the
Company on a pro rata basis based on the outstanding loan amounts due
under the loans. Historical CAT Assessments are designed to recover
two-thirds of the Historical CAT Costs.
(iii) Historical CAT Assessment for Industry Members.
(A) Each month in which a Historical CAT Assessment is in effect,
each CEBB and each CEBS shall pay a fee for each transaction in
Eligible Securities executed by the CEBB or CEBS from the prior month
as set forth in CAT Data, where the Historical CAT Assessment for each
transaction will be calculated by multiplying the number of executed
equivalent shares in the transaction by one-third and by the Historical
Fee Rate reasonably determined pursuant to paragraph (b)(i) of this
Section 11.3.
(B) Historical CAT Assessment Fee Filings.
(I) Participants will be required to file with the SEC pursuant to
Section 19(b) of the Exchange Act a filing for each Historical CAT
Assessment.
(II) When the Participants file with the SEC pursuant to Section
19(b) of the Exchange Act a Historical CAT Assessment calculated using
the Historical Fee Rate that the Operating Committee approved in
accordance with paragraph (b) of this Section 11.3, such filing shall
set forth (A) the Historical Fee Rate; (B) a brief description of the
amount and type of the Historical CAT Costs, including (1) the
technology line items of cloud hosting services, operating fees, CAIS
operating fees, change request fees, and capitalized developed
technology costs, (2) legal, (3) consulting, (4) insurance, (5)
professional and administration and (6) public relations costs; (C) the
Historical Recovery Period and the reasons for its length; and (D) the
projected total executed equivalent share volume of all transactions in
Eligible Securities for the Historical Recovery Period, and a
description of the calculation of the projection. The information
provided in this Section would be provided with sufficient detail to
demonstrate that the Historical CAT Costs are reasonable and
appropriate.
(III) No Participant will make a filing with the SEC pursuant to
Section 19(b) of the Exchange Act regarding any Historical CAT
Assessment until any applicable Financial Accountability Milestone
described in Section 11.6 has been satisfied.
(iv) Historical CAT Assessment Details.
(A) Details regarding the calculation of a CAT Executing Broker's
Historical CAT Assessment will be provided upon request to such CAT
Executing Broker. At a minimum, such details would include each CAT
Executing Broker's executed equivalent share volume and corresponding
fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by
transactions executed on each exchange and transactions executed
otherwise than on an exchange, and (3) by buy-side transactions and
sell-side transactions.
(B) For each Historical CAT Assessment, at a minimum, CAT LLC will
make publicly available the aggregate executed equivalent share volume
and corresponding aggregate fee by (1) Listed Options, NMS Stocks and
OTC Equity Securities, (2) by transactions executed on each exchange
and transactions executed otherwise than on an exchange, and (3) by
buy-side transactions and sell-side transactions.
(c) The Operating Committee may establish any other fees ancillary
to the operation of the CAT that it reasonably determines appropriate,
including fees: (i) for the late or inaccurate reporting of information
to the CAT; (ii) for correcting submitted information; and (iii) based
on access and use of the CAT for regulatory and oversight purposes (and
not including any reporting obligations).
(d) The Company shall make publicly available a schedule of
effective fees and charges adopted pursuant to this Agreement as in
effect from time to time. The Operating Committee shall review such fee
schedule on at least an annual basis and shall make any changes to such
fee schedule that it deems appropriate. The Operating Committee is
authorized to review such fee schedule on a more regular basis, but
shall not make any changes on more than a semiannual basis unless,
pursuant to a Supermajority Vote, the Operating Committee concludes
that such change is necessary for the adequate funding of the Company.
* * * * *
APPENDIX B
Fee Schedule
Consolidated Audit Trail Funding Fees for Participants
(a) CAT Fee. Each Participant shall pay the CAT Fee set forth in
Section 11.3(a) of the CAT NMS Plan to Consolidated Audit Trail, LLC in
the manner prescribed by Consolidated Audit Trail, LLC on a monthly
basis based on the Participant's transactions in Eligible Securities in
the prior month.
* * * * *

EXHIBIT C

CAT Fee Example for Illustrative Purposes Only

The following sets forth an example of a Historical CAT Assessment
calculated under the Funding Proposal for illustrative purposes only.
The example sets forth the Historical CAT Assessment that each CAT
Executing Broker would pay related to CAT costs from prior to 2022
based on each CAT Executing Broker's transactions in December 2022. The
first chart, entitled ``Calculation of Historical CAT Assessment,''
describes how the example fees are calculated. The second chart,
entitled ``Aggregate Executed Equivalent Share Volume and Corresponding
Aggregate Fee for December 2022 for Certain Categories,'' sets forth
the aggregated amounts of

