Justia Agencies And Commissions Securities And Exchange Commission Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Rule Change To Amend the NYSE American Equities Price List and the NYSE American Options Fee Schedule To Establish Fees for Industry Members Related to Certain Historical Costs of the National Market System Plan Governing the Consolidated Audit Trail; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change, 10620-10658 [2024-01183]

Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Rule Change To Amend the NYSE American Equities Price List and the NYSE American Options Fee Schedule To Establish Fees for Industry Members Related to Certain Historical Costs of the National Market System Plan Governing the Consolidated Audit Trail; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change, 10620-10658 [2024-01183]

Download as PDF 10620 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices with Section 6(b)(4), or any other provision of the Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.200 Interested persons are invited to submit written data, views, and arguments regarding whether the proposed rule changes should be approved or disapproved by March 5, 2024. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by March 19, 2024. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– LTSE–2024–02 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–LTSE–2024–02. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, lotter on DSK11XQN23PROD with NOTICES2 200 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposed rule change by an exchange. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–LTSE–2024–02 and should be submitted on or before March 5, 2024. Rebuttal comments should be submitted by March 19, 2024. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,201 that File No. SR–LTSE–2024–02 be, and hereby is, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.202 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–01182 Filed 2–12–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99381; File No. SR– NYSEAMER–2024–02] Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Rule Change To Amend the NYSE American Equities Price List and the NYSE American Options Fee Schedule To Establish Fees for Industry Members Related to Certain Historical Costs of the National Market System Plan Governing the Consolidated Audit Trail; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change January 17, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or the ‘‘Exchange Act’’) 1 and Rule 19b– 4 thereunder,2 notice is hereby given that, on January 3, 2024, NYSE American LLC (‘‘NYSE American’’ or the ‘‘Exchange’’) filed with the 201 15 U.S.C. 78s(b)(3)(C). CFR 200.30–3(a)(12), (57) and (58). 1 15 U.S.C. 78a. 2 17 CFR 240.19b–4. 202 17 PO 00000 Frm 00458 Fmt 4701 Sfmt 4703 Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and is, pursuant to Section 19(b)(3)(C) of the Act, hereby: (i) temporarily suspending the rule change; and (ii) instituting proceedings to determine whether to approve or disapprove the proposed rule change. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the NYSE American Equities Price List (‘‘Equities Price List’’) and the NYSE American Options Fee Schedule (‘‘Options Fee Schedule’’) to establish fees for Industry Members 3 related to certain historical costs of the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’) incurred prior to January 1, 2022. These fees would be payable to Consolidated Audit Trail, LLC (‘‘CAT LLC’’ or ‘‘the Company’’) 4 and referred to as Historical CAT Assessment 1, and would be described in a section of the Equities Price List and the Options Fee Schedule titled ‘‘Consolidated Audit Trail Funding Fees.’’ The fee rate for Historical CAT Assessment 1 will be $0.000015 per executed equivalent share. CAT Executing Brokers will receive their first monthly invoice for Historical CAT Assessment 1 in April 2024 calculated based on their transactions as CAT Executing Brokers for the Buyer (‘‘CEBB’’) and/or CAT Executing Brokers for the Seller (‘‘CEBS’’) in March 2024. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of and basis for the proposed rule change 3 An ‘‘Industry Member’’ is defined as ‘‘a member of a national securities exchange or a member of a national securities association.’’ See NYSE American Rule 6810(u). See also Section 1.1 of the CAT NMS Plan. Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth in the CAT NMS Plan and/or the CAT Compliance Rule. See NYSE American Rule 6810. 4 The term ‘‘CAT LLC’’ may be used to refer to Consolidated Audit Trail, LLC or CAT NMS, LLC, depending on the context. E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item V below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change lotter on DSK11XQN23PROD with NOTICES2 1. Purpose On July 11, 2012, the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) adopted Rule 613 of Regulation NMS, which required the self-regulatory organizations (‘‘SROs’’) to submit a national market system (‘‘NMS’’) plan to create, implement and maintain a consolidated audit trail that would capture customer and order event information for orders in NMS securities across all markets, from the time of order inception through routing, cancellation, modification or execution.5 On November 15, 2016, the Commission approved the CAT NMS Plan.6 Under the CAT NMS Plan, the Operating Committee has the discretion to establish funding for CAT LLC to operate the CAT, including establishing fees for Industry Members to be assessed by CAT LLC that would be implemented on behalf of CAT LLC by the Participants.7 The Operating Committee adopted a revised funding model to fund the CAT (‘‘CAT Funding Model’’). On September 6, 2023, the Commission approved the CAT Funding Model, after concluding that the model was reasonable and that it satisfied the requirements of Section 11A of the Exchange Act and Rule 608 thereunder.8 The CAT Funding Model provides a framework for the recovery of the costs to create, develop and maintain the CAT, including providing a method for allocating costs to fund the CAT among Participants and Industry Members. The CAT Funding Model establishes two categories of fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry Members to recover a portion of historical CAT costs previously paid by the Participants (‘‘Historical CAT Assessment’’ fees); and (2) CAT fees assessed by CAT LLC and payable by Participants and Industry Members to 5 See Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45721 (August 1, 2012). 6 See Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) (‘‘CAT NMS Plan Approval Order’’). 7 Section 11.1(b) of the CAT NMS Plan. 8 See Securities Exchange Act Release No. 98290 (September 6, 2023), 88 FR 62628 (September 12, 2023) (‘‘CAT Funding Model Approval Order’’). VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 fund prospective CAT costs (‘‘Prospective CAT Costs’’ fees).9 Under the CAT Funding Model, ‘‘[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’).’’ 10 In establishing a Historical CAT Assessment, the Operating Committee will determine a ‘‘Historical Recovery Period’’ and calculate a ‘‘Historical Fee Rate’’ for that Historical Recovery Period. Then, for each month in which a Historical CAT Assessment is in effect, each CEBB and CEBS would be required to pay the fee—the Historical CAT Assessment— 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.11 Each Historical CAT Assessment to be paid by CEBBs and CEBSs is designed to contribute toward the recovery of two-thirds of the Historical CAT Costs. Because the Participants previously have paid Past CAT Costs via loans to the Company, the Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants’ onethird share of Historical CAT Costs will be paid by the cancellation of loans made by the Participants to the Company on a pro rata basis based on the outstanding loan amounts due under the loans, instead of through the payment of a CAT fee.12 In addition, Participants also will be 100% responsible for certain Excluded Costs (as discussed below). CAT LLC proposes to charge CEBBs and CEBSs (as described in more detail 9 Under the CAT Funding Model, the Operating Committee may establish one or more Historical CAT Assessments. Section 11.3(b) of the CAT NMS Plan. This filing only establishes Historical CAT Assessment 1 related to certain Historical CAT Costs as described herein; it does not address any other potential Historical CAT Assessment related to other Historical CAT Costs. In addition, under the CAT Funding Model, the Operating Committee also may establish CAT Fees related to CAT costs going forward. Section 11.3(a) of the CAT NMS Plan. This filing does not address any potential CAT Fees related to CAT costs going forward. Any such other fee for any other Historical CAT Assessment or CAT Fee for Prospective CAT Costs will be subject to a separate fee filing. 10 Section 11.3(b) of the CAT NMS Plan. 11 In approving the CAT Funding Model, the Commission stated that, ‘‘[i]n the Commission’s view, the proposed recovery of the Past CAT Costs via the Historical CAT Assessment is reasonable.’’ See CAT Funding Model Approval Order at 62662. 12 Section 11.3(b)(ii) of the CAT NMS Plan. PO 00000 Frm 00459 Fmt 4701 Sfmt 4703 10621 below) Historical CAT Assessment 1 to recover certain historical CAT costs incurred prior to January 1, 2022, in accordance with the CAT Funding Model. To implement this fee on behalf of CAT LLC, the CAT NMS Plan requires the Participants to ‘‘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.’ ’’ 13 The Plan further states 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.’’ 14 Accordingly, the purpose of this filing is to implement a Historical CAT Assessment on behalf of CAT LLC for Industry Members, referred to as Historical CAT Assessment 1, in accordance with the CAT NMS Plan.15 (1) CAT Executing Brokers Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.16 The CAT NMS Plan defines a ‘‘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 13 Section 11.1(b) of the CAT NMS Plan. 11.3(b)(iii)(B)(I) of the CAT NMS Plan. 15 Note that there may be one or more Historical CAT Assessments depending on the timing of the completion of the Financial Accountability Milestones, among other things. Section 11.3(b) of the CAT NMS Plan. 16 In its approval of the CAT Funding Model, the Commission determined that charging CAT fees to CAT Executing Brokers was reasonable. In reaching this conclusion the Commission noted that the use of CAT Executing Brokers is appropriate because the CAT Funding Model is based upon the calculation of executed equivalent shares, and, therefore, charging CAT Executing Brokers would reflect their executing role in each transaction. Furthermore, the Commission noted that, because CAT Executing Brokers are already identified in transaction reports from the exchanges and FINRA’s equity trade reporting facilities recorded in CAT Data, charging CAT Executing Brokers could streamline the billing process. See CAT Funding Model Approval Order at 62629. 14 Section E:\FR\FM\13FEN2.SGM 13FEN2 10622 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices 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.17 Equity Order Trade (EOT)* # Field Data Type Name 12.n.8/ member Member 13.n. 8 Alias The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange. Description The identifier for the member firm that is responsible for the order on this side of the trade. Include Kev C 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. * See footnote 18. 18 Option Trade (OT)* # Field Name member 16.n.13 I 17.n.13 * See footnote 19 .19 In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Data Type Description Include Kev Member Alias The identifier for the member firm that is responsible for the order R Brokers for the transactions executed otherwise than on an exchange. TRF/ORF/ADF Transaction Data Event (TRF)* # Field Name Data Type 26 reportingExecutingMpid 28 contraExecutingMpid Member Alias Member Alias Description Include Key MPID of the executing party R MPID of the contra-side executing party. C lotter on DSK11XQN23PROD with NOTICES2 The Operating Committee determined the Historical Fee Rate to be used in calculating Historical CAT Assessment 1 (‘‘Historical Fee Rate 1’’) by dividing 17 Section 1.1 of the CAT NMS Plan. Note that CEBBs and CEBSs may, but are not required to, pass-through their CAT fees to their clients, who may, in turn, pass their fees to their clients until they are imposed ultimately on the account that executed the transaction. See CAT Funding Model Approval Order at 62649. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 the Historical CAT Costs for Historical CAT Assessment 1 (‘‘Historical CAT Costs 1’’) by the projected total executed share volume of all transactions in Eligible Securities for the Historical Recovery Period for Historical CAT Assessment 1 (‘‘Historical Recovery Period 1’’), as discussed in detail below. Based on this calculation, the Operating Committee has determined that 18 See Table 23, Section 4.7 (Order Trade Event) of the CAT Reporting Technical Specifications for Plan Participants, Version 4.1.0–r20 (Sept. 25, 2023), https://www.catnmsplan.com/sites/default/ files/2023-09/9.25.2023-CAT_Reporting_Technical_ Specifications_for_Participants_4.1.0-r20.pdf (‘‘CAT Reporting Technical Specifications for Plan Participants’’). 19 See Table 51, Section 5.2.5.1 (Simple Option Trade Event) of the CAT Reporting Technical Specifications for Plan Participants. 20 See Table 61, Section 6.1 (TRF/ORF/ADF Transaction Data Event) of the CAT Reporting Technical Specifications for Plan Participants. PO 00000 Frm 00460 Fmt 4701 Sfmt 4703 E:\FR\FM\13FEN2.SGM 13FEN2 EN13FE24.264</GPH> EN13FE24.265</GPH> (2) Calculation of Historical Fee Rate 1 EN13FE24.266</GPH> * See footnote 20. 20 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices Historical Fee Rate 1 would be $0.0000439371316687066 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000015 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below. (A) Executed Equivalent Shares for Transactions in Eligible Securities Under the CAT NMS Plan, for purposes of calculating each Historical CAT Assessment, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows: (1) each executed share for a transaction in NMS Stocks will be counted as one executed equivalent share; (2) each executed contract for a transaction in Listed Options will be counted based on the multiplier applicable to the specific Listed Options (i.e., 100 executed equivalent shares or such other applicable multiplier); and (3) each executed share for a transaction in OTC Equity Securities shall be counted as 0.01 executed equivalent share.21 (B) Historical CAT Costs 1 The CAT NMS Plan states that ‘‘[t]he Operating Committee will reasonably lotter on DSK11XQN23PROD with NOTICES2 21 Section 11.3(a)(i)(B) and 11.3(b)(i)(B) of the CAT NMS Plan. In approving the CAT Funding Model, the Commission concluded that ‘‘the use of executed equivalent share volume as the basis of the proposed cost allocation methodology is reasonable and consistent with the approach taken by the funding principles of the CAT NMS Plan.’’ See CAT Funding Model Approval Order at 62640. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 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.’’ 22 As described in detail below, Historical CAT Costs 1 would be $337,688,610. This figure includes Past CAT Costs of $401,312,909 minus certain Excluded Costs of $63,624,299. Participants collectively will remain responsible for one-third of Historical CAT Costs 1 (which is $112,562,870), plus the Excluded Costs of $63,624,299. CEBBs collectively will be responsible for onethird of Historical CAT Costs 1 (which is $112,562,870), and CEBSs collectively will be responsible for one-third of Historical CAT Costs 1 (which is $112,562,870). The following describes in detail Historical CAT Costs 1 with regard to four separate historical time periods as well as Past CAT Costs excluded from Historical CAT Costs 1 (‘‘Excluded Costs’’). The following cost details are provided in accordance with the requirement in the CAT NMS Plan to provide in the fee filing ‘‘a brief description of the amount and type of Historical CAT Costs, including (1) the 22 See PO 00000 Section 11.3(b)(i)(C) of the CAT NMS Plan. Frm 00461 Fmt 4701 Sfmt 4703 10623 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.’’ 23 Each of the costs described below are reasonable, appropriate and necessary for the creation, implementation and maintenance of CAT. (i) Historical CAT Costs Incurred Prior to June 22, 2020 (Pre-FAM Costs) Historical CAT Costs 1 would include costs incurred by CAT prior to June 22, 2020 (‘‘Pre-FAM Period’’) and already funded by the Participants, excluding Excluded Costs (described further below). Historical CAT Costs 1 would include costs for the Pre-FAM Period of $143,919,521. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($47,973,174), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying onethird ($47,973,174) and CEBSs paying one-third ($47,973,174). These costs do not include Excluded Costs, as discussed further below. The following table breaks down Historical CAT Costs 1 for the Pre-FAM Period into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan. 23 Section 11.3(b)(iii)(B)(II)(B) of the CAT NMS Plan. E:\FR\FM\13FEN2.SGM 13FEN2 10624 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices Operating Expense Capitalized Developed Technology Costs and Transition Fee* Historical CAT Costs 1 for Pre-FAM Period (Prior to June 22, 2020)** $71,475,941 $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 $143,919,521 Total Operating Expenses * 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. 24 ** See footnote 25. 25 TechnoloJ!V Costs: 24 With respect to certain costs that were ‘‘appropriately excluded,’’ such excluded costs relate to the amortization of capitalized technology costs, which are amortized over the life of the Plan Processor Agreement. As such costs have already been otherwise reflected in the filing, their inclusion would double count the capitalized technology costs. In addition, amortization is a noncash expense. 25 The costs described in this table of costs for the Pre-FAM Period were calculated based upon CAT LLC’s review of applicable bills and invoices and related financial statements. CAT LLC financial statements are available on the CAT website. In addition, in accordance with Section 6.6(a)(i) of the CAT NMS Plan, in 2018 CAT LLC provided the SEC with ‘‘an independent audit of fees, costs, and expenses incurred by the Participants on behalf of the Company prior to the Effective Date of the Plan that will be publicly available.’’ The audit is available on the CAT website. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 (a) Technology Costs—Cloud Hosting Services The $10,268,840 in technology costs for cloud hosting services represent costs incurred for services provided by the cloud services provider for the CAT, Amazon Web Services, Inc. (‘‘AWS’’), during the Pre-FAM Period. As part of its proposal for acting as the successor Plan Processor for the CAT, FCAT selected AWS as a subcontractor to provide cloud hosting services. In 2019, after reviewing the capabilities of other cloud services providers, FCAT determined that AWS was the only cloud services provider at that time sufficiently mature and capable of providing the full suite of necessary cloud services for the CAT, including, for example, the security, resiliency and complexity necessary for the CAT computing requirements. The use of cloud hosting services is standard for this type of high-volume data activity and reasonable and necessary for implementation of the CAT, particularly given the substantial data volumes associated with the CAT. Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay FCAT the fees incurred by the Plan Processor for cloud hosting services provided by AWS as FCAT’s subcontrator on a monthly basis for the cloud hosting services, and FCAT, in turn, pays such fees to AWS. The fees PO 00000 Frm 00462 Fmt 4701 Sfmt 4703 for cloud hosting services were negotiated by FCAT on an arm’s length basis with the goals of managing cost and receiving services required to comply with the CAT NMS Plan and Rule 613, taking into consideration a variety of factors, including the expected volume of data, the breadth of services provided and market rates for similar services. The fees for cloud hosting services during the Pre-FAM Period were paid to FCAT by CAT NMS LLC 26 and subsequently Consolidated Audit Trail, LLC (as previously noted, both entities are referred to generally as ‘‘CAT LLC’’),27 and FCAT, in turn, paid AWS. CAT LLC was funded via loan contributions by the Participants.28 26 CAT NMS, LLC was formed by FINRA and the U.S. national securities exchanges to implement the requirements of SEC Rule 613 under the Exchange Act. SEC Rule 613 required the SROs to jointly submit to the SEC the CAT NMS Plan to create, implement and maintain the CAT. The SEC approved the CAT NMS Plan on November 15, 2016. See CAT NMS Plan Approval Order. 27 On August 29, 2019, the Participants formed a new Delaware limited liability company named Consolidated Audit Trail, LLC for the purpose of conducting activities related to the CAT from and after the effectiveness of the proposed amendment of the CAT NMS Plan to replace CAT NMS, LLC. See Securities Exchange Act Release No. 87149 (September 27, 2019), 84 FR 52905 (October 3, 2019). 28 For each of the costs paid by CAT NMS, LLC and Consolidated Audit Trail, LLC as discussed throughout this filing, CAT NMS, LLC and Consolidated Audit Trail, LLC paid these costs via loan contributions by the Participants to CAT NMS, E:\FR\FM\13FEN2.SGM 13FEN2 EN13FE24.267</GPH> lotter on DSK11XQN23PROD with NOTICES2 The Pre-FAM Period includes a broad range of CAT-related activity from 2012 through June 22, 2020, including the evaluation of the requirements of SEC Rule 613, the development of the CAT NMS Plan, the evaluation and selection of the initial and successor Plan Processors, the commencement of the creation and implementation of the CAT to comply with Rule 613 and the CAT NMS Plan, including technical specifications for transaction reporting and regulatory access, and related technology and the commencement of reporting to the CAT. The following describes the costs for each of the categories for the Pre-FAM Period. Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices AWS was engaged by FCAT to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. Services provided by AWS include storage services, databases, compute services and other services (such as networking, management tools and DevOps tools). AWS also was engaged to provide various environments for CAT, such as development, performance testing, test and production environments. The cost for AWS services for the CAT is a function of the volume of CAT Data. The greater the amount of CAT Data, the greater the cost of AWS services to the CAT. During the PreFAM Period from the engagement of AWS in February 2019 through June 2020, AWS provided cloud hosting services for volumes of CAT Data far in excess of the volume predictions set forth in the CAT NMS Plan. The CAT NMS Plan states, when all CAT Reporters are submitting their data to the CAT, it ‘‘must be sized to receive[,] process and load more than 58 billion records per day,’’ 29 and that ‘‘[i]t is expected that the Central Repository will grow to more than 29 petabytes of Date Range: 3/29/19 to 4/12/20* 10625 raw, uncompressed data.’’ 30 However, the volume of CAT Data for the PreFAM Period was far in excess of these predicted levels. By the end of this period, data submitted to the CAT included options and equities Participant Data,31 Phase 2a and Phase 2b Industry Member Data 32 (including certain linkages), as well as SIP Data,33 reference data and other types of Other Data.34 The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during the Pre-FAM Period.35 Date Range: 4/13/20 to 6/21/20** Industry Member E uities Industry Member 0 tions 3 0.04 uities Average Total Daily Volume 64 149 70 166 * The Participant Equities in RSA format. ** Start of Industry Member reporting on 4/13/2020. *** See footnote 36. 36 The $21,085,485 in technology costs related to operating fees represent costs incurred with regard to activities of FCAT as the Plan Processor. Operating fees are those fees paid by CAT LLC to FCAT as the Plan Processor to operate LLC and Consolidated Audit Trail, LLC, respectively. 29 Appendix D–4 of the CAT NMS Plan at n.262. 30 Appendix D–5 of the CAT NMS Plan. 31 See Section 6.3(d) of the CAT NMS Plan. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 and maintain the CAT and to perform business operations related to the system, including compliance, security, testing, training, communications with the industry (e.g., management of the FINRA CAT Helpdesk, FAQs, website and webinars) and program 32 See Securities Exchange Release No. 88702 (April 20, 2020), 85 FR 23075 (April 24, 2020) (‘‘Phased Reporting Exemptive Relief Order’’) for a description of Phase 2a and Phase 2b Industry Member Data. 33 See Section 6.5(a)(ii) of the CAT NMS Plan. PO 00000 Frm 00463 Fmt 4701 Sfmt 4703 management as required by the CAT NMS Plan. FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged 34 See Appendix C–108 of the CAT NMS Plan. that the volume data described in this table does not include CAIS data. 36 Note that, although there were compute hours during this period, data related to such compute hours are no longer available in current data. 35 Note E:\FR\FM\13FEN2.SGM 13FEN2 EN13FE24.268</GPH> lotter on DSK11XQN23PROD with NOTICES2 (b) Technology Costs—Operating Fees 10626 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices in discussions with two prior Bidders 37 for the successor Plan Processor role. The Operating Committee formed a Selection Subcommittee in accordance with Section 4.12 of the CAT NMS Plan to evaluate and review Bids and to make a recommendation to the Operating Committee with respect to the selection of the successor Plan Processor. In an April 9, 2019 letter to the Commission, the Participants described the reasons for its selection of the successor Plan Processor: The Selection Subcommittee considered factors including, but not limited to, the following, in recommending FINRA to the Operating Committee as the successor Plan Processor: a. FINRA’s specialized technical expertise and capabilities in the area of broker-dealer technology; b. The need to appoint a successor Plan Processor with specialized expertise to develop, implement, and maintain the CAT System in accordance with the CAT NMS Plan and SEC Rule 613; c. FINRA’s detailed proposal in response to CATLLC’s recent inquiries; and d. FINRA’s data query and analytics systems demonstration to the Participants. Based on these and other factors, the Selection Subcommittee determined that FINRA was the most appropriate Bidder to become the successor Plan Processor.38 lotter on DSK11XQN23PROD with NOTICES2 On February 26, 2019, the Operating Committee (with FINRA recusing itself) voted to select FINRA as the successor Plan Processor pursuant to Section 6.1(t) of the CAT NMS Plan.39 On March 29, 2019, CAT LLC and FCAT (a wholly owned subsidiary of FINRA) entered into a Plan Processor Agreement pursuant to which FCAT would perform the functions and duties of the Plan Processor contemplated by the CAT NMS Plan, including the management and operation of the CAT. Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay FCAT a negotiated monthly fixed price for the operation of the CAT. This fixed price contract was negotiated on an arm’s length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan and Rule 613, taking into consideration a variety of factors, including the breadth of services provided and market rates for similar types of activity. The operating fees 37 The term ‘‘Bidder’’ is defined in Section 1.1 of the CAT NMS Plan. 38 Letter from Michael J. Simon, Chair, CAT NMS, LLC Operating Committee, to Brent J. Fields, Secretary, SEC (Apr. 9, 2019), available at https:// www.sec.gov/divisions/marketreg/rule613-infonotice-of-plan-processor-selection-040919.pdf. 39 Id. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 during the Pre-FAM Period were paid to FCAT by CAT LLC. From March 29, 2019 (the commencement of the Plan Processor Agreement with FCAT) through June 22, 2020 (the end of the Pre-FAM Period), the Plan Processor’s activities with respect to the CAT included the following: • Commenced user acceptance testing with market data provided by Exegy Incorporated (‘‘Exegy’’), a market data provider; 40 • Published Technical Specifications and related reporting scenarios documents for Phase 2a, 2b and 2c reporting for Industry Members, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications; • Facilitated testing for Phase 2a and 2b reporting for Industry Members; • Began developing Technical Specifications and related reporting scenarios documents for Phase 2d reporting for Industry Members, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications; • Published Central Repository Access Technical Specifications, and provided regulator access to test data from Industry Members; • Facilitated Participant exchanges that support options market makers sending Quote Sent Time to the CAT; • Facilitated the introduction of OPRA and Options NBBO Other Data to CAT; • Addressed compliance items, including drafting CAT policies and procedures, and addressing requirements under Regulation SCI; • Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups; • Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan; • Oversaw the security of the CAT; • Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting; • Provided support to subcontractors under the Plan Processor Agreement; • Provided support in discussions with Participants, SEC and its staff; • Operated the FINRA CAT Helpdesk, which is the primary source for answers to questions about CAT, including questions regarding: clock synchronization, firm reporting responsibilities, interpretive questions, 40 The use of Exegy to provide market data, including the costs and market data provided, is discussed below in Section 3(a)(2)(B)(i)(i). PO 00000 Frm 00464 Fmt 4701 Sfmt 4703 technical specifications for reporting to CAT and more; • Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars; • Administered the CAT website and all of its content; 41 and • Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff. (c) Technology Costs—CAIS Operating Fees The $2,072,908 in technology costs related to CAIS operating fees represent the fees paid for FCAT’s subcontractor charged with the development and operation of CAT’s Customer and Account Information System (‘‘CAIS’’). The CAT is required under the CAT NMS Plan to capture and store Customer Identifying Information and Customer Account Information in a database separate from the transactional database and to create a CAT-CustomerID for each Customer. During the Pre-FAM Period, the CAISrelated services were provided by the Plan Processor through the Plan Processor’s subcontractor, Kingland Systems Incorporation (‘‘Kingland’’). Kingland had experience operating in the securities regulatory technology space, and as a part of its proposal for acting as the Plan Processor for the CAT, FCAT selected Kingland as a subcontractor to provide certain CAISrelated services. Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay to the Plan Processor the fees incurred by the FCAT for CAIS-related services provided by FCAT through Kingland on a monthly basis. FCAT negotiated the fees for Kingland’s CAIS-related services on an arm’s length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan, taking into consideration a variety of factors, including the services to be provided and market rates for similar types of activity. The fees for CAISrelated services during the Pre-FAM Period were paid by CAT LLC to FCAT. FCAT, in turn, paid Kingland. During the Pre-FAM Period, Kingland began development of the CAIS Technical Specifications and the building of CAIS. In addition, Kingland also worked on the build related to the CCID Alternative, an alternative approach to customer information that was not included in the CAT NMS Plan as 41 The CAT website is https:// www.catnmsplan.com. E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices originally adopted.42 Furthermore, Kingland also worked on the acceleration of the reporting of large trader identifiers (‘‘LTID’’) earlier than originally contemplated during this period, in accordance with exemptive relief granted by the SEC.43 (d) Technology Costs—Change Request Fees The technology costs related to change request fees include costs related to certain modifications, upgrades or other changes to the CAT. Change requests are standard practice and necessary to reflect operational changes, including changes related to new market developments, such as new market participants. In general, if CAT LLC determines that a modification, upgrade or other changes to the functionality or service is necessary and appropriate, CAT LLC will submit a request for such a change to the Plan Processor. The Plan Processor will then respond to the request with a proposal for implementing the change, including the cost (if any) of such a change. CAT LLC then determines whether to approve the proposed change. The change request costs were paid by CAT LLC to FCAT. During the Pre-FAM Period, CAT LLC incurred costs of $141,346 related to change requests implemented by FCAT. Such change requests related to a development fee regarding the OPRA and SIP data feeds, and the reprocessing of certain exchange data.44 (e) Technology Costs—Capitalized Developed Technology Costs lotter on DSK11XQN23PROD with NOTICES2 This category of costs includes capitalizable application development costs incurred in the development of the CAT. The capitalized developed technology costs for the Pre-FAM Period of $71,475,941 relate to technology provided by the Initial Plan Processor and the successor Plan Processor. Initial Plan Processor: Thesys CAT, LLC. The capitalized developed technology costs related to the Initial Plan Processor include costs incurred with regard to testing for Participant reporting, Participant reporting to the CAT, a security assessment of the CAT, the development of the billing function for the CAT, and a Plan Processor transition fee. 42 For a discussion of the CCID Alternative, see Securities Exchange Act Release No. 88393 (March 17, 2020), 85 FR 16152 (March 20, 2020). 43 See Phased Reporting Exemptive Relief Order at 23079–80. 44 Note that CAT LLC also has incurred costs related to specific Industry Members (e.g., reprocessing costs related to Industry Member reporting errors). VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 On January 17, 2017, the Selection Committee of the CAT NMS Plan selected the Initial Plan Processor, Thesys Technologies, LLC, for the CAT NMS Plan pursuant to Article V of the CAT NMS Plan.45 The Participants utilized a request for proposal (‘‘RFP’’) to seek proposals to build and operate the CAT, receiving a number of proposals in response to the RFP. The Participants carefully reviewed and considered each of the proposals, including holding in-person meetings with each of the Bidders. After several rounds of review, the Participants selected the Initial Plan Processor in accordance with the CAT NMS Plan, taking into consideration that the Initial Plan Processor had experience operating in the securities regulatory technology space, among other considerations. On April 6, 2017, CAT LLC entered into an agreement with Thesys CAT LLC (‘‘Thesys CAT’’), a Thesys affiliate, to perform the functions and duties of the Plan Processor contemplated by the CAT NMS Plan, including the management and operation of the CAT. Under the agreement, CAT LLC would pay Thesys CAT a negotiated, fixed price fee for its role as the Initial Plan Processor. Effective January 30, 2019, the Plan Processor Agreement with Thesys CAT was terminated, and FCAT was subsequently selected as the successor Plan Processor. From January 17, 2017 through January 30, 2019, the time in which the Thesys CAT was engaged for the CAT, but excluding the period from November 15, 2017 through November 15, 2018, the Initial Plan Processor engaged in various activities with respect to the CAT, including preparing iterative drafts of Participant Technical Specifications, Industry Member Technical Specifications and the Central Repository Access Technical Specifications. Thesys CAT initiated and maintained the Participant reporting per the Participant Technical Specifications. In addition, Thesys CAT also developed CAT technology, addressed compliance items, including drafting CAT policies and procedures, addressing Regulation SCI requirements, establishing a CAT Compliance Officer and a Chief Information Security Officer, and addressed security-related matters for the CAT. Furthermore, Thesys CAT performed transition services related to the transition from Thesys CAT to FCAT as the successor 45 Letter from the Participants to Brent J. Fields, Secretary, SEC (January 18, 2017), available at https://www.sec.gov/divisions/marketreg/rule613info-notice-of-plan-processor-selection.pdf. PO 00000 Frm 00465 Fmt 4701 Sfmt 4703 10627 Plan Processor from January 30, 2019 through April 15, 2019. Successor Plan Processor: FCAT. The capitalized developed technology costs related to FCAT include: (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, including the completion of go-live functionality related to options ingestion and validation, equities regulatory services agreement query tool updates and unlinked options data query, options linkages release, Industry Member Phase 2a file submission and data integrity (including error corrections), and Industry Member testing, including reporting relationships, ATS order type management, basic reporting statistics, SFTP data integrity feedback and error correction; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including a one-time development fee for a secure analytics workspace, a onetime development fee of an Industry Member connectivity solution, and a one-time development fee for the acceleration of multi-factor authentication; (3) CAIS implementation fees; and (4) license fees. (f) Legal Costs The legal costs of $19,674,463 represent the fees paid for legal services provided by two law firms, Wilmer Cutler Pickering Hale and Dorr LLP (‘‘WilmerHale’’) and Pillsbury Winthrop Shaw Pittman LLP (‘‘Pillsbury’’), during the Pre-FAM Period. The legal costs exclude those costs incurred from November 15, 2017 through November 15, 2018. Law Firm: WilmerHale. Following the adoption of Rule 613, the Participants determined it was necessary to engage external legal counsel to advise the Participants with respect to corporate and regulatory legal matters related to the CAT, including drafting and developing the CAT NMS Plan. The Participants considered a variety of factors in their analysis of prospective law firms, including (1) the firm’s qualifications, resources and expertise, (2) the firm’s relevant experience and understanding of the regulatory matters raised by the CAT and in advising on matters of similar scope, (3) the composition of the legal team, and (4) professional fees. Following a series of interviews, the Participants acting as a consortium determined that WilmerHale was well qualified given the balance of E:\FR\FM\13FEN2.SGM 13FEN2 lotter on DSK11XQN23PROD with NOTICES2 10628 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices these considerations and engaged WilmerHale in February 2013. WilmerHale’s billing rates are negotiated on an annual basis and are determined with reference to the rates charged by other leading law firms for similar work. The Participants assess WilmerHale’s performance and review prospective budgets and staffing plans submitted by WilmerHale on an annual basis. WilmerHale’s compensation arrangements are reasonable and appropriate, and in line with the rates charged by other leading law firms for similar work. The legal costs for WilmerHale during the Pre-FAM Period included costs incurred from 2013 until June 22, 2020 to address corporate and regulatory legal matters related to the CAT. The legal fees for this law firm during the period from February 2013 until the formation of the CAT NMS, LLC on November 15, 2016 were paid directly by the exchanges and FINRA to WilmerHale. After the formation of CAT NMS LLC, the legal fees were paid by CAT LLC to WilmerHale. After WilmerHale was engaged in 2013 through the end of the Pre-FAM Period on June 22, 2020 (excluding the legal costs from November 15, 2017 through November 15, 2018), WilmerHale provided legal assistance to the CAT on a variety of matters, including with regard to the following: • Analyzed various legal matters associated with the Selection Plan, and drafted an amendment to Selection Plan; • Assisted with the RFP and bidding process for the CAT Plan Processor; • Analyzed legal matters related to the Development Advisory Group (‘‘DAG’’); • Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on CAT NMS Plan; • Provided legal support for the formation of the legal entity, the governance of the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (e.g., Joint Subcommittee Group, Technical, Industry Outreach, Cost and Funding and Other Products) and the DAG, governance support during the transition to the new governance structure under the CAT NMS Plan; and governance support after the adoption of the CAT NMS Plan, which involved support for the Operating Committee, Advisory Committee, Compliance Subcommittee and CAT working groups; VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 • Assisted with the development of the CAT funding model and drafted related amendments of the CAT NMS Plan and related filings; • Negotiated and drafted the plan processor agreements with the Initial Plan Processor and the successor Plan Processor; • Provided assistance with compliance with Regulation SCI; • Assisted with clock synchronization study; • Provided assistance with respect to the establishment of CAT security; • Drafted exemptive requests from CAT NMS Plan requirements, including with regard to options market maker quotes, Customer IDs, CAT Reporter IDs, linking allocations to executions, CAT reporting timeline, FDIDs, customer and account information, timestamp granularity, small industry members, data facility reporting and linkage, allocation reports, SRO-assigned market participant identifiers and cancelled trade indicators, thereby seeking to implement changes that would be cost effective and benefit Industry Members and Participants; • Assisted with the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan; • Provided advice regarding CAT policies and procedures; • Analyzed the SEC’s amendment of the CAT NMS Plan regarding financial accountability; • Provided interpretations of and related to the CAT NMS Plan; • Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues; and • Assisted with third party vendor agreements. Law Firm: Pillsbury. The legal costs for CAT during the Pre-FAM Period include costs related to the legal services performed by Pillsbury. The Participants interviewed this law firm as well as other potential law firms to provide legal assistance regarding certain liability matters. After considering a variety of factors in its analysis, including the relevant expertise and fees of the firm, CAT LLC determined to hire Pillsbury in April 2019. The hourly fee rates for this law firm were in line with market rates for specialized legal expertise. The legal fees were paid by CAT LLC to Pillsbury. The legal costs for Pillsbury during the Pre-FAM Period included costs incurred from April 2019 until June 22, 2020 to address legal matters regarding the agreements between CAT Reporters and CAT LLC concerning certain terms associated with CAT Reporting (the PO 00000 Frm 00466 Fmt 4701 Sfmt 4703 ‘‘Reporter Agreement’’). During that period, Pillsbury advised CAT LLC regarding applicable legal matters, participated in negotiations between the Participants and Industry Members, participated in meetings with senior SEC staff, the Chairman, and Commissioners, represented CAT LLC and the Participants in an SEC administrative proceeding, and drafted a proposed amendment to the CAT NMS Plan regarding liability matters. Liability issues related to the CAT are important matters that needed to be resolved and clarified. CAT LLC’s efforts to seek such resolution and clarity work to the benefit of Participants, Industry Members and other market participants. Moreover, litigation involving CAT LLC is an expense of operating the CAT, and, therefore, is appropriately an obligation of both Participants and Industry Members under the CAT Funding Model. (g) Consulting Costs The consulting costs of $17,013,414 represent the fees paid to the consulting firm Deloitte & Touche LLP (‘‘Deloitte’’) as project manager during the Pre-FAM Period, from October 2012 until June 22, 2020. These consulting costs include costs for advisory services related to the operation of the CAT, and meeting facilitation and communications coordination, vendor support and financial analyses. To help facilitate project management given the unprecedented complexity and scope of the CAT project, the Participants determined it was necessary to engage a consulting firm to assist with the CAT project in 2012, following the adoption of Rule 613. A variety of factors were considered in the analysis of prospective consulting firms, including (1) the firm’s qualifications, resources, and expertise, (2) the firm’s relevant experience and understanding of the regulatory issues raised by the CAT and in coordinating matters of similar scope, (3) the composition of the consulting team, and (4) professional fees. Following a series of interviews, the exchanges and FINRA as a consortium determined that Deloitte was well qualified given the balance of these considerations and engaged Deloitte on October 1, 2012. Deloitte’s fee rates are negotiated on an annual basis and are in line with market rates for this type of specialized consulting work. CAT LLC assesses Deloitte’s performance and reviews prospective budgets and staffing plans submitted by Deloitte on an annual basis. Deloitte’s compensation arrangements are reasonable and appropriate, and in line with the rates E:\FR\FM\13FEN2.SGM 13FEN2 lotter on DSK11XQN23PROD with NOTICES2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices charged by other leading consulting firms for similar work. The consulting costs for CAT during the period from 2012 until the formation of the CAT NMS, LLC were paid directly by the Participants to Deloitte. After the formation of CAT NMS, LLC, the consulting fees were paid by CAT LLC to Deloitte. CAT LLC reviewed the consulting fees each month and approved the invoices. After Deloitte was hired in 2012 through the end of the Pre-FAM Period on June 22, 2020 (excluding the consulting costs from November 15, 2017 through November 15, 2018), Deloitte provided a variety of consulting services, including the following: • Established and implemented program operations for the CAT project, including the program managment [sic] office and workstream design; • Assisted with the Plan Processor selection process, including but not limited to, the development of the RFP and the bidder evaluation process, and facilitation and consolidation of the Participant’s independent reviews; • Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, analyzing OATS and CAT requirements, and drafting appendices to the Plan; • Assisted with cost and fundingrelated activities for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding; • Provided governance support to the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (e.g., Joint Subcommittee Group, Technical, Industry Outreach, Cost and Funding and Other Products) and the DAG, governance support during the transition to the new governance structure under the CAT NMS Plan and governance support after the adoption of the CAT NMS Plan, which involved support for the Operating Committee, Advisory Committee, Compliance Subcommittee and CAT working groups; • Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC; • Assisted with industry outreach and communications regarding the CAT, including assistance with industry outreach events, the development of the CAT website, frequently asked VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 questions, and coordinating with the CAT LLC’s public relations firm; • Provided support for updating the SEC on the progress of the development of the CAT; • Provided active planning and coordination with and support for the Initial Plan Processor with regard to the development of the CAT, and reported to the Participants on the progress; • Coordinated efforts regarding the selection of the successor Plan Processor; • Assisted with the transition from the Initial Plan Processor to the successor Plan Processor, including support for the Operating Committee and successor Plan Processor for the new role; and • Provided support for third party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC. (h) Insurance The insurance costs of $880,419 represent the cost incurred for insurance for CAT during the Pre-FAM Period. Commencing in 2020, CAT LLC performed an evaluation of various potential alternatives for CAT insurance policies, which included engaging in discussions with different insurance companies and conducting cost comparisons of various alternative approaches to insurance. Based on an analysis of a variety of factors, including coverage and premiums, CAT LLC determined to purchase cyber security liability insurance, directors’ and officers’ liability insurance, and errors and omissions liability insurance from USI Insurance Services LLC (‘‘USI’’). Such policies are standard for corporate entities, and cyber security liability insurance is important for the CAT System. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI. (i) Professional and Administration Costs In adopting the CAT NMS Plan, the Commission amended the Plan to add a requirement that CAT LLC’s financial statements be prepared in compliance with GAAP, audited by an independent public accounting firm, and made publicly available.46 The professional and administration costs include costs related to accounting and accounting advisory services to support the operating and financial functions of CAT, financial statement audit services by an independent accounting firm, 46 Section PO 00000 9.2 of the CAT NMS Plan. Frm 00467 Fmt 4701 Sfmt 4703 10629 preparation of tax returns, and various cash management and treasury functions. In addition, professional and administration costs for the Pre-FAM Period include costs related to the receipt of market data and a security assessment. The costs for these professional and administration services were $1,082,036 for the Pre-FAM Period. Financial Advisory Firm: Anchin Accountants & Advisors (‘‘Anchin’’). CAT LLC determined to hire a financial advisory firm, Anchin, to assist with financial matters for the CAT in April 2018. CAT LLC interviewed Anchin as well as other potential financial advisory firms to assist with the CAT project, considering a variety of factors in its analysis, including the firm’s relevant expertise and fees. The hourly fee rates for this firm were in line with market rates for these financial advisory services. The fees for these services were paid by CAT LLC to Anchin. After Anchin was hired in April 2018 through the end of the Pre-FAM Period on June 22, 2020 (excluding the period from April 2018 through November 15, 2018), Anchin provided a variety of services, including the following: • Developed, updated and maintained internal controls; • Provided cash management and treasury functions; • Facilitated bill payments; • Provided monthly bookkeeping; • Reviewed vendor invoices and documentation in support of cash disbursements; • Provided accounting research and consultations on various accounting, financial reporting and tax matters; • Addressed not-for-profit tax and accounting considerations; • Prepared tax returns; • Addressed various accounting, financial and operating inquiries from Participants; • Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses; • Addressed accounting and financial reporting matters relating to the transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, including supporting the dissolution of CAT NMS, LLC; • Supported compliance with the CAT NMS Plan; • Worked with and provided support to the Operating Committee and various CAT working groups; • Prepared monthly, quarterly and annual financial statements; • Supported the annual financial statement audits by an independent auditor; E:\FR\FM\13FEN2.SGM 13FEN2 lotter on DSK11XQN23PROD with NOTICES2 10630 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices • Reviewed historical costs from inception; and • Provided accounting and financial information in support of SEC filings. Accounting Firm: Grant Thornton LLP (‘‘Grant Thornton’’). In February 2020, CAT LLC determined to engage an independent accounting firm, Grant Thornton, to complete the audit of CAT LLC’s financial statements, in accordance with the requirements of the CAT NMS Plan. CAT LLC interviewed this firm as well as another potential accounting firm to audit CAT LLC’s financial statements, considering a variety of factors in its analysis, including the relevant expertise and fees of each of the firms. CAT LLC determined that Grant Thornton was well-qualified for the proposed role given the balance of these considerations. Grant Thornton’s fixed fee rate compensation arrangement was reasonable and appropriate, and in line with the market rates charged for these types of accounting services. The fees for these services were paid by CAT LLC to Grant Thornton. Market Data Provider: Exegy. The professional and administrative costs for the Pre-FAM Period included costs related to the receipt of certain market data for the CAT pursuant to an agreement with the CAT LLC, and then with FCAT. Exegy provided SIP Data required by the CAT NMS Plan. After performing an analysis of the available market data vendors to confirm that the data provided met the SIP Data requirements of the CAT NMS Plan and comparing the costs of the vendors providing the required SIP Data, CAT LLC determined to purchase market data from Exegy from July 2018 through March 2019. CAT LLC determined that, unlike certain other vendors, Exegy provided market data that included all data elements required by the CAT NMS Plan.47 In addition, the fees were reasonable and in line with market rates for the market data received. Accordingly, the professional and administrative costs for the PreFAM Period include the Exegy costs from November 2018 through March 2019. The cost of the market data was reasonable for the market data received. The fees for the market data were paid directly by CAT LLC to Exegy. Upon the termination of the contract between CAT LLC and Exegy, FCAT entered into a contract with Exegy to purchase the required market data from Exegy in July 2019. All costs under the contract were treated as a direct pass through cost to CAT LLC. Therefore, the fees for the market data were paid by 47 See Section 6.5(a)(ii) of the CAT NMS Plan. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 CAT LLC to FCAT, who, in turn, paid Exegy for the market data. Security Assessment: RSM US LLP (‘‘RSM’’). The operating costs for the Pre-FAM Period include costs related to a third party security assessment of the CAT performed by RSM. The assessment was designed to verify and validate the effective design, implementation, and operation of the controls specified by NIST Special Publication 800–53, Revision 4 and related standards and guidelines. Such a security assessment is in line with industry practice and important given the data included in the CAT. CAT LLC determined to engage RSM to perform the security assessment, after considering a variety of factors in its analysis, including the firm’s relevant expertise and fees. The fees were reasonable and in line with market rates for such an assessment. RSM performed the assessment from October 2018 through December 2018. Accordingly, the costs for the Pre-FAM Period include the costs incurred in November and December 2018. The cost for the security assessment were paid directly to RSM by CAT LLC. (j) Public Relations Costs The public relations costs of $224,669 represent the fees paid to public relations firms during the Pre-FAM Period for professional communications services to CAT, including media relations consulting, strategy and execution. By engaging a public relations firm, CAT LLC was better positioned to understand and address CAT matters to the benefit of all market participants. Specifically, the public relations firms provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (e.g., congressional efforts, public comments and reaction to proposals, press coverage of the CAT), reporting such developments to CAT LLC, and drafting and disseminating communications to the public regarding such developments as well as reporting on developments related to the CAT (e.g., amendments to the CAT NMS Plan). Public relations services were important for various reasons, including monitoring comments made by market participants about CAT and understanding issues related to the CAT discussed on the public record. The services performed by each of the public relations firms were comparable. The fees for such services were reasonable and in line with market rates. Only one public relations firm was engaged at a time; the three firms were engaged sequentially as the PO 00000 Frm 00468 Fmt 4701 Sfmt 4703 primary public relations contact moved among the three firms during this time period. Public Relations Firm: Peppercomm, Inc. (‘‘Peppercomm’’). The national securities exchanges and FINRA, acting as a consortium, determined to hire the public relations firm Peppercomm in October 2014 and continued to engage this firm through September 2017. The exchanges and FINRA made this engagement decision after considering a variety of factors in its analysis, including the firm’s relevant expertise and fees. The fee rates for this public relations firm were negotiated on an arm’s length basis and were in line with market rates for these types of services. The public relations costs during the period from October 2014 until the formation of the CAT NMS LLC were paid directly by the exchanges and FINRA to the public relations firm. After the formation of CAT NMS, LLC, the consulting fees were paid by CAT LLC. Public Relations Firm: Sloane & Company (‘‘Sloane’’). CAT LLC determined to hire a new public relations firm, Sloane, in March 2018, based on, among other things, their expertise and the primary contact’s history with the project. The fee rates for this public relations firm were in line with market rates for these types of services. The fees during the Pre-FAM Period were paid by CAT LLC to Sloane. CAT LLC continued the engagement with Sloane until February 2020. Public Relations Firm: Peak Strategies. CAT LLC determined to hire a new public relations firm, Peak Strategies, in March 2020, based on, among other things, their expertise and the primary contact’s history with the project. The fee rates for this public relations firm were in line with market rates for these types of services. The fees during the Pre-FAM Period were paid by CAT LLC to Peak Strategies. (ii) Historical CAT Costs Incurred in Financial Accountability Milestone Period 1 Historical CAT Costs 1 would include costs incurred by CAT and already funded by the Participants during Period 1 of the Financial Accountability Milestones (‘‘FAM Period 1’’),48 which covers the period from June 22, 2020– July 31, 2020. Historical CAT Costs 1 would include costs for FAM Period 1 of $6,377,343. The 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 one48 Section E:\FR\FM\13FEN2.SGM 11.6(a)(i)(A) of the CAT NMS Plan. 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices third ($2,125,781) and CEBSs paying one-third ($2,125,781). The following table breaks down Historical CAT Costs 1 for FAM Period 1 into the categories Operating Expense 10631 set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan. Historical CAT Costs for FAM Period 1** $1,684,870 CAT LLC continued to utilize AWS in FAM Period 1 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 1 Period. Accordingly, the $2,642,122 in technology costs for cloud hosting services represent costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 1. The fee arrangement for AWS described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. Moreover, CAT LLC continued to believe that AWS’s maturity in the cloud services space as well as the significant cost and time necessary to move the CAT to a different cloud services provider supported the continued engagement of AWS. The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During the FAM 1 Period, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a and Phase 2b Industry Member Data (including certain linkages) as well as SIP Data, reference data and other types of Other Data. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 1.52 49 As discussed above, with respect to certain costs that were ‘‘appropriately excluded,’’ such excluded costs relate to the amortization of capitalized technology costs, which are amortized over the life of the Plan Processor Agreement. As such costs have already been otherwise reflected in the filing, their inclusion would double count the capitalized technology costs. In addition, amortization is a non-cash expense. 50 The costs described in this table of costs for FAM Period 1 were calculated based upon CAT LLC’s review of applicable bills and invoices and related financial statements. CAT LLC financial statements are available on the CAT website. 51 See definition of ‘‘Initial Industry Member Core Equity and Options Reporting’’ in Section 1.1 of the CAT NMS Plan. 52 Note that the volume data described in this table does not include CAIS data. By the completion of FAM Period 1, CAT LLC was required to implement the reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of equities transaction data and options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information.51 CAT LLC completed the requirements of FAM Period 1 by July 31, 2020. The following describes the costs for each of the categories for FAM Period 1. lotter on DSK11XQN23PROD with NOTICES2 (a) Technology Costs—Cloud Hosting Services VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 PO 00000 Frm 00469 Fmt 4701 Sfmt 4703 E:\FR\FM\13FEN2.SGM 13FEN2 EN13FE24.269</GPH> Capitalized Developed Technolog:y Costs* $3,996 800 Technolol!V Costs: $2,642,122 Cloud Hosting Services 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 $7,700 Public relations Total Operatine; Expenses $6,377,343 * The non-cash amortization of these capitalized developed technology costs of $362,121 incurred during FAM Period 1 have been appropriately excluded from the above table. 49 ** See footnote 50. 50 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices Industry Member E uities Industry Member - 7 0.31 o· uities Average Total Daily Volume lotter on DSK11XQN23PROD with NOTICES2 (b) Technology Costs—Operating Fees Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 1. Accordingly, the $1,099,680 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 1. The fee arrangement for FCAT described above with regard to the PreFAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. During FAM Period 1, FCAT’s activities with respect to the CAT included the following: • Published iterative drafts of draft Technical Specifications for Phase 2d, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications; • Published iterative drafts of CAIS Technical Specifications, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications; • Facilitated Industry Member reporting of Quote Sent Time on Options Market Maker quotes; • Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements; • Provided support to the Operating Committee, the Compliance VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 74 185 Subcommittee and CAT working groups; • Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan; • Oversaw the security of the CAT; • Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting; • Provided support to subcontractors under the Plan Processor Agreement; • Provided support in discussions with Participants and the SEC and its staff; • Operated the FINRA CAT Helpdesk; • Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars; • Administered the CAT website and all of its content; and • Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff. (c) Technology Costs—CAIS Operating Fees Pursuant to the Plan Processor Agreement discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 1. Accordingly, the $254,998 in technology costs for CAIS operating fees PO 00000 Frm 00470 Fmt 4701 Sfmt 4703 represent costs incurred for services provided by Kingland during FAM Period 1. The fee arrangement for Kingland described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. During FAM Period 1, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to CCID Alternative, as well as the acceleration of the reporting of LTIDs. (d) Technology Costs—Change Request Fees CAT LLC did not incur costs related to change requests during FAM Period 1. (e) Technology Costs—Capitalized Developed Technology Costs Capitalized developed technology costs for FAM Period 1 of $1,684,870 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include: (1) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including separate production and industry test entitlements, and reprocessing of exchange event E:\FR\FM\13FEN2.SGM 13FEN2 EN13FE24.270</GPH> 10632 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES2 timestamps; (2) implementation fees; and (3) license fees. (f) Legal Costs The legal costs of $481,687 represent the fees paid for legal services provided by two law firms, WilmerHale and Pillsbury during FAM Period 1. Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during FAM Period 1 based on, among other things, their expertise and long history with the project. The hourly fee rates for this law firm were in line with market rates for specialized legal expertise. The legal fees during FAM Period 1 were paid by CAT LLC to WilmerHale. During FAM Period 1, WilmerHale provided legal assistance to the CAT including with regard to the following: • Assisted with the development of the CAT funding model and drafted related amendments and fee filings; • Drafted exemptive requests from CAT NMS Plan requirements regarding, for example, verbal activity, options market maker quote sent time, TRF linkages, and allocations; • Provided interpretations related to CAT NMS Plan requirements, including the Financial Accountability Milestone amendment; • Assisted with compliance with Regulation SCI; • Provided support for the Operating Committee, Compliance Subcommittee, working groups and Leadership Team, including with regard to meetings with the SEC staff; • Assisted with the drafting of the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan; • Assisted with communications and presentations for the industry regarding CAIS; • Drafted SRO rule filings related to the CAT Compliance Rule; • Provided support for Compliance Subcommittee, including with regard to response to OCIE examinations and the annual assessment; • Provided guidance regarding CAT technical specifications; • Assisted with third party vendor agreements; and • Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues. Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during FAM Period 1 based on, among other things, their expertise and history with the project. The hourly fee rates for this law firm were in line with market rates for specialized legal expertise. The legal fees during FAM Period 1 were paid by VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 CAT LLC to Pillsbury. During FAM Period 1, Pillsbury provided legal assistance to the CAT regarding the CAT Reporter Agreement. During that period, Pillsbury advised CAT LLC regarding applicable legal matters and drafted a proposed amendment to the CAT NMS Plan regarding liability matters. Liability issues related to the CAT are important matters that needed to be resolved and clarified. CAT LLC’s efforts to seek such resolution and clarity work to the benefit of Participants, Industry Members and other market participants. (g) Consulting Costs The consulting costs of $137,209 represent the fees paid to Deloitte as project manager during FAM Period 1. CAT LLC continued to employ Deloitte during FAM Period 1 based on, among other things, their expertise and cumulative experience with the CAT. The fee rates for Deloitte during FAM Period 1 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 1 were paid by CAT LLC to the consulting firm. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 1, Deloitte’s CAT-related activities included the following: • Implemented program operations for the CAT project; • Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC; • Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding; • Provided support for updating the SEC on the progress of the development of the CAT; • Assisted with the transition from the Initial Plan Processor to the successor Plan Processor; and • Provided support for third party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC. (h) Insurance Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1. (i) Professional and Administration Costs Financial Advisory Firm: Anchin. The professional and administration costs of PO 00000 Frm 00471 Fmt 4701 Sfmt 4703 10633 $69,077 represent the fees paid to Anchin during FAM Period 1. CAT LLC continued to employ Anchin during FAM Period 1 based on, among other things, their expertise and history with the project. The hourly fee rates for this firm were in line with market rates for these type of financial advisory services. The fees for these services during FAM Period 1 were paid by CAT LLC to Anchin. During FAM Period 1, Anchin provided a variety of services, including the following: • Maintained internal controls; • Provided cash management and treasury functions; • Facilitated bill payments; • Provided monthly bookkeeping; • Reviewed vendor invoices and documentation in support of cash disbursements; • Provided accounting research and consultations on various accounting, financial reporting and tax matters; • Addressed various accounting, financial reporting and operating inquiries from Participants; • Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses; • Supported compliance with the CAT NMS Plan; • Worked with and provided support to the Operating Committee and various CAT working groups; and • Prepared monthly and quarterly financial statements. (j) Public Relations Costs The public relations costs of $7,700 represent the fees paid to Peak Strategies during FAM Period 1. CAT LLC continued to employ Peak Strategies during FAM Period 1 based on, among other things, their expertise and history with the project. The fee rates for this firm were reasonable and in line with market rates for these types of services. The fees for these services during FAM Period 1 were paid by CAT LLC to Peak Strategies. During FAM Period 1, Peak Strategies continued to provide professional communications services to CAT LLC, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (e.g., congressional efforts, public comments and reaction to proposals, press coverage of the CAT), reporting such developments to CAT LLC, and drafting and disseminating communications to the public regarding such developments as well as reporting on developments related to the CAT E:\FR\FM\13FEN2.SGM 13FEN2 10634 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices (e.g., amendments to the CAT NMS Plan). As discussed above, such public relations services were important for various reasons, including monitoring comments made by market participants about the CAT and understanding issues related to the CAT discussed on the public record. By engaging a public relations firm, CAT LLC was better positioned to understand and address CAT matters to the benefit of all market participants. (iii) Historical CAT Costs Incurred in Financial Accountability Milestone Period 2 Historical CAT Costs 1 would include costs incurred by CAT LLC and already funded by Participants during Period 2 of the Financial Accountability Milestones (‘‘FAM Period 2’’),53 which covers the period from August 1, 2020– December 31, 2020. Historical CAT Costs 1 would include costs for FAM Period 2 of $42,976,478. The Operating Expense Capitalized Developed TechnoloQV Costs* 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 twothirds, with CEBBs paying one-third ($14,325,493) and CEBSs paying onethird ($14,325,493). The following table breaks down Historical CAT Costs 1 for FAM Period 2 into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan. Historical CAT Costs for FAM Period 2** $6,761,094 lotter on DSK11XQN23PROD with NOTICES2 By the completion of FAM Period 2, CAT LLC was required to implement the following with regard to the CAT: (a) Industry Member reporting (excluding reporting by Small Industry Members that are not OATS reporters) for equities transactions, excluding Customer Account Information, CustomerID, and Customer Identifying Information, is developed, tested, and implemented at a 5% Error Rate or less and with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, and trade reporting facilities linkage to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, excluding linkage of representative orders, from order origination through order execution or order cancellation; and (b) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1– 53 Section 11.6(a)(i)(B) of the CAT NMS Plan. discussed above, with respect to certain costs that were ‘‘appropriately excluded,’’ such excluded costs relate to the amortization of capitalized technology costs, which are amortized over the life of the Plan Processor Agreement. As 54 As VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 8.1.3 and Section 8.2.1 incorporates the Industry Member equities transaction data described in condition (a) and is available to the Participants and to the Commission.56 CAT LLC continued to utilize AWS in FAM Period 2 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 2 Period. Accordingly, the $20,709,212 in technology costs for cloud hosting services represent costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 2. The fee arrangement for AWS described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During the FAM 2 Period, the volume of CAT Data such costs have already been otherwise reflected in the filing, their inclusion would double count the capitalized technology costs. In addition, amortization is a non-cash expense. 