Self-Regulatory Organizations: Long-Term Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish Fees for Industry Members Related to Reasonably Budgeted Costs of the National Market System Plan Governing the Consolidated Audit Trail for the Period From July 16, 2024 Through December 31, 2024, 73150-73173 [2024-20165]
Download as PDF
73150
Federal Register / Vol. 89, No. 174 / Monday, September 9, 2024 / Notices
Dated: September 5, 2024.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–20373 Filed 9–5–24; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–392, OMB Control No.
3235–0447]
ddrumheller on DSK120RN23PROD with NOTICES1
Proposed Collection; Comment
Request; Extension: Rule 17f–6
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520), the Securities
and Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Rule 17f–6 (17 CFR 270.17f–6) under
the Investment Company Act of 1940
(15 U.S.C. 80a) permits registered
investment companies (‘‘funds’’) to
maintain assets (i.e., margin) with
futures commission merchants
(‘‘FCMs’’) in connection with
commodity transactions effected on
both domestic and foreign exchanges.
Before the rule was adopted, funds
generally were required to maintain
these assets in special accounts with a
custodian bank.
The rule requires a written contract
that contains certain provisions
designed to ensure important safeguards
and other benefits relating to the
custody of fund assets by FCMs. To
protect fund assets, the contract must
require that FCMs comply with the
segregation or secured amount
requirements of the Commodity
Exchange Act (‘‘CEA’’) and the rules
under that statute. The contract also
must contain a requirement that FCMs
obtain an acknowledgment from any
clearing organization that the fund’s
assets are held on behalf of the FCM’s
customers according to CEA provisions.
Because rule 17f–6 does not impose
any ongoing obligations on funds or
FCMs, Commission staff estimates there
are only costs related to new contracts
between funds and FCMs. This estimate
does not include the time required by an
FCM to comply with the rule’s contract
requirements because, to the extent that
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17:19 Sep 06, 2024
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complying with the contract provisions
could be considered ‘‘collections of
information,’’ the burden hours for
compliance are already included in
other PRA submissions.1 Commission
staff estimates that approximately 1,164
series of 151 funds report that futures
commission merchants and commodity
clearing organizations provide custodial
services to the fund.2 Based on these
estimates, the total annual burden hours
associated with rule 17f–6 is 27 hours.
The estimated total annual burden
hours associated with rule 17f–6 have
decreased 1 hour, from 28 to 27 hours
and external costs increased from
$11,900 to $15,534. These changes in
burden hours and external costs reflect
changes in the number of affected
entities and in the external cost
associated with the information
collection requirements. These changes
reflect revised estimates.
These estimates are made solely for
the purposes of the Paperwork
Reduction Act, and are not derived from
a comprehensive or even a
representative survey or study of the
costs of Commission rules and forms.
Compliance with the collection of
information requirements of the rule is
necessary to obtain the benefit of relying
on the rule. An agency may not conduct
or sponsor, and a person is not required
to respond to, a collection of
information unless it displays a
currently valid control number.
Written comments are invited on: (a)
whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimate of the burden of the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
1 The rule requires a contract with the FCM to
contain two provisions requiring the FCM to
comply with existing requirements under the CEA
and rules adopted thereunder; thus, to the extent
these provisions could be considered collections of
information, the hours required for compliance
would be included in the collection of information
burden hours submitted by the CFTC for its rules.
2 This estimate is based on the average number of
funds that reported on Form N–CEN from April
2021–March 2024, in response to sub-items C.12.6.
and D.14.6; money market funds are excluded from
this estimate because exchange-traded futures
contracts or commodity options are not eligible
securities for money market funds; the number of
series and funds that reported on Form N–CEN in
response these sub-items were: 1,112 series of 150
funds for the period April 2021–March 2022; 1,180
series of 152 funds for the period April 2022–March
2023; and 1,210 series of 151 funds for the period
April 2023–March 2024 (for filings received
through June 30, 2024).
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through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
by November 8, 2024.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: Austin Gerig, Director/Chief Data
Officer, Securities and Exchange
Commission, c/o Oluwaseun Ajayi, 100
F Street NE, Washington, DC 20549 or
send an email to: PRA_Mailbox@
sec.gov.
Dated: September 3, 2024.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–20200 Filed 9–6–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100892; File No. SR–LTSE–
2024–04]
Self-Regulatory Organizations: LongTerm Stock Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Establish
Fees for Industry Members Related to
Reasonably Budgeted Costs of the
National Market System Plan
Governing the Consolidated Audit Trail
for the Period From July 16, 2024
Through December 31, 2024
September 3, 2024.
Pursuant to Section 19(b)(1) under the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
28, 2024, Long-Term Stock Exchange,
Inc. (‘‘LTSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing with the
Commission a proposed rule change to
amend the Fee Schedule to establish
fees for Industry Members 3 related to
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
2 17
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Federal Register / Vol. 89, No. 174 / Monday, September 9, 2024 / Notices
reasonably budgeted CAT costs of the
National Market System Plan Governing
the Consolidated Audit Trail (the ‘‘CAT
NMS Plan’’ or ‘‘Plan’’) for the period
from July 16, 2024, through December
31, 2024. The text of the proposed rule
change is available at the Exchange’s
website at https://longtermstock
exchange.com/, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement on the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
ddrumheller on DSK120RN23PROD with NOTICES1
1. Purpose
On July 11, 2012, the Commission
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.4 On November 15, 2016, the
Commission approved the CAT NMS
Plan.5 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.6 The Operating Committee
national securities association.’’ See LTSE Rule
11.610 (Consolidated Audit Trail—Definitions). 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 LTSE
Rule Series 11.600 (Consolidated Audit Trail
Compliance Rule).
4 Securities Exchange Act Rel. No. 67457 (July 18,
2012), 77 FR 45722 (Aug. 1, 2012).
5 Securities Exchange Act Rel. No. 79318 (Nov.
15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘CAT NMS
Plan Approval Order’’).
6 Section 11.1(b) of the CAT NMS Plan.
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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.7
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 (‘‘CAT
Fees’’).8
Under the CAT Funding Model,
Participants, CEBBs and CEBSs are
subject to fees designed to cover the
ongoing budgeted costs of the CAT, as
determined by the Operating
Committee. ‘‘The Operating Committee
will establish fees (‘CAT Fees’) to be
payable by Participants and Industry
Members with regard to CAT costs not
previously paid by the Participants
(‘Prospective CAT Costs’).’’ 9 In
establishing a CAT Fee, the Operating
Committee will calculate a ‘‘Fee Rate’’
for the relevant period. Then, for each
month in which a CAT Fee is in effect,
each CEBB and CEBS would be required
to pay the 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 fee for
each transaction will be calculated by
multiplying the number of executed
equivalent shares in the transaction by
one-third and by the Fee Rate.10
7 Securities Exchange Act Rel. No. 98290 (Sept. 6,
2023), 88 FR 62628 (Sept. 12, 2023) (‘‘CAT Funding
Model Approval Order’’).
8 Under the CAT Funding Model, the Operating
Committee may establish CAT Fees related to CAT
costs going forward. Section 11.3(a) of the CAT
NMS Plan. This filing only establishes CAT Fee
2024–1 related to reasonably budgeted CAT costs
for the period from July 16, 2024 through December
31, 2024 as described herein; it does not address
any other potential CAT Fees related to CAT costs.
Any such other CAT Fee will be subject to a
separate fee filing. In addition, 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
does not address any Historical CAT Assessments.
9 Section 11.3(a) of the CAT NMS Plan.
10 In approving the CAT Funding Model, the
Commission stated that, ‘‘[t]he proposed recovery of
Prospective CAT Costs is appropriate.’’ CAT
Funding Model Approval Order at 62651.
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73151
The CAT Fees to be paid by CEBBs
and CEBSs are designed to contribute
toward the recovery of two-thirds of the
budgeted CAT costs for the relevant
period.11 The CAT Funding Model is
designed to require that the Participants
contribute to the recovery of the
remaining one-third of the budgeted
CAT costs.12 Participants would be
subject to the same Fee Rate as CEBBs
and CEBSs.13 While CAT Fees charged
to Industry Members become effective
in accordance with the requirements of
Section 19(b) of the Exchange Act,14
CAT fees charged to Participants are
implemented via an approval of the
CAT fees by the Operating Committee in
accordance with the requirements of the
CAT NMS Plan.15 Accordingly, this
filing does not address Participant CAT
fees as they are described in the CAT
NMS Plan.16
CAT LLC proposes to charge CEBBs
and CEBSs (as described in more detail
below) CAT Fee 2024–1 to recover the
reasonably budgeted CAT costs for July
16, 2024 through December 31, 2024, 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.’ ’’ 17 The Plan further states that
‘‘[o]nce the Operating Committee has
approved such Fee Rate, the
Participants shall be required to file
with the SEC pursuant to Section 19(b)
of the Exchange Act CAT Fees to be
charged to Industry Members calculated
using such Fee Rate.’’ 18 Accordingly,
the purpose of this filing is to
implement a CAT Fee on behalf of CAT
LLC for Industry Members, referred to as
CAT Fee 2024–1, in accordance with the
CAT NMS Plan.
(1) CAT Executing Brokers
CAT Fee 2024–1 will be charged to
each CEBB and CEBS for each
applicable transaction in Eligible
Securities.19 The CAT NMS Plan defines
a ‘‘CAT Executing Broker’’ to mean:
11 Section
11.3(a)(iii)(A) of the CAT NMS Plan.
11.3(a)(ii)(A) of the CAT NMS Plan.
13 Section 11.3(a)(ii) of the CAT NMS Plan.
14 Section 11.3(a)(i)(A)(I) of the CAT NMS Plan.
15 CAT Funding Model Approval Order at 62659.
16 See Section 11.3(a)(ii) and Appendix B of the
CAT NMS Plan.
17 Section 11.1(b) of the CAT NMS Plan.
18 Section 11.3(a)(i)(A)(I) of the CAT NMS Plan.
19 In its approval of the CAT Funding Model, the
Commission determined that charging CAT fees to
CAT Executing Brokers was reasonable. In reaching
12 Section
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Federal Register / Vol. 89, No. 174 / Monday, September 9, 2024 / Notices
(a) with respect to a transaction in an
Eligible Security that is executed on an
exchange, the Industry Member identified as
the Industry Member responsible for the
order on the buy-side of the transaction and
the Industry Member responsible for the sellside of the transaction in the equity order
trade event and option trade event in the
CAT Data submitted to the CAT by the
relevant exchange pursuant to the Participant
Technical Specifications; and (b) with
respect to a transaction in an Eligible
Security that is executed otherwise than on
an exchange and required to be reported to
an equity trade reporting facility of a
registered national securities association, the
Industry Member identified as the executing
broker and the Industry Member identified as
the contra-side executing broker in the TRF/
ORF/ADF transaction data event in the CAT
Data submitted to the CAT by FINRA
pursuant to the Participant Technical
Specifications; provided, however, in those
circumstances where there is a non-Industry
Member identified as the contra-side
executing broker in the TRF/ORF/ADF
transaction data event or no contra-side
executing broker is identified in the TRF/
ORF/ADF transaction data event, then the
Industry Member identified as the executing
broker in the TRF/ORF/ADF transaction data
event would be treated as CAT Executing
Broker for the Buyer and for the Seller.20
The following fields of the Participant
Technical Specifications indicate the
CAT Executing Brokers for the
transactions executed on an exchange:
EQUITY ORDER TRADE (EOT) 21
No.
Field name
Data type
12.n.8/13.n.8 ....
member ............................
Member Alias
Include
key
Description
The identifier for the member firm that is responsible for the order
on this side of the trade. Not required if there is no order for the
side as indicated by the NOBUYID/NOSELLID instruction. This
must be provided if orderID is provided..
C.
OPTION TRADE (OT) 22
No.
Field name
Data type
16.n.13/17.n.13
member ............................
In addition, the following fields of the
Participant Technical Specifications
would indicate the CAT Executing
Member Alias
Include
key
Description
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) 23
No.
Field name
Data type
26 .....................
28 .....................
reportingExecutingMpid ....
contraExecutingMpid ........
(2) Calculation of Fee Rate 2024–1
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The Operating Committee determined
the Fee Rate to be used in calculating
CAT Fee 2024–1 (‘‘Fee Rate 2024–1’’) by
dividing the reasonably budgeted CAT
costs (‘‘Budgeted CAT Costs 2024–1’’)
for the period from July 16, 2024
through December 31, 2024 (‘‘CAT Fee
2024–1 Period’’) by the reasonably
projected total executed share volume of
all transactions in Eligible Securities for
the four-month recovery period, as
discussed in detail below.24 Based on
this calculation, the Operating
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
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Member Alias
Member Alias
MPID of the executing party ...............................................................
MPID of the contra-side executing party ............................................
Committee has determined that Fee Rate
2024–1 would be
$0.0001043598251997246 per executed
equivalent share. This rate is then
divided by three and rounded to
determine the fee rate of $0.000035 per
executed equivalent share that will be
assessed to CEBBs and CEBSs, as also
discussed in detail below.
(A) CAT Fee 2024–1 Period
CAT LLC proposes to implement CAT
Fee 2024–1 as the first CAT Fee related
to Prospective CAT Costs. CAT LLC
proposes to commence CAT Fee 2024–
streamline the billing process. CAT Funding Model
Approval Order at 62629.
20 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.
21 See Table 23, Section 4.7 (Order Trade Event)
of the CAT Reporting Technical Specifications for
Plan Participants, Version 4.1.0–r21 (Apr. 15, 2024),
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key
Description
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R.
C.
1 during the year, rather than at the
beginning of the year. Accordingly, CAT
Fee 2024–1 ‘‘would be calculated as
described in paragraph II’’ of Section
11.3(a)(i)(A) of the CAT NMS Plan,
which states that ‘‘[d]uring each year,
the Operating Committee will calculate
a new Fee Rate by dividing the
reasonably budgeted CAT costs for the
remainder of the year by the reasonably
projected total executed equivalent
share volume of all transactions in
Eligible Securities for the remainder of
https://www.catnmsplan.com/sites/default/files/
2024-04/04.15.2024-CAT_Reporting_Technical_
Specifications_for_Participants_4.1.0-r21.pdf
(‘‘CAT Reporting Technical Specifications for Plan
Participants’’).
22 See Table 51, Section 5.2.5.1 (Simple Option
Trade Event) of the CAT Reporting Technical
Specifications for Plan Participants.
23 See Table 61, Section 6.1 (TRF/ORF/ADF
Transaction Data Event) of the CAT Reporting
Technical Specifications for Plan Participants.
24 Section 11.3(a)(i) of the CAT NMS Plan.
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the year.’’ 25 For CAT Fee 2024–1, the
reasonably budgeted CAT costs for ‘‘the
remainder of the year’’ are the
reasonably budgeted CAT costs from
July 16, 2024 through December 31,
2024. This period is referred to as the
CAT Fee 2024–1 Period. Such costs
would be recovered over a four-month
period, where the first invoices are sent
in October 2024 based on transactions
in September 2024.
(B) Executed Equivalent Shares for
Transactions in Eligible Securities
Under the CAT NMS Plan, for
purposes of calculating CAT Fees,
executed equivalent shares in a
transaction in Eligible Securities will be
reasonably counted as follows: (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 will be counted as
0.01 executed equivalent share.26
(C) Budgeted CAT Costs 2024–1
The CAT NMS Plan states that ‘‘[t]he
budgeted CAT costs for the year shall be
comprised of all reasonable fees, costs
and expenses reasonably budgeted to be
incurred by or for the Company in
connection with the development,
implementation and operation of the
CAT as set forth in the annual operating
budget approved by the Operating
Committee pursuant to Section 11.1(a)
of the CAT NMS Plan, or as adjusted
during the year by the Operating
Committee.’’ 27 Section 11.1(a) of the
CAT NMS Plan describes the
requirement for the Operating
Committee to approve an operating
budget for CAT LLC on an annual basis.
It requires the budget to ‘‘include the
projected costs of the Company,
including the costs of developing and
operating the CAT for the upcoming
year, and the sources of all revenues to
cover such costs, as well as the funding
of any reserve that the Operating
Committee reasonably deems
appropriate for the prudent operation of
the Company.’’ Section 11.1(a)(i) of the
CAT NMS Plan further states that:
[w]ithout limiting the foregoing, the
reasonably budgeted CAT costs shall include
technology (including cloud hosting services,
operating fees, CAIS operating fees, change
request fees and capitalized developed
technology costs), legal, consulting,
insurance, professional and administration,
and public relations costs, a reserve and such
other cost categories as reasonably
determined by the Operating Committee to be
included in the budget.
In accordance with the requirements
under the CAT NMS Plan, the Operating
Committee approved an annual budget
for 2024 for CAT LLC in December 2023
(‘‘Original 2024 Budget’’).28 In August
2024, the Operating Committee
approved an updated budget for 2024
(‘‘Updated 2024 Budget’’).29 The
Updated 2024 Budget includes actual
costs for each category for the months of
January through July 2024, with
estimated costs for the remaining
months of 2024. The Operating
Committee also approved the budgeted
CAT costs for the CAT Fee 2024–1
Period (i.e., Budgeted CAT Costs 2024–
1), which are a subset of the costs set
forth in the Updated 2024 Budget.
As described in detail below, the
Budgeted CAT Costs 2024–1 would be
$138,476,925. CEBBs collectively will
be responsible for one-third of the
Budged [sic] CAT Costs 2024–1 (which
is $46,158,975), and CEBSs collectively
will be responsible for one-third of
Budgeted CAT Costs 2024–1 (which is
$46,158,975).
The following describes in detail
Budgeted CAT Costs 2024–1 for the
CAT Fee 2024–1 Period. The following
cost details are provided in accordance
with the requirement in the CAT NMS
Plan to provide in the fee filing the
following:
the budget for the upcoming year (or
remainder of the year, as applicable),
including a brief description of each line
item in the budget, including (1) technology
line items of cloud hosting services,
operating fees, CAIS operating fees, change
request fees and capitalized developed
technology costs, (2) legal, (3) consulting, (4)
insurance, (5) professional and
administration and (6) public relations costs,
a reserve and/or such other categories as
reasonably determined by the Operating
Committee to be included in the budget, and
the reason for changes in each such line item
from the prior CAT fee filing.30
Each of the costs described below are
reasonable, appropriate and necessary
for the creation, implementation and
maintenance of CAT.
The following table breaks down
Budgeted CAT Costs 2024–1 into the
categories set forth in Section
11.3(a)(iii)(B) of the CAT NMS Plan.31
Budget category
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73153
Budgeted CAT costs 2024–1 *
Capitalized Developed Technology Costs ** .............................................................................................................
Technology Costs: .....................................................................................................................................................
Cloud Hosting Services ......................................................................................................................................
Operating Fees ...................................................................................................................................................
CAIS Operating Fees .........................................................................................................................................
Change Request Fees .......................................................................................................................................
Legal ..........................................................................................................................................................................
Consulting ..................................................................................................................................................................
Insurance ...................................................................................................................................................................
Professional and administration ................................................................................................................................
Public relations ..........................................................................................................................................................
$4,101,990
99,728,258
76,278,426
14,008,947.50
9,278,384.50
162,500
4,484,554.50
652,623
1,342,345
428,544.50
43,225
Subtotal ...............................................................................................................................................................
Reserve ......................................................................................................................................................................
110,781,540
27,695,385
25 Section
11.3(a)(i)(A)(II) of the CAT NMS Plan.
11.3(a)(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
26 Section
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17:19 Sep 06, 2024
Jkt 262001
funding principles of the CAT NMS Plan.’’ CAT
Funding Model Approval Order at 62640.
27 Section 11.3(a)(i)(C) of the CAT NMS Plan.
28 The Original 2024 Budget is available on the
CAT website (https://www.catnmsplan.com/sites/
default/files/2024-07/07.09.2024-CAT%20LLC2024-Financial-and-Operating-Budget.pdf).
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29 The Updated 2024 Budget is available on the
CAT website (https://www.catnmsplan.com/sites/
default/files/2024-08/07.31.24-CAT-LLC-2024Financial_and_Operating-Budget.pdf).
30 Section 11.3(a)(iii)(B) of the CAT NMS Plan.
31 Note that costs and related cost calculations
provided in this filing may reflect minor variations
from the budgeted costs due to rounding.
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Budget category
Budgeted CAT costs 2024–1 *
Total Budgeted CAT Costs 2024–1 ............................................................................................................
138,476,925
* Budgeted CAT Costs 2024–1 described in this table of costs were determined based an analysis of a variety of factors, including historical
costs/invoices, estimated costs from respective vendors/service providers, contractual terms with vendors/service providers, anticipated service
levels and needs, and discussions with vendors and Participants.
** The non-cash amortization of these capitalized developed technology costs to be incurred during the CAT Fee 2024–1 Period have been appropriately excluded from the above table.32
To the extent that CAT LLC enters into
notes with Participants or others to pay
costs incurred during the period from
July 16, 2024 through December 31,
2024, CAT LLC will use the proceeds
from the CAT Fee 2024–1 and the
related Participant CAT fees to repay
such notes.
ddrumheller on DSK120RN23PROD with NOTICES1
(i) Technology Costs—Cloud Hosting
Services
(a) Description of Cloud Hosting
Services Costs
Section 11.3(a)(iii)(B)(B)(1) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the cloud hosting services
costs set forth in the budget. The
Operating Committee approved an
operating budget for the CAT pursuant
to Section 11.1(a) of the CAT NMS Plan
that included $76,278,426 in technology
costs for cloud hosting services for the
CAT Fee 2024–1 Period. The technology
costs for cloud hosting services
represent costs reasonably budgeted to
be incurred for services provided by the
cloud services provider for the CAT,
Amazon Web Services, Inc. (‘‘AWS’’),
during the CAT Fee 2024–1 Period.
In the agreement between CAT LLC
and the Plan Processor for the CAT
(‘‘Plan Processor Agreement’’), FINRA
CAT, LLC (‘‘FCAT’’), AWS was named
as the subcontractor to provide cloud
hosting services. Under the Plan
Processor Agreement, 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 [sic] 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 costs
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
32 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.
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services provided and market rates for
similar services. It is anticipated that
AWS will provide a broad array of cloud
hosting services for the CAT, including
data ingestion, data management, and
analytic tools during the CAT Fee 2024–
1 Period. Services provided by AWS
include 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. AWS
will perform cloud hosting services for
both the CAT transaction database as
well as the CAT Customer and Account
Information System (‘‘CAIS’’) during the
CAT Fee 2024–1 Period.
The cost for AWS cloud 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 CAT LLC. During the CAT
2024–1 Period, it is expected that AWS
will provide 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,’’ 33 and that
‘‘[i]t is expected that the Central
Repository will grow to more than 29
petabytes of raw, uncompressed
data.’’ 34 In contrast with those
estimates, the Q1 2024 data volumes,
which averaged 577 billion events per
day, were up 45% compared to Q1
2023, which averaged 399 billion events
per day, with peak volumes recorded on
April 19, 2024 of 746 billion events.
Even higher peak volumes were
recorded in July and August 2024.
CAT LLC estimates that the budget for
cloud hosting services costs during the
CAT Fee 2024–1 Period will be
approximately $76,278,426. The budget
for cloud hosting services costs during
the CAT Fee 2024–1 Period is calculated
based on the Updated 2024 Budget.
Specifically, this estimate was
calculated by adding the budgeted
amounts for cloud hosting services costs
for the third and fourth quarter of 2024
33 Appendix
34 Appendix
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D–5 of the CAT NMS Plan.
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as set forth in the Updated 2024 Budget
and subtracting one half of the cloud
hosting services costs incurred in July
2024 (as CAT Fee 2024–1 Period began
half way through July, on July 16,
2024).35
CAT LLC estimated the budget for the
cost for cloud hosting services for the
CAT Fee 2024–1 Period based on an
assumption of 30% annual year-overyear volume growth for the transaction
database and an assumption of 5%
annual year-over-year volume growth
for CAIS. CAT LLC determined these
growth assumptions in coordination
with FCAT based on an analysis of a
variety of existing data and alternative
growth scenarios. In addition, the
budget for cloud hosting services for the
CAT Fee 2024–1 Period includes a
budget for the cost of re-processing data
as approved by the CAT Operating
Committee.36 The budget for reprocessing data was based on
expenditures for re-processing in prior
years. This process for estimating the
budget for cloud hosting services costs
for the CAT Fee 2024–1 Period is the
same process by which CAT LLC
estimated the cloud hosting services
costs for the Original 2024 Budget. The
Original 2024 Budget estimated a budget
for cloud hosting services of
$71,384,109 for the first two quarters of
2024.37 The actual costs for cloud
hosting services for the first two
quarters of 2024, which are set forth in
the Updated 2024 Budget, were
$66,737,810.38 There is only an
approximate 7% difference between the
estimate and actuals for cloud hosting
services costs. Accordingly, CAT LLC
believes that the process for estimating
the budgeted cloud hosting services
35 This calculation is ($38,132,441 +
$43,919,730)¥$5,773,745 = $76,278,426.
36 Appendix D–19 of the CAT NMS Plan states
that ‘‘[i]f corrections are received after T+5,
Participants’ regulatory staff and the SEC must be
notified and informed as to how re-processing will
be completed. The Operating Committee will be
involved with decisions on how to re-process the
data; however, this does not relieve the Plan
Processor of notifying the Participants’ regulatory
staff and the SEC.’’
37 This calculation is $33,217,468 + $38,166,641
= $71,384,109.
38 This calculation is $30,343,917 + $36,393,893
= $66,737,810.
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costs for the CAT Fee 2024–1 Period is
reasonable.
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to describe the
reason for changes in the line item for
cloud hosting services costs from the
prior CAT Fee filing. CAT LLC’s
proposed annual budget for cloud
hosting services costs for 2024
decreased about 3.5% from the Original
2024 Budget to the Updated 2024
Budget, from $154,624,108 to
$148,789,981. Although there were
expected cost increases related to data
volume growth and the associated
compute and storage of the increased
data levels, as well as from additional
capacity for OTQT systems that were
added to meet the performance
standards set forth in the requirements
of the recent SEC exemptive order from
November 2023,39 these cost increases
were offset by a variety of cost reduction
efforts related to compute efficiencies,
the implementation of single pass linker
related to options quotes, and the
implementation of compute and other
efficiencies related to CAIS. Without
such cost management efforts, the
budgeted costs for cloud hosting
services would have increased by
approximately 15%, rather than
decreased. Correspondingly, the
proposed budget for cloud hosting
services costs for the third and fourth
quarters of 2024 did not change in a
material way from the Original 2024
Budget to the Updated 2024 Budget.
There was only an approximate 1%
decrease from $83,239,999 in the
Original 2024 Budget 40 to $82,052,171
in the Updated 2024 Budget for the
third and fourth quarters of 2024.41
ddrumheller on DSK120RN23PROD with NOTICES1
(ii) Technology Costs—Operating Fees
(a) Description of Operating Fees
Section 11.3(a)(iii)(B)(B)(1) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the operating fees set
forth in the budget. The Operating
Committee approved an operating
budget for the CAT pursuant to Section
11.1(a) of the CAT NMS Plan that
included $14,008,947.50 in technology
costs for operating fees for the CAT Fee
2024–1 Period. Operating fees are those
fees paid by CAT LLC to FCAT as the
Plan Processor to operate and maintain
39 Securities Exchange Act Rel. No. 98848 (Nov.
2, 2023), 88 FR 77128 (Nov. 8, 2023).
40 This calculation is $39,961,511 + $43,278,488
= $83,239,999.
41 This calculation is $38,132,441 + $43,919,730
= $82,052,171.
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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. Operating fees also include
market data provider costs, as discussed
below.