[[Page 17130]]

executed equivalent share volume and corresponding fee for December
2022 for the categories set forth in Proposed Section 11.3(b)(iv) of
the CAT NMS Plan, which include (1) Listed Options, NMS Stocks and OTC
Equity Securities, (2) by transactions executed on each exchange and
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions. The third chart, entitled
``Historical CAT Assessment for Each CAT Executing Broker,'' sets forth
the example fees each CAT Executing Broker would pay based on its
transactions in Eligible Securities in December 2022 in accordance with
the parameters of the example.
Note that Exhibit C only provides an illustrative example of how
the Funding Proposal would operate for informational purposes; the
calculation of the actual Historical CAT Assessment for CAT costs from
prior to 2022 would differ from this example in various ways. For
example, the illustrative example calculates the Historical Fee Rate
using the projected total executed equivalent share transactions in
Eligible Securities for 2023-2024, rather than the projected executed
equivalent share volume for the actual Historical Recovery Period, the
dates of which will be determined upon approval of the Funding
Proposal. In addition, the illustrative example calculates the
Historical CAT Assessment based on a CEBB and CEBS's trading activity
from December 2022, rather than trading activity during a relevant
month in which the Historical CAT Assessment would be in effect.
Moreover, the illustrative example, among other things, calculates the
executed equivalent shares for each executed contract for a transaction
in Listed Options using a 100 executed equivalent share multiplier,
instead of the specific multiplier applicable to each Listed Option; it
uses a simple projection calculation of doubling the total executed
equivalent share volume for 2022 (rather than a projection that
considers volume growth and other relevant factors); and it may include
cancelled trades or trades that were later corrected.\159\
---------------------------------------------------------------------------

\159\ Section A.1.d of this filing discusses how cancellations
and corrections would be addressed under the Funding Proposal.

Calculation of Historical CAT Assessment
----------------------------------------------------------------------------------------------------------------
Item Value Calculation Proposed plan provision
----------------------------------------------------------------------------------------------------------------
Actual Total Executed Equivalent 4,039,821,841,560.31 Calculated using actual Proposed Sections
Share Volume of Transactions in Executed Equivalent transactions in 11.3(a)(i)(B) and
Eligible Securities for 2022. Shares. Eligible Securities 11.3(b)(i)(B).
for 2022.
Historical Recovery Period........... 2 years................ Length between 2 and 5 Proposed Section
years as determined by 11.3(b)(i)(D)(I).
Operating Committee.
Projected Total Executed Equivalent 8,079,643,683,120.62 2*4,039,821,841,560.31 Proposed Section
Share Volume of Transactions in Executed Equivalent Executed Equivalent 11.3(b)(i)(E).
Eligible Securities for 2023-2024. Shares. Shares (Actual
Executed Equivalent
Share Volume of
Transactions in
Eligible Securities
for 2022 multiplied by
two).
Historical CAT Costs for Pre-2022.... $337,688,610........... $401,312,909-$63,624,29 Proposed Section
9 (Past CAT Costs for 11.3(b)(i)(C).
pre-2022 minus CAT
Costs excluded from
Past CAT Costs for pre-
2022).
Historical Fee Rate.................. $0.0000417950 per $337,688,610/ Proposed Section
Executed Equivalent 8,079,643,683,120.62 11.3(b)(i)(A).
Share. (Historical CAT Costs
for pre-2022 divided
by Projected Total
Executed Equivalent
Share Volume of
Transactions in
Eligible Securities
for 2023-2024).
Historical CAT Assessment for CAT See ``Historical Fee Executed Equivalent Proposed Section
Executing Brokers for pre-2022 Assessment for Each Share Volume of 11.3(b)(iii)(A).
Historical CAT Costs for December CAT Executing Broker'' Transactions in
2022. chart below. Eligible Securities
for December 2022 for
each CAT Executing
Broker multiplied by
Historical Fee Rate
multiplied by one-
third.\160\
Total Amount to be Collected via $225,125,740........... 2/3 * $337,688,610 (Two- Proposed Sections
Historical CAT Assessment for pre- thirds of Historical 11.3(b)(i)(C) and
2022 Historical CAT Costs. CAT Costs). 11.3(b)(iii)(A).
----------------------------------------------------------------------------------------------------------------

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

\160\ Because the Historical Fee Rate is multiplied by one-third
in calculating the Historical CAT Assessment for the example, CAT
Executing Brokers would pay $0.00001393167 per executed equivalent
share (that is, $0.0000417950 per executed equivalent share
multiplied by one-third).

Aggregate Executed Equivalent Share Volume and Corresponding Aggregate Fee for December 2022 for Certain
Categories
----------------------------------------------------------------------------------------------------------------
Aggregate historical
Aggregate executed CAT assessment for
Category of transaction equivalent share volume December 2022 (in
for December 2022 dollars)
----------------------------------------------------------------------------------------------------------------
Listed Options................................................ 171,596,408,600.00 2,390,623.27
NMS Stocks.................................................... 455,096,327,128.00 6,340,248.50
OTC Equity Securities......................................... 2,835,446,929.62 39,502.49
----------------------------------------------------------------------------------------------------------------
Buy-Side Transactions......................................... 314,765,626,228.81 4,385,208.51
Sell-Side Transactions........................................ 314,762,556,428.81 4,385,165.75
----------------------------------------------------------------------------------------------------------------

[[Page 17131]]