55 The costs described in this table of costs for FAM Period 2 were calculated based upon CAT LLC’s review of applicable bills and invoices and related financial statements. CAT LLC financial statements are available on the CAT website. 56 See definition of ‘‘Full Implementation of Core Equity Reporting Requirements’’ in Section 1.1 of the CAT NMS Plan. CAT LLC completed the requirements of FAM Period 2 by December 31, 2020. The following describes the costs for each of the categories for FAM Period 2. (a) Technology Costs—Cloud Hosting Services PO 00000 Frm 00472 Fmt 4701 Sfmt 4703 E:\FR\FM\13FEN2.SGM 13FEN2 EN13FE24.271</GPH> Technolol!V Costs: $31,460,033 $20,709 212 Cloud Hosting Services Operating Fees $9 108,700 $1,590,298 CAIS Operating Fees $51,823 Change Request Fees Legal $2,766,644 Consulting $532 146 Insurance $976,098 Professional and administration $438 523 $41,940 Public relations $42,976,478 Total Operatin2 Expenses * The non-cash amortization of these capitalized developed technology costs of $1,892,505 incurred during FAM Period 2 have been appropriately excluded from the above table. 54 ** See footnote 55. 55 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a and Phase 2b Industry Member Data (including certain linkages) as well as SIP Data, and Other Data, including reference data. In addition, Industry Members began reporting LTID account information. The following chart provides data regarding the average 10635 daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 2.57 Date Range: 8/1/20 12/31/20 116 11 Industry Member E uities Industry Member - 0.98 o· (b) Technology Costs—Operating Fees Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 2. Accordingly, the $9,108,700 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 2. The fee arrangement for FCAT described above with regard to the PreFAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. During FAM Period 2, FCAT’s activities with respect to the CAT included publishing the Technical Specifications for Phase 2d and overseeing the reporting of firm to firm and intrafirm linkages by Industry Members. In addition, FCAT also continued to engage in the following activities during FAM Period 2: 80 282 • Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements; • Provided support to the Operating Committee, Compliance Subcommittee and CAT working groups; • Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan; • Oversaw the development and implementation of the security of the CAT; • Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting; • Provided support to subcontractors under the Plan Processor Agreement; • Provided support in discussions with the Participants and the SEC and its staff; • Operated the FINRA CAT Helpdesk; • Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars; • Administered the CAT website and all of its content; and • Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff. (c) Technology Costs—CAIS Operating Fees Pursuant to the Plan Processor Agreement discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 2. Accordingly, the $1,590,298 in technology costs for CAIS operating fees represent costs incurred for services provided by Kingland during FAM Period 2. The fee arrangement for Kingland described above with regard to the Pre-FAM Period and FAM Period 1 57 Note that the volume data described in this table does not include CAIS data. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 PO 00000 Frm 00473 Fmt 4701 Sfmt 4703 E:\FR\FM\13FEN2.SGM 13FEN2 EN13FE24.272</GPH> lotter on DSK11XQN23PROD with NOTICES2 uities Average Total Daily Volume 10636 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. During FAM Period 2, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to the CCID Alternative, as well as the acceleration of the reporting of LTIDs. (d) Technology Costs—Change Request Fees During FAM Period 2, CAT LLC engaged FCAT to pursue certain change requests in accordance with the Plan Processor Agreement. The change request costs were paid by CAT LLC to FCAT. Specifically, during FAM Period 2, CAT incurred costs of $51,823 related to a change request regarding the addition of functionality for exchange Participants to report rejected messages to the CAT. lotter on DSK11XQN23PROD with NOTICES2 (e) Technology Costs—Capitalized Developed Technology Costs Capitalized developed technology costs for FAM Period 2 of $6,761,094 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Plan Processor; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including costs related to separate production and industry test entitlements, market maker reference data, and back-processing of exchange exception logic; (3) implementation fees; and (4) license fees. (f) Legal Costs The legal costs of $2,766,644 represent the fees paid for legal services provided by two law firms, WilmerHale and Pillsbury during FAM Period 2. Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during FAM Period 2 based on, among other things, their expertise and long history with the project. The hourly fee rates for this law firm were in line with market rates for specialized legal expertise. The legal fees during FAM Period 2 were paid by CAT LLC to WilmerHale. During FAM Period 1 [sic], the legal assistance provided by WilmerHale included providing legal advice regarding the following: VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 • Assisted with the development of the CAT funding model and drafting related amendments and rule filings; • Drafted exemptive requests from CAT NMS Plan requirements regarding, for example, allocations, exchange activity, OTQT, initial data validation, error corrections and recordkeeping; • Provided interpretations related to CAT NMS Plan requirements, including with regard to the Financial Accountability Milestone amendment, FAQs and technical specifications; • Provided support for the Operating Committee, Compliance Subcommittees, working groups and Leadership Team, including with regard to meetings with the SEC staff; • Assisted with the Implementation Plan and Quarterly Progress Reports required pursuant to Section 6.6 of the CAT NMS Plan; • Drafted SRO rule filings related to the CAT Compliance Rule; • Provided support for the Compliance Subcommittee, including with regard to responses to OCIE examinations and the annual assessment; • Provided guidance regarding the SEC’s proposed security amendments to the CAT NMS Plan; • Provided guidance regarding SRO rule filings for the retirement of systems; • Provided legal support for Operating Committee meetings, including drafting resolutions and other materials and voting advice; • Assisted with third party vendor agreements (e.g., with regard to Anchin, Grant Thornton and insurance policies); • Assisted with change requests; and • Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues. Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during FAM Period 2 based on, among other things, their expertise and history with the project. The hourly fee rates for this law firm were in line with market rates for specialized legal expertise. The legal fees during FAM Period 2 were paid by CAT LLC to Pillsbury. During FAM Period 2, Pillsbury provided legal assistance to the CAT regarding the CAT Reporter Agreement. During that period, Pillsbury advised CAT LLC regarding applicable legal matters and drafted and filed a proposed amendment to the CAT NMS plan regarding liability matters. As discussed above, liability issues related to the CAT are important matters that needed to be resolved and clarified. CAT LLC’s efforts to seek such resolution and clarity work to the benefit of Participants, Industry Members and other market participants. PO 00000 Frm 00474 Fmt 4701 Sfmt 4703 (g) Consulting Costs The consulting costs of $532,146 represent the fees paid to Deloitte as project manager during FAM Period 2. CAT LLC continued to employ Deloitte during FAM Period 2 based on, among other things, their expertise and long history with the project. The fee rates for Deloitte during FAM Period 2 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 2 were paid to Deloitte by CAT LLC. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 2, Deloitte’s CAT-related activities included the following: • Implemented program operations for the CAT project; • Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC; • Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding; • Provided support for updating the SEC on the progress of the development of the CAT; and • Provided support for third party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC. (h) Insurance The insurance costs of $976,098 represent the fees paid for insurance during FAM Period 2. CAT LLC continued to maintain cyber security liability insurance, directors’ and officers’ liability insurance, and errors and omissions liability insurance offered by USI. After engaging in a process for renewing the coverage, CAT LLC determined to purchase these insurance policies from USI. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI. (i) Professional and Administration Costs The professional and administration costs of $438,523 represent the fees paid to Anchin and Grant Thornton for financial services provided during FAM Period 2. Financial Advisory Firm: Anchin. CAT LLC continued to engage Anchin during FAM Period 2 based on, among other things, their expertise and history E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES2 with the project. The hourly fee rates for this firm were in line with market rates for these types of financial advisory services. The fees for these services during FAM Period 2 were paid by CAT LLC to Anchin. During FAM Period 2, Anchin provided a variety of services, including the following: • Updated and maintained internal controls; • Provided cash management and treasury functions; • Faciliated [sic] bill payments; • Provided monthly bookkeeping; • Reviewed vendor invoices and documentation in support of cash disbursements; • Provided accounting research and consultations on various accounting, financial reporting and tax matters; • Addressed not-for-profit tax and accounting considerations; • Prepared tax returns; • Addressed various accounting, financial reporting and operating inquiries from the Participants; • Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses; • Supported compliance with the CAT NMS Plan; • Worked with and provided support to the Operating Committee and various CAT working groups; • Prepared monthly, quarterly and annual financial statements; • Supported the annual financial statement audit by an independent auditor; and • Reviewed historical costs from inception. Accounting Firm: Grant Thornton. CAT LLC continued to employ the VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 accounting firm Grant Thornton during FAM Period 2 based on, among other things, its expertise and cumulative knowledge of CAT LLC. CAT LLC continued to believe that Grant Thornton was well qualified for its role and its fee rates were in line with with market rates for these accounting services. The fees for these services during FAM Period 2 were paid by CAT LLC to Grant Thornton. During FAM Period 2, Grant Thornton performed a financial statement audit for CAT LLC as an independent accounting firm. (j) Public Relations Costs The public relations costs of $41,940 represent the fees paid to Peak Strategies during FAM Period 2. CAT LLC continued to employ Peak Strategies during FAM Period 2 based on, among other things, their expertise and history with the project. The fee rates for this firm were in line with market rates for these types of services. The fees for these services during FAM Period 2 were paid by CAT LLC to Peak Strategies. During FAM Period 2, Peak Strategies continued to provide professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (e.g., congressional efforts, public comments and reaction to proposals, press coverage of the CAT), reporting such developments to CAT LLC, and drafting and disseminating communications to the public regarding PO 00000 Frm 00475 Fmt 4701 Sfmt 4703 10637 such developments as well as reporting on developments related to the CAT (e.g., amendments to the CAT NMS Plan). As discussed above, such public relations services were important for various reasons, including monitoring comments made by market participants about the CAT and understanding issues related to the CAT discussed on the public record. By engaging a public relations firm, CAT LLC was better positioned to understand and address CAT matters to the benefit of all market participants. (iv) Historical CAT Costs Incurred in Financial Accountability Milestone Period 3 Historical CAT Costs 1 would include costs incurred by CAT and already funded by the Participants during Period 3 of the Financial Accountability Milestones (‘‘FAM Period 3’’),58 which covers the period from January 1, 2021—December 31, 2021. Historical CAT Costs 1 would include costs for FAM Period 3 of $144,415,268. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($48,138,423), and Industry Members would be responsible for the remaining twothirds, with CEBBs paying one-third ($48,138,423) and CEBSs paying onethird ($48,138,423). The following table breaks down Historical CAT Costs 1 for FAM Period 3 into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan. 58 Section E:\FR\FM\13FEN2.SGM 11.6(a)(i)(C) of the CAT NMS Plan. 13FEN2 10638 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices Operating Expense Capitalized Developed Technology Costs* Historical CAT Costs for FAM Period 3** $10,763,372 $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 $1,408,209 Consulting $1,582,714 Insurance Professional and administration $595,923 $92,400 Public relations $144,415,268 Total Operating Expenses * The non-cash amortization of these capitalized developed technology costs of $5,108,044 incurred during FAM Period 3 have been appropriately excluded from the above table. 59 ** See footnote 60. 60 Technolof!V Costs: lotter on DSK11XQN23PROD with NOTICES2 (a) reporting to the Order Audit Trail System (‘‘OATS’’) is no longer required for new orders; (b) Industry Member reporting for equities transactions and simple electronic options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, trade reporting facilities linkage, and representative order linkages (including any equities allocation information provided in an Allocation Report) to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, is developed, tested, and implemented at a 5% Error Rate or less; (c) Industry Member reporting for manual options transactions and complex options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with all required linkages to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or 59 As discussed above, with respect to certain costs that were ‘‘appropriately excluded,’’ such excluded costs relate to the amortization of capitalized technology costs, which are amortized over the life of the Plan Processor Agreement. As such costs have already been otherwise reflected in the filing, their inclusion would double count the VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 order cancellation, including any options allocation information provided in an Allocation Report, is developed, tested, and fully implemented; (d) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1– 8.1.3, Section 8.2.1, and Section 8.5 incorporates the data described in conditions (b)–(c) and is available to the Participants and to the Commission; and (e) the requirements of Section 6.10(a) are met.61 CAT LLC completed the requirements of FAM Period 3 by December 31, 2021. The following describes the costs for each of the categories for FAM Period 3. (a) Technology Costs—Cloud Hosting Services CAT LLC continued to utilize AWS in FAM Period 3 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production capitalized technology costs. In addition, amortization is a non-cash expense. 60 The costs described in this table of costs for FAM Period 3 were calculated based upon CAT LLC’s review of applicable bills and invoices and related financial statements. CAT LLC financial statements are available on the CAT website. PO 00000 Frm 00476 Fmt 4701 Sfmt 4703 environments, during the FAM 3 Period. Accordingly, the $94,574,759 in technology costs for cloud hosting services represents costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 3. The fee arrangement for AWS described above for the earlier periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During FAM Period 3, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a, Phase 2b, Phase 2c and Phase 2d Industry Member Data (including certain linkages), SIP Data, Other Data, including reference data, and LTID account information. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 3.62 61 See definition of ‘‘Full Availability and Regulatory Utilization of Transactional Database Functionality’’ in Section 1.1 of the CAT NMS Plan. 62 Note that the volume data described in this table does not include CAIS data. E:\FR\FM\13FEN2.SGM 13FEN2 EN13FE24.273</GPH> By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT: Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices Date Range: 1/1/21 to 4/25/21 Parti ns Industry Member E uities Industry Member - 10639 Date Range: 4/26/21/ to 12/31/21 * 135 20 136 19 2 2 129 297 137 304 0 uities Average Total Daily Volume (b) Technology Costs—Operating Fees Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 3. Accordingly, the $23,106,091 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 3. The fee arrangement for FCAT described above with regard to the prior Periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. During FAM Period 3, FCAT’s activities with respect to the CAT included the following: • Facilitated Phase 2c and Phase 2d testing for Industry Members; • Oversaw creation of linkages of the lifecycle of order events based on the received data through Phase 2d; • Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements; • Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups; • Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan; • Oversaw the security of the CAT; VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 • Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting; • Provided support to subcontractors under the Plan Processor Agreement; • Provided support in discussions with the Participants and the SEC and its staff; • Operated the FINRA CAT Helpdesk; • Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars; • Administered the CAT website and all of its content; and • Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff. (c) Technology Costs—CAIS Operating Fees Pursuant to the Plan Processor Agreement with FCAT discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 3. Accordingly, the $5,562,383 in technology costs for CAIS operating fees represents costs incurred for services provided by Kingland during FAM Period 3. The fee arrangement for PO 00000 Frm 00477 Fmt 4701 Sfmt 4703 Kingland described above with regard to the prior Periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. During FAM Period 3, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to the CCID Alternative, as well as the acceleration of the reporting of LTIDs. The full CAIS Technical Specifications were published during FAM Period 3. (d) Technology Costs—Change Request Fees During FAM Period 3, CAT LLC engaged FCAT to pursue certain change requests in accordance with the Plan Processor Agreement. The change request costs were paid by CAT LLC to FCAT. Specifically, during FAM Period 3, CAT incurred costs of $396,169 related to change requests, including the following: (1) the addition of functionality for exchange Participants to report rejected messages to the CAT; (2) the migration of MIRS query engine to AWS to reduce operational costs and increase resiliency; and (3) updating the Participant Technical Specifications to allow for two-sided Participant option quote reporting. E:\FR\FM\13FEN2.SGM 13FEN2 EN13FE24.274</GPH> lotter on DSK11XQN23PROD with NOTICES2 * Start of Participant Equities in CAT format and SIP Equities on 4/26/21 10640 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices (e) Technology Costs—Capitalized Developed Technology Costs Capitalized developed technology costs for FAM Period 3 of $10,763,372 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Plan Processor, including the transition from equity data received by FINRA pursuant to various regulatory services agreements between FINRA and Participant exchanges to the equity CAT Data, and the completion of the Industry Member Phase 2d options manual and complex orders go-live requirements; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including costs related to off-exchange volume concentration, Participant 24-hour trading and an external metastore; (3) implementation fees; and (4) license fees. lotter on DSK11XQN23PROD with NOTICES2 (f) Legal Costs The legal costs of $6,333,248 represent the fees paid for legal services provided by three law firms, WilmerHale, Pillsbury and Covington & Burling LLP (‘‘Covington’’) during FAM Period 3. Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during FAM Period 3 based on, among other things, their expertise and long history with the project. The hourly fee rates for this law firm were in line with market rates for specialized legal expertise. The legal fees during FAM Period 3 were paid by CAT LLC to WilmerHale. During FAM Period 3, the legal assistance provided by WilmerHale included providing legal advice regarding the following: • Assisted with the development of the CAT funding model and drafting related amendments and rule filings; • Drafted exemptive requests from CAT NMS Plan requirements, including, for example, verbal activity regarding Phase 2c cutover, error reports, error corrections, Phase 2d Reporting, unique Order-ID on internal route events, reporting addresses, recordkeeping, and unique CCID for foreign customers; • Provided interpretations related to CAT NMS Plan requirements, including with regard to the Financial Accountability Milestone amendment, FAQs, CAIS requirements, ADF, and technical specifications; VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 • Provided support for the Operating Committee, Compliance Subcommittee, working groups and Leadership Team, including with regard to meetings with the SEC staff; • Assisted with the Implementation Plan and Quarterly Progress Reports required pursuant to Section 6.6(c) of the CAT NMS Plan; • Drafted SRO rule filings related to the CAT Compliance Rule; • Provided support for Compliance Subcommittee, including with regard to response to OCIE examinations and the annual assessment; • Provided guidance regarding SEC’s proposed security amendments to CAT NMS Plan; • Provided guidance regarding SRO rule filings for the retirement of systems; • Provided legal support for Operating Committee meetings, including drafting resolutions and other materials and voting advice; • Provided assistance with change requests; • Provided guidance and regulatory support for litigation regarding the response to SEC’s exemptive orders; • Assisted with communications with the industry, includng CAT Alerts and presentations; • Provided guidance regarding the confidentiality of CAT Data, including third-party information requests; • Assisted with cost management analysis and proposals; and • Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues. Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during FAM Period 3 based on, among other things, their expertise and history with the project. The hourly fee rates for this law firm were in line with market rates for specialized legal expertise. The legal fees during FAM Period 3 were paid by CAT LLC to Pillsbury. During FAM Period 3, Pillsbury provided legal assistance to the CAT regarding the CAT Reporter Agreement. During this period, Pillsbury advised CAT LLC regarding applicable legal matters, reviewed and responded to comment letters regarding the proposed Plan amendment, participated in meetings with senior SEC staff, responded to comments submitted following the SEC’s April 6, 2021 order instituting proceedings,63 and assessed legal matters regarding the SEC’s October 29, 2021 order denying the proposed Plan amendment.64 63 See Securities Exchange Act Release No. 91487 (April 6, 2021), 86 FR 19054 (April 12, 2021). 64 See Securities Exchange Act Release No. 93484 (October 29, 2021), 86 FR 60933 (November 4, 2021). PO 00000 Frm 00478 Fmt 4701 Sfmt 4703 Law Firm: Covington. CAT LLC hired Covington for litigation with the SEC regarding certain exemptive orders related to the CAT, including orders issued in December 2020.65 CAT LLC interviewed this law firm as well as other potential law firms, considering a variety of factors in its analysis for choosing legal assistance, including the relevant expertise and fees of the potential lawyers. CAT LLC approved the engagement of Covington in January 2021. The fee rates for this law firm, which were calculated based on hourly rates, were in line with market rates for specialized services. The legal fees for FAM Period 3 for this firm were paid by CAT LLC to Covington. After Covington was hired in 2021 through the end of 2021, the firm provided legal assistance regarding the litigation with the SEC regarding the 2020 Orders. These services included researching, drafting, and filing motions to stay the 2020 orders and related materials in proceedings before the SEC, as well as researching, drafting, and filing petitions for judicial review of the 2020 Orders in proceedings before the U.S. Court of Appeals for the D.C. Circuit. Covington oversaw ongoing litigation proceedings on these matters, and also supported WilmerHale with respect to settlement negotiations with the SEC staff regarding the 2020 Orders. In addition to these services, CAT LLC engaged Covington in November 2021 to provide assistance with respect to the SEC’s disapproval of CAT NMS Plan amendments concerning a proposed limitation on liability in the event of a data breach or similar event. Covington provided advice concerning CAT’s response to the SEC’s disapproval order. This work accounted for a minority of Covington’s fees in 2021.66 (g) Consulting Costs The consulting costs of $1,408,209 represent the fees paid to Deloitte as project manager during FAM Period 3. CAT LLC continued to employ Deloitte during FAM Period 3 based on, among other things, their expertise and long history with the project. The fee rates for Deloitte during FAM Period 3 were negotiated and in line with market rates 65 See Securities Exchange Act Release No. 90688 (December 16, 2020), 85 FR 83634 (December 22, 2020); and Securities Exchange Act Release No. 90689 (December 16, 2020), 85 FR 83667 (December 22, 2020) (collectively, the ‘‘2020 Orders’’). 66 As discussed above with regard to Pillsbury’s work on liability matters, liability issues related to the CAT are important matters that needed to be resolved and clarified. CAT LLC’s efforts to seek such resolution and clarity work to the benefit of Participants, Industry Members and other market participants. Moreover, such activity is a necessary part of the operation of the CAT. E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices for this type of specialized consulting work. The consulting fees during FAM Period 3 were paid to Deloitte by CAT LLC. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 3, Deloitte’s CAT-related activities included the following: • Implemented program operations for the CAT project; • Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC; • Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding; • Provided support for updating the SEC on the progress of the development of the CAT; and • Provided support for third party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC. lotter on DSK11XQN23PROD with NOTICES2 (h) Insurance The insurance costs of $1,582,714 represent the fees paid for insurance FAM Period 3. CAT LLC continued to maintain cyber security liability insurance, directors’ and officers’ liability insurance, and errors and omissions liability insurance offered by USI. After engaging in a process for renewing the coverage, CAT LLC determined to purchase these insurance policies from USI. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI. (i) Professional and Administration Costs The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3. Financial Advisory Firm: Anchin. CAT LLC continued to employ Anchin during FAM Period 3 based on, among other things, their expertise and history with the project. The hourly fee rates for this firm were in line with market rates for these financial advisory services. The fees for these services during FAM Period 3 were paid by CAT LLC to Anchin. During FAM Period 3, Anchin provided a variety of services, including the following: • Updated and maintained internal controls; • Provided cash management and treasury functions; VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 • Faciliated [sic] bill payments; • Provided monthly bookkeeping; • Reviewed vendor invoices and documentation in support of cash disbursements; • Provided accounting research and consultations on various accounting, financial reporting and tax matters; • Addressed not-for-profit tax and accounting considerations; • Prepared tax returns; • Addressed various accounting, financial reporting and operating inquiries from Participants; • Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses; • Supported compliance with the CAT NMS Plan; • Worked with and provided support to the Operating Committee and various CAT working groups; • Prepared monthly, quarterly and annual financial statements; • Supported the annual financial statement audits by an independent auditor; • Reviewed historical costs from inception; and • Provided accounting and financial information in support of SEC filings. Accounting Firm: Grant Thornton. CAT LLC continued to employ the accounting firm Grant Thornton during FAM Period 3 based on, among other things, their expertise and cumulative knowledge of CAT LLC. CAT LLC determined that Grant Thornton was well qualified for its role and that its fixed fee rates were in line with market rates for these accountant services. The fees for these services during FAM Period 3 were paid by CAT LLC to Grant Thornton. During FAM Period 3, Grant Thornton provided audited financial statements for CAT LLC. (j) Public Relations Costs The public relations costs of $92,400 represent the fees paid to Peak Strategies during FAM Period 3. CAT LLC continued to employ Peak Strategies during FAM Period 3 based on, among other things, their expertise and history with the project. The fee rates for this firm were in line with market rates for these types of services. The fees for these services during FAM Period 3 were paid by CAT LLC to Peak Strategies. During FAM Period 3, Peak Strategies continued to provide professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including PO 00000 Frm 00479 Fmt 4701 Sfmt 4703 10641 monitoring developments related to the CAT (e.g., congressional efforts, public comments and reaction to proposals, press coverage of the CAT), reporting such developments to CAT LLC, and drafting and disseminating communications to the public regarding such developments as well as reporting on developments related to the CAT (e.g., amendments to the CAT NMS Plan). As discussed above, such public relations services were important for various reasons, including monitoring comments made by market participants about the CAT and understanding issues related to the CAT discussed on the public record. By engaging a public relations firm, CAT LLC was better positioned to understand and address CAT matters to the benefit of all market participants. (v) Excluded Costs Historical CAT Costs 1 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 would remain responsible for 100% of these costs, which total $63,624,299. CAT LLC determined that it was reasonable to exclude these Excluded Costs from Historical CAT Costs 1 because the excluded costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.67 First, Historical CAT Costs 1 would not include $14,749,362 of costs related to the conclusion of the relationship with the Initial Plan Processor. Such costs include costs related to the American Arbitration Association, the legal assistance of Pillsbury with regard to the arbitration with Thesys CAT, and the settlement costs related to the arbitration with Thesys CAT. The Participants would remain responsible for 100% of these $14,749,362 in costs. Second, the 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 67 In approving the CAT Funding Model, the Commission states that ‘‘the proposed exclusion of the ‘Excluded Costs’ from Past CAT Costs is reasonable in the Commission’s view because it would not require all costs incurred by the Participants to be recovered from Industry Members through the Historical CAT Assessment, specifically excluding those costs related to the delay in the start of reporting to the CAT and costs related to the conclusion of the relationship with the Initial Plan Processor.’’ CAT Funding Model Approval Order at 62663. E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices this one-year period of $48,874,937 from fees charged to Industry Members due to the delay in the start of reporting to the CAT. The Participants would remain responsible for 100% of these $48,874,937 in costs. The following Operating Expense Capitalized Developed Technology Costs Technolo!!V Costs: Cloud Hosting Services Operating Fees CAIS Operating Fees Change Request Fees Legal Consulting Insurance Professional and administration Public relations Total Operatine: Expenses * See footnote 68. 68 The following provides additional detail regarding the Excluded Costs. lotter on DSK11XQN23PROD with NOTICES2 (a) Technology Costs—Cloud Hosting Services, Operating Fees, CAIS Operating Fees and Change Request Fees CAT LLC did not incur technology costs related to the categories of cloud hosting services, operating fees, CAIS operating fees or change requests during the period from November 15, 2017 through November 15, 2018. (b) Technology Costs—Capitalized Developed Technology Costs Capitalized developed technology costs for the period from November 15, 2017 through November 15, 2018 include capitalizable application development costs of $37,852,083 incurred in the development of the CAT by the Initial Plan Processor. Such costs include development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Initial Plan Processor. Such costs include costs related to Industry Member technical specifications for orders and transactions, the system security plan, testing and production for 68 The costs described in this table of Excluded Costs were calculated based upon CAT LLC’s review of applicable bills and invoices and related financial statements. CAT LLC financial statements are available on the CAT website. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 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 Participant CAT reporting, third-party security assessment and response, query portal, onboarding of the Chief Information Security Officer, and ingestion of FINRA TRF data and FINRA data related to halts and corporate actions. (c) Legal Costs The legal costs of $6,143,278 represent the fees paid to WilmerHale for legal services from November 15, 2017 through November 15, 2018. During this period, WilmerHale provided legal assistance to the CAT including with regard to the following: • Provided legal support for the governance of the CAT, including governance support for the Operating Committee, Advisory Committee, Compliance Subcommittee, and CAT working groups; • Assisted with the development of the CAT funding model and drafted related amendments of the CAT NMS Plan; • Provided assistance related to CAT security; • Drafted exemptive requests, including requests related to PII; • Assisted with the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan; • Provided interpretations of and related to the CAT NMS Plan; • Provided advice with regard to regulator access to the CAT; PO 00000 Frm 00480 Fmt 4701 table breaks down these costs into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan. Sfmt 4703 • Assisted with the Plan Processor transition; • Provided assistance regarding communications with the industry regarding the CAT; • Provided advice regarding Customer Account Information and PII; • Provided support for litigation related to SEC exemptive orders; and • Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretative and implementation issues. (d) Consulting Costs The consulting costs of $4,452,106 represent the fees paid to Deloitte for their role as project manager for the CAT from November 15, 2017 through November 15, 2018. During this period, Deloitte engaged in the following activities with respect to the CAT: • Implemented program operations for the CAT project; • Provided governance support to the Operating Committee, including support for Subcommittees and working groups of the Operating Committee (e.g., Compliance Subcommittee, Cost and Funding Working Group, Technical Working Group, Industry Outreach Working Group, Security Working Group and Steering Committee); • Assisted with cost and funding issue for the CAT, including the development of the CAT funding model E:\FR\FM\13FEN2.SGM 13FEN2 EN13FE24.275</GPH> 10642 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices and assistance with loans and the CAT bank account for CAT funding; • Provided support for updating the SEC on the progress of the development of the CAT; and • Provided active planning and coordination with and support for the Initial Plan Processor with regard to the development of the CAT, and reported to the Participants on the progress. (e) Insurance CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018. lotter on DSK11XQN23PROD with NOTICES2 (f) Professional and Administration Costs The professional and administration costs of $340,145 represent the fees paid to Anchin, Exegy and RSM from November 15, 2017 through November 15, 2018. Financial Advisory Firm: Anchin. From the commencement of its engagment [sic] in April 2018 through November 15, 2018, Anchin engaged in the following activities with respect to the CAT: • Developed, updated and maintained internal controls; • Provided cash management and treasury functions; • Facilitated bill payments; • Provided monthly bookkeeping; • Reviewed vendor invoices and documentation in support of cash disbursements; • Provided accounting research and consultations on various accounting, financial reporting and tax matters; • Addressed not-for-profit tax and accounting considerations; • Prepared tax returns; • Addressed various accounting, financial reporting and operating inquiries from Participants; • Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses; • Addressed accounting and financial matters relating to the transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, including supporting the dissolution of CAT NMS, LLC; • Supported compliance with the CAT NMS Plan; • Worked with and provided support to the Operating Committee and various CAT working groups; • Prepared monthly, quarterly and annual financial statements; • Supported the annual financial statement audits by an independent auditor; • Reviewed historical costs from inception; and VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 • Provided accounting and financial information in support of SEC filings. Market Data Provider: Exegy. From July 2018 through November 15, 2018, CAT LLC purchased market data from Exegy (as described in more detail above). Security Assessment: RSM. From October 2018 through November 15, 2018, CAT LLC incurred costs for RSM’s performance of a security assessment (as described in more detail above). (g) Public Relations Costs The public relations costs of $87,325 represent the fees paid to Sloane from November 15, 2017 through November 15, 2018. From the commencement of its engagment [sic] in March 2018 through November 15, 2018, Sloane provided professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, Sloane provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (e.g., congressional efforts, public comments and reaction to proposals, press coverage of the CAT), reporting such developments to CAT LLC, and drafting and disseminating communications to the public regarding such developments as well as reporting on developments related to the CAT (e.g., amendments to the CAT NMS Plan). (C) Historical Recovery Period 1 Under the CAT NMS Plan, the Operating Committee is required to reasonably establish the length of the Historical Recovery Period used in calculating each Historical Fee Rate based upon the amount of the Historical CAT Costs to be recovered by the Historical CAT Assessment, and to describe the reasons for its length.69 The Historical Recovery Period used in calculating the Historical Fee Rate may not be less than 24 months or more than five years.70 The Operating Committee has determined to establish a Historical Recovery Period 1 of 24 months for Historical CAT Assessment 1. The Operating Committee determined that the length of Historical Recovery Period 1 appropriately weighs the need for a reasonable Historical Fee Rate 1 that spreads the Historical CAT Costs 69 Section 11.3(b)(i)(D)(I) and Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan. 70 Section 11.3(b)(i)(D)(I) of the CAT NMS Plan. In the CAT Funding Model Approval Order, the SEC stated that ‘‘[i]n the Commission’s view, it is reasonable for the Operating Committee to establish the length of the Historical Recovery Period to be no less than 24 months and no more than five years.’’ CAT Funding Model Approval Order at 62664. PO 00000 Frm 00481 Fmt 4701 Sfmt 4703 10643 over an appropriate amount of time and the need to repay the loans to the Participants in a timely fashion. The Operating Committee determined that 24 months for Historical Recovery Period 1 would establish a fee rate that is lower than other transaction-based fees, including fees assessed pursuant to Section 31.71 In addition, in establishing a Historical Recovery Period of 24 months, the Operating Committee recognized that the total costs for Historical CAT Assessment 1 were less than the total costs for 2022 and 2023,72 and therefore it would be reasonable and appropriate to recover costs subject to this filing over an approximate twoyear period. Furthermore, the Operating Committee notes that 24 months is appropriate because it is not currently proposing that Industry Members be required to pay additional CAT fees with regard to another Historical CAT Assessment or CAT Fees with regard to Prospective CAT Costs at the same time. The length of the Historical Recovery Period 1 and the reasons for its length are provided in this filing in accordance with the requirement in the CAT NMS Plan to provide such information in a fee filing for a Historical CAT Assessment.73 (D) Projected Total Executed Equivalent Share Volume The calculation of Historical Fee Rate 1 also requires the determination of the projected total executed equivalent share volume of transactions in Eligible Securities for Historical Recovery Period 1. Under the CAT NMS Plan, the Operating Committee is required to ‘‘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.’’ 74 The Operating Committee is required to base its projection on the prior twelve months, but it may use its discretion to analyze the likely volume for the upcoming year. Such discretion would allow the Operating Committee to use its judgment when estimating projected total executed equivalent share volume if the volume over the prior twelve months was unusual or 71 As the SEC noted in the CAT Funding Model Approval Order, recent Section 31 fees ranged from $0.00009 per share to $0.0004 per share. See CAT Funding Model at 62682. 72 The total CAT costs for 2022 were approximately $186 million and the total CAT costs for 2023 are estimated to be approximately $233 million. 73 Section 11.3(b)(iii)(B)(II)(C) of the CAT NMS Plan. 74 Section 11.3(b)(i)(E) of the CAT NMS Plan. E:\FR\FM\13FEN2.SGM 13FEN2 10644 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices otherwise unfit to serve as the basis of a future volume estimate.75 The total executed equivalent share volume of transactions in Eligible Securities for the period from December 2022 through November 2023 was 3,842,861,347,279.44 executed equivalent shares. The Operating Committee has determined to calculate the projected total executed equivalent share volume for the 24 months of Historical Recovery Period 1 by doubling the executed equivalent share volume for the prior 12 months. The Operating Committee determined that such an approach was reasonable as the CAT’s annual executed equivalent share volume has remained relatively constant. For example, the executed equivalent share volume for 2021 was 3,963,697,612,395 executed equivalent shares, and the executed equivalent share volume for 2022 was 4,039,821,841,560.31 executed equivalent shares. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,685,722,694,558.88 executed equivalent shares.76 The projected total executed equivalent share volume of all transactions in Eligible Securities for Historical Recovery Period 1 and a description of the calculation of the projection is provided in this filing in accordance with the requirement in the CAT NMS Plan to provide such information in a fee filing for a Historical CAT Assessment.77 (E) Historical Fee Rate 1 Historical Fee Rate 1 would be calculated by dividing Historical CAT Costs 1 by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for Historical Recovery Period 1, as described in detail above.78 Specifically, Historical Fee Rate 1 would be calculated by dividing $337,688,610 by 7,685,722,694,558.88. As a result, the Historical Fee Rate 1 would be $0.0000439371316687066 per executed equivalent share. Historical Fee Rate 1 lotter on DSK11XQN23PROD with NOTICES2 75 See CAT Funding Model Approval Order at 62664. 76 This projection was calculated by multiplying 3,842,861,347,279.44 executed equivalent shares by two. 77 Section 11.3(b)(iii)(B)(II)(D) of the CAT NMS Plan. 78 In approving the CAT Funding Model, the Commission stated that ‘‘[t]he calculation of the Historical Fee Rate by dividing the Historical CAT Costs by the projected total executed equivalent share volume of all transactions in Eligible Securities for the Historical Recovery Period is reasonable.’’ See CAT Funding Model Approval Order at 62664. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 is provided in this filing in accordance with the requirement in the CAT NMS Plan to provide the Historical Fee Rate in a fee filing for a Historical CAT Assessment.79 Assessment 1 on a monthly basis.’’ In addition, proposed paragraph (b)(1) would state that each CEBB and CEBS is required to pay its CAT fees ‘‘each month.’’ (3) Past CAT Costs and Participants Participants would not be required to pay any fees associated with Historical CAT Assessment 1 as the Participants previously have paid all Past CAT Costs. The CAT NMS Plan explains that: (5) Actual Recovery Period for Historical CAT Assessment 1 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.80 The CAT NMS Plan further states that ‘‘Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.’’ 81 (4) Monthly Fees CEBBs and CEBSs would be required to pay fees for Historical CAT Assessment 1 on a monthly basis for the period in which Historical CAT Assessment 1 is in effect.82 A CEBB or CEBS’s fee for each month would be calculated based on the transactions in Eligible Securities executed by the CEBB or CEBS from the prior month.83 Proposed paragraph (a)(1)(A) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and Options Fee Schedule would state that each CAT Executing Broker would receive its first invoice in April 2024, and ‘‘would receive an invoice each month thereafter in which Historical CAT Assessment 1 is in effect.’’ Proposed paragraph (a)(1)(B) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and the Options Fee Schedule would state that ‘‘Consolidated Audited Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT 79 Section 11.3(b)(iii)(B)(II)(A) of the CAT NMS Plan. 80 Section 11.3(b)(ii) of the CAT NMS Plan. 81 Id. In approving the CAT Funding Model, the Commission stated that ‘‘[t]he proposed allocation of the Historical CAT Assessment solely to CEBs and CEBBs, and ultimately Industry Members, is reasonable. The Historical CAT Assessment will still be divided into thirds,’’ as the Participants’ one-third share of Historical CAT Costs will be paid by the cancellation of loans made to the Company. See CAT Funding Model Approval Order at 62666. 82 Section 11.3(b)(iii)(A) of the CAT NMS Plan. 83 See proposed paragraph (a)(1)(B) under Consolidated Audit Trail Funding Fees on the Equities Price List and the Options Fee Schedule. PO 00000 Frm 00482 Fmt 4701 Sfmt 4703 The CAT NMS Plan 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.’’ 84 Accordingly, Historical CAT Assessment 1 will remain in effect until all Historical CAT Costs 1 have been collected. The actual recovery period for Historical CAT Assessment 1 may be shorter or longer than Historical Recovery Period 1 depending on the actual executed equivalent share volumes during the time that Historical CAT Assessment 1 is in effect.85 (6) Consolidated Audit Trail Funding Fees To implement Historical CAT Assessment 1, a ‘‘Consolidated Audit Trail Funding Fees’’ section would be added to the Equities Price List and the Options Fee Schedule, to include the proposed paragraphs described below. (A) Fee Schedule for Historical CAT Assessment 1 The CAT NMS Plan states 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 11.3.86 Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and Options Fee Schedule. Proposed paragraph (a)(1) would state the following: 84 Section 11.3(b)(i)(D)(II) of the CAT NMS Plan. approving the CAT Funding Model, the Commission stated that ‘‘[i]n the Commission’s view, it is reasonable for Industry Members to be charged a Historical CAT Assessment until all Historical CAT Costs for the Historical CAT Assessment are collected.’’ See CAT Funding Model Approval Order at 62665. 86 Section 11.3(b)(iii)(A) of the CAT NMS Plan. 85 In E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES2 (A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in April 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in March 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect. (B) Consolidated Audit Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT Assessment 1 on a monthly basis. Each month, such invoices shall set forth a fee for each transaction in Eligible Securities executed by the CAT Executing Broker in its capacity as a CAT Executing Broker for the Buyer (‘‘CEBB’’) and/or the CAT Executing Broker for the Seller (‘‘CEBS’’) (as applicable) from the prior month as set forth in CAT Data. The fee for each such transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by the fee rate of $0.000015 per executed equivalent share. (C) Historical CAT Assessment 1 will remain in effect until $225,125,740 (twothirds of Historical CAT Costs 1) are collected from CAT Executing Brokers collectively, which is estimated to be approximately two years, but could be for a longer or shorter period of time. Consolidated Audit Trail, LLC will provide notice when Historical CAT Assessment 1 will no longer be in effect. (D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b). As noted in the Plan amendment for the CAT Funding Model, ‘‘as a practical matter, the fee filing for a Historical CAT Assessment would provide the exact fee per executed equivalent share to be paid for each Historical CAT Assessment, by multiplying the Historical Fee Rate by one-third and describing the relevant number of decimal places for the fee rate.87 Accordingly, proposed paragraph (a)(1)(B) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and the Options Fee Schedule would set forth a fee rate of $0.000015 per executed equivalent share. This fee rate is calculated by multiplying Historical Fee Rate 1 of $0.0000439371316687066 by one-third, and rounding the result to 6 decimal places.88 The Operating Committee determined to use six decimal places to balance the accuracy of the calculation with the potential systems and other impracticalities of using additional decimal places in the calculation. The proposed language in paragraph (a)(1)(A) to the Consolidated Audit Trail 87 See CAT Funding Model Approval Order at 62658, n.658. 88 Dividing $0.0000439371316687066 by three equals $0.00001464571055623553. Rounding $0.00001464571055623553 to six decimal places equals $0.000015. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 Funding Fees section of the Equities Price List and the Options Fee Schedule would describe when CAT Executing Brokers would receive their first monthly invoice for Historical CAT Assessment 1. Specifically, CAT Executing Brokers would receive their first monthly invoice for Historical CAT Assessment 1 in April 2024 and the fees set forth in that invoice would be calculated based on transactions executed in the prior month, that is, transactions executed in March 2024. The payment for the first invoice would be required within 30 days after the receipt of the first invoice (unless a longer period is indicated), as described in proposed paragraph (b)(2) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and the Options Fee Schedule. Proposed paragraph (a)(1)(A) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and the Options Fee Schedule also would describe the monthly cadence of the invoices for Historical CAT Assessment 1. Specifically, after the first invoices are provided to CAT Executing Brokers in April 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect. Proposed paragraph (a)(1)(B) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and the Options Fee Schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) would state that ‘‘Consolidated Audit Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT Assessment 1 on a monthly basis.’’ Proposed paragraph (a)(1)(B) also would describe the fees to be set forth in the invoices for Historical CAT Assessment 1. Specifically, it would state that ‘‘[e]ach month, such invoices shall set forth a fee for each transaction in Eligible Securities executed by the CAT Executing Broker in its capacity as a CAT Executing Broker for the Buyer (‘‘CEBB’’) and/or the CAT Executing Broker for the Seller (‘‘CEBS’’) (as applicable) from the prior month as set forth in CAT Data. The fee for each such transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by the fee rate of $0.000015 per executed equivalent share.’’ Furthermore, proposed paragraph (a)(1)(C) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and the Options Fee Schedule would describe how long Historical CAT Assessment 1 would remain in effect. It would state that ‘‘Historical CAT Assessment 1 will remain in effect PO 00000 Frm 00483 Fmt 4701 Sfmt 4703 10645 until $225,125,740 (two-thirds of Historical CAT Costs 1) are collected from CAT Executing Brokers collectively, which is estimated to be approximately two years, but could be for a longer or shorter period of time.’’ This proposed paragraph would further state that ‘‘Consolidated Audit Trail, LLC will be [sic] provide notice when Historical CAT Assessment 1 will no longer be in effect.’’ Historical CAT Assessment 1 will be assessed for all transactions executed in each month through the end of the month in which two-thirds of Historical CAT Costs 1 are assessed, and then CAT LLC will provide notice that Historical CAT Assessment 1 is no longer in effect. Since Historical CAT Assessment 1 is a monthly fee based on transaction volume from the prior month, Historical CAT Assessment 1 may collect more than two-thirds of Historical CAT Costs 1. To the extent that occurs, any excess money collected during the final month in which Historical CAT Assessment 1 is in effect will be used to offset future fees and/or to fund the reserve for the CAT. Finally, proposed paragraph (a)(1)(D) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and the Options Fee Schedule would set forth the requirement for the CAT Executing Brokers to pay the invoices for Historical CAT Assessment 1. It would state that ‘‘[e]ach CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).’’ (B) Manner of Payment The Exchange proposes to add paragraph (b)(1) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and the Options Fee Schedule to describe the manner of payment of Industry Member CAT fees. The CAT NMS Plan requires the Operating Committee to establish a system for the collection of CAT fees.89 The Plan Processor has established a billing system for CAT fees.90 Therefore, the Exchange proposes to require CAT Executing Brokers to pay Historical CAT Assessment 1 in accordance with such system. Accordingly, proposed paragraph (b)(1) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and the Options Fee 89 Section 11.4 of the CAT NMS Plan. billing process and system are described in CAT Alert 2023–02 as well as the CAT FAQs related to the billing of CAT fees, the Industry Member CAT Reporter Portal User Guide, the FCAT Industry Member Onboarding Guide, the FCAT Connectivity Supplement for Industry Members and the CAT Billing Webinars (dated September 28, 2023 and November 7, 2023), each available on the CAT website. 90 The E:\FR\FM\13FEN2.SGM 13FEN2 10646 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices Schedule would state that ‘‘[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.’’ (C) Failure to Pay CAT Fees The CAT NMS Plan further 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). 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.91 Accordingly, the Exchange proposes to add this requirement to the Equities Price List and the Options Fee Schedule. Proposed paragraph (b)(2) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and the Options Fee Schedule would state: Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If a CAT Executing Broker fails to pay any such CAT fee when due, such CAT Executing Broker shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of (i) the Prime Rate plus 300 basis points, or (ii) the maximum rate permitted by applicable law. (7) Historical CAT Assessment Details The CAT NMS Plan states that: lotter on DSK11XQN23PROD with NOTICES2 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.92 Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.93 CAT LLC will provide 91 Section 11.4 of the CAT NMS Plan. 11.3(a)(iv)(A) of the CAT NMS Plan. 93 In approving the CAT Funding Model, the Commission stated that, ‘‘[i]n the Commission’s 92 Section VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 CAT Executing Brokers with these details regarding the calculation of their Historical CAT Assessments on their monthly invoice for the Historical CAT Assessment. In addition, CAT LLC will make certain aggregate statistics regarding Historical CAT Assessments publicly available. Specifically, the CAT NMS Plan states 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 on an exchange, and (3) by buy-side transactions and sell-side transactions.’’ 94 Such aggregate statistics will be available on the CAT website. Furthermore, CAT LLC will make publicly available on the CAT website the total amount invoiced each month that Historical CAT Assessment 1 is in effect as well as the total amount invoiced for Historical CAT Assessment 1 for all months since its commencement. CAT LLC also will make publicly available on the CAT website the total costs to be collected from Industry Members for Historical CAT Assessment 1. By reviewing statistics regarding how much has been invoiced and how much remains to be invoiced for Historical CAT Assessment 1, Industry Members would have sufficient information to reasonably track how much longer Historical CAT Assessment 1 is likely to be in place. (8) Implementation Assistance To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC will make available to CAT Executing Brokers four months of mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers will receive mock invoices based on transaction data from November 2023, December 2023, January 2024 and February 2024. The mock invoices will be in the same form view, providing CAT Execut[ing] Brokers information regarding the calculation of their CAT Fees will aid in transparency and permit CAT Execut[ing] Brokers to confirm the accuracy of their invoices for CAT Fees.’’ See CAT Funding Model Approval Order at 62667. 94 Section 11.3(a)(iv)(B) of the CAT NMS Plan. In approving the CAT Funding Model, the Commission stated that ‘‘[t]he publication of the aggregate executed equivalent share volume and aggregate fee is appropriate because it would allow Participants and CAT Executing Brokers a highlevel validation of executed volume and fees.’’ See CAT Funding Model Approval Order at 62667. PO 00000 Frm 00484 Fmt 4701 Sfmt 4703 as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments will be required in response to such mock invoices; they are to be used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data will provide CAT Executing Brokers with a preview of the transaction data used in creating the invoices for Historical CAT Assessment 1 fees, as the data will be the same as data provided in actual invoices. Such data preview is intended to facilitate the payment of Historical CAT Assessment 1. (9) Financial Accountability Milestones The CAT NMS Plan states 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.’’ 95 The CAT NMS Plan further states that ‘‘in all filings submitted by the Participants to the Commission under Section 19(b) of the Exchange Act, to establish or implement PostAmendment Industry Member Fees pursuant to this Article, . . . the Participants shall clearly indicate whether such fees are related to PostAmendment Expenses incurred during Period 1, Period 2, Period 3, or Period 4.’’ 96 As discussed in detail below, all applicable Financial Accountability Milestones for Historical CAT Assessment 1—that is, Period 1, Period 2 and Period 3 of the Financial Accountability Milestones—have been satisfied. Furthermore, as discussed below, this filing clearly indicates that Historical CAT Assessment 1 relates to Post-Amendment Expenses incurred during Periods 1, 2 and 3 of the Financial Accountability Milestones. (A) Period 1 of the Financial Accountability Milestones In accordance with Section 11.6(b) of the CAT NMS Plan, Historical CAT Assessment 1 seeks to recover costs that are related to ‘‘all fees, costs, and expenses (including legal and consulting fees, costs, and expenses) incurred by or for the Company in connection with the development, implementation and operation of the CAT from the effective date of [Section 11.6 of the CAT NMS Plan] until such time as Full Implementation of CAT NMS Plan Requirements has been 95 Section 11.3(b)(iii)(B)(III) of the CAT NMS Plan. 96 Section 11.6(b) of the CAT NMS Plan. E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices achieved’’ 97 (‘‘Post-Amendment Expenses’’) incurred during FAM Period 1. FAM Period 1 began on June 22, 2020, the effective date of Section 11.6 of the CAT NMS Plan, and concluded on July 31, 2020, the date of Initial Industry Member Core Equity and Options Reporting. Section 1.1 of the CAT NMS Plan defines ‘‘Initial Industry Member Core Equity and Options Reporting’’ as: The reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of both: (a) equities transaction data, excluding Customer Account Information, Customer-ID, and Customer Identifying Information; and (b) options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information. Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants’ Quarterly Progress Reports.98 As indicated by the Participants’ Quarterly Progress Report for the third quarter of 2020,99 Initial Industry Member Core Equity and Option Reporting was completed on schedule on July 22, 2020, which is prior to the July 31, 2020 deadline. Under the FAM Period 1 requirement of Initial Industry Member Core Equity and Options Reporting, Industry Members—excluding Small Industry Members that are not OATS reporters— were required to report two categories of data to the CAT: equites transaction data and options transaction data (both excluding Customer Account Information, Customer-ID, and Customer Identifying Information) by July 31, 2020. Pursuant to exemptive relief provided by the Commission, the Commission authorized the Participants’ Compliance Rules to allow core equity reporting for Industry Members (Phase 2a) to begin on June 22, 2020 and core options reporting for Industry Members (Phase 2b) to begin on July 20, 2020.100 97 Section 11.6 of the CAT NMS Plan. Quarterly Progress Reports are available at https://www.catnmsplan.com/implementationplan. 99 See Q3 2020 Quarterly Progress Report (Oct. 30, 2020) and Updated Q3 2020 Quarterly Progress Report (Jan. 29, 2021). 100 See Phased Reporting Exemptive Relief Order. Under the CAT NMS Plan as adopted, the Participants were required, through their Compliance Rules, to require their Large Industry Members to commence reporting Industry Member Data to the Central Repository by November 15, 2018, and to require their Small Industry Members to commence reporting Industry Member Data to the Central Repository by November 15, 2019. Sections 6.7(a)(v) and (vi) of the CAT NMS Plan. The SEC granted exemptive relief from these provisions of the CAT NMS Plan to allow for the lotter on DSK11XQN23PROD with NOTICES2 98 The VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 In adopting the FAMs, the Commission stated that the equities transaction reporting required for FAM Period 1 ‘‘is consistent with the functionality that the Participants describe on the CAT NMS Plan website as ‘Production Go-Live for Equities 2a file submission and data integrity validations.’ ’’ 101 The Phase 2a Industry Member Data is described in detail in the SEC’s Phased Reporting Exemptive Relief Order, and includes the following data related to Eligible Securities that are equities: • All events and scenarios covered by OATS, which includes information related to the receipt or origination of orders, order transmittal, and order modifications, cancellations and executions; • Reportable Events for: (1) proprietary orders, including market maker orders, for Eligible Securities that are equities; (2) electronic quotes in listed equity Eligible Securities (i.e., NMS stocks) sent to a national securities exchange or FINRA’s Alternative Display Facility (‘‘ADF’’); (3) electronic quotes in unlisted Eligible Securities (i.e., OTC Equity Securities) received by an Industry Member operating an interdealer quotation system (‘‘IDQS’’); and (4) electronic quotes in unlisted Eligible Securities sent to an IDQS or other quotation system not operated by a Participant or Industry Member; • Firm Designated IDs (‘‘FDIDs’’), which Industry Members must report to the CAT as required by Sections 6.3(d)(i)(A) and 6.4(d)(ii)(C) of the CAT NMS Plan. • Industry Members would be required to report all street side representative orders, including both agency and proprietary orders and mark such orders as representative orders, except in certain limited exceptions as described in the Industry Member Technical Specifications; • The link between the street side representative order and the order being represented when: (1) the representative order was originated specifically to represent a single order received either from a customer or another broker-dealer; and (2) there is (a) an existing direct electronic link in the Industry Member’s system between the order being represented and the representative order and (b) any resulting executions are immediately and automatically applied to the represented order in the Industry Member’s system; • Manual and Electronic Capture Time for Manual Order Events; • Special handling instructions for the original receipt or origination of an order during Phase 2a; and phased implementation of Industry Member reporting via five phases addressing the reporting requirements for Phase 2a Industry Member Data, Phase 2b Industry Member Data, Phase 2c Industry Member Data, Phase 2d Industry Member Data and Phase 2e Industry Member Data. 101 See Securities Exchange Act Release No. 88890, 85 FR 31322, 31330 n.97 (‘‘FAM Adopting Release’’). PO 00000 Frm 00485 Fmt 4701 Sfmt 4703 10647 • When routing an order, whether the order was routed as an intermarket sweep order (‘‘ISO’’). In Phase 2a, Industry Members were not required to report modifications of a previously routed order in certain limited instances, nor were they required to report a cancellation of an order received from a Customer after the order has been executed.102 The Quarterly Progress Report for the third quarter of 2020 states that ‘‘Interim Step: Production Go-Live for Equities 2a file submission and data integrity validation (Large Industry Members and Small OATS Reporters)’’ was completed on June 22, 2020. Accordingly, the FAM Period 1 requirement of reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of ‘‘equities transaction data, excluding Customer Account Information, Customer-ID, and Customer Identifying Information’’ was completed on June 22, 2020. In adopting the FAMs, the Commission stated that the options transaction reporting required for FAM Period 1 is ‘‘consistent with the functionality that the Participants describe on the CAT NMS Plan website as ‘Production Go-Live for Options 2b file submission and data integrity validations.’ ’’ 103 The Phase 2b Industry Member Data is described in detail in the SEC’s Phased Reporting Exemptive Relief Order, and includes the Industry Member Data related to Eligible Securities that are options and related to simple electronic option orders, excluding electronic paired option orders. A simple electronic option order is an order to buy or sell a single option that is not related to or dependent on any other transaction for pricing and timing of execution that is either received or routed electronically by an Industry Member. Electronic receipt of an order is defined as the initial receipt of an order by an Industry Member in electronic form in standard format directly into an order handling or execution system. Electronic routing of an order is the routing of an order via electronic medium in standard format from one Industry Member’s order handling or execution system to an exchange or another Industry Member. An electronic paired option order is an electronic option order that contains both the buy and sell side that is routed to another Industry Member or exchange for crossing and/or price improvement as a single transaction on an exchange. Responses to auctions of simple orders 102 See Phased Reporting Exemptive Relief Order at 23076–78. 103 See FAM Adopting Release at 31330, n.98. E:\FR\FM\13FEN2.SGM 13FEN2 10648 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES2 and paired simple orders would be reportable in Phase 2b. Furthermore, combined orders in options would be treated in Phase 2b in the same way as equity representative orders are treated in Phase 2a. A combined order would mean, as permitted by SRO rules, a single, simple order in Listed Options created by combining individual, simple orders in Listed Options from a customer with the same exchange origin code before routing to an exchange. During Phase 2b, the single combined order sent to an exchange must be reported and marked as a combined order, but the linkage to the underlying orders is not required to be reported until Phase 2d.104 The Quarterly Progress Report for the third quarter of 2020 states that ‘‘Interim Step: Production Go-Live for Options 2b file submission and data integrity validations’’ was completed on July 20, 2020. Accordingly, the FAM Period 1 requirement of reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of ‘‘options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information’’ was completed on July 20, 2020. As discussed above, the Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from June 22, 2020 through July 31, 2020. The total costs for this period, as discussed above, are $6,377,343. 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 ($2,125,781) and CEBSs paying onethird ($2,125,781). (B) Period 2 of the Financial Accountability Milestones Historical CAT Assessment 1 seeks to recover costs that are related to PostAmendment Expenses incurred during FAM Period 2. FAM Period 2 began on August 1, 2020, and concluded on December 31, 2020, the date of the Full Implementation of Core Equity Reporting. Section 1.1 of the CAT NMS Plan defines ‘‘Full Implementation of Core Equity Reporting’’ as: the point at which: (a) Industry Member reporting (excluding reporting by Small Industry Members that are not OATS 104 See Phased Reporting Exemptive Relief Order at 23078. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 reporters) for equities transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, is developed, tested, and implemented at a 5% Error Rate or less and with sufficient intrafirm linkage, inter-firm linkage, national securities exchange linkage, and trade reporting facilities linkage to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, excluding linkage of representative orders, from order origination through order execution or order cancellation; and (b) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1– 8.1.3 and Section 8.2.1 incorporates the Industry Member equities transaction data described in condition (a) and is available to the Participants and to the Commission. This Financial Accountability Milestone shall be considered complete as of the date identified in a Quarterly Progress Report meeting the requirements of Section 6.6(c). Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants’ Quarterly Progress Reports. As indicated by the Participants’ Quarterly Progress Report for the fourth quarter of 2020,105 Full Implementation of Core Equity Reporting was completed on schedule by December 31, 2020. Specifically, the Full Implementation of Core Equity Reporting requires the satisfaction of two prongs. The first prong requires Participants to have fully implemented the first phase of equities transaction reporting for Industry Members (excluding Small Industry Members that are not OATS reporters) at an Error Rate of less than 5%. In addition, equities transaction data produced by the CAT at this stage must also be sufficiently interlinked so as to permit full analysis of an order’s lifecycle across the national market, excluding full linkage of representative orders. As CAT LLC reported on its Quarterly Progress Reports, Phase 2a was fully implemented as of October 26, 2020, including intra-firm, inter-firm, national securities exchange, and trade reporting facilities linkages.106 In addition to the reporting of Phase 2a Industry Member Data as described above with regard to FAM Period 1, the following linkage data was added to the CAT as described in the Quarterly Progress Reports for the third and fourth quarter of 2020: 105 Q4 2020 Quarterly Progress Report (Jan. 29, 2021). 106 For a description of the requirements of Phases 2a, see Phased Reporting Exemptive Relief Order. PO 00000 Frm 00486 Fmt 4701 Sfmt 4703 • ‘‘Production Go-Live for Equities 2a Intrafirm Linkage validations’’ was completed on 7/27/2020; 107 • ‘‘Production Go-Live for Firm to Firm Linkage validations for Equities 2a (Large Industry Members and Small OATS Reporters)’’ was completed on October 26, 2020; and • ‘‘Production Go-Live for Equities 2a Exchange and TRF Linkage validations (Large Industry Members and Small OATS Reporters)’’ was completed on October 26, 2020. Furthermore, as CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2020, the average overall error rate for Phase 2a Industry Member Data was less than 5% as of December 31, 2020. The average overall error rate was calculated by dividing the compliance errors by processed records. The second prong of this FAM requires that the equities transaction data collected by the CAT at this stage be made available to regulators through two basic query tools required by the CAT NMS Plan—a targeted query tool that will enable regulators to retrieve data via an online query screen with a variety of predefined selection criteria, and a user-defined direct query tool that will provide regulators with the ability to query data using all available attributes and data sources.108 As CAT LLC reported on its Quarterly Progress Reports, the query tool functionality incorporating the data from Phase 2a was available to the Participants and the Commission as of December 31, 2020.109 The Commission has determined that the Participants have sufficiently complied with the conditions set forth in the 2020 Orders and with the technical requirements for Quarterly Progress Reports set forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining compliance with this FAM.110 As discussed above, Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, 107 Q3 2020 Quarterly Progress Report (Oct. 20, 2021). 108 Section 6.10(c)(i)(A) of the CAT NMS Plan requires the Plan Processor to ‘‘provide Participants and the SEC with access to all CAT Data stored in the Central Repository’’ via an ‘‘online targeted query tool.’’ Appendix D, Sections 8.1.1–8.1.3 of the CAT NMS Plan describes the required functionality associated with this regulatory tool. Appendix D, Section 8.2.1 describes the required functionality associated with a user-defined direct query tool that will ‘‘deliver large sets of data that can then be used in internal surveillance or market analysis applications.’’ 109 See Q3 2020 Quarterly Progress Report (Oct. 30, 2020); Updated Q3 2020 Quarterly Progress Report (Jan. 29, 2021); and Q4 2020 Quarterly Progress Report (Jan. 29, 2021). 110 See Securities Exchange Act Release No. 98848 (November 2, 2023), 88 FR 77128, 77129 n.13 (November 8, 2023) (‘‘Settlement Exemptive Order’’). E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from August 1, 2020 through December 31, 2020. The total costs for this period, as discussed above, are $42,976,478. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remain [sic] two-thirds, with CEBBs paying one-third ($14,325,492.70) and CEBSs paying one-third ($14,325,492.70). lotter on DSK11XQN23PROD with NOTICES2 (C) Period 3 of the Financial Accountability Milestones Historical CAT Assessment 1 seeks to recover costs that are related to PostAmendment Expenses incurred during FAM Period 3. FAM Period 3 began on January 1, 2021, and concluded on December 31, 2021, the date of the Full Availability and Regulatory Utilization of Transactional Database Functionality. Section 1.1 of the CAT NMS Plan defines ‘‘Full Availability and Regulatory Utilization of Transactional Database Functionality’’ as: the point at which: (a) reporting to the Order Audit Trail System (‘‘OATS’’) is no longer required for new orders; (b) Industry Member reporting for equities transactions and simple electronic options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, trade reporting facilities linkage, and representative order linkages (including any equities allocation information provided in an Allocation Report) to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, is developed, tested, and implemented at a 5% Error Rate or less; (c) Industry Member reporting for manual options transactions and complex options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with all required linkages to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, including any options allocation information provided in an Allocation Report, is developed, tested, and fully implemented; (d) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1– 8.1.3, Section 8.2.1, and Section 8.5 incorporates the data described in conditions (b)–(c) and is available to the Participants and to the Commission; and (e) the requirements of Section 6.10(a) are met. This Financial Accountability Milestone shall be considered complete as of the date identified in a Quarterly Progress Report meeting the requirements of Section 6.6(c). VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants’ Quarterly Progress Reports. As indicated by the Participants’ Quarterly Progress Report for the fourth quarter of 2021,111 Full Availability and Regulatory Utilization of Transactional Database Functionality was completed on schedule by December 31, 2021. Specifically, the ‘‘Full Availability and Regulatory Utilization of Transactional Database Functionality’’ requires the satisfaction of five prongs. The first prong requires that reporting to the Order Audit Trail System (‘‘OATS’’) is no longer required for new orders. As CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2021,112 FINRA retired OATS effective September 1, 2021.113 Accordingly, after the retirement of OATS, reporting to OATS was no longer required. In addition to Phase 2a and Phase 2b Industry Member Data, the second and third prongs of ‘‘Full Availability and Regulatory Utilization of Transactional Database Functionality’’ require Industry Member reporting of Phase 2c Industry Member Data and Phase 2d Industry Member Data. The Phase 2c Industry Member Data is described in detail in the SEC’s Phased Reporting Exemptive Relief Order. That Order states that ‘‘Phase 2c Industry Member Data’’ is Industry Member Data related to Eligible Securities that are equities other than Phase 2a Industry Member Data, Phase 2d Industry Member Data, or Phase 2e Industry Member Data. Specifically, the Phase 2c Industry Member Data includes Industry Member Data that is related to Eligible Securities that are equities and that is related to: (1) Allocation Reports as required to be recorded and reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible Securities sent to an IDQS operated by a CAT Reporter (reportable by the Industry Member sending the quotes) (except for quotes reportable in Phase 2d, as discussed below); (3) electronic quotes in listed equity Eligible Securities (i.e., NMS stocks) that are not sent to a national securities exchange or FINRA’s Alternative Display Facility; (4) reporting changes to client instructions regarding modifications to algorithms; (5) marking as a representative order any order originated to work a customer 111 Q4 2021 Quarterly Progress Report (Jan. 17, 2022). 112 Id. 113 See Securities Exchange Act Release No. 92239 (June 23, 2021), 86 FR 34293 (June 29, 2021). PO 00000 Frm 00487 Fmt 4701 Sfmt 4703 10649 order in price guarantee scenarios, such as a guaranteed VWAP; (6) flagging rejected external routes to indicate a route was not accepted by the receiving destination; (7) linkage of duplicate electronic messages related to a Manual Order Event between the electronic event and the original manual route; (8) special handling instructions on order route reports (other than the ISO, which is required to be reported in Phase 2a); (9) quote identifier on trade events; (10) reporting of LTIDs (if applicable) for accounts with Reportable Events that are reportable to CAT as of and including Phase 2c; (11) reporting of date account opened or Account Effective Date71 (as applicable) for accounts and reporting of a flag indicating the Firm Designated ID type as account or relationship; (12) order effective time for orders that are received by an Industry Member and do not become effective until a later time; (13) the modification or cancellation of an internal route of an order; and (14) linkages to the customer orders(s) being represented for representative order scenarios, including agency average price trades, net trades, aggregated orders, and disconnected Order Management System (‘‘OMS’’)— Execution Management System (‘‘EMS’’) scenarios, as required in the Industry Member Technical Specifications.114 Phase 2c Industry Member Data also includes electronic quotes that are provided by or received in a CAT Reporter’s order/quote handling or execution systems in Eligible Securities that are equities and are provided by an Industry Member to other market participants off a national securities exchange under the following conditions: (1) an equity bid or offer is displayed publicly or has been communicated (a) for listed securities to the Alternative Display Facility (ADF) operated by FINRA; or (b) for unlisted equity securities to an ‘‘interdealer quotation system,’’ as defined in FINRA Rule 6420(c); or (2) an equity bid or offer which is accessible electronically by customers or other market participants and is immediately actionable for execution or routing; i.e., no further manual or electronic action is required by the responder providing the quote in order to execute or cause a trade to be executed). With respect to OTC Equity Securities, OTC Equity Securities quotes sent by an Industry Member to an IDQS operated by an Industry Member CAT Reporter (other than such an IDQS that does not match and execute orders) are reportable by 114 See Phase Reporting Exemptive Relief Order at 23078–79. E:\FR\FM\13FEN2.SGM 13FEN2 lotter on DSK11XQN23PROD with NOTICES2 10650 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices the Industry Member sending them in Phase 2c. Accordingly, any response to a request for quote or other form of solicitation response provided in a standard electronic format (e.g., FIX) that meets this quote definition (i.e., an equity bid or offer which is accessible electronically by customers or other market participants and is immediately actionable for execution or routing) would be reportable in Phase 2c.115 The Phase 2d Industry Member Data is described in detail in the SEC’s Phased Reporting Exemptive Relief Order. ‘‘Phase 2d Industry Member Data’’ is Industry Member Data that is related to Eligible Securities that are options other than Phase 2b Industry Member Data, Industry Member Data that is related to Eligible Securities that are equities other than Phase 2a Industry Member Data or Phase 2c Industry Member Data, and Industry Member Data other than Phase 2e Industry Member Data. Phase 2d Industry Member Data includes with respect to the Eligible Securities that are options: (1) simple manual orders; (2) electronic and manual paired orders; (3) all complex orders with linkages to all CAT-reportable legs; (4) LTIDs (if applicable) for accounts with Reportable Events for Phase 2d; (5) date account opened or Account Effective Date (as applicable) for accounts with an LTID and flag indicating the Firm Designated ID type as account or relationship for such accounts; (6) Allocation Reports as required to be recorded and reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan; (7) the modification or cancellation of an internal route of an order; and (8) linkage between a combined order and the original customer orders. Phase 2d Industry Member Data also would include electronic quotes that are provided by or received in a CAT Reporter’s order/ quote handling or execution systems in Eligible Securities that are options and are provided by an Industry Member to other market participants off a national securities exchange under the following conditions: a listed option bid or offer which is accessible electronically by customers or other market participants and is immediately actionable (i.e., no further action is required by the responder providing the quote in order to execute or cause a trade to be executed). Accordingly, any response to a request for quote or other form of solicitation response provided in standard electronic format (e.g., FIX) that meets this definition is reportable in Phase 2d for options.116 Phase 2d Industry Member Data also includes with respect to Eligible Securities that are options or equities (1) receipt time of cancellation and modification instructions through Order Cancel Request and Order Modification Request events; (2) modifications of previously routed orders in certain instances; and (3) OTC Equity Securities quotes sent by an Industry Member to an IDQS operated by an Industry Member CAT Reporter that does not match and execute orders. In addition, subject to any exemptive or other relief, Phase 2d Industry Member Data will include verbal or manual quotes on an exchange floor or in the over-thecounter market, where verbal quotes and manual quotes are defined as bids or offers in Eligible Securities provided verbally or that are provided or received other than via a CAT Reporter’s order handling and execution system (e.g., quotations provided via email or instant messaging).117 The Quarterly Progress Report for the fourth quarter of 2021 states that ‘‘Phase 2a was fully implemented as of October 26, 2020;’’ ‘‘Phase 2b was fully implemented as of January 4, 2021;’’ ‘‘Phase 2c was implemented as of April 26, 2021;’’ and ‘‘Phase 2d was fully implemented as of December 13, 2021.’’ 118 The Quarterly Progress Reports for 2021 provide additional detail regarding the implementation of these steps including the following: • ‘‘Production Go-Live for Equities 2c reporting requirements (Large Industry Members)’’ was completed on April 26, 2021; • ‘‘LTID Account Information Reporting Go-Live for Phases 2a, 2b and 2c (Large Industry Members)’’ was completed on April 26, 2021; • ‘‘FCAT Plan Processor creates linkages of the lifecycle of order events based on the received data through Phase 2d Production Go-Live for Options 2d reporting requirements (Large Industry Members)’’ was completed on December 13, 2021; • ‘‘Production Go-Live for Options 2d reporting requirements (Large Industry Members)’’ was completed on December 13, 2021; • ‘‘Production Go-Live for Options 2b reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)’’ was completed on December 13, 2021; • ‘‘Production Go-Live for Equities 2c reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)’’ was completed on December 13, 2021; • ‘‘Production Go-Live for Options 2d reporting requirements (Small OATS 116 Id. 117 Id. at 23079–80. Q4 2021 Quarterly Progress Report (January 17, 2022). 118 See 115 Id. at 23079. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 PO 00000 Frm 00488 Fmt 4701 Sfmt 4703 Reporters and Small Non-OATS Reporters)’’ was completed on December 13, 2021; • ‘‘LTID Account Information Reporting Go-Live for Phases 2d (Large Industry Members)’’ was completed on December 13, 2021; and • ‘‘LTID Account Information Reporting Go-Live for Phases 2a, 2b, 2c and 2d (Small Industry Members)’’ was completed on December 13, 2021.119 The third prong of ‘‘Full Availability and Regulatory Utilization of Transactional Database Functionality’’ also imposes an Error Rate requirement of 5% or less. The Quarterly Progress Report for the fourth quarter of 2021 states the average overall error rate was less than 5% as of December 31, 2021. The average overall error rate was calculated by dividing the compliance errors by processed records. The fourth prong of ‘‘Full Availability and Regulatory Utilization of Transactional Database Functionality’’ requires that the data collected by the CAT at this stage be made available to regulators through an online targeted query tool and a user-defined direct query tool. As CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2021, the query tool functionality incorporating the data from Phases 2a, 2b, 2c and 2d was available to the Participants and to the Commission as of December 31, 2021.120 The fifth prong requires the requirements of Section 6.10(a) of the CAT NMS Plan to have been met. Section 6.10(a) of the CAT NMS Plan requires the Participants to use the tools described in Appendix D to ‘‘develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository.’’ The Exchange implemented a surveillance system, or enhanced existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository as of December 31, 2021 in accordance with Section 6.10(a) of the CAT NMS Plan.121 The Commission has determined that the Participants have sufficiently complied with the conditions set forth in the 2020 Orders and with the technical requirements for Quarterly Progress Reports set forth in Section 6.6(c) of the CAT NMS Plan for 119 See Q2 2021 Quarterly Progress Report (July 27, 2021); and Q4 2021 Quarterly Progress Report (January 17, 2022). 120 See Q4 2021 Quarterly Progress Report (January 17, 2022). 121 See Q1 2021 Quarterly Progress Report (April 30, 2021); Q2 2021 Quarterly Progress Report (July 27, 2021); Q3 2021 Quarterly Progress Report (November 1, 2021); Q4 2021 Quarterly Progress Report (January 17, 2022). E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices purposes of determining compliance with this FAM.122 As discussed above, Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from January 1, 2021 through December 31, 2021. The total costs for this period, as discussed above, are $144,415,268. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remain [sic] two-thirds, with CEBBs paying one-third ($48,138,422.70) and CBSs paying one-third ($48,138,422.70). lotter on DSK11XQN23PROD with NOTICES2 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,123 which requires, among other things, that the Exchange’s rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, and not designed to permit unfair discrimination between customers, issuers, brokers and dealers. The Exchange also believes that the proposed rule change is consistent with the provisions of Section 6(b)(4) of the Act,124 because it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers or dealers. The Exchange further believes that the proposed rule change is consistent with Section 6(b)(8) of the Act,125 which requires that the Exchange’s rules not impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Exchange Act. These provisions also require that the Exchange be ‘‘so organized and [have] the capacity to be able to carry out the purposes’’ of the Act and ‘‘to comply, and . . . to enforce compliance by its members and persons associated with its members,’’ with the provisions of the Exchange Act.126 Accordingly, a reasonable reading of the 122 See Settlement Exemptive Order at 77129 n.13. 123 15 U.S.C. 78f(b)(6). U.S.C. 78f(b)(4). 125 15 U.S.C. 78f(b)(8). 126 See Section 6(b)(1) of the Exchange Act. 124 15 VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 Act indicates that it intended that regulatory funding be sufficient to permit an exchange to fulfill its statutory responsibility under the Act, and contemplated that such funding would be achieved through equitable assessments on the members, issuers, and other users of an exchange’s facilities. The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan ‘‘is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.’’ 127 To the extent that this proposal implements the Plan and applies specific requirements to Industry Members, the Exchange believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Act. The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange to collect certain of such costs in a fair and reasonable manner from Industry Members, as contemplated by the CAT NMS Plan. The proposed Historical CAT Assessment 1 fees would be charged to Industry Members in support of the maintenance of a consolidated audit trail for regulatory purposes. The proposed fees, therefore, are consistent with the Commission’s view that regulatory fees be used for regulatory purposes and not to support the Exchange’s business operations. The proposed fees would not cover Exchange services unrelated to the CAT. In addition, any surplus would be used as a reserve to offset future fees. Given the direct relationship between CAT fees and CAT costs, the Exchange believes that the proposed fees are reasonable, equitable and not unfairly discriminatory. As further discussed below, the SEC approved the CAT Funding Model, finding it was reasonable and that it equitably allocates fees among Participants and Industry Members. The Exchange believes that the proposed fees adopted pursuant to the CAT Funding Model approved by the SEC are reasonable, equitably allocated and not unfairly discriminatory. (1) Implementation of CAT Funding Model in CAT NMS Plan Section 11.1(b) of the CAT NMS Plan states that ‘‘[t]he Participants shall file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves.’’ Per Section 11.1(b) of the CAT NMS Plan, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange believes that this proposal is consistent with the Exchange Act because it is consistent with, and implements, the CAT Funding Model in the CAT NMS Plan, and is designed to assist the Exchange and its Industry Members in meeting regulatory obligations pursuant to the CAT NMS Plan. In approving the CAT NMS Plan, the SEC noted that the Plan ‘‘is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.’’ 128 Similarly, in approving the CAT Funding Model, the SEC concluded that the CAT Funding Model met this standard.129 As this proposal implements the Plan and the CAT Funding Model described therein, and applies specific requirements to Industry Members in compliance with the Plan, the Exchange believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Exchange Act. (2) Calculation of Fee Rate for Historical CAT Assessment 1 Is Reasonable The SEC has determined that the CAT Funding Model is reasonable and satisfies the requirements of the Exchange Act. Specifically, the SEC has concluded that the method for determining Historical CAT 128 See 129 See 127 See PO 00000 CAT NMS Plan Approval Order at 84697. Frm 00489 Fmt 4701 Sfmt 4703 10651 CAT NMS Plan Approval Order at 84696. CAT Funding Model Approval Order at 62686. E:\FR\FM\13FEN2.SGM 13FEN2 10652 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices Assessments as set forth in Section 11.3 of the CAT NMS Plan, including the formula for calculating the Historical Fee Rate, the identification of the parties responsible for payment and the transactions subject to the fee rate for the Historical CAT Assessment, is reasonable and satisfies the Exchange Act.130 In each respect, as discussed above, Historical CAT Assessment 1 is calculated, and would be applied, in accordance with the requirements applicable to Historical CAT Assessments as set forth in the CAT NMS Plan. Furthermore, as discussed below, the Exchange believes that each of the figures for the variables in the SEC-approved formula for calculating the fee rate for Historical CAT Assessment 1 is reasonable and consistent with the Exchange Act. Calculation of the Historical Fee Rate for Historical CAT Assessment 1 requires the figures for the Historical CAT Costs 1, the executed equivalent share volume for the prior twelve months, the determination of Historical Recovery Period 1, and the projection of the executed equivalent share volume for Historical Recovery Period 1. Each of these variables is reasonable and satisfies the Exchange Act, as discussed throughout this filing. (A) Historical CAT Costs 1 The formula for calculating a Historical Fee Rate requires the amount of Historical CAT Costs to be recovered. Specifically, Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan requires a fee filing to provide: lotter on DSK11XQN23PROD with NOTICES2 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. In accordance with this requirement, the Exchange has set forth the amount and type of Historical CAT Costs 1 for each of these categories of costs above. Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan also requires that the fee filing provide ‘‘sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate.’’ As discussed below, the Exchange believes that the amounts set forth in this filing for each of these cost categories is ‘‘reasonable and appropriate.’’ Each of the costs included in Historical CAT Costs 1 are reasonable and appropriate because the costs are consistent with standard industry 130 Id. at 62662–63. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 practice, based on the need to comply with the requirements of the CAT NMS Plan, incurred subject to negotiations performed on an arm’s length basis, and/or are consistent with the needs of any legal entity, particularly one with no employees. (i) Technology: Cloud Hosting Services In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover costs related to cloud hosting services as a part of Historical CAT Assessments.131 CAT LLC determined that the costs related to cloud hosting services described in this filing are reasonable and should be included as a part of Historical CAT Costs 1. As described above, the cloud hosting services costs reflect, among other things, the breadth of the CAT cloud activities, data volume far in excess of the original volume estimates, the need for specialized cloud services given the volume and unique nature of the CAT, the processing time requirements of the Plan, and regular efforts to seek to minimize costs where permissible under the Plan. CAT LLC determined that use of cloud hosting services is necessary for implementation of the CAT, particularly given the substantial data volumes associated with the CAT, and that the fees for cloud hosting services negotiated by FCAT were reasonable, taking into consideration a variety of factors, including the expected volume of data and the breadth of services provided and market rates for similar services.132 Indeed, the actual costs of the CAT are far in excess of the original estimated costs of the CAT due to various factors, including the higher volumes and greater complexity of the CAT than anticipated when Rule 613 was originally adopted. To comply with the requirements of the Plan, the breadth of the cloud activities related to the CAT is substantial. The cloud services not only include the production environment for the CAT, but they also include two industry testing environments, support environments for quality assurance and stress testing and disaster recovery capabilities. Moreover, the cloud storage costs are driven by the requirements of the Plan, which requires the storage of multiple versions of the data, from the original submitted version of the data through various processing steps, to the final version of the data. 131 Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan. 132 For a discussion of the amount and type of cloud hosting services fees, see Sections 3(a)(2)(B)(i)(a), 3(a)(2)(B)(ii)(a), 3(a)(2)(B)(iii)(a) and 3(a)(2)(B)(iv)(A) above. PO 00000 Frm 00490 Fmt 4701 Sfmt 4703 Data volume is a significant driver of costs for cloud hosting services. When the Commission adopted the CAT NMS Plan in 2016, it estimated that the CAT would need to receive 58 billion records per day 133 and that annual operating costs for the CAT would range from $36.5 million to $55 million.134 Through 2021, the actual data volumes have been five times that original estimate. The data volumes for each period are set forth in detail above.135 In addition to the effect of the data volume on the cloud hosting costs, the processing timelines set forth in the Plan contribute to the cloud hosting costs. Although CAT LLC has proactively sought to manage cloud hosting costs while complying with the Plan, including through requests to the Commission for exemptive relief and an amendment to the CAT NMS Plan, stringent CAT NMS Plan requirements do not allow for any material flexibility in cloud architecture design choices, processing timelines (e.g., the use of non-peak processing windows), or lower-cost storage tiers. As a result, the required CAT processing timelines contribute to the cloud hosting costs of the CAT. The costs for cloud hosting services also reflect the need for specialized cloud hosting services given the data volume and unique processing needs of the CAT. The data volume as well as the data processing needs of the CAT necessitate the use of cloud hosting services. The equipment, power and services required for an on-premises data model, the alternative to cloud hosting services, would be cost prohibitive. Moreover, as CAT was being developed, there were limited cloud hosting providers that could satisfy all the necessary CAT requirements, including the operational and security criteria. Over time more providers offering cloud hosting services that would satisfy these criteria have entered the market. CAT LLC will continue to evaluate alternative cloud hosting services, recognizing that the time and cost to move to an alternative cloud provider would be substantial. The reasonableness of the cloud hosting services costs is further supported by key cost discipline mechanisms for the CAT—a cost-based funding structure, cost transparency, cost management efforts (including regular efforts to lower compute and storage costs where permitted by the Plan) and oversight. Together, these 133 Appendix D–4 of the CAT NMS Plan at n.262. CAT NMS Plan Approval Order at 84801. 135 See Sections 3(a)(2)(B)(i)(a), 3(a)(2)(B)(ii)(a), 3(a)(2)(B)(iii)(a) and 3(a)(2)(B)(iv)(A) above. 134 See E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices mechanisms help ensure the ongoing reasonableness of the CAT’s costs and the level of fees assessed to support those costs.136 (ii) Technology: Operating Fees In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to operating fees as a part of Historical CAT Assessments.137 CAT LLC determined that the costs related to operating fees described in this filing are reasonable and should be included as a part of Historical CAT Costs 1. The operating fees include the negotiated fees paid by CAT LLC to the Plan Processor to operate and maintain the system for order-related information and to perform business operations related to the system, including compliance, security, testing, training, communications with the industry (e.g., management of the FINRA CAT Helpdesk, FAQs, website and webinars) and program management. CAT LLC determined that the selection of FCAT as the Plan Processor was reasonable and appropriate given its expertise with securities regulatory reporting, after a process of considering other potential candidates.138 CAT LLC also determined that the fixed price contract, negotiated on an arm’s length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan and Rule 613, was reasonable and appropriate, taking into consideration a variety of factors, including the breadth of services provided and market rates for similar types of activity.139 The services performed by FCAT for each period and the costs related to such services are described above.140 lotter on DSK11XQN23PROD with NOTICES2 (iii) Technology: CAIS Operating Fees In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to CAIS operating fees as a part of Historical CAT Assessments. 141 CAT LLC determined that the costs related to CAIS operating fees described in this filing are reasonable and should be included as a part of Historical CAT Costs 1. The CAIS operating fees include the fees paid to the Plan 136 See Securities Exchange Act Release No. 97151 (March 15, 2023), 88 FR 17086, 17117 (March 21, 2023) (describing key cost discipline mechanisms for the CAT). 137 Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan. 138 See Section 3(a)(2)(B)(i)(b) above. 139 See Sections 3(a)(2)(B)(i)(b), 3(a)(2)(B)(ii)(b), 3(a)(2)(B)(iii)(b) and 3(a)(2)(B)(iv)(b) above. 140 Id. 141 Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 Processor to operate and maintain CAIS and to perform the business operations related to the system, including compliance, security, testing, training, communications with the industry (e.g., management of the FINRA CAT Helpdesk, FAQs, website and webinars) and program management. CAT LLC determined that the FCAT-negotiated fees for Kingland’s CAIS-related services, negotiated on an arm’s length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan, taking into consideration a variety of factors, including the services to be provided and market rates for similar types of activity, were reasonable and appropriate.142 The services performed by Kingland for each period and the costs for each period are described above.143 (iv) Technology: Change Request Fees In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to change request fees as a part of Historical CAT Assessments.144 CAT LLC determined that the costs related to change request fees described in this filing are reasonable and should be included as a part of Historical CAT Costs 1. It is common practice to utilize a change request process to address evolving needs in technology projects. This is particularly true for a project like CAT that is the first of its kind, both in substance and in scale. The substance and costs of each of the change requests are evaluated by the Operating Committee, and approved in accordance with the requirements for Operating Committee meetings. In each case, CAT LLC determined that the change requests were necessary to implement the CAT. As described above, the change requests cover various technology changes, including, for example, changes related to CAT reporting, data feeds and exchange functionality. CAT LLC also determined that the costs for each change request were appropriate for the relevant technology change. A description of the change requests for each FAM Period and their total costs are set described above.145 As noted above, the total costs for change requests through FAM Period 3 represent a small percentage of 142 See Sections 3(a)(2)(B)(i)(c), 3(a)(2)(B)(ii)(c), 3(a)(2)(B)(iii)(c) and 3(a)(2)(B)(iv)(c) above. 143 Id. 144 Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan. 145 See Sections 3(a)(2)(B)(i)(d), 3(a)(2)(B)(ii)(d), 3(a)(2)(B)(iii)(d) and 3(a)(2)(B)(iv)(d) above. PO 00000 Frm 00491 Fmt 4701 Sfmt 4703 10653 Historical CAT Costs 1—that is, 0.25% of Historical CAT Costs 1. (v) Capitalized Developed Technology Costs In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to capitalized developed technology costs as a part of Historical CAT Assessments.146 Capitalized developed technology costs include costs related to certain development costs, costs related to certain modifications, upgrades and other changes to the CAT, CAIS implementation fees and license fees. The amount and type of costs for each period are described in more detail above.147 CAT LLC determined that these costs are reasonable and should be included as a part of Historical CAT Costs 1. These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.148 With regard to the Initial Plan Processor, the Participants utilized an RFP to seek proposals to build and operate the CAT, receiving a number of proposals in response to the RFP. The Participants carefully reviewed and considered each of the proposals, including holding in-person meetings with each of the Bidders. After several rounds of review, the Participants selected the Initial Plan Processor in accordance with the CAT NMS Plan. CAT LLC entered into an agreement with the Initial Plan Processor in which CAT LLC would pay the Initial Plan Processor a negotiated, fixed price fee.149 In addition, as described above, CAT LLC determined that is [sic] was appropriate to enter into an agreement with FCAT as the successor Plan Processor.150 (vi) Legal In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to legal fees as a part of Historical CAT Assessments.151 CAT LLC determined that the legal costs described in this filing are reasonable and should be included as a part of Historical CAT Costs 1. Given the unique nature of the CAT, the number of parties involved with the CAT (including, for example, the SEC, Participants, Industry Members, and 146 Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan. 147 See Sections 3(a)(2)(B)(i)(e), 3(a)(2)(B)(ii)(e), 3(a)(2)(B)(iii)(e) and 3(a)(2)(B)(iv)(e) above. 148 Id. 149 See Section 3(a)(2)(B)(i)(e) above. 150 See Section 3(a)(2)(B)(i)(b) above. 151 Section 11.3(b)(iii)(B)(II)(B)(2) of the CAT NMS Plan. E:\FR\FM\13FEN2.SGM 13FEN2 10654 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices vendors) and the many regulatory issues associated with the CAT, the scope of the necessary legal services are substantial. CAT LLC determined that the scope of the legal services is necessary to implement and maintain the CAT and that the legal rates reflect the specialized services necessary for such a project. When hiring each law firm for a CAT project, CAT LLC interviewed multiple firms, and determined to hire each firm based on a variety of factors, including the relevant expertise and fees. In each case, CAT LLC determined that the hourly fee rates were in line with market rates for the specialized legal expertise. In addition, CAT LLC determined that the total costs incurred for each CAT project were appropriate given the breadth of services provided. The services performed by each law firm for each period and the costs related to such services are described above.152 (vii) Consulting lotter on DSK11XQN23PROD with NOTICES2 In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.153 CAT LLC determined that the consulting costs described in this filing are reasonable and should be included as a part of Historical CAT Costs 1. Because there are no CAT employees 154 and because of the significant number of issues associated with the CAT, the consultants provided assistance in the management of various CAT matters and the processes related to such matters.155 CAT LLC considered a variety of factors in choosing a consulting firm and determined to select Deloitte after an interview process.156 CAT LLC also determined that the consulting services were provided at reasonable market rates, as the fees were negotiated annually and comparable to the rates charged by other consulting firms for similar work.157 Moreover, the total costs for such consulting services were appropriate in light of the breadth of services provided by Deloitte. The services performed by Deloitte and the 152 See Sections 3(a)(2)(B)(i)(f), 3(a)(2)(B)(ii)(f), 3(a)(2)(B)(iii)(f) and 3(a)(2)(B)(iv)(f) above. 153 Section 11.3(b)(iii)(B)(II)(B)(3) of the CAT NMS Plan. 154 As stated in the filing of the proposed CAT NMS Plan, ‘‘[i]t is the intent of the Participants that the Company have no employees.’’ See Securities Exchange Act Release No. 77724 (April 27, 2016), 81 FR 30614, 30621 (May 17, 2016). 155 CAT LLC uses certain third parties to perform tasks that may be performed by administrators for other NMS Plans. See, e.g., CTA Plan and CQ Plan. 156 See Section 3(a)(2)(B)(i)(g) above. 157 See Sections 3(a)(2)(B)(i)(g), 3(a)(2)(B)(ii)(g), 3(a)(2)(B)(iii)(g) and 3(a)(2)(B)(iv)(g) above. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 costs related to such services are described above.158 (viii) Insurance In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.159 CAT LLC determined that the insurance costs described in this filing are reasonable and should be included as a part of Historical CAT Costs 1. CAT LLC determined that it is common practice to have directors’ and officers’ liability insurance, and errors and omissions liability insurance. CAT LLC further determined that it was important to have cyber security insurance given the nature of the CAT, and such a decision is consistent with the CAT NMS Plan, which states that the cyber incident response plan may include ‘‘[i]nsurance against security breaches.’’ 160 In selecting the insurance providers for these policies, CAT LLC engaged in an evaluation of alternative insurers, including a comparison of the pricing offered by the alternative insurers.161 Based on this analysis, CAT LLC determined that the selected insurance policies provided appropriate coverage at reasonable market rates.162 (ix) Professional and Administration In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover professional and administration costs as a part of Historical CAT Assessments.163 CAT LLC determined that the professional and administration costs described in this filing are reasonable and should be included as a part of Historical CAT Costs 1. Because there are no CAT employees, all required accounting, financial, tax, cash management and treasury functions for CAT LLC have been outsourced at market rates. In addition, the required annual financial statement audit of CAT LLC is included in professional and administration costs, which costs are also at market rates. CAT LLC determined to hire a financial advisory firm, Anchin, to assist with financial matters for the CAT. CAT LLC interviewed Anchin as well as other potential financial advisory firms to assist with the CAT project, considering a variety of factors in its analysis, including the firm’s relevant expertise and fees.164 The hourly fee rates for this firm were in line with market rates for the financial advisory services provided.165 Moreover, the total costs for such financial advisory services was appropriate in light of the breadth of services provided by Anchin. The services performed by Anchin and the costs related to such services are described above.166 CAT LLC also determined to engage an independent accounting firm, Grant Thornton, to complete the audit of CAT LLC’s financial statements, in accordance with the requirements of the CAT NMS Plan. CAT LLC interviewed this firm as well as another potential accounting firm to audit CAT LLC’s financial statements, considering a variety of factors in its analysis, including the relevant expertise and fees of each of the firms. CAT LLC determined that Grant Thornton was well-qualified for the role given the balanace [sic] of these considerations.167 Grant Thornton’s fixed fee rate compensation arrangement was reasonable and appropriate, and in line with the market rates charged for these types of accounting services.168 Moreover, the total costs for such financial advisory services was appropriate in light of the breadth of services provided by Grant Thornton. The services performed by Grant Thornton and the costs related to such services are described above.169 The professional and administrative costs also include costs related to the receipt of certain market data from Exegy. After performing an analysis of the available market data vendors to confirm that the data provided met the SIP Data requirements of the CAT NMS Plan and comparing the costs of the vendors providing the required SIP Data, CAT LLC determined to purchase market data from Exegy. Exegy provided the data elements required by the CAT NMS Plan, and the fees were reasonable and in line with market rates for the market data received.170 The professional and administrative costs also include costs related to a third party security assessment of the CAT performed by RSM. The assessment was designed to verify and validate the 158 Id. 159 Section 11.3(b)(iii)(B)(II)(B)(4) of the CAT NMS Plan. 160 Section 4.1.5 of Appendix D of the CAT NMS Plan. 161 See Sections 3(a)(2)(B)(i)(h), 3(a)(2)(B)(ii)(h), 3(a)(2)(B)(iii)(h) and 3(a)(2)(B)(iv)(h) above. 162 Id. 163 Section 11.3(b)(iii)(B)(II)(B)(5) of the CAT NMS Plan. PO 00000 Frm 00492 Fmt 4701 Sfmt 4703 164 See Section 3(a)(2)(B)(i)(i) above. Sections 3(a)(2)(B)(i)(i), 3(a)(2)(B)(ii)(i), 3(a)(2)(B)(iii)(i) and 3(a)(2)(B)(iv)(i) above. 166 Id. 167 See Section 3(a)(2)(B)(i)(i) above. 168 See Sections 3(a)(2)(B)(i)(i), 3(a)(2)(B)(ii)(i), 3(a)(2)(B)(iii)(i) and 3(a)(2)(B)(iv)(i) above. 169 Id. 170 See Section 3(a)(2)(B)(i)(i) above. 165 See E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices effective design, implementation and operation of the controls specified by NIST Special Publication 800–53, Revision 4 and related standards and guidelines. Such a security assessment is in line with industry practice and important given the data included in the CAT. CAT LLC determined to engage RSM to perform the security assessment, after considering a variety of factors in its analysis, including the firm’s relevant expertise and fees. The fees were reasonable and in line with market rates for such an assessment.171 (x) Public Relations Costs In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover public relations costs as a part of Historical CAT Assessments.172 CAT LLC determined that the public relations costs described in this filing are reasonable and should be included as a part of Historical CAT Costs 1. CAT LLC determined that the types of public relations services utilized were beneficial to the CAT and market participants more generally. Public relations services were important for various reasons, including monitoring comments made by market participants about CAT and understanding issues related to the CAT discussed on the public record.173 By engaging a public relations firm, CAT LLC was better positioned to understand and address CAT issues to the benefit of all market participants.174 Moreover, CAT LLC determined that the rates charged for such services were in line with market rates.175 As noted above, the total public relations costs through FAM Period 3 represent a small percentage of Historical CAT Costs 1—that is, 0.1% of Historical CAT Costs 1. (B) Total Executed Equivalent Share Volume for the Prior 12 Months lotter on DSK11XQN23PROD with NOTICES2 The total executed equivalent share volume of transactions in Eligible Securities for the period from December 2022 through November 2023 was 3,842,861,347,279.44 executed equivalent shares. CAT LLC determined the total executed equivalent share volume for the prior twelve months by counting executed equivalent shares in the same manner as it will count executed equivalent shares for CAT billing purposes. 171 Id. 172 Section 11.3(b)(iii)(B)(II)(B)(6) of the CAT NMS Plan. 173 See Section 3(a)(2)(B)(i)(j) above. 174 See Sections 3(a)(2)(B)(i)(j), 3(a)(2)(B)(ii)(j), 3(a)(2)(B)(iii)(j) and 3(a)(2)(B)(iv)(j) above. 175 Id. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 (C) Historical Recovery Period 1 CAT LLC has determined to establish a Historical Recovery Period of 24 months for Historical CAT Assessment 1 and that such length is reasonable. CAT LLC determined that the length of Historical Recovery Period 1 appropriately weighs the need for a reasonable Historical Fee Rate 1 that spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the loans notes to the Participants in a timely fashion. CAT LLC determined that 24 months for Historical Recovery Period 1 would establish a fee rate that is lower than other transaction-based fees, including fees assessed pursuant to Section 31.176 In addition, in establishing a Historical Recovery Period of 24 months, CAT LLC recognized that the total costs for Historical CAT Assessment 1 was less than the total costs for 2022 and 2023, and therefore it would be appropriate to recover those costs in two years. Furthermore, CAT LLC notes 24 months is appropriate because it is not currently proposing that Industry Members be required to pay another Historical CAT Assessment or CAT Fee with regard to Prospective CAT Costs at the same time. (D) Projected Executed Equivalent Share Volume for Historical Recovery Period 1 CAT LLC has determined to calculate the projected total executed equivalent share volume for the 24 months of Historical Recovery Period 1 by doubling the executed equivalent share volume for the prior 12 months. CAT LLC determined that such an approach was reasonable as the CAT’s annual executed equivalent share volume has remained relatively constant in recent years. For example, the executed equivalent share volume for 2021 was 3,963,697,612,395 executed equivalent shares, and the executed equivalent share volume for 2022 was 4,039,821,841,560.31 executed equivalent shares. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is 7,685,722,694,558.88 executed equivalent shares.177 (E) Actual Fee Rate for Historical CAT Assessment 1 (i) Decimal Places As noted in the Plan amendment for the CAT Funding Model, as a practical 176 As the SEC noted in the CAT Funding Model Approval Order, recent Section 31 fees ranged from $0.00009 per share to $0.0004 per share. See CAT Funding Model Approval Order at 62682. 177 This projection was calculated by multiplying 3,842,861,347,279.44 executed equivalent shares by two. PO 00000 Frm 00493 Fmt 4701 Sfmt 4703 10655 matter, the fee filing for a Historical CAT Assessment would provide the exact fee per executed equivalent share to be paid for each Historical CAT Assessment, by multiplying the Historical Fee Rate by one-third and describing the relevant number of decimal places for the fee rate.178 Accordingly, proposed paragraph (a)(1)(B) to the Consolidated Audit Trail Funding Fees section of the Equities Price List and Options Fee Schedule would set forth a fee rate of $0.000015 per executed equivalent share. This fee rate is calculated by multiplying Historical Fee Rate 1 by one-third, and rounding the result to 6 decimal places. CAT LLC determined that the use of six decimal places is reasonable as it balances the accuracy of the calculation with the potential systems and other impracticalities of using additional decimal places in the calculation. (ii) Reasonable Fee Level The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000015 per executed equivalent share is reasonable because it provides for a revenue stream for the Company that is aligned with Historical CAT Costs 1 and such costs would be spread out over an appropriate recovery period, as discussed above. Moreover, the Exchange believes that the level of the fee rate is reasonable, as it is comparable to other transaction-based fees. Indeed, Historical CAT Assessment 1 is significantly lower than fees assessed pursuant to Section 31 (e.g., $0.0009 per share to 0.0004 per share),179 and, as a result, the magnitude of Historical CAT Assessment 1 is small, and therefore will mitigate any potential adverse economic effects or inefficiencies.180 Furthermore, the reasonable fee rate for Historical CAT Assessment 1 further supports CAT LLC’s decision to seek to recover all Historical CAT Costs prior to 2022, rather than establishing separate Historical CAT Assessments for preFAM, FAM 1, FAM 2 and FAM 3 costs. (3) Historical CAT Assessment 1 Provides for an Equitable Allocation of Fees Historical CAT Assessment 1 provides for an equitable allocation of fees, as it equitably allocates CAT costs between and among the Participants and Industry Members. The SEC approved the CAT Funding Model, finding that each aspect of the CAT Funding Model 178 See CAT Funding Model Approval Order at 62658, n.658. 179 See CAT Funding Model Approval Order at 62663, 62682. 180 Id. E:\FR\FM\13FEN2.SGM 13FEN2 10656 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES2 satisfied the requirements of the Exchange Act, including the formula for calculating Historical CAT Assessments as well as the Industry Members to be charged the Historical CAT Assessments.181 In approving the CAT Funding Model, the SEC stated that ‘‘[t]he Participants have sufficiently demonstrated that the proposed allocation of fees is reasonable.’’ 182 Accordingly, the CAT Funding Model sets forth the requirements for allocating fees related to Historical CAT Costs among Participants and Industry Members, and the fee filings for Historical CAT Assessments must comply with those requirements. Historical CAT Assessment 1 provides for an equitable allocation of fees as it complies with the requirements regarding the calculation of Historical CAT Assessments as set forth in the CAT NMS Plan. For example, as described above, the calculation of Historical CAT Assessment 1 complies with the formula set forth in Section 11.3(b) of the CAT NMS Plan. In addition, Historical CAT Assessment 1 would be charged to CEBBs and CEBSs in accordance with Section 11.3(b) of the CAT NMS Plan. Furthermore, the Participants would continue to remain responsible for their designated share of Past CAT Costs through the cancellation of loans made by the Participants to CAT LLC. In addition, as discussed above, each of the inputs into the calculation of Historical CAT Assessment 1— Historical CAT Costs 1 (including Excluded Costs), the count for the executed equivalent share volume for the prior 12 months, the length of the Historical Recovery Period, and the projected executed equivalent share volume for the Historical Recovery Period—are reasonable. Moreover, these inputs lead to a reasonable fee rate for Historical CAT Assessment 1 that is lower than other fee rates for transaction-based fees. A reasonable fee rate allocated in accordance with the requirements of the CAT Funding Model provides for an equitable allocation of fees. (4) Historical CAT Assessment 1 Is Not Unfairly Discriminatory Historical CAT Assessment 1 is not an unfairly discriminatory fee. The SEC approved the CAT Funding Model, finding that each aspect of the CAT Funding Model satisfied the requirements of the Exchange Act. In reaching this conclusion, the SEC 181 See Section 11.3(b) of the CAT NMS Plan. 182 See CAT Funding Model Approval Order at 62629. VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 analyzed the potential effect of Historical CAT Assessments calculated pursuant to the CAT Funding Model on affected categories of market participants, including Participants (including exchanges and FINRA), Industry Members (including subcategories of Industry Members, such as alternative trading systems, CAT Executing Brokers and market makers), and investors generally, and considered market effects related to equities and options, among other things. Historical CAT Assessment 1 complies with the requirements regarding the calculation of Historical CAT Assessments as set forth in the CAT NMS Plan. In addition, as discussed above, each of the inputs into the calculation of Historical CAT Assessment 1 and the resulting fee rate for Historical CAT Assessment 1 is reasonable. Therefore, Historical CAT Assessment 1 does not impose an unfairly discriminatory fee on Industry Members. Finally, the Exchange believes the proposed fees established pursuant to the CAT Funding Model promote just and equitable principles of trade, and, in general, protect investors and the public interest, and are provided in a transparent manner and specificity in the Equities Price List and the Options Fee Schedule. The Exchange also believes that the proposed fees are reasonable because they would provide ease of calculation, ease of billing and other administrative functions, and predictability of a fee based on fixed rate per executed equivalent share. Such factors are crucial to estimating a reliable revenue stream for CAT LLC and for permitting Exchange members to reasonably predict their payment obligations for budgeting purposes. introduce Historical CAT Assessment 1 on behalf of CAT LLC to implement the requirements of the CAT NMS Plan. Therefore, this is not a competitive fee filing, and, therefore, it does not raise competition issues between and among the Participants. Furthermore, in approving the CAT Funding Model, the SEC analyzed the potential competitive impact of the CAT Funding Model, including competitive issues related to market services, trading services and regulatory services, efficiency concerns, and capital formation.184 The SEC also analyzed the potential effect of CAT fees calculated pursuant to the CAT Funding Model on affected categories of market participants, including Participants (including exchanges and FINRA), Industry Members (including subcategories of Industry Members, such as alternative trading systems, CAT Executing Brokers and market makers), and investors generally, and considered market effects related to equities and options, among other things. Based on this analysis, the SEC approved the CAT Funding Model as compliant with the Exchange Act. Historical CAT Assessment 1 is calculated and implemented in accordance with the CAT Funding Model as approved by the SEC. As discussed above, each of the inputs into the calculation of Historical CAT Assessment 1 is reasonable and the resulting fee rate for Historical CAT Assessment 1 calculated in accordance with the CAT Funding Model is reasonable. Therefore, Historical CAT Assessment 1 would not impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Exchange Act. B. Self-Regulatory Organization’s Statement on Burden on Competition Section 6(b)(8) of the Act 183 requires that the Exchange’s rules not impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Exchange Act. The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that Historical CAT Assessment 1 implements provisions of the CAT NMS Plan that were approved by the Commission and is designed to assist the Exchange in meeting its regulatory obligations pursuant to the Plan. In addition, all Participants (including exchanges and FINRA) are proposing to C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others 183 15 PO 00000 U.S.C. 78f(b)(8). Frm 00494 Fmt 4701 Sfmt 4703 No written comments were solicited or received with respect to the proposed rule change. III. Suspension of the Proposed Rule Change Pursuant to Section 19(b)(3)(C) of the Act,185 at any time within 60 days of the date of filing of a proposed rule change pursuant to Section 19(b)(1) of the Act,186 the Commission summarily may temporarily suspend the change in the rules of an SRO if it appears to the Commission that such action is 184 See CAT Funding Model Approval Order at 62676–86. 185 15 U.S.C. 78s(b)(3)(C). 186 15 U.S.C. 78s(b)(1). E:\FR\FM\13FEN2.SGM 13FEN2 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES2 necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. As discussed below, a temporary suspension of the proposed rule change is necessary or appropriate to allow for additional analysis of the proposed rule change’s consistency with the Act and the rules thereunder. When exchanges file their proposed rule changes with the Commission, including fee filings like the Exchange’s present proposed rule change, they are required to provide a statement supporting the proposed rule change’s basis under the Act and the rules and regulations thereunder applicable to the exchange.187 The instructions to Form 19b–4, on which exchanges file their proposed rule changes, specify that such statement ‘‘should be sufficiently detailed and specific to support a finding that the proposed rule change is consistent with [those] requirements.’’ 188 Among other things, the Exchange’s proposed rule change is subject to Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which require the rules of an exchange to: (1) provide for the equitable allocation of reasonable fees among members, issuers, and other persons using the exchange’s facilities; 189 (2) be designed to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, to protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers; 190 and (3) not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.191 The proposed rule change is also subject to the CAT Funding Model set forth in the CAT NMS Plan. For example, Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan requires that the fee filing provide ‘‘sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate.’’ In addition, Section 11.3(b)(i)(C) of the CAT NMS Plan provides that the ‘‘Operating Committee will reasonably 187 See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change’’). 188 See id. 189 15 U.S.C. 78f(b)(4). 190 15 U.S.C. 78f(b)(5). 191 15 U.S.C. 78f(b)(8). VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 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’’ and Section 11.3(b)(i)(D) of the CAT NMS Plan provides 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. . .’’ Further, Section 11.3(b)(iii)(B)(III) of the CAT NMS Plan provides 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.’’ In temporarily suspending the Exchange’s fee change, the Commission intends to further consider whether the proposed fees are consistent with the statutory requirements applicable to a national securities exchange under the Act and with the requirements set forth in the CAT Funding Model. Among other things, the Commission will consider whether the proposed rule change provides for reasonable fees that satisfy the standards under the Act and the rules thereunder.192 Further, and among other things, the Commission will consider whether the proposed rule change, as required by the CAT Funding Model, provides ‘‘sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate,’’ including, but not limited to, whether the Operating Committee has ‘‘reasonably determine[d] 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’’ and whether the ‘‘length of the Historical Recovery Period used in calculating each Historical Fee Rate [was] reasonably established by the Operating Committee.’’ 193 Therefore, the Commission finds that it is necessary or appropriate in the public interest, for the protection of investors, and otherwise in furtherance of the purposes of the Act, to 192 See 193 See 15 U.S.C. 78f(b)(4). CAT Funding Model Approval Order at 62660. PO 00000 Frm 00495 Fmt 4701 Sfmt 4703 10657 temporarily suspend the proposed rule change.194 IV. Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change In addition to temporarily suspending the proposed rule change, the Commission is instituting proceedings pursuant to Sections 19(b)(3)(C) 195 and 19(b)(2)(B) 196 of the Act to determine whether the proposed rule change should be approved or disapproved. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change to inform the Commission’s analysis of whether to approve or disapprove the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,197 the Commission is providing notice of the grounds for possible disapproval under consideration. The Commission is instituting proceedings to allow for additional consideration and comment on whether the Exchange has sufficiently demonstrated that the proposed rule change is consistent with Section 6(b)(4) 198 of the Act, and consistent with the CAT Funding Model. Section 6(b)(4) of the Act, among other things, provides that the dues, fees, and other charges for an exchange’s members be reasonable. And the CAT Funding Model, as noted above, requires, among other things, that the proposed rule change provide ‘‘sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate,’’ including whether the Operating Committee has reasonably determined the Historical CAT Costs sought to be recovered by each Historical CAT Assessment, where the 194 For purposes of temporarily suspending the proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 195 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily suspends a proposed rule change, Section 19(b)(3)(C) of the Act requires that the Commission institute proceedings under Section 19(b)(2)(B) to determine whether a proposed rule change should be approved or disapproved. 196 15 U.S.C. 78s(b)(2)(B). 197 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. See id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding, or if the exchange consents to the longer period. See id. 198 15 U.S.C. 78f(b)(4). E:\FR\FM\13FEN2.SGM 13FEN2 10658 Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices Historical CAT Costs will be Past CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT Costs by the Operating Committee and whether the length of the Historical Recovery Period used in calculating each Historical Fee Rate was reasonably established by the Operating Committee.199 V. Commission’s Solicitation of Comments The Commission requests that interested persons provide written submission of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they have with the proposed rule change. In particular, the Commission invites the written views of interested persons concerning whether the proposed rule change is consistent with Section 6(b)(4), or any other provision of the Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.200 Interested persons are invited to submit written data, views, and arguments regarding whether the proposed rule changes should be approved or disapproved by March 5, 2024. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by March 19, 2024. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– NYSEAMER–2024–02 on the subject line. Paper Comments: • Send paper comments in triplicate to Secretary, Securities and Exchange lotter on DSK11XQN23PROD with NOTICES2 199 See CAT Funding Model Approval Order at 62660. 200 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposed rule change by an exchange. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). VerDate Sep<11>2014 00:35 Feb 13, 2024 Jkt 262001 Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–NYSEAMER–2024–02. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–NYSEAMER–2024–02 and should be submitted on or before March 5, 2024. Rebuttal comments should be submitted by March 19, 2024. VI. Conclusion It Is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,201 that File No. SR–NYSEAMER–2024–02 be, and hereby is, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.202 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–01183 Filed 2–12–24; 8:45 am] BILLING CODE 8011–01–P 201 15 202 17 PO 00000 U.S.C. 78s(b)(3)(C). CFR 200.30–3(a)(12), (57) and (58). Frm 00496 Fmt 4701 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99382; File No. SR– PEARL–2024–02] Self-Regulatory Organizations; MIAX PEARL, LLC ; Notice of Filing of a Proposed Rule Change To Establish Fees for Industry Members Related to Certain Historical Costs of the National Market System Plan Governing the Consolidated Audit Trail; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change January 17, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’ or the ‘‘Exchange Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that, on January 2, 2024, MIAX PEARL, LLC (‘‘MIAX Pearl’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and is, pursuant to Section 19(b)(3)(C) of the Act, hereby: (i) temporarily suspending the rule change; and (ii) instituting proceedings to determine whether to approve or disapprove the proposed rule change. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend the fee schedule (the ‘‘Fee Schedule’’) applicable to MIAX Pearl Equities, an equities trading facility of the Exchange to establish fees for Industry Members 3 related to certain historical costs of the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’) incurred prior to January 1, 2022. These fees would be payable to Consolidated Audit Trail, LLC (‘‘CAT LLC’’ or ‘‘the Company’’) 4 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 An ‘‘Industry Member’’ is defined as ‘‘a member of a national securities exchange or a member of a national securities association.’’ See Miami International Securities Exchange LLC (‘‘MIAX Rule’’) Rule 1701(u). The Exchange notes that MIAX Chapter XVII is incorporated by reference into the Exchange’s rulebook. As such, MIAX Chapter XVII also applies to the Exchange. See also Section 1.1 of the CAT NMS Plan. Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth in the CAT NMS Plan and/or the CAT Compliance Rule. See MIAX Rule 1701. 4 The term ‘‘CAT LLC’’ may be used to refer to Consolidated Audit Trail, LLC or CAT NMS, LLC, depending on the context. 2 17 E:\FR\FM\13FEN2.SGM 13FEN2