Plan Processor: FCAT. 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. It is
anticipated that FCAT will provide a
variety of services to the CAT during the
CAT Fee 2024–1 Period, including the
following:
• Provide the CAT-related functions
and services as the Plan Processor as
required by SEC Rule 613 and the CAT
NMS Plan in connection with the
operation and maintenance of the CAT;
• Address compliance items,
including drafting CAT policies and
procedures, and addressing Regulation
SCI requirements;
• Provide support to the Operating
Committee, the Compliance
Subcommittee and CAT working
groups;
• Assist with interpretive efforts and
exemptive requests regarding the CAT
NMS Plan;
• Oversee the security of the CAT;
• Monitor the operation of the CAT,
including with regard to Participant and
Industry Member reporting;
• Provide support to subcontractors
under the Plan Processor Agreement;
• Provide support in discussions with
the Participants and the SEC and its
staff;
• Operate the FINRA CAT Helpdesk;
• Facilitate communications with the
industry, including via FAQs, CAT
Alerts, meetings, presentations and
webinars;
• Administer the CAT website and all
of its content;
• Maintain cyber security insurance
related to the CAT; and
• Provide 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.
CAT LLC calcuated [sic] the budget
for the FCAT technology costs for
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73155
operating fees for the CAT Fee 2024–1
Period based on the recurring monthly
operating fees under the Plan Processor
Agreement.
Market Data Provider: Exegy. It is
anticipated that the operating fees costs
for the CAT Fee 2024–1 Period will
include costs related to the receipt of
certain market data for the CAT
pursuant to an agreement between
FCAT and Exegy Incorporated
(‘‘Exegy’’). CAT LLC determined that
Exegy would provide market data that
included all data elements required by
the CAT NMS Plan,42 and that the fees
were reasonable and in line with market
rates for the market data received. All
costs under the contract would be
treated as a direct pass through cost to
CAT LLC. CAT LLC estimated the
budget for the costs for Exegy for the
CAT Fee 2024–1 Period based on the
monthly rate set forth in the agreement
between Exegy and FCAT.
Operating Fee Estimates. CAT LLC
estimates that the budget for operating
fees during the CAT Fee 2024–1 Period
will be approximately $14,008,947.50.
The budget for operating fees during the
CAT Fee 2024–1 Period is calculated
based on the Updated 2024 Budget.
Specifically, this estimate was
calculated by adding the budgeted
amounts for operating fees for the third
and fourth quarter of 2024 as set forth
in the Updated 2024 Budget and
subtracting one half of the actual
operating fees incurred in July 2024 (as
CAT Fee 2024–1 Period began half way
through July, on July 16, 2024).43
As discussed above, CAT LLC
estimated the budget for the operating
fees during the CAT Fee 2024–1 Period
based on monthly rates set forth in the
Plan Processor Agreement and the
agreement with Exegy. CAT LLC also
recognized that the operating fees are
generally consistent throughout the
year. This process for estimating the
budget for the operating fees for the
CAT Fee 2024–1 Period is the same
process by which CAT LLC estimated
the operating fees for the Original 2024
Budget. The Original 2024 Budget
estimated a budget for operating fees of
$13,558,875 for the first two quarters of
2024.44 The actual costs for operating
fees for the first two quarters of 2024,
which are set forth in the Updated 2024
Budget, were $12,608,540.45 There was
42 See
Section 6.5(a)(ii) of the CAT NMS Plan.
calculation is ($6,907,383 + $904,664) +
($6,907,383 + $440,748) ¥ $1,151,230.50 =
$14,008,947.5.
44 This calculation is $6,726,747 + $6,832,128 =
$13,558,875.
45 This calculation is $6,702,506 + $5,906,034 =
$12,608,540.
43 This
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an approximate 7% decrease from
estimates to actuals for the first two
quarters. Accordingly, CAT LLC
believes that the process for estimating
the budgeted operating fees for the CAT
Fee 2024–1 Period is reasonable.
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to describe the
reason for changes in the line item for
operating fees from the prior CAT Fee
filing. As this is the first Prospective
CAT Fee Filing, this filing describes the
changes in the operating fees from the
Original 2024 Budget. CAT LLC’s
proposed annual budget for operating
fees for 2024 increased from
$27,223,132 to $27,768,718 46 from the
Original 2024 Budget to the Updated
2024 Budget, and the proposed budget
for operating fees for the third and
fourth quarters of 2024 increased from
$13,664,256 in the Original 2024
Budget 47 to $15,160,178 in the Updated
2024 Budget.48 This increase is due to
a cyber insurance adjustment.
ddrumheller on DSK120RN23PROD with NOTICES1
(iii) Technology Costs—CAIS Operating
Fees
(a) Description of CAIS Operating Fees
Section 11.3(a)(iii)(B)(B)(1) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the CAIS operating fees
set forth in the budget. The Operating
Committee approved an operating
budget for the CAT pursuant to Section
11.1(a) of the CAT NMS Plan that
included $9,278,384.50 in technology
costs for CAIS operating fees for the
CAT Fee 2024–1 Period. CAIS operating
fees represent the fees paid to FCAT for
services provided with regard to the
operation and maintenance of 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. 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.
As of May 31, 2024, the implementation
of CAIS was completed.49
46 This calculation is $26,423,306 + $1,345,412 =
$27,768,718.
47 This calculation is $6,832,128 + $6,832,128 =
$13,664,256.
48 This calculation is ($6,907,383 + $904,664) +
($6,907,383 + $440,748) = $15,160,178.
49 For a discussion of the implementation
timeline for CAIS, see CAT Alert 2023–01.
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During the CAT Fee 2024–1 Period, it
is anticipated that FCAT will provide
CAIS-related services. Under the Plan
Processor Agreement with FCAT, CAT
LLC is required to pay FCAT for CAISrelated services provided by FCAT on a
monthly basis. CAT LLC negotiated the
fees for FCAT’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. During the CAT Fee
2024–1 Period, it is anticipated that
FCAT will continue to provide services
relating to the ongoing operation,
maintenance and support of CAIS.
CAT LLC estimates that the budget for
CAIS operating fees during the CAT Fee
2024–1 Period will be approximately
$9,278,384.50. The budget for CAIS
operating fees during the CAT Fee
2024–1 Period is calculated based on
the Updated 2024 Budget. Specifically,
this estimate was calculated by adding
the budgeted amounts for CAIS
operating fees for the third and fourth
quarter of 2024 as set forth in the
Updated 2024 Budget and subtracting
one half of the actual CAIS operating
fees costs incurred in July 2024 (as CAT
Fee 2024–1 Period began half way
through July, on July 16, 2024).50
CAT LLC calculated the budget for
FCAT’s CAIS-related services for the
CAT Fee 2024–1 Period based on the
recurring monthly CAIS operating fees
under the Plan Processor Agreement.
This process for estimating the budget
for the CAIS operating fees for the CAT
Fee 2024–1 Period is the same process
by which CAT LLC estimated the CAIS
operating fees for the Original 2024
Budget. The Original 2024 Budget
estimated a budget for CAIS operating
fees of $10,418,666 for the the [sic] first
two quarters of 2024.51 The actual costs
for CAIS operating fees for the first two
quarters of 2024, which are set forth in
the Updated 2024 Budget, were
$10,078,045.52 There is only an
approximate 3% difference between the
estimate and actuals. Accordingly, CAT
LLC believes that the process for
estimating the budgeted CAIS operating
fees for the CAT Fee 2024–1 Period is
reasonable.
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
50 This calculation is ($5,060,937 + $5,060,937) ¥
$843,489.50 = $9,278,384.50.
51 This calculation is $5,282,128 + $5,136,538 =
$10,418,666.
52 This calculation is $5,017,108 + $5,060,937 =
$10,078,045.
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Prospective CAT Fee to describe the
reason for changes in the line item for
CAIS operating fees from the prior CAT
Fee filing. As this is the first Prospective
CAT Fee Filing, this filing describes the
changes in the CAIS operating fees from
the Original 2024 Budget. CAT LLC’s
proposed annual budget for CAIS
operating fees for 2024 had a small 2%
percent decrease of $491,821 from the
Original 2024 Budget to the Updated
2024 Budget, from $20,691,740 to
$20,199,919. Correspondingly, the
proposed budget for CAIS operating fees
for the third and fourth quarters of 2024
had a small 1% percentage decrease of
$151,202, from $10,273,076 in the
Original 2024 Budget 53 to $10,121,874
in the Updated 2024 Budget.54
(iv) Technology Costs—Change Request
Fees
(a) Description of Change Request Fees
Section 11.3(a)(iii)(B)(B)(1) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the change request fees
set forth in the budget. The Operating
Committee approved an operating
budget for the CAT pursuant to Section
11.1(a) of the CAT NMS Plan that
included $162,500 in technology costs
for change request fees for the CAT Fee
2024–1 Period. 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.
During the CAT Fee 2024–1 Period, it
is anticipated that CAT LLC will engage
FCAT to pursue certain change requests
in accordance with the Plan Processor
Agreement. The budget for change
requests for the CAT Fee 2024–1 Period
includes a placeholder of $162,500 for
potential change request fees that may
be necessary in accordance with the
Plan Processor Agreement. The
placeholder amount was determined
53 This calculation is $5,136,538 + $5,136,538 =
$10,273,076.
54 This calculation is $5,060,937 + $5,060,937 =
$10,121,874.
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based on prior experience with change
requests related to the CAT.
CAT LLC estimates that the budget for
change requests during the CAT Fee
2024–1 Period will be approximately
$162,500. The budget for change
requests during the CAT Fee 2024–1
Period is calculated based on the
Updated 2024 Budget. Specifically, this
estimate was calculated by adding the
budgeted amounts for the change
requests for the third and fourth quarter
of 2024 as set forth in the Updated 2024
Budget and subtracting one half of the
actual change request costs incurred in
July 2024 (as CAT Fee 2024–1 Period
began half way through July, on July 16,
2024).55
CAT LLC estimated the budget for the
potential change requests for the CAT
Fee 2024–1 Period based on, among
other things, a review of past change
requests and potential future change
request needs, as well as discussions
with FCAT. This process for estimating
the budget for the change requests for
the CAT Fee 2024–1 Period is the same
process by which CAT LLC estimated
the change requests cost for the Original
2024 Budget. The Original 2024 Budget
estimated a change request budget of
$81,250 for the the [sic] first two
quarters of 2024.56 The actual costs for
change requests for the first two quarters
of 2024, which are set forth in the
Updated 2024 Budget, were $0.
Although the budget exceeded the
actual costs of change requests during
the first two quarters of 2024, CAT LLC
believes that the process for estimating
a placeholder amount for potential
change requests is reasonable given the
evolving technology needs of the CAT.
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to describe the
reason for changes in the line item for
change request fees from the prior CAT
Fee filing. As this is the first Prospective
CAT Fee Filing, this filing describes the
changes in the change request fees from
the Original 2024 Budget. CAT LLC’s
proposed annual budget for change
requests for 2024 decreased by $81,250
from the Original 2024 Budget to the
Updated 2024 Budget, from $243,750 to
$162,500. CAT LLC has reduced the
annual budget for a placeholder for
change request fees for 2024 by onethird, as time has passed without
additional change requests anticipated
by this placeholder amount.
Correspondingly, the proposed budget
55 This calculation is ($0 + $162,500) ¥ $0 =
$162,500.
56 This calculation is $0 + $81,250 = $81,250.
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for change requests for the third and
fourth quarters remained the same at
$162,500 for the Original 2024 Budget 57
and the Updated 2024 Budget.58
(v) Technology Costs—Capitalized
Developed Technology Costs
(a) Description of Capitalized Developed
Technology Costs
Section 11.3(a)(iii)(B)(B)(1) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the capitalized developed
technology costs set forth in the budget.
The Operating Committee approved an
operating budget for the CAT pursuant
to Section 11.1(a) of the CAT NMS Plan
that includes $4,101,990 in technology
costs for capitalized developed
technology costs for the CAT Fee 2024–
1 Period. This category of costs includes
the budget for capitalizable application
development costs incurred in the
development of the CAT. It is
anticipated that such costs will include
certain costs related to the software
license fee for CAIS in accordance with
the Plan Processor Agreement with
FCAT, as well as costs related to a set
of technology changes to be
implemented by FCAT.
CAT LLC estimates that the budget for
capitalized developed technology costs
during the CAT Fee 2024–1 Period will
be approximately $4,101,990. The
budget for capitalized developed
technology costs during the CAT Fee
2024–1 Period is calculated based on
the Updated 2024 Budget. Specifically,
this estimate was calculated by adding
the budgeted amounts for capitalized
developed technology costs for the third
and fourth quarter of 2024 as set forth
in the Updated 2024 Budget and
subtracting one half of the actual
capitalized developed technology costs
incurred in July 2024 (as CAT Fee 2024–
1 Period began halfway through July, on
July 16, 2024).59
CAT LLC estimated the budget for
capitalized developed technology costs
for the CAT Fee 2024–1 Period based on
an analysis of a variety of factors,
including information related to
potential technology costs and related
contractual and Plan requirements, and
discussions with FCAT regarding such
potential technology costs. The Original
2024 Budget estimated a budget for
capitalized developed technology costs
of $2,300,000 for the first two quarters
57 This calculation is $81,250 + $81,250 =
$162,500.
58 This calculation is $0 + $162,500 = $162,500.
59 This calculation is ($3,810,990 + $291,000) ¥
$0 = $4,101,990.
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73157
of 2024.60 The actual costs for
capitalized developed technology costs
for the first two quarters of 2024, which
are set forth in the Updated 2024
Budget, were $3,659,490.61 The increase
was due to a software license fee for
CAIS. Accordingly, CAT LLC believes
that the process for estimating the
budgeted capitalized developed
technology costs for the CAT Fee 2024–
1 Period is reasonable.
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to describe the
reason for changes in the line item for
capitalized developed technology costs
from the prior CAT Fee filing. As this
is the first Prospective CAT Fee Filing,
this filing describes the changes in
capitalized developed technology costs
from the Original 2024 Budget. CAT
LLC’s proposed budget for capitalized
developed technology costs for 2024
increased from the Original 2024 Budget
to the Updated 2024 Budget. The annual
budget for capitalized developed
technology costs for 2024 increased by
$5,461,480 from the Original 2024
Budget of $2,300,000 to the Updated
2024 Budget of $7,761,480.62
Correspondingly, the budget for
capitalized developed technology costs
for the third and fourth quarters of 2024
increased from $0 63 in the Original
2024 Budget to $4,101,990 in the
Updated 2024 Budget.64 This increase in
the capitalized developed technology
costs budget in the Updated 2024
Budget over the Original 2024 Budget
was the result of costs related to the
software license fee for CAIS in
accordance with the Plan Processor
Agreement with FCAT, as well as costs
related to a set of technology changes to
be implemented by FCAT.
(vi) Legal Costs
(a) Description of Legal Costs
Section 11.3(a)(iii)(B)(B)(2) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the legal costs set forth in
the budget. The Operating Committee
approved an operating budget for the
CAT pursuant to Section 11.1(a) of the
CAT NMS Plan that includes
$4,484,554.50 in legal costs for the CAT
Fee 2024–1 Period. This category of
60 This calculation is $2,300,000 + $0 =
$2,300,000.
61 This calculation is $2,300,000 + $1,359,490 =
$3,659,490.
62 This calculation is $2,591,000 + $5,170,480 =
$7,761,480.
63 This calculation is $0 + $0 = $0.
64 This calculation is $3,810,990 + $291,000 =
$4,101,990.
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costs represents budgeted costs for legal
services for this period. CAT LLC
anticipates that it will receive legal
services from two law firms, Wilmer
Cutler Pickering Hale and Dorr LLP
(‘‘WilmerHale’’) and Jenner & Block LLP
(‘‘Jenner’’), during the CAT Fee 2024–1
Period.
Law Firm: WilmerHale. It is
anticipated that legal costs during the
CAT Fee 2024–1 Period will include
costs related to the legal services
performed by WilmerHale. CAT LLC
anticipates that it will continue to
employ WilmerHale during the CAT Fee
2024–1 Period based on, among other
things, their expertise, long history with
the project and recognition that the
hourly fee rates for this law firm are
anticipated to be in line with market
rates for specialized legal expertise.
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. The legal fees will be paid by CAT
LLC to WilmerHale.
During the CAT Fee 2024–1 Period, it
is anticipated that WilmerHale will
provide legal services related to the
following:
• Assist with CAT fee filings and
related funding issues;
• Draft exemptive requests from CAT
NMS Plan requirements and/or
proposed amendments to the CAT NMS
Plan;
• Provide legal interpretations of CAT
NMS Plan requirements;
• Provide legal support for the
Operating Committee, Compliance
Subcommittee, working groups and
Leadership Team;
• Draft SRO rule filings related to the
CAT Compliance Rule;
• Manage corporate governance
matters, including supporting Operating
Committee meetings and preparing
resolutions and consents;
• Assist with communications with
the industry, including CAT Alerts and
presentations;
• Provide guidance regarding the
confidentiality of CAT Data;
• Assist with cost management
analyses and proposals;
• Assist with commercial contractrelated matters, including change
orders, Plan Processor Agreement items,
and subcontract matters;
• Provide support with regard to
discussions with the SEC and its staff,
including with respect to addressing
interpretive and implementation issues;
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• Assist with CAT budget and FCAT
costs;
• Assist other counsel for CAT on
litigation-related matters; and
• Assist with legal responses related
to third-party data requests.
CAT LLC estimated the budget for the
legal costs for WilmerHale for the CAT
Fee 2024–1 Period through an analysis
of a variety of factors, including
WilmerHale fee rates, historical legal
fees, information related to pending
legal issues and potential future legal
issues, and discussions with
WilmerHale.
Law Firm: Jenner. It is anticipated that
legal costs during the CAT Fee 2024–1
Period will include costs related to the
legal services performed by Jenner. CAT
LLC anticipates that it will continue to
employ Jenner during the CAT Fee
2024–1 Period based on among other
things, their expertise, history with the
project and recognition that their hourly
fee rates are in line with market rates for
specialized legal expertise. The legal
fees will be paid by CAT LLC to Jenner.
During the CAT Fee 2024–1 Period, it
is anticipated that Jenner will continue
to provide legal assistance to CAT LLC
regarding certain litigation matters,
including: (1) CAT LLC’s defense
against a lawsuit filed in the Western
District of Texas against Chair Gensler,
the SEC and CAT LLC challenging the
validity of the Rule 613 and the CAT
and alleging various constitutional,
statutory, and common law claims
(‘‘Texas Litigation’’); 65 (2) CAT LLC’s
intervention in a lawsuit in the Eleventh
Circuit filed by various parties against
the SEC challenging the SEC’s approval
of the CAT Funding Model; 66 and (3) a
lawsuit in the Eleventh Circuit filed by
Citadel Securities LLC seeking review of
the SEC’s May 20, 2024 order 67 granting
the Participants temporary conditional
exemptive relief related to the reporting
of bids and/or offers made in response
to a request for quote or other form of
solicitation response provided in
standard electronic format that is not
immediately actionable.68 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.
CAT LLC estimated the budget for the
legal costs for Jenner for the CAT Fee
65 American Securities Ass’n v. Securities and
Exchange Commission, Case No. 23–13396 (11th
Cir.).
66 Davidson v. Gensler, Case No. 6:24–cv–197
(W.D. Tex.).
67 Securities Exchange Act Rel. No. 100181 (May
20, 2024), 89 FR 45715 (May 23, 2024).
68 Citadel Securities LLC v. United States
Securities and Exchange Commission, Case No. 24–
12300 (11th Cir.).
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2024–1 Period through an analysis of a
variety of factors, including Jenner fee
rates, historical legal fees, and
information related to pending legal
issues and potential future legal issues,
and discussions with Jenner.
Legal Cost Estimates. CAT LLC
estimates that the budget for legal
services during the CAT Fee 2024–1
Period will be approximately
$4,484,554.50. The budget for legal
services during the CAT Fee 2024–1
Period is calculated based on the
Updated 2024 Budget. Specifically, this
estimate was calculated by adding the
budgeted amounts for the legal services
for the third and fourth quarter of 2024
as set forth in the Updated 2024 Budget
and subtracting one half of the actual
legal costs incurred in July 2024 (as the
CAT Fee 2024–1 Period began halfway
through July, on July 16, 2024).69
CAT LLC estimated the budget for the
legal services for the CAT Fee 2024–1
Period based on an analysis of a variety
of factors, including law firm fee rates,
historical legal fees, and information
related to pending legal issues and
potential future legal issues, and
discussions with the law firms. This
process for estimating the budget for the
legal services for the CAT Fee 2024–1
Period is the same process by which
CAT LLC estimated the legal cost for the
Original 2024 Budget. The Original 2024
Budget estimated a budget for legal costs
of $2,440,000 for the first two quarters
of 2024.70 The actual costs for legal
services for the first two quarters of
2024, which are set forth in the Updated
2024 Budget, were $3,156,762.71
Although there is an increase from the
budgeted legal costs to the actual legal
costs for the first two quarters of 2024,
such increase was due to unanticipated
issues that required additional legal
efforts on behalf of CAT LLC that
developed after the budget was created.
Such additional costs including costs
related to (1) the legal defense related to
the Texas Litigation; and (2) additional
regulatory and corporate legal issues,
including (a) additional work for
commercial contract-related matters,
including change orders, Plan Processor
Agreement items, and subcontract
matters; (b) assistance regarding budget
and FCAT costs; (c) assistance to other
counsel for CAT on litigation-related
matters; and (d) assistance related to
CAT fee filings and CAT NMS Plan
amendments. Accordingly, CAT LLC
believes that the process for estimating
69 This calculation is ($2,647,277 + $2,342,562) ¥
$505,284.50 = $4,484,554.50.
70 This calculation is $1,220,000 + $1,220,000 =
$ 2,440,000.
71 This calculation is $791,912 + $2,364,850 =
$3,156,762.
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the budgeted legal costs for the CAT Fee
2024–1 Period is reasonable.
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to describe the
reason for changes in the line item for
legal costs from the prior CAT Fee
filing. As this is the first Prospective
CAT Fee Filing, this filing describes the
changes in the legal costs from the
Original 2024 Budget. CAT LLC’s
proposed budget for legal costs for 2024
increased from the Original 2024 Budget
to the Updated 2024 Budget. The annual
budget for legal costs for 2024 increased
from the Original 2024 Budget to the
Updated 2024 Budget, from $4,460,000
to $8,146,599. Correspondingly, the
proposed budget for legal costs for the
third and fourth quarters increased from
$2,020,000 72 in the Original 2024
Budget to $4,989,837 in the Updated
2024 Budget.73 This increase in the legal
budget in the Updated 2024 Budget
from the Original 2024 Budget was
primarily due to unanticipated legal
costs, including costs related to (1) the
legal defense related to the Texas
Litigation; and (2) additional regulatory
and corporate legal issues, including (a)
additional work for commercial
contract-related matters, including
change orders, Plan Processor
Agreement items, and subcontract
matters; (b) assistance regarding budget
and FCAT costs; (c) assistance to other
counsel for CAT on litigation-related
matters; and (d) assistance related to
CAT fee filings and CAT NMS Plan
amendments. In addition, CAT LLC no
longer anticipates incurring legal costs
related to the law firms of Pillsbury
Winthrop Shaw Pittman LLP and
Covington & Burling LLP during the
CAT Fee 2024–1 Period due to the
conclusion of the relevant prior legal
matters.
ddrumheller on DSK120RN23PROD with NOTICES1
(vii) Consulting Costs
(a) Description of Consulting Costs
Section 11.3(a)(iii)(B)(B)(3) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the consulting costs set
forth in the budget. The Operating
Committee approved an operating
budget for the CAT pursuant to Section
11.1(a) of the CAT NMS Plan that
included $652,623 in consulting costs
for the CAT Fee 2024–1 Period. The
consulting costs represent the fees
estimated to be paid to the consulting
72 This calculation is $1,047,500 + $972,500 =
$2,020,000.
73 This calculation is $2,647,277 + $2,342,560 =
$4,989,837.
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firm Deloitte & Touche LLP (‘‘Deloitte’’)
as project manager during the CAT Fee
2024–1 Period. 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.
It is anticipated that the costs for CAT
during CAT Fee 2024–1 Period will
include costs related to consulting
services performed by Deloitte. CAT
LLC anticipates that it will continue to
employ Deloitte during the CAT Fee
2024–1 Period based on, among other
things, their expertise, long history with
the project, and the recognition that it
is anticipated that the consulting fees
will remain in line with market rates for
this type of specialized consulting work.
Deloitte’s fee rates are negotiated on an
annual basis. CAT LLC assesses
Deloitte’s performance and reviews
prospective budgets and staffing plans
submitted by Deloitte on an annual
basis. The consulting fees will be paid
by CAT LLC to Deloitte.
It is anticipated that Deloitte will
provide a variety of consulting services
to the CAT during the CAT Fee 2024–
1 Period, including the following:
• Implement program operations for
the CAT project;
• Provide 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;
• Assist with cost and funding
matters for the CAT, including
assistance with loans and the CAT bank
account for CAT funding;
• Provide support for updating the
SEC on the progress of the development
of the CAT; and
• Provide support for third party
vendors for the CAT, including FCAT,
Anchin and the law firms engaged by
CAT LLC.
In addition, the consulting costs include
the compensation for the Chair of the
CAT Operating Committee.
CAT LLC estimates that the budet [sic]
for consulting costs during the CAT Fee
2024–1 Period will be approximately
$652,623. The budget for consulting
costs during the CAT Fee 2024–1 Period
is calculated based on the Updated 2024
Budget. Specifically, this estimate was
calculated by adding the budgeted
amounts for consulting services for the
third and fourth quarter of 2024 as set
forth in the Updated 2024 Budget and
subtracting one half of the actual
consulting costs incurred in July 2024
(as the CAT Fee 2024–1 Period begain
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73159
[sic] halfway through July, on July 16,
2024).74
CAT LLC estimates the budget for the
consulting costs for Deloitte for the CAT
Fee 2024–1 Period based on the current
statement of work with Deloitte, which
took into consideration past consulting
costs, potential future consulting needs,
the proposed rates and other contractual
issues, as well as discussions with
Deloitte. The Original 2024 Budget
estimated a budget for consulting cost of
$800,000 for the first two quarters of
2024.75 The actual costs for consulting
services for the first two quarters of
2024, which are set forth in the Updated
2024 Budget, were $885,580.76 There is
only an approximate 10% difference
between the estimate and actuals.
Accordingly, CAT LLC believes that the
process for estimating the budgeted
consulting costs for the CAT Fee 2024–
1 Period is reasonable.
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to describe the
reason for changes in the line item for
consulting costs from the prior CAT Fee
filing. As this is the first Prospective
CAT Fee Filing, this filing describes the
changes in the consulting costs from the
Original 2024 Budget. CAT LLC’s
proposed annual budget for consulting
costs for 2024 has not changed from the
Original 2024 Budget to the Updated
2024 Budget; it remains $1,600,000.
Correspondingly, the proposed budget
for consulting costs for the third and
fourth quarters of 2024 decreased by
$85,580 (which is approximately 11%),
from $800,000 in the Original 2024
Budget 77 to $714,420 in the Updated
2024 Budget.78
(viii) Insurance Costs
(a) Description of Insurance Costs
Section 11.3(a)(iii)(B)(B)(4) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the insurance costs set
forth in the budget. The Operating
Committee approved an operating
budget for the CAT pursuant to Section
11.1(a) of the CAT NMS Plan that
included $1,342,345 in insurance costs
for the CAT Fee 2024–1 Period. The
insurance costs represent the costs to be
74 This calculation is ($359,926 + $354,495) ¥
$61,798 = $652,623.
75 This calculation is $400,000 + $400,000 =
$800,000.
76 This calculation is $264,101 + $621,479 =
$885,580.
77 This calculation is $400,000 + $400,000 =
$800,000.
78 This calculation is $359,925 + $354,495 =
$714,420.
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incurred for insurance for CAT during
the CAT Fee 2024–1 Period.