Executed on BOX............................................... 11,476,557,600 159,887.53
Executed on Cboe BYX.......................................... 5,010,889,784 69,810.03
Executed on Cboe BZX.......................................... 28,387,794,900 395,489.18
Executed on Cboe EDGA......................................... 5,987,423,230 83,414.76
Executed on Cboe EDGX......................................... 35,456,933,206 493,974.03
Executed on Cboe C2........................................... 7,093,009,200 98,817.41
Executed on Cboe.............................................. 31,832,709,200 443,482.57
Executed on IEX............................................... 10,534,111,236 146,757.68
Executed on LTSE.............................................. 14,709,130 204.92
Executed on MEMX.............................................. 13,471,198,984 187,676.20
Executed on MIAX.............................................. 9,473,736,600 131,984.90
Executed on MIAX Emerald...................................... 4,451,989,200 62,023.61
Executed on MIAX PEARL........................................ 13,382,643,690 186,442.48
Executed on Nasdaq BX......................................... 7,033,829,520 97,992.94
Executed on Nasdaq GEMX....................................... 2,750,988,600 38,325.85
Executed on Nasdaq ISE........................................ 8,771,296,800 122,198.75
Executed on Nasdaq MRX........................................ 2,373,050,600 33,060.54
Executed on Nasdaq PHLX....................................... 22,234,997,366 309,770.48
Executed on Nasdaq............................................ 84,953,835,448 1,183,548.17
Executed on NYSE.............................................. 46,589,923,124 649,075.09
Executed on NYSE American..................................... 12,939,380,646 180,267.09
Executed on NYSE Arca......................................... 57,732,682,568 804,312.26
Executed on NYSE Chicago...................................... 1,851,452,536 25,793.81
Executed on NYSE National..................................... 2,482,827,634 34,589.92
Executed Otherwise than on an Exchange........................ 203,240,211,856 2,831,474.07
----------------------------------------------------------------------------------------------------------------

Historical Fee Assessment for Each Cat Executing Broker \161\
----------------------------------------------------------------------------------------------------------------
Executed equivalent
share volume of Historical CAT
CAT executing broker transactions in assessment for December
eligible securities for 2022 (in dollars)
December 2022
----------------------------------------------------------------------------------------------------------------
1............................................................. 86,112,198,133.20 1,199,686.09
2............................................................. 38,481,541,952.55 536,111.86
3............................................................. 38,393,700,002.03 534,888.08
4............................................................. 38,459,064,211.23 535,798.71
5............................................................. 27,384,672,407.15 381,514.02
6............................................................. 23,625,876,388.24 329,147.74
7............................................................. 22,953,981,909.23 319,787.13
8............................................................. 17,620,665,100.45 245,485.16
9............................................................. 17,628,940,532.54 245,600.45
10............................................................ 20,031,215,101.53 279,068.13
11............................................................ 16,301,270,280.00 227,103.80
12............................................................ 19,404,461,254.15 270,336.41
13............................................................ 11,441,178,404.00 159,394.64
14............................................................ 12,179,858,717.98 169,685.68
15............................................................ 12,076,770,928.00 168,249.50
16............................................................ 11,623,298,048.64 161,931.87
17............................................................ 9,955,221,266.53 138,692.78
18............................................................ 10,285,573,046.70 143,295.13
19............................................................ 10,481,313,179.31 146,022.12
20............................................................ 9,456,042,067.81 131,738.39
21............................................................ 7,969,275,763.65 111,025.26
22............................................................ 5,853,036,941.30 81,542.54
23............................................................ 9,044,202,748.00 126,000.78
24............................................................ 8,129,937,025.67 113,263.54
25............................................................ 9,466,559,704.00 131,884.92
26............................................................ 8,098,701,385.00 112,828.38
27............................................................ 6,220,173,476.92 86,657.36
28............................................................ 4,940,607,300.00 68,830.87
29............................................................ 5,496,193,202.99 76,571.11
30............................................................ 4,183,004,192.80 58,276.20
31............................................................ 3,748,760,073.00 52,226.46
32............................................................ 3,930,225,757.70 54,754.58
33............................................................ 2,926,196,700.00 40,766.79
34............................................................ 4,040,159,976.45 56,286.15

[[Page 17132]]