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 30 (Tuesday, February 13, 2024)]
[Notices]
[Pages 10620-10658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01183]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99381; File No. SR-NYSEAMER-2024-02]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Proposed Rule Change To Amend the NYSE American Equities 
Price List and the NYSE American Options Fee Schedule To Establish Fees 
for Industry Members Related to Certain Historical Costs of the 
National Market System Plan Governing the Consolidated Audit Trail; 
Suspension of and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove the Proposed Rule Change

January 17, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that, on January 3, 2024, NYSE American LLC 
(``NYSE American'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons and is, 
pursuant to Section 19(b)(3)(C) of the Act, hereby: (i) temporarily 
suspending the rule change; and (ii) instituting proceedings to 
determine whether to approve or disapprove the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78a.
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE American Equities Price 
List (``Equities Price List'') and the NYSE American Options Fee 
Schedule (``Options Fee Schedule'') to establish fees for Industry 
Members \3\ related to certain historical costs of the National Market 
System Plan Governing the Consolidated Audit Trail (the ``CAT NMS 
Plan'' or ``Plan'') incurred prior to January 1, 2022. These fees would 
be payable to Consolidated Audit Trail, LLC (``CAT LLC'' or ``the 
Company'') \4\ and referred to as Historical CAT Assessment 1, and 
would be described in a section of the Equities Price List and the 
Options Fee Schedule titled ``Consolidated Audit Trail Funding Fees.'' 
The fee rate for Historical CAT Assessment 1 will be $0.000015 per 
executed equivalent share. CAT Executing Brokers will receive their 
first monthly invoice for Historical CAT Assessment 1 in April 2024 
calculated based on their transactions as CAT Executing Brokers for the 
Buyer (``CEBB'') and/or CAT Executing Brokers for the Seller (``CEBS'') 
in March 2024. The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.
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    \3\ An ``Industry Member'' is defined as ``a member of a 
national securities exchange or a member of a national securities 
association.'' See NYSE American Rule 6810(u). See also Section 1.1 
of the CAT NMS Plan. Unless otherwise specified, capitalized terms 
used in this rule filing are defined as set forth in the CAT NMS 
Plan and/or the CAT Compliance Rule. See NYSE American Rule 6810.
    \4\ The term ``CAT LLC'' may be used to refer to Consolidated 
Audit Trail, LLC or CAT NMS, LLC, depending on the context.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change

[[Page 10621]]

and discussed any comments it received on the proposed rule change. The 
text of those statements may be examined at the places specified in 
Item V below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

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

1. Purpose
    On July 11, 2012, the Securities and Exchange Commission 
(``Commission'' or ``SEC'') adopted Rule 613 of Regulation NMS, which 
required the self-regulatory organizations (``SROs'') to submit a 
national market system (``NMS'') plan to create, implement and maintain 
a consolidated audit trail that would capture customer and order event 
information for orders in NMS securities across all markets, from the 
time of order inception through routing, cancellation, modification or 
execution.\5\ On November 15, 2016, the Commission approved the CAT NMS 
Plan.\6\ Under the CAT NMS Plan, the Operating Committee has the 
discretion to establish funding for CAT LLC to operate the CAT, 
including establishing fees for Industry Members to be assessed by CAT 
LLC that would be implemented on behalf of CAT LLC by the 
Participants.\7\ The Operating Committee adopted a revised funding 
model to fund the CAT (``CAT Funding Model''). On September 6, 2023, 
the Commission approved the CAT Funding Model, after concluding that 
the model was reasonable and that it satisfied the requirements of 
Section 11A of the Exchange Act and Rule 608 thereunder.\8\
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    \5\ See Securities Exchange Act Release No. 67457 (July 18, 
2012), 77 FR 45721 (August 1, 2012).
    \6\ See Securities Exchange Act Release No. 79318 (November 15, 
2016), 81 FR 84696 (November 23, 2016) (``CAT NMS Plan Approval 
Order'').
    \7\ Section 11.1(b) of the CAT NMS Plan.
    \8\ See Securities Exchange Act Release No. 98290 (September 6, 
2023), 88 FR 62628 (September 12, 2023) (``CAT Funding Model 
Approval Order'').
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    The CAT Funding Model provides a framework for the recovery of the 
costs to create, develop and maintain the CAT, including providing a 
method for allocating costs to fund the CAT among Participants and 
Industry Members. The CAT Funding Model establishes two categories of 
fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry 
Members to recover a portion of historical CAT costs previously paid by 
the Participants (``Historical CAT Assessment'' fees); and (2) CAT fees 
assessed by CAT LLC and payable by Participants and Industry Members to 
fund prospective CAT costs (``Prospective CAT Costs'' fees).\9\
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    \9\ Under the CAT Funding Model, the Operating Committee may 
establish one or more Historical CAT Assessments. Section 11.3(b) of 
the CAT NMS Plan. This filing only establishes Historical CAT 
Assessment 1 related to certain Historical CAT Costs as described 
herein; it does not address any other potential Historical CAT 
Assessment related to other Historical CAT Costs. In addition, under 
the CAT Funding Model, the Operating Committee also may establish 
CAT Fees related to CAT costs going forward. Section 11.3(a) of the 
CAT NMS Plan. This filing does not address any potential CAT Fees 
related to CAT costs going forward. Any such other fee for any other 
Historical CAT Assessment or CAT Fee for Prospective CAT Costs will 
be subject to a separate fee filing.
---------------------------------------------------------------------------

    Under the CAT Funding Model, ``[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').'' \10\ In establishing a 
Historical CAT Assessment, the Operating Committee will determine a 
``Historical Recovery Period'' and calculate a ``Historical Fee Rate'' 
for that Historical Recovery Period. Then, for each month in which a 
Historical CAT Assessment is in effect, each CEBB and CEBS would be 
required to pay the fee--the Historical CAT Assessment--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.\11\
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    \10\ Section 11.3(b) of the CAT NMS Plan.
    \11\ In approving the CAT Funding Model, the Commission stated 
that, ``[i]n the Commission's view, the proposed recovery of the 
Past CAT Costs via the Historical CAT Assessment is reasonable.'' 
See CAT Funding Model Approval Order at 62662.
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    Each Historical CAT Assessment to be paid by CEBBs and CEBSs is 
designed to contribute toward the recovery of two-thirds of the 
Historical CAT Costs. Because the Participants previously have paid 
Past CAT Costs via loans to the Company, the 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 will be paid by the cancellation of loans made by the 
Participants to the Company on a pro rata basis based on the 
outstanding loan amounts due under the loans, instead of through the 
payment of a CAT fee.\12\ In addition, Participants also will be 100% 
responsible for certain Excluded Costs (as discussed below).
---------------------------------------------------------------------------

    \12\ Section 11.3(b)(ii) of the CAT NMS Plan.
---------------------------------------------------------------------------

    CAT LLC proposes to charge CEBBs and CEBSs (as described in more 
detail below) Historical CAT Assessment 1 to recover certain historical 
CAT costs incurred prior to January 1, 2022, in accordance with the CAT 
Funding Model. To implement this fee on behalf of CAT LLC, the CAT NMS 
Plan requires the Participants to ``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.' '' \13\ The Plan further 
states 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.'' \14\ Accordingly, the purpose of this 
filing is to implement a Historical CAT Assessment on behalf of CAT LLC 
for Industry Members, referred to as Historical CAT Assessment 1, in 
accordance with the CAT NMS Plan.\15\
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    \13\ Section 11.1(b) of the CAT NMS Plan.
    \14\ Section 11.3(b)(iii)(B)(I) of the CAT NMS Plan.
    \15\ Note that there may be one or more Historical CAT 
Assessments depending on the timing of the completion of the 
Financial Accountability Milestones, among other things. Section 
11.3(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

(1) CAT Executing Brokers
    Historical CAT Assessment 1 will be charged to each CEBB and CEBS 
for each applicable transaction in Eligible Securities.\16\ The CAT NMS 
Plan defines a ``CAT Executing Broker'' to mean:
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    \16\ In its approval of the CAT Funding Model, the Commission 
determined that charging CAT fees to CAT Executing Brokers was 
reasonable. In reaching this conclusion the Commission noted that 
the use of CAT Executing Brokers is appropriate because the CAT 
Funding Model is based upon the calculation of executed equivalent 
shares, and, therefore, charging CAT Executing Brokers would reflect 
their executing role in each transaction. Furthermore, the 
Commission noted that, because CAT Executing Brokers are already 
identified in transaction reports from the exchanges and FINRA's 
equity trade reporting facilities recorded in CAT Data, charging CAT 
Executing Brokers could streamline the billing process. See CAT 
Funding Model Approval Order at 62629.

    (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

[[Page 10622]]

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.\17\
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    \17\ Section 1.1 of the CAT NMS Plan. Note that CEBBs and CEBSs 
may, but are not required to, pass-through their CAT fees to their 
clients, who may, in turn, pass their fees to their clients until 
they are imposed ultimately on the account that executed the 
transaction. See CAT Funding Model Approval Order at 62649.

    The following fields of the Participant Technical Specifications 
indicate the CAT Executing Brokers for the transactions executed on an 
exchange.
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    \18\ See Table 23, Section 4.7 (Order Trade Event) of the CAT 
Reporting Technical Specifications for Plan Participants, Version 
4.1.0-r20 (Sept. 25, 2023), https://www.catnmsplan.com/sites/default/files/2023-09/9.25.2023-CAT_Reporting_Technical_Specifications_for_Participants_4.1.0-r20.pdf (``CAT Reporting Technical Specifications for Plan 
Participants'').
    \19\ See Table 51, Section 5.2.5.1 (Simple Option Trade Event) 
of the CAT Reporting Technical Specifications for Plan Participants.
    \20\ See Table 61, Section 6.1 (TRF/ORF/ADF Transaction Data 
Event) of the CAT Reporting Technical Specifications for Plan 
Participants.
[GRAPHIC] [TIFF OMITTED] TN13FE24.264

[GRAPHIC] [TIFF OMITTED] TN13FE24.265

    In addition, the following fields of the Participant Technical 
Specifications would indicate the CAT Executing Brokers for the 
transactions executed otherwise than on an exchange.
[GRAPHIC] [TIFF OMITTED] TN13FE24.266

(2) Calculation of Historical Fee Rate 1
    The Operating Committee determined the Historical Fee Rate to be 
used in calculating Historical CAT Assessment 1 (``Historical Fee Rate 
1'') by dividing the Historical CAT Costs for Historical CAT Assessment 
1 (``Historical CAT Costs 1'') by the projected total executed share 
volume of all transactions in Eligible Securities for the Historical 
Recovery Period for Historical CAT Assessment 1 (``Historical Recovery 
Period 1''), as discussed in detail below. Based on this calculation, 
the Operating Committee has determined that

[[Page 10623]]

Historical Fee Rate 1 would be $0.0000439371316687066 per executed 
equivalent share. This rate is then divided by three and rounded to 
determine the fee rate of $0.000015 per executed equivalent share that 
will be assessed to CEBBs and CEBSs, as also discussed in detail below.
(A) Executed Equivalent Shares for Transactions in Eligible Securities
    Under the CAT NMS Plan, for purposes of calculating each Historical 
CAT Assessment, executed equivalent shares in a transaction in Eligible 
Securities will be reasonably counted as follows: (1) each executed 
share for a transaction in NMS Stocks will be counted as one executed 
equivalent share; (2) each executed contract for a transaction in 
Listed Options will be counted based on the multiplier applicable to 
the specific Listed Options (i.e., 100 executed equivalent shares or 
such other applicable multiplier); and (3) each executed share for a 
transaction in OTC Equity Securities shall be counted as 0.01 executed 
equivalent share.\21\
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    \21\ Section 11.3(a)(i)(B) and 11.3(b)(i)(B) of the CAT NMS 
Plan. In approving the CAT Funding Model, the Commission concluded 
that ``the use of executed equivalent share volume as the basis of 
the proposed cost allocation methodology is reasonable and 
consistent with the approach taken by the funding principles of the 
CAT NMS Plan.'' See CAT Funding Model Approval Order at 62640.
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(B) Historical CAT Costs 1
    The CAT NMS Plan states 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. 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.'' \22\ As described in detail below, 
Historical CAT Costs 1 would be $337,688,610. This figure includes Past 
CAT Costs of $401,312,909 minus certain Excluded Costs of $63,624,299. 
Participants collectively will remain responsible for one-third of 
Historical CAT Costs 1 (which is $112,562,870), plus the Excluded Costs 
of $63,624,299. CEBBs collectively will be responsible for one-third of 
Historical CAT Costs 1 (which is $112,562,870), and CEBSs collectively 
will be responsible for one-third of Historical CAT Costs 1 (which is 
$112,562,870).
---------------------------------------------------------------------------

    \22\ See Section 11.3(b)(i)(C) of the CAT NMS Plan.
---------------------------------------------------------------------------

    The following describes in detail Historical CAT Costs 1 with 
regard to four separate historical time periods as well as Past CAT 
Costs excluded from Historical CAT Costs 1 (``Excluded Costs''). The 
following cost details are provided in accordance with the requirement 
in the CAT NMS Plan to provide in the fee filing ``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.'' \23\ 
Each of the costs described below are reasonable, appropriate and 
necessary for the creation, implementation and maintenance of CAT.
---------------------------------------------------------------------------

    \23\ Section 11.3(b)(iii)(B)(II)(B) of the CAT NMS Plan.
---------------------------------------------------------------------------

(i) Historical CAT Costs Incurred Prior to June 22, 2020 (Pre-FAM 
Costs)
    Historical CAT Costs 1 would include costs incurred by CAT prior to 
June 22, 2020 (``Pre-FAM Period'') and already funded by the 
Participants, excluding Excluded Costs (described further below). 
Historical CAT Costs 1 would include costs for the Pre-FAM Period of 
$143,919,521. The Participants would remain responsible for one-third 
of this cost (which they have previously paid) ($47,973,174), 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). These costs do not include Excluded Costs, as discussed 
further below. The following table breaks down Historical CAT Costs 1 
for the Pre-FAM Period into the categories set forth in Section 
11.3(b)(iii)(B)(II) of the CAT NMS Plan.