It is anticipated that the insurance
costs for CAT during the CAT Fee 2024–
1 Period will include costs related to
cyber security liability insurance,
directors’ and officers’ liability
insurance, and errors and omissions
liability insurance brokered by USI
Insurance Services LLC (‘‘USI’’). Such
policies are standard for corporate
entities, and cyber security liability
insurance is important for the CAT
System. CAT LLC anticipates that it will
continue to maintain this insurance
during CAT Fee 2024–1 Period, and
notes that the annual premiums for
these policies were competitive for the
coverage provided. CAT LLC estimated
the budget for the insurance costs for
the CAT Fee 2024–1 Period based on the
actual insurance quote from USI for
2024. The annual premiums would be
paid by CAT LLC to USI.79
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to describe the
reason for changes in the line item for
insurance costs from the prior CAT Fee
filing. As this is the first Prospective
CAT Fee Filing, this filing describes the
changes in the insurance costs from the
Original 2024 Budget. CAT LLC’s
proposed annual budget for insurance
costs for 2024 decreased by $525,680
from the Original 2024 Budget, from
$1,868,025 to $1,342,345. For the
Original 2024 Budget, CAT LLC
estimated the budget for the insurance
costs for the CAT Fee 2024–1 Period
based on the 2023 insurance premiums
plus a 15% year-over-year increase.
However, the budgeted insurance costs
as set forth in the Updated 2024 Budget
were based on the actual insurance
quote from USI for 2024.
ddrumheller on DSK120RN23PROD with NOTICES1
(ix) Professional and Administration
Costs
(a) Description of Professional and
Administration Costs
Section 11.3(a)(iii)(B)(B)(5) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the professional and
administration costs set forth in the
budget. The Operating Committee
approved an operating budget for the
CAT pursuant to Section 11.1(a) of the
CAT NMS Plan that included
$428,544.50 in professional and
administration costs for the CAT Fee
79 Note that CAT LLC generally pays its USI
insurance premiums once per year, and such
payment is scheduled to occur during the third
quarter of 2024.
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2024–1 Period. 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.80 The
professional and administration costs
would 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. The professional and
administration costs represent the fees
to be paid to Anchin Block & Anchin
(‘‘Anchin’’) and Grant Thornton LLP
(‘‘Grant Thornton’’) for financial
services during CAT Fee 2024–1 Period.
Financial Advisory Firm: Anchin. It is
anticipated that the professional and
administration costs for the CAT Fee
2024–1 Period will include costs related
to financial advisory services performed
by Anchin. CAT LLC anticipates that it
will continue to employ Anchin during
CAT Fee 2024–1 Period based on,
among other things, the firm’s relevant
expertise and fees, which are
anticipated to remain in line with
market rates for these financial advisory
services. The fees for these services will
be paid by CAT LLC to Anchin.
It is anticipated that Anchin will
provide a variety of services to the CAT
during the CAT Fee 2024–1 Period,
including the following:
• Update and maintain internal
controls;
• Provide cash management and
treasury functions;
• Faciliate [sic] bill payments;
• Provide monthly bookkeeping;
• Review vendor invoices and
documentation in support of cash
disbursements;
• Provide accounting research and
consultations on various accounting,
financial reporting and tax matters;
• Address not-for-profit tax and
accounting considerations;
• Prepare tax returns;
• Address various accounting,
financial reporting and operating
inquiries From Participants;
• Develop and maintain annual
operating and financial budgets,
including budget to actual fluctuation
analyses;
• Support compliance with the CAT
NMS Plan;
• Work with and provide support to
the Operating Committee and various
CAT working groups;
80 Section
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Frm 00102
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• Prepare monthly, quarterly and
annual financial statements;
• Support the annual financial
statement audits by an independent
auditor;
• Review historical costs from
inception;
• Provide accounting and financial
information in support of SEC filings;
and
• Perform additional ad hoc
accounting and financial advisory
services, as requested by CAT LLC.
CAT LLC estimated the annual budget
for the costs for Anchin based on
historical costs adjusted for cost of
living rate increases, and projected
incremental advisory and support
services. The budgeted costs for the
CAT Fee 2024–1 Period are based on the
estimated annual costs, minus actual
costs through June and estimated costs
for July.
Accounting Firm: Grant Thornton. It
is anticipated that the professional and
administration costs for the CAT Fee
2024–1 Period will include costs related
to accounting services performed by
Grant Thornton. CAT LLC anticipates
that it will continue to employ Grant
Thornton during CAT Fee 2024–1
Period based on, among other things,
the firm’s relevant expertise and fees,
which are anticipated to remain in line
with market rates for these financial
advisory services. It is anticipated that
Grant Thornton will continue to be
engaged as an independent accounting
firm to complete the audit of CAT LLC’s
financial statements, in accordance with
the requirements of the CAT NMS Plan.
The fees for these services will be paid
by CAT LLC to Grant Thornton. CAT
LLC estimated the budget for the
accounting costs for Grant Thornton for
the CAT Fee 2024–1 Period based on the
anticipated hourly rates and the
anticipated services plus an
administrative fee.
Professional and Administration Cost
Estimates. CAT LLC estimates that the
budget for professional and
administration services during the CAT
Fee 2024–1 Period will be
approximately $428,544.50. The budget
for professional and administration
services during the CAT Fee 2024–1
Period is calculated based on the
Updated 2024 Budget. Specifically, this
estimate was calculated by adding the
budgeted amounts for the professional
and administration services for the third
and fourth quarter of 2024 as set forth
in the Updated 2024 Budget and
subtracting one half of the actual
professional and administration costs
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incurred in July 2024 (as CAT Fee 2024–
1 Period began half way through July,
on July 16, 2024).81
CAT LLC estimated the budget for the
professional and administration costs
for the CAT Fee 2024–1 Period based on
a review of past professional and
administration costs, potential future
professional and administration needs,
the proposed rates and other contractual
issues, as well as discussions with
Anchin and Grant Thornton. This
process for estimating the budget for the
professional and administration costs
for the CAT Fee 2024–1 Period is the
same process by which CAT LLC
estimated the professional and
administration costs for the Original
2024 Budget. The Original 2024 Budget
estimated a budget for professional and
administration costs of $395,930 for the
first two quarters of 2024.82 The actual
costs for professional and
administration services for the first two
quarters of 2024, which are set forth in
the Updated 2024 Budget, were
$372,977.83 There is only an
approximate 6% difference between the
estimate and actuals. Accordingly, CAT
LLC believes that the process for
estimating the budgeted professional
and administration costs for the CAT
Fee 2024–1 Period is reasonable.
ddrumheller on DSK120RN23PROD with NOTICES1
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to describe the
reason for changes in the line item for
professional and administration costs
from the prior CAT Fee filing. As this
is the first Prospective CAT Fee Filing,
this filing describes the changes in the
professional and administration costs
from the Original 2024 Budget. CAT
LLC’s proposed annual budget for
professional and administration costs
for 2024 had a very minor increase of
$2,666 from the Original 2024 Budget,
from $821,264 to $823,930. CAT LLC’s
proposed annual budget for professional
and administration costs for 2024 has
not changed in a material way for
Anchin and Grant Thornton costs.
Correspondingly, the proposed budget
for professional and administration
costs for the third and fourth quarters of
2024 increased by $25,617 (which is
approximately 6%), from $425,334 in
81 This calculation is ($157,269 + $293,682) ¥
$22,406.50 = $428,544.50.
82 This calculation is $213,600 + $182,330 =
$395,930.
83 This calculation is $110,542 + $262,435 =
$372,977.
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the Original 2024 Budget 84 to $450,951
in the Updated 2024 Budget.85
(x) Public Relations Costs
(a) Desription [sic] of Public Relations
Costs
Section 11.3(a)(iii)(B)(B)(6) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the public relations costs
set forth in the budget. The Operating
Committee approved an operating
budget for the CAT pursuant to Section
11.1(a) of the CAT NMS Plan that
included $43,225 in public relations
costs for the CAT Fee 2024–1 Period.
The public relations costs represent the
fees paid to a public relations firm for
professional communications services to
CAT, including media relations
consulting, strategy and execution. By
engaging a public relations firm, CAT
LLC will be better positioned to
understand and address CAT matters to
the benefit of all market participants.
It is anticipated that the public
relations costs for the CAT Fee 2024–1
Period will include costs related to the
public relations services performed by
RF|Binder Partners Inc. (‘‘RFF|Binder’’).
CAT LLC anticipates that it will
continue to employ RFF|Binder during
the CAT Fee 2024–1 Period based on,
among other things, the firm’s relevant
expertise, history with the project, and
fees, which are anticipated to remain in
line with market rates for these public
relations services. It is anticipated that,
during the CAT Fee 2024–1 Period,
RF|Binder will provide 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 are
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.
CAT LLC estimates that the budget for
public relations services during the CAT
Fee 2024–1 Period will be
approximately $43,225. The budget for
public relations services during the CAT
Fee 2024–1 Period is calculated based
84 This calculation is $150,000 + $275,334 =
$425,334.
85 This calculation is $157,269 + $293,682 =
$450,951.
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73161
on the Updated 2024 Budget.
Specifically, this estimate was
calculated by adding the budgeted
amounts for the public relations for the
third and fourth quarter of 2024 as set
forth in the Updated 2024 Budget and
subtracting one half of the actual public
relations costs incurred in July 2024 (as
CAT Fee 2024–1 Period began half way
through July, on July 16, 2024).86 The
fees for these services will be paid by
CAT LLC to RF|Binder.
CAT LLC estimated the budget for the
public relations costs for the CAT Fee
2024–1 Period based on a review of past
public relations costs, potential future
public relations needs, the proposed
rates and other contractual issues, as
well as discussions with RF|Binder.
CAT LLC also recognized that public
relations costs are generally consistent
throughout the year. This process for
estimating the budget for the public
relations costs for the CAT Fee 2024–1
Period is the same process by which
CAT LLC estimated the public relations
costs for the Original 2024 Budget. The
Original 2024 Budget estimated a budget
for public relations costs of $46,200 for
the the [sic] first two quarters of 2024.87
The actual costs for public relations for
the first two quarters of 2024, which are
set forth in the Updated 2024 Budget,
were $46,200.88 They are the same.
Accordingly, CAT LLC believes that the
process for estimating the budgeted
public relations costs for the CAT Fee
2024–1 Period is reasonable.
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to describe the
reason for changes in the line item for
public relations costs from the prior
CAT Fee filing. As this is the first
Prospective CAT Fee Filing, this filing
describes the changes in the public
relations costs from the Original 2024
Budget. CAT LLC’s proposed annual
budget for public relations costs for
2024 had a very minor increase of $875
from the Original 2024 Budget to the
Updated 2024 Budget, from $92,400 to
$93,275. Correspondingly, the proposed
budget for public relations costs for the
third and fourth quarters of 2024
increased by $875, from $46,200 in the
Original 2024 Budget 89 to $47,075 in
86 This calculation is ($23,450 + $23,625) ¥
$3,850 = $43,225.
87 This calculation is $23,100 + $23,100 =
$46,200.
88 This calculation is $23,100 + $23,100 =
$46,200.
89 This calculation is $23,100 + $23,100 =
$46,200.
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the Updated 2024 Budget.90 The minor
change was made to reflect updated
contractual terms.
(xi) Reserve
(a) Description of Reserve
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to provide a brief
description of the reserve costs set forth
in the budget. The Operating Committee
approved an operating budget for the
CAT pursuant to Section 11.1(a) of the
CAT NMS Plan that includes
$27,695,385 for a reserve for the CAT
Fee 2024–1 Period. Section 11.1(a)(i) of
the CAT NMS Plan states that the
budget shall include a reserve. Section
11.1(a)(ii) of the CAT NMS Plan further
describes the reserve as follows:
For the reserve referenced in paragraph
(a)(i) of this Section, the budget will include
an amount reasonably necessary to allow the
Company to maintain a reserve of not more
than 25% of the annual budget. To the extent
collected CAT fees exceed CAT costs,
including the reserve of 25% of the annual
budget, such surplus shall be used to offset
future fees. For the avoidance of doubt, the
Company will only include an amount for
the reserve in the annual budget if the
Company does not have a sufficient reserve
(which shall be up to but not more than 25%
of the annual budget). For the avoidance of
doubt, the calculation of the amount of the
reserve would exclude the amount of the
reserve from the budget.
In light of the fact that CAT LLC
currently does not maintain any reserve,
CAT LLC determined to include a
reserve in the amount of 25% of
Budgeted CAT Costs 2024–1 other than
the reserve. Accordingly, the reserve for
the CAT Fee 2024–1 Period was
calculated by multiplying the Budgeted
CAT Costs 2024–1 other than the
reserve amount, which is $110,781,540,
by 25%.
ddrumheller on DSK120RN23PROD with NOTICES1
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT
NMS Plan requires the fee filing for a
Prospective CAT Fee to describe the
reason for changes in the line item for
a reserve from the prior CAT Fee filing.
Prior to July 16, 2024, all CAT costs
were paid by the Participants via notes.
Accordingly, to date, CAT LLC has not
maintained any reserve. With the
commencement of CAT Fees, CAT LLC
proposes to include costs for a reserve
of $27,695,385 in Budgeted CAT Costs
2024–1.
90 This calculation is $23,450 + $23,625 =
$47,075.
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(D) Projected Total Executed Equivalent
Share Volume
The calculation of Fee Rate 2024–1
also requires the determination of the
projected total executed equivalent
share volume of transactions in Eligible
Securities for the CAT Fee 2024–1
Period. 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 relevant period based on the
executed equivalent share volume of all
transactions in Eligible Securities for the
prior twelve months.’’ 91 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 otherwise unfit
to serve as the basis of a future volume
estimate.92
The total executed equivalent share
volume of transactions in Eligible
Securities for the 12-month period from
June 2023 through May 2024 was
3,980,753,840,905.21 executed
equivalent shares. The Operating
Committee has determined to calculate
the projected total executed equivalent
share volume for a four-month recovery
period for CAT Fee 2024–1 by
multiplying by 4/12ths 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,
the executed equivalent share volume
for 2022 was 4,039,821,841,560.31, and
the executed equivalent share volume
for 2023 was 3,868,940,345,680.6.
Accordingly, the projected total
executed equivalent share volume for
the four-month period for CAT Fee
2024–1 is projected to be
1,326,917,946,968.403 executed
equivalent shares.93
The projected total executed
equivalent share volume of all
transactions in Eligible Securities for the
four-month recovery period for CAT Fee
2024–1 and a description of the
calculation of the projection is provided
91 Section
11.3(a)(i)(D) of the CAT NMS Plan.
Funding Model Approval Order at 62651.
93 This projection was calculated by multiplying
3,980,753,840,905.21 executed equivalent shares by
4/12ths.
92 CAT
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in this filing in accordance with the
requirement in the CAT NMS Plan to
provide such information in a fee filing
for a CAT Fee.94
(E) Fee Rate 2024–1
Fee Rate 2024–1 would be calculated
by dividing Budgeted CAT Costs 2024–
1 by the reasonably projected total
executed equivalent share volume of all
transactions in Eligible Securities for the
four-month recovery period for CAT Fee
2024–1, as described in detail above.95
Specifically, Fee Rate 2024–1 would be
calculated by dividing $138,476,925 by
1,326,917,946,968.403 executed
equivalent shares. As a result, Fee Rate
2024–1 would be
$0.0001043598251997246 per executed
equivalent share. Fee Rate 2024–1 is
provided in this filing in accordance
with the requirement in the CAT NMS
Plan to provide the Fee Rate in a fee
filing for a CAT Fee.96
(3) Monthly Fees
CEBBs and CEBSs would be required
to pay fees for CAT Fee 2024–1 on a
monthly basis for four months, from
November 2024 until February 2025.97
A CEBB’s 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.98 Proposed paragraph
(a)(3)(A) of the fee schedule would state
that each CAT Executing Broker would
receive its first invoice for CAT Fee
2024–1 in October 2024, and would
receive an invoice for CAT Fee 2024–1
each month thereafter until January
2025. Proposed paragraph (a)(3)(B) of
the fee schedule would state that
‘‘Consolidated Audited Trail, LLC shall
provide each CAT Executing Broker
with an invoice for CAT Fee 2024–1 on
a monthly basis.’’ In addition, paragraph
(b)(1) of the fee schedule states that each
CEBB and CEBS is required to pay its
CAT fees ‘‘each month.’’
(4) Consolidated Audit Trail Funding
Fees
To implement CAT Fee 2024–1, the
Exchange proposes to add a new
94 Section
11.3(a)(iii)(B) of the CAT NMS Plan.
approving the CAT Funding Model, the
Commission stated that ‘‘[t]he manner in which the
Fee Rate for Prospective CAT Costs will be
calculated (i.e., by dividing the CAT costs
reasonably budgeted for the upcoming year by the
reasonably projected total executed equivalent
share volume of all transactions in Eligible
Securities for the year) is reasonable.’’ CAT Funding
Model Approval Order at 62651.
96 Section 11.3(a)(iii)(B) of the CAT NMS Plan.
97 See Section 11.3(a)(iii)(A) of the CAT NMS
Plan.
98 See proposed paragraph (a)(3)(B) of the fee
schedule.
95 In
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paragraph to ‘‘Consolidated Audit Trail
Funding Fees’’ section of the Exchange’s
fee schedule, to include the proposed
paragraphs described below.
(A) Fee Schedule for CAT Fee 2024–1
The CAT NMS Plan states that:
Each Industry Member that is the CAT
Executing Broker for the buyer in a
transaction in Eligible Securities (‘‘CAT
Executing Broker for the Buyer’’ or ‘‘CEBB’’)
and each Industry Member that is the CAT
Executing Broker for the seller in a
transaction in Eligible Securities (‘‘CAT
Executing Broker for the Seller’’ or ‘‘CEBS’’)
will be required to pay a CAT Fee for each
such transaction in in Eligible Securities in
the prior month based on CAT Data. The
CEBB’s CAT Fee or CEBS’s CAT Fee (as
applicable) for each transaction in Eligible
Securities will be calculated by multiplying
the number of executed equivalent shares in
the transaction by one-third and by the Fee
Rate reasonably determined pursuant to
paragraph (a)(i) of this Section 11.3.99
ddrumheller on DSK120RN23PROD with NOTICES1
Accordingly, based on the factors
discussed above, the Exchange proposes
to add paragraph (a)(3) to the
Consolidated Audit Trail Funding Fees
section of its fee schedule. Proposed
paragraph (a)(3) would state the
following:
(A) Each CAT Executing Broker shall
receive its first invoice for CAT Fee 2024–1
in October 2024, which shall set forth the
CAT Fee 2024–1 fees calculated based on
transactions in September 2024, and shall
receive an invoice for CAT Fee 2024–1 for
each month thereafter until January 2025.
(B) Consolidated Audit Trail, LLC shall
provide each CAT Executing Broker with an
invoice for CAT Fee 2024–1 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 $0.000035 per executed equivalent
share.
(C) Notwithstanding the last invoice date of
January 2025 for CAT Fee-2024–1 in
paragraph 3(A), CAT Fee 2024–1 shall
continue in effect after January 2025, with
each CAT Executing Broker receiving an
invoice for CAT Fee 2024–1 each month,
until a new subsequent CAT Fee is in effect
with regard to Industry Members in
accordance with Section 19(b) of the
Exchange Act. Consolidated Audit Trail, LLC
will provide notice when CAT Fee 2024–1
will no longer be in effect.
(D) Each CAT Executing Broker shall be
required to pay each invoice for CAT Fee
2024–1 in accordance with paragraph (b).
99 Section
11.3(a)(iii)(A) of the CAT NMS Plan.
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As noted in the Plan amendment for
the CAT Funding Model, ‘‘[a]s a
practical matter, the fee filing would
provide the exact fee per executed
equivalent share to be paid for the CAT
Fees, by multiplying the Fee Rate by
one-third and describing the relevant
number of decimal places for the
fee.’’ 100 Accordingly, proposed
paragraph (a)(3)(B) of the fee schedule
would set forth a fee rate of $0.000035
per executed equivalent share. This fee
rate is calculated by multiplying Fee
Rate 2024–1 of
$0.0001043598251997246 by one-third,
and rounding the result to six decimal
places.101 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)(3)(A) of the fee schedule would
describe when CAT Executing Brokers
would receive their first monthly
invoice for CAT Fee 2024–1.
Specifically, CAT Executing Brokers
would receive their first monthly
invoice for CAT Fee 2024–1 in October
2024 and the fees set forth in that
invoice would be calculated based on
transactions executed in September
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 paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(3)(A) of the
fee schedule also would describe the
monthly cadence of the invoices for
CAT Fee 2024–1. Specifically, after the
first invoices are provided to CAT
Executing Brokers in October 2024,
invoices will be sent to CAT Executing
Brokers each month thereafter until
January 2025.
Proposed paragraph (a)(3)(B) of the fee
schedule would describe the invoices
for CAT Fee 2024–1. Proposed
paragraph (a)(3)(B) of the fee schedule
would state that ‘‘Consolidated Audit
Trail, LLC shall provide each CAT
Executing Broker with an invoice for
CAT Fee 2024–1 on a monthly basis.’’
Proposed paragraph (a)(3)(B) of the fee
schedule also would describe the fees to
be set forth in the invoices for CAT Fee
2024–1. 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
73163
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 $0.000035 per executed
equivalent share.’’
Since CAT Fee 2024–1 is a monthly
fee based on actual transaction volume
from the prior month, CAT Fee 2024–1
may collect more or less than two-thirds
of Budgeted CAT Costs 2024–1. To the
extent that CAT Fee 2024–1 collects
more than two-thirds of Budgeted CAT
Costs 2024–1, any excess money
collected will be used to offset future
fees and/or to fund the reserve for the
CAT. To the extent that CAT Fee 2024–
1 collects less than two-thirds of
Budgeted CAT Costs 2024–1, the budget
for the CAT in the ensuing months will
reflect such shortfall.
Furthermore, proposed paragraph
(a)(3)(C) of the fee schedule would
describe how long CAT Fee 2024–1
would remain in effect. It would state
that ‘‘[n]otwithstanding the last invoice
date of January 2025 for CAT Fee 2024–
1 in paragraph 3(A), CAT Fee 2024–1
shall continue in effect after January
2025, with each CAT Executing Broker
receiving an invoice for CAT Fee 2024–
1 each month, until a new subsequent
CAT Fee is in effect with regard to
Industry Members in accordance with
Section 19(b) of the Exchange Act.
Consolidated Audit Trail, LLC will
provide notice when CAT Fee 2024–1
will no longer be in effect.’’
Finally, proposed paragraph (a)(3)(D)
of the fee schedule would set forth the
requirement for the CAT Executing
Brokers to pay the invoices for CAT Fee
2024–1. It would state that ‘‘[e]ach CAT
Executing Broker shall be required to
pay each invoice for CAT Fee 2024–1 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 its
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.102
The Plan Processor has established a
billing system for CAT fees.103
102 Section
100 CAT
Funding Model Approval Order at 62658,
n.658.
101 Dividing $0.0001043598251997246 by three
equals $0.00003478660839990821. Rounding
$0.00003478660839990821 to six decimal places
equals $0.000035.
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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
103 The
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Therefore, the Exchange proposes to
require CAT Executing Brokers to pay
CAT Fee 2024–1 in accordance with
such system. Accordingly, proposed
paragraph (b)(1) 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.104
Accordingly, the Exchange proposes
to add this requirement to the
Exchange’s fee schedule. Proposed
paragraph (b)(2) of the 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.
The requirements of paragraph (b)(2)
would apply to CAT Fee 2024–1.
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(5) CAT Fee Details
The CAT NMS Plan states that:
Details regarding the calculation of a
Participant or CAT Executing Broker’s CAT
Fees will be provided upon request to such
Participant or CAT Executing Broker. At a
minimum, such details would include each
Participant or CAT Executing Broker’s
executed equivalent share volume and
corresponding fee by (1) Listed Options,
NMS Stocks and OTC Equity Securities, (2)
by transactions executed on each exchange
and transactions executed otherwise than on
an exchange, and (3) by buy-side transactions
and sell-side transactions.105
Connectivity Supplement for Industry Members and
the CAT Billing Webinars (dated Sept. 28, 2023 and
Nov. 7, 2023), each available on the CAT website.
104 Section 11.4 of the CAT NMS Plan.
105 Section 11.3(a)(iv)(A) of the CAT NMS Plan.
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Such information would provide
CEBBs and CEBSs with the ability to
understand the details regarding the
calculation of their CAT Fee.106 CAT
LLC will provide CAT Executing
Brokers with these details regarding the
calculation of their CAT Fees on their
monthly invoice for the CAT Fees.
In addition, CAT LLC will make
certain aggregate statistics regarding
CAT Fees publicly available.
Specifically, the CAT NMS Plan states
that, ‘‘[f]or each CAT Fee, at a
minimum, CAT LLC will make publicly
available the aggregate executed
equivalent share volume and
corresponding aggregate fee by (1)
Listed Options, NMS Stocks and OTC
Equity Securities, (2) by transactions
executed on each exchange and
transactions executed otherwise than on
an exchange, and (3) by buy-side
transactions and sell-side
transactions.’’ 107 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 CAT Fee 2024–1 is in effect as well
as the total amount invoiced for CAT
Fee 2024–1 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 CAT Fee
2024–1.
(6) 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 CAT Fee
related to Prospective CAT Costs until
the Financial Accountability Milestone
related to Period 4 described in Section
11.6 has been satisfied.’’ 108 The
substantive requirements of the
Financial Accountability Milestones
related to Period 4 have been satisfied,
as the CAT has completed the
requirements for the ‘‘Full
Implementation of CAT NMS Plan
Requirements.’’ Section 1.1 of the CAT
106 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.’’ CAT Funding Model
Approval Order at 62667.
107 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.’’ CAT
Funding Model Approval Order at 62667.
108 Section 11.3(a)(iii)(C) of the CAT NMS Plan.
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NMS Plan defines ‘‘Full Implementation
of CAT NMS Plan Requirements’’ as:
the point at which the Participants have
satisfied all of their obligations to build and
implement the CAT, such that all CAT
system functionality required by Rule 613
and the CAT NMS Plan has been developed,
successfully tested, and fully implemented at
the initial Error Rates specified by Section
6.5(d)(i) or less, including functionality that
efficiently permits the Participants and the
Commission to access all CAT Data required
to be stored in the Central Repository
pursuant to Section 6.5(a), including
Customer Account Information, Customer-ID,
Customer Identifying Information, and
Allocation Reports, and to analyze the full
lifecycle of an order across the national
market system, from order origination
through order execution or order
cancellation, including any related allocation
information provided in an Allocation
Report. This Financial Accountability
Milestone shall be considered complete as of
the date identified in a Quarterly Progress
Report meeting the requirements of Section
6.6(c).
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 second and third quarter
of 2024,109 Full Implementation of CAT
NMS Plan Requirements was completed
on July 15, 2024.
(A) Transaction Reporting and
Regulatory Access
The CAT system functionality
required by Rule 613 and the CAT NMS
Plan related to order and transaction
data has been developed, successfully
tested, and fully implemented,
including the requirements related to
regulatory access. The implementation
of CAT requirements related to order
and transaction data occurred over four
phases: Phases 2a, 2b, 2c and 2d.110 As
described in the Quarterly Progress
Reports and summarized below, each of
these phases has been fully
implemented.111
(i) Phase 2a
The Quarterly Progress Reports state
that ‘‘Phase 2a was fully implemented
109 Q2 & Q3 2024 Quarterly Progress Report (July
29, 2024).
110 The SEC granted exemptive relief from certain
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. Securities
Exchange Rel. No. 88702 (Apr. 20, 2020), 85 FR
23075 (Apr. 24, 2020) (‘‘Phased Reporting
Exemptive Relief Order’’).
111 See, e.g., Q1 2024 Quarterly Progress Report
(Apr. 30, 2024).