35............................................................ 2,462,962,342.00 34,313.16
36............................................................ 3,255,347,005.69 45,352.40
37............................................................ 1,795,144,783.11 25,009.35
38............................................................ 1,533,939,983.00 21,370.33
39............................................................ 2,462,084,862.71 34,300.94
40............................................................ 2,226,415,053.41 31,017.66
41............................................................ 1,847,364,910.34 25,736.86
42............................................................ 2,416,691,618.00 33,668.53
43............................................................ 1,232,981,799.00 17,177.49
44............................................................ 2,181,268,648.12 30,388.70
45............................................................ 2,131,136,467.07 29,690.27
46............................................................ 1,099,857,600.00 15,322.85
47............................................................ 1,469,689,428.23 20,475.22
48............................................................ 2,168,992,900.00 30,217.68
49............................................................ 1,496,908,444.00 20,854.42
50............................................................ 1,534,294,028.00 21,375.27
51............................................................ 65,606,592.00 914.01
52............................................................ 1,735,293,007.06 24,175.52
53............................................................ 1,307,878,500.00 18,220.92
54............................................................ 1,178,185,898.26 16,414.09
55............................................................ 1,430,077,857.02 19,923.36
56............................................................ 1,151,205,287.63 16,038.20
57............................................................ 1,409,986,241.50 19,643.45
58............................................................ 1,103,808,027.33 15,377.88
59............................................................ 1,029,656,664.02 14,344.83
60............................................................ 857,333,700.00 11,944.08
61............................................................ 961,305,300.00 13,392.58
62............................................................ 1,867,947,700.00 26,023.62
63............................................................ 1,039,246,045.38 14,478.43
64............................................................ 1,101,469,802.00 15,345.31
65............................................................ 562,430,300.00 7,835.59
66............................................................ 733,501,357.00 10,218.89
67............................................................ 877,224,476.00 12,221.20
68............................................................
69............................................................ 829,161,852.00 11,551.60
70............................................................ 966,607,368.00 13,466.45
71............................................................ 821,501,400.00 11,444.88
72............................................................ 677,405,637.00 9,437.39
73............................................................ 1,015,740,702.00 14,150.96
74............................................................ 522,418,991.27 7,278.17
75............................................................ 989,301,187.72 13,782.61
76............................................................ 773,642,309.00 10,778.12
77............................................................
78............................................................ 590,057,809.16 8,220.49
79............................................................ 737,007,679.37 10,267.74
80............................................................ 536,705,303.00 7,477.20
81............................................................ 767,854,826.21 10,697.49
82............................................................ 635,942,409.58 8,859.74
83............................................................ 864,089,556.95 12,038.20
84............................................................ 620,860,189.00 8,649.61
85............................................................ 700,713,844.00 9,762.11
86............................................................ 727,102,431.00 10,129.75
87............................................................ 556,678,644.00 7,755.46
88............................................................ 581,059,177.09 8,095.12
89............................................................ 559,881,462.22 7,800.08
90............................................................ 483,502,237.48 6,735.99
91............................................................ 413,725,788.00 5,763.89
92............................................................ 610,245,108.09 8,501.73
93............................................................ 405,594,302.00 5,650.60
94............................................................ 353,080,033.04 4,918.99
95............................................................ 550,986,110.00 7,676.15
96............................................................ 522,200,254.96 7,275.12
97............................................................ 452,909,875.00 6,309.79
98............................................................ 314,934,600.00 4,387.56
99............................................................ 1,172,981,298.00 16,341.58
100........................................................... 418,591,392.71 5,831.67
101........................................................... 56,226,707.15 783.33
102........................................................... 444,528,797.00 6,193.03

[[Page 17133]]

103........................................................... 243,033,674.00 3,385.86
104........................................................... 826,825,093.31 11,519.05
105........................................................... 363,355,742.00 5,062.15
106........................................................... 319,206,742.76 4,447.08
107........................................................... 234,606,209.64 3,268.45
108........................................................... 714,493,322.00 9,954.08
109........................................................... 313,455,910.25 4,366.96
110........................................................... 1,031,910,466.00 14,376.23
111........................................................... 258,090,705.06 3,595.63
112........................................................... 472,580,692.79 6,583.83
113........................................................... 431,793,880.31 6,015.61
114........................................................... 337,914,803.56 4,707.72
115........................................................... 339,736,815.43 4,733.10
116........................................................... 909,158,616.00 12,666.09
117........................................................... 290,642,115.00 4,049.13
118........................................................... 347,421,063.79 4,840.15
119........................................................... 350,667,538.15 4,885.38
120........................................................... 318,322,800.00 4,434.77
121........................................................... 263,757,425.20 3,674.58
122...........................................................
123........................................................... 375,530,471.00 5,231.76
124........................................................... 53,557,200.00 746.14
125...........................................................
126........................................................... 283,825,411.16 3,954.16
127........................................................... 143,392,400.00 1,997.69
128........................................................... 217,718,090.88 3,033.17
129........................................................... 165,915,140.89 2,311.47
130........................................................... 457,613,070.46 6,375.31
131........................................................... 251,132,793.81 3,498.70
132........................................................... 219,112,442.00 3,052.60
133........................................................... 43,938,745.15 612.14
134........................................................... 330,967,497.01 4,610.93
135........................................................... 188,838,809.00 2,630.84
136........................................................... 227,575,404.47 3,170.50
137........................................................... 206,478,844.94 2,876.59
138...........................................................
139........................................................... 292,467,800.00 4,074.56
140........................................................... 165,645,008.32 2,307.71
141........................................................... 214,739,622.63 2,991.68
142........................................................... 185,617,991.19 2,585.97
143........................................................... 165,469,188.00 2,305.26
144........................................................... 5,019,600.00 69.93
145........................................................... 956,355,049.08 13,323.62
146........................................................... 64,960,719.00 905.01
147........................................................... 289,141,549.00 4,028.22
148........................................................... 147,498,787.28 2,054.90
149........................................................... 158,995,017.79 2,215.06
150........................................................... 122,676,294.48 1,709.08
151........................................................... 136,312,675.96 1,899.06
152........................................................... 27,284,757.00 380.12
153........................................................... 352,462,000.00 4,910.38
154........................................................... 126,212,114.45 1,758.34
155...........................................................
156........................................................... 128,125,560.32 1,785.00
157........................................................... 60,988,464.36 849.67
158........................................................... 131,730,011.56 1,835.22
159........................................................... 74,526,683.59 1,038.28
160........................................................... 147,853,117.00 2,059.84
161........................................................... 113,883,427.93 1,586.59
162...........................................................
163........................................................... 116,699,318.87 1,625.82
164........................................................... 129,812,902.58 1,808.51
165........................................................... 106,768,335.00 1,487.46
166........................................................... 140,139,530.00 1,952.38
167........................................................... 82,905,120.00 1,155.01
168........................................................... 99,813,775.33 1,390.57
169........................................................... 61,257,698.00 853.42
170........................................................... 265,568,648.00 3,699.81