[[Page 10624]]

[GRAPHIC] [TIFF OMITTED] TN13FE24.267

    The Pre-FAM Period includes a broad range of CAT-related activity 
from 2012 through June 22, 2020, including the evaluation of the 
requirements of SEC Rule 613, the development of the CAT NMS Plan, the 
evaluation and selection of the initial and successor Plan Processors, 
the commencement of the creation and implementation of the CAT to 
comply with Rule 613 and the CAT NMS Plan, including technical 
specifications for transaction reporting and regulatory access, and 
related technology and the commencement of reporting to the CAT. The 
following describes the costs for each of the categories for the Pre-
FAM Period.
---------------------------------------------------------------------------

    \24\ With respect to certain costs that were ``appropriately 
excluded,'' such excluded costs relate to the amortization of 
capitalized technology costs, which are amortized over the life of 
the Plan Processor Agreement. As such costs have already been 
otherwise reflected in the filing, their inclusion would double 
count the capitalized technology costs. In addition, amortization is 
a non-cash expense.
    \25\ The costs described in this table of costs for the Pre-FAM 
Period were calculated based upon CAT LLC's review of applicable 
bills and invoices and related financial statements. CAT LLC 
financial statements are available on the CAT website. In addition, 
in accordance with Section 6.6(a)(i) of the CAT NMS Plan, in 2018 
CAT LLC provided the SEC with ``an independent audit of fees, costs, 
and expenses incurred by the Participants on behalf of the Company 
prior to the Effective Date of the Plan that will be publicly 
available.'' The audit is available on the CAT website.
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(a) Technology Costs--Cloud Hosting Services
    The $10,268,840 in technology costs for cloud hosting services 
represent costs incurred for services provided by the cloud services 
provider for the CAT, Amazon Web Services, Inc. (``AWS''), during the 
Pre-FAM Period.
    As part of its proposal for acting as the successor Plan Processor 
for the CAT, FCAT selected AWS as a subcontractor to provide cloud 
hosting services. In 2019, after reviewing the capabilities of other 
cloud services providers, FCAT determined that AWS was the only cloud 
services provider at that time sufficiently mature and capable of 
providing the full suite of necessary cloud services for the CAT, 
including, for example, the security, resiliency and complexity 
necessary for the CAT computing requirements. The use of cloud hosting 
services is standard for this type of high-volume data activity and 
reasonable and necessary for implementation of the CAT, particularly 
given the substantial data volumes associated with the CAT.
    Under the Plan Processor Agreement with FCAT, CAT LLC is required 
to pay FCAT the fees incurred by the Plan Processor for cloud hosting 
services provided by AWS as FCAT's subcontrator on a monthly basis for 
the cloud hosting services, and FCAT, in turn, pays such fees to AWS. 
The fees for cloud hosting services were negotiated by FCAT on an arm's 
length basis with the goals of managing cost and receiving services 
required to comply with the CAT NMS Plan and Rule 613, taking into 
consideration a variety of factors, including the expected volume of 
data, the breadth of services provided and market rates for similar 
services. The fees for cloud hosting services during the Pre-FAM Period 
were paid to FCAT by CAT NMS LLC \26\ and subsequently Consolidated 
Audit Trail, LLC (as previously noted, both entities are referred to 
generally as ``CAT LLC''),\27\ and FCAT, in turn, paid AWS. CAT LLC was 
funded via loan contributions by the Participants.\28\
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    \26\ CAT NMS, LLC was formed by FINRA and the U.S. national 
securities exchanges to implement the requirements of SEC Rule 613 
under the Exchange Act. SEC Rule 613 required the SROs to jointly 
submit to the SEC the CAT NMS Plan to create, implement and maintain 
the CAT. The SEC approved the CAT NMS Plan on November 15, 2016. See 
CAT NMS Plan Approval Order.
    \27\ On August 29, 2019, the Participants formed a new Delaware 
limited liability company named Consolidated Audit Trail, LLC for 
the purpose of conducting activities related to the CAT from and 
after the effectiveness of the proposed amendment of the CAT NMS 
Plan to replace CAT NMS, LLC. See Securities Exchange Act Release 
No. 87149 (September 27, 2019), 84 FR 52905 (October 3, 2019).
    \28\ For each of the costs paid by CAT NMS, LLC and Consolidated 
Audit Trail, LLC as discussed throughout this filing, CAT NMS, LLC 
and Consolidated Audit Trail, LLC paid these costs via loan 
contributions by the Participants to CAT NMS, LLC and Consolidated 
Audit Trail, LLC, respectively.

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[[Page 10625]]

    AWS was engaged by FCAT to provide a broad array of cloud hosting 
services for the CAT, including data ingestion, data management, and 
analytic tools. Services provided by AWS include storage services, 
databases, compute services and other services (such as networking, 
management tools and DevOps tools). AWS also was engaged to provide 
various environments for CAT, such as development, performance testing, 
test and production environments.
    The cost for AWS services for the CAT is a function of the volume 
of CAT Data. The greater the amount of CAT Data, the greater the cost 
of AWS services to the CAT. During the Pre-FAM Period from the 
engagement of AWS in February 2019 through June 2020, AWS provided 
cloud hosting services for volumes of CAT Data far in excess of the 
volume predictions set forth in the CAT NMS Plan. The CAT NMS Plan 
states, when all CAT Reporters are submitting their data to the CAT, it 
``must be sized to receive[,] process and load more than 58 billion 
records per day,'' \29\ and that ``[i]t is expected that the Central 
Repository will grow to more than 29 petabytes of raw, uncompressed 
data.'' \30\ However, the volume of CAT Data for the Pre-FAM Period was 
far in excess of these predicted levels. By the end of this period, 
data submitted to the CAT included options and equities Participant 
Data,\31\ Phase 2a and Phase 2b Industry Member Data \32\ (including 
certain linkages), as well as SIP Data,\33\ reference data and other 
types of Other Data.\34\ The following chart provides data regarding 
the average daily volume, cumulative total events, total compute hours 
and storage footprint of the CAT during the Pre-FAM Period.\35\
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    \29\ Appendix D-4 of the CAT NMS Plan at n.262.
    \30\ Appendix D-5 of the CAT NMS Plan.
    \31\ See Section 6.3(d) of the CAT NMS Plan.
    \32\ See Securities Exchange Release No. 88702 (April 20, 2020), 
85 FR 23075 (April 24, 2020) (``Phased Reporting Exemptive Relief 
Order'') for a description of Phase 2a and Phase 2b Industry Member 
Data.
    \33\ See Section 6.5(a)(ii) of the CAT NMS Plan.
    \34\ See Appendix C-108 of the CAT NMS Plan.
    \35\ Note that the volume data described in this table does not 
include CAIS data.
[GRAPHIC] [TIFF OMITTED] TN13FE24.268

(b) Technology Costs--Operating Fees
---------------------------------------------------------------------------

    \36\ Note that, although there were compute hours during this 
period, data related to such compute hours are no longer available 
in current data.
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    The $21,085,485 in technology costs related to operating fees 
represent costs incurred with regard to activities of FCAT as the Plan 
Processor. Operating fees are those fees paid by CAT LLC to FCAT as the 
Plan Processor to operate and maintain the CAT and to perform business 
operations related to the system, including compliance, security, 
testing, training, communications with the industry (e.g., management 
of the FINRA CAT Helpdesk, FAQs, website and webinars) and program 
management as required by the CAT NMS Plan.
    FCAT was selected to assume the role of the successor Plan 
Processor. Prior to this selection, the Participants engaged

[[Page 10626]]

in discussions with two prior Bidders \37\ for the successor Plan 
Processor role. The Operating Committee formed a Selection Subcommittee 
in accordance with Section 4.12 of the CAT NMS Plan to evaluate and 
review Bids and to make a recommendation to the Operating Committee 
with respect to the selection of the successor Plan Processor. In an 
April 9, 2019 letter to the Commission, the Participants described the 
reasons for its selection of the successor Plan Processor:
---------------------------------------------------------------------------

    \37\ The term ``Bidder'' is defined in Section 1.1 of the CAT 
NMS Plan.
---------------------------------------------------------------------------

    The Selection Subcommittee considered factors including, but not 
limited to, the following, in recommending FINRA to the Operating 
Committee as the successor Plan Processor:

    a. FINRA's specialized technical expertise and capabilities in 
the area of broker-dealer technology;
    b. The need to appoint a successor Plan Processor with 
specialized expertise to develop, implement, and maintain the CAT 
System in accordance with the CAT NMS Plan and SEC Rule 613;
    c. FINRA's detailed proposal in response to CATLLC's recent 
inquiries; and
    d. FINRA's data query and analytics systems demonstration to the 
Participants.
    Based on these and other factors, the Selection Subcommittee 
determined that FINRA was the most appropriate Bidder to become the 
successor Plan Processor.\38\
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    \38\ Letter from Michael J. Simon, Chair, CAT NMS, LLC Operating 
Committee, to Brent J. Fields, Secretary, SEC (Apr. 9, 2019), 
available at https://www.sec.gov/divisions/marketreg/rule613-info-notice-of-plan-processor-selection-040919.pdf.

    On February 26, 2019, the Operating Committee (with FINRA recusing 
itself) voted to select FINRA as the successor Plan Processor pursuant 
to Section 6.1(t) of the CAT NMS Plan.\39\ On March 29, 2019, CAT LLC 
and FCAT (a wholly owned subsidiary of FINRA) entered into a Plan 
Processor Agreement pursuant to which FCAT would perform the functions 
and duties of the Plan Processor contemplated by the CAT NMS Plan, 
including the management and operation of the CAT.
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    \39\ Id.
---------------------------------------------------------------------------

    Under the Plan Processor Agreement with FCAT, CAT LLC is required 
to pay FCAT a negotiated monthly fixed price for the operation of the 
CAT. This fixed price contract was negotiated on an arm's length basis 
with the goals of managing costs and receiving services required to 
comply with the CAT NMS Plan and Rule 613, taking into consideration a 
variety of factors, including the breadth of services provided and 
market rates for similar types of activity. The operating fees during 
the Pre-FAM Period were paid to FCAT by CAT LLC.
    From March 29, 2019 (the commencement of the Plan Processor 
Agreement with FCAT) through June 22, 2020 (the end of the Pre-FAM 
Period), the Plan Processor's activities with respect to the CAT 
included the following:
     Commenced user acceptance testing with market data 
provided by Exegy Incorporated (``Exegy''), a market data provider; 
\40\
---------------------------------------------------------------------------

    \40\ The use of Exegy to provide market data, including the 
costs and market data provided, is discussed below in Section 
3(a)(2)(B)(i)(i).
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     Published Technical Specifications and related reporting 
scenarios documents for Phase 2a, 2b and 2c reporting for Industry 
Members, after substantial engagement with SEC staff, Industry Members 
and Participants on the Technical Specifications;
     Facilitated testing for Phase 2a and 2b reporting for 
Industry Members;
     Began developing Technical Specifications and related 
reporting scenarios documents for Phase 2d reporting for Industry 
Members, after substantial engagement with SEC staff, Industry Members 
and Participants on the Technical Specifications;
     Published Central Repository Access Technical 
Specifications, and provided regulator access to test data from 
Industry Members;
     Facilitated Participant exchanges that support options 
market makers sending Quote Sent Time to the CAT;
     Facilitated the introduction of OPRA and Options NBBO 
Other Data to CAT;
     Addressed compliance items, including drafting CAT 
policies and procedures, and addressing requirements under Regulation 
SCI;
     Provided support to the Operating Committee, the 
Compliance Subcommittee and CAT working groups;
     Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
     Oversaw the security of the CAT;
     Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
     Provided support to subcontractors under the Plan 
Processor Agreement;
     Provided support in discussions with Participants, SEC and 
its staff;
     Operated the FINRA CAT Helpdesk, which is the primary 
source for answers to questions about CAT, including questions 
regarding: clock synchronization, firm reporting responsibilities, 
interpretive questions, technical specifications for reporting to CAT 
and more;
     Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
     Administered the CAT website and all of its content; \41\ 
and
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    \41\ The CAT website is https://www.catnmsplan.com.
---------------------------------------------------------------------------

     Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    The $2,072,908 in technology costs related to CAIS operating fees 
represent the fees paid for FCAT's subcontractor charged with the 
development and operation of CAT's Customer and Account Information 
System (``CAIS''). The CAT is required under the CAT NMS Plan to 
capture and store Customer Identifying Information and Customer Account 
Information in a database separate from the transactional database and 
to create a CAT-Customer-ID for each Customer.
    During the Pre-FAM Period, the CAIS-related services were provided 
by the Plan Processor through the Plan Processor's subcontractor, 
Kingland Systems Incorporation (``Kingland''). Kingland had experience 
operating in the securities regulatory technology space, and as a part 
of its proposal for acting as the Plan Processor for the CAT, FCAT 
selected Kingland as a subcontractor to provide certain CAIS-related 
services.
    Under the Plan Processor Agreement with FCAT, CAT LLC is required 
to pay to the Plan Processor the fees incurred by the FCAT for CAIS-
related services provided by FCAT through Kingland on a monthly basis. 
FCAT negotiated the fees for Kingland's CAIS-related services on an 
arm's length basis with the goals of managing costs and receiving 
services required to comply with the CAT NMS Plan, taking into 
consideration a variety of factors, including the services to be 
provided and market rates for similar types of activity. The fees for 
CAIS-related services during the Pre-FAM Period were paid by CAT LLC to 
FCAT. FCAT, in turn, paid Kingland. During the Pre-FAM Period, Kingland 
began development of the CAIS Technical Specifications and the building 
of CAIS. In addition, Kingland also worked on the build related to the 
CCID Alternative, an alternative approach to customer information that 
was not included in the CAT NMS Plan as

[[Page 10627]]

originally adopted.\42\ Furthermore, Kingland also worked on the 
acceleration of the reporting of large trader identifiers (``LTID'') 
earlier than originally contemplated during this period, in accordance 
with exemptive relief granted by the SEC.\43\
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    \42\ For a discussion of the CCID Alternative, see Securities 
Exchange Act Release No. 88393 (March 17, 2020), 85 FR 16152 (March 
20, 2020).
    \43\ See Phased Reporting Exemptive Relief Order at 23079-80.
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(d) Technology Costs--Change Request Fees
    The technology costs related to change request fees include costs 
related to certain modifications, upgrades or other changes to the CAT. 
Change requests are standard practice and necessary to reflect 
operational changes, including changes related to new market 
developments, such as new market participants. In general, if CAT LLC 
determines that a modification, upgrade or other changes to the 
functionality or service is necessary and appropriate, CAT LLC will 
submit a request for such a change to the Plan Processor. The Plan 
Processor will then respond to the request with a proposal for 
implementing the change, including the cost (if any) of such a change. 
CAT LLC then determines whether to approve the proposed change. The 
change request costs were paid by CAT LLC to FCAT. During the Pre-FAM 
Period, CAT LLC incurred costs of $141,346 related to change requests 
implemented by FCAT. Such change requests related to a development fee 
regarding the OPRA and SIP data feeds, and the reprocessing of certain 
exchange data.\44\
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    \44\ Note that CAT LLC also has incurred costs related to 
specific Industry Members (e.g., reprocessing costs related to 
Industry Member reporting errors).
---------------------------------------------------------------------------

(e) Technology Costs--Capitalized Developed Technology Costs
    This category of costs includes capitalizable application 
development costs incurred in the development of the CAT. The 
capitalized developed technology costs for the Pre-FAM Period of 
$71,475,941 relate to technology provided by the Initial Plan Processor 
and the successor Plan Processor.
    Initial Plan Processor: Thesys CAT, LLC. The capitalized developed 
technology costs related to the Initial Plan Processor include costs 
incurred with regard to testing for Participant reporting, Participant 
reporting to the CAT, a security assessment of the CAT, the development 
of the billing function for the CAT, and a Plan Processor transition 
fee.
    On January 17, 2017, the Selection Committee of the CAT NMS Plan 
selected the Initial Plan Processor, Thesys Technologies, LLC, for the 
CAT NMS Plan pursuant to Article V of the CAT NMS Plan.\45\ The 
Participants utilized a request for proposal (``RFP'') to seek 
proposals to build and operate the CAT, receiving a number of proposals 
in response to the RFP. The Participants carefully reviewed and 
considered each of the proposals, including holding in-person meetings 
with each of the Bidders. After several rounds of review, the 
Participants selected the Initial Plan Processor in accordance with the 
CAT NMS Plan, taking into consideration that the Initial Plan Processor 
had experience operating in the securities regulatory technology space, 
among other considerations. On April 6, 2017, CAT LLC entered into an 
agreement with Thesys CAT LLC (``Thesys CAT''), a Thesys affiliate, to 
perform the functions and duties of the Plan Processor contemplated by 
the CAT NMS Plan, including the management and operation of the CAT. 
Under the agreement, CAT LLC would pay Thesys CAT a negotiated, fixed 
price fee for its role as the Initial Plan Processor. Effective January 
30, 2019, the Plan Processor Agreement with Thesys CAT was terminated, 
and FCAT was subsequently selected as the successor Plan Processor.
---------------------------------------------------------------------------

    \45\ Letter from the Participants to Brent J. Fields, Secretary, 
SEC (January 18, 2017), available at https://www.sec.gov/divisions/marketreg/rule613-info-notice-of-plan-processor-selection.pdf.
---------------------------------------------------------------------------

    From January 17, 2017 through January 30, 2019, the time in which 
the Thesys CAT was engaged for the CAT, but excluding the period from 
November 15, 2017 through November 15, 2018, the Initial Plan Processor 
engaged in various activities with respect to the CAT, including 
preparing iterative drafts of Participant Technical Specifications, 
Industry Member Technical Specifications and the Central Repository 
Access Technical Specifications. Thesys CAT initiated and maintained 
the Participant reporting per the Participant Technical Specifications. 
In addition, Thesys CAT also developed CAT technology, addressed 
compliance items, including drafting CAT policies and procedures, 
addressing Regulation SCI requirements, establishing a CAT Compliance 
Officer and a Chief Information Security Officer, and addressed 
security-related matters for the CAT. Furthermore, Thesys CAT performed 
transition services related to the transition from Thesys CAT to FCAT 
as the successor Plan Processor from January 30, 2019 through April 15, 
2019.
    Successor Plan Processor: FCAT. The capitalized developed 
technology costs related to FCAT include: (1) development costs 
incurred during the application development stage to meet various 
agreed-upon milestones regarding the CAT, including the completion of 
go-live functionality related to options ingestion and validation, 
equities regulatory services agreement query tool updates and unlinked 
options data query, options linkages release, Industry Member Phase 2a 
file submission and data integrity (including error corrections), and 
Industry Member testing, including reporting relationships, ATS order 
type management, basic reporting statistics, SFTP data integrity 
feedback and error correction; (2) costs related to certain 
modifications, upgrades, or other changes to the CAT that were not 
contemplated by the agreement between CAT LLC and the Plan Processor, 
including a one-time development fee for a secure analytics workspace, 
a one-time development fee of an Industry Member connectivity solution, 
and a one-time development fee for the acceleration of multi-factor 
authentication; (3) CAIS implementation fees; and (4) license fees.
(f) Legal Costs
    The legal costs of $19,674,463 represent the fees paid for legal 
services provided by two law firms, Wilmer Cutler Pickering Hale and 
Dorr LLP (``WilmerHale'') and Pillsbury Winthrop Shaw Pittman LLP 
(``Pillsbury''), during the Pre-FAM Period. The legal costs exclude 
those costs incurred from November 15, 2017 through November 15, 2018.
    Law Firm: WilmerHale. Following the adoption of Rule 613, the 
Participants determined it was necessary to engage external legal 
counsel to advise the Participants with respect to corporate and 
regulatory legal matters related to the CAT, including drafting and 
developing the CAT NMS Plan. The Participants considered a variety of 
factors in their analysis of prospective law firms, including (1) the 
firm's qualifications, resources and expertise, (2) the firm's relevant 
experience and understanding of the regulatory matters raised by the 
CAT and in advising on matters of similar scope, (3) the composition of 
the legal team, and (4) professional fees. Following a series of 
interviews, the Participants acting as a consortium determined that 
WilmerHale was well qualified given the balance of

[[Page 10628]]

these considerations and engaged WilmerHale in February 2013.
    WilmerHale's billing rates are negotiated on an annual basis and 
are determined with reference to the rates charged by other leading law 
firms for similar work. The Participants assess WilmerHale's 
performance and review prospective budgets and staffing plans submitted 
by WilmerHale on an annual basis. WilmerHale's compensation 
arrangements are reasonable and appropriate, and in line with the rates 
charged by other leading law firms for similar work.
    The legal costs for WilmerHale during the Pre-FAM Period included 
costs incurred from 2013 until June 22, 2020 to address corporate and 
regulatory legal matters related to the CAT. The legal fees for this 
law firm during the period from February 2013 until the formation of 
the CAT NMS, LLC on November 15, 2016 were paid directly by the 
exchanges and FINRA to WilmerHale. After the formation of CAT NMS LLC, 
the legal fees were paid by CAT LLC to WilmerHale.
    After WilmerHale was engaged in 2013 through the end of the Pre-FAM 
Period on June 22, 2020 (excluding the legal costs from November 15, 
2017 through November 15, 2018), WilmerHale provided legal assistance 
to the CAT on a variety of matters, including with regard to the 
following:
     Analyzed various legal matters associated with the 
Selection Plan, and drafted an amendment to Selection Plan;
     Assisted with the RFP and bidding process for the CAT Plan 
Processor;
     Analyzed legal matters related to the Development Advisory 
Group (``DAG'');
     Drafted the CAT NMS Plan, analyzed various items related 
to the CAT NMS Plan, and responded to comment letters on CAT NMS Plan;
     Provided legal support for the formation of the legal 
entity, the governance of the CAT, including governance support prior 
to the adoption of the CAT NMS Plan, which involved support for the 
full committee of exchanges and FINRA as well as subcommittees of this 
group (e.g., Joint Subcommittee Group, Technical, Industry Outreach, 
Cost and Funding and Other Products) and the DAG, governance support 
during the transition to the new governance structure under the CAT NMS 
Plan; and governance support after the adoption of the CAT NMS Plan, 
which involved support for the Operating Committee, Advisory Committee, 
Compliance Subcommittee and CAT working groups;
     Assisted with the development of the CAT funding model and 
drafted related amendments of the CAT NMS Plan and related filings;
     Negotiated and drafted the plan processor agreements with 
the Initial Plan Processor and the successor Plan Processor;
     Provided assistance with compliance with Regulation SCI;
     Assisted with clock synchronization study;
     Provided assistance with respect to the establishment of 
CAT security;
     Drafted exemptive requests from CAT NMS Plan requirements, 
including with regard to options market maker quotes, Customer IDs, CAT 
Reporter IDs, linking allocations to executions, CAT reporting 
timeline, FDIDs, customer and account information, timestamp 
granularity, small industry members, data facility reporting and 
linkage, allocation reports, SRO-assigned market participant 
identifiers and cancelled trade indicators, thereby seeking to 
implement changes that would be cost effective and benefit Industry 
Members and Participants;
     Assisted with the Implementation Plan required pursuant to 
Section 6.6(c)(i) of the CAT NMS Plan;
     Provided advice regarding CAT policies and procedures;
     Analyzed the SEC's amendment of the CAT NMS Plan regarding 
financial accountability;
     Provided interpretations of and related to the CAT NMS 
Plan;
     Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues; and
     Assisted with third party vendor agreements.
    Law Firm: Pillsbury. The legal costs for CAT during the Pre-FAM 
Period include costs related to the legal services performed by 
Pillsbury. The Participants interviewed this law firm as well as other 
potential law firms to provide legal assistance regarding certain 
liability matters. After considering a variety of factors in its 
analysis, including the relevant expertise and fees of the firm, CAT 
LLC determined to hire Pillsbury in April 2019. The hourly fee rates 
for this law firm were in line with market rates for specialized legal 
expertise. The legal fees were paid by CAT LLC to Pillsbury. The legal 
costs for Pillsbury during the Pre-FAM Period included costs incurred 
from April 2019 until June 22, 2020 to address legal matters regarding 
the agreements between CAT Reporters and CAT LLC concerning certain 
terms associated with CAT Reporting (the ``Reporter Agreement''). 
During that period, Pillsbury advised CAT LLC regarding applicable 
legal matters, participated in negotiations between the Participants 
and Industry Members, participated in meetings with senior SEC staff, 
the Chairman, and Commissioners, represented CAT LLC and the 
Participants in an SEC administrative proceeding, and drafted a 
proposed amendment to the CAT NMS Plan regarding liability matters. 
Liability issues related to the CAT are important matters that needed 
to be resolved and clarified. CAT LLC's efforts to seek such resolution 
and clarity work to the benefit of Participants, Industry Members and 
other market participants. Moreover, litigation involving CAT LLC is an 
expense of operating the CAT, and, therefore, is appropriately an 
obligation of both Participants and Industry Members under the CAT 
Funding Model.
(g) Consulting Costs
    The consulting costs of $17,013,414 represent the fees paid to the 
consulting firm Deloitte & Touche LLP (``Deloitte'') as project manager 
during the Pre-FAM Period, from October 2012 until June 22, 2020. These 
consulting costs include costs for advisory services related to the 
operation of the CAT, and meeting facilitation and communications 
coordination, vendor support and financial analyses.
    To help facilitate project management given the unprecedented 
complexity and scope of the CAT project, the Participants determined it 
was necessary to engage a consulting firm to assist with the CAT 
project in 2012, following the adoption of Rule 613. A variety of 
factors were considered in the analysis of prospective consulting 
firms, including (1) the firm's qualifications, resources, and 
expertise, (2) the firm's relevant experience and understanding of the 
regulatory issues raised by the CAT and in coordinating matters of 
similar scope, (3) the composition of the consulting team, and (4) 
professional fees. Following a series of interviews, the exchanges and 
FINRA as a consortium determined that Deloitte was well qualified given 
the balance of these considerations and engaged Deloitte on October 1, 
2012.
    Deloitte's fee rates are negotiated on an annual basis and are in 
line with market rates for this type of specialized consulting work. 
CAT LLC assesses Deloitte's performance and reviews prospective budgets 
and staffing plans submitted by Deloitte on an annual basis. Deloitte's 
compensation arrangements are reasonable and appropriate, and in line 
with the rates

[[Page 10629]]

charged by other leading consulting firms for similar work.
    The consulting costs for CAT during the period from 2012 until the 
formation of the CAT NMS, LLC were paid directly by the Participants to 
Deloitte. After the formation of CAT NMS, LLC, the consulting fees were 
paid by CAT LLC to Deloitte. CAT LLC reviewed the consulting fees each 
month and approved the invoices.
    After Deloitte was hired in 2012 through the end of the Pre-FAM 
Period on June 22, 2020 (excluding the consulting costs from November 
15, 2017 through November 15, 2018), Deloitte provided a variety of 
consulting services, including the following:
     Established and implemented program operations for the CAT 
project, including the program managment [sic] office and workstream 
design;
     Assisted with the Plan Processor selection process, 
including but not limited to, the development of the RFP and the bidder 
evaluation process, and facilitation and consolidation of the 
Participant's independent reviews;
     Assisted with the development and drafting of the CAT NMS 
Plan, including conducting cost-benefit studies, analyzing OATS and CAT 
requirements, and drafting appendices to the Plan;
     Assisted with cost and funding-related activities for the 
CAT, including the development of the CAT funding model and assistance 
with loans and the CAT bank account for CAT funding;
     Provided governance support to the CAT, including 
governance support prior to the adoption of the CAT NMS Plan, which 
involved support for the full committee of exchanges and FINRA as well 
as subcommittees of this group (e.g., Joint Subcommittee Group, 
Technical, Industry Outreach, Cost and Funding and Other Products) and 
the DAG, governance support during the transition to the new governance 
structure under the CAT NMS Plan and governance support after the 
adoption of the CAT NMS Plan, which involved support for the Operating 
Committee, Advisory Committee, Compliance Subcommittee and CAT working 
groups;
     Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
     Assisted with industry outreach and communications 
regarding the CAT, including assistance with industry outreach events, 
the development of the CAT website, frequently asked questions, and 
coordinating with the CAT LLC's public relations firm;
     Provided support for updating the SEC on the progress of 
the development of the CAT;
     Provided active planning and coordination with and support 
for the Initial Plan Processor with regard to the development of the 
CAT, and reported to the Participants on the progress;
     Coordinated efforts regarding the selection of the 
successor Plan Processor;
     Assisted with the transition from the Initial Plan 
Processor to the successor Plan Processor, including support for the 
Operating Committee and successor Plan Processor for the new role; and
     Provided support for third party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    The insurance costs of $880,419 represent the cost incurred for 
insurance for CAT during the Pre-FAM Period. Commencing in 2020, CAT 
LLC performed an evaluation of various potential alternatives for CAT 
insurance policies, which included engaging in discussions with 
different insurance companies and conducting cost comparisons of 
various alternative approaches to insurance. Based on an analysis of a 
variety of factors, including coverage and premiums, CAT LLC determined 
to purchase cyber security liability insurance, directors' and 
officers' liability insurance, and errors and omissions liability 
insurance from USI Insurance Services LLC (``USI''). Such policies are 
standard for corporate entities, and cyber security liability insurance 
is important for the CAT System. The annual premiums for these policies 
were competitive for the coverage provided. The annual premiums were 
paid by CAT LLC to USI.
(i) Professional and Administration Costs
    In adopting the CAT NMS Plan, the Commission amended the Plan to 
add a requirement that CAT LLC's financial statements be prepared in 
compliance with GAAP, audited by an independent public accounting firm, 
and made publicly available.\46\ The professional and administration 
costs include costs related to accounting and accounting advisory 
services to support the operating and financial functions of CAT, 
financial statement audit services by an independent accounting firm, 
preparation of tax returns, and various cash management and treasury 
functions. In addition, professional and administration costs for the 
Pre-FAM Period include costs related to the receipt of market data and 
a security assessment. The costs for these professional and 
administration services were $1,082,036 for the Pre-FAM Period.
---------------------------------------------------------------------------

    \46\ Section 9.2 of the CAT NMS Plan.
---------------------------------------------------------------------------

    Financial Advisory Firm: Anchin Accountants & Advisors 
(``Anchin''). CAT LLC determined to hire a financial advisory firm, 
Anchin, to assist with financial matters for the CAT in April 2018. CAT 
LLC interviewed Anchin as well as other potential financial advisory 
firms to assist with the CAT project, considering a variety of factors 
in its analysis, including the firm's relevant expertise and fees. The 
hourly fee rates for this firm were in line with market rates for these 
financial advisory services. The fees for these services were paid by 
CAT LLC to Anchin.
    After Anchin was hired in April 2018 through the end of the Pre-FAM 
Period on June 22, 2020 (excluding the period from April 2018 through 
November 15, 2018), Anchin provided a variety of services, including 
the following:
     Developed, updated and maintained internal controls;
     Provided cash management and treasury functions;
     Facilitated bill payments;
     Provided monthly bookkeeping;
     Reviewed vendor invoices and documentation in support of 
cash disbursements;
     Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
     Addressed not-for-profit tax and accounting 
considerations;
     Prepared tax returns;
     Addressed various accounting, financial and operating 
inquiries from Participants;
     Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
     Addressed accounting and financial reporting matters 
relating to the transition from CAT NMS, LLC to Consolidated Audit 
Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
     Supported compliance with the CAT NMS Plan;
     Worked with and provided support to the Operating 
Committee and various CAT working groups;
     Prepared monthly, quarterly and annual financial 
statements;
     Supported the annual financial statement audits by an 
independent auditor;

[[Page 10630]]

     Reviewed historical costs from inception; and
     Provided accounting and financial information in support 
of SEC filings.
    Accounting Firm: Grant Thornton LLP (``Grant Thornton''). In 
February 2020, CAT LLC determined to engage an independent accounting 
firm, Grant Thornton, to complete the audit of CAT LLC's financial 
statements, in accordance with the requirements of the CAT NMS Plan. 
CAT LLC interviewed this firm as well as another potential accounting 
firm to audit CAT LLC's financial statements, considering a variety of 
factors in its analysis, including the relevant expertise and fees of 
each of the firms. CAT LLC determined that Grant Thornton was well-
qualified for the proposed role given the balance of these 
considerations. Grant Thornton's fixed fee rate compensation 
arrangement was reasonable and appropriate, and in line with the market 
rates charged for these types of accounting services. The fees for 
these services were paid by CAT LLC to Grant Thornton.
    Market Data Provider: Exegy. The professional and administrative 
costs for the Pre-FAM Period included costs related to the receipt of 
certain market data for the CAT pursuant to an agreement with the CAT 
LLC, and then with FCAT. Exegy provided SIP Data required by the CAT 
NMS Plan.
    After performing an analysis of the available market data vendors 
to confirm that the data provided met the SIP Data requirements of the 
CAT NMS Plan and comparing the costs of the vendors providing the 
required SIP Data, CAT LLC determined to purchase market data from 
Exegy from July 2018 through March 2019. CAT LLC determined that, 
unlike certain other vendors, Exegy provided market data that included 
all data elements required by the CAT NMS Plan.\47\ In addition, the 
fees were reasonable and in line with market rates for the market data 
received. Accordingly, the professional and administrative costs for 
the Pre-FAM Period include the Exegy costs from November 2018 through 
March 2019. The cost of the market data was reasonable for the market 
data received. The fees for the market data were paid directly by CAT 
LLC to Exegy.
---------------------------------------------------------------------------

    \47\ See Section 6.5(a)(ii) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Upon the termination of the contract between CAT LLC and Exegy, 
FCAT entered into a contract with Exegy to purchase the required market 
data from Exegy in July 2019. All costs under the contract were treated 
as a direct pass through cost to CAT LLC. Therefore, the fees for the 
market data were paid by CAT LLC to FCAT, who, in turn, paid Exegy for 
the market data.
    Security Assessment: RSM US LLP (``RSM''). The operating costs for 
the Pre-FAM Period include costs related to a third party security 
assessment of the CAT performed by RSM. The assessment was designed to 
verify and validate the effective design, implementation, and operation 
of the controls specified by NIST Special Publication 800-53, Revision 
4 and related standards and guidelines. Such a security assessment is 
in line with industry practice and important given the data included in 
the CAT. CAT LLC determined to engage RSM to perform the security 
assessment, after considering a variety of factors in its analysis, 
including the firm's relevant expertise and fees. The fees were 
reasonable and in line with market rates for such an assessment. RSM 
performed the assessment from October 2018 through December 2018. 
Accordingly, the costs for the Pre-FAM Period include the costs 
incurred in November and December 2018. The cost for the security 
assessment were paid directly to RSM by CAT LLC.
(j) Public Relations Costs
    The public relations costs of $224,669 represent the fees paid to 
public relations firms during the Pre-FAM Period for professional 
communications services to CAT, including media relations consulting, 
strategy and execution. By engaging a public relations firm, CAT LLC 
was better positioned to understand and address CAT matters to the 
benefit of all market participants. Specifically, the public relations 
firms provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan). Public 
relations services were important for various reasons, including 
monitoring comments made by market participants about CAT and 
understanding issues related to the CAT discussed on the public record.
    The services performed by each of the public relations firms were 
comparable. The fees for such services were reasonable and in line with 
market rates. Only one public relations firm was engaged at a time; the 
three firms were engaged sequentially as the primary public relations 
contact moved among the three firms during this time period.
    Public Relations Firm: Peppercomm, Inc. (``Peppercomm''). The 
national securities exchanges and FINRA, acting as a consortium, 
determined to hire the public relations firm Peppercomm in October 2014 
and continued to engage this firm through September 2017. The exchanges 
and FINRA made this engagement decision after considering a variety of 
factors in its analysis, including the firm's relevant expertise and 
fees. The fee rates for this public relations firm were negotiated on 
an arm's length basis and were in line with market rates for these 
types of services. The public relations costs during the period from 
October 2014 until the formation of the CAT NMS LLC were paid directly 
by the exchanges and FINRA to the public relations firm. After the 
formation of CAT NMS, LLC, the consulting fees were paid by CAT LLC.
    Public Relations Firm: Sloane & Company (``Sloane''). CAT LLC 
determined to hire a new public relations firm, Sloane, in March 2018, 
based on, among other things, their expertise and the primary contact's 
history with the project. The fee rates for this public relations firm 
were in line with market rates for these types of services. The fees 
during the Pre-FAM Period were paid by CAT LLC to Sloane. CAT LLC 
continued the engagement with Sloane until February 2020.
    Public Relations Firm: Peak Strategies. CAT LLC determined to hire 
a new public relations firm, Peak Strategies, in March 2020, based on, 
among other things, their expertise and the primary contact's history 
with the project. The fee rates for this public relations firm were in 
line with market rates for these types of services. The fees during the 
Pre-FAM Period were paid by CAT LLC to Peak Strategies.
(ii) Historical CAT Costs Incurred in Financial Accountability 
Milestone Period 1
    Historical CAT Costs 1 would include costs incurred by CAT and 
already funded by the Participants during Period 1 of the Financial 
Accountability Milestones (``FAM Period 1''),\48\ which covers the 
period from June 22, 2020-July 31, 2020. Historical CAT Costs 1 would 
include costs for FAM Period 1 of $6,377,343. The 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-

[[Page 10631]]

third ($2,125,781) and CEBSs paying one-third ($2,125,781). The 
following table breaks down Historical CAT Costs 1 for FAM Period 1 
into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT 
NMS Plan.
---------------------------------------------------------------------------

    \48\ Section 11.6(a)(i)(A) of the CAT NMS Plan.
    [GRAPHIC] [TIFF OMITTED] TN13FE24.269
    
    By the completion of FAM Period 1, CAT LLC was required to 
implement the reporting by Industry Members (excluding Small Industry 
Members that are not OATS reporters) of equities transaction data and 
options transaction data, excluding Customer Account Information, 
Customer-ID and Customer Identifying Information.\51\ CAT LLC completed 
the requirements of FAM Period 1 by July 31, 2020. The following 
describes the costs for each of the categories for FAM Period 1.
---------------------------------------------------------------------------

    \49\ As discussed above, with respect to certain costs that were 
``appropriately excluded,'' such excluded costs relate to the 
amortization of capitalized technology costs, which are amortized 
over the life of the Plan Processor Agreement. As such costs have 
already been otherwise reflected in the filing, their inclusion 
would double count the capitalized technology costs. In addition, 
amortization is a non-cash expense.
    \50\ The costs described in this table of costs for FAM Period 1 
were calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.
    \51\ See definition of ``Initial Industry Member Core Equity and 
Options Reporting'' in Section 1.1 of the CAT NMS Plan.
---------------------------------------------------------------------------

(a) Technology Costs--Cloud Hosting Services
    CAT LLC continued to utilize AWS in FAM Period 1 to provide a broad 
array of cloud hosting services for the CAT, including data ingestion, 
data management, and analytic tools. AWS continued to provide storage 
services, databases, compute services and other services (such as 
networking, management tools and DevOps tools), as well as various 
environments for CAT, such as development, performance testing, test, 
and production environments, during the FAM 1 Period. Accordingly, the 
$2,642,122 in technology costs for cloud hosting services represent 
costs incurred for services provided by AWS, as the cloud services 
provider, during FAM Period 1. The fee arrangement for AWS described 
above with regard to the Pre-FAM Period continued in place during FAM 
Period 1 pursuant to the Plan Processor Agreement. Moreover, CAT LLC 
continued to believe that AWS's maturity in the cloud services space as 
well as the significant cost and time necessary to move the CAT to a 
different cloud services provider supported the continued engagement of 
AWS.
    The cost for AWS cloud services for the CAT continued to be a 
function of the volume of CAT Data. During the FAM 1 Period, the volume 
of CAT Data continued to far exceed the original predictions for the 
CAT as set forth in the CAT NMS Plan. During this period, data 
submitted to the CAT included options and equities Participant Data, 
Phase 2a and Phase 2b Industry Member Data (including certain linkages) 
as well as SIP Data, reference data and other types of Other Data. The 
following chart provides data regarding the average daily volume, 
cumulative total events, total compute hours and storage footprint of 
the CAT during FAM Period 1.\52\
---------------------------------------------------------------------------

    \52\ Note that the volume data described in this table does not 
include CAIS data.

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

[[Page 10632]]

[GRAPHIC] [TIFF OMITTED] TN13FE24.270

(b) Technology Costs--Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, FCAT 
continued in its role as the Plan Processor for the CAT during FAM 
Period 1. Accordingly, the $1,099,680 in technology costs for operating 
fees represent costs incurred for the services provided by FCAT under 
the Plan Processor Agreement during FAM Period 1. The fee arrangement 
for FCAT described above with regard to the Pre-FAM Period continued in 
place during FAM Period 1 pursuant to the Plan Processor Agreement. 
During FAM Period 1, FCAT's activities with respect to the CAT included 
the following:
     Published iterative drafts of draft Technical 
Specifications for Phase 2d, after substantial engagement with SEC 
staff, Industry Members and Participants on the Technical 
Specifications;
     Published iterative drafts of CAIS Technical 
Specifications, after substantial engagement with SEC staff, Industry 
Members and Participants on the Technical Specifications;
     Facilitated Industry Member reporting of Quote Sent Time 
on Options Market Maker quotes;
     Addressed compliance items, including drafting CAT 
policies and procedures, and addressing Regulation SCI requirements;
     Provided support to the Operating Committee, the 
Compliance Subcommittee and CAT working groups;
     Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
     Oversaw the security of the CAT;
     Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
     Provided support to subcontractors under the Plan 
Processor Agreement;
     Provided support in discussions with Participants and the 
SEC and its staff;
     Operated the FINRA CAT Helpdesk;
     Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
     Administered the CAT website and all of its content; and
     Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, Kingland 
continued in its role as a subcontractor for the development and 
implementation of CAIS during FAM Period 1. Accordingly, the $254,998 
in technology costs for CAIS operating fees represent costs incurred 
for services provided by Kingland during FAM Period 1. The fee 
arrangement for Kingland described above with regard to the Pre-FAM 
Period continued in place during FAM Period 1 pursuant to the Plan 
Processor Agreement. During FAM Period 1, Kingland continued the 
development of the CAIS Technical Specifications and building of CAIS. 
In addition, Kingland continued to work on the CAIS Technical 
Specifications and build related to CCID Alternative, as well as the 
acceleration of the reporting of LTIDs.
(d) Technology Costs--Change Request Fees
    CAT LLC did not incur costs related to change requests during FAM 
Period 1.
(e) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for FAM Period 1 of 
$1,684,870 include capitalizable application development costs incurred 
in the development of the CAT by FCAT. Such costs include: (1) costs 
related to certain modifications, upgrades, or other changes to the CAT 
that were not contemplated by the agreement between CAT LLC and the 
Plan Processor, including separate production and industry test 
entitlements, and reprocessing of exchange event

[[Page 10633]]

timestamps; (2) implementation fees; and (3) license fees.
(f) Legal Costs
    The legal costs of $481,687 represent the fees paid for legal 
services provided by two law firms, WilmerHale and Pillsbury during FAM 
Period 1.
    Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during 
FAM Period 1 based on, among other things, their expertise and long 
history with the project. The hourly fee rates for this law firm were 
in line with market rates for specialized legal expertise. The legal 
fees during FAM Period 1 were paid by CAT LLC to WilmerHale. During FAM 
Period 1, WilmerHale provided legal assistance to the CAT including 
with regard to the following:
     Assisted with the development of the CAT funding model and 
drafted related amendments and fee filings;
     Drafted exemptive requests from CAT NMS Plan requirements 
regarding, for example, verbal activity, options market maker quote 
sent time, TRF linkages, and allocations;
     Provided interpretations related to CAT NMS Plan 
requirements, including the Financial Accountability Milestone 
amendment;
     Assisted with compliance with Regulation SCI;
     Provided support for the Operating Committee, Compliance 
Subcommittee, working groups and Leadership Team, including with regard 
to meetings with the SEC staff;
     Assisted with the drafting of the Implementation Plan 
required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
     Assisted with communications and presentations for the 
industry regarding CAIS;
     Drafted SRO rule filings related to the CAT Compliance 
Rule;
     Provided support for Compliance Subcommittee, including 
with regard to response to OCIE examinations and the annual assessment;
     Provided guidance regarding CAT technical specifications;
     Assisted with third party vendor agreements; and
     Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues.
    Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during 
FAM Period 1 based on, among other things, their expertise and history 
with the project. The hourly fee rates for this law firm were in line 
with market rates for specialized legal expertise. The legal fees 
during FAM Period 1 were paid by CAT LLC to Pillsbury. During FAM 
Period 1, Pillsbury provided legal assistance to the CAT regarding the 
CAT Reporter Agreement. During that period, Pillsbury advised CAT LLC 
regarding applicable legal matters and drafted a proposed amendment to 
the CAT NMS Plan regarding liability matters. Liability issues related 
to the CAT are important matters that needed to be resolved and 
clarified. CAT LLC's efforts to seek such resolution and clarity work 
to the benefit of Participants, Industry Members and other market 
participants.
(g) Consulting Costs
    The consulting costs of $137,209 represent the fees paid to 
Deloitte as project manager during FAM Period 1. CAT LLC continued to 
employ Deloitte during FAM Period 1 based on, among other things, their 
expertise and cumulative experience with the CAT. The fee rates for 
Deloitte during FAM Period 1 were negotiated and in line with market 
rates for this type of specialized consulting work. The consulting fees 
during FAM Period 1 were paid by CAT LLC to the consulting firm. CAT 
LLC reviewed the consulting fees each month and approved the invoices. 
During FAM Period 1, Deloitte's CAT-related activities included the 
following:
     Implemented program operations for the CAT project;
     Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
     Assisted with cost and funding matters for the CAT, 
including the development of the CAT funding model and assistance with 
loans and the CAT bank account for CAT funding;
     Provided support for updating the SEC on the progress of 
the development of the CAT;
     Assisted with the transition from the Initial Plan 
Processor to the successor Plan Processor; and
     Provided support for third party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    Although insurance was in effect during FAM Period 1, CAT LLC did 
not incur costs related to insurance during FAM Period 1.
(i) Professional and Administration Costs
    Financial Advisory Firm: Anchin. The professional and 
administration costs of $69,077 represent the fees paid to Anchin 
during FAM Period 1. CAT LLC continued to employ Anchin during FAM 
Period 1 based on, among other things, their expertise and history with 
the project. The hourly fee rates for this firm were in line with 
market rates for these type of financial advisory services. The fees 
for these services during FAM Period 1 were paid by CAT LLC to Anchin. 
During FAM Period 1, Anchin provided a variety of services, including 
the following:
     Maintained internal controls;
     Provided cash management and treasury functions;
     Facilitated bill payments;
     Provided monthly bookkeeping;
     Reviewed vendor invoices and documentation in support of 
cash disbursements;
     Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
     Addressed various accounting, financial reporting and 
operating inquiries from Participants;
     Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
     Supported compliance with the CAT NMS Plan;
     Worked with and provided support to the Operating 
Committee and various CAT working groups; and
     Prepared monthly and quarterly financial statements.
(j) Public Relations Costs
    The public relations costs of $7,700 represent the fees paid to 
Peak Strategies during FAM Period 1. CAT LLC continued to employ Peak 
Strategies during FAM Period 1 based on, among other things, their 
expertise and history with the project. The fee rates for this firm 
were reasonable and in line with market rates for these types of 
services. The fees for these services during FAM Period 1 were paid by 
CAT LLC to Peak Strategies. During FAM Period 1, Peak Strategies 
continued to provide professional communications services to CAT LLC, 
including media relations consulting, strategy and execution. 
Specifically, the public relations firm provided services related to 
communications with the public regarding the CAT, including monitoring 
developments related to the CAT (e.g., congressional efforts, public 
comments and reaction to proposals, press coverage of the CAT), 
reporting such developments to CAT LLC, and drafting and disseminating 
communications to the public regarding such developments as well as 
reporting on developments related to the CAT

[[Page 10634]]

(e.g., amendments to the CAT NMS Plan). As discussed above, such public 
relations services were important for various reasons, including 
monitoring comments made by market participants about the CAT and 
understanding issues related to the CAT discussed on the public record. 
By engaging a public relations firm, CAT LLC was better positioned to 
understand and address CAT matters to the benefit of all market 
participants.
(iii) Historical CAT Costs Incurred in Financial Accountability 
Milestone Period 2
    Historical CAT Costs 1 would include costs incurred by CAT LLC and 
already funded by Participants during Period 2 of the Financial 
Accountability Milestones (``FAM Period 2''),\53\ which covers the 
period from August 1, 2020-December 31, 2020. Historical CAT Costs 1 
would include costs for FAM Period 2 of $42,976,478. The 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 
($14,325,493) and CEBSs paying one-third ($14,325,493). The following 
table breaks down Historical CAT Costs 1 for FAM Period 2 into the 
categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS 
Plan.
---------------------------------------------------------------------------

    \53\ Section 11.6(a)(i)(B) of the CAT NMS Plan.
    \54\ As discussed above, with respect to certain costs that were 
``appropriately excluded,'' such excluded costs relate to the 
amortization of capitalized technology costs, which are amortized 
over the life of the Plan Processor Agreement. As such costs have 
already been otherwise reflected in the filing, their inclusion 
would double count the capitalized technology costs. In addition, 
amortization is a non-cash expense.
    \55\ The costs described in this table of costs for FAM Period 2 
were calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.
[GRAPHIC] [TIFF OMITTED] TN13FE24.271

    By the completion of FAM Period 2, CAT LLC was required to 
---------------------------------------------------------------------------
implement the following with regard to the CAT:

    (a) Industry Member reporting (excluding reporting by Small 
Industry Members that are not OATS reporters) for equities 
transactions, excluding Customer Account Information, CustomerID, 
and Customer Identifying Information, is developed, tested, and 
implemented at a 5% Error Rate or less and with sufficient intra-
firm linkage, inter-firm linkage, national securities exchange 
linkage, and trade reporting facilities linkage to permit the 
Participants and the Commission to analyze the full lifecycle of an 
order across the national market system, excluding linkage of 
representative orders, from order origination through order 
execution or order cancellation; and (b) the query tool 
functionality required by Section 6.10(c)(i)(A) and Appendix D, 
Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry 
Member equities transaction data described in condition (a) and is 
available to the Participants and to the Commission.\56\
---------------------------------------------------------------------------

    \56\ See definition of ``Full Implementation of Core Equity 
Reporting Requirements'' in Section 1.1 of the CAT NMS Plan.