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as of October 26, 2020.’’ 112 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 brokerdealer; 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
112 See, e.g., Q1 2024 Quarterly Progress Report
(Apr. 30, 2024).
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limited instances, nor were they
required to report a cancellation of an
order received from a Customer after the
order has been executed.113
(ii) Phase 2b
The Quarterly Progress Reports state
that ‘‘Phase 2b was fully implemented
as of January 4, 2021.’’ 114 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
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.115
(iii) Phase 2c
The Quarterly Progress Reports state
that ‘‘Phase 2c was implemented as of
113 Phased Reporting Exemptive Relief Order at
23076–78.
114 See, e.g., Q1 2024 Quarterly Progress Report
(Apr. 30, 2024).
115 Phased Reporting Exemptive Relief Order at
23078.
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April 26, 2021.’’ 116 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 Date (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 order(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’’)
116 See, e.g., Q1 2024 Quarterly Progress Report
(Apr. 30, 2024).
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scenarios, as required in the Industry
Member Technical Specifications.117
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 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
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.118
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(iv) Phase 2d
The Quarterly Progress Reports state
that ‘‘Phase 2d was fully implemented
as of December 13, 2021.’’ 119 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
117 Phase Reporting Exemptive Relief Order at
23078–79.
118 Id. at 23079.
119 See, e.g., Q1 2024 Quarterly Progress Report
(Apr. 30, 2024).
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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.120
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
includes 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).121
120 Phase Reporting Exemptive Relief Order at
23079.
121 Id. at 23079–80.
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(v) Regulatory Access To Order and
Transaction Data
The Financial Accountability
Milestone related to Period 4 requires
that CAT provide functionality that
permits the Participants and the
Commission to access Phase 2a, 2b, 2c
and 2d data and to analyze the full
lifecycle of an order across the national
market system, from order origination
through order execution or order
cancellation, including any related
allocation information provided in an
Allocation Report. As CAT LLC reported
on its Quarterly Progress Reports, 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,
2021.122
(B) CAIS Reporting and Regulatory
Access
The CAT System functionality
required by Rule 613 and the CAT NMS
Plan related to Customer information
has been developed, successfully tested,
and fully implemented, including the
requirements related to regulatory
access. The implementation of CAT
requirements related to Customer
information occurred during Phase 2e.
As described in the Quarterly Progress
Reports and summarized below, Phase
2e has been fully implemented as of
May 31, 2024.123 Furthermore, because
a month of customer and account
information data is necessary to create
report cards with regard to such data,
the publication of monthly report cards
with respect to customer and account
information commenced on July 15,
2024.124 Accordingly, the Financial
Accountability Milestone related to
Period 4 was completed on July 15,
2024.
(i) Phase 2e
The Q2 & Q3 2024 Quarterly Progress
Report indicates that Phase 2e was fully
implemented as of May 31, 2024.125
Phase 2e Industry Member Data is
described in detail in the SEC’s Phased
Reporting Exemptive Relief Order.
‘‘Phase 2e Industry Member Data’’
includes ‘‘Customer Account
Information and Customer Identifying
Information, other than LTIDs, date
account opened/Account Effective Date
and Firm Designated ID type flag
previously reported to the CAT.’’ 126
122 See, e.g., Q1 2024 Quarterly Progress Report
(Apr. 30, 2024).
123 Id.
124 Q2 & Q3 2024 Quarterly Progress Report (July
29, 2024).
125 Id.
126 Phase Reporting Exemptive Relief Order at
23080.
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LTIDs and Account Effective Date are
both provided in Phases 2c and 2d in
certain circumstances, as discussed
above. Section 1.1 of the CAT NMS Plan
defines the term ‘‘Customer Account
Information’’ to
include, but not be limited to, account
number, account type, customer type, date
account opened, and large trader identifier (if
applicable); except, however, that (a) in those
circumstances in which an Industry Member
has established a trading relationship with an
institution but has not established an account
with that institution, the Industry Member
will (i) provide the Account Effective Date in
lieu of the ‘‘date account opened’’; (ii)
provide the relationship identifier in lieu of
the ‘‘account number’’; and (iii) identify the
‘‘account type’’ as a ‘‘relationship’’; (b) in
those circumstances in which the relevant
account was established prior to the
implementation date of the CAT NMS Plan
applicable to the relevant CAT Reporter (as
set forth in Rule 613(a)(3)(v) and (vi)), and no
‘‘date account opened’’ is available for the
account, the Industry Member will provide
the Account Effective Date in the following
circumstances: (i) where an Industry Member
changes back office providers or clearing
firms and the date account opened is
changed to the date the account was opened
on the new back office/clearing firm system;
(ii) where an Industry Member acquires
another Industry Member and the date
account opened is changed to the date the
account was opened on the post-merger back
office/clearing firm system; (iii) where there
are multiple dates associated with an account
in an Industry Member’s system, and the
parameters of each date are determined by
the individual Industry Member; and (iv)
where the relevant account is an Industry
Member proprietary account.
The term ‘‘Customer Identifying
Information’’ is defined in Section 1.1 of
the CAT NMS Plan to mean
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information of sufficient detail to identify a
Customer, including, but not limited to, (a)
with respect to individuals: name, address,
date of birth, individual tax payer
identification number (‘‘ITIN’’)/social
security number (‘‘SSN’’), individual’s role in
the account (e.g., primary holder, joint
holder, guardian, trustee, person with the
power of attorney); and (b) with respect to
legal entities: name, address, Employer
Identification Number (‘‘EIN’’)/Legal Entity
Identifier (‘‘LEI’’) or other comparable
common entity identifier, if applicable;
provided, however, that an Industry Member
that has an LEI for a Customer must submit
the Customer’s LEI in addition to other
information of sufficient detail to identify a
Customer.
(ii) Regulatory Access to Customer
Information
The Financial Accountability
Milestone related to Period 4 requires
that CAT provide functionality that
permits the Participants and the
Commission to access Phase 2e Industry
Member Data (in addition to the Phase
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2a, 2b, 2c and 2d Industry Member Data,
as discussed above). As CAT LLC
reported on its Q2 & Q3 Quarterly
Progress Report, regulators had efficient
access to Phase 2e Industry Member
Data via the query tool functionality
required under the CAT NMS Plan by
July 15, 2024.127
(C) Error Rate
The Financial Accountability
Milestones related to Period 4 require
the implementation of the CAT System
‘‘at the initial Error Rates specified by
Section 6.5(d)(i) or less.’’ The average
overall error rate as of July 15, 2024, was
less than 5%, which is the initial Error
Rate specified by Section 6.5(d)(i) of the
CAT NMS Plan. The average overall
error rate was calculated by dividing the
compliance errors by processed records.
(7) Participant Invoices
While CAT Fees charged to Industry
Members become effective in
accordance with the requirements of
Section 19(b) of the Exchange Act,128
CAT fees charged to Participants are
implemented via an approval of the
CAT fees by the Operating Committee in
accordance with the requirements of the
CAT NMS Plan.129 On July 31, 2024, the
Operating Committee approved the
Participant fee related to CAT Fee 2024–
1. Specifically, pursuant to the
requirements of CAT NMS Plan,130 each
Participant would be required to pay a
CAT fee calculated using the fee rate of
$0.000035, which is the same fee rate
that applies to CEBBs and CEBSs. Like
CEBBs and CEBSs, each Participant
would be required to pay such CAT fees
on a monthly basis for four months,
from November 2024 until February
2025, and each Participant’s fee for each
month would be calculated based on the
transactions in Eligible Securities
executed on the applicable exchange
(for the Participant exchanges) or
otherwise than on the exchange (for
FINRA) in the prior month.
Accordingly, each Participant will
receive its first invoice in October 2024,
and would receive an invoice each
month thereafter until January 2025.
Like with the CAT Fee 2024–1
applicable to CEBBs and CEBSs as
described in proposed paragraph
(a)(3)(C) of the fee schedule,
notwithstanding the last invoice date of
January 2025, Participants will continue
to receive invoices for this fee each
month until a new subsequent CAT Fee
127 Q2 & Q3 2024 Quarterly Progress Report (July
29, 2024).
128 Section 11.3(a)(i)(A)(I) of the CAT NMS Plan.
129 CAT Funding Model Approval Order at 62659.
130 See Section 11.3(a)(ii) and Appendix B of the
CAT NMS Plan.
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is in effect with regard to Industry
Members. Furthermore, Section 11.4 of
the CAT NMS Plan states that each
Participant is required to pay such
invoices as required by Section 3.7(b) of
the CAT NMS Plan. Section 3.7(b)
states, in part, that
[e]ach Participant shall pay all fees or other
amounts required to be paid under this
Agreement within thirty (30) days after
receipt of an invoice or other notice
indicating payment is due (unless a longer
payment period is otherwise indicated) (the
‘‘Payment Date’’). The Participant shall pay
interest on the outstanding balance from the
Payment Date until such fee or amount is
paid at a per annum rate equal to the lesser
of: (i) Prime Rate plus 300 basis points; or (ii)
the maximum rate permitted by applicable
law.
(b) 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,131 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,132 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,133 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.134
Accordingly, a reasonable reading of the
Act indicates that it intended that
regulatory funding be sufficient to
131 15
U.S.C. 78f(b)(6).
U.S.C. 78f(b)(4).
133 15 U.S.C. 78f(b)(8).
134 See Section 6(b)(1) of the Exchange Act.
132 15
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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.’’ 135 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 to be paid by the CEBBs
and CEBSs are reasonable, equitably
allocated and not unfairly
discriminatory. First, the CAT Fee
2024–1 fees to be collected are directly
associated with the budgeted 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 proposed CAT Fee 2024–1 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.’’ 136 Similarly, in approving the
CAT Funding Model, the SEC
concluded that the CAT Funding Model
met this standard.137 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 CAT Fee
2024–1 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 CAT Fees as set forth in
Section 11.3 of the CAT NMS Plan,
including the formula for calculating the
Fee Rate, the identification of the parties
responsible for payment and the
transactions subject to the fee rate for
CAT Fees, is reasonable and satisfies the
Exchange Act.138 In each respect, as
discussed above, CAT Fee 2024–1 is
calculated, and would be applied, in
accordance with the requirements
applicable to CAT Fees as set forth in
136 Id.
at 84696.
Funding Model Approval Order at 62686.
138 Id. at 62662–63.
137 CAT
135 CAT
NMS Plan Approval Order at 84697.
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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 CAT Fee
2024–1 is reasonable and consistent
with the Exchange Act. Calculation of
Fee Rate 2024–1 for CAT Fee 2024–1
requires the figures for Budgeted CAT
Costs 2024–1, the executed equivalent
share volume for the prior twelve
months, the determination of CAT Fee
2024–1 Period, and the projection of the
executed equivalent share volume for
CAT Fee 2024–1 Period. Each of these
variables is reasonable and satisfies the
Exchange Act, as discussed throughout
this filing.
(A) Budgeted CAT Costs 2024–1
The formula for calculating a Fee Rate
requires the amount of Budgeted CAT
Costs to be recovered. Specifically,
Section 11.3(a)(iii)(B) of the CAT NMS
Plan requires a fee filing to provide:
The budget for the upcoming year (or
remainder of the year, as applicable),
including a brief description of each line
item in the budget, including (1) 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, a reserve and/or such other categories
as reasonably determined by the Operating
Committee to be included in the budget, and
the reason for changes in each such line item
from the prior CAT fee filing.
In accordance with this requirement,
the Exchange has set forth the amount
and type of Budgeted CAT Costs 2024–
1 for each of these categories above.
Section 11.3(a)(iii)(B) of the CAT
NMS Plan also requires that the fee
filing provide ‘‘sufficient detail to
demonstrate that the budget for the
upcoming year, or part of year, as
applicable, is reasonable and
appropriate.’’ As discussed below, the
Exchange believes that the budget for
the CAT Fee 2024–1 Period is
‘‘reasonable and appropriate.’’ Each of
the costs included in CAT Fee 2024–1
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 budgeted costs
related to cloud hosting services as a
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part of CAT Fees.139 CAT LLC
determined that the budgeted costs
related to cloud hosting services
described in this filing are reasonable
and should be included as a part of
Budgeted CAT Costs 2024–1. As
described above, the cloud hosting
services costs reflect, among other
things, the breadth of the CAT cloud
activities, data volumes 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.140 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.
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 141 and that annual operating
costs for the CAT would range from
$36.5 million to $55 million.142
Through 2023, the actual data volumes
have been five times that original
139 Section
11.3(a)(iii)(B)(B)(1) of the CAT NMS
Plan.
a discussion of the amount and type of
cloud hosting services fees, see Section 3(a)(2)(C)(i)
above.
141 Appendix D–4 of the CAT NMS Plan at n.262.
142 CAT NMS Plan Approval Order at 84801.
estimate. The data volumes to date for
2024 have continued this trend.
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
amendments 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
mechanisms help ensure the ongoing
reasonableness of the CAT’s costs and
the level of fees assessed to support
those costs.143
(ii) Technology: Operating Fees
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover budgeted costs related to
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operating fees as a part of CAT Fees.144
CAT LLC determined that the budgeted
costs related to operating fees described
in this filing are reasonable and should
be included as a part of Budgeted CAT
Costs 2024–1.
The operating fees would 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.145 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.146 The services to be
performed by FCAT for CAT Fee 2024–
1 Period and the budgeted costs related
to such services are described above.147
The operating costs also include costs
related to the receipt of market data.
CAT LLC anticipates continuing to
receive certain market data from Exegy
during the CAT Fee 2024–1 Period. CAT
LLC anticipates that Exegy will continue
to provide data that meets the SIP Data
requirements of the CAT NMS Plan and
that the fees are reasonable and in line
with market rates for market data
received.148
(iii) Technology: CAIS Operating Fees
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover budgeted costs related to
CAIS operating fees as a part of CAT
Fees.149 CAT LLC determined that the
budgeted costs related to CAIS operating
fees described in this filing are
reasonable and should be included as a
part of Budgeted CAT Costs 2024–1. The
CAIS operating fees would include the
fees paid to the Plan Processor to
operate and maintain CAIS and to
144 Section
11.3(a)(iii)(B)(B)(1) of the CAT NMS
Plan.
145 See
Section 3(a)(2)(C)(ii) above.
146 Id.
140 For
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143 See Securities Exchange Act Rel. No. 97151
(Mar. 15, 2023), 88 FR 17086, 17117 (Mar. 21, 2023)
(describing key cost discipline mechanisms for the
CAT).
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147 Id.
148 Id.
149 Section
11.3(a)(iii)(B)(B)(1) of the CAT NMS
Plan.
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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 fees for FCAT’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, are reasonable and
appropriate.150 The services to be
performed by FCAT for the CAT Fee
2024–1 Period and the budgeted costs
for such services are described above.151
as a part of CAT Fees.154 In general,
capitalized developed technology costs
would include costs related to, for
example, 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 budgeted
capitalized developed technology costs
for the CAT Fee 2024–1 Period, which
relate to the CAIS software license fee
and technology changes to be
implemented by FCAT, are described in
more detail above.155 CAT LLC
determined that these budgeted costs
are reasonable and should be included
as a part of Budgeted CAT Costs 2024–
1.
(iv) Technology: Change Request Fees
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover budgeted costs related to legal
fees as a part of CAT Fees.156 CAT LLC
determined that the budgeted legal costs
described in this filing are reasonable
and should be included as a part of
Budgeted CAT Costs 2024–1. Given the
unique nature of the CAT, the number
of parties involved with the CAT
(including, for example, the SEC,
Participants, Industry Members, and
vendors) and the many regulatory,
contractual and other issues associated
with the CAT, the scope of the
necessary legal services is substantial.
CAT LLC determined that the scope of
the proposed legal services is necessary
to implement and maintain the CAT and
that the legal rates reflect the
specialized services necessary for such
a project. CAT LLC determined to hire
and continue to use each law firm based
on a variety of factors, including their
relevant expertise and fees. In each case,
CAT LLC determined that the fee rates
were in line with market rates for
specialized legal expertise. In addition,
CAT LLC determined that the budgeted
costs for the legal projects were
appropriate given the breadth of the
services provided. The services to be
performed by each law firm for the CAT
Fee 2024–1 Period and the budgeted
costs related to such services are
described above.157
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover budgeted costs related to
change request fees as a part of CAT
Fees.152 CAT LLC determined that the
budgeted costs related to change request
fees described in this filing are
reasonable and should be included as a
part of Budgeted CAT Costs 2024–1. 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 forecasts that the change requests
will be necessary to implement the
CAT. As described above,153 CAT LLC
has included a reasonable placeholder
budget amount for potential change
requests that may arise during the CAT
Fee 2024–1 Period. As noted above, the
total budgeted costs for change requests
during the CAT Fee 2024–1 Period
represent a small percentage of
Budgeted CAT Costs 2024–1—that is,
approximately 0.12% of Budgeted CAT
Costs 2024–1.
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(v) Capitalized Developed Technology
Costs
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover budgeted costs related to
capitalized developed technology costs
(vi) Legal
(vii) Consulting
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover budgeted consulting costs as
154 Section
150 See
Section 3(a)(2)(C)(iii) above.
151 Id.
155 See
152 Section
11.3(a)(iii)(B)(B)(1) of the CAT NMS
Plan.
153 See
11.3(a)(iii)(B)(B)(1) of the CAT NMS
Plan.
Section 3(a)(2)(C)(v) above.
11.3(a)(iii)(B)(B)(2) of the CAT NMS
156 Section
Plan.
Section 3(a)(2)(C)(iv) above.
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157 See
PO 00000
Section 3(a)(2)(B)(vi) above.
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a part of CAT Fees.158 CAT LLC
determined that the budgeted consulting
costs described in this filing are
reasonable and should be included as a
part of Budgeted CAT Costs 2024–1.
Because there are no CAT employees 159
and because of the significant number of
issues associated with the CAT, the
consultants are budgeted to provide
assistance in the management of various
CAT matters and the processes related
to such matters.160 CAT LLC determined
the budgeted consulting costs were
appropriate, as the consulting services
were to be provided at reasonable
market rates that were comparable to the
rates charged by other consulting firms
for similar work. Moreover, the total
budgeted costs for such consulting
services were appropriate in light of the
breadth of services provided by Deloitte.
The services budgeted to be performed
by Deloitte and the budgeted costs
related to such services are described
above.161
(viii) Insurance
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover budgeted insurance costs as
a part of CAT Fees.162 CAT LLC
determined that the budgeted insurance
costs described in this filing are
reasonable and should be included as a
part of Budgeted CAT Costs 2024–1.
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.’’ 163 As discussed above,164
CAT LLC determined that the budgeted
insurance costs were appropriate given
its prior experience with this market
and an analysis of the alternative
insurance offerings. Based on this
analysis, CAT LLC determined that the
selected insurance policies provided
158 Section
11.3(b)(iii)(B)(B)(3) of the CAT NMS
Plan.
159 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.’’ Securities
Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 FR
30614, 30621 (May 17, 2016).
160 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.
161 Section 3(a)(2)(C)(vii) of the CAT NMS Plan.
162 Section 11.3(b)(iii)(B)(B)(4) of the CAT NMS
Plan.
163 Section 4.1.5 of Appendix D of the CAT NMS
Plan.
164 See Section 3(a)(2)(C)(viii) above.
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appropriate coverage at reasonable
market rates.165
budgeted costs related to such services
are described above.169
(ix) Professional and Administration
(x) Public Relations Costs
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover budgeted public relations
costs as a part of CAT Fees.170 CAT LLC
determined that the budgeted public
relations costs described in this filing
are reasonable and should be included
as a part of Budgeted CAT Costs 2024–
1. CAT LLC determined that the types
of public relations services to be utilized
were beneficial to the CAT and market
participants more generally. Public
relations services are 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.171 By continuing to
engage a public relations firm, CAT LLC
will be better positioned to understand
and address CAT issues to the benefit of
all market participants.172 Moreover,
CAT LLC determined that the budgeted
rates charged for such services were in
line with market rates.173 As noted
above, the total budgeted public
relations costs for the CAT Fee 2024–1
Period represent a small percentage of
Budgeted CAT Costs 2024–1—that is,
approximately 0.03% of Budgeted CAT
Costs 2024–1.
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover budgeted professional and
administration costs as a part of CAT
Fees.166 CAT LLC determined that the
budgeted professional and
administration costs described in this
filing are reasonable and should be
included as a part of Budgeted CAT
Costs 2024–1. 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. The services performed by Anchin
and Grant Thornton and the costs
related to such services are described
above.167
CAT LLC anticipates continuing to
make use of Anchin, a financial
advisory firm, to assist with financial
matters for the CAT. CAT LLC
determined that the budgeted costs for
Anchin were appropriate, as the
financial advisory services were to be
provided at reasonable market rates that
were comparable to the rates charged by
other such firms for similar work.
Moreover, the total budgeted costs for
such financial advisory services were
appropriate in light of the breadth of
services provided by Anchin. The
services budgeted to be performed by
Anchin and the budgeted costs related
to such services are described above.168
CAT LLC anticipates continuing to
make use of Grant Thornton, an
independent accounting firm, to
complete the audit of CAT LLC’s
financial statements, in accordance with
the requirements of the CAT NMS Plan.
CAT LLC determined that the budgeted
costs for Grant Thornton were
appropriate, as the accounting services
were to be provided at reasonable
market rates that were comparable to the
rates charged by other such firms for
similar work. Moreover, the total
budgeted costs for such accounting
services were appropriate in light of the
breadth of services provided by Grant
Thornton. The services budgeted to be
performed by Grant Thornton and the
(xi) Reserve
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover budgeted reserve costs as a
part of CAT Fees.174 CAT LLC
determined that the inclusion of a
reserve in the amount of 25% of
Budgeted CAT Costs 2024–1 complies
with the requirements of the CAT NMS
Plan related to a reserve, is a reasonable
amount and should be included as a
part of Budgeted CAT Costs 2024–1.
In its approval order for the CAT
Funding Model, the Commission stated
that it would be reasonable for the
annual operating budget for the CAT to
‘‘include a reserve of not more than 25%
of the annual budget.’’ 175 In making this
statement, the Commission noted the
following:
Because the CAT is a critical regulatory
tool/system, the CAT needs to have a stable
funding source to build financial stability to
support the Company as a going concern.
169 Id.
170 Section
11.3(a)(iii)(B)(B)(5) of the CAT NMS
Plan.
167 See
Section 3(a)(2)(C)(ix) above.
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The CAT NMS Plan also requires fee
filings for Prospective CAT Fees to
include ‘‘a discussion of how the budget
is reconciled to the collected fees.’’ 180
To date, CAT LLC has not collected any
CAT fees. Accordingly, there are no
collected fees to be reconciled with the
budget.
(C) 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 June 2023
through May 2024 was
3,980,753,840,905.21 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 counts executed
equivalent shares for CAT billing
purposes.181
(D) Projected Executed Equivalent Share
Volume for the CAT Fee 2024–1 Period
CAT LLC has determined to calculate
the projected total executed equivalent
share volume for the four months in
which CAT Fee 2024–1 Period would be
payable by multiplying by 4/12ths (i.e.,
one-third) the executed equivalent share
178 Id.
179 See
11.3(a)(iii)(B)(B) of the CAT NMS
Plan.
Section 3(a)(2)(C)(xi) above.
11.3(a)(iii)(B)(C) of the CAT NMS
180 Section
Plan.
175 CAT
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(B) Reconciliation of Budget to the
Collected Fees
177 Id.
173 Id.
174 Section
168 Id.
The SEC also recognized that that [sic]
a reserve would help address the
difficulty in predicting certain variable
CAT costs, like trading volume.177 The
SEC also recognized that CAT fees will
be collected approximately three
months after trading activity on which
a CAT fee is based, or 25% of the year,
and that the reserve would be available
to address funding needs related to this
three-month delay.178 The inclusion of
the proposed reserve in Budgeted CAT
Costs 2024–1 would provide each of
these benefits to the CAT. The reserve
is discussed further above.179
176 Id.
Section 3(a)(2)(C)(x) above.
172 Id.
166 Section
Funding for the CAT, as noted in Section
11.1(b), is the responsibility of the
Participants and the industry. Because CAT
fees are charged based on the budget, which
is based on anticipated volume, it is
reasonable to have a reserve on hand to
prevent a shortfall in the event there is an
unexpectedly high volume in a given year. A
reserve would help to assure that the CAT
has sufficient resources to cover costs should
there be unanticipated costs or costs that are
higher than expected.176
11.3(a)(iii)(B)(B)(6) of the CAT NMS
Plan.
171 See
165 Id.
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volume for the prior 12 months.182 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, the executed equivalent share
volume for 2022 was
4,039,821,841,560.31 executed
equivalent shares, and the executed
equivalent share volume for 2023 was
3,868,940,345,680.6. Accordingly, the
projected total executed equivalent
share volume for the four-month period
for CAT Fee 2024–1 is
1,326,917,946,968.403 executed
equivalent shares.183
(E) Actual Fee Rate for CAT Fee 2024–
1
(i) Decimal Places
As noted in the approval order for the
CAT Funding Model, as a practical
matter, the fee filing for a CAT Fee
would provide the exact fee per
executed equivalent share to be paid for
each CAT Fee, by multiplying the Fee
Rate by one-third and describing the
relevant number of decimal places for
the fee rate.184 Accordingly, proposed
paragraph (a)(3)(B) of the fee schedule
would set forth a fee rate of $0.000035
per executed equivalent share. This fee
rate is calculated by multiplying Fee
Rate 2024–1 by one-third and rounding
the result to six 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.185
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(ii) Reasonable Fee Level
The Exchange believes that imposing
CAT Fee 2024–1 with a fee rate of
$0.000035 per executed equivalent
share is reasonable because it provides
for a revenue stream for the Company
that is aligned with Budgeted CAT Costs
2024–1 and such budgeted costs would
be spread out over a four-month period.
Moreover, the Exchange believes that
the level of the fee rate is reasonable, as
it is comparable to other transactionbased fees. Indeed, CAT Fee 2024–1 is
significantly lower than fees assessed
pursuant to Section 31 (e.g., $0.0009 per
182 Id.
183 This projection was calculated by multiplying
3,980,753,840,905.21 executed equivalent shares by
4/12ths.
184 CAT Funding Model Approval Order at 62658,
n.658.
185 See Section 3(a)(4)(A) above.
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share to 0.0004 per share),186 and, as a
result, the magnitude of CAT Fee 2024–
1 is small, and therefore will mitigate
any potential adverse economic effects
or inefficiencies.187
(3) CAT Fee 2024–1 Provides for an
Equitable Allocation of Fees
CAT Fee 2024–1 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
satisfied the requirements of the
Exchange Act, including the formula for
calculating CAT Fees as well as the
Industry Members to be charged the
CAT Fees.188 In approving the CAT
Funding Model, the SEC stated that
‘‘[t]he Participants have sufficiently
demonstrated that the proposed
allocation of fees is reasonable.’’ 189
Accordingly, the CAT Funding Model
sets forth the requirements for allocating
fees related to Budgeted CAT Costs
among Participants and Industry
Members, and the fee filings for CAT
Fees must comply with those
requirements.
CAT Fee 2024–1 provides for an
equitable allocation of fees as it
complies with the requirements
regarding the calculation of CAT Fees as
set forth in the CAT NMS Plan. For
example, as described above, the
calculation of CAT Fee 2024–1 complies
with the formula set forth in Section
11.3(a) of the CAT NMS Plan. In
addition, CAT Fee 2024–1 would be
charged to CEBBs and CEBSs in
accordance with Section 11.3(a) of the
CAT NMS Plan. Furthermore, the
Participants would be charged for their
designated share of Budgeted CAT Costs
2024–1 through a fee implemented via
the CAT NMS Plan, which would have
the same fee rate as CAT Fee 2024–1.