[[Page 17134]]

171........................................................... 98,014,634.68 1,365.51
172........................................................... 95,296,632.53 1,327.64
173........................................................... 52,272,295.77 728.24
174........................................................... 38,307,460.47 533.69
175........................................................... 84,787,219.45 1,181.23
176........................................................... 79,498,966.79 1,107.55
177........................................................... 55,374,006.21 771.45
178........................................................... 156,404,961.23 2,178.98
179........................................................... 60,642,356.86 844.85
180........................................................... 118,133,629.00 1,645.80
181........................................................... 76,062,700.00 1,059.68
182........................................................... 248,176,128.68 3,457.51
183........................................................... 79,008,100.00 1,100.71
184........................................................... 85,278,937.00 1,188.08
185........................................................... 70,228,707.00 978.40
186........................................................... 62,833,390.18 875.37
187........................................................... 41,480,726.45 577.90
188........................................................... 176,929,414.00 2,464.92
189........................................................... 29,253,925.81 407.56
190........................................................... 105,263,657.06 1,466.50
191........................................................... 77,787,800.00 1,083.71
192........................................................... 68,984,712.00 961.07
193........................................................... 61,335,825.68 854.51
194........................................................... 67,297,274.77 937.56
195........................................................... 51,129,783.08 712.32
196...........................................................
197........................................................... 68,089,568.19 948.60
198........................................................... 40,730,576.79 567.44
199........................................................... 39,525,291.39 550.65
200........................................................... 91,093,000.00 1,269.08
201........................................................... 57,676,030.00 803.52
202........................................................... 6,831,789.24 95.18
203........................................................... 316,923,604.92 4,415.27
204........................................................... 56,604,000.00 788.59
205........................................................... 33,836,692.76 471.40
206........................................................... 3,686,360.00 51.36
207........................................................... 87,223,619.59 1,215.17
208........................................................... 22,659,425.86 315.68
209........................................................... 36,155,445.78 503.71
210........................................................... 27,633,449.00 384.98
211........................................................... 3,789,049.10 52.79
212...........................................................
213...........................................................
214........................................................... 11,802,608.52 164.43
215........................................................... 39,707,587.00 553.19
216........................................................... 69,601,570.00 969.67
217........................................................... 26,765,942.82 372.89
218........................................................... 32,246,115.00 449.24
219........................................................... 5,604,885.00 78.09
220........................................................... 15,282,378.75 212.91
221........................................................... 21,777,071.28 303.39
222........................................................... 19,782,551.00 275.60
223........................................................... 25,665,436.26 357.56
224........................................................... 24,403,825.19 339.99
225........................................................... 69,596,229.05 969.59
226........................................................... 15,677,771.93 218.42
227........................................................... 25,267,934.00 352.02
228........................................................... 22,258,692.00 310.10
229........................................................... 10,262,505.79 142.97
230...........................................................
231........................................................... 18,989,070.64 264.55
232........................................................... 14,408,226.00 200.73
233........................................................... 18,945,600.00 263.94
234........................................................... 13,376,162.82 186.35
235........................................................... 20,807,919.37 289.89
236........................................................... 17,593,056.07 245.10
237........................................................... 15,126,721.74 210.74
238........................................................... 13,674,994.00 190.52

[[Page 17135]]

239........................................................... 6,144,297.00 85.60
240........................................................... 14,525,850.31 202.37
241........................................................... 38,208,766.82 532.31
242........................................................... 14,895,098.80 207.51
243........................................................... 11,078,635.00 154.34
244........................................................... 10,226,692.01 142.47
245........................................................... 11,521,371.11 160.51
246........................................................... 11,162,808.43 155.52
247........................................................... 18,083,706.64 251.94
248........................................................... 15,739,833.71 219.28
249........................................................... 9,587,210.86 133.57
250........................................................... 18,980,980.00 264.44
251........................................................... 5,974,342.18 83.23
252........................................................... 18,009,063.00 250.90
253........................................................... 12,371,171.00 172.35
254........................................................... 16,961,858.62 236.31
255........................................................... 12,751,377.12 177.65
256........................................................... 7,665,867.62 106.80
257........................................................... 14,798,978.38 206.17
258........................................................... 11,422,776.00 159.14
259........................................................... 9,486,103.23 132.16
260........................................................... 18,142,315.00 252.75
261........................................................... 13,643,800.00 190.08
262...........................................................
263........................................................... 21,333,324.60 297.21
264........................................................... 14,024,523.06 195.38
265........................................................... 9,609,378.96 133.87
266........................................................... 3,764,664.51 52.45
267........................................................... 9,263,917.20 129.06
268........................................................... 13,514,542.97 188.28
269........................................................... 7,063,688.49 98.41
270........................................................... 9,204,383.57 128.23
271...........................................................
272........................................................... 4,165,675.24 58.03
273........................................................... 8,795,482.50 122.54
274...........................................................
275........................................................... 7,151,874.00 99.64
276........................................................... 2,656,709.93 37.01
277...........................................................
278........................................................... 11,041,371.25 153.82
279........................................................... 9,618,241.51 134.00
280........................................................... 10,409,870.33 145.03
281........................................................... 2,381,247.97 33.17
282........................................................... 79,562,536.00 1,108.44
283........................................................... 5,028,862.00 70.06
284........................................................... 3,583,471.00 49.92
285........................................................... 6,047,686.70 84.25
286........................................................... 10,121,031.10 141.00
287...........................................................
288........................................................... 4,562,944.01 63.57
289........................................................... 1,995,032.12 27.79
290........................................................... 3,603,016.17 50.20
291........................................................... 49,058,772.00 683.47
292........................................................... 5,326,788.04 74.21
293........................................................... 5,199,894.30 72.44
294...........................................................
295........................................................... 7,396,224.93 103.04
296........................................................... 8,377,144.03 116.71
297........................................................... 10,426,990.00 145.27
298........................................................... 4,328,332.63 60.30
299...........................................................
300........................................................... 22,059,594.00 307.33
301........................................................... 2,719,871.36 37.89
302...........................................................
303........................................................... 9,336,370.70 130.07
304........................................................... 8,250,582.32 114.94
305........................................................... 11,309,704.54 157.56
306........................................................... 2,825,954.04 39.37