    CAT LLC completed the requirements of FAM Period 2 by December 31, 
2020. The following describes the costs for each of the categories for 
FAM Period 2.
(a) Technology Costs--Cloud Hosting Services
    CAT LLC continued to utilize AWS in FAM Period 2 to provide a broad 
array of cloud hosting services for the CAT, including data ingestion, 
data management, and analytic tools. AWS continued to provide storage 
services, databases, compute services and other services (such as 
networking, management tools and DevOps tools), as well as various 
environments for CAT, such as development, performance testing, test, 
and production environments, during the FAM 2 Period. Accordingly, the 
$20,709,212 in technology costs for cloud hosting services represent 
costs incurred for services provided by AWS, as the cloud services 
provider, during FAM Period 2. The fee arrangement for AWS described 
above with regard to the Pre-FAM Period and FAM Period 1 continued in 
place during FAM Period 2 pursuant to the Plan Processor Agreement.
    The cost for AWS cloud services for the CAT continued to be a 
function of the volume of CAT Data. During the FAM 2 Period, the volume 
of CAT Data

[[Page 10635]]

continued to far exceed the original predictions for the CAT as set 
forth in the CAT NMS Plan. During this period, data submitted to the 
CAT included options and equities Participant Data, Phase 2a and Phase 
2b Industry Member Data (including certain linkages) as well as SIP 
Data, and Other Data, including reference data. In addition, Industry 
Members began reporting LTID account information. The following chart 
provides data regarding the average daily volume, cumulative total 
events, total compute hours and storage footprint of the CAT during FAM 
Period 2.\57\
---------------------------------------------------------------------------

    \57\ Note that the volume data described in this table does not 
include CAIS data.
[GRAPHIC] [TIFF OMITTED] TN13FE24.272

(b) Technology Costs--Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, FCAT 
continued in its role as the Plan Processor for the CAT during FAM 
Period 2. Accordingly, the $9,108,700 in technology costs for operating 
fees represent costs incurred for the services provided by FCAT under 
the Plan Processor Agreement during FAM Period 2. The fee arrangement 
for FCAT described above with regard to the Pre-FAM Period and FAM 
Period 1 continued in place during FAM Period 2 pursuant to the Plan 
Processor Agreement. During FAM Period 2, FCAT's activities with 
respect to the CAT included publishing the Technical Specifications for 
Phase 2d and overseeing the reporting of firm to firm and intrafirm 
linkages by Industry Members. In addition, FCAT also continued to 
engage in the following activities during FAM Period 2:
     Addressed compliance items, including drafting CAT 
policies and procedures, and addressing Regulation SCI requirements;
     Provided support to the Operating Committee, Compliance 
Subcommittee and CAT working groups;
     Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
     Oversaw the development and implementation of the security 
of the CAT;
     Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
     Provided support to subcontractors under the Plan 
Processor Agreement;
     Provided support in discussions with the Participants and 
the SEC and its staff;
     Operated the FINRA CAT Helpdesk;
     Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
     Administered the CAT website and all of its content; and
     Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, Kingland 
continued in its role as a subcontractor for the development and 
implementation of CAIS during FAM Period 2. Accordingly, the $1,590,298 
in technology costs for CAIS operating fees represent costs incurred 
for services provided by Kingland during FAM Period 2. The fee 
arrangement for Kingland described above with regard to the Pre-FAM 
Period and FAM Period 1

[[Page 10636]]

continued in place during FAM Period 2 pursuant to the Plan Processor 
Agreement. During FAM Period 2, Kingland continued the development of 
the CAIS Technical Specifications and building of CAIS. In addition, 
Kingland continued to work on the CAIS Technical Specifications and 
build related to the CCID Alternative, as well as the acceleration of 
the reporting of LTIDs.
(d) Technology Costs--Change Request Fees
    During FAM Period 2, CAT LLC engaged FCAT to pursue certain change 
requests in accordance with the Plan Processor Agreement. The change 
request costs were paid by CAT LLC to FCAT. Specifically, during FAM 
Period 2, CAT incurred costs of $51,823 related to a change request 
regarding the addition of functionality for exchange Participants to 
report rejected messages to the CAT.
(e) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for FAM Period 2 of 
$6,761,094 include capitalizable application development costs incurred 
in the development of the CAT by FCAT. Such costs include (1) 
development costs incurred during the application development stage to 
meet various agreed-upon milestones regarding the CAT, as defined in 
the agreement between CAT LLC and the Plan Processor; (2) costs related 
to certain modifications, upgrades, or other changes to the CAT that 
were not contemplated by the agreement between CAT LLC and the Plan 
Processor, including costs related to separate production and industry 
test entitlements, market maker reference data, and back-processing of 
exchange exception logic; (3) implementation fees; and (4) license 
fees.
(f) Legal Costs
    The legal costs of $2,766,644 represent the fees paid for legal 
services provided by two law firms, WilmerHale and Pillsbury during FAM 
Period 2.
    Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during 
FAM Period 2 based on, among other things, their expertise and long 
history with the project. The hourly fee rates for this law firm were 
in line with market rates for specialized legal expertise. The legal 
fees during FAM Period 2 were paid by CAT LLC to WilmerHale. During FAM 
Period 1 [sic], the legal assistance provided by WilmerHale included 
providing legal advice regarding the following:
     Assisted with the development of the CAT funding model and 
drafting related amendments and rule filings;
     Drafted exemptive requests from CAT NMS Plan requirements 
regarding, for example, allocations, exchange activity, OTQT, initial 
data validation, error corrections and recordkeeping;
     Provided interpretations related to CAT NMS Plan 
requirements, including with regard to the Financial Accountability 
Milestone amendment, FAQs and technical specifications;
     Provided support for the Operating Committee, Compliance 
Subcommittees, working groups and Leadership Team, including with 
regard to meetings with the SEC staff;
     Assisted with the Implementation Plan and Quarterly 
Progress Reports required pursuant to Section 6.6 of the CAT NMS Plan;
     Drafted SRO rule filings related to the CAT Compliance 
Rule;
     Provided support for the Compliance Subcommittee, 
including with regard to responses to OCIE examinations and the annual 
assessment;
     Provided guidance regarding the SEC's proposed security 
amendments to the CAT NMS Plan;
     Provided guidance regarding SRO rule filings for the 
retirement of systems;
     Provided legal support for Operating Committee meetings, 
including drafting resolutions and other materials and voting advice;
     Assisted with third party vendor agreements (e.g., with 
regard to Anchin, Grant Thornton and insurance policies);
     Assisted with change requests; and
     Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues.
    Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during 
FAM Period 2 based on, among other things, their expertise and history 
with the project. The hourly fee rates for this law firm were in line 
with market rates for specialized legal expertise. The legal fees 
during FAM Period 2 were paid by CAT LLC to Pillsbury. During FAM 
Period 2, Pillsbury provided legal assistance to the CAT regarding the 
CAT Reporter Agreement. During that period, Pillsbury advised CAT LLC 
regarding applicable legal matters and drafted and filed a proposed 
amendment to the CAT NMS plan regarding liability matters. As discussed 
above, liability issues related to the CAT are important matters that 
needed to be resolved and clarified. CAT LLC's efforts to seek such 
resolution and clarity work to the benefit of Participants, Industry 
Members and other market participants.
(g) Consulting Costs
    The consulting costs of $532,146 represent the fees paid to 
Deloitte as project manager during FAM Period 2. CAT LLC continued to 
employ Deloitte during FAM Period 2 based on, among other things, their 
expertise and long history with the project. The fee rates for Deloitte 
during FAM Period 2 were negotiated and in line with market rates for 
this type of specialized consulting work. The consulting fees during 
FAM Period 2 were paid to Deloitte by CAT LLC. CAT LLC reviewed the 
consulting fees each month and approved the invoices. During FAM Period 
2, Deloitte's CAT-related activities included the following:
     Implemented program operations for the CAT project;
     Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
     Assisted with cost and funding matters for the CAT, 
including the development of the CAT funding model and assistance with 
loans and the CAT bank account for CAT funding;
     Provided support for updating the SEC on the progress of 
the development of the CAT; and
     Provided support for third party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    The insurance costs of $976,098 represent the fees paid for 
insurance during FAM Period 2. CAT LLC continued to maintain cyber 
security liability insurance, directors' and officers' liability 
insurance, and errors and omissions liability insurance offered by USI. 
After engaging in a process for renewing the coverage, CAT LLC 
determined to purchase these insurance policies from USI. The annual 
premiums for these policies were competitive for the coverage provided. 
The annual premiums were paid by CAT LLC to USI.
(i) Professional and Administration Costs
    The professional and administration costs of $438,523 represent the 
fees paid to Anchin and Grant Thornton for financial services provided 
during FAM Period 2.
    Financial Advisory Firm: Anchin. CAT LLC continued to engage Anchin 
during FAM Period 2 based on, among other things, their expertise and 
history

[[Page 10637]]

with the project. The hourly fee rates for this firm were in line with 
market rates for these types of financial advisory services. The fees 
for these services during FAM Period 2 were paid by CAT LLC to Anchin. 
During FAM Period 2, Anchin provided a variety of services, including 
the following:
     Updated and maintained internal controls;
     Provided cash management and treasury functions;
     Faciliated [sic] bill payments;
     Provided monthly bookkeeping;
     Reviewed vendor invoices and documentation in support of 
cash disbursements;
     Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
     Addressed not-for-profit tax and accounting 
considerations;
     Prepared tax returns;
     Addressed various accounting, financial reporting and 
operating inquiries from the Participants;
     Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
     Supported compliance with the CAT NMS Plan;
     Worked with and provided support to the Operating 
Committee and various CAT working groups;
     Prepared monthly, quarterly and annual financial 
statements;
     Supported the annual financial statement audit by an 
independent auditor; and
     Reviewed historical costs from inception.
    Accounting Firm: Grant Thornton. CAT LLC continued to employ the 
accounting firm Grant Thornton during FAM Period 2 based on, among 
other things, its expertise and cumulative knowledge of CAT LLC. CAT 
LLC continued to believe that Grant Thornton was well qualified for its 
role and its fee rates were in line with with market rates for these 
accounting services. The fees for these services during FAM Period 2 
were paid by CAT LLC to Grant Thornton. During FAM Period 2, Grant 
Thornton performed a financial statement audit for CAT LLC as an 
independent accounting firm.
(j) Public Relations Costs
    The public relations costs of $41,940 represent the fees paid to 
Peak Strategies during FAM Period 2. CAT LLC continued to employ Peak 
Strategies during FAM Period 2 based on, among other things, their 
expertise and history with the project. The fee rates for this firm 
were in line with market rates for these types of services. The fees 
for these services during FAM Period 2 were paid by CAT LLC to Peak 
Strategies. During FAM Period 2, Peak Strategies continued to provide 
professional communications services to CAT, including media relations 
consulting, strategy and execution. Specifically, the public relations 
firm provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan). As discussed 
above, such public relations services were important for various 
reasons, including monitoring comments made by market participants 
about the CAT and understanding issues related to the CAT discussed on 
the public record. By engaging a public relations firm, CAT LLC was 
better positioned to understand and address CAT matters to the benefit 
of all market participants.
(iv) Historical CAT Costs Incurred in Financial Accountability 
Milestone Period 3
    Historical CAT Costs 1 would include costs incurred by CAT and 
already funded by the Participants during Period 3 of the Financial 
Accountability Milestones (``FAM Period 3''),\58\ which covers the 
period from January 1, 2021--December 31, 2021. Historical CAT Costs 1 
would include costs for FAM Period 3 of $144,415,268. The Participants 
would remain responsible for one-third of this cost (which they have 
previously paid) ($48,138,423), and Industry Members would be 
responsible for the remaining two-thirds, with CEBBs paying one-third 
($48,138,423) and CEBSs paying one-third ($48,138,423). The following 
table breaks down Historical CAT Costs 1 for FAM Period 3 into the 
categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS 
Plan.
---------------------------------------------------------------------------

    \58\ Section 11.6(a)(i)(C) of the CAT NMS Plan.

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[[Page 10638]]

[GRAPHIC] [TIFF OMITTED] TN13FE24.273

    By the completion of FAM Period 3, CAT LLC was required to 
implement the following requirements with regard the CAT:
---------------------------------------------------------------------------

    \59\ As discussed above, with respect to certain costs that were 
``appropriately excluded,'' such excluded costs relate to the 
amortization of capitalized technology costs, which are amortized 
over the life of the Plan Processor Agreement. As such costs have 
already been otherwise reflected in the filing, their inclusion 
would double count the capitalized technology costs. In addition, 
amortization is a non-cash expense.
    \60\ The costs described in this table of costs for FAM Period 3 
were calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.

    (a) reporting to the Order Audit Trail System (``OATS'') is no 
longer required for new orders; (b) Industry Member reporting for 
equities transactions and simple electronic options transactions, 
excluding Customer Account Information, Customer-ID, and Customer 
Identifying Information, with sufficient intra-firm linkage, inter-
firm linkage, national securities exchange linkage, trade reporting 
facilities linkage, and representative order linkages (including any 
equities allocation information provided in an Allocation Report) to 
permit the Participants and the Commission to analyze the full 
lifecycle of an order across the national market system, from order 
origination through order execution or order cancellation, is 
developed, tested, and implemented at a 5% Error Rate or less; (c) 
Industry Member reporting for manual options transactions and 
complex options transactions, excluding Customer Account 
Information, Customer-ID, and Customer Identifying Information, with 
all required linkages to permit the Participants and the Commission 
to analyze the full lifecycle of an order across the national market 
system, from order origination through order execution or order 
cancellation, including any options allocation information provided 
in an Allocation Report, is developed, tested, and fully 
implemented; (d) the query tool functionality required by Section 
6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3, Section 8.2.1, 
and Section 8.5 incorporates the data described in conditions (b)-
(c) and is available to the Participants and to the Commission; and 
(e) the requirements of Section 6.10(a) are met.\61\
---------------------------------------------------------------------------

    \61\ See definition of ``Full Availability and Regulatory 
Utilization of Transactional Database Functionality'' in Section 1.1 
of the CAT NMS Plan.

    CAT LLC completed the requirements of FAM Period 3 by December 31, 
2021. The following describes the costs for each of the categories for 
FAM Period 3.
(a) Technology Costs--Cloud Hosting Services
    CAT LLC continued to utilize AWS in FAM Period 3 to provide a broad 
array of cloud hosting services for the CAT, including data ingestion, 
data management, and analytic tools. AWS continued to provide storage 
services, databases, compute services and other services (such as 
networking, management tools and DevOps tools), as well as various 
environments for CAT, such as development, performance testing, test, 
and production environments, during the FAM 3 Period. Accordingly, the 
$94,574,759 in technology costs for cloud hosting services represents 
costs incurred for services provided by AWS, as the cloud services 
provider, during FAM Period 3. The fee arrangement for AWS described 
above for the earlier periods continued in place during FAM Period 3 
pursuant to the Plan Processor Agreement.
    The cost for AWS cloud services for the CAT continued to be a 
function of the volume of CAT Data. During FAM Period 3, the volume of 
CAT Data continued to far exceed the original predictions for the CAT 
as set forth in the CAT NMS Plan. During this period, data submitted to 
the CAT included options and equities Participant Data, Phase 2a, Phase 
2b, Phase 2c and Phase 2d Industry Member Data (including certain 
linkages), SIP Data, Other Data, including reference data, and LTID 
account information. The following chart provides data regarding the 
average daily volume, cumulative total events, total compute hours and 
storage footprint of the CAT during FAM Period 3.\62\
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    \62\ Note that the volume data described in this table does not 
include CAIS data.

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[[Page 10639]]

[GRAPHIC] [TIFF OMITTED] TN13FE24.274

(b) Technology Costs--Operating Fees
    Pursuant to the Plan Processor Agreement discussed above, FCAT 
continued in its role as the Plan Processor for the CAT during FAM 
Period 3. Accordingly, the $23,106,091 in technology costs for 
operating fees represent costs incurred for the services provided by 
FCAT under the Plan Processor Agreement during FAM Period 3. The fee 
arrangement for FCAT described above with regard to the prior Periods 
continued in place during FAM Period 3 pursuant to the Plan Processor 
Agreement. During FAM Period 3, FCAT's activities with respect to the 
CAT included the following:
     Facilitated Phase 2c and Phase 2d testing for Industry 
Members;
     Oversaw creation of linkages of the lifecycle of order 
events based on the received data through Phase 2d;
     Addressed compliance items, including drafting CAT 
policies and procedures, and addressing Regulation SCI requirements;
     Provided support to the Operating Committee, the 
Compliance Subcommittee and CAT working groups;
     Assisted with interpretive efforts and exemptive requests 
regarding the CAT NMS Plan;
     Oversaw the security of the CAT;
     Monitored the operation of the CAT, including with regard 
to Participant and Industry Member reporting;
     Provided support to subcontractors under the Plan 
Processor Agreement;
     Provided support in discussions with the Participants and 
the SEC and its staff;
     Operated the FINRA CAT Helpdesk;
     Facilitated communications with the industry, including 
via FAQs, CAT Alerts, meetings, presentations and webinars;
     Administered the CAT website and all of its content; and
     Provided technical support and assistance with 
connectivity, data access, and user support, including the use of CAT 
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
    Pursuant to the Plan Processor Agreement with FCAT discussed above, 
Kingland continued in its role as a subcontractor for the development 
and implementation of CAIS during FAM Period 3. Accordingly, the 
$5,562,383 in technology costs for CAIS operating fees represents costs 
incurred for services provided by Kingland during FAM Period 3. The fee 
arrangement for Kingland described above with regard to the prior 
Periods continued in place during FAM Period 3 pursuant to the Plan 
Processor Agreement. During FAM Period 3, Kingland continued the 
development of the CAIS Technical Specifications and building of CAIS. 
In addition, Kingland continued to work on the CAIS Technical 
Specifications and build related to the CCID Alternative, as well as 
the acceleration of the reporting of LTIDs. The full CAIS Technical 
Specifications were published during FAM Period 3.
(d) Technology Costs--Change Request Fees
    During FAM Period 3, CAT LLC engaged FCAT to pursue certain change 
requests in accordance with the Plan Processor Agreement. The change 
request costs were paid by CAT LLC to FCAT. Specifically, during FAM 
Period 3, CAT incurred costs of $396,169 related to change requests, 
including the following: (1) the addition of functionality for exchange 
Participants to report rejected messages to the CAT; (2) the migration 
of MIRS query engine to AWS to reduce operational costs and increase 
resiliency; and (3) updating the Participant Technical Specifications 
to allow for two-sided Participant option quote reporting.

[[Page 10640]]

(e) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for FAM Period 3 of 
$10,763,372 include capitalizable application development costs 
incurred in the development of the CAT by FCAT. Such costs include (1) 
development costs incurred during the application development stage to 
meet various agreed-upon milestones regarding the CAT, as defined in 
the agreement between CAT LLC and the Plan Processor, including the 
transition from equity data received by FINRA pursuant to various 
regulatory services agreements between FINRA and Participant exchanges 
to the equity CAT Data, and the completion of the Industry Member Phase 
2d options manual and complex orders go-live requirements; (2) costs 
related to certain modifications, upgrades, or other changes to the CAT 
that were not contemplated by the agreement between CAT LLC and the 
Plan Processor, including costs related to off-exchange volume 
concentration, Participant 24-hour trading and an external metastore; 
(3) implementation fees; and (4) license fees.
(f) Legal Costs
    The legal costs of $6,333,248 represent the fees paid for legal 
services provided by three law firms, WilmerHale, Pillsbury and 
Covington & Burling LLP (``Covington'') during FAM Period 3.
    Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during 
FAM Period 3 based on, among other things, their expertise and long 
history with the project. The hourly fee rates for this law firm were 
in line with market rates for specialized legal expertise. The legal 
fees during FAM Period 3 were paid by CAT LLC to WilmerHale. During FAM 
Period 3, the legal assistance provided by WilmerHale included 
providing legal advice regarding the following:
     Assisted with the development of the CAT funding model and 
drafting related amendments and rule filings;
     Drafted exemptive requests from CAT NMS Plan requirements, 
including, for example, verbal activity regarding Phase 2c cutover, 
error reports, error corrections, Phase 2d Reporting, unique Order-ID 
on internal route events, reporting addresses, recordkeeping, and 
unique CCID for foreign customers;
     Provided interpretations related to CAT NMS Plan 
requirements, including with regard to the Financial Accountability 
Milestone amendment, FAQs, CAIS requirements, ADF, and technical 
specifications;
     Provided support for the Operating Committee, Compliance 
Subcommittee, working groups and Leadership Team, including with regard 
to meetings with the SEC staff;
     Assisted with the Implementation Plan and Quarterly 
Progress Reports required pursuant to Section 6.6(c) of the CAT NMS 
Plan;
     Drafted SRO rule filings related to the CAT Compliance 
Rule;
     Provided support for Compliance Subcommittee, including 
with regard to response to OCIE examinations and the annual assessment;
     Provided guidance regarding SEC's proposed security 
amendments to CAT NMS Plan;
     Provided guidance regarding SRO rule filings for the 
retirement of systems;
     Provided legal support for Operating Committee meetings, 
including drafting resolutions and other materials and voting advice;
     Provided assistance with change requests;
     Provided guidance and regulatory support for litigation 
regarding the response to SEC's exemptive orders;
     Assisted with communications with the industry, includng 
CAT Alerts and presentations;
     Provided guidance regarding the confidentiality of CAT 
Data, including third-party information requests;
     Assisted with cost management analysis and proposals; and
     Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretive and 
implementation issues.
    Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during 
FAM Period 3 based on, among other things, their expertise and history 
with the project. The hourly fee rates for this law firm were in line 
with market rates for specialized legal expertise. The legal fees 
during FAM Period 3 were paid by CAT LLC to Pillsbury. During FAM 
Period 3, Pillsbury provided legal assistance to the CAT regarding the 
CAT Reporter Agreement. During this period, Pillsbury advised CAT LLC 
regarding applicable legal matters, reviewed and responded to comment 
letters regarding the proposed Plan amendment, participated in meetings 
with senior SEC staff, responded to comments submitted following the 
SEC's April 6, 2021 order instituting proceedings,\63\ and assessed 
legal matters regarding the SEC's October 29, 2021 order denying the 
proposed Plan amendment.\64\
---------------------------------------------------------------------------

    \63\ See Securities Exchange Act Release No. 91487 (April 6, 
2021), 86 FR 19054 (April 12, 2021).
    \64\ See Securities Exchange Act Release No. 93484 (October 29, 
2021), 86 FR 60933 (November 4, 2021).
---------------------------------------------------------------------------

    Law Firm: Covington. CAT LLC hired Covington for litigation with 
the SEC regarding certain exemptive orders related to the CAT, 
including orders issued in December 2020.\65\ CAT LLC interviewed this 
law firm as well as other potential law firms, considering a variety of 
factors in its analysis for choosing legal assistance, including the 
relevant expertise and fees of the potential lawyers. CAT LLC approved 
the engagement of Covington in January 2021. The fee rates for this law 
firm, which were calculated based on hourly rates, were in line with 
market rates for specialized services. The legal fees for FAM Period 3 
for this firm were paid by CAT LLC to Covington.
---------------------------------------------------------------------------

    \65\ See Securities Exchange Act Release No. 90688 (December 16, 
2020), 85 FR 83634 (December 22, 2020); and Securities Exchange Act 
Release No. 90689 (December 16, 2020), 85 FR 83667 (December 22, 
2020) (collectively, the ``2020 Orders'').
---------------------------------------------------------------------------

    After Covington was hired in 2021 through the end of 2021, the firm 
provided legal assistance regarding the litigation with the SEC 
regarding the 2020 Orders. These services included researching, 
drafting, and filing motions to stay the 2020 orders and related 
materials in proceedings before the SEC, as well as researching, 
drafting, and filing petitions for judicial review of the 2020 Orders 
in proceedings before the U.S. Court of Appeals for the D.C. Circuit. 
Covington oversaw ongoing litigation proceedings on these matters, and 
also supported WilmerHale with respect to settlement negotiations with 
the SEC staff regarding the 2020 Orders.
    In addition to these services, CAT LLC engaged Covington in 
November 2021 to provide assistance with respect to the SEC's 
disapproval of CAT NMS Plan amendments concerning a proposed limitation 
on liability in the event of a data breach or similar event. Covington 
provided advice concerning CAT's response to the SEC's disapproval 
order. This work accounted for a minority of Covington's fees in 
2021.\66\
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    \66\ As discussed above with regard to Pillsbury's work on 
liability matters, liability issues related to the CAT are important 
matters that needed to be resolved and clarified. CAT LLC's efforts 
to seek such resolution and clarity work to the benefit of 
Participants, Industry Members and other market participants. 
Moreover, such activity is a necessary part of the operation of the 
CAT.
---------------------------------------------------------------------------

(g) Consulting Costs
    The consulting costs of $1,408,209 represent the fees paid to 
Deloitte as project manager during FAM Period 3. CAT LLC continued to 
employ Deloitte during FAM Period 3 based on, among other things, their 
expertise and long history with the project. The fee rates for Deloitte 
during FAM Period 3 were negotiated and in line with market rates

[[Page 10641]]

for this type of specialized consulting work. The consulting fees 
during FAM Period 3 were paid to Deloitte by CAT LLC. CAT LLC reviewed 
the consulting fees each month and approved the invoices. During FAM 
Period 3, Deloitte's CAT-related activities included the following:
     Implemented program operations for the CAT project;
     Provided support to the Operating Committee, the Chair of 
the Operating Committee and the Leadership Team, including project 
management support, coordination and planning for meetings and 
communications, and interfacing with law firms and the SEC;
     Assisted with cost and funding matters for the CAT, 
including the development of the CAT funding model and assistance with 
loans and the CAT bank account for CAT funding;
     Provided support for updating the SEC on the progress of 
the development of the CAT; and
     Provided support for third party vendors for the CAT, 
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
    The insurance costs of $1,582,714 represent the fees paid for 
insurance FAM Period 3. CAT LLC continued to maintain cyber security 
liability insurance, directors' and officers' liability insurance, and 
errors and omissions liability insurance offered by USI. After engaging 
in a process for renewing the coverage, CAT LLC determined to purchase 
these insurance policies from USI. The annual premiums for these 
policies were competitive for the coverage provided. The annual 
premiums were paid by CAT LLC to USI.
(i) Professional and Administration Costs
    The professional and administration costs of $595,923 represent the 
fees paid to Anchin and Grant Thornton for financial services during 
FAM Period 3.
    Financial Advisory Firm: Anchin. CAT LLC continued to employ Anchin 
during FAM Period 3 based on, among other things, their expertise and 
history with the project. The hourly fee rates for this firm were in 
line with market rates for these financial advisory services. The fees 
for these services during FAM Period 3 were paid by CAT LLC to Anchin. 
During FAM Period 3, Anchin provided a variety of services, including 
the following:
     Updated and maintained internal controls;
     Provided cash management and treasury functions;
     Faciliated [sic] bill payments;
     Provided monthly bookkeeping;
     Reviewed vendor invoices and documentation in support of 
cash disbursements;
     Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
     Addressed not-for-profit tax and accounting 
considerations;
     Prepared tax returns;
     Addressed various accounting, financial reporting and 
operating inquiries from Participants;
     Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
     Supported compliance with the CAT NMS Plan;
     Worked with and provided support to the Operating 
Committee and various CAT working groups;
     Prepared monthly, quarterly and annual financial 
statements;
     Supported the annual financial statement audits by an 
independent auditor;
     Reviewed historical costs from inception; and
     Provided accounting and financial information in support 
of SEC filings.
    Accounting Firm: Grant Thornton. CAT LLC continued to employ the 
accounting firm Grant Thornton during FAM Period 3 based on, among 
other things, their expertise and cumulative knowledge of CAT LLC. CAT 
LLC determined that Grant Thornton was well qualified for its role and 
that its fixed fee rates were in line with market rates for these 
accountant services. The fees for these services during FAM Period 3 
were paid by CAT LLC to Grant Thornton. During FAM Period 3, Grant 
Thornton provided audited financial statements for CAT LLC.
(j) Public Relations Costs
    The public relations costs of $92,400 represent the fees paid to 
Peak Strategies during FAM Period 3. CAT LLC continued to employ Peak 
Strategies during FAM Period 3 based on, among other things, their 
expertise and history with the project. The fee rates for this firm 
were in line with market rates for these types of services. The fees 
for these services during FAM Period 3 were paid by CAT LLC to Peak 
Strategies. During FAM Period 3, Peak Strategies continued to provide 
professional communications services to CAT, including media relations 
consulting, strategy and execution. Specifically, the public relations 
firm provided services related to communications with the public 
regarding the CAT, including monitoring developments related to the CAT 
(e.g., congressional efforts, public comments and reaction to 
proposals, press coverage of the CAT), reporting such developments to 
CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan). As discussed 
above, such public relations services were important for various 
reasons, including monitoring comments made by market participants 
about the CAT and understanding issues related to the CAT discussed on 
the public record. By engaging a public relations firm, CAT LLC was 
better positioned to understand and address CAT matters to the benefit 
of all market participants.
(v) Excluded Costs
    Historical CAT Costs 1 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 would remain 
responsible for 100% of these costs, which total $63,624,299. CAT LLC 
determined that it was reasonable to exclude these Excluded Costs from 
Historical CAT Costs 1 because the excluded costs relate to the delay 
in the start of reporting to the CAT and the conclusion of the 
relationship with the Initial Plan Processor.\67\
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    \67\ In approving the CAT Funding Model, the Commission states 
that ``the proposed exclusion of the `Excluded Costs' from Past CAT 
Costs is reasonable in the Commission's view because it would not 
require all costs incurred by the Participants to be recovered from 
Industry Members through the Historical CAT Assessment, specifically 
excluding those costs related to the delay in the start of reporting 
to the CAT and costs related to the conclusion of the relationship 
with the Initial Plan Processor.'' CAT Funding Model Approval Order 
at 62663.
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    First, Historical CAT Costs 1 would not include $14,749,362 of 
costs related to the conclusion of the relationship with the Initial 
Plan Processor. Such costs include costs related to the American 
Arbitration Association, the legal assistance of Pillsbury with regard 
to the arbitration with Thesys CAT, and the settlement costs related to 
the arbitration with Thesys CAT. The Participants would remain 
responsible for 100% of these $14,749,362 in costs.
    Second, the 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

[[Page 10642]]

this one-year period of $48,874,937 from fees charged to Industry 
Members due to the delay in the start of reporting to the CAT. The 
Participants would remain responsible for 100% of these $48,874,937 in 
costs. The following table breaks down these costs into the categories 
set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
[GRAPHIC] [TIFF OMITTED] TN13FE24.275

    The following provides additional detail regarding the Excluded 
Costs.
---------------------------------------------------------------------------

    \68\ The costs described in this table of Excluded Costs were 
calculated based upon CAT LLC's review of applicable bills and 
invoices and related financial statements. CAT LLC financial 
statements are available on the CAT website.
---------------------------------------------------------------------------

(a) Technology Costs--Cloud Hosting Services, Operating Fees, CAIS 
Operating Fees and Change Request Fees
    CAT LLC did not incur technology costs related to the categories of 
cloud hosting services, operating fees, CAIS operating fees or change 
requests during the period from November 15, 2017 through November 15, 
2018.
(b) Technology Costs--Capitalized Developed Technology Costs
    Capitalized developed technology costs for the period from November 
15, 2017 through November 15, 2018 include capitalizable application 
development costs of $37,852,083 incurred in the development of the CAT 
by the Initial Plan Processor. Such costs include development costs 
incurred during the application development stage to meet various 
agreed-upon milestones regarding the CAT, as defined in the agreement 
between CAT LLC and the Initial Plan Processor. Such costs include 
costs related to Industry Member technical specifications for orders 
and transactions, the system security plan, testing and production for 
Participant CAT reporting, third-party security assessment and 
response, query portal, onboarding of the Chief Information Security 
Officer, and ingestion of FINRA TRF data and FINRA data related to 
halts and corporate actions.
(c) Legal Costs
    The legal costs of $6,143,278 represent the fees paid to WilmerHale 
for legal services from November 15, 2017 through November 15, 2018. 
During this period, WilmerHale provided legal assistance to the CAT 
including with regard to the following:
     Provided legal support for the governance of the CAT, 
including governance support for the Operating Committee, Advisory 
Committee, Compliance Subcommittee, and CAT working groups;
     Assisted with the development of the CAT funding model and 
drafted related amendments of the CAT NMS Plan;
     Provided assistance related to CAT security;
     Drafted exemptive requests, including requests related to 
PII;
     Assisted with the Implementation Plan required pursuant to 
Section 6.6(c)(i) of the CAT NMS Plan;
     Provided interpretations of and related to the CAT NMS 
Plan;
     Provided advice with regard to regulator access to the 
CAT;
     Assisted with the Plan Processor transition;
     Provided assistance regarding communications with the 
industry regarding the CAT;
     Provided advice regarding Customer Account Information and 
PII;
     Provided support for litigation related to SEC exemptive 
orders; and
     Provided support with regard to discussions with the SEC 
and its staff, including with respect to addressing interpretative and 
implementation issues.
(d) Consulting Costs
    The consulting costs of $4,452,106 represent the fees paid to 
Deloitte for their role as project manager for the CAT from November 
15, 2017 through November 15, 2018. During this period, Deloitte 
engaged in the following activities with respect to the CAT:
     Implemented program operations for the CAT project;
     Provided governance support to the Operating Committee, 
including support for Subcommittees and working groups of the Operating 
Committee (e.g., Compliance Subcommittee, Cost and Funding Working 
Group, Technical Working Group, Industry Outreach Working Group, 
Security Working Group and Steering Committee);
     Assisted with cost and funding issue for the CAT, 
including the development of the CAT funding model

[[Page 10643]]

and assistance with loans and the CAT bank account for CAT funding;
     Provided support for updating the SEC on the progress of 
the development of the CAT; and
     Provided active planning and coordination with and support 
for the Initial Plan Processor with regard to the development of the 
CAT, and reported to the Participants on the progress.
(e) Insurance
    CAT LLC did not incur costs related to insurance during the period 
from November 15, 2017 through November 15, 2018.
(f) Professional and Administration Costs
    The professional and administration costs of $340,145 represent the 
fees paid to Anchin, Exegy and RSM from November 15, 2017 through 
November 15, 2018.
    Financial Advisory Firm: Anchin. From the commencement of its 
engagment [sic] in April 2018 through November 15, 2018, Anchin engaged 
in the following activities with respect to the CAT:
     Developed, updated and maintained internal controls;
     Provided cash management and treasury functions;
     Facilitated bill payments;
     Provided monthly bookkeeping;
     Reviewed vendor invoices and documentation in support of 
cash disbursements;
     Provided accounting research and consultations on various 
accounting, financial reporting and tax matters;
     Addressed not-for-profit tax and accounting 
considerations;
     Prepared tax returns;
     Addressed various accounting, financial reporting and 
operating inquiries from Participants;
     Developed and maintained quarterly and annual operating 
and financial budgets, including budget to actual fluctuation analyses;
     Addressed accounting and financial matters relating to the 
transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, 
including supporting the dissolution of CAT NMS, LLC;
     Supported compliance with the CAT NMS Plan;
     Worked with and provided support to the Operating 
Committee and various CAT working groups;
     Prepared monthly, quarterly and annual financial 
statements;
     Supported the annual financial statement audits by an 
independent auditor;
     Reviewed historical costs from inception; and
     Provided accounting and financial information in support 
of SEC filings.
    Market Data Provider: Exegy. From July 2018 through November 15, 
2018, CAT LLC purchased market data from Exegy (as described in more 
detail above).
    Security Assessment: RSM. From October 2018 through November 15, 
2018, CAT LLC incurred costs for RSM's performance of a security 
assessment (as described in more detail above).
(g) Public Relations Costs
    The public relations costs of $87,325 represent the fees paid to 
Sloane from November 15, 2017 through November 15, 2018. From the 
commencement of its engagment [sic] in March 2018 through November 15, 
2018, Sloane provided professional communications services to CAT, 
including media relations consulting, strategy and execution. 
Specifically, Sloane provided services related to communications with 
the public regarding the CAT, including monitoring developments related 
to the CAT (e.g., congressional efforts, public comments and reaction 
to proposals, press coverage of the CAT), reporting such developments 
to CAT LLC, and drafting and disseminating communications to the public 
regarding such developments as well as reporting on developments 
related to the CAT (e.g., amendments to the CAT NMS Plan).
(C) Historical Recovery Period 1
    Under the CAT NMS Plan, the Operating Committee is required to 
reasonably establish the length of the Historical Recovery Period used 
in calculating each Historical Fee Rate based upon the amount of the 
Historical CAT Costs to be recovered by the Historical CAT Assessment, 
and to describe the reasons for its length.\69\ The Historical Recovery 
Period used in calculating the Historical Fee Rate may not be less than 
24 months or more than five years.\70\ The Operating Committee has 
determined to establish a Historical Recovery Period 1 of 24 months for 
Historical CAT Assessment 1.
---------------------------------------------------------------------------

    \69\ Section 11.3(b)(i)(D)(I) and Section 11.3(b)(iii)(B)(II) of 
the CAT NMS Plan.
    \70\ Section 11.3(b)(i)(D)(I) of the CAT NMS Plan. In the CAT 
Funding Model Approval Order, the SEC stated that ``[i]n the 
Commission's view, it is reasonable for the Operating Committee to 
establish the length of the Historical Recovery Period to be no less 
than 24 months and no more than five years.'' CAT Funding Model 
Approval Order at 62664.
---------------------------------------------------------------------------

    The Operating Committee determined that the length of Historical 
Recovery Period 1 appropriately weighs the need for a reasonable 
Historical Fee Rate 1 that spreads the Historical CAT Costs over an 
appropriate amount of time and the need to repay the loans to the 
Participants in a timely fashion. The Operating Committee determined 
that 24 months for Historical Recovery Period 1 would establish a fee 
rate that is lower than other transaction-based fees, including fees 
assessed pursuant to Section 31.\71\ In addition, in establishing a 
Historical Recovery Period of 24 months, the Operating Committee 
recognized that the total costs for Historical CAT Assessment 1 were 
less than the total costs for 2022 and 2023,\72\ and therefore it would 
be reasonable and appropriate to recover costs subject to this filing 
over an approximate two-year period. Furthermore, the Operating 
Committee notes that 24 months is appropriate because it is not 
currently proposing that Industry Members be required to pay additional 
CAT fees with regard to another Historical CAT Assessment or CAT Fees 
with regard to Prospective CAT Costs at the same time.
---------------------------------------------------------------------------

    \71\ As the SEC noted in the CAT Funding Model Approval Order, 
recent Section 31 fees ranged from $0.00009 per share to $0.0004 per 
share. See CAT Funding Model at 62682.
    \72\ The total CAT costs for 2022 were approximately $186 
million and the total CAT costs for 2023 are estimated to be 
approximately $233 million.
---------------------------------------------------------------------------

    The length of the Historical Recovery Period 1 and the reasons for 
its length are provided in this filing in accordance with the 
requirement in the CAT NMS Plan to provide such information in a fee 
filing for a Historical CAT Assessment.\73\
---------------------------------------------------------------------------

    \73\ Section 11.3(b)(iii)(B)(II)(C) of the CAT NMS Plan.
---------------------------------------------------------------------------

(D) Projected Total Executed Equivalent Share Volume
    The calculation of Historical Fee Rate 1 also requires the 
determination of the projected total executed equivalent share volume 
of transactions in Eligible Securities for Historical Recovery Period 
1. Under the CAT NMS Plan, the Operating Committee is required to 
``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.'' \74\ 
The Operating Committee is required to base its projection on the prior 
twelve months, but it may use its discretion to analyze the likely 
volume for the upcoming year. Such discretion would allow the Operating 
Committee to use its judgment when estimating projected total executed 
equivalent share volume if the volume over the prior twelve months was 
unusual or

[[Page 10644]]

otherwise unfit to serve as the basis of a future volume estimate.\75\
---------------------------------------------------------------------------

    \74\ Section 11.3(b)(i)(E) of the CAT NMS Plan.
    \75\ See CAT Funding Model Approval Order at 62664.
---------------------------------------------------------------------------

    The total executed equivalent share volume of transactions in 
Eligible Securities for the period from December 2022 through November 
2023 was 3,842,861,347,279.44 executed equivalent shares. The Operating 
Committee has determined to calculate the projected total executed 
equivalent share volume for the 24 months of Historical Recovery Period 
1 by doubling the executed equivalent share volume for the prior 12 
months. The Operating Committee determined that such an approach was 
reasonable as the CAT's annual executed equivalent share volume has 
remained relatively constant. For example, the executed equivalent 
share volume for 2021 was 3,963,697,612,395 executed equivalent shares, 
and the executed equivalent share volume for 2022 was 
4,039,821,841,560.31 executed equivalent shares. Accordingly, the 
projected total executed equivalent share volume for Historical 
Recovery Period 1 is projected to be 7,685,722,694,558.88 executed 
equivalent shares.\76\
---------------------------------------------------------------------------

    \76\ This projection was calculated by multiplying 
3,842,861,347,279.44 executed equivalent shares by two.
---------------------------------------------------------------------------

    The projected total executed equivalent share volume of all 
transactions in Eligible Securities for Historical Recovery Period 1 
and a description of the calculation of the projection is provided in 
this filing in accordance with the requirement in the CAT NMS Plan to 
provide such information in a fee filing for a Historical CAT 
Assessment.\77\
---------------------------------------------------------------------------

    \77\ Section 11.3(b)(iii)(B)(II)(D) of the CAT NMS Plan.
---------------------------------------------------------------------------

(E) Historical Fee Rate 1
    Historical Fee Rate 1 would be calculated by dividing Historical 
CAT Costs 1 by the reasonably projected total executed equivalent share 
volume of all transactions in Eligible Securities for Historical 
Recovery Period 1, as described in detail above.\78\ Specifically, 
Historical Fee Rate 1 would be calculated by dividing $337,688,610 by 
7,685,722,694,558.88. As a result, the Historical Fee Rate 1 would be 
$0.0000439371316687066 per executed equivalent share. Historical Fee 
Rate 1 is provided in this filing in accordance with the requirement in 
the CAT NMS Plan to provide the Historical Fee Rate in a fee filing for 
a Historical CAT Assessment.\79\
---------------------------------------------------------------------------

    \78\ In approving the CAT Funding Model, the Commission stated 
that ``[t]he calculation of the Historical Fee Rate by dividing the 
Historical CAT Costs by the projected total executed equivalent 
share volume of all transactions in Eligible Securities for the 
Historical Recovery Period is reasonable.'' See CAT Funding Model 
Approval Order at 62664.
    \79\ Section 11.3(b)(iii)(B)(II)(A) of the CAT NMS Plan.
---------------------------------------------------------------------------

(3) Past CAT Costs and Participants
    Participants would not be required to pay any fees associated with 
Historical CAT Assessment 1 as the Participants previously have paid 
all Past CAT Costs. The CAT NMS Plan explains that:

    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.\80\
---------------------------------------------------------------------------

    \80\ Section 11.3(b)(ii) of the CAT NMS Plan.