In addition, as discussed above, each
of the inputs into the calculation of CAT
186 Id. at 62663, 62682. In explaining the
comparison of Section 31 fees to CAT fees in the
CAT Funding Model Approval Order, the SEC
noted that ‘‘Section 31 fees are expressed per dollar
volume traded. Translating this to a per share range
involves identifying reasonable high and low trade
sizes. The lower end of this range comes from the
25th percentile in $ trade size of 1,200 and share
trade size of 71 from the first quarter of 2021. The
higher end of this range comes from the 75th
percentile in $ trade size of 5,200 and share trade
size of 300 from the first quarter of 2021. Section
31 fees have ranged from $5.10 per $Million to
$23.10 per $Million from Oct. 1, 2016 to Mar. 1,
2023.’’ Id. at 62682., n.1100. In 2024, Section 31
fees were raised further to $27.80 per million
dollars.
187 Id.
188 See Section 11.3(b) of the CAT NMS Plan.
189 CAT Funding Model Approval Order at 62629.
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
Fee 2024–1—Budgeted CAT Costs
2024–1, the count for the executed
equivalent share volume for the prior 12
months, and the projected executed
equivalent share volume for the CAT
Fee 2024–1 Period—are reasonable.
Moreover, these inputs lead to a
reasonable fee rate for CAT Fee 2024–
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) CAT Fee 2024–1 Is Not Unfairly
Discriminatory
CAT Fee 2024–1 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 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. CAT Fee
2024–1 complies with the requirements
regarding the calculation of CAT Fees as
set forth in the CAT NMS Plan. In
addition, as discussed above, each of the
inputs into the calculation of CAT Fee
2024–1 and the resulting fee rate for
CAT Fee 2024–1 is reasonable.
Therefore, CAT Fee 2024–1 does not
impose an unfairly discriminatory fee
on Industry Members.
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 with specificity
in the 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.
E:\FR\FM\09SEN1.SGM
09SEN1
Federal Register / Vol. 89, No. 174 / Monday, September 9, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Section 6(b)(8) of the Act 190 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 CAT Fee 2024–1
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
introduce CAT Fee 2024–1 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.191 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. CAT Fee 2024–1 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 CAT Fee
2024–1 is reasonable and the resulting
fee rate for CAT Fee 2024–1 calculated
in accordance with the CAT Funding
Model is reasonable. Therefore, CAT
Fee 2024–1 would not impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Exchange Act.
U.S.C. 78f(b)(8).
Funding Model Approval Order at
62676–86.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Exchange Act 192
and Rule 19b–4(f)(2) thereunder,193
because it establishes or changes a due,
or fee.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend the rule change if
it appears to the Commission that the
action is necessary or appropriate in the
public interest, for the protection of
investors, or would otherwise further
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
LTSE–2024–04 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–2024–04. 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
190 15
191 CAT
VerDate Sep<11>2014
17:19 Sep 06, 2024
Jkt 262001
192 15
193 17
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
Frm 00115
Fmt 4703
Sfmt 4703
73173
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–LTSE–2024–04 and should be
submitted on or before September 30,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.194
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–20165 Filed 9–6–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–221, OMB Control No.
3235–0232]
Proposed Collection; Comment
Request; Extension: Form 1–E,
Regulation E
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information of the Office of
Management and Budget for extension
and approval.
Form 1–E (17 CFR 239.200) under the
Securities Act of 1933 (15 U.S.C. 77a et
seq.) (‘‘Securities Act’’) is the form that
a small business investment company
194 17
E:\FR\FM\09SEN1.SGM
CFR 200.30–3(a)(12).
09SEN1
Agencies
[Federal Register Volume 89, Number 174 (Monday, September 9, 2024)]
[Notices]
[Pages 73150-73173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-20165]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100892; File No. SR-LTSE-2024-04]
Self-Regulatory Organizations: Long-Term Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Establish Fees for Industry Members Related to Reasonably Budgeted
Costs of the National Market System Plan Governing the Consolidated
Audit Trail for the Period From July 16, 2024 Through December 31, 2024
September 3, 2024.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of
1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on August 28, 2024, Long-Term Stock Exchange, Inc. (``LTSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the Fee Schedule to establish fees for Industry Members \3\
related to
[[Page 73151]]
reasonably budgeted CAT costs of the National Market System Plan
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or
``Plan'') for the period from July 16, 2024, through December 31, 2024.
The text of the proposed rule change is available at the Exchange's
website at https://longtermstockexchange.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
---------------------------------------------------------------------------
\3\ An ``Industry Member'' is defined as ``a member of a
national securities exchange or a member of a national securities
association.'' See LTSE Rule 11.610 (Consolidated Audit Trail--
Definitions). 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 LTSE Rule Series 11.600 (Consolidated Audit Trail
Compliance Rule).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement on the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The self-regulatory organization has prepared summaries,
set forth in Sections A, B, and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On July 11, 2012, the Commission 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.\4\ On November 15, 2016, the
Commission approved the CAT NMS Plan.\5\ 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.\6\ 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.\7\
---------------------------------------------------------------------------
\4\ Securities Exchange Act Rel. No. 67457 (July 18, 2012), 77
FR 45722 (Aug. 1, 2012).
\5\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81
FR 84696 (Nov. 23, 2016) (``CAT NMS Plan Approval Order'').
\6\ Section 11.1(b) of the CAT NMS Plan.
\7\ Securities Exchange Act Rel. No. 98290 (Sept. 6, 2023), 88
FR 62628 (Sept. 12, 2023) (``CAT Funding Model Approval Order'').
---------------------------------------------------------------------------
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 (``CAT Fees'').\8\
---------------------------------------------------------------------------
\8\ Under the CAT Funding Model, the Operating Committee may
establish CAT Fees related to CAT costs going forward. Section
11.3(a) of the CAT NMS Plan. This filing only establishes CAT Fee
2024-1 related to reasonably budgeted CAT costs for the period from
July 16, 2024 through December 31, 2024 as described herein; it does
not address any other potential CAT Fees related to CAT costs. Any
such other CAT Fee will be subject to a separate fee filing. In
addition, 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 does not address any Historical CAT
Assessments.
---------------------------------------------------------------------------
Under the CAT Funding Model, Participants, CEBBs and CEBSs are
subject to fees designed to cover the ongoing budgeted costs of the
CAT, as determined by the Operating Committee. ``The Operating
Committee will establish fees (`CAT Fees') to be payable by
Participants and Industry Members with regard to CAT costs not
previously paid by the Participants (`Prospective CAT Costs').'' \9\ In
establishing a CAT Fee, the Operating Committee will calculate a ``Fee
Rate'' for the relevant period. Then, for each month in which a CAT Fee
is in effect, each CEBB and CEBS would be required to pay the 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 fee for each
transaction will be calculated by multiplying the number of executed
equivalent shares in the transaction by one-third and by the Fee
Rate.\10\
---------------------------------------------------------------------------
\9\ Section 11.3(a) of the CAT NMS Plan.
\10\ In approving the CAT Funding Model, the Commission stated
that, ``[t]he proposed recovery of Prospective CAT Costs is
appropriate.'' CAT Funding Model Approval Order at 62651.
---------------------------------------------------------------------------
The CAT Fees to be paid by CEBBs and CEBSs are designed to
contribute toward the recovery of two-thirds of the budgeted CAT costs
for the relevant period.\11\ The CAT Funding Model is designed to
require that the Participants contribute to the recovery of the
remaining one-third of the budgeted CAT costs.\12\ Participants would
be subject to the same Fee Rate as CEBBs and CEBSs.\13\ While CAT Fees
charged to Industry Members become effective in accordance with the
requirements of Section 19(b) of the Exchange Act,\14\ CAT fees charged
to Participants are implemented via an approval of the CAT fees by the
Operating Committee in accordance with the requirements of the CAT NMS
Plan.\15\ Accordingly, this filing does not address Participant CAT
fees as they are described in the CAT NMS Plan.\16\
---------------------------------------------------------------------------
\11\ Section 11.3(a)(iii)(A) of the CAT NMS Plan.
\12\ Section 11.3(a)(ii)(A) of the CAT NMS Plan.
\13\ Section 11.3(a)(ii) of the CAT NMS Plan.
\14\ Section 11.3(a)(i)(A)(I) of the CAT NMS Plan.
\15\ CAT Funding Model Approval Order at 62659.
\16\ See Section 11.3(a)(ii) and Appendix B of the CAT NMS Plan.
---------------------------------------------------------------------------
CAT LLC proposes to charge CEBBs and CEBSs (as described in more
detail below) CAT Fee 2024-1 to recover the reasonably budgeted CAT
costs for July 16, 2024 through December 31, 2024, 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.' '' \17\ The Plan further
states that ``[o]nce the Operating Committee has approved such Fee
Rate, the Participants shall be required to file with the SEC pursuant
to Section 19(b) of the Exchange Act CAT Fees to be charged to Industry
Members calculated using such Fee Rate.'' \18\ Accordingly, the purpose
of this filing is to implement a CAT Fee on behalf of CAT LLC for
Industry Members, referred to as CAT Fee 2024-1, in accordance with the
CAT NMS Plan.
---------------------------------------------------------------------------
\17\ Section 11.1(b) of the CAT NMS Plan.
\18\ Section 11.3(a)(i)(A)(I) of the CAT NMS Plan.
---------------------------------------------------------------------------
(1) CAT Executing Brokers
CAT Fee 2024-1 will be charged to each CEBB and CEBS for each
applicable transaction in Eligible Securities.\19\ The CAT NMS Plan
defines a ``CAT Executing Broker'' to mean:
---------------------------------------------------------------------------
\19\ 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. CAT Funding
Model Approval Order at 62629.
[[Page 73152]]
---------------------------------------------------------------------------
(a) with respect to a transaction in an Eligible Security that
is executed on an exchange, the Industry Member identified as the
Industry Member responsible for the order on the buy-side of the
transaction and the Industry Member responsible for the sell-side of
the transaction in the equity order trade event and option trade
event in the CAT Data submitted to the CAT by the relevant exchange
pursuant to the Participant Technical Specifications; and (b) with
respect to a transaction in an Eligible Security that is executed
otherwise than on an exchange and required to be reported to an
equity trade reporting facility of a registered national securities
association, the Industry Member identified as the executing broker
and the Industry Member identified as the contra-side executing
broker in the TRF/ORF/ADF transaction data event in the CAT Data
submitted to the CAT by FINRA pursuant to the Participant Technical
Specifications; provided, however, in those circumstances where
there is a non-Industry Member identified as the contra-side
executing broker in the TRF/ORF/ADF transaction data event or no
contra-side executing broker is identified in the TRF/ORF/ADF
transaction data event, then the Industry Member identified as the
executing broker in the TRF/ORF/ADF transaction data event would be
treated as CAT Executing Broker for the Buyer and for the
Seller.\20\
---------------------------------------------------------------------------
\20\ 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:
---------------------------------------------------------------------------
\21\ See Table 23, Section 4.7 (Order Trade Event) of the CAT
Reporting Technical Specifications for Plan Participants, Version
4.1.0-r21 (Apr. 15, 2024), https://www.catnmsplan.com/sites/default/files/2024-04/04.15.2024-CAT_Reporting_Technical_Specifications_for_Participants_4.1.0-r21.pdf (``CAT Reporting Technical Specifications for Plan
Participants'').
\22\ See Table 51, Section 5.2.5.1 (Simple Option Trade Event)
of the CAT Reporting Technical Specifications for Plan Participants.
Equity Order Trade (EOT) \21\
----------------------------------------------------------------------------------------------------------------
No. Field name Data type Description Include key
----------------------------------------------------------------------------------------------------------------
12.n.8/13.n.8......... member............................ Member Alias........ The identifier C.
for the member
firm that is
responsible for
the order on
this side of the
trade. Not
required if
there is no
order for the
side as
indicated by the
NOBUYID/NOSELLID
instruction.
This must be
provided if
orderID is
provided..
----------------------------------------------------------------------------------------------------------------
Option Trade (OT) \22\
----------------------------------------------------------------------------------------------------------------
No. Field name Data type Description Include key
----------------------------------------------------------------------------------------------------------------
16.n.13/17.n.13....... member............................ Member Alias........ The identifier R.
for the member
firm that is
responsible for
the order.
----------------------------------------------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\23\ See Table 61, Section 6.1 (TRF/ORF/ADF Transaction Data
Event) of the CAT Reporting Technical Specifications for Plan
Participants.
TRF/ORF/ADF Transaction Data Event (TRF) \23\
----------------------------------------------------------------------------------------------------------------
No. Field name Data type Description Include key
----------------------------------------------------------------------------------------------------------------
26.................... reportingExecutingMpid............ Member Alias........ MPID of the R.
executing party.
28.................... contraExecutingMpid............... Member Alias........ MPID of the C.
contra-side
executing party.
----------------------------------------------------------------------------------------------------------------
(2) Calculation of Fee Rate 2024-1
The Operating Committee determined the Fee Rate to be used in
calculating CAT Fee 2024-1 (``Fee Rate 2024-1'') by dividing the
reasonably budgeted CAT costs (``Budgeted CAT Costs 2024-1'') for the
period from July 16, 2024 through December 31, 2024 (``CAT Fee 2024-1
Period'') by the reasonably projected total executed share volume of
all transactions in Eligible Securities for the four-month recovery
period, as discussed in detail below.\24\ Based on this calculation,
the Operating Committee has determined that Fee Rate 2024-1 would be
$0.0001043598251997246 per executed equivalent share. This rate is then
divided by three and rounded to determine the fee rate of $0.000035 per
executed equivalent share that will be assessed to CEBBs and CEBSs, as
also discussed in detail below.
---------------------------------------------------------------------------
\24\ Section 11.3(a)(i) of the CAT NMS Plan.
---------------------------------------------------------------------------
(A) CAT Fee 2024-1 Period
CAT LLC proposes to implement CAT Fee 2024-1 as the first CAT Fee
related to Prospective CAT Costs. CAT LLC proposes to commence CAT Fee
2024-1 during the year, rather than at the beginning of the year.
Accordingly, CAT Fee 2024-1 ``would be calculated as described in
paragraph II'' of Section 11.3(a)(i)(A) of the CAT NMS Plan, which
states that ``[d]uring each year, the Operating Committee will
calculate a new Fee Rate by dividing the reasonably budgeted CAT costs
for the remainder of the year by the reasonably projected total
executed equivalent share volume of all transactions in Eligible
Securities for the remainder of
[[Page 73153]]
the year.'' \25\ For CAT Fee 2024-1, the reasonably budgeted CAT costs
for ``the remainder of the year'' are the reasonably budgeted CAT costs
from July 16, 2024 through December 31, 2024. This period is referred
to as the CAT Fee 2024-1 Period. Such costs would be recovered over a
four-month period, where the first invoices are sent in October 2024
based on transactions in September 2024.
---------------------------------------------------------------------------
\25\ Section 11.3(a)(i)(A)(II) of the CAT NMS Plan.
---------------------------------------------------------------------------
(B) Executed Equivalent Shares for Transactions in Eligible Securities
Under the CAT NMS Plan, for purposes of calculating CAT Fees,
executed equivalent shares in a transaction in Eligible Securities will
be reasonably counted as follows: (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 will be counted as 0.01 executed equivalent
share.\26\
---------------------------------------------------------------------------
\26\ Section 11.3(a)(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.'' CAT
Funding Model Approval Order at 62640.
---------------------------------------------------------------------------
(C) Budgeted CAT Costs 2024-1
The CAT NMS Plan states that ``[t]he budgeted CAT costs for the
year shall be comprised of all reasonable fees, costs and expenses
reasonably budgeted to be incurred by or for the Company in connection
with the development, implementation and operation of the CAT as set
forth in the annual operating budget approved by the Operating
Committee pursuant to Section 11.1(a) of the CAT NMS Plan, or as
adjusted during the year by the Operating Committee.'' \27\ Section
11.1(a) of the CAT NMS Plan describes the requirement for the Operating
Committee to approve an operating budget for CAT LLC on an annual
basis. It requires the budget to ``include the projected costs of the
Company, including the costs of developing and operating the CAT for
the upcoming year, and the sources of all revenues to cover such costs,
as well as the funding of any reserve that the Operating Committee
reasonably deems appropriate for the prudent operation of the
Company.'' Section 11.1(a)(i) of the CAT NMS Plan further states that:
---------------------------------------------------------------------------
\27\ Section 11.3(a)(i)(C) of the CAT NMS Plan.
[w]ithout limiting the foregoing, the reasonably budgeted CAT costs
shall include technology (including cloud hosting services,
operating fees, CAIS operating fees, change request fees and
capitalized developed technology costs), legal, consulting,
insurance, professional and administration, and public relations
costs, a reserve and such other cost categories as reasonably
---------------------------------------------------------------------------
determined by the Operating Committee to be included in the budget.
In accordance with the requirements under the CAT NMS Plan, the
Operating Committee approved an annual budget for 2024 for CAT LLC in
December 2023 (``Original 2024 Budget'').\28\ In August 2024, the
Operating Committee approved an updated budget for 2024 (``Updated 2024
Budget'').\29\ The Updated 2024 Budget includes actual costs for each
category for the months of January through July 2024, with estimated
costs for the remaining months of 2024. The Operating Committee also
approved the budgeted CAT costs for the CAT Fee 2024-1 Period (i.e.,
Budgeted CAT Costs 2024-1), which are a subset of the costs set forth
in the Updated 2024 Budget.
---------------------------------------------------------------------------
\28\ The Original 2024 Budget is available on the CAT website
(https://www.catnmsplan.com/sites/default/files/2024-07/07.09.2024-CAT%20LLC-2024-Financial-and-Operating-Budget.pdf).
\29\ The Updated 2024 Budget is available on the CAT website
(https://www.catnmsplan.com/sites/default/files/2024-08/07.31.24-CAT-LLC-2024-Financial_and_Operating-Budget.pdf).
---------------------------------------------------------------------------
As described in detail below, the Budgeted CAT Costs 2024-1 would
be $138,476,925. CEBBs collectively will be responsible for one-third
of the Budged [sic] CAT Costs 2024-1 (which is $46,158,975), and CEBSs
collectively will be responsible for one-third of Budgeted CAT Costs
2024-1 (which is $46,158,975).
The following describes in detail Budgeted CAT Costs 2024-1 for the
CAT Fee 2024-1 Period. The following cost details are provided in
accordance with the requirement in the CAT NMS Plan to provide in the
fee filing the following:
the budget for the upcoming year (or remainder of the year, as
applicable), including a brief description of each line item in the
budget, including (1) technology line items of cloud hosting
services, operating fees, CAIS operating fees, change request fees
and capitalized developed technology costs, (2) legal, (3)
consulting, (4) insurance, (5) professional and administration and
(6) public relations costs, a reserve and/or such other categories
as reasonably determined by the Operating Committee to be included
in the budget, and the reason for changes in each such line item
from the prior CAT fee filing.\30\
---------------------------------------------------------------------------
\30\ Section 11.3(a)(iii)(B) of the CAT NMS Plan.
Each of the costs described below are reasonable, appropriate and
necessary for the creation, implementation and maintenance of CAT.
The following table breaks down Budgeted CAT Costs 2024-1 into the
categories set forth in Section 11.3(a)(iii)(B) of the CAT NMS
Plan.\31\
---------------------------------------------------------------------------
\31\ Note that costs and related cost calculations provided in
this filing may reflect minor variations from the budgeted costs due
to rounding.
------------------------------------------------------------------------
Budget category Budgeted CAT costs 2024-1 *
------------------------------------------------------------------------
Capitalized Developed Technology Costs **. $4,101,990
Technology Costs:......................... 99,728,258
Cloud Hosting Services................ 76,278,426
Operating Fees........................ 14,008,947.50
CAIS Operating Fees................... 9,278,384.50
Change Request Fees................... 162,500
Legal..................................... 4,484,554.50
Consulting................................ 652,623
Insurance................................. 1,342,345
Professional and administration........... 428,544.50
Public relations.......................... 43,225
-----------------------------
Subtotal.............................. 110,781,540
Reserve................................... 27,695,385
-----------------------------
[[Page 73154]]
Total Budgeted CAT Costs 2024-1... 138,476,925
------------------------------------------------------------------------
* Budgeted CAT Costs 2024-1 described in this table of costs were
determined based an analysis of a variety of factors, including
historical costs/invoices, estimated costs from respective vendors/
service providers, contractual terms with vendors/service providers,
anticipated service levels and needs, and discussions with vendors and
Participants.
** The non-cash amortization of these capitalized developed technology
costs to be incurred during the CAT Fee 2024-1 Period have been
appropriately excluded from the above table.\32\
To the extent that CAT LLC enters into notes with Participants or
others to pay costs incurred during the period from July 16, 2024
through December 31, 2024, CAT LLC will use the proceeds from the CAT
Fee 2024-1 and the related Participant CAT fees to repay such notes.
---------------------------------------------------------------------------
\32\ 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.
---------------------------------------------------------------------------
(i) Technology Costs--Cloud Hosting Services
(a) Description of Cloud Hosting Services Costs
Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
cloud hosting services costs set forth in the budget. The Operating
Committee approved an operating budget for the CAT pursuant to Section
11.1(a) of the CAT NMS Plan that included $76,278,426 in technology
costs for cloud hosting services for the CAT Fee 2024-1 Period. The
technology costs for cloud hosting services represent costs reasonably
budgeted to be incurred for services provided by the cloud services
provider for the CAT, Amazon Web Services, Inc. (``AWS''), during the
CAT Fee 2024-1 Period.
In the agreement between CAT LLC and the Plan Processor for the CAT
(``Plan Processor Agreement''), FINRA CAT, LLC (``FCAT''), AWS was
named as the subcontractor to provide cloud hosting services. Under the
Plan Processor Agreement, 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 [sic] 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 costs 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. It
is anticipated that AWS will provide a broad array of cloud hosting
services for the CAT, including data ingestion, data management, and
analytic tools during the CAT Fee 2024-1 Period. Services provided by
AWS include 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. AWS will perform cloud
hosting services for both the CAT transaction database as well as the
CAT Customer and Account Information System (``CAIS'') during the CAT
Fee 2024-1 Period.
The cost for AWS cloud 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 CAT LLC. During the CAT 2024-1 Period, it is
expected that AWS will provide 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,'' \33\ and that
``[i]t is expected that the Central Repository will grow to more than
29 petabytes of raw, uncompressed data.'' \34\ In contrast with those
estimates, the Q1 2024 data volumes, which averaged 577 billion events
per day, were up 45% compared to Q1 2023, which averaged 399 billion
events per day, with peak volumes recorded on April 19, 2024 of 746
billion events. Even higher peak volumes were recorded in July and
August 2024.
---------------------------------------------------------------------------
\33\ Appendix D-4 of the CAT NMS Plan at n.262.
\34\ Appendix D-5 of the CAT NMS Plan.
---------------------------------------------------------------------------
CAT LLC estimates that the budget for cloud hosting services costs
during the CAT Fee 2024-1 Period will be approximately $76,278,426. The
budget for cloud hosting services costs during the CAT Fee 2024-1
Period is calculated based on the Updated 2024 Budget. Specifically,
this estimate was calculated by adding the budgeted amounts for cloud
hosting services costs for the third and fourth quarter of 2024 as set
forth in the Updated 2024 Budget and subtracting one half of the cloud
hosting services costs incurred in July 2024 (as CAT Fee 2024-1 Period
began half way through July, on July 16, 2024).\35\
---------------------------------------------------------------------------
\35\ This calculation is ($38,132,441 + $43,919,730)-$5,773,745
= $76,278,426.
---------------------------------------------------------------------------
CAT LLC estimated the budget for the cost for cloud hosting
services for the CAT Fee 2024-1 Period based on an assumption of 30%
annual year-over-year volume growth for the transaction database and an
assumption of 5% annual year-over-year volume growth for CAIS. CAT LLC
determined these growth assumptions in coordination with FCAT based on
an analysis of a variety of existing data and alternative growth
scenarios. In addition, the budget for cloud hosting services for the
CAT Fee 2024-1 Period includes a budget for the cost of re-processing
data as approved by the CAT Operating Committee.\36\ The budget for re-
processing data was based on expenditures for re-processing in prior
years. This process for estimating the budget for cloud hosting
services costs for the CAT Fee 2024-1 Period is the same process by
which CAT LLC estimated the cloud hosting services costs for the
Original 2024 Budget. The Original 2024 Budget estimated a budget for
cloud hosting services of $71,384,109 for the first two quarters of
2024.\37\ The actual costs for cloud hosting services for the first two
quarters of 2024, which are set forth in the Updated 2024 Budget, were
$66,737,810.\38\ There is only an approximate 7% difference between the
estimate and actuals for cloud hosting services costs. Accordingly, CAT
LLC believes that the process for estimating the budgeted cloud hosting
services
[[Page 73155]]
costs for the CAT Fee 2024-1 Period is reasonable.
---------------------------------------------------------------------------
\36\ Appendix D-19 of the CAT NMS Plan states that ``[i]f
corrections are received after T+5, Participants' regulatory staff
and the SEC must be notified and informed as to how re-processing
will be completed. The Operating Committee will be involved with
decisions on how to re-process the data; however, this does not
relieve the Plan Processor of notifying the Participants' regulatory
staff and the SEC.''
\37\ This calculation is $33,217,468 + $38,166,641 =
$71,384,109.
\38\ This calculation is $30,343,917 + $36,393,893 =
$66,737,810.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for cloud hosting services costs from the prior CAT Fee
filing. CAT LLC's proposed annual budget for cloud hosting services
costs for 2024 decreased about 3.5% from the Original 2024 Budget to
the Updated 2024 Budget, from $154,624,108 to $148,789,981. Although
there were expected cost increases related to data volume growth and
the associated compute and storage of the increased data levels, as
well as from additional capacity for OTQT systems that were added to
meet the performance standards set forth in the requirements of the
recent SEC exemptive order from November 2023,\39\ these cost increases
were offset by a variety of cost reduction efforts related to compute
efficiencies, the implementation of single pass linker related to
options quotes, and the implementation of compute and other
efficiencies related to CAIS. Without such cost management efforts, the
budgeted costs for cloud hosting services would have increased by
approximately 15%, rather than decreased. Correspondingly, the proposed
budget for cloud hosting services costs for the third and fourth
quarters of 2024 did not change in a material way from the Original
2024 Budget to the Updated 2024 Budget. There was only an approximate
1% decrease from $83,239,999 in the Original 2024 Budget \40\ to
$82,052,171 in the Updated 2024 Budget for the third and fourth
quarters of 2024.\41\
---------------------------------------------------------------------------
\39\ Securities Exchange Act Rel. No. 98848 (Nov. 2, 2023), 88
FR 77128 (Nov. 8, 2023).
\40\ This calculation is $39,961,511 + $43,278,488 =
$83,239,999.
\41\ This calculation is $38,132,441 + $43,919,730 =
$82,052,171.
---------------------------------------------------------------------------
(ii) Technology Costs--Operating Fees
(a) Description of Operating Fees
Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
operating fees set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $14,008,947.50 in technology costs for
operating fees for the CAT Fee 2024-1 Period. 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. Operating fees also include market data
provider costs, as discussed below.
Plan Processor: FCAT. 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. It is
anticipated that FCAT will provide a variety of services to the CAT
during the CAT Fee 2024-1 Period, including the following:
Provide the CAT-related functions and services as the Plan
Processor as required by SEC Rule 613 and the CAT NMS Plan in
connection with the operation and maintenance of the CAT;
Address compliance items, including drafting CAT policies
and procedures, and addressing Regulation SCI requirements;
Provide support to the Operating Committee, the Compliance
Subcommittee and CAT working groups;
Assist with interpretive efforts and exemptive requests
regarding the CAT NMS Plan;
Oversee the security of the CAT;
Monitor the operation of the CAT, including with regard to
Participant and Industry Member reporting;
Provide support to subcontractors under the Plan Processor
Agreement;
Provide support in discussions with the Participants and
the SEC and its staff;
Operate the FINRA CAT Helpdesk;
Facilitate communications with the industry, including via
FAQs, CAT Alerts, meetings, presentations and webinars;
Administer the CAT website and all of its content;
Maintain cyber security insurance related to the CAT; and
Provide 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.