[[Page 17136]]

307........................................................... 3,015,453.22 42.01
308........................................................... 2,985,881.79 41.60
309........................................................... 3,550,440.79 49.46
310........................................................... 3,796,542.00 52.89
311........................................................... 681,600.00 9.50
312........................................................... 6,701,908.00 93.37
313........................................................... 7,515,141.47 104.70
314........................................................... 1,813,867.00 25.27
315........................................................... 25,693,200.00 357.95
316........................................................... 8,571,418.81 119.41
317........................................................... 4,618,323.00 64.34
318........................................................... 2,871,231.32 40.00
319........................................................... 1,312,921.00 18.29
320........................................................... 3,167,425.85 44.13
321........................................................... 101,019.48 1.41
322........................................................... 3,859,688.00 53.77
323........................................................... 4,632,446.85 64.54
324...........................................................
325........................................................... 2,755,282.00 38.39
326........................................................... 3,449,977.69 48.06
327........................................................... 2,682,536.34 37.37
328........................................................... 6,303,034.00 87.81
329........................................................... 1,464,170.44 20.40
330........................................................... 2,405,671.00 33.51
331........................................................... 3,837,456.05 53.46
332........................................................... 2,098,139.00 29.23
333........................................................... 927,380.00 12.92
334...........................................................
335........................................................... 453,254.09 6.31
336........................................................... 8,591,832.75 119.70
337........................................................... 3,385,354.11 47.16
338...........................................................
339........................................................... 1,634,758.00 22.77
340........................................................... 935,226.00 13.03
341........................................................... 823,172.38 11.47
342........................................................... 7,230,086.55 100.73
343........................................................... 2,994,432.00 41.72
344........................................................... 5,133,362.77 71.52
345...........................................................
346........................................................... 1,744,000.00 24.30
347...........................................................
348........................................................... 5,993,119.17 83.49
349...........................................................
350........................................................... 652,857.00 9.10
351........................................................... 424,927.00 5.92
352........................................................... 953,388.28 13.28
353...........................................................
354........................................................... 2,291,065.00 31.92
355........................................................... 3,155,865.00 43.97
356........................................................... 374,015.00 5.21
357........................................................... 1,665,732.44 23.21
358........................................................... 128,500.00 1.79
359........................................................... 401,400.00 5.59
360........................................................... 830,021.00 11.56
361........................................................... 910,747.00 12.69
362........................................................... 1,232,435.70 17.17
363........................................................... 14,888,100.00 207.42
364........................................................... 1,702,250.00 23.72
365........................................................... 3,676,612.12 51.22
366........................................................... 919,741.00 12.81
367........................................................... 3,712,051.51 51.72
368........................................................... 635,368.00 8.85
369........................................................... 447,894.00 6.24
370........................................................... 2,272,345.00 31.66
371........................................................... 1,374,837.10 19.15
372........................................................... 1,552,729.36 21.63
373........................................................... 2,180,116.97 30.37
374...........................................................

[[Page 17137]]