    The CAT NMS Plan further states that ``Historical CAT Assessments 
are designed to recover two-thirds of the Historical CAT Costs.'' \81\
---------------------------------------------------------------------------

    \81\ Id. In approving the CAT Funding Model, the Commission 
stated that ``[t]he proposed allocation of the Historical CAT 
Assessment solely to CEBs and CEBBs, and ultimately Industry 
Members, is reasonable. The Historical CAT Assessment will still be 
divided into thirds,'' as the Participants' one-third share of 
Historical CAT Costs will be paid by the cancellation of loans made 
to the Company. See CAT Funding Model Approval Order at 62666.
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(4) Monthly Fees
    CEBBs and CEBSs would be required to pay fees for Historical CAT 
Assessment 1 on a monthly basis for the period in which Historical CAT 
Assessment 1 is in effect.\82\ A CEBB or CEBS's fee for each month 
would be calculated based on the transactions in Eligible Securities 
executed by the CEBB or CEBS from the prior month.\83\ Proposed 
paragraph (a)(1)(A) to the Consolidated Audit Trail Funding Fees 
section of the Equities Price List and Options Fee Schedule would state 
that each CAT Executing Broker would receive its first invoice in April 
2024, and ``would receive an invoice each month thereafter in which 
Historical CAT Assessment 1 is in effect.'' Proposed paragraph 
(a)(1)(B) to the Consolidated Audit Trail Funding Fees section of the 
Equities Price List and the Options Fee Schedule would state that 
``Consolidated Audited Trail, LLC shall provide each CAT Executing 
Broker with an invoice for Historical CAT Assessment 1 on a monthly 
basis.'' In addition, proposed paragraph (b)(1) would state that each 
CEBB and CEBS is required to pay its CAT fees ``each month.''
---------------------------------------------------------------------------

    \82\ Section 11.3(b)(iii)(A) of the CAT NMS Plan.
    \83\ See proposed paragraph (a)(1)(B) under Consolidated Audit 
Trail Funding Fees on the Equities Price List and the Options Fee 
Schedule.
---------------------------------------------------------------------------

(5) Actual Recovery Period for Historical CAT Assessment 1
    The CAT NMS Plan 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.'' \84\ Accordingly, Historical CAT 
Assessment 1 will remain in effect until all Historical CAT Costs 1 
have been collected. The actual recovery period for Historical CAT 
Assessment 1 may be shorter or longer than Historical Recovery Period 1 
depending on the actual executed equivalent share volumes during the 
time that Historical CAT Assessment 1 is in effect.\85\
---------------------------------------------------------------------------

    \84\ Section 11.3(b)(i)(D)(II) of the CAT NMS Plan.
    \85\ In approving the CAT Funding Model, the Commission stated 
that ``[i]n the Commission's view, it is reasonable for Industry 
Members to be charged a Historical CAT Assessment until all 
Historical CAT Costs for the Historical CAT Assessment are 
collected.'' See CAT Funding Model Approval Order at 62665.
---------------------------------------------------------------------------

(6) Consolidated Audit Trail Funding Fees
    To implement Historical CAT Assessment 1, a ``Consolidated Audit 
Trail Funding Fees'' section would be added to the Equities Price List 
and the Options Fee Schedule, to include the proposed paragraphs 
described below.
(A) Fee Schedule for Historical CAT Assessment 1
    The CAT NMS Plan states 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.\86\
---------------------------------------------------------------------------

    \86\ Section 11.3(b)(iii)(A) of the CAT NMS Plan.

    Accordingly, based on the factors discussed above, the Exchange 
proposes to add paragraph (a)(1) to the Consolidated Audit Trail 
Funding Fees section of the Equities Price List and Options Fee 
---------------------------------------------------------------------------
Schedule. Proposed paragraph (a)(1) would state the following:


[[Page 10645]]


    (A) Each CAT Executing Broker shall receive its first invoice 
for Historical CAT Assessment 1 in April 2024, which shall set forth 
the Historical CAT Assessment 1 fees calculated based on 
transactions in March 2024, and shall receive an invoice for 
Historical CAT Assessment 1 for each month thereafter in which 
Historical CAT Assessment 1 is in effect.
    (B) Consolidated Audit Trail, LLC shall provide each CAT 
Executing Broker with an invoice for Historical CAT Assessment 1 on 
a monthly basis. Each month, such invoices shall set forth a fee for 
each transaction in Eligible Securities executed by the CAT 
Executing Broker in its capacity as a CAT Executing Broker for the 
Buyer (``CEBB'') and/or the CAT Executing Broker for the Seller 
(``CEBS'') (as applicable) from the prior month as set forth in CAT 
Data. The fee for each such transaction will be calculated by 
multiplying the number of executed equivalent shares in the 
transaction by the fee rate of $0.000015 per executed equivalent 
share.
    (C) Historical CAT Assessment 1 will remain in effect until 
$225,125,740 (two-thirds of Historical CAT Costs 1) are collected 
from CAT Executing Brokers collectively, which is estimated to be 
approximately two years, but could be for a longer or shorter period 
of time. Consolidated Audit Trail, LLC will provide notice when 
Historical CAT Assessment 1 will no longer be in effect.
    (D) Each CAT Executing Broker shall be required to pay each 
invoice for Historical CAT Assessment 1 in accordance with paragraph 
(b).

    As noted in the Plan amendment for the CAT Funding Model, ``as a 
practical matter, the fee filing for a Historical CAT Assessment would 
provide the exact fee per executed equivalent share to be paid for each 
Historical CAT Assessment, by multiplying the Historical Fee Rate by 
one-third and describing the relevant number of decimal places for the 
fee rate.\87\ Accordingly, proposed paragraph (a)(1)(B) to the 
Consolidated Audit Trail Funding Fees section of the Equities Price 
List and the Options Fee Schedule would set forth a fee rate of 
$0.000015 per executed equivalent share. This fee rate is calculated by 
multiplying Historical Fee Rate 1 of $0.0000439371316687066 by one-
third, and rounding the result to 6 decimal places.\88\ The Operating 
Committee determined to use six decimal places to balance the accuracy 
of the calculation with the potential systems and other 
impracticalities of using additional decimal places in the calculation.
---------------------------------------------------------------------------

    \87\ See CAT Funding Model Approval Order at 62658, n.658.
    \88\ Dividing $0.0000439371316687066 by three equals 
$0.00001464571055623553. Rounding $0.00001464571055623553 to six 
decimal places equals $0.000015.
---------------------------------------------------------------------------

    The proposed language in paragraph (a)(1)(A) to the Consolidated 
Audit Trail Funding Fees section of the Equities Price List and the 
Options Fee Schedule would describe when CAT Executing Brokers would 
receive their first monthly invoice for Historical CAT Assessment 1. 
Specifically, CAT Executing Brokers would receive their first monthly 
invoice for Historical CAT Assessment 1 in April 2024 and the fees set 
forth in that invoice would be calculated based on transactions 
executed in the prior month, that is, transactions executed in March 
2024. The payment for the first invoice would be required within 30 
days after the receipt of the first invoice (unless a longer period is 
indicated), as described in proposed paragraph (b)(2) to the 
Consolidated Audit Trail Funding Fees section of the Equities Price 
List and the Options Fee Schedule.
    Proposed paragraph (a)(1)(A) to the Consolidated Audit Trail 
Funding Fees section of the Equities Price List and the Options Fee 
Schedule also would describe the monthly cadence of the invoices for 
Historical CAT Assessment 1. Specifically, after the first invoices are 
provided to CAT Executing Brokers in April 2024, invoices will be sent 
to CAT Executing Brokers each month thereafter while Historical CAT 
Assessment 1 is in effect.
    Proposed paragraph (a)(1)(B) to the Consolidated Audit Trail 
Funding Fees section of the Equities Price List and the Options Fee 
Schedule would describe the invoices for Historical CAT Assessment 1. 
Proposed paragraph (a)(1)(B) would state that ``Consolidated Audit 
Trail, LLC shall provide each CAT Executing Broker with an invoice for 
Historical CAT Assessment 1 on a monthly basis.'' Proposed paragraph 
(a)(1)(B) also would describe the fees to be set forth in the invoices 
for Historical CAT Assessment 1. Specifically, it would state that 
``[e]ach month, such invoices shall set forth a fee for each 
transaction in Eligible Securities executed by the CAT Executing Broker 
in its capacity as a CAT Executing Broker for the Buyer (``CEBB'') and/
or the CAT Executing Broker for the Seller (``CEBS'') (as applicable) 
from the prior month as set forth in CAT Data. The fee for each such 
transaction will be calculated by multiplying the number of executed 
equivalent shares in the transaction by the fee rate of $0.000015 per 
executed equivalent share.''
    Furthermore, proposed paragraph (a)(1)(C) to the Consolidated Audit 
Trail Funding Fees section of the Equities Price List and the Options 
Fee Schedule would describe how long Historical CAT Assessment 1 would 
remain in effect. It would state that ``Historical CAT Assessment 1 
will remain in effect until $225,125,740 (two-thirds of Historical CAT 
Costs 1) are collected from CAT Executing Brokers collectively, which 
is estimated to be approximately two years, but could be for a longer 
or shorter period of time.'' This proposed paragraph would further 
state that ``Consolidated Audit Trail, LLC will be [sic] provide notice 
when Historical CAT Assessment 1 will no longer be in effect.''
    Historical CAT Assessment 1 will be assessed for all transactions 
executed in each month through the end of the month in which two-thirds 
of Historical CAT Costs 1 are assessed, and then CAT LLC will provide 
notice that Historical CAT Assessment 1 is no longer in effect. Since 
Historical CAT Assessment 1 is a monthly fee based on transaction 
volume from the prior month, Historical CAT Assessment 1 may collect 
more than two-thirds of Historical CAT Costs 1. To the extent that 
occurs, any excess money collected during the final month in which 
Historical CAT Assessment 1 is in effect will be used to offset future 
fees and/or to fund the reserve for the CAT.
    Finally, proposed paragraph (a)(1)(D) to the Consolidated Audit 
Trail Funding Fees section of the Equities Price List and the Options 
Fee Schedule would set forth the requirement for the CAT Executing 
Brokers to pay the invoices for Historical CAT Assessment 1. It would 
state that ``[e]ach CAT Executing Broker shall be required to pay each 
invoice for Historical CAT Assessment 1 in accordance with paragraph 
(b).''
(B) Manner of Payment
    The Exchange proposes to add paragraph (b)(1) to the Consolidated 
Audit Trail Funding Fees section of the Equities Price List and the 
Options Fee Schedule to describe the manner of payment of Industry 
Member CAT fees. The CAT NMS Plan requires the Operating Committee to 
establish a system for the collection of CAT fees.\89\ The Plan 
Processor has established a billing system for CAT fees.\90\ Therefore, 
the Exchange proposes to require CAT Executing Brokers to pay 
Historical CAT Assessment 1 in accordance with such system. 
Accordingly, proposed paragraph (b)(1) to the Consolidated Audit Trail 
Funding Fees section of the Equities Price List and the Options Fee

[[Page 10646]]

Schedule would state that ``[e]ach CAT Executing Broker shall pay its 
CAT fees as required pursuant to paragraph (a) each month to the 
Consolidated Audit Trail, LLC in the manner prescribed by the 
Consolidated Audit Trail, LLC.''
---------------------------------------------------------------------------

    \89\ Section 11.4 of the CAT NMS Plan.
    \90\ The billing process and system are described in CAT Alert 
2023-02 as well as the CAT FAQs related to the billing of CAT fees, 
the Industry Member CAT Reporter Portal User Guide, the FCAT 
Industry Member Onboarding Guide, the FCAT Connectivity Supplement 
for Industry Members and the CAT Billing Webinars (dated September 
28, 2023 and November 7, 2023), each available on the CAT website.
---------------------------------------------------------------------------

(C) Failure to Pay CAT Fees
    The CAT NMS Plan further 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). 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.\91\
---------------------------------------------------------------------------

    \91\ Section 11.4 of the CAT NMS Plan.

    Accordingly, the Exchange proposes to add this requirement to the 
Equities Price List and the Options Fee Schedule. Proposed paragraph 
(b)(2) to the Consolidated Audit Trail Funding Fees section of the 
---------------------------------------------------------------------------
Equities Price List and the Options Fee Schedule would state:

    Each CAT Executing Broker shall pay the CAT fees required 
pursuant to paragraph (a) within thirty days after receipt of an 
invoice or other notice indicating payment is due (unless a longer 
payment period is otherwise indicated). If a CAT Executing Broker 
fails to pay any such CAT fee when due, such CAT Executing Broker 
shall pay interest on the outstanding balance from such due date 
until such fee is paid at a per annum rate equal to the lesser of 
(i) the Prime Rate plus 300 basis points, or (ii) the maximum rate 
permitted by applicable law.
(7) Historical CAT Assessment Details
    The CAT NMS Plan states that:

    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.\92\
---------------------------------------------------------------------------

    \92\ Section 11.3(a)(iv)(A) of the CAT NMS Plan.

    Such information would provide CEBBs and CEBSs with the ability to 
understand the details regarding the calculation of their Historical 
CAT Assessment.\93\ CAT LLC will provide CAT Executing Brokers with 
these details regarding the calculation of their Historical CAT 
Assessments on their monthly invoice for the Historical CAT Assessment.
---------------------------------------------------------------------------

    \93\ In approving the CAT Funding Model, the Commission stated 
that, ``[i]n the Commission's view, providing CAT Execut[ing] 
Brokers information regarding the calculation of their CAT Fees will 
aid in transparency and permit CAT Execut[ing] Brokers to confirm 
the accuracy of their invoices for CAT Fees.'' See CAT Funding Model 
Approval Order at 62667.
---------------------------------------------------------------------------

    In addition, CAT LLC will make certain aggregate statistics 
regarding Historical CAT Assessments publicly available. Specifically, 
the CAT NMS Plan states 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 on an exchange, and (3) by buy-side transactions and sell-
side transactions.'' \94\ Such aggregate statistics will be available 
on the CAT website.
---------------------------------------------------------------------------

    \94\ Section 11.3(a)(iv)(B) of the CAT NMS Plan. In approving 
the CAT Funding Model, the Commission stated that ``[t]he 
publication of the aggregate executed equivalent share volume and 
aggregate fee is appropriate because it would allow Participants and 
CAT Executing Brokers a high-level validation of executed volume and 
fees.'' See CAT Funding Model Approval Order at 62667.
---------------------------------------------------------------------------

    Furthermore, CAT LLC will make publicly available on the CAT 
website the total amount invoiced each month that Historical CAT 
Assessment 1 is in effect as well as the total amount invoiced for 
Historical CAT Assessment 1 for all months since its commencement. CAT 
LLC also will make publicly available on the CAT website the total 
costs to be collected from Industry Members for Historical CAT 
Assessment 1. By reviewing statistics regarding how much has been 
invoiced and how much remains to be invoiced for Historical CAT 
Assessment 1, Industry Members would have sufficient information to 
reasonably track how much longer Historical CAT Assessment 1 is likely 
to be in place.
(8) Implementation Assistance
    To assist Industry Members with compliance with the commencement of 
Historical CAT Assessment 1, CAT LLC will make available to CAT 
Executing Brokers four months of mock invoices prior to the 
commencement of Historical CAT Assessment 1. Specifically, CAT 
Executing Brokers will receive mock invoices based on transaction data 
from November 2023, December 2023, January 2024 and February 2024. The 
mock invoices will be in the same form as the actual, payable invoices, 
including both the relevant transaction data and the corresponding fee. 
However, no payments will be required in response to such mock 
invoices; they are to be used solely to assist CAT Executing Brokers 
with the development of their processes for paying the CAT fees. Such 
data will provide CAT Executing Brokers with a preview of the 
transaction data used in creating the invoices for Historical CAT 
Assessment 1 fees, as the data will be the same as data provided in 
actual invoices. Such data preview is intended to facilitate the 
payment of Historical CAT Assessment 1.
(9) Financial Accountability Milestones
    The CAT NMS Plan states 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.'' \95\ The CAT NMS Plan further states that ``in all filings 
submitted by the Participants to the Commission under Section 19(b) of 
the Exchange Act, to establish or implement Post-Amendment Industry 
Member Fees pursuant to this Article, . . . the Participants shall 
clearly indicate whether such fees are related to Post-Amendment 
Expenses incurred during Period 1, Period 2, Period 3, or Period 4.'' 
\96\ As discussed in detail below, all applicable Financial 
Accountability Milestones for Historical CAT Assessment 1--that is, 
Period 1, Period 2 and Period 3 of the Financial Accountability 
Milestones--have been satisfied. Furthermore, as discussed below, this 
filing clearly indicates that Historical CAT Assessment 1 relates to 
Post-Amendment Expenses incurred during Periods 1, 2 and 3 of the 
Financial Accountability Milestones.
---------------------------------------------------------------------------

    \95\ Section 11.3(b)(iii)(B)(III) of the CAT NMS Plan.
    \96\ Section 11.6(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

(A) Period 1 of the Financial Accountability Milestones
    In accordance with Section 11.6(b) of the CAT NMS Plan, Historical 
CAT Assessment 1 seeks to recover costs that are related to ``all fees, 
costs, and expenses (including legal and consulting fees, costs, and 
expenses) incurred by or for the Company in connection with the 
development, implementation and operation of the CAT from the effective 
date of [Section 11.6 of the CAT NMS Plan] until such time as Full 
Implementation of CAT NMS Plan Requirements has been

[[Page 10647]]

achieved'' \97\ (``Post-Amendment Expenses'') incurred during FAM 
Period 1. FAM Period 1 began on June 22, 2020, the effective date of 
Section 11.6 of the CAT NMS Plan, and concluded on July 31, 2020, the 
date of Initial Industry Member Core Equity and Options Reporting. 
Section 1.1 of the CAT NMS Plan defines ``Initial Industry Member Core 
Equity and Options Reporting'' as:
---------------------------------------------------------------------------

    \97\ Section 11.6 of the CAT NMS Plan.

    The reporting by Industry Members (excluding Small Industry 
Members that are not OATS reporters) of both: (a) equities 
transaction data, excluding Customer Account Information, Customer-
ID, and Customer Identifying Information; and (b) options 
transaction data, excluding Customer Account Information, Customer-
---------------------------------------------------------------------------
ID and Customer Identifying Information.

    Under Section 1.1 of the CAT NMS Plan, this Financial 
Accountability Milestone is considered complete as of the date 
identified in the Participants' Quarterly Progress Reports.\98\ As 
indicated by the Participants' Quarterly Progress Report for the third 
quarter of 2020,\99\ Initial Industry Member Core Equity and Option 
Reporting was completed on schedule on July 22, 2020, which is prior to 
the July 31, 2020 deadline.
---------------------------------------------------------------------------

    \98\ The Quarterly Progress Reports are available at https://www.catnmsplan.com/implementation-plan.
    \99\ See Q3 2020 Quarterly Progress Report (Oct. 30, 2020) and 
Updated Q3 2020 Quarterly Progress Report (Jan. 29, 2021).
---------------------------------------------------------------------------

    Under the FAM Period 1 requirement of Initial Industry Member Core 
Equity and Options Reporting, Industry Members--excluding Small 
Industry Members that are not OATS reporters--were required to report 
two categories of data to the CAT: equites transaction data and options 
transaction data (both excluding Customer Account Information, 
Customer-ID, and Customer Identifying Information) by July 31, 2020. 
Pursuant to exemptive relief provided by the Commission, the Commission 
authorized the Participants' Compliance Rules to allow core equity 
reporting for Industry Members (Phase 2a) to begin on June 22, 2020 and 
core options reporting for Industry Members (Phase 2b) to begin on July 
20, 2020.\100\
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    \100\ See Phased Reporting Exemptive Relief Order. Under the CAT 
NMS Plan as adopted, the Participants were required, through their 
Compliance Rules, to require their Large Industry Members to 
commence reporting Industry Member Data to the Central Repository by 
November 15, 2018, and to require their Small Industry Members to 
commence reporting Industry Member Data to the Central Repository by 
November 15, 2019. Sections 6.7(a)(v) and (vi) of the CAT NMS Plan. 
The SEC granted exemptive relief from these provisions of the CAT 
NMS Plan to allow for the phased implementation of Industry Member 
reporting via five phases addressing the reporting requirements for 
Phase 2a Industry Member Data, Phase 2b Industry Member Data, Phase 
2c Industry Member Data, Phase 2d Industry Member Data and Phase 2e 
Industry Member Data.
---------------------------------------------------------------------------

    In adopting the FAMs, the Commission stated that the equities 
transaction reporting required for FAM Period 1 ``is consistent with 
the functionality that the Participants describe on the CAT NMS Plan 
website as `Production Go-Live for Equities 2a file submission and data 
integrity validations.' '' \101\ The Phase 2a Industry Member Data is 
described in detail in the SEC's Phased Reporting Exemptive Relief 
Order, and includes the following data related to Eligible Securities 
that are equities:
---------------------------------------------------------------------------

    \101\ See Securities Exchange Act Release No. 88890, 85 FR 
31322, 31330 n.97 (``FAM Adopting Release'').

     All events and scenarios covered by OATS, which 
includes information related to the receipt or origination of 
orders, order transmittal, and order modifications, cancellations 
and executions;
     Reportable Events for: (1) proprietary orders, 
including market maker orders, for Eligible Securities that are 
equities; (2) electronic quotes in listed equity Eligible Securities 
(i.e., NMS stocks) sent to a national securities exchange or FINRA's 
Alternative Display Facility (``ADF''); (3) electronic quotes in 
unlisted Eligible Securities (i.e., OTC Equity Securities) received 
by an Industry Member operating an interdealer quotation system 
(``IDQS''); and (4) electronic quotes in unlisted Eligible 
Securities sent to an IDQS or other quotation system not operated by 
a Participant or Industry Member;
     Firm Designated IDs (``FDIDs''), which Industry Members 
must report to the CAT as required by Sections 6.3(d)(i)(A) and 
6.4(d)(ii)(C) of the CAT NMS Plan.
     Industry Members would be required to report all street 
side representative orders, including both agency and proprietary 
orders and mark such orders as representative orders, except in 
certain limited exceptions as described in the Industry Member 
Technical Specifications;
     The link between the street side representative order 
and the order being represented when: (1) the representative order 
was originated specifically to represent a single order received 
either from a customer or another broker-dealer; and (2) there is 
(a) an existing direct electronic link in the Industry Member's 
system between the order being represented and the representative 
order and (b) any resulting executions are immediately and 
automatically applied to the represented order in the Industry 
Member's system;
     Manual and Electronic Capture Time for Manual Order 
Events;
     Special handling instructions for the original receipt 
or origination of an order during Phase 2a; and
     When routing an order, whether the order was routed as 
an intermarket sweep order (``ISO'').

    In Phase 2a, Industry Members were not required to report 
modifications of a previously routed order in certain limited 
instances, nor were they required to report a cancellation of an order 
received from a Customer after the order has been executed.\102\
---------------------------------------------------------------------------

    \102\ See Phased Reporting Exemptive Relief Order at 23076-78.
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    The Quarterly Progress Report for the third quarter of 2020 states 
that ``Interim Step: Production Go-Live for Equities 2a file submission 
and data integrity validation (Large Industry Members and Small OATS 
Reporters)'' was completed on June 22, 2020. Accordingly, the FAM 
Period 1 requirement of reporting by Industry Members (excluding Small 
Industry Members that are not OATS reporters) of ``equities transaction 
data, excluding Customer Account Information, Customer-ID, and Customer 
Identifying Information'' was completed on June 22, 2020.
    In adopting the FAMs, the Commission stated that the options 
transaction reporting required for FAM Period 1 is ``consistent with 
the functionality that the Participants describe on the CAT NMS Plan 
website as `Production Go-Live for Options 2b file submission and data 
integrity validations.' '' \103\ The Phase 2b Industry Member Data is 
described in detail in the SEC's Phased Reporting Exemptive Relief 
Order, and includes the Industry Member Data related to Eligible 
Securities that are options and related to simple electronic option 
orders, excluding electronic paired option orders. A simple electronic 
option order is an order to buy or sell a single option that is not 
related to or dependent on any other transaction for pricing and timing 
of execution that is either received or routed electronically by an 
Industry Member. Electronic receipt of an order is defined as the 
initial receipt of an order by an Industry Member in electronic form in 
standard format directly into an order handling or execution system. 
Electronic routing of an order is the routing of an order via 
electronic medium in standard format from one Industry Member's order 
handling or execution system to an exchange or another Industry Member. 
An electronic paired option order is an electronic option order that 
contains both the buy and sell side that is routed to another Industry 
Member or exchange for crossing and/or price improvement as a single 
transaction on an exchange. Responses to auctions of simple orders

[[Page 10648]]

and paired simple orders would be reportable in Phase 2b. Furthermore, 
combined orders in options would be treated in Phase 2b in the same way 
as equity representative orders are treated in Phase 2a. A combined 
order would mean, as permitted by SRO rules, a single, simple order in 
Listed Options created by combining individual, simple orders in Listed 
Options from a customer with the same exchange origin code before 
routing to an exchange. During Phase 2b, the single combined order sent 
to an exchange must be reported and marked as a combined order, but the 
linkage to the underlying orders is not required to be reported until 
Phase 2d.\104\
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    \103\ See FAM Adopting Release at 31330, n.98.
    \104\ See Phased Reporting Exemptive Relief Order at 23078.
---------------------------------------------------------------------------

    The Quarterly Progress Report for the third quarter of 2020 states 
that ``Interim Step: Production Go-Live for Options 2b file submission 
and data integrity validations'' was completed on July 20, 2020. 
Accordingly, the FAM Period 1 requirement of reporting by Industry 
Members (excluding Small Industry Members that are not OATS reporters) 
of ``options transaction data, excluding Customer Account Information, 
Customer-ID and Customer Identifying Information'' was completed on 
July 20, 2020.
    As discussed above, the Historical CAT Costs 1 to be recovered via 
Historical CAT Assessment 1 would include fees, costs and expenses 
incurred by or for the Company in connection with the development, 
implementation and operation of the CAT during the period from June 22, 
2020 through July 31, 2020. The total costs for this period, as 
discussed above, are $6,377,343. 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 ($2,125,781) and CEBSs paying one-third 
($2,125,781).
(B) Period 2 of the Financial Accountability Milestones
    Historical CAT Assessment 1 seeks to recover costs that are related 
to Post-Amendment Expenses incurred during FAM Period 2. FAM Period 2 
began on August 1, 2020, and concluded on December 31, 2020, the date 
of the Full Implementation of Core Equity Reporting. Section 1.1 of the 
CAT NMS Plan defines ``Full Implementation of Core Equity Reporting'' 
as:

    the point at which: (a) Industry Member reporting (excluding 
reporting by Small Industry Members that are not OATS reporters) for 
equities transactions, excluding Customer Account Information, 
Customer-ID, and Customer Identifying Information, is developed, 
tested, and implemented at a 5% Error Rate or less and with 
sufficient intra-firm linkage, inter-firm linkage, national 
securities exchange linkage, and trade reporting facilities linkage 
to permit the Participants and the Commission to analyze the full 
lifecycle of an order across the national market system, excluding 
linkage of representative orders, from order origination through 
order execution or order cancellation; and (b) the query tool 
functionality required by Section 6.10(c)(i)(A) and Appendix D, 
Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry 
Member equities transaction data described in condition (a) and is 
available to the Participants and to the Commission. This Financial 
Accountability Milestone shall be considered complete as of the date 
identified in a Quarterly Progress Report meeting the requirements 
of Section 6.6(c).

    Under Section 1.1 of the CAT NMS Plan, this Financial 
Accountability Milestone is considered complete as of the date 
identified in the Participants' Quarterly Progress Reports. As 
indicated by the Participants' Quarterly Progress Report for the fourth 
quarter of 2020,\105\ Full Implementation of Core Equity Reporting was 
completed on schedule by December 31, 2020.
---------------------------------------------------------------------------

    \105\ Q4 2020 Quarterly Progress Report (Jan. 29, 2021).
---------------------------------------------------------------------------

    Specifically, the Full Implementation of Core Equity Reporting 
requires the satisfaction of two prongs. The first prong requires 
Participants to have fully implemented the first phase of equities 
transaction reporting for Industry Members (excluding Small Industry 
Members that are not OATS reporters) at an Error Rate of less than 5%. 
In addition, equities transaction data produced by the CAT at this 
stage must also be sufficiently interlinked so as to permit full 
analysis of an order's lifecycle across the national market, excluding 
full linkage of representative orders. As CAT LLC reported on its 
Quarterly Progress Reports, Phase 2a was fully implemented as of 
October 26, 2020, including intra-firm, inter-firm, national securities 
exchange, and trade reporting facilities linkages.\106\ In addition to 
the reporting of Phase 2a Industry Member Data as described above with 
regard to FAM Period 1, the following linkage data was added to the CAT 
as described in the Quarterly Progress Reports for the third and fourth 
quarter of 2020:
---------------------------------------------------------------------------

    \106\ For a description of the requirements of Phases 2a, see 
Phased Reporting Exemptive Relief Order.

     ``Production Go-Live for Equities 2a Intrafirm Linkage 
validations'' was completed on 7/27/2020; \107\
---------------------------------------------------------------------------

    \107\ Q3 2020 Quarterly Progress Report (Oct. 20, 2021).
---------------------------------------------------------------------------

     ``Production Go-Live for Firm to Firm Linkage 
validations for Equities 2a (Large Industry Members and Small OATS 
Reporters)'' was completed on October 26, 2020; and
     ``Production Go-Live for Equities 2a Exchange and TRF 
Linkage validations (Large Industry Members and Small OATS 
Reporters)'' was completed on October 26, 2020.

    Furthermore, as CAT LLC reported on its Quarterly Progress Report 
for the fourth quarter of 2020, the average overall error rate for 
Phase 2a Industry Member Data was less than 5% as of December 31, 2020. 
The average overall error rate was calculated by dividing the 
compliance errors by processed records.
    The second prong of this FAM requires that the equities transaction 
data collected by the CAT at this stage be made available to regulators 
through two basic query tools required by the CAT NMS Plan--a targeted 
query tool that will enable regulators to retrieve data via an online 
query screen with a variety of predefined selection criteria, and a 
user-defined direct query tool that will provide regulators with the 
ability to query data using all available attributes and data 
sources.\108\ As CAT LLC reported on its Quarterly Progress Reports, 
the query tool functionality incorporating the data from Phase 2a was 
available to the Participants and the Commission as of December 31, 
2020.\109\
---------------------------------------------------------------------------

    \108\ Section 6.10(c)(i)(A) of the CAT NMS Plan requires the 
Plan Processor to ``provide Participants and the SEC with access to 
all CAT Data stored in the Central Repository'' via an ``online 
targeted query tool.'' Appendix D, Sections 8.1.1-8.1.3 of the CAT 
NMS Plan describes the required functionality associated with this 
regulatory tool. Appendix D, Section 8.2.1 describes the required 
functionality associated with a user-defined direct query tool that 
will ``deliver large sets of data that can then be used in internal 
surveillance or market analysis applications.''
    \109\ See Q3 2020 Quarterly Progress Report (Oct. 30, 2020); 
Updated Q3 2020 Quarterly Progress Report (Jan. 29, 2021); and Q4 
2020 Quarterly Progress Report (Jan. 29, 2021).
---------------------------------------------------------------------------

    The Commission has determined that the Participants have 
sufficiently complied with the conditions set forth in the 2020 Orders 
and with the technical requirements for Quarterly Progress Reports set 
forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining 
compliance with this FAM.\110\
---------------------------------------------------------------------------

    \110\ See Securities Exchange Act Release No. 98848 (November 2, 
2023), 88 FR 77128, 77129 n.13 (November 8, 2023) (``Settlement 
Exemptive Order'').
---------------------------------------------------------------------------

    As discussed above, Historical CAT Costs 1 to be recovered via 
Historical CAT Assessment 1 would include fees,

[[Page 10649]]

costs and expenses incurred by or for the Company in connection with 
the development, implementation and operation of the CAT during the 
period from August 1, 2020 through December 31, 2020. The total costs 
for this period, as discussed above, are $42,976,478. Participants 
would remain responsible for one-third of this cost (which they have 
previously paid), and Industry Members would be responsible for the 
remain [sic] two-thirds, with CEBBs paying one-third ($14,325,492.70) 
and CEBSs paying one-third ($14,325,492.70).
(C) Period 3 of the Financial Accountability Milestones
    Historical CAT Assessment 1 seeks to recover costs that are related 
to Post-Amendment Expenses incurred during FAM Period 3. FAM Period 3 
began on January 1, 2021, and concluded on December 31, 2021, the date 
of the Full Availability and Regulatory Utilization of Transactional 
Database Functionality. Section 1.1 of the CAT NMS Plan defines ``Full 
Availability and Regulatory Utilization of Transactional Database 
Functionality'' as:

the point at which: (a) reporting to the Order Audit Trail System 
(``OATS'') is no longer required for new orders; (b) Industry Member 
reporting for equities transactions and simple electronic options 
transactions, excluding Customer Account Information, Customer-ID, 
and Customer Identifying Information, with sufficient intra-firm 
linkage, inter-firm linkage, national securities exchange linkage, 
trade reporting facilities linkage, and representative order 
linkages (including any equities allocation information provided in 
an Allocation Report) to permit the Participants and the Commission 
to analyze the full lifecycle of an order across the national market 
system, from order origination through order execution or order 
cancellation, is developed, tested, and implemented at a 5% Error 
Rate or less; (c) Industry Member reporting for manual options 
transactions and complex options transactions, excluding Customer 
Account Information, Customer-ID, and Customer Identifying 
Information, with all required linkages to permit the Participants 
and the Commission to analyze the full lifecycle of an order across 
the national market system, from order origination through order 
execution or order cancellation, including any options allocation 
information provided in an Allocation Report, is developed, tested, 
and fully implemented; (d) the query tool functionality required by 
Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3, Section 
8.2.1, and Section 8.5 incorporates the data described in conditions 
(b)-(c) and is available to the Participants and to the Commission; 
and (e) the requirements of Section 6.10(a) are met. This Financial 
Accountability Milestone shall be considered complete as of the date 
identified in a Quarterly Progress Report meeting the requirements 
of Section 6.6(c).

    Under Section 1.1 of the CAT NMS Plan, this Financial 
Accountability Milestone is considered complete as of the date 
identified in the Participants' Quarterly Progress Reports. As 
indicated by the Participants' Quarterly Progress Report for the fourth 
quarter of 2021,\111\ Full Availability and Regulatory Utilization of 
Transactional Database Functionality was completed on schedule by 
December 31, 2021.
---------------------------------------------------------------------------

    \111\ Q4 2021 Quarterly Progress Report (Jan. 17, 2022).
---------------------------------------------------------------------------

    Specifically, the ``Full Availability and Regulatory Utilization of 
Transactional Database Functionality'' requires the satisfaction of 
five prongs. The first prong requires that reporting to the Order Audit 
Trail System (``OATS'') is no longer required for new orders. As CAT 
LLC reported on its Quarterly Progress Report for the fourth quarter of 
2021,\112\ FINRA retired OATS effective September 1, 2021.\113\ 
Accordingly, after the retirement of OATS, reporting to OATS was no 
longer required.
---------------------------------------------------------------------------

    \112\ Id.
    \113\ See Securities Exchange Act Release No. 92239 (June 23, 
2021), 86 FR 34293 (June 29, 2021).
---------------------------------------------------------------------------

    In addition to Phase 2a and Phase 2b Industry Member Data, the 
second and third prongs of ``Full Availability and Regulatory 
Utilization of Transactional Database Functionality'' require Industry 
Member reporting of Phase 2c Industry Member Data and Phase 2d Industry 
Member Data. The Phase 2c Industry Member Data is described in detail 
in the SEC's Phased Reporting Exemptive Relief Order. That Order states 
that ``Phase 2c Industry Member Data'' is Industry Member Data related 
to Eligible Securities that are equities other than Phase 2a Industry 
Member Data, Phase 2d Industry Member Data, or Phase 2e Industry Member 
Data. Specifically, the Phase 2c Industry Member Data includes Industry 
Member Data that is related to Eligible Securities that are equities 
and that is related to: (1) Allocation Reports as required to be 
recorded and reported to the Central Repository pursuant to Section 
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible 
Securities sent to an IDQS operated by a CAT Reporter (reportable by 
the Industry Member sending the quotes) (except for quotes reportable 
in Phase 2d, as discussed below); (3) electronic quotes in listed 
equity Eligible Securities (i.e., NMS stocks) that are not sent to a 
national securities exchange or FINRA's Alternative Display Facility; 
(4) reporting changes to client instructions regarding modifications to 
algorithms; (5) marking as a representative order any order originated 
to work a customer order in price guarantee scenarios, such as a 
guaranteed VWAP; (6) flagging rejected external routes to indicate a 
route was not accepted by the receiving destination; (7) linkage of 
duplicate electronic messages related to a Manual Order Event between 
the electronic event and the original manual route; (8) special 
handling instructions on order route reports (other than the ISO, which 
is required to be reported in Phase 2a); (9) quote identifier on trade 
events; (10) reporting of LTIDs (if applicable) for accounts with 
Reportable Events that are reportable to CAT as of and including Phase 
2c; (11) reporting of date account opened or Account Effective Date71 
(as applicable) for accounts and reporting of a flag indicating the 
Firm Designated ID type as account or relationship; (12) order 
effective time for orders that are received by an Industry Member and 
do not become effective until a later time; (13) the modification or 
cancellation of an internal route of an order; and (14) linkages to the 
customer orders(s) being represented for representative order 
scenarios, including agency average price trades, net trades, 
aggregated orders, and disconnected Order Management System (``OMS'')--
Execution Management System (``EMS'') scenarios, as required in the 
Industry Member Technical Specifications.\114\
---------------------------------------------------------------------------

    \114\ See Phase Reporting Exemptive Relief Order at 23078-79.
---------------------------------------------------------------------------

    Phase 2c Industry Member Data also includes electronic quotes that 
are provided by or received in a CAT Reporter's order/quote handling or 
execution systems in Eligible Securities that are equities and are 
provided by an Industry Member to other market participants off a 
national securities exchange under the following conditions: (1) an 
equity bid or offer is displayed publicly or has been communicated (a) 
for listed securities to the Alternative Display Facility (ADF) 
operated by FINRA; or (b) for unlisted equity securities to an 
``interdealer quotation system,'' as defined in FINRA Rule 6420(c); or 
(2) an equity bid or offer which is accessible electronically by 
customers or other market participants and is immediately actionable 
for execution or routing; i.e., no further manual or electronic action 
is required by the responder providing the quote in order to execute or 
cause a trade to be executed). With respect to OTC Equity Securities, 
OTC Equity Securities quotes sent by an Industry Member to an IDQS 
operated by an Industry Member CAT Reporter (other than such an IDQS 
that does not match and execute orders) are reportable by

[[Page 10650]]

the Industry Member sending them in Phase 2c. Accordingly, any response 
to a request for quote or other form of solicitation response provided 
in a standard electronic format (e.g., FIX) that meets this quote 
definition (i.e., an equity bid or offer which is accessible 
electronically by customers or other market participants and is 
immediately actionable for execution or routing) would be reportable in 
Phase 2c.\115\
---------------------------------------------------------------------------

    \115\ Id. at 23079.
---------------------------------------------------------------------------

    The Phase 2d Industry Member Data is described in detail in the 
SEC's Phased Reporting Exemptive Relief Order. ``Phase 2d Industry 
Member Data'' is Industry Member Data that is related to Eligible 
Securities that are options other than Phase 2b Industry Member Data, 
Industry Member Data that is related to Eligible Securities that are 
equities other than Phase 2a Industry Member Data or Phase 2c Industry 
Member Data, and Industry Member Data other than Phase 2e Industry 
Member Data. Phase 2d Industry Member Data includes with respect to the 
Eligible Securities that are options: (1) simple manual orders; (2) 
electronic and manual paired orders; (3) all complex orders with 
linkages to all CAT-reportable legs; (4) LTIDs (if applicable) for 
accounts with Reportable Events for Phase 2d; (5) date account opened 
or Account Effective Date (as applicable) for accounts with an LTID and 
flag indicating the Firm Designated ID type as account or relationship 
for such accounts; (6) Allocation Reports as required to be recorded 
and reported to the Central Repository pursuant to Section 
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (7) the modification or 
cancellation of an internal route of an order; and (8) linkage between 
a combined order and the original customer orders. Phase 2d Industry 
Member Data also would include electronic quotes that are provided by 
or received in a CAT Reporter's order/quote handling or execution 
systems in Eligible Securities that are options and are provided by an 
Industry Member to other market participants off a national securities 
exchange under the following conditions: a listed option bid or offer 
which is accessible electronically by customers or other market 
participants and is immediately actionable (i.e., no further action is 
required by the responder providing the quote in order to execute or 
cause a trade to be executed). Accordingly, any response to a request 
for quote or other form of solicitation response provided in standard 
electronic format (e.g., FIX) that meets this definition is reportable 
in Phase 2d for options.\116\
---------------------------------------------------------------------------

    \116\ Id.
---------------------------------------------------------------------------

    Phase 2d Industry Member Data also includes with respect to 
Eligible Securities that are options or equities (1) receipt time of 
cancellation and modification instructions through Order Cancel Request 
and Order Modification Request events; (2) modifications of previously 
routed orders in certain instances; and (3) OTC Equity Securities 
quotes sent by an Industry Member to an IDQS operated by an Industry 
Member CAT Reporter that does not match and execute orders. In 
addition, subject to any exemptive or other relief, Phase 2d Industry 
Member Data will include verbal or manual quotes on an exchange floor 
or in the over-the-counter market, where verbal quotes and manual 
quotes are defined as bids or offers in Eligible Securities provided 
verbally or that are provided or received other than via a CAT 
Reporter's order handling and execution system (e.g., quotations 
provided via email or instant messaging).\117\
---------------------------------------------------------------------------

    \117\ Id. at 23079-80.
---------------------------------------------------------------------------

    The Quarterly Progress Report for the fourth quarter of 2021 states 
that ``Phase 2a was fully implemented as of October 26, 2020;'' ``Phase 
2b was fully implemented as of January 4, 2021;'' ``Phase 2c was 
implemented as of April 26, 2021;'' and ``Phase 2d was fully 
implemented as of December 13, 2021.'' \118\ The Quarterly Progress 
Reports for 2021 provide additional detail regarding the implementation 
of these steps including the following:
---------------------------------------------------------------------------

    \118\ See Q4 2021 Quarterly Progress Report (January 17, 2022).

     ``Production Go-Live for Equities 2c reporting 
requirements (Large Industry Members)'' was completed on April 26, 
2021;
     ``LTID Account Information Reporting Go-Live for Phases 
2a, 2b and 2c (Large Industry Members)'' was completed on April 26, 
2021;
     ``FCAT Plan Processor creates linkages of the lifecycle 
of order events based on the received data through Phase 2d 
Production Go-Live for Options 2d reporting requirements (Large 
Industry Members)'' was completed on December 13, 2021;
     ``Production Go-Live for Options 2d reporting 
requirements (Large Industry Members)'' was completed on December 
13, 2021;
     ``Production Go-Live for Options 2b reporting 
requirements (Small OATS Reporters and Small Non-OATS Reporters)'' 
was completed on December 13, 2021;
     ``Production Go-Live for Equities 2c reporting 
requirements (Small OATS Reporters and Small Non-OATS Reporters)'' 
was completed on December 13, 2021;
     ``Production Go-Live for Options 2d reporting 
requirements (Small OATS Reporters and Small Non-OATS Reporters)'' 
was completed on December 13, 2021;
     ``LTID Account Information Reporting Go-Live for Phases 
2d (Large Industry Members)'' was completed on December 13, 2021; 
and
     ``LTID Account Information Reporting Go-Live for Phases 
2a, 2b, 2c and 2d (Small Industry Members)'' was completed on 
December 13, 2021.\119\
---------------------------------------------------------------------------

    \119\ See Q2 2021 Quarterly Progress Report (July 27, 2021); and 
Q4 2021 Quarterly Progress Report (January 17, 2022).