CAT LLC calcuated [sic] the budget for the FCAT technology costs
for operating fees for the CAT Fee 2024-1 Period based on the recurring
monthly operating fees under the Plan Processor Agreement.
Market Data Provider: Exegy. It is anticipated that the operating
fees costs for the CAT Fee 2024-1 Period will include costs related to
the receipt of certain market data for the CAT pursuant to an agreement
between FCAT and Exegy Incorporated (``Exegy''). CAT LLC determined
that Exegy would provide market data that included all data elements
required by the CAT NMS Plan,\42\ and that the fees were reasonable and
in line with market rates for the market data received. All costs under
the contract would be treated as a direct pass through cost to CAT LLC.
CAT LLC estimated the budget for the costs for Exegy for the CAT Fee
2024-1 Period based on the monthly rate set forth in the agreement
between Exegy and FCAT.
---------------------------------------------------------------------------
\42\ See Section 6.5(a)(ii) of the CAT NMS Plan.
---------------------------------------------------------------------------
Operating Fee Estimates. CAT LLC estimates that the budget for
operating fees during the CAT Fee 2024-1 Period will be approximately
$14,008,947.50. The budget for operating fees during the CAT Fee 2024-1
Period is calculated based on the Updated 2024 Budget. Specifically,
this estimate was calculated by adding the budgeted amounts for
operating fees for the third and fourth quarter of 2024 as set forth in
the Updated 2024 Budget and subtracting one half of the actual
operating fees incurred in July 2024 (as CAT Fee 2024-1 Period began
half way through July, on July 16, 2024).\43\
---------------------------------------------------------------------------
\43\ This calculation is ($6,907,383 + $904,664) + ($6,907,383 +
$440,748) - $1,151,230.50 = $14,008,947.5.
---------------------------------------------------------------------------
As discussed above, CAT LLC estimated the budget for the operating
fees during the CAT Fee 2024-1 Period based on monthly rates set forth
in the Plan Processor Agreement and the agreement with Exegy. CAT LLC
also recognized that the operating fees are generally consistent
throughout the year. This process for estimating the budget for the
operating fees for the CAT Fee 2024-1 Period is the same process by
which CAT LLC estimated the operating fees for the Original 2024
Budget. The Original 2024 Budget estimated a budget for operating fees
of $13,558,875 for the first two quarters of 2024.\44\ The actual costs
for operating fees for the first two quarters of 2024, which are set
forth in the Updated 2024 Budget, were $12,608,540.\45\ There was
[[Page 73156]]
an approximate 7% decrease from estimates to actuals for the first two
quarters. Accordingly, CAT LLC believes that the process for estimating
the budgeted operating fees for the CAT Fee 2024-1 Period is
reasonable.
---------------------------------------------------------------------------
\44\ This calculation is $6,726,747 + $6,832,128 = $13,558,875.
\45\ This calculation is $6,702,506 + $5,906,034 = $12,608,540.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for operating fees from the prior CAT Fee filing. As this
is the first Prospective CAT Fee Filing, this filing describes the
changes in the operating fees from the Original 2024 Budget. CAT LLC's
proposed annual budget for operating fees for 2024 increased from
$27,223,132 to $27,768,718 \46\ from the Original 2024 Budget to the
Updated 2024 Budget, and the proposed budget for operating fees for the
third and fourth quarters of 2024 increased from $13,664,256 in the
Original 2024 Budget \47\ to $15,160,178 in the Updated 2024
Budget.\48\ This increase is due to a cyber insurance adjustment.
---------------------------------------------------------------------------
\46\ This calculation is $26,423,306 + $1,345,412 = $27,768,718.
\47\ This calculation is $6,832,128 + $6,832,128 = $13,664,256.
\48\ This calculation is ($6,907,383 + $904,664) + ($6,907,383 +
$440,748) = $15,160,178.
---------------------------------------------------------------------------
(iii) Technology Costs--CAIS Operating Fees
(a) Description of CAIS Operating Fees
Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
CAIS operating fees set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $9,278,384.50 in technology costs for
CAIS operating fees for the CAT Fee 2024-1 Period. CAIS operating fees
represent the fees paid to FCAT for services provided with regard to
the operation and maintenance of 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. 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. As of May 31, 2024, the
implementation of CAIS was completed.\49\
---------------------------------------------------------------------------
\49\ For a discussion of the implementation timeline for CAIS,
see CAT Alert 2023-01.
---------------------------------------------------------------------------
During the CAT Fee 2024-1 Period, it is anticipated that FCAT will
provide CAIS-related services. Under the Plan Processor Agreement with
FCAT, CAT LLC is required to pay FCAT for CAIS-related services
provided by FCAT on a monthly basis. CAT LLC negotiated the fees for
FCAT'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.
During the CAT Fee 2024-1 Period, it is anticipated that FCAT will
continue to provide services relating to the ongoing operation,
maintenance and support of CAIS.
CAT LLC estimates that the budget for CAIS operating fees during
the CAT Fee 2024-1 Period will be approximately $9,278,384.50. The
budget for CAIS operating fees during the CAT Fee 2024-1 Period is
calculated based on the Updated 2024 Budget. Specifically, this
estimate was calculated by adding the budgeted amounts for CAIS
operating fees for the third and fourth quarter of 2024 as set forth in
the Updated 2024 Budget and subtracting one half of the actual CAIS
operating fees costs incurred in July 2024 (as CAT Fee 2024-1 Period
began half way through July, on July 16, 2024).\50\
---------------------------------------------------------------------------
\50\ This calculation is ($5,060,937 + $5,060,937) - $843,489.50
= $9,278,384.50.
---------------------------------------------------------------------------
CAT LLC calculated the budget for FCAT's CAIS-related services for
the CAT Fee 2024-1 Period based on the recurring monthly CAIS operating
fees under the Plan Processor Agreement. This process for estimating
the budget for the CAIS operating fees for the CAT Fee 2024-1 Period is
the same process by which CAT LLC estimated the CAIS operating fees for
the Original 2024 Budget. The Original 2024 Budget estimated a budget
for CAIS operating fees of $10,418,666 for the the [sic] first two
quarters of 2024.\51\ The actual costs for CAIS operating fees for the
first two quarters of 2024, which are set forth in the Updated 2024
Budget, were $10,078,045.\52\ There is only an approximate 3%
difference between the estimate and actuals. Accordingly, CAT LLC
believes that the process for estimating the budgeted CAIS operating
fees for the CAT Fee 2024-1 Period is reasonable.
---------------------------------------------------------------------------
\51\ This calculation is $5,282,128 + $5,136,538 = $10,418,666.
\52\ This calculation is $5,017,108 + $5,060,937 = $10,078,045.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for CAIS operating fees from the prior CAT Fee filing. As
this is the first Prospective CAT Fee Filing, this filing describes the
changes in the CAIS operating fees from the Original 2024 Budget. CAT
LLC's proposed annual budget for CAIS operating fees for 2024 had a
small 2% percent decrease of $491,821 from the Original 2024 Budget to
the Updated 2024 Budget, from $20,691,740 to $20,199,919.
Correspondingly, the proposed budget for CAIS operating fees for the
third and fourth quarters of 2024 had a small 1% percentage decrease of
$151,202, from $10,273,076 in the Original 2024 Budget \53\ to
$10,121,874 in the Updated 2024 Budget.\54\
---------------------------------------------------------------------------
\53\ This calculation is $5,136,538 + $5,136,538 = $10,273,076.
\54\ This calculation is $5,060,937 + $5,060,937 = $10,121,874.
---------------------------------------------------------------------------
(iv) Technology Costs--Change Request Fees
(a) Description of Change Request Fees
Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
change request fees set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $162,500 in technology costs for change
request fees for the CAT Fee 2024-1 Period. 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.
During the CAT Fee 2024-1 Period, it is anticipated that CAT LLC
will engage FCAT to pursue certain change requests in accordance with
the Plan Processor Agreement. The budget for change requests for the
CAT Fee 2024-1 Period includes a placeholder of $162,500 for potential
change request fees that may be necessary in accordance with the Plan
Processor Agreement. The placeholder amount was determined
[[Page 73157]]
based on prior experience with change requests related to the CAT.
CAT LLC estimates that the budget for change requests during the
CAT Fee 2024-1 Period will be approximately $162,500. The budget for
change requests during the CAT Fee 2024-1 Period is calculated based on
the Updated 2024 Budget. Specifically, this estimate was calculated by
adding the budgeted amounts for the change requests for the third and
fourth quarter of 2024 as set forth in the Updated 2024 Budget and
subtracting one half of the actual change request costs incurred in
July 2024 (as CAT Fee 2024-1 Period began half way through July, on
July 16, 2024).\55\
---------------------------------------------------------------------------
\55\ This calculation is ($0 + $162,500) - $0 = $162,500.
---------------------------------------------------------------------------
CAT LLC estimated the budget for the potential change requests for
the CAT Fee 2024-1 Period based on, among other things, a review of
past change requests and potential future change request needs, as well
as discussions with FCAT. This process for estimating the budget for
the change requests for the CAT Fee 2024-1 Period is the same process
by which CAT LLC estimated the change requests cost for the Original
2024 Budget. The Original 2024 Budget estimated a change request budget
of $81,250 for the the [sic] first two quarters of 2024.\56\ The actual
costs for change requests for the first two quarters of 2024, which are
set forth in the Updated 2024 Budget, were $0. Although the budget
exceeded the actual costs of change requests during the first two
quarters of 2024, CAT LLC believes that the process for estimating a
placeholder amount for potential change requests is reasonable given
the evolving technology needs of the CAT.
---------------------------------------------------------------------------
\56\ This calculation is $0 + $81,250 = $81,250.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for change request fees from the prior CAT Fee filing. As
this is the first Prospective CAT Fee Filing, this filing describes the
changes in the change request fees from the Original 2024 Budget. CAT
LLC's proposed annual budget for change requests for 2024 decreased by
$81,250 from the Original 2024 Budget to the Updated 2024 Budget, from
$243,750 to $162,500. CAT LLC has reduced the annual budget for a
placeholder for change request fees for 2024 by one-third, as time has
passed without additional change requests anticipated by this
placeholder amount. Correspondingly, the proposed budget for change
requests for the third and fourth quarters remained the same at
$162,500 for the Original 2024 Budget \57\ and the Updated 2024
Budget.\58\
---------------------------------------------------------------------------
\57\ This calculation is $81,250 + $81,250 = $162,500.
\58\ This calculation is $0 + $162,500 = $162,500.
---------------------------------------------------------------------------
(v) Technology Costs--Capitalized Developed Technology Costs
(a) Description of Capitalized Developed Technology Costs
Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
capitalized developed technology costs set forth in the budget. The
Operating Committee approved an operating budget for the CAT pursuant
to Section 11.1(a) of the CAT NMS Plan that includes $4,101,990 in
technology costs for capitalized developed technology costs for the CAT
Fee 2024-1 Period. This category of costs includes the budget for
capitalizable application development costs incurred in the development
of the CAT. It is anticipated that such costs will include certain
costs related to the software license fee for CAIS in accordance with
the Plan Processor Agreement with FCAT, as well as costs related to a
set of technology changes to be implemented by FCAT.
CAT LLC estimates that the budget for capitalized developed
technology costs during the CAT Fee 2024-1 Period will be approximately
$4,101,990. The budget for capitalized developed technology costs
during the CAT Fee 2024-1 Period is calculated based on the Updated
2024 Budget. Specifically, this estimate was calculated by adding the
budgeted amounts for capitalized developed technology costs for the
third and fourth quarter of 2024 as set forth in the Updated 2024
Budget and subtracting one half of the actual capitalized developed
technology costs incurred in July 2024 (as CAT Fee 2024-1 Period began
halfway through July, on July 16, 2024).\59\
---------------------------------------------------------------------------
\59\ This calculation is ($3,810,990 + $291,000) - $0 =
$4,101,990.
---------------------------------------------------------------------------
CAT LLC estimated the budget for capitalized developed technology
costs for the CAT Fee 2024-1 Period based on an analysis of a variety
of factors, including information related to potential technology costs
and related contractual and Plan requirements, and discussions with
FCAT regarding such potential technology costs. The Original 2024
Budget estimated a budget for capitalized developed technology costs of
$2,300,000 for the first two quarters of 2024.\60\ The actual costs for
capitalized developed technology costs for the first two quarters of
2024, which are set forth in the Updated 2024 Budget, were
$3,659,490.\61\ The increase was due to a software license fee for
CAIS. Accordingly, CAT LLC believes that the process for estimating the
budgeted capitalized developed technology costs for the CAT Fee 2024-1
Period is reasonable.
---------------------------------------------------------------------------
\60\ This calculation is $2,300,000 + $0 = $2,300,000.
\61\ This calculation is $2,300,000 + $1,359,490 = $3,659,490.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for capitalized developed technology costs from the prior
CAT Fee filing. As this is the first Prospective CAT Fee Filing, this
filing describes the changes in capitalized developed technology costs
from the Original 2024 Budget. CAT LLC's proposed budget for
capitalized developed technology costs for 2024 increased from the
Original 2024 Budget to the Updated 2024 Budget. The annual budget for
capitalized developed technology costs for 2024 increased by $5,461,480
from the Original 2024 Budget of $2,300,000 to the Updated 2024 Budget
of $7,761,480.\62\ Correspondingly, the budget for capitalized
developed technology costs for the third and fourth quarters of 2024
increased from $0 \63\ in the Original 2024 Budget to $4,101,990 in the
Updated 2024 Budget.\64\ This increase in the capitalized developed
technology costs budget in the Updated 2024 Budget over the Original
2024 Budget was the result of costs related to the software license fee
for CAIS in accordance with the Plan Processor Agreement with FCAT, as
well as costs related to a set of technology changes to be implemented
by FCAT.
---------------------------------------------------------------------------
\62\ This calculation is $2,591,000 + $5,170,480 = $7,761,480.
\63\ This calculation is $0 + $0 = $0.
\64\ This calculation is $3,810,990 + $291,000 = $4,101,990.
---------------------------------------------------------------------------
(vi) Legal Costs
(a) Description of Legal Costs
Section 11.3(a)(iii)(B)(B)(2) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
legal costs set forth in the budget. The Operating Committee approved
an operating budget for the CAT pursuant to Section 11.1(a) of the CAT
NMS Plan that includes $4,484,554.50 in legal costs for the CAT Fee
2024-1 Period. This category of
[[Page 73158]]
costs represents budgeted costs for legal services for this period. CAT
LLC anticipates that it will receive legal services from two law firms,
Wilmer Cutler Pickering Hale and Dorr LLP (``WilmerHale'') and Jenner &
Block LLP (``Jenner''), during the CAT Fee 2024-1 Period.
Law Firm: WilmerHale. It is anticipated that legal costs during the
CAT Fee 2024-1 Period will include costs related to the legal services
performed by WilmerHale. CAT LLC anticipates that it will continue to
employ WilmerHale during the CAT Fee 2024-1 Period based on, among
other things, their expertise, long history with the project and
recognition that the hourly fee rates for this law firm are anticipated
to be in line with market rates for specialized legal expertise.
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. The legal fees will be paid by CAT
LLC to WilmerHale.
During the CAT Fee 2024-1 Period, it is anticipated that WilmerHale
will provide legal services related to the following:
Assist with CAT fee filings and related funding issues;
Draft exemptive requests from CAT NMS Plan requirements
and/or proposed amendments to the CAT NMS Plan;
Provide legal interpretations of CAT NMS Plan
requirements;
Provide legal support for the Operating Committee,
Compliance Subcommittee, working groups and Leadership Team;
Draft SRO rule filings related to the CAT Compliance Rule;
Manage corporate governance matters, including supporting
Operating Committee meetings and preparing resolutions and consents;
Assist with communications with the industry, including
CAT Alerts and presentations;
Provide guidance regarding the confidentiality of CAT
Data;
Assist with cost management analyses and proposals;
Assist with commercial contract-related matters, including
change orders, Plan Processor Agreement items, and subcontract matters;
Provide support with regard to discussions with the SEC
and its staff, including with respect to addressing interpretive and
implementation issues;
Assist with CAT budget and FCAT costs;
Assist other counsel for CAT on litigation-related
matters; and
Assist with legal responses related to third-party data
requests.
CAT LLC estimated the budget for the legal costs for WilmerHale for the
CAT Fee 2024-1 Period through an analysis of a variety of factors,
including WilmerHale fee rates, historical legal fees, information
related to pending legal issues and potential future legal issues, and
discussions with WilmerHale.
Law Firm: Jenner. It is anticipated that legal costs during the CAT
Fee 2024-1 Period will include costs related to the legal services
performed by Jenner. CAT LLC anticipates that it will continue to
employ Jenner during the CAT Fee 2024-1 Period based on among other
things, their expertise, history with the project and recognition that
their hourly fee rates are in line with market rates for specialized
legal expertise. The legal fees will be paid by CAT LLC to Jenner.
During the CAT Fee 2024-1 Period, it is anticipated that Jenner
will continue to provide legal assistance to CAT LLC regarding certain
litigation matters, including: (1) CAT LLC's defense against a lawsuit
filed in the Western District of Texas against Chair Gensler, the SEC
and CAT LLC challenging the validity of the Rule 613 and the CAT and
alleging various constitutional, statutory, and common law claims
(``Texas Litigation''); \65\ (2) CAT LLC's intervention in a lawsuit in
the Eleventh Circuit filed by various parties against the SEC
challenging the SEC's approval of the CAT Funding Model; \66\ and (3) a
lawsuit in the Eleventh Circuit filed by Citadel Securities LLC seeking
review of the SEC's May 20, 2024 order \67\ granting the Participants
temporary conditional exemptive relief related to the reporting of bids
and/or offers made in response to a request for quote or other form of
solicitation response provided in standard electronic format that is
not immediately actionable.\68\ 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.
---------------------------------------------------------------------------
\65\ American Securities Ass'n v. Securities and Exchange
Commission, Case No. 23-13396 (11th Cir.).
\66\ Davidson v. Gensler, Case No. 6:24-cv-197 (W.D. Tex.).
\67\ Securities Exchange Act Rel. No. 100181 (May 20, 2024), 89
FR 45715 (May 23, 2024).
\68\ Citadel Securities LLC v. United States Securities and
Exchange Commission, Case No. 24-12300 (11th Cir.).
---------------------------------------------------------------------------
CAT LLC estimated the budget for the legal costs for Jenner for the
CAT Fee 2024-1 Period through an analysis of a variety of factors,
including Jenner fee rates, historical legal fees, and information
related to pending legal issues and potential future legal issues, and
discussions with Jenner.
Legal Cost Estimates. CAT LLC estimates that the budget for legal
services during the CAT Fee 2024-1 Period will be approximately
$4,484,554.50. The budget for legal services during the CAT Fee 2024-1
Period is calculated based on the Updated 2024 Budget. Specifically,
this estimate was calculated by adding the budgeted amounts for the
legal services for the third and fourth quarter of 2024 as set forth in
the Updated 2024 Budget and subtracting one half of the actual legal
costs incurred in July 2024 (as the CAT Fee 2024-1 Period began halfway
through July, on July 16, 2024).\69\
---------------------------------------------------------------------------
\69\ This calculation is ($2,647,277 + $2,342,562) - $505,284.50
= $4,484,554.50.
---------------------------------------------------------------------------
CAT LLC estimated the budget for the legal services for the CAT Fee
2024-1 Period based on an analysis of a variety of factors, including
law firm fee rates, historical legal fees, and information related to
pending legal issues and potential future legal issues, and discussions
with the law firms. This process for estimating the budget for the
legal services for the CAT Fee 2024-1 Period is the same process by
which CAT LLC estimated the legal cost for the Original 2024 Budget.
The Original 2024 Budget estimated a budget for legal costs of
$2,440,000 for the first two quarters of 2024.\70\ The actual costs for
legal services for the first two quarters of 2024, which are set forth
in the Updated 2024 Budget, were $3,156,762.\71\ Although there is an
increase from the budgeted legal costs to the actual legal costs for
the first two quarters of 2024, such increase was due to unanticipated
issues that required additional legal efforts on behalf of CAT LLC that
developed after the budget was created. Such additional costs including
costs related to (1) the legal defense related to the Texas Litigation;
and (2) additional regulatory and corporate legal issues, including (a)
additional work for commercial contract-related matters, including
change orders, Plan Processor Agreement items, and subcontract matters;
(b) assistance regarding budget and FCAT costs; (c) assistance to other
counsel for CAT on litigation-related matters; and (d) assistance
related to CAT fee filings and CAT NMS Plan amendments. Accordingly,
CAT LLC believes that the process for estimating
[[Page 73159]]
the budgeted legal costs for the CAT Fee 2024-1 Period is reasonable.
---------------------------------------------------------------------------
\70\ This calculation is $1,220,000 + $1,220,000 = $ 2,440,000.
\71\ This calculation is $791,912 + $2,364,850 = $3,156,762.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for legal costs from the prior CAT Fee filing. As this is
the first Prospective CAT Fee Filing, this filing describes the changes
in the legal costs from the Original 2024 Budget. CAT LLC's proposed
budget for legal costs for 2024 increased from the Original 2024 Budget
to the Updated 2024 Budget. The annual budget for legal costs for 2024
increased from the Original 2024 Budget to the Updated 2024 Budget,
from $4,460,000 to $8,146,599. Correspondingly, the proposed budget for
legal costs for the third and fourth quarters increased from $2,020,000
\72\ in the Original 2024 Budget to $4,989,837 in the Updated 2024
Budget.\73\ This increase in the legal budget in the Updated 2024
Budget from the Original 2024 Budget was primarily due to unanticipated
legal costs, including costs related to (1) the legal defense related
to the Texas Litigation; and (2) additional regulatory and corporate
legal issues, including (a) additional work for commercial contract-
related matters, including change orders, Plan Processor Agreement
items, and subcontract matters; (b) assistance regarding budget and
FCAT costs; (c) assistance to other counsel for CAT on litigation-
related matters; and (d) assistance related to CAT fee filings and CAT
NMS Plan amendments. In addition, CAT LLC no longer anticipates
incurring legal costs related to the law firms of Pillsbury Winthrop
Shaw Pittman LLP and Covington & Burling LLP during the CAT Fee 2024-1
Period due to the conclusion of the relevant prior legal matters.
---------------------------------------------------------------------------
\72\ This calculation is $1,047,500 + $972,500 = $2,020,000.
\73\ This calculation is $2,647,277 + $2,342,560 = $4,989,837.
---------------------------------------------------------------------------
(vii) Consulting Costs
(a) Description of Consulting Costs
Section 11.3(a)(iii)(B)(B)(3) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
consulting costs set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $652,623 in consulting costs for the CAT
Fee 2024-1 Period. The consulting costs represent the fees estimated to
be paid to the consulting firm Deloitte & Touche LLP (``Deloitte'') as
project manager during the CAT Fee 2024-1 Period. 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.
It is anticipated that the costs for CAT during CAT Fee 2024-1
Period will include costs related to consulting services performed by
Deloitte. CAT LLC anticipates that it will continue to employ Deloitte
during the CAT Fee 2024-1 Period based on, among other things, their
expertise, long history with the project, and the recognition that it
is anticipated that the consulting fees will remain in line with market
rates for this type of specialized consulting work. Deloitte's fee
rates are negotiated on an annual basis. CAT LLC assesses Deloitte's
performance and reviews prospective budgets and staffing plans
submitted by Deloitte on an annual basis. The consulting fees will be
paid by CAT LLC to Deloitte.
It is anticipated that Deloitte will provide a variety of
consulting services to the CAT during the CAT Fee 2024-1 Period,
including the following:
Implement program operations for the CAT project;
Provide 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;
Assist with cost and funding matters for the CAT,
including assistance with loans and the CAT bank account for CAT
funding;
Provide support for updating the SEC on the progress of
the development of the CAT; and
Provide support for third party vendors for the CAT,
including FCAT, Anchin and the law firms engaged by CAT LLC.
In addition, the consulting costs include the compensation for the
Chair of the CAT Operating Committee.
CAT LLC estimates that the budet [sic] for consulting costs during
the CAT Fee 2024-1 Period will be approximately $652,623. The budget
for consulting costs during the CAT Fee 2024-1 Period is calculated
based on the Updated 2024 Budget. Specifically, this estimate was
calculated by adding the budgeted amounts for consulting services for
the third and fourth quarter of 2024 as set forth in the Updated 2024
Budget and subtracting one half of the actual consulting costs incurred
in July 2024 (as the CAT Fee 2024-1 Period begain [sic] halfway through
July, on July 16, 2024).\74\
---------------------------------------------------------------------------
\74\ This calculation is ($359,926 + $354,495) - $61,798 =
$652,623.
---------------------------------------------------------------------------
CAT LLC estimates the budget for the consulting costs for Deloitte
for the CAT Fee 2024-1 Period based on the current statement of work
with Deloitte, which took into consideration past consulting costs,
potential future consulting needs, the proposed rates and other
contractual issues, as well as discussions with Deloitte. The Original
2024 Budget estimated a budget for consulting cost of $800,000 for the
first two quarters of 2024.\75\ The actual costs for consulting
services for the first two quarters of 2024, which are set forth in the
Updated 2024 Budget, were $885,580.\76\ There is only an approximate
10% difference between the estimate and actuals. Accordingly, CAT LLC
believes that the process for estimating the budgeted consulting costs
for the CAT Fee 2024-1 Period is reasonable.
---------------------------------------------------------------------------
\75\ This calculation is $400,000 + $400,000 = $800,000.
\76\ This calculation is $264,101 + $621,479 = $885,580.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for consulting costs from the prior CAT Fee filing. As
this is the first Prospective CAT Fee Filing, this filing describes the
changes in the consulting costs from the Original 2024 Budget. CAT
LLC's proposed annual budget for consulting costs for 2024 has not
changed from the Original 2024 Budget to the Updated 2024 Budget; it
remains $1,600,000. Correspondingly, the proposed budget for consulting
costs for the third and fourth quarters of 2024 decreased by $85,580
(which is approximately 11%), from $800,000 in the Original 2024 Budget
\77\ to $714,420 in the Updated 2024 Budget.\78\
---------------------------------------------------------------------------
\77\ This calculation is $400,000 + $400,000 = $800,000.
\78\ This calculation is $359,925 + $354,495 = $714,420.
---------------------------------------------------------------------------
(viii) Insurance Costs
(a) Description of Insurance Costs
Section 11.3(a)(iii)(B)(B)(4) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
insurance costs set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $1,342,345 in insurance costs for the
CAT Fee 2024-1 Period. The insurance costs represent the costs to be
[[Page 73160]]
incurred for insurance for CAT during the CAT Fee 2024-1 Period.
It is anticipated that the insurance costs for CAT during the CAT
Fee 2024-1 Period will include costs related to cyber security
liability insurance, directors' and officers' liability insurance, and
errors and omissions liability insurance brokered by USI Insurance
Services LLC (``USI''). Such policies are standard for corporate
entities, and cyber security liability insurance is important for the
CAT System. CAT LLC anticipates that it will continue to maintain this
insurance during CAT Fee 2024-1 Period, and notes that the annual
premiums for these policies were competitive for the coverage provided.
CAT LLC estimated the budget for the insurance costs for the CAT Fee
2024-1 Period based on the actual insurance quote from USI for 2024.
The annual premiums would be paid by CAT LLC to USI.\79\
---------------------------------------------------------------------------
\79\ Note that CAT LLC generally pays its USI insurance premiums
once per year, and such payment is scheduled to occur during the
third quarter of 2024.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for insurance costs from the prior CAT Fee filing. As
this is the first Prospective CAT Fee Filing, this filing describes the
changes in the insurance costs from the Original 2024 Budget. CAT LLC's
proposed annual budget for insurance costs for 2024 decreased by
$525,680 from the Original 2024 Budget, from $1,868,025 to $1,342,345.