375........................................................... 798,527.92 11.12
376...........................................................
377........................................................... 1,399,199.54 19.49
378........................................................... 4,536,762.00 63.20
379........................................................... 1,061,788.00 14.79
380........................................................... 2,827,862.97 39.40
381........................................................... 1,053,097.00 14.67
382........................................................... 939,300.00 13.09
383........................................................... 254.00 0.00
384........................................................... 1,088,114.00 15.16
385........................................................... 773,060.00 10.77
386........................................................... 387,116.56 5.39
387........................................................... 873,812.55 12.17
388........................................................... 665,749.00 9.27
389........................................................... 795,558.50 11.08
390........................................................... 2,597,253.00 36.18
391........................................................... 948,046.00 13.21
392........................................................... 1,107,547.00 15.43
393........................................................... 3,654,035.00 50.91
394........................................................... 521,279.00 7.26
395........................................................... 410,769.00 5.72
396........................................................... 2,622,813.00 36.54
397........................................................... 554,541.44 7.73
398........................................................... 179,200.00 2.50
399........................................................... 841,840.24 11.73
400........................................................... 523,709.00 7.30
401...........................................................
402...........................................................
403........................................................... 462,520.50 6.44
404........................................................... 379,314.02 5.28
405........................................................... 217,857.00 3.04
406........................................................... 513,184.27 7.15
407........................................................... 130,200.00 1.81
408........................................................... 480,937.70 6.70
409........................................................... 658,680.86 9.18
410........................................................... 1,230,112.99 17.14
411........................................................... 5,625,111.00 78.37
412........................................................... 620,200.00 8.64
413........................................................... 3,879,491.00 54.05
414........................................................... 852,915.67 11.88
415........................................................... 468,524.00 6.53
416........................................................... 338,139.73 4.71
417........................................................... 86,853.84 1.21
418........................................................... 382,210.00 5.32
419...........................................................
420........................................................... 183,173.25 2.55
421........................................................... 655,954.75 9.14
422........................................................... 165,639.00 2.31
423...........................................................
424........................................................... 84,016.00 1.17
425...........................................................
426........................................................... 220,899.00 3.08
427...........................................................
428...........................................................
429........................................................... 38,100.00 0.53
430........................................................... 78,640.00 1.10
431........................................................... 212,985.00 2.97
432........................................................... 79,334.00 1.11
433...........................................................
434........................................................... 22,991.02 0.32
435........................................................... 8,120.00 0.11
436........................................................... 44,988.45 0.63
437........................................................... 81,718.00 1.14
438........................................................... 91,513.00 1.27
439........................................................... 234,239.00 3.26
440........................................................... 509,039.50 7.09
441...........................................................
442........................................................... 28,633.00 0.40

[[Page 17138]]

443...........................................................
444........................................................... 7,497.00 0.10
445........................................................... 69,548.86 0.97
446........................................................... 1,243,936.05 17.33
447........................................................... 111,283.00 1.55
448...........................................................
449........................................................... 435,740.00 6.07
450...........................................................
451........................................................... 1,907,630.00 26.58
452...........................................................
453........................................................... 94,505.19 1.32
454........................................................... 500,187.00 6.97
455........................................................... 189,004.00 2.63
456...........................................................
457........................................................... 5,154.00 0.07
458...........................................................
459...........................................................
460...........................................................
461........................................................... 426.90 0.01
462........................................................... 1,065.00 0.01
463........................................................... 150,058.61 2.09
464........................................................... 282,990.00 3.94
465........................................................... 16,625.00 0.23
466...........................................................
467...........................................................
468........................................................... 139,267.00 1.94
469........................................................... 49,367.91 0.69
470........................................................... 330,964.00 4.61
471........................................................... 6,532.00 0.09
472...........................................................
473...........................................................
474........................................................... 9.00 0.00
475........................................................... 34,000.00 0.47
476........................................................... 15,708.00 0.22
477........................................................... 14,355.00 0.20
478........................................................... 151,323.00 2.11
479........................................................... 6,090.28 0.08
480........................................................... 67,340.20 0.94
481........................................................... 16,356.00 0.23
482........................................................... 37.00 0.00
483........................................................... 94,762.08 1.32
484........................................................... 16,191.00 0.23
485........................................................... 30,000.00 0.42
486........................................................... 17,679.82 0.25
487........................................................... 3,762.52 0.05
488...........................................................
489........................................................... 111,812.00 1.56
490...........................................................
491........................................................... 30,513.00 0.43
492........................................................... 86,676.00 1.21
493...........................................................
494........................................................... 500.00 0.01
495........................................................... 98,319.74 1.37
496........................................................... 36,465.84 0.51
497........................................................... 20,653.01 0.29
498........................................................... 29,603.84 0.41
499...........................................................
500........................................................... 4,165.29 0.06
501........................................................... 7,100.00 0.10
502...........................................................
503...........................................................
504........................................................... 5,582.00 0.08
505...........................................................
506........................................................... 38,770.00 0.54
507........................................................... 18,855.43 0.26
508...........................................................
509........................................................... 9,817.02 0.14
510........................................................... 900.00 0.01

[[Page 17139]]