    The third prong of ``Full Availability and Regulatory Utilization 
of Transactional Database Functionality'' also imposes an Error Rate 
requirement of 5% or less. The Quarterly Progress Report for the fourth 
quarter of 2021 states the average overall error rate was less than 5% 
as of December 31, 2021. The average overall error rate was calculated 
by dividing the compliance errors by processed records.
    The fourth prong of ``Full Availability and Regulatory Utilization 
of Transactional Database Functionality'' requires that the data 
collected by the CAT at this stage be made available to regulators 
through an online targeted query tool and a user-defined direct query 
tool. As CAT LLC reported on its Quarterly Progress Report for the 
fourth quarter of 2021, the query tool functionality incorporating the 
data from Phases 2a, 2b, 2c and 2d was available to the Participants 
and to the Commission as of December 31, 2021.\120\
---------------------------------------------------------------------------

    \120\ See Q4 2021 Quarterly Progress Report (January 17, 2022).
---------------------------------------------------------------------------

    The fifth prong requires the requirements of Section 6.10(a) of the 
CAT NMS Plan to have been met. Section 6.10(a) of the CAT NMS Plan 
requires the Participants to use the tools described in Appendix D to 
``develop and implement a surveillance system, or enhance existing 
surveillance systems, reasonably designed to make use of the 
consolidated information contained in the Central Repository.'' The 
Exchange implemented a surveillance system, or enhanced existing 
surveillance systems, reasonably designed to make use of the 
consolidated information contained in the Central Repository as of 
December 31, 2021 in accordance with Section 6.10(a) of the CAT NMS 
Plan.\121\
---------------------------------------------------------------------------

    \121\ See Q1 2021 Quarterly Progress Report (April 30, 2021); Q2 
2021 Quarterly Progress Report (July 27, 2021); Q3 2021 Quarterly 
Progress Report (November 1, 2021); Q4 2021 Quarterly Progress 
Report (January 17, 2022).
---------------------------------------------------------------------------

    The Commission has determined that the Participants have 
sufficiently complied with the conditions set forth in the 2020 Orders 
and with the technical requirements for Quarterly Progress Reports set 
forth in Section 6.6(c) of the CAT NMS Plan for

[[Page 10651]]

purposes of determining compliance with this FAM.\122\
---------------------------------------------------------------------------

    \122\ See Settlement Exemptive Order at 77129 n.13.
---------------------------------------------------------------------------

    As discussed above, Historical CAT Costs 1 to be recovered via 
Historical CAT Assessment 1 would include fees, costs and expenses 
incurred by or for the Company in connection with the development, 
implementation and operation of the CAT during the period from January 
1, 2021 through December 31, 2021. The total costs for this period, as 
discussed above, are $144,415,268. Participants would remain 
responsible for one-third of this cost (which they have previously 
paid), and Industry Members would be responsible for the remain [sic] 
two-thirds, with CEBBs paying one-third ($48,138,422.70) and CBSs 
paying one-third ($48,138,422.70).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of the Exchange Act. The Exchange believes that the 
proposed rule change is consistent with Section 6(b)(5) of the 
Act,\123\ which requires, among other things, that the Exchange's rules 
must be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and, in 
general, to protect investors and the public interest, and not designed 
to permit unfair discrimination between customers, issuers, brokers and 
dealers. The Exchange also believes that the proposed rule change is 
consistent with the provisions of Section 6(b)(4) of the Act,\124\ 
because it provides for the equitable allocation of reasonable dues, 
fees and other charges among members and issuers and other persons 
using its facilities and does not unfairly discriminate between 
customers, issuers, brokers or dealers. The Exchange further believes 
that the proposed rule change is consistent with Section 6(b)(8) of the 
Act,\125\ which requires that the Exchange's rules not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purpose of the Exchange Act. These provisions also 
require that the Exchange be ``so organized and [have] the capacity to 
be able to carry out the purposes'' of the Act and ``to comply, and . . 
. to enforce compliance by its members and persons associated with its 
members,'' with the provisions of the Exchange Act.\126\ Accordingly, a 
reasonable reading of the Act indicates that it intended that 
regulatory funding be sufficient to permit an exchange to fulfill its 
statutory responsibility under the Act, and contemplated that such 
funding would be achieved through equitable assessments on the members, 
issuers, and other users of an exchange's facilities.
---------------------------------------------------------------------------

    \123\ 15 U.S.C. 78f(b)(6).
    \124\ 15 U.S.C. 78f(b)(4).
    \125\ 15 U.S.C. 78f(b)(8).
    \126\ See Section 6(b)(1) of the Exchange Act.
---------------------------------------------------------------------------

    The Exchange believes that this proposal is consistent with the Act 
because it implements provisions of the Plan and is designed to assist 
the Exchange in meeting regulatory obligations pursuant to the Plan. In 
approving the Plan, the SEC noted that the Plan ``is necessary and 
appropriate in the public interest, for the protection of investors and 
the maintenance of fair and orderly markets, to remove impediments to, 
and perfect the mechanism of a national market system, or is otherwise 
in furtherance of the purposes of the Act.'' \127\ To the extent that 
this proposal implements the Plan and applies specific requirements to 
Industry Members, the Exchange believes that this proposal furthers the 
objectives of the Plan, as identified by the SEC, and is therefore 
consistent with the Act.
---------------------------------------------------------------------------

    \127\ See CAT NMS Plan Approval Order at 84697.
---------------------------------------------------------------------------

    The Exchange believes that the proposed fees paid by the CEBBs and 
CEBSs are reasonable, equitably allocated and not unfairly 
discriminatory. First, the Historical CAT Assessment 1 fees to be 
collected are directly associated with the costs of establishing and 
maintaining the CAT, where such costs include Plan Processor costs and 
costs related to technology, legal, consulting, insurance, professional 
and administration, and public relations costs. The Exchange has 
already incurred such development and implementation costs and the 
proposed Historical CAT Assessment 1 fees, therefore, would allow the 
Exchange to collect certain of such costs in a fair and reasonable 
manner from Industry Members, as contemplated by the CAT NMS Plan.
    The proposed Historical CAT Assessment 1 fees would be charged to 
Industry Members in support of the maintenance of a consolidated audit 
trail for regulatory purposes. The proposed fees, therefore, are 
consistent with the Commission's view that regulatory fees be used for 
regulatory purposes and not to support the Exchange's business 
operations. The proposed fees would not cover Exchange services 
unrelated to the CAT. In addition, any surplus would be used as a 
reserve to offset future fees. Given the direct relationship between 
CAT fees and CAT costs, the Exchange believes that the proposed fees 
are reasonable, equitable and not unfairly discriminatory.
    As further discussed below, the SEC approved the CAT Funding Model, 
finding it was reasonable and that it equitably allocates fees among 
Participants and Industry Members. The Exchange believes that the 
proposed fees adopted pursuant to the CAT Funding Model approved by the 
SEC are reasonable, equitably allocated and not unfairly 
discriminatory.
(1) Implementation of CAT Funding Model in CAT NMS Plan
    Section 11.1(b) of the CAT NMS Plan states that ``[t]he 
Participants shall file with the SEC under Section 19(b) of the 
Exchange Act any such fees on Industry Members that the Operating 
Committee approves.'' Per Section 11.1(b) of the CAT NMS Plan, the 
Exchange has filed this fee filing to implement the Industry Member CAT 
fees included in the CAT Funding Model. The Exchange believes that this 
proposal is consistent with the Exchange Act because it is consistent 
with, and implements, the CAT Funding Model in the CAT NMS Plan, and is 
designed to assist the Exchange and its Industry Members in meeting 
regulatory obligations pursuant to the CAT NMS Plan. In approving the 
CAT NMS Plan, the SEC noted that the Plan ``is necessary and 
appropriate in the public interest, for the protection of investors and 
the maintenance of fair and orderly markets, to remove impediments to, 
and perfect the mechanism of a national market system, or is otherwise 
in furtherance of the purposes of the Act.'' \128\ Similarly, in 
approving the CAT Funding Model, the SEC concluded that the CAT Funding 
Model met this standard.\129\ As this proposal implements the Plan and 
the CAT Funding Model described therein, and applies specific 
requirements to Industry Members in compliance with the Plan, the 
Exchange believes that this proposal furthers the objectives of the 
Plan, as identified by the SEC, and is therefore consistent with the 
Exchange Act.
---------------------------------------------------------------------------

    \128\ See CAT NMS Plan Approval Order at 84696.
    \129\ See CAT Funding Model Approval Order at 62686.
---------------------------------------------------------------------------

(2) Calculation of Fee Rate for Historical CAT Assessment 1 Is 
Reasonable
    The SEC has determined that the CAT Funding Model is reasonable and 
satisfies the requirements of the Exchange Act. Specifically, the SEC 
has concluded that the method for determining Historical CAT

[[Page 10652]]

Assessments as set forth in Section 11.3 of the CAT NMS Plan, including 
the formula for calculating the Historical Fee Rate, the identification 
of the parties responsible for payment and the transactions subject to 
the fee rate for the Historical CAT Assessment, is reasonable and 
satisfies the Exchange Act.\130\ In each respect, as discussed above, 
Historical CAT Assessment 1 is calculated, and would be applied, in 
accordance with the requirements applicable to Historical CAT 
Assessments as set forth in the CAT NMS Plan. Furthermore, as discussed 
below, the Exchange believes that each of the figures for the variables 
in the SEC-approved formula for calculating the fee rate for Historical 
CAT Assessment 1 is reasonable and consistent with the Exchange Act. 
Calculation of the Historical Fee Rate for Historical CAT Assessment 1 
requires the figures for the Historical CAT Costs 1, the executed 
equivalent share volume for the prior twelve months, the determination 
of Historical Recovery Period 1, and the projection of the executed 
equivalent share volume for Historical Recovery Period 1. Each of these 
variables is reasonable and satisfies the Exchange Act, as discussed 
throughout this filing.
---------------------------------------------------------------------------

    \130\ Id. at 62662-63.
---------------------------------------------------------------------------

(A) Historical CAT Costs 1
    The formula for calculating a Historical Fee Rate requires the 
amount of Historical CAT Costs to be recovered. Specifically, Section 
11.3(b)(iii)(B)(II) of the CAT NMS Plan requires a fee filing to 
provide:

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.

    In accordance with this requirement, the Exchange has set forth the 
amount and type of Historical CAT Costs 1 for each of these categories 
of costs above.
    Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan also requires that 
the fee filing provide ``sufficient detail to demonstrate that the 
Historical CAT Costs are reasonable and appropriate.'' As discussed 
below, the Exchange believes that the amounts set forth in this filing 
for each of these cost categories is ``reasonable and appropriate.'' 
Each of the costs included in Historical CAT Costs 1 are reasonable and 
appropriate because the costs are consistent with standard industry 
practice, based on the need to comply with the requirements of the CAT 
NMS Plan, incurred subject to negotiations performed on an arm's length 
basis, and/or are consistent with the needs of any legal entity, 
particularly one with no employees.
(i) Technology: Cloud Hosting Services
    In approving the CAT Funding Model, the Commission recognized that 
it is appropriate to recover costs related to cloud hosting services as 
a part of Historical CAT Assessments.\131\ CAT LLC determined that the 
costs related to cloud hosting services described in this filing are 
reasonable and should be included as a part of Historical CAT Costs 1. 
As described above, the cloud hosting services costs reflect, among 
other things, the breadth of the CAT cloud activities, data volume far 
in excess of the original volume estimates, the need for specialized 
cloud services given the volume and unique nature of the CAT, the 
processing time requirements of the Plan, and regular efforts to seek 
to minimize costs where permissible under the Plan. CAT LLC determined 
that use of cloud hosting services is necessary for implementation of 
the CAT, particularly given the substantial data volumes associated 
with the CAT, and that the fees for cloud hosting services negotiated 
by FCAT were reasonable, taking into consideration a variety of 
factors, including the expected volume of data and the breadth of 
services provided and market rates for similar services.\132\ Indeed, 
the actual costs of the CAT are far in excess of the original estimated 
costs of the CAT due to various factors, including the higher volumes 
and greater complexity of the CAT than anticipated when Rule 613 was 
originally adopted.
---------------------------------------------------------------------------

    \131\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \132\ For a discussion of the amount and type of cloud hosting 
services fees, see Sections 3(a)(2)(B)(i)(a), 3(a)(2)(B)(ii)(a), 
3(a)(2)(B)(iii)(a) and 3(a)(2)(B)(iv)(A) above.
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    To comply with the requirements of the Plan, the breadth of the 
cloud activities related to the CAT is substantial. The cloud services 
not only include the production environment for the CAT, but they also 
include two industry testing environments, support environments for 
quality assurance and stress testing and disaster recovery 
capabilities. Moreover, the cloud storage costs are driven by the 
requirements of the Plan, which requires the storage of multiple 
versions of the data, from the original submitted version of the data 
through various processing steps, to the final version of the data.
    Data volume is a significant driver of costs for cloud hosting 
services. When the Commission adopted the CAT NMS Plan in 2016, it 
estimated that the CAT would need to receive 58 billion records per day 
\133\ and that annual operating costs for the CAT would range from 
$36.5 million to $55 million.\134\ Through 2021, the actual data 
volumes have been five times that original estimate. The data volumes 
for each period are set forth in detail above.\135\
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    \133\ Appendix D-4 of the CAT NMS Plan at n.262.
    \134\ See CAT NMS Plan Approval Order at 84801.
    \135\ See Sections 3(a)(2)(B)(i)(a), 3(a)(2)(B)(ii)(a), 
3(a)(2)(B)(iii)(a) and 3(a)(2)(B)(iv)(A) above.
---------------------------------------------------------------------------

    In addition to the effect of the data volume on the cloud hosting 
costs, the processing timelines set forth in the Plan contribute to the 
cloud hosting costs. Although CAT LLC has proactively sought to manage 
cloud hosting costs while complying with the Plan, including through 
requests to the Commission for exemptive relief and an amendment to the 
CAT NMS Plan, stringent CAT NMS Plan requirements do not allow for any 
material flexibility in cloud architecture design choices, processing 
timelines (e.g., the use of non-peak processing windows), or lower-cost 
storage tiers. As a result, the required CAT processing timelines 
contribute to the cloud hosting costs of the CAT.
    The costs for cloud hosting services also reflect the need for 
specialized cloud hosting services given the data volume and unique 
processing needs of the CAT. The data volume as well as the data 
processing needs of the CAT necessitate the use of cloud hosting 
services. The equipment, power and services required for an on-premises 
data model, the alternative to cloud hosting services, would be cost 
prohibitive. Moreover, as CAT was being developed, there were limited 
cloud hosting providers that could satisfy all the necessary CAT 
requirements, including the operational and security criteria. Over 
time more providers offering cloud hosting services that would satisfy 
these criteria have entered the market. CAT LLC will continue to 
evaluate alternative cloud hosting services, recognizing that the time 
and cost to move to an alternative cloud provider would be substantial.
    The reasonableness of the cloud hosting services costs is further 
supported by key cost discipline mechanisms for the CAT--a cost-based 
funding structure, cost transparency, cost management efforts 
(including regular efforts to lower compute and storage costs where 
permitted by the Plan) and oversight. Together, these

[[Page 10653]]

mechanisms help ensure the ongoing reasonableness of the CAT's costs 
and the level of fees assessed to support those costs.\136\
---------------------------------------------------------------------------

    \136\ See Securities Exchange Act Release No. 97151 (March 15, 
2023), 88 FR 17086, 17117 (March 21, 2023) (describing key cost 
discipline mechanisms for the CAT).
---------------------------------------------------------------------------

(ii) Technology: Operating Fees
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to operating fees as a part of 
Historical CAT Assessments.\137\ CAT LLC determined that the costs 
related to operating fees described in this filing are reasonable and 
should be included as a part of Historical CAT Costs 1. The operating 
fees include the negotiated fees paid by CAT LLC to the Plan Processor 
to operate and maintain the system for order-related information and to 
perform business operations related to the system, including 
compliance, security, testing, training, communications with the 
industry (e.g., management of the FINRA CAT Helpdesk, FAQs, website and 
webinars) and program management. CAT LLC determined that the selection 
of FCAT as the Plan Processor was reasonable and appropriate given its 
expertise with securities regulatory reporting, after a process of 
considering other potential candidates.\138\ CAT LLC also determined 
that the fixed price contract, negotiated on an arm's length basis with 
the goals of managing costs and receiving services required to comply 
with the CAT NMS Plan and Rule 613, was reasonable and appropriate, 
taking into consideration a variety of factors, including the breadth 
of services provided and market rates for similar types of 
activity.\139\ The services performed by FCAT for each period and the 
costs related to such services are described above.\140\
---------------------------------------------------------------------------

    \137\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \138\ See Section 3(a)(2)(B)(i)(b) above.
    \139\ See Sections 3(a)(2)(B)(i)(b), 3(a)(2)(B)(ii)(b), 
3(a)(2)(B)(iii)(b) and 3(a)(2)(B)(iv)(b) above.
    \140\ Id.
---------------------------------------------------------------------------

(iii) Technology: CAIS Operating Fees
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to CAIS operating fees as a part 
of Historical CAT Assessments. \141\ CAT LLC determined that the costs 
related to CAIS operating fees described in this filing are reasonable 
and should be included as a part of Historical CAT Costs 1. The CAIS 
operating fees include the fees paid to the Plan Processor to operate 
and maintain CAIS and to perform the business operations related to the 
system, including compliance, security, testing, training, 
communications with the industry (e.g., management of the FINRA CAT 
Helpdesk, FAQs, website and webinars) and program management. CAT LLC 
determined that the FCAT-negotiated fees for Kingland's CAIS-related 
services, negotiated on an arm's length basis with the goals of 
managing costs and receiving services required to comply with the CAT 
NMS Plan, taking into consideration a variety of factors, including the 
services to be provided and market rates for similar types of activity, 
were reasonable and appropriate.\142\ The services performed by 
Kingland for each period and the costs for each period are described 
above.\143\
---------------------------------------------------------------------------

    \141\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \142\ See Sections 3(a)(2)(B)(i)(c), 3(a)(2)(B)(ii)(c), 
3(a)(2)(B)(iii)(c) and 3(a)(2)(B)(iv)(c) above.
    \143\ Id.
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(iv) Technology: Change Request Fees
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to change request fees as a part 
of Historical CAT Assessments.\144\ CAT LLC determined that the costs 
related to change request fees described in this filing are reasonable 
and should be included as a part of Historical CAT Costs 1. It is 
common practice to utilize a change request process to address evolving 
needs in technology projects. This is particularly true for a project 
like CAT that is the first of its kind, both in substance and in scale. 
The substance and costs of each of the change requests are evaluated by 
the Operating Committee, and approved in accordance with the 
requirements for Operating Committee meetings. In each case, CAT LLC 
determined that the change requests were necessary to implement the 
CAT. As described above, the change requests cover various technology 
changes, including, for example, changes related to CAT reporting, data 
feeds and exchange functionality. CAT LLC also determined that the 
costs for each change request were appropriate for the relevant 
technology change. A description of the change requests for each FAM 
Period and their total costs are set described above.\145\ As noted 
above, the total costs for change requests through FAM Period 3 
represent a small percentage of Historical CAT Costs 1--that is, 0.25% 
of Historical CAT Costs 1.
---------------------------------------------------------------------------

    \144\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \145\ See Sections 3(a)(2)(B)(i)(d), 3(a)(2)(B)(ii)(d), 
3(a)(2)(B)(iii)(d) and 3(a)(2)(B)(iv)(d) above.
---------------------------------------------------------------------------

(v) Capitalized Developed Technology Costs
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to capitalized developed 
technology costs as a part of Historical CAT Assessments.\146\ 
Capitalized developed technology costs include costs related to certain 
development costs, costs related to certain modifications, upgrades and 
other changes to the CAT, CAIS implementation fees and license fees. 
The amount and type of costs for each period are described in more 
detail above.\147\ CAT LLC determined that these costs are reasonable 
and should be included as a part of Historical CAT Costs 1.
---------------------------------------------------------------------------

    \146\ Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT NMS Plan.
    \147\ See Sections 3(a)(2)(B)(i)(e), 3(a)(2)(B)(ii)(e), 
3(a)(2)(B)(iii)(e) and 3(a)(2)(B)(iv)(e) above.
---------------------------------------------------------------------------

    These costs involve the activity of both the Initial Plan Processor 
and FCAT, as the successor Plan Processor.\148\ With regard to the 
Initial Plan Processor, the Participants utilized an RFP to seek 
proposals to build and operate the CAT, receiving a number of proposals 
in response to the RFP. The Participants carefully reviewed and 
considered each of the proposals, including holding in-person meetings 
with each of the Bidders. After several rounds of review, the 
Participants selected the Initial Plan Processor in accordance with the 
CAT NMS Plan. CAT LLC entered into an agreement with the Initial Plan 
Processor in which CAT LLC would pay the Initial Plan Processor a 
negotiated, fixed price fee.\149\ In addition, as described above, CAT 
LLC determined that is [sic] was appropriate to enter into an agreement 
with FCAT as the successor Plan Processor.\150\
---------------------------------------------------------------------------

    \148\ Id.
    \149\ See Section 3(a)(2)(B)(i)(e) above.
    \150\ See Section 3(a)(2)(B)(i)(b) above.
---------------------------------------------------------------------------

(vi) Legal
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover costs related to legal fees as a part of 
Historical CAT Assessments.\151\ CAT LLC determined that the legal 
costs described in this filing are reasonable and should be included as 
a part of Historical CAT Costs 1. Given the unique nature of the CAT, 
the number of parties involved with the CAT (including, for example, 
the SEC, Participants, Industry Members, and

[[Page 10654]]

vendors) and the many regulatory issues associated with the CAT, the 
scope of the necessary legal services are substantial. CAT LLC 
determined that the scope of the legal services is necessary to 
implement and maintain the CAT and that the legal rates reflect the 
specialized services necessary for such a project. When hiring each law 
firm for a CAT project, CAT LLC interviewed multiple firms, and 
determined to hire each firm based on a variety of factors, including 
the relevant expertise and fees. In each case, CAT LLC determined that 
the hourly fee rates were in line with market rates for the specialized 
legal expertise. In addition, CAT LLC determined that the total costs 
incurred for each CAT project were appropriate given the breadth of 
services provided. The services performed by each law firm for each 
period and the costs related to such services are described above.\152\
---------------------------------------------------------------------------

    \151\ Section 11.3(b)(iii)(B)(II)(B)(2) of the CAT NMS Plan.
    \152\ See Sections 3(a)(2)(B)(i)(f), 3(a)(2)(B)(ii)(f), 
3(a)(2)(B)(iii)(f) and 3(a)(2)(B)(iv)(f) above.
---------------------------------------------------------------------------

(vii) Consulting
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover consulting costs as a part of Historical CAT 
Assessments.\153\ CAT LLC determined that the consulting costs 
described in this filing are reasonable and should be included as a 
part of Historical CAT Costs 1. Because there are no CAT employees 
\154\ and because of the significant number of issues associated with 
the CAT, the consultants provided assistance in the management of 
various CAT matters and the processes related to such matters.\155\ CAT 
LLC considered a variety of factors in choosing a consulting firm and 
determined to select Deloitte after an interview process.\156\ CAT LLC 
also determined that the consulting services were provided at 
reasonable market rates, as the fees were negotiated annually and 
comparable to the rates charged by other consulting firms for similar 
work.\157\ Moreover, the total costs for such consulting services were 
appropriate in light of the breadth of services provided by Deloitte. 
The services performed by Deloitte and the costs related to such 
services are described above.\158\
---------------------------------------------------------------------------

    \153\ Section 11.3(b)(iii)(B)(II)(B)(3) of the CAT NMS Plan.
    \154\ As stated in the filing of the proposed CAT NMS Plan, 
``[i]t is the intent of the Participants that the Company have no 
employees.'' See Securities Exchange Act Release No. 77724 (April 
27, 2016), 81 FR 30614, 30621 (May 17, 2016).
    \155\ CAT LLC uses certain third parties to perform tasks that 
may be performed by administrators for other NMS Plans. See, e.g., 
CTA Plan and CQ Plan.
    \156\ See Section 3(a)(2)(B)(i)(g) above.
    \157\ See Sections 3(a)(2)(B)(i)(g), 3(a)(2)(B)(ii)(g), 
3(a)(2)(B)(iii)(g) and 3(a)(2)(B)(iv)(g) above.
    \158\ Id.
---------------------------------------------------------------------------

(viii) Insurance
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover insurance costs as a part of Historical CAT 
Assessments.\159\ CAT LLC determined that the insurance costs described 
in this filing are reasonable and should be included as a part of 
Historical CAT Costs 1. CAT LLC determined that it is common practice 
to have directors' and officers' liability insurance, and errors and 
omissions liability insurance. CAT LLC further determined that it was 
important to have cyber security insurance given the nature of the CAT, 
and such a decision is consistent with the CAT NMS Plan, which states 
that the cyber incident response plan may include ``[i]nsurance against 
security breaches.'' \160\ In selecting the insurance providers for 
these policies, CAT LLC engaged in an evaluation of alternative 
insurers, including a comparison of the pricing offered by the 
alternative insurers.\161\ Based on this analysis, CAT LLC determined 
that the selected insurance policies provided appropriate coverage at 
reasonable market rates.\162\
---------------------------------------------------------------------------

    \159\ Section 11.3(b)(iii)(B)(II)(B)(4) of the CAT NMS Plan.
    \160\ Section 4.1.5 of Appendix D of the CAT NMS Plan.
    \161\ See Sections 3(a)(2)(B)(i)(h), 3(a)(2)(B)(ii)(h), 
3(a)(2)(B)(iii)(h) and 3(a)(2)(B)(iv)(h) above.
    \162\ Id.
---------------------------------------------------------------------------

(ix) Professional and Administration
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover professional and administration costs as a part 
of Historical CAT Assessments.\163\ CAT LLC determined that the 
professional and administration costs described in this filing are 
reasonable and should be included as a part of Historical CAT Costs 1. 
Because there are no CAT employees, all required accounting, financial, 
tax, cash management and treasury functions for CAT LLC have been 
outsourced at market rates. In addition, the required annual financial 
statement audit of CAT LLC is included in professional and 
administration costs, which costs are also at market rates.
---------------------------------------------------------------------------

    \163\ Section 11.3(b)(iii)(B)(II)(B)(5) of the CAT NMS Plan.
---------------------------------------------------------------------------

    CAT LLC determined to hire a financial advisory firm, Anchin, to 
assist with financial matters for the CAT. CAT LLC interviewed Anchin 
as well as other potential financial advisory firms to assist with the 
CAT project, considering a variety of factors in its analysis, 
including the firm's relevant expertise and fees.\164\ The hourly fee 
rates for this firm were in line with market rates for the financial 
advisory services provided.\165\ Moreover, the total costs for such 
financial advisory services was appropriate in light of the breadth of 
services provided by Anchin. The services performed by Anchin and the 
costs related to such services are described above.\166\
---------------------------------------------------------------------------

    \164\ See Section 3(a)(2)(B)(i)(i) above.
    \165\ See Sections 3(a)(2)(B)(i)(i), 3(a)(2)(B)(ii)(i), 
3(a)(2)(B)(iii)(i) and 3(a)(2)(B)(iv)(i) above.
    \166\ Id.
---------------------------------------------------------------------------

    CAT LLC also determined to engage an independent accounting firm, 
Grant Thornton, to complete the audit of CAT LLC's financial 
statements, in accordance with the requirements of the CAT NMS Plan. 
CAT LLC interviewed this firm as well as another potential accounting 
firm to audit CAT LLC's financial statements, considering a variety of 
factors in its analysis, including the relevant expertise and fees of 
each of the firms. CAT LLC determined that Grant Thornton was well-
qualified for the role given the balanace [sic] of these 
considerations.\167\ Grant Thornton's fixed fee rate compensation 
arrangement was reasonable and appropriate, and in line with the market 
rates charged for these types of accounting services.\168\ Moreover, 
the total costs for such financial advisory services was appropriate in 
light of the breadth of services provided by Grant Thornton. The 
services performed by Grant Thornton and the costs related to such 
services are described above.\169\
---------------------------------------------------------------------------

    \167\ See Section 3(a)(2)(B)(i)(i) above.
    \168\ See Sections 3(a)(2)(B)(i)(i), 3(a)(2)(B)(ii)(i), 
3(a)(2)(B)(iii)(i) and 3(a)(2)(B)(iv)(i) above.
    \169\ Id.
---------------------------------------------------------------------------

    The professional and administrative costs also include costs 
related to the receipt of certain market data from Exegy. After 
performing an analysis of the available market data vendors to confirm 
that the data provided met the SIP Data requirements of the CAT NMS 
Plan and comparing the costs of the vendors providing the required SIP 
Data, CAT LLC determined to purchase market data from Exegy. Exegy 
provided the data elements required by the CAT NMS Plan, and the fees 
were reasonable and in line with market rates for the market data 
received.\170\
---------------------------------------------------------------------------

    \170\ See Section 3(a)(2)(B)(i)(i) above.
---------------------------------------------------------------------------

    The professional and administrative costs also include costs 
related to a third party security assessment of the CAT performed by 
RSM. The assessment was designed to verify and validate the

[[Page 10655]]

effective design, implementation and operation of the controls 
specified by NIST Special Publication 800-53, Revision 4 and related 
standards and guidelines. Such a security assessment is in line with 
industry practice and important given the data included in the CAT. CAT 
LLC determined to engage RSM to perform the security assessment, after 
considering a variety of factors in its analysis, including the firm's 
relevant expertise and fees. The fees were reasonable and in line with 
market rates for such an assessment.\171\
---------------------------------------------------------------------------

    \171\ Id.
---------------------------------------------------------------------------

(x) Public Relations Costs
    In approving the CAT Funding Model, the SEC recognized that it is 
appropriate to recover public relations costs as a part of Historical 
CAT Assessments.\172\ CAT LLC determined that the public relations 
costs described in this filing are reasonable and should be included as 
a part of Historical CAT Costs 1. CAT LLC determined that the types of 
public relations services utilized were beneficial to the CAT and 
market participants more generally. Public relations services were 
important for various reasons, including monitoring comments made by 
market participants about CAT and understanding issues related to the 
CAT discussed on the public record.\173\ By engaging a public relations 
firm, CAT LLC was better positioned to understand and address CAT 
issues to the benefit of all market participants.\174\ Moreover, CAT 
LLC determined that the rates charged for such services were in line 
with market rates.\175\ As noted above, the total public relations 
costs through FAM Period 3 represent a small percentage of Historical 
CAT Costs 1--that is, 0.1% of Historical CAT Costs 1.
---------------------------------------------------------------------------

    \172\ Section 11.3(b)(iii)(B)(II)(B)(6) of the CAT NMS Plan.
    \173\ See Section 3(a)(2)(B)(i)(j) above.
    \174\ See Sections 3(a)(2)(B)(i)(j), 3(a)(2)(B)(ii)(j), 
3(a)(2)(B)(iii)(j) and 3(a)(2)(B)(iv)(j) above.
    \175\ Id.
---------------------------------------------------------------------------

(B) Total Executed Equivalent Share Volume for the Prior 12 Months
    The total executed equivalent share volume of transactions in 
Eligible Securities for the period from December 2022 through November 
2023 was 3,842,861,347,279.44 executed equivalent shares. CAT LLC 
determined the total executed equivalent share volume for the prior 
twelve months by counting executed equivalent shares in the same manner 
as it will count executed equivalent shares for CAT billing purposes.
(C) Historical Recovery Period 1
    CAT LLC has determined to establish a Historical Recovery Period of 
24 months for Historical CAT Assessment 1 and that such length is 
reasonable. CAT LLC determined that the length of Historical Recovery 
Period 1 appropriately weighs the need for a reasonable Historical Fee 
Rate 1 that spreads the Historical CAT Costs over an appropriate amount 
of time and the need to repay the loans notes to the Participants in a 
timely fashion. CAT LLC determined that 24 months for Historical 
Recovery Period 1 would establish a fee rate that is lower than other 
transaction-based fees, including fees assessed pursuant to Section 
31.\176\ In addition, in establishing a Historical Recovery Period of 
24 months, CAT LLC recognized that the total costs for Historical CAT 
Assessment 1 was less than the total costs for 2022 and 2023, and 
therefore it would be appropriate to recover those costs in two years. 
Furthermore, CAT LLC notes 24 months is appropriate because it is not 
currently proposing that Industry Members be required to pay another 
Historical CAT Assessment or CAT Fee with regard to Prospective CAT 
Costs at the same time.
---------------------------------------------------------------------------

    \176\ As the SEC noted in the CAT Funding Model Approval Order, 
recent Section 31 fees ranged from $0.00009 per share to $0.0004 per 
share. See CAT Funding Model Approval Order at 62682.
---------------------------------------------------------------------------

(D) Projected Executed Equivalent Share Volume for Historical Recovery 
Period 1
    CAT LLC has determined to calculate the projected total executed 
equivalent share volume for the 24 months of Historical Recovery Period 
1 by doubling the executed equivalent share volume for the prior 12 
months. CAT LLC determined that such an approach was reasonable as the 
CAT's annual executed equivalent share volume has remained relatively 
constant in recent years. For example, the executed equivalent share 
volume for 2021 was 3,963,697,612,395 executed equivalent shares, and 
the executed equivalent share volume for 2022 was 4,039,821,841,560.31 
executed equivalent shares. Accordingly, the projected total executed 
equivalent share volume for Historical Recovery Period 1 is 
7,685,722,694,558.88 executed equivalent shares.\177\
---------------------------------------------------------------------------

    \177\ This projection was calculated by multiplying 
3,842,861,347,279.44 executed equivalent shares by two.
---------------------------------------------------------------------------

(E) Actual Fee Rate for Historical CAT Assessment 1
(i) Decimal Places
    As noted in the Plan amendment for the CAT Funding Model, as a 
practical matter, the fee filing for a Historical CAT Assessment would 
provide the exact fee per executed equivalent share to be paid for each 
Historical CAT Assessment, by multiplying the Historical Fee Rate by 
one-third and describing the relevant number of decimal places for the 
fee rate.\178\ Accordingly, proposed paragraph (a)(1)(B) to the 
Consolidated Audit Trail Funding Fees section of the Equities Price 
List and Options Fee Schedule would set forth a fee rate of $0.000015 
per executed equivalent share. This fee rate is calculated by 
multiplying Historical Fee Rate 1 by one-third, and rounding the result 
to 6 decimal places. CAT LLC determined that the use of six decimal 
places is reasonable as it balances the accuracy of the calculation 
with the potential systems and other impracticalities of using 
additional decimal places in the calculation.
---------------------------------------------------------------------------

    \178\ See CAT Funding Model Approval Order at 62658, n.658.
---------------------------------------------------------------------------

(ii) Reasonable Fee Level
    The Exchange believes that imposing Historical CAT Assessment 1 
with a fee rate of $0.000015 per executed equivalent share is 
reasonable because it provides for a revenue stream for the Company 
that is aligned with Historical CAT Costs 1 and such costs would be 
spread out over an appropriate recovery period, as discussed above. 
Moreover, the Exchange believes that the level of the fee rate is 
reasonable, as it is comparable to other transaction-based fees. 
Indeed, Historical CAT Assessment 1 is significantly lower than fees 
assessed pursuant to Section 31 (e.g., $0.0009 per share to 0.0004 per 
share),\179\ and, as a result, the magnitude of Historical CAT 
Assessment 1 is small, and therefore will mitigate any potential 
adverse economic effects or inefficiencies.\180\ Furthermore, the 
reasonable fee rate for Historical CAT Assessment 1 further supports 
CAT LLC's decision to seek to recover all Historical CAT Costs prior to 
2022, rather than establishing separate Historical CAT Assessments for 
pre-FAM, FAM 1, FAM 2 and FAM 3 costs.
---------------------------------------------------------------------------

    \179\ See CAT Funding Model Approval Order at 62663, 62682.
    \180\ Id.
---------------------------------------------------------------------------

(3) Historical CAT Assessment 1 Provides for an Equitable Allocation of 
Fees
    Historical CAT Assessment 1 provides for an equitable allocation of 
fees, as it equitably allocates CAT costs between and among the 
Participants and Industry Members. The SEC approved the CAT Funding 
Model, finding that each aspect of the CAT Funding Model

[[Page 10656]]

satisfied the requirements of the Exchange Act, including the formula 
for calculating Historical CAT Assessments as well as the Industry 
Members to be charged the Historical CAT Assessments.\181\ In approving 
the CAT Funding Model, the SEC stated that ``[t]he Participants have 
sufficiently demonstrated that the proposed allocation of fees is 
reasonable.'' \182\ Accordingly, the CAT Funding Model sets forth the 
requirements for allocating fees related to Historical CAT Costs among 
Participants and Industry Members, and the fee filings for Historical 
CAT Assessments must comply with those requirements.
---------------------------------------------------------------------------

    \181\ See Section 11.3(b) of the CAT NMS Plan.
    \182\ See CAT Funding Model Approval Order at 62629.
---------------------------------------------------------------------------

    Historical CAT Assessment 1 provides for an equitable allocation of 
fees as it complies with the requirements regarding the calculation of 
Historical CAT Assessments as set forth in the CAT NMS Plan. For 
example, as described above, the calculation of Historical CAT 
Assessment 1 complies with the formula set forth in Section 11.3(b) of 
the CAT NMS Plan. In addition, Historical CAT Assessment 1 would be 
charged to CEBBs and CEBSs in accordance with Section 11.3(b) of the 
CAT NMS Plan. Furthermore, the Participants would continue to remain 
responsible for their designated share of Past CAT Costs through the 
cancellation of loans made by the Participants to CAT LLC.
    In addition, as discussed above, each of the inputs into the 
calculation of Historical CAT Assessment 1--Historical CAT Costs 1 
(including Excluded Costs), the count for the executed equivalent share 
volume for the prior 12 months, the length of the Historical Recovery 
Period, and the projected executed equivalent share volume for the 
Historical Recovery Period--are reasonable. Moreover, these inputs lead 
to a reasonable fee rate for Historical CAT Assessment 1 that is lower 
than other fee rates for transaction-based fees. A reasonable fee rate 
allocated in accordance with the requirements of the CAT Funding Model 
provides for an equitable allocation of fees.
(4) Historical CAT Assessment 1 Is Not Unfairly Discriminatory
    Historical CAT Assessment 1 is not an unfairly discriminatory fee. 
The SEC approved the CAT Funding Model, finding that each aspect of the 
CAT Funding Model satisfied the requirements of the Exchange Act. In 
reaching this conclusion, the SEC analyzed the potential effect of 
Historical CAT Assessments calculated pursuant to the CAT Funding Model 
on affected categories of market participants, including Participants 
(including exchanges and FINRA), Industry Members (including 
subcategories of Industry Members, such as alternative trading systems, 
CAT Executing Brokers and market makers), and investors generally, and 
considered market effects related to equities and options, among other 
things. Historical CAT Assessment 1 complies with the requirements 
regarding the calculation of Historical CAT Assessments as set forth in 
the CAT NMS Plan. In addition, as discussed above, each of the inputs 
into the calculation of Historical CAT Assessment 1 and the resulting 
fee rate for Historical CAT Assessment 1 is reasonable. Therefore, 
Historical CAT Assessment 1 does not impose an unfairly discriminatory 
fee on Industry Members.
    Finally, the Exchange believes the proposed fees established 
pursuant to the CAT Funding Model promote just and equitable principles 
of trade, and, in general, protect investors and the public interest, 
and are provided in a transparent manner and specificity in the 
Equities Price List and the Options Fee Schedule. The Exchange also 
believes that the proposed fees are reasonable because they would 
provide ease of calculation, ease of billing and other administrative 
functions, and predictability of a fee based on fixed rate per executed 
equivalent share. Such factors are crucial to estimating a reliable 
revenue stream for CAT LLC and for permitting Exchange members to 
reasonably predict their payment obligations for budgeting purposes.

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

    Section 6(b)(8) of the Act \183\ requires that the Exchange's rules 
not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purpose of the Exchange Act. The 
Exchange does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that 
Historical CAT Assessment 1 implements provisions of the CAT NMS Plan 
that were approved by the Commission and is designed to assist the 
Exchange in meeting its regulatory obligations pursuant to the Plan.
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    \183\ 15 U.S.C. 78f(b)(8).
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    In addition, all Participants (including exchanges and FINRA) are 
proposing to introduce Historical CAT Assessment 1 on behalf of CAT LLC 
to implement the requirements of the CAT NMS Plan. Therefore, this is 
not a competitive fee filing, and, therefore, it does not raise 
competition issues between and among the Participants.
    Furthermore, in approving the CAT Funding Model, the SEC analyzed 
the potential competitive impact of the CAT Funding Model, including 
competitive issues related to market services, trading services and 
regulatory services, efficiency concerns, and capital formation.\184\ 
The SEC also analyzed the potential effect of CAT fees calculated 
pursuant to the CAT Funding Model on affected categories of market 
participants, including Participants (including exchanges and FINRA), 
Industry Members (including subcategories of Industry Members, such as 
alternative trading systems, CAT Executing Brokers and market makers), 
and investors generally, and considered market effects related to 
equities and options, among other things. Based on this analysis, the 
SEC approved the CAT Funding Model as compliant with the Exchange Act. 
Historical CAT Assessment 1 is calculated and implemented in accordance 
with the CAT Funding Model as approved by the SEC.
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    \184\ See CAT Funding Model Approval Order at 62676-86.
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    As discussed above, each of the inputs into the calculation of 
Historical CAT Assessment 1 is reasonable and the resulting fee rate 
for Historical CAT Assessment 1 calculated in accordance with the CAT 
Funding Model is reasonable. Therefore, Historical CAT Assessment 1 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purpose of the Exchange Act.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\185\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\186\ the Commission summarily may 
temporarily suspend the change in the rules of an SRO if it appears to 
the Commission that such action is

[[Page 10657]]

necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act. As 
discussed below, a temporary suspension of the proposed rule change is 
necessary or appropriate to allow for additional analysis of the 
proposed rule change's consistency with the Act and the rules 
thereunder.
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    \185\ 15 U.S.C. 78s(b)(3)(C).
    \186\ 15 U.S.C. 78s(b)(1).
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    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposed 
rule change, they are required to provide a statement supporting the 
proposed rule change's basis under the Act and the rules and 
regulations thereunder applicable to the exchange.\187\ The 
instructions to Form 19b-4, on which exchanges file their proposed rule 
changes, specify that such statement ``should be sufficiently detailed 
and specific to support a finding that the proposed rule change is 
consistent with [those] requirements.'' \188\
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    \187\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \188\ See id.
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    Among other things, the Exchange's proposed rule change is subject 
to Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
which require the rules of an exchange to: (1) provide for the 
equitable allocation of reasonable fees among members, issuers, and 
other persons using the exchange's facilities; \189\ (2) be designed to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, to protect investors and the public interest, and not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers; \190\ and (3) not impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of the 
Act.\191\
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    \189\ 15 U.S.C. 78f(b)(4).
    \190\ 15 U.S.C. 78f(b)(5).
    \191\ 15 U.S.C. 78f(b)(8).
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    The proposed rule change is also subject to the CAT Funding Model 
set forth in the CAT NMS Plan. For example, Section 11.3(b)(iii)(B)(II) 
of the CAT NMS Plan requires that the fee filing provide ``sufficient 
detail to demonstrate that the Historical CAT Costs are reasonable and 
appropriate.'' In addition, Section 11.3(b)(i)(C) of the CAT NMS Plan 
provides that 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'' and Section 11.3(b)(i)(D) of the CAT NMS Plan 
provides 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. . .'' Further, 
Section 11.3(b)(iii)(B)(III) of the CAT NMS Plan provides 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.''
    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether the proposed fees are consistent 
with the statutory requirements applicable to a national securities 
exchange under the Act and with the requirements set forth in the CAT 
Funding Model. Among other things, the Commission will consider whether 
the proposed rule change provides for reasonable fees that satisfy the 
standards under the Act and the rules thereunder.\192\ Further, and 
among other things, the Commission will consider whether the proposed 
rule change, as required by the CAT Funding Model, provides 
``sufficient detail to demonstrate that the Historical CAT Costs are 
reasonable and appropriate,'' including, but not limited to, whether 
the Operating Committee has ``reasonably determine[d] 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'' and whether the ``length of the Historical Recovery Period 
used in calculating each Historical Fee Rate [was] reasonably 
established by the Operating Committee.'' \193\
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    \192\ See 15 U.S.C. 78f(b)(4).
    \193\ See CAT Funding Model Approval Order at 62660.
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    Therefore, the Commission finds that it is necessary or appropriate 
in the public interest, for the protection of investors, and otherwise 
in furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\194\
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    \194\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposed rule change, the 
Commission is instituting proceedings pursuant to Sections 19(b)(3)(C) 
\195\ and 19(b)(2)(B) \196\ of the Act to determine whether the 
proposed rule change should be approved or disapproved. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described below, the Commission seeks and encourages interested persons 
to provide comments on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
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    \195\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \196\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\197\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional consideration and comment on whether the Exchange has 
sufficiently demonstrated that the proposed rule change is consistent 
with Section 6(b)(4) \198\ of the Act, and consistent with the CAT 
Funding Model. Section 6(b)(4) of the Act, among other things, provides 
that the dues, fees, and other charges for an exchange's members be 
reasonable. And the CAT Funding Model, as noted above, requires, among 
other things, that the proposed rule change provide ``sufficient detail 
to demonstrate that the Historical CAT Costs are reasonable and 
appropriate,'' including whether the Operating Committee has reasonably 
determined the Historical CAT Costs sought to be recovered by each 
Historical CAT Assessment, where the

[[Page 10658]]

Historical CAT Costs will be Past CAT Costs minus Past CAT Costs 
reasonably excluded from Historical CAT Costs by the Operating 
Committee and whether the length of the Historical Recovery Period used 
in calculating each Historical Fee Rate was reasonably established by 
the Operating Committee.\199\
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    \197\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act 
also provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the 
exchange consents to the longer period. See id.
    \198\ 15 U.S.C. 78f(b)(4).
    \199\ See CAT Funding Model Approval Order at 62660.
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V. Commission's Solicitation of Comments

    The Commission requests that interested persons provide written 
submission of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they have with 
the proposed rule change. In particular, the Commission invites the 
written views of interested persons concerning whether the proposed 
rule change is consistent with Section 6(b)(4), or any other provision 
of the Act, or the rules and regulations thereunder. Although there do 
not appear to be any issues relevant to approval or disapproval that 
would be facilitated by an oral presentation of views, data, and 
arguments, the Commission will consider, pursuant to Rule 19b-4, any 
request for an opportunity to make an oral presentation.\200\
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    \200\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposed rule change 
by an exchange. See Securities Acts Amendments of 1975, Report of 
the Senate Committee on Banking, Housing and Urban Affairs to 
Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule changes should be 
approved or disapproved by March 5, 2024. Any person who wishes to file 
a rebuttal to any other person's submission must file that rebuttal by 
March 19, 2024.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEAMER-2024-02 on the subject line.

Paper Comments:

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
    All submissions should refer to file number SR-NYSEAMER-2024-02. 
This file number should be included on the subject line if email is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for website 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE, Washington, DC 20549, on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-NYSEAMER-2024-02 and 
should be submitted on or before March 5, 2024. Rebuttal comments 
should be submitted by March 19, 2024.

VI. Conclusion

    It Is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\201\ that File No. SR-NYSEAMER-2024-02 be, and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \201\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\202\
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    \202\ 17 CFR 200.30-3(a)(12), (57) and (58).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01183 Filed 2-12-24; 8:45 am]
BILLING CODE 8011-01-P

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