For the Original 2024 Budget, CAT LLC estimated the budget for the
insurance costs for the CAT Fee 2024-1 Period based on the 2023
insurance premiums plus a 15% year-over-year increase. However, the
budgeted insurance costs as set forth in the Updated 2024 Budget were
based on the actual insurance quote from USI for 2024.
(ix) Professional and Administration Costs
(a) Description of Professional and Administration Costs
Section 11.3(a)(iii)(B)(B)(5) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
professional and administration costs set forth in the budget. The
Operating Committee approved an operating budget for the CAT pursuant
to Section 11.1(a) of the CAT NMS Plan that included $428,544.50 in
professional and administration costs for the CAT Fee 2024-1 Period. 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.\80\ The professional and administration
costs would 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. The professional and administration costs represent the fees
to be paid to Anchin Block & Anchin (``Anchin'') and Grant Thornton LLP
(``Grant Thornton'') for financial services during CAT Fee 2024-1
Period.
---------------------------------------------------------------------------
\80\ Section 9.2 of the CAT NMS Plan.
---------------------------------------------------------------------------
Financial Advisory Firm: Anchin. It is anticipated that the
professional and administration costs for the CAT Fee 2024-1 Period
will include costs related to financial advisory services performed by
Anchin. CAT LLC anticipates that it will continue to employ Anchin
during CAT Fee 2024-1 Period based on, among other things, the firm's
relevant expertise and fees, which are anticipated to remain in line
with market rates for these financial advisory services. The fees for
these services will be paid by CAT LLC to Anchin.
It is anticipated that Anchin will provide a variety of services to
the CAT during the CAT Fee 2024-1 Period, including the following:
Update and maintain internal controls;
Provide cash management and treasury functions;
Faciliate [sic] bill payments;
Provide monthly bookkeeping;
Review vendor invoices and documentation in support of
cash disbursements;
Provide accounting research and consultations on various
accounting, financial reporting and tax matters;
Address not-for-profit tax and accounting considerations;
Prepare tax returns;
Address various accounting, financial reporting and
operating inquiries From Participants;
Develop and maintain annual operating and financial
budgets, including budget to actual fluctuation analyses;
Support compliance with the CAT NMS Plan;
Work with and provide support to the Operating Committee
and various CAT working groups;
Prepare monthly, quarterly and annual financial
statements;
Support the annual financial statement audits by an
independent auditor;
Review historical costs from inception;
Provide accounting and financial information in support of
SEC filings; and
Perform additional ad hoc accounting and financial
advisory services, as requested by CAT LLC.
CAT LLC estimated the annual budget for the costs for Anchin based
on historical costs adjusted for cost of living rate increases, and
projected incremental advisory and support services. The budgeted costs
for the CAT Fee 2024-1 Period are based on the estimated annual costs,
minus actual costs through June and estimated costs for July.
Accounting Firm: Grant Thornton. It is anticipated that the
professional and administration costs for the CAT Fee 2024-1 Period
will include costs related to accounting services performed by Grant
Thornton. CAT LLC anticipates that it will continue to employ Grant
Thornton during CAT Fee 2024-1 Period based on, among other things, the
firm's relevant expertise and fees, which are anticipated to remain in
line with market rates for these financial advisory services. It is
anticipated that Grant Thornton will continue to be engaged as an
independent accounting firm to complete the audit of CAT LLC's
financial statements, in accordance with the requirements of the CAT
NMS Plan. The fees for these services will be paid by CAT LLC to Grant
Thornton. CAT LLC estimated the budget for the accounting costs for
Grant Thornton for the CAT Fee 2024-1 Period based on the anticipated
hourly rates and the anticipated services plus an administrative fee.
Professional and Administration Cost Estimates. CAT LLC estimates
that the budget for professional and administration services during the
CAT Fee 2024-1 Period will be approximately $428,544.50. The budget for
professional and administration services during the CAT Fee 2024-1
Period is calculated based on the Updated 2024 Budget. Specifically,
this estimate was calculated by adding the budgeted amounts for the
professional and administration services for the third and fourth
quarter of 2024 as set forth in the Updated 2024 Budget and subtracting
one half of the actual professional and administration costs
[[Page 73161]]
incurred in July 2024 (as CAT Fee 2024-1 Period began half way through
July, on July 16, 2024).\81\
---------------------------------------------------------------------------
\81\ This calculation is ($157,269 + $293,682) - $22,406.50 =
$428,544.50.
---------------------------------------------------------------------------
CAT LLC estimated the budget for the professional and
administration costs for the CAT Fee 2024-1 Period based on a review of
past professional and administration costs, potential future
professional and administration needs, the proposed rates and other
contractual issues, as well as discussions with Anchin and Grant
Thornton. This process for estimating the budget for the professional
and administration costs for the CAT Fee 2024-1 Period is the same
process by which CAT LLC estimated the professional and administration
costs for the Original 2024 Budget. The Original 2024 Budget estimated
a budget for professional and administration costs of $395,930 for the
first two quarters of 2024.\82\ The actual costs for professional and
administration services for the first two quarters of 2024, which are
set forth in the Updated 2024 Budget, were $372,977.\83\ There is only
an approximate 6% difference between the estimate and actuals.
Accordingly, CAT LLC believes that the process for estimating the
budgeted professional and administration costs for the CAT Fee 2024-1
Period is reasonable.
---------------------------------------------------------------------------
\82\ This calculation is $213,600 + $182,330 = $395,930.
\83\ This calculation is $110,542 + $262,435 = $372,977.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for professional and administration costs from the prior
CAT Fee filing. As this is the first Prospective CAT Fee Filing, this
filing describes the changes in the professional and administration
costs from the Original 2024 Budget. CAT LLC's proposed annual budget
for professional and administration costs for 2024 had a very minor
increase of $2,666 from the Original 2024 Budget, from $821,264 to
$823,930. CAT LLC's proposed annual budget for professional and
administration costs for 2024 has not changed in a material way for
Anchin and Grant Thornton costs. Correspondingly, the proposed budget
for professional and administration costs for the third and fourth
quarters of 2024 increased by $25,617 (which is approximately 6%), from
$425,334 in the Original 2024 Budget \84\ to $450,951 in the Updated
2024 Budget.\85\
---------------------------------------------------------------------------
\84\ This calculation is $150,000 + $275,334 = $425,334.
\85\ This calculation is $157,269 + $293,682 = $450,951.
---------------------------------------------------------------------------
(x) Public Relations Costs
(a) Desription [sic] of Public Relations Costs
Section 11.3(a)(iii)(B)(B)(6) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
public relations costs set forth in the budget. The Operating Committee
approved an operating budget for the CAT pursuant to Section 11.1(a) of
the CAT NMS Plan that included $43,225 in public relations costs for
the CAT Fee 2024-1 Period. The public relations costs represent the
fees paid to a public relations firm for professional communications
services to CAT, including media relations consulting, strategy and
execution. By engaging a public relations firm, CAT LLC will be better
positioned to understand and address CAT matters to the benefit of all
market participants.
It is anticipated that the public relations costs for the CAT Fee
2024-1 Period will include costs related to the public relations
services performed by RF[verbar]Binder Partners Inc.
(``RFF[verbar]Binder''). CAT LLC anticipates that it will continue to
employ RFF[verbar]Binder during the CAT Fee 2024-1 Period based on,
among other things, the firm's relevant expertise, history with the
project, and fees, which are anticipated to remain in line with market
rates for these public relations services. It is anticipated that,
during the CAT Fee 2024-1 Period, RF[verbar]Binder will provide
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 are
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.
CAT LLC estimates that the budget for public relations services
during the CAT Fee 2024-1 Period will be approximately $43,225. The
budget for public relations services during the CAT Fee 2024-1 Period
is calculated based on the Updated 2024 Budget. Specifically, this
estimate was calculated by adding the budgeted amounts for the public
relations for the third and fourth quarter of 2024 as set forth in the
Updated 2024 Budget and subtracting one half of the actual public
relations costs incurred in July 2024 (as CAT Fee 2024-1 Period began
half way through July, on July 16, 2024).\86\ The fees for these
services will be paid by CAT LLC to RF[verbar]Binder.
---------------------------------------------------------------------------
\86\ This calculation is ($23,450 + $23,625) - $3,850 = $43,225.
---------------------------------------------------------------------------
CAT LLC estimated the budget for the public relations costs for the
CAT Fee 2024-1 Period based on a review of past public relations costs,
potential future public relations needs, the proposed rates and other
contractual issues, as well as discussions with RF[verbar]Binder. CAT
LLC also recognized that public relations costs are generally
consistent throughout the year. This process for estimating the budget
for the public relations costs for the CAT Fee 2024-1 Period is the
same process by which CAT LLC estimated the public relations costs for
the Original 2024 Budget. The Original 2024 Budget estimated a budget
for public relations costs of $46,200 for the the [sic] first two
quarters of 2024.\87\ The actual costs for public relations for the
first two quarters of 2024, which are set forth in the Updated 2024
Budget, were $46,200.\88\ They are the same. Accordingly, CAT LLC
believes that the process for estimating the budgeted public relations
costs for the CAT Fee 2024-1 Period is reasonable.
---------------------------------------------------------------------------
\87\ This calculation is $23,100 + $23,100 = $46,200.
\88\ This calculation is $23,100 + $23,100 = $46,200.
---------------------------------------------------------------------------
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for public relations costs from the prior CAT Fee filing.
As this is the first Prospective CAT Fee Filing, this filing describes
the changes in the public relations costs from the Original 2024
Budget. CAT LLC's proposed annual budget for public relations costs for
2024 had a very minor increase of $875 from the Original 2024 Budget to
the Updated 2024 Budget, from $92,400 to $93,275. Correspondingly, the
proposed budget for public relations costs for the third and fourth
quarters of 2024 increased by $875, from $46,200 in the Original 2024
Budget \89\ to $47,075 in
[[Page 73162]]
the Updated 2024 Budget.\90\ The minor change was made to reflect
updated contractual terms.
---------------------------------------------------------------------------
\89\ This calculation is $23,100 + $23,100 = $46,200.
\90\ This calculation is $23,450 + $23,625 = $47,075.
---------------------------------------------------------------------------
(xi) Reserve
(a) Description of Reserve
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to provide a brief description of the
reserve costs set forth in the budget. The Operating Committee approved
an operating budget for the CAT pursuant to Section 11.1(a) of the CAT
NMS Plan that includes $27,695,385 for a reserve for the CAT Fee 2024-1
Period. Section 11.1(a)(i) of the CAT NMS Plan states that the budget
shall include a reserve. Section 11.1(a)(ii) of the CAT NMS Plan
further describes the reserve as follows:
For the reserve referenced in paragraph (a)(i) of this Section,
the budget will include an amount reasonably necessary to allow the
Company to maintain a reserve of not more than 25% of the annual
budget. To the extent collected CAT fees exceed CAT costs, including
the reserve of 25% of the annual budget, such surplus shall be used
to offset future fees. For the avoidance of doubt, the Company will
only include an amount for the reserve in the annual budget if the
Company does not have a sufficient reserve (which shall be up to but
not more than 25% of the annual budget). For the avoidance of doubt,
the calculation of the amount of the reserve would exclude the
amount of the reserve from the budget.
In light of the fact that CAT LLC currently does not maintain any
reserve, CAT LLC determined to include a reserve in the amount of 25%
of Budgeted CAT Costs 2024-1 other than the reserve. Accordingly, the
reserve for the CAT Fee 2024-1 Period was calculated by multiplying the
Budgeted CAT Costs 2024-1 other than the reserve amount, which is
$110,781,540, by 25%.
(b) Changes From Prior Fee Filing
Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan requires the fee
filing for a Prospective CAT Fee to describe the reason for changes in
the line item for a reserve from the prior CAT Fee filing. Prior to
July 16, 2024, all CAT costs were paid by the Participants via notes.
Accordingly, to date, CAT LLC has not maintained any reserve. With the
commencement of CAT Fees, CAT LLC proposes to include costs for a
reserve of $27,695,385 in Budgeted CAT Costs 2024-1.
(D) Projected Total Executed Equivalent Share Volume
The calculation of Fee Rate 2024-1 also requires the determination
of the projected total executed equivalent share volume of transactions
in Eligible Securities for the CAT Fee 2024-1 Period. 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 relevant period based on the executed
equivalent share volume of all transactions in Eligible Securities for
the prior twelve months.'' \91\ 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 otherwise unfit to
serve as the basis of a future volume estimate.\92\
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\91\ Section 11.3(a)(i)(D) of the CAT NMS Plan.
\92\ CAT Funding Model Approval Order at 62651.
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The total executed equivalent share volume of transactions in
Eligible Securities for the 12-month period from June 2023 through May
2024 was 3,980,753,840,905.21 executed equivalent shares. The Operating
Committee has determined to calculate the projected total executed
equivalent share volume for a four-month recovery period for CAT Fee
2024-1 by multiplying by 4/12ths 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, the
executed equivalent share volume for 2022 was 4,039,821,841,560.31, and
the executed equivalent share volume for 2023 was 3,868,940,345,680.6.
Accordingly, the projected total executed equivalent share volume for
the four-month period for CAT Fee 2024-1 is projected to be
1,326,917,946,968.403 executed equivalent shares.\93\
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\93\ This projection was calculated by multiplying
3,980,753,840,905.21 executed equivalent shares by 4/12ths.
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The projected total executed equivalent share volume of all
transactions in Eligible Securities for the four-month recovery period
for CAT Fee 2024-1 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 CAT Fee.\94\
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\94\ Section 11.3(a)(iii)(B) of the CAT NMS Plan.
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(E) Fee Rate 2024-1
Fee Rate 2024-1 would be calculated by dividing Budgeted CAT Costs
2024-1 by the reasonably projected total executed equivalent share
volume of all transactions in Eligible Securities for the four-month
recovery period for CAT Fee 2024-1, as described in detail above.\95\
Specifically, Fee Rate 2024-1 would be calculated by dividing
$138,476,925 by 1,326,917,946,968.403 executed equivalent shares. As a
result, Fee Rate 2024-1 would be $0.0001043598251997246 per executed
equivalent share. Fee Rate 2024-1 is provided in this filing in
accordance with the requirement in the CAT NMS Plan to provide the Fee
Rate in a fee filing for a CAT Fee.\96\
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\95\ In approving the CAT Funding Model, the Commission stated
that ``[t]he manner in which the Fee Rate for Prospective CAT Costs
will be calculated (i.e., by dividing the CAT costs reasonably
budgeted for the upcoming year by the reasonably projected total
executed equivalent share volume of all transactions in Eligible
Securities for the year) is reasonable.'' CAT Funding Model Approval
Order at 62651.
\96\ Section 11.3(a)(iii)(B) of the CAT NMS Plan.
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(3) Monthly Fees
CEBBs and CEBSs would be required to pay fees for CAT Fee 2024-1 on
a monthly basis for four months, from November 2024 until February
2025.\97\ A CEBB's 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.\98\ Proposed paragraph (a)(3)(A) of the
fee schedule would state that each CAT Executing Broker would receive
its first invoice for CAT Fee 2024-1 in October 2024, and would receive
an invoice for CAT Fee 2024-1 each month thereafter until January 2025.
Proposed paragraph (a)(3)(B) of the fee schedule would state that
``Consolidated Audited Trail, LLC shall provide each CAT Executing
Broker with an invoice for CAT Fee 2024-1 on a monthly basis.'' In
addition, paragraph (b)(1) of the fee schedule states that each CEBB
and CEBS is required to pay its CAT fees ``each month.''
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\97\ See Section 11.3(a)(iii)(A) of the CAT NMS Plan.
\98\ See proposed paragraph (a)(3)(B) of the fee schedule.
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(4) Consolidated Audit Trail Funding Fees
To implement CAT Fee 2024-1, the Exchange proposes to add a new
[[Page 73163]]
paragraph to ``Consolidated Audit Trail Funding Fees'' section of the
Exchange's fee schedule, to include the proposed paragraphs described
below.
(A) Fee Schedule for CAT Fee 2024-1
The CAT NMS Plan states that:
Each Industry Member that is the CAT Executing Broker for the
buyer in a transaction in Eligible Securities (``CAT Executing
Broker for the Buyer'' or ``CEBB'') and each Industry Member that is
the CAT Executing Broker for the seller in a transaction in Eligible
Securities (``CAT Executing Broker for the Seller'' or ``CEBS'')
will be required to pay a CAT Fee for each such transaction in in
Eligible Securities in the prior month based on CAT Data. The CEBB's
CAT Fee or CEBS's CAT Fee (as applicable) for each transaction in
Eligible Securities will be calculated by multiplying the number of
executed equivalent shares in the transaction by one-third and by
the Fee Rate reasonably determined pursuant to paragraph (a)(i) of
this Section 11.3.\99\
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\99\ Section 11.3(a)(iii)(A) of the CAT NMS Plan.
Accordingly, based on the factors discussed above, the Exchange
proposes to add paragraph (a)(3) to the Consolidated Audit Trail
Funding Fees section of its fee schedule. Proposed paragraph (a)(3)
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would state the following:
(A) Each CAT Executing Broker shall receive its first invoice
for CAT Fee 2024-1 in October 2024, which shall set forth the CAT
Fee 2024-1 fees calculated based on transactions in September 2024,
and shall receive an invoice for CAT Fee 2024-1 for each month
thereafter until January 2025.
(B) Consolidated Audit Trail, LLC shall provide each CAT
Executing Broker with an invoice for CAT Fee 2024-1 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 $0.000035 per executed equivalent share.
(C) Notwithstanding the last invoice date of January 2025 for
CAT Fee-2024-1 in paragraph 3(A), CAT Fee 2024-1 shall continue in
effect after January 2025, with each CAT Executing Broker receiving
an invoice for CAT Fee 2024-1 each month, until a new subsequent CAT
Fee is in effect with regard to Industry Members in accordance with
Section 19(b) of the Exchange Act. Consolidated Audit Trail, LLC
will provide notice when CAT Fee 2024-1 will no longer be in effect.
(D) Each CAT Executing Broker shall be required to pay each
invoice for CAT Fee 2024-1 in accordance with paragraph (b).
As noted in the Plan amendment for the CAT Funding Model, ``[a]s a
practical matter, the fee filing would provide the exact fee per
executed equivalent share to be paid for the CAT Fees, by multiplying
the Fee Rate by one-third and describing the relevant number of decimal
places for the fee.'' \100\ Accordingly, proposed paragraph (a)(3)(B)
of the fee schedule would set forth a fee rate of $0.000035 per
executed equivalent share. This fee rate is calculated by multiplying
Fee Rate 2024-1 of $0.0001043598251997246 by one-third, and rounding
the result to six decimal places.\101\ 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.
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\100\ CAT Funding Model Approval Order at 62658, n.658.
\101\ Dividing $0.0001043598251997246 by three equals
$0.00003478660839990821. Rounding $0.00003478660839990821 to six
decimal places equals $0.000035.
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The proposed language in paragraph (a)(3)(A) of the fee schedule
would describe when CAT Executing Brokers would receive their first
monthly invoice for CAT Fee 2024-1. Specifically, CAT Executing Brokers
would receive their first monthly invoice for CAT Fee 2024-1 in October
2024 and the fees set forth in that invoice would be calculated based
on transactions executed in September 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
paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(3)(A) of the fee schedule also would
describe the monthly cadence of the invoices for CAT Fee 2024-1.
Specifically, after the first invoices are provided to CAT Executing
Brokers in October 2024, invoices will be sent to CAT Executing Brokers
each month thereafter until January 2025.
Proposed paragraph (a)(3)(B) of the fee schedule would describe the
invoices for CAT Fee 2024-1. Proposed paragraph (a)(3)(B) of the fee
schedule would state that ``Consolidated Audit Trail, LLC shall provide
each CAT Executing Broker with an invoice for CAT Fee 2024-1 on a
monthly basis.'' Proposed paragraph (a)(3)(B) of the fee schedule also
would describe the fees to be set forth in the invoices for CAT Fee
2024-1. 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 $0.000035 per executed equivalent share.''
Since CAT Fee 2024-1 is a monthly fee based on actual transaction
volume from the prior month, CAT Fee 2024-1 may collect more or less
than two-thirds of Budgeted CAT Costs 2024-1. To the extent that CAT
Fee 2024-1 collects more than two-thirds of Budgeted CAT Costs 2024-1,
any excess money collected will be used to offset future fees and/or to
fund the reserve for the CAT. To the extent that CAT Fee 2024-1
collects less than two-thirds of Budgeted CAT Costs 2024-1, the budget
for the CAT in the ensuing months will reflect such shortfall.
Furthermore, proposed paragraph (a)(3)(C) of the fee schedule would
describe how long CAT Fee 2024-1 would remain in effect. It would state
that ``[n]otwithstanding the last invoice date of January 2025 for CAT
Fee 2024-1 in paragraph 3(A), CAT Fee 2024-1 shall continue in effect
after January 2025, with each CAT Executing Broker receiving an invoice
for CAT Fee 2024-1 each month, until a new subsequent CAT Fee is in
effect with regard to Industry Members in accordance with Section 19(b)
of the Exchange Act. Consolidated Audit Trail, LLC will provide notice
when CAT Fee 2024-1 will no longer be in effect.''
Finally, proposed paragraph (a)(3)(D) of the fee schedule would set
forth the requirement for the CAT Executing Brokers to pay the invoices
for CAT Fee 2024-1. It would state that ``[e]ach CAT Executing Broker
shall be required to pay each invoice for CAT Fee 2024-1 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 its 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.\102\ The Plan Processor has established a
billing system for CAT fees.\103\
[[Page 73164]]
Therefore, the Exchange proposes to require CAT Executing Brokers to
pay CAT Fee 2024-1 in accordance with such system. Accordingly,
proposed paragraph (b)(1) 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.''
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\102\ Section 11.4 of the CAT NMS Plan.
\103\ 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 Sept. 28,
2023 and Nov. 7, 2023), each available on the CAT website.
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(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.\104\
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\104\ Section 11.4 of the CAT NMS Plan.
Accordingly, the Exchange proposes to add this requirement to the
Exchange's fee schedule. Proposed paragraph (b)(2) of the 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.
The requirements of paragraph (b)(2) would apply to CAT Fee 2024-1.
(5) CAT Fee Details
The CAT NMS Plan states that:
Details regarding the calculation of a Participant or CAT
Executing Broker's CAT Fees will be provided upon request to such
Participant or CAT Executing Broker. At a minimum, such details
would include each Participant or CAT Executing Broker's executed
equivalent share volume and corresponding fee by (1) Listed Options,
NMS Stocks and OTC Equity Securities, (2) by transactions executed
on each exchange and transactions executed otherwise than on an
exchange, and (3) by buy-side transactions and sell-side
transactions.\105\
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\105\ 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 CAT Fee.\106\
CAT LLC will provide CAT Executing Brokers with these details regarding
the calculation of their CAT Fees on their monthly invoice for the CAT
Fees.
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\106\ 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.'' CAT Funding Model
Approval Order at 62667.
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In addition, CAT LLC will make certain aggregate statistics
regarding CAT Fees publicly available. Specifically, the CAT NMS Plan
states that, ``[f]or each CAT Fee, at a minimum, CAT LLC will make
publicly available the aggregate executed equivalent share volume and
corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC
Equity Securities, (2) by transactions executed on each exchange and
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions.'' \107\ Such aggregate
statistics will be available on the CAT website.
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\107\ 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.'' CAT Funding Model Approval Order at 62667.
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Furthermore, CAT LLC will make publicly available on the CAT
website the total amount invoiced each month that CAT Fee 2024-1 is in
effect as well as the total amount invoiced for CAT Fee 2024-1 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 CAT Fee 2024-1.
(6) 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 CAT Fee related to Prospective CAT Costs until the Financial
Accountability Milestone related to Period 4 described in Section 11.6
has been satisfied.'' \108\ The substantive requirements of the
Financial Accountability Milestones related to Period 4 have been
satisfied, as the CAT has completed the requirements for the ``Full
Implementation of CAT NMS Plan Requirements.'' Section 1.1 of the CAT
NMS Plan defines ``Full Implementation of CAT NMS Plan Requirements''
as:
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\108\ Section 11.3(a)(iii)(C) of the CAT NMS Plan.
the point at which the Participants have satisfied all of their
obligations to build and implement the CAT, such that all CAT system
functionality required by Rule 613 and the CAT NMS Plan has been
developed, successfully tested, and fully implemented at the initial
Error Rates specified by Section 6.5(d)(i) or less, including
functionality that efficiently permits the Participants and the
Commission to access all CAT Data required to be stored in the
Central Repository pursuant to Section 6.5(a), including Customer
Account Information, Customer-ID, Customer Identifying Information,
and Allocation Reports, and to analyze the full lifecycle of an
order across the national market system, from order origination
through order execution or order cancellation, including any related
allocation information provided in an Allocation Report. This
Financial Accountability Milestone shall be considered complete as
of the date identified in a Quarterly Progress Report meeting the
---------------------------------------------------------------------------
requirements of Section 6.6(c).
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 second
and third quarter of 2024,\109\ Full Implementation of CAT NMS Plan
Requirements was completed on July 15, 2024.
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\109\ Q2 & Q3 2024 Quarterly Progress Report (July 29, 2024).
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(A) Transaction Reporting and Regulatory Access
The CAT system functionality required by Rule 613 and the CAT NMS
Plan related to order and transaction data has been developed,
successfully tested, and fully implemented, including the requirements
related to regulatory access. The implementation of CAT requirements
related to order and transaction data occurred over four phases: Phases
2a, 2b, 2c and 2d.\110\ As described in the Quarterly Progress Reports
and summarized below, each of these phases has been fully
implemented.\111\
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\110\ The SEC granted exemptive relief from certain 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. Securities Exchange Rel. No.
88702 (Apr. 20, 2020), 85 FR 23075 (Apr. 24, 2020) (``Phased
Reporting Exemptive Relief Order'').
\111\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
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(i) Phase 2a
The Quarterly Progress Reports state that ``Phase 2a was fully
implemented
[[Page 73165]]
as of October 26, 2020.'' \112\ 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:
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\112\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
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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.\113\
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\113\ Phased Reporting Exemptive Relief Order at 23076-78.
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(ii) Phase 2b
The Quarterly Progress Reports state that ``Phase 2b was fully
implemented as of January 4, 2021.'' \114\ 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 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.\115\
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\114\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
\115\ Phased Reporting Exemptive Relief Order at 23078.
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(iii) Phase 2c
The Quarterly Progress Reports state that ``Phase 2c was
implemented as of April 26, 2021.'' \116\ 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 Date (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 order(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'')
[[Page 73166]]
scenarios, as required in the Industry Member Technical
Specifications.\117\
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\116\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
\117\ Phase Reporting Exemptive Relief Order at 23078-79.
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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 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 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.\118\
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\118\ Id. at 23079.
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(iv) Phase 2d
The Quarterly Progress Reports state that ``Phase 2d was fully
implemented as of December 13, 2021.'' \119\ 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.\120\
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\119\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
\120\ Phase Reporting Exemptive Relief Order at 23079.
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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 includes 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).\121\
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\121\ Id. at 23079-80.
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(v) Regulatory Access To Order and Transaction Data
The Financial Accountability Milestone related to Period 4 requires
that CAT provide functionality that permits the Participants and the
Commission to access Phase 2a, 2b, 2c and 2d data and to analyze the
full lifecycle of an order across the national market system, from
order origination through order execution or order cancellation,
including any related allocation information provided in an Allocation
Report. As CAT LLC reported on its Quarterly Progress Reports, 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.\122\
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\122\ See, e.g., Q1 2024 Quarterly Progress Report (Apr. 30,
2024).