511........................................................... 4,472.75 0.06
512........................................................... 266.00 0.00
513........................................................... 5,298.16 0.07
514...........................................................
515........................................................... 169.00 0.00
516...........................................................
517........................................................... 4,646.78 0.06
518........................................................... 4,646.78 0.06
519........................................................... 6,417.00 0.09
520........................................................... 257.00 0.00
521........................................................... 13,387.78 0.19
522........................................................... 1,313.00 0.02
523...........................................................
524........................................................... 23,714.00 0.33
525........................................................... 4,488.00 0.06
526........................................................... 2,787.00 0.04
527........................................................... 1,200.00 0.02
528...........................................................
529........................................................... 1,947.72 0.03
530........................................................... 2,360.20 0.03
531........................................................... 200.00 0.00
532........................................................... 15,261.00 0.21
533........................................................... 267.00 0.00
534...........................................................
535........................................................... 2.00 0.00
536...........................................................
537........................................................... 1,895.46 0.03
538........................................................... 1,369.04 0.02
539........................................................... 1,047.00 0.01
540........................................................... 1,507.00 0.02
541...........................................................
542........................................................... 2,183.01 0.03
543........................................................... 973.00 0.01
544...........................................................
545........................................................... 760.01 0.01
546........................................................... 2,774.00 0.04
547........................................................... 45.00 0.00
548........................................................... 747.00 0.01
549...........................................................
550........................................................... 799.00 0.01
551........................................................... 257.00 0.00
552........................................................... 207.00 0.00
553...........................................................
554........................................................... 6.00 0.00
555...........................................................
556........................................................... 402.00 0.01
557...........................................................
558...........................................................
559........................................................... 164.00 0.00
560...........................................................
561...........................................................
562...........................................................
563...........................................................
564...........................................................
565........................................................... 118.00 0.00
566........................................................... 5.00 0.00
567...........................................................
568........................................................... 68.00 0.00
569........................................................... 75.00 0.00
570........................................................... 15.00 0.00
571........................................................... 34.00 0.00
572...........................................................
573........................................................... 9.00 0.00
574...........................................................
575........................................................... 85.00 0.00
576........................................................... 75.00 0.00
577...........................................................
578...........................................................

[[Page 17140]]

579........................................................... 54.00 0.00
580........................................................... 26.00 0.00
581........................................................... 34.00 0.00
582........................................................... 423.55 0.01
583........................................................... 6.00 0.00
584...........................................................
585........................................................... 91.00 0.00
586........................................................... 43.00 0.00
587...........................................................
588........................................................... 25.00 0.00
589...........................................................
590........................................................... 16.00 0.00
591........................................................... 20.00 0.00
592........................................................... 31.00 0.00
593...........................................................
594........................................................... 25.00 0.00
595...........................................................
596........................................................... 29.00 0.00
597........................................................... 22.00 0.00
598...........................................................
599...........................................................
600........................................................... 3.00 0.00
601........................................................... 26.00 0.00
602...........................................................
603...........................................................
604........................................................... 55.02 0.00
605........................................................... 20.00 0.00
606...........................................................
607........................................................... 18.00 0.00
608...........................................................
609...........................................................
610........................................................... 18.00 0.00
611...........................................................
612........................................................... 27.00 0.00
613...........................................................
614...........................................................
615........................................................... 14.00 0.00
616........................................................... 8.00 0.00
617........................................................... 18.00 0.00
618...........................................................
619...........................................................
620...........................................................
621...........................................................
622........................................................... 16.00 0.00
623........................................................... 3.00 0.00
624........................................................... 1.00 0.00
625........................................................... 7.00 0.00
626...........................................................
627........................................................... 6.00 0.00
628...........................................................
629........................................................... 8.00 0.00
630........................................................... 11.00 0.00
631........................................................... 9.00 0.00
632...........................................................
633........................................................... 2.26 0.00
634........................................................... 10.00 0.00
635...........................................................
636........................................................... 8.00 0.00
637........................................................... 2.00 0.00
638...........................................................
639........................................................... 4.00 0.00
640........................................................... 15.00 0.00
641...........................................................
642...........................................................
643........................................................... 6.00 0.00
644........................................................... 1.00 0.00
645...........................................................
646........................................................... 2.00 0.00

[[Page 17141]]

647........................................................... 1.00 0.00
648........................................................... 2.00 0.00
649........................................................... 3.00 0.00
650...........................................................
651...........................................................
652...........................................................
653...........................................................
654...........................................................
655........................................................... 4.00 0.00
656........................................................... 5.00 0.00
657...........................................................
658...........................................................
659........................................................... 1.00 0.00
660...........................................................
661........................................................... 3.00 0.00
662........................................................... 8.00 0.00
663...........................................................
664...........................................................
665...........................................................
666...........................................................
667...........................................................
668...........................................................
669...........................................................
670...........................................................
671...........................................................
672........................................................... 1.00 0.00
673...........................................................
674...........................................................
675...........................................................
676...........................................................
677...........................................................
678...........................................................
679........................................................... 1.00 0.00
680...........................................................
681...........................................................
682...........................................................
683...........................................................
----------------------------------------------------------------------------------------------------------------

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\161\ CAT LLC recognizes that an Industry Member's knowledge of
its own fees in the illustrative example would be helpful in
analyzing the Funding Proposal. Accordingly, if a CAT Executing
Broker is interested in learning which anonymized CAT Executing
Broker in the illustrative example represents its volume and fees,
the CAT Executing Broker may contact the FINRA CAT Helpdesk by email
at [email protected]. Accordingly, subject to verification of the
identity of the requesting party as an authorized representative of
the relevant Industry Member, the Helpdesk will provide the
authorized representative of the CAT Executing Broker with the
number of the applicable anonymized CAT Executing Broker in Exhibit
C. In addition, upon request, the Helpdesk also will provide the CAT
Executing Broker with a breakdown of its executed equivalent share
volume and corresponding fee by (1) Listed Options, NMS Stocks and
OTC Equity Securities, (2) by transactions executed on each exchange
and transactions executed otherwise than on an exchange, and (3) by
buy-side transactions and sell-side transactions. CAT LLC notes that
the calculations provided in the table may reflect minor variations
due to rounding.
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[FR Doc. 2023-05690 Filed 3-20-23; 8:45 am]
BILLING CODE 8011-01-P

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