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(B) CAIS Reporting and Regulatory Access
The CAT System functionality required by Rule 613 and the CAT NMS
Plan related to Customer information has been developed, successfully
tested, and fully implemented, including the requirements related to
regulatory access. The implementation of CAT requirements related to
Customer information occurred during Phase 2e. As described in the
Quarterly Progress Reports and summarized below, Phase 2e has been
fully implemented as of May 31, 2024.\123\ Furthermore, because a month
of customer and account information data is necessary to create report
cards with regard to such data, the publication of monthly report cards
with respect to customer and account information commenced on July 15,
2024.\124\ Accordingly, the Financial Accountability Milestone related
to Period 4 was completed on July 15, 2024.
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\123\ Id.
\124\ Q2 & Q3 2024 Quarterly Progress Report (July 29, 2024).
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(i) Phase 2e
The Q2 & Q3 2024 Quarterly Progress Report indicates that Phase 2e
was fully implemented as of May 31, 2024.\125\ Phase 2e Industry Member
Data is described in detail in the SEC's Phased Reporting Exemptive
Relief Order. ``Phase 2e Industry Member Data'' includes ``Customer
Account Information and Customer Identifying Information, other than
LTIDs, date account opened/Account Effective Date and Firm Designated
ID type flag previously reported to the CAT.'' \126\
[[Page 73167]]
LTIDs and Account Effective Date are both provided in Phases 2c and 2d
in certain circumstances, as discussed above. Section 1.1 of the CAT
NMS Plan defines the term ``Customer Account Information'' to
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\125\ Id.
\126\ Phase Reporting Exemptive Relief Order at 23080.
include, but not be limited to, account number, account type,
customer type, date account opened, and large trader identifier (if
applicable); except, however, that (a) in those circumstances in
which an Industry Member has established a trading relationship with
an institution but has not established an account with that
institution, the Industry Member will (i) provide the Account
Effective Date in lieu of the ``date account opened''; (ii) provide
the relationship identifier in lieu of the ``account number''; and
(iii) identify the ``account type'' as a ``relationship''; (b) in
those circumstances in which the relevant account was established
prior to the implementation date of the CAT NMS Plan applicable to
the relevant CAT Reporter (as set forth in Rule 613(a)(3)(v) and
(vi)), and no ``date account opened'' is available for the account,
the Industry Member will provide the Account Effective Date in the
following circumstances: (i) where an Industry Member changes back
office providers or clearing firms and the date account opened is
changed to the date the account was opened on the new back office/
clearing firm system; (ii) where an Industry Member acquires another
Industry Member and the date account opened is changed to the date
the account was opened on the post-merger back office/clearing firm
system; (iii) where there are multiple dates associated with an
account in an Industry Member's system, and the parameters of each
date are determined by the individual Industry Member; and (iv)
where the relevant account is an Industry Member proprietary
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account.
The term ``Customer Identifying Information'' is defined in Section
1.1 of the CAT NMS Plan to mean
information of sufficient detail to identify a Customer, including,
but not limited to, (a) with respect to individuals: name, address,
date of birth, individual tax payer identification number
(``ITIN'')/social security number (``SSN''), individual's role in
the account (e.g., primary holder, joint holder, guardian, trustee,
person with the power of attorney); and (b) with respect to legal
entities: name, address, Employer Identification Number (``EIN'')/
Legal Entity Identifier (``LEI'') or other comparable common entity
identifier, if applicable; provided, however, that an Industry
Member that has an LEI for a Customer must submit the Customer's LEI
in addition to other information of sufficient detail to identify a
Customer.
(ii) Regulatory Access to Customer Information
The Financial Accountability Milestone related to Period 4 requires
that CAT provide functionality that permits the Participants and the
Commission to access Phase 2e Industry Member Data (in addition to the
Phase 2a, 2b, 2c and 2d Industry Member Data, as discussed above). As
CAT LLC reported on its Q2 & Q3 Quarterly Progress Report, regulators
had efficient access to Phase 2e Industry Member Data via the query
tool functionality required under the CAT NMS Plan by July 15,
2024.\127\
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\127\ Q2 & Q3 2024 Quarterly Progress Report (July 29, 2024).
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(C) Error Rate
The Financial Accountability Milestones related to Period 4 require
the implementation of the CAT System ``at the initial Error Rates
specified by Section 6.5(d)(i) or less.'' The average overall error
rate as of July 15, 2024, was less than 5%, which is the initial Error
Rate specified by Section 6.5(d)(i) of the CAT NMS Plan. The average
overall error rate was calculated by dividing the compliance errors by
processed records.
(7) Participant Invoices
While CAT Fees charged to Industry Members become effective in
accordance with the requirements of Section 19(b) of the Exchange
Act,\128\ CAT fees charged to Participants are implemented via an
approval of the CAT fees by the Operating Committee in accordance with
the requirements of the CAT NMS Plan.\129\ On July 31, 2024, the
Operating Committee approved the Participant fee related to CAT Fee
2024-1. Specifically, pursuant to the requirements of CAT NMS
Plan,\130\ each Participant would be required to pay a CAT fee
calculated using the fee rate of $0.000035, which is the same fee rate
that applies to CEBBs and CEBSs. Like CEBBs and CEBSs, each Participant
would be required to pay such CAT fees on a monthly basis for four
months, from November 2024 until February 2025, and each Participant's
fee for each month would be calculated based on the transactions in
Eligible Securities executed on the applicable exchange (for the
Participant exchanges) or otherwise than on the exchange (for FINRA) in
the prior month. Accordingly, each Participant will receive its first
invoice in October 2024, and would receive an invoice each month
thereafter until January 2025. Like with the CAT Fee 2024-1 applicable
to CEBBs and CEBSs as described in proposed paragraph (a)(3)(C) of the
fee schedule, notwithstanding the last invoice date of January 2025,
Participants will continue to receive invoices for this fee each month
until a new subsequent CAT Fee is in effect with regard to Industry
Members. Furthermore, Section 11.4 of the CAT NMS Plan states that each
Participant is required to pay such invoices as required by Section
3.7(b) of the CAT NMS Plan. Section 3.7(b) states, in part, that
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\128\ Section 11.3(a)(i)(A)(I) of the CAT NMS Plan.
\129\ CAT Funding Model Approval Order at 62659.
\130\ See Section 11.3(a)(ii) and Appendix B of the CAT NMS
Plan.
[e]ach Participant shall pay all fees or other amounts required to
be paid under this Agreement within thirty (30) days after receipt
of an invoice or other notice indicating payment is due (unless a
longer payment period is otherwise indicated) (the ``Payment
Date''). The Participant shall pay interest on the outstanding
balance from the Payment Date until such fee or amount is paid at a
per annum rate equal to the lesser of: (i) Prime Rate plus 300 basis
---------------------------------------------------------------------------
points; or (ii) the maximum rate permitted by applicable law.
(b) 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,\131\ 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,\132\
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,\133\ 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.\134\ Accordingly, a
reasonable reading of the Act indicates that it intended that
regulatory funding be sufficient to
[[Page 73168]]
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.
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\131\ 15 U.S.C. 78f(b)(6).
\132\ 15 U.S.C. 78f(b)(4).
\133\ 15 U.S.C. 78f(b)(8).
\134\ See Section 6(b)(1) of the Exchange Act.
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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.'' \135\ 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.
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\135\ CAT NMS Plan Approval Order at 84697.
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The Exchange believes that the proposed fees to be paid by the
CEBBs and CEBSs are reasonable, equitably allocated and not unfairly
discriminatory. First, the CAT Fee 2024-1 fees to be collected are
directly associated with the budgeted 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 proposed CAT Fee 2024-1 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.'' \136\ Similarly, in
approving the CAT Funding Model, the SEC concluded that the CAT Funding
Model met this standard.\137\ 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.
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\136\ Id. at 84696.
\137\ CAT Funding Model Approval Order at 62686.
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(2) Calculation of Fee Rate for CAT Fee 2024-1 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 CAT Fees as set forth in
Section 11.3 of the CAT NMS Plan, including the formula for calculating
the Fee Rate, the identification of the parties responsible for payment
and the transactions subject to the fee rate for CAT Fees, is
reasonable and satisfies the Exchange Act.\138\ In each respect, as
discussed above, CAT Fee 2024-1 is calculated, and would be applied, in
accordance with the requirements applicable to CAT Fees 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 CAT Fee 2024-1 is reasonable
and consistent with the Exchange Act. Calculation of Fee Rate 2024-1
for CAT Fee 2024-1 requires the figures for Budgeted CAT Costs 2024-1,
the executed equivalent share volume for the prior twelve months, the
determination of CAT Fee 2024-1 Period, and the projection of the
executed equivalent share volume for CAT Fee 2024-1 Period. Each of
these variables is reasonable and satisfies the Exchange Act, as
discussed throughout this filing.
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\138\ Id. at 62662-63.
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(A) Budgeted CAT Costs 2024-1
The formula for calculating a Fee Rate requires the amount of
Budgeted CAT Costs to be recovered. Specifically, Section
11.3(a)(iii)(B) of the CAT NMS Plan requires a fee filing to provide:
The budget for the upcoming year (or remainder of the year, as
applicable), including a brief description of each line item in the
budget, including (1) 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, a reserve and/or such other categories
as reasonably determined by the Operating Committee to be included
in the budget, and the reason for changes in each such line item
from the prior CAT fee filing.
In accordance with this requirement, the Exchange has set forth the
amount and type of Budgeted CAT Costs 2024-1 for each of these
categories above.
Section 11.3(a)(iii)(B) of the CAT NMS Plan also requires that the
fee filing provide ``sufficient detail to demonstrate that the budget
for the upcoming year, or part of year, as applicable, is reasonable
and appropriate.'' As discussed below, the Exchange believes that the
budget for the CAT Fee 2024-1 Period is ``reasonable and appropriate.''
Each of the costs included in CAT Fee 2024-1 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 budgeted costs related to cloud hosting
services as a
[[Page 73169]]
part of CAT Fees.\139\ CAT LLC determined that the budgeted costs
related to cloud hosting services described in this filing are
reasonable and should be included as a part of Budgeted CAT Costs 2024-
1. As described above, the cloud hosting services costs reflect, among
other things, the breadth of the CAT cloud activities, data volumes 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.\140\ 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.
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\139\ Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan.
\140\ For a discussion of the amount and type of cloud hosting
services fees, see Section 3(a)(2)(C)(i) 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
\141\ and that annual operating costs for the CAT would range from
$36.5 million to $55 million.\142\ Through 2023, the actual data
volumes have been five times that original estimate. The data volumes
to date for 2024 have continued this trend.
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\141\ Appendix D-4 of the CAT NMS Plan at n.262.
\142\ CAT NMS Plan Approval Order at 84801.
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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 amendments 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 mechanisms help
ensure the ongoing reasonableness of the CAT's costs and the level of
fees assessed to support those costs.\143\
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\143\ See Securities Exchange Act Rel. No. 97151 (Mar. 15,
2023), 88 FR 17086, 17117 (Mar. 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 budgeted costs related to operating fees as a
part of CAT Fees.\144\ CAT LLC determined that the budgeted costs
related to operating fees described in this filing are reasonable and
should be included as a part of Budgeted CAT Costs 2024-1.
---------------------------------------------------------------------------
\144\ Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan.
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The operating fees would 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.\145\ 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.\146\ The services to be
performed by FCAT for CAT Fee 2024-1 Period and the budgeted costs
related to such services are described above.\147\
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\145\ See Section 3(a)(2)(C)(ii) above.
\146\ Id.
\147\ Id.
---------------------------------------------------------------------------
The operating costs also include costs related to the receipt of
market data. CAT LLC anticipates continuing to receive certain market
data from Exegy during the CAT Fee 2024-1 Period. CAT LLC anticipates
that Exegy will continue to provide data that meets the SIP Data
requirements of the CAT NMS Plan and that the fees are reasonable and
in line with market rates for market data received.\148\
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\148\ Id.
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(iii) Technology: CAIS Operating Fees
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted costs related to CAIS operating fees as
a part of CAT Fees.\149\ CAT LLC determined that the budgeted costs
related to CAIS operating fees described in this filing are reasonable
and should be included as a part of Budgeted CAT Costs 2024-1. The CAIS
operating fees would include the fees paid to the Plan Processor to
operate and maintain CAIS and to
[[Page 73170]]
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 fees for
FCAT'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, are reasonable and appropriate.\150\ The services to
be performed by FCAT for the CAT Fee 2024-1 Period and the budgeted
costs for such services are described above.\151\
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\149\ Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan.
\150\ See Section 3(a)(2)(C)(iii) above.
\151\ 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 budgeted costs related to change request fees as
a part of CAT Fees.\152\ CAT LLC determined that the budgeted costs
related to change request fees described in this filing are reasonable
and should be included as a part of Budgeted CAT Costs 2024-1. 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
forecasts that the change requests will be necessary to implement the
CAT. As described above,\153\ CAT LLC has included a reasonable
placeholder budget amount for potential change requests that may arise
during the CAT Fee 2024-1 Period. As noted above, the total budgeted
costs for change requests during the CAT Fee 2024-1 Period represent a
small percentage of Budgeted CAT Costs 2024-1--that is, approximately
0.12% of Budgeted CAT Costs 2024-1.
---------------------------------------------------------------------------
\152\ Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan.
\153\ See Section 3(a)(2)(C)(iv) above.
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(v) Capitalized Developed Technology Costs
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted costs related to capitalized developed
technology costs as a part of CAT Fees.\154\ In general, capitalized
developed technology costs would include costs related to, for example,
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 budgeted capitalized developed
technology costs for the CAT Fee 2024-1 Period, which relate to the
CAIS software license fee and technology changes to be implemented by
FCAT, are described in more detail above.\155\ CAT LLC determined that
these budgeted costs are reasonable and should be included as a part of
Budgeted CAT Costs 2024-1.
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\154\ Section 11.3(a)(iii)(B)(B)(1) of the CAT NMS Plan.
\155\ See Section 3(a)(2)(C)(v) above.
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(vi) Legal
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted costs related to legal fees as a part
of CAT Fees.\156\ CAT LLC determined that the budgeted legal costs
described in this filing are reasonable and should be included as a
part of Budgeted CAT Costs 2024-1. Given the unique nature of the CAT,
the number of parties involved with the CAT (including, for example,
the SEC, Participants, Industry Members, and vendors) and the many
regulatory, contractual and other issues associated with the CAT, the
scope of the necessary legal services is substantial. CAT LLC
determined that the scope of the proposed legal services is necessary
to implement and maintain the CAT and that the legal rates reflect the
specialized services necessary for such a project. CAT LLC determined
to hire and continue to use each law firm based on a variety of
factors, including their relevant expertise and fees. In each case, CAT
LLC determined that the fee rates were in line with market rates for
specialized legal expertise. In addition, CAT LLC determined that the
budgeted costs for the legal projects were appropriate given the
breadth of the services provided. The services to be performed by each
law firm for the CAT Fee 2024-1 Period and the budgeted costs related
to such services are described above.\157\
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\156\ Section 11.3(a)(iii)(B)(B)(2) of the CAT NMS Plan.
\157\ See Section 3(a)(2)(B)(vi) above.
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(vii) Consulting
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted consulting costs as a part of CAT
Fees.\158\ CAT LLC determined that the budgeted consulting costs
described in this filing are reasonable and should be included as a
part of Budgeted CAT Costs 2024-1. Because there are no CAT employees
\159\ and because of the significant number of issues associated with
the CAT, the consultants are budgeted to provide assistance in the
management of various CAT matters and the processes related to such
matters.\160\ CAT LLC determined the budgeted consulting costs were
appropriate, as the consulting services were to be provided at
reasonable market rates that were comparable to the rates charged by
other consulting firms for similar work. Moreover, the total budgeted
costs for such consulting services were appropriate in light of the
breadth of services provided by Deloitte. The services budgeted to be
performed by Deloitte and the budgeted costs related to such services
are described above.\161\
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\158\ Section 11.3(b)(iii)(B)(B)(3) of the CAT NMS Plan.
\159\ 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.'' Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016),
81 FR 30614, 30621 (May 17, 2016).
\160\ 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.
\161\ Section 3(a)(2)(C)(vii) of the CAT NMS Plan.
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(viii) Insurance
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted insurance costs as a part of CAT
Fees.\162\ CAT LLC determined that the budgeted insurance costs
described in this filing are reasonable and should be included as a
part of Budgeted CAT Costs 2024-1. 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.'' \163\ As discussed
above,\164\ CAT LLC determined that the budgeted insurance costs were
appropriate given its prior experience with this market and an analysis
of the alternative insurance offerings. Based on this analysis, CAT LLC
determined that the selected insurance policies provided
[[Page 73171]]
appropriate coverage at reasonable market rates.\165\
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\162\ Section 11.3(b)(iii)(B)(B)(4) of the CAT NMS Plan.
\163\ Section 4.1.5 of Appendix D of the CAT NMS Plan.
\164\ See Section 3(a)(2)(C)(viii) above.
\165\ Id.
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(ix) Professional and Administration
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted professional and administration costs
as a part of CAT Fees.\166\ CAT LLC determined that the budgeted
professional and administration costs described in this filing are
reasonable and should be included as a part of Budgeted CAT Costs 2024-
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. The
services performed by Anchin and Grant Thornton and the costs related
to such services are described above.\167\
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\166\ Section 11.3(a)(iii)(B)(B)(5) of the CAT NMS Plan.
\167\ See Section 3(a)(2)(C)(ix) above.
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CAT LLC anticipates continuing to make use of Anchin, a financial
advisory firm, to assist with financial matters for the CAT. CAT LLC
determined that the budgeted costs for Anchin were appropriate, as the
financial advisory services were to be provided at reasonable market
rates that were comparable to the rates charged by other such firms for
similar work. Moreover, the total budgeted costs for such financial
advisory services were appropriate in light of the breadth of services
provided by Anchin. The services budgeted to be performed by Anchin and
the budgeted costs related to such services are described above.\168\
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\168\ Id.
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CAT LLC anticipates continuing to make use of Grant Thornton, an
independent accounting firm, to complete the audit of CAT LLC's
financial statements, in accordance with the requirements of the CAT
NMS Plan. CAT LLC determined that the budgeted costs for Grant Thornton
were appropriate, as the accounting services were to be provided at
reasonable market rates that were comparable to the rates charged by
other such firms for similar work. Moreover, the total budgeted costs
for such accounting services were appropriate in light of the breadth
of services provided by Grant Thornton. The services budgeted to be
performed by Grant Thornton and the budgeted costs related to such
services are described above.\169\
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\169\ Id.
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(x) Public Relations Costs
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted public relations costs as a part of CAT
Fees.\170\ CAT LLC determined that the budgeted public relations costs
described in this filing are reasonable and should be included as a
part of Budgeted CAT Costs 2024-1. CAT LLC determined that the types of
public relations services to be utilized were beneficial to the CAT and
market participants more generally. Public relations services are
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.\171\ By continuing to engage a
public relations firm, CAT LLC will be better positioned to understand
and address CAT issues to the benefit of all market participants.\172\
Moreover, CAT LLC determined that the budgeted rates charged for such
services were in line with market rates.\173\ As noted above, the total
budgeted public relations costs for the CAT Fee 2024-1 Period represent
a small percentage of Budgeted CAT Costs 2024-1--that is, approximately
0.03% of Budgeted CAT Costs 2024-1.
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\170\ Section 11.3(a)(iii)(B)(B)(6) of the CAT NMS Plan.
\171\ See Section 3(a)(2)(C)(x) above.
\172\ Id.
\173\ Id.
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(xi) Reserve
In approving the CAT Funding Model, the SEC recognized that it is
appropriate to recover budgeted reserve costs as a part of CAT
Fees.\174\ CAT LLC determined that the inclusion of a reserve in the
amount of 25% of Budgeted CAT Costs 2024-1 complies with the
requirements of the CAT NMS Plan related to a reserve, is a reasonable
amount and should be included as a part of Budgeted CAT Costs 2024-1.
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\174\ Section 11.3(a)(iii)(B)(B) of the CAT NMS Plan.
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In its approval order for the CAT Funding Model, the Commission
stated that it would be reasonable for the annual operating budget for
the CAT to ``include a reserve of not more than 25% of the annual
budget.'' \175\ In making this statement, the Commission noted the
following:
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\175\ CAT Funding Model Approval Order at 62657.
Because the CAT is a critical regulatory tool/system, the CAT
needs to have a stable funding source to build financial stability
to support the Company as a going concern. Funding for the CAT, as
noted in Section 11.1(b), is the responsibility of the Participants
and the industry. Because CAT fees are charged based on the budget,
which is based on anticipated volume, it is reasonable to have a
reserve on hand to prevent a shortfall in the event there is an
unexpectedly high volume in a given year. A reserve would help to
assure that the CAT has sufficient resources to cover costs should
there be unanticipated costs or costs that are higher than
expected.\176\
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\176\ Id.
The SEC also recognized that that [sic] a reserve would help
address the difficulty in predicting certain variable CAT costs, like
trading volume.\177\ The SEC also recognized that CAT fees will be
collected approximately three months after trading activity on which a
CAT fee is based, or 25% of the year, and that the reserve would be
available to address funding needs related to this three-month
delay.\178\ The inclusion of the proposed reserve in Budgeted CAT Costs
2024-1 would provide each of these benefits to the CAT. The reserve is
discussed further above.\179\
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\177\ Id.
\178\ Id.
\179\ See Section 3(a)(2)(C)(xi) above.
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(B) Reconciliation of Budget to the Collected Fees
The CAT NMS Plan also requires fee filings for Prospective CAT Fees
to include ``a discussion of how the budget is reconciled to the
collected fees.'' \180\ To date, CAT LLC has not collected any CAT
fees. Accordingly, there are no collected fees to be reconciled with
the budget.
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\180\ Section 11.3(a)(iii)(B)(C) of the CAT NMS Plan.
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(C) 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 June 2023 through May 2024 was
3,980,753,840,905.21 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 counts
executed equivalent shares for CAT billing purposes.\181\
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\181\ See Section 3(a)(2)(D) above.
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(D) Projected Executed Equivalent Share Volume for the CAT Fee 2024-1
Period
CAT LLC has determined to calculate the projected total executed
equivalent share volume for the four months in which CAT Fee 2024-1
Period would be payable by multiplying by 4/12ths (i.e., one-third) the
executed equivalent share
[[Page 73172]]
volume for the prior 12 months.\182\ 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, the executed equivalent share volume for
2022 was 4,039,821,841,560.31 executed equivalent shares, and the
executed equivalent share volume for 2023 was 3,868,940,345,680.6.
Accordingly, the projected total executed equivalent share volume for
the four-month period for CAT Fee 2024-1 is 1,326,917,946,968.403
executed equivalent shares.\183\
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\182\ Id.
\183\ This projection was calculated by multiplying
3,980,753,840,905.21 executed equivalent shares by 4/12ths.
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(E) Actual Fee Rate for CAT Fee 2024-1
(i) Decimal Places
As noted in the approval order for the CAT Funding Model, as a
practical matter, the fee filing for a CAT Fee would provide the exact
fee per executed equivalent share to be paid for each CAT Fee, by
multiplying the Fee Rate by one-third and describing the relevant
number of decimal places for the fee rate.\184\ Accordingly, proposed
paragraph (a)(3)(B) of the fee schedule would set forth a fee rate of
$0.000035 per executed equivalent share. This fee rate is calculated by
multiplying Fee Rate 2024-1 by one-third and rounding the result to six
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.\185\
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\184\ CAT Funding Model Approval Order at 62658, n.658.
\185\ See Section 3(a)(4)(A) above.
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(ii) Reasonable Fee Level
The Exchange believes that imposing CAT Fee 2024-1 with a fee rate
of $0.000035 per executed equivalent share is reasonable because it
provides for a revenue stream for the Company that is aligned with
Budgeted CAT Costs 2024-1 and such budgeted costs would be spread out
over a four-month period. Moreover, the Exchange believes that the
level of the fee rate is reasonable, as it is comparable to other
transaction-based fees. Indeed, CAT Fee 2024-1 is significantly lower
than fees assessed pursuant to Section 31 (e.g., $0.0009 per share to
0.0004 per share),\186\ and, as a result, the magnitude of CAT Fee
2024-1 is small, and therefore will mitigate any potential adverse
economic effects or inefficiencies.\187\
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\186\ Id. at 62663, 62682. In explaining the comparison of
Section 31 fees to CAT fees in the CAT Funding Model Approval Order,
the SEC noted that ``Section 31 fees are expressed per dollar volume
traded. Translating this to a per share range involves identifying
reasonable high and low trade sizes. The lower end of this range
comes from the 25th percentile in $ trade size of 1,200 and share
trade size of 71 from the first quarter of 2021. The higher end of
this range comes from the 75th percentile in $ trade size of 5,200
and share trade size of 300 from the first quarter of 2021. Section
31 fees have ranged from $5.10 per $Million to $23.10 per $Million
from Oct. 1, 2016 to Mar. 1, 2023.'' Id. at 62682., n.1100. In 2024,
Section 31 fees were raised further to $27.80 per million dollars.
\187\ Id.
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(3) CAT Fee 2024-1 Provides for an Equitable Allocation of Fees
CAT Fee 2024-1 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 satisfied the requirements of the
Exchange Act, including the formula for calculating CAT Fees as well as
the Industry Members to be charged the CAT Fees.\188\ In approving the
CAT Funding Model, the SEC stated that ``[t]he Participants have
sufficiently demonstrated that the proposed allocation of fees is
reasonable.'' \189\ Accordingly, the CAT Funding Model sets forth the
requirements for allocating fees related to Budgeted CAT Costs among
Participants and Industry Members, and the fee filings for CAT Fees
must comply with those requirements.
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\188\ See Section 11.3(b) of the CAT NMS Plan.
\189\ CAT Funding Model Approval Order at 62629.
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CAT Fee 2024-1 provides for an equitable allocation of fees as it
complies with the requirements regarding the calculation of CAT Fees as
set forth in the CAT NMS Plan. For example, as described above, the
calculation of CAT Fee 2024-1 complies with the formula set forth in
Section 11.3(a) of the CAT NMS Plan. In addition, CAT Fee 2024-1 would
be charged to CEBBs and CEBSs in accordance with Section 11.3(a) of the
CAT NMS Plan. Furthermore, the Participants would be charged for their
designated share of Budgeted CAT Costs 2024-1 through a fee implemented
via the CAT NMS Plan, which would have the same fee rate as CAT Fee
2024-1.
In addition, as discussed above, each of the inputs into the
calculation of CAT Fee 2024-1--Budgeted CAT Costs 2024-1, the count for
the executed equivalent share volume for the prior 12 months, and the
projected executed equivalent share volume for the CAT Fee 2024-1
Period--are reasonable. Moreover, these inputs lead to a reasonable fee
rate for CAT Fee 2024-1 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) CAT Fee 2024-1 Is Not Unfairly Discriminatory
CAT Fee 2024-1 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 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. CAT
Fee 2024-1 complies with the requirements regarding the calculation of
CAT Fees as set forth in the CAT NMS Plan. In addition, as discussed
above, each of the inputs into the calculation of CAT Fee 2024-1 and
the resulting fee rate for CAT Fee 2024-1 is reasonable. Therefore, CAT
Fee 2024-1 does not impose an unfairly discriminatory fee on Industry
Members.
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 with specificity in the 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.
[[Page 73173]]
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 6(b)(8) of the Act \190\ 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 CAT Fee
2024-1 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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\190\ 15 U.S.C. 78f(b)(8).
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In addition, all Participants (including exchanges and FINRA) are
proposing to introduce CAT Fee 2024-1 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.\191\
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.
CAT Fee 2024-1 is calculated and implemented in accordance with the CAT
Funding Model as approved by the SEC.
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\191\ CAT Funding Model Approval Order at 62676-86.
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As discussed above, each of the inputs into the calculation of CAT
Fee 2024-1 is reasonable and the resulting fee rate for CAT Fee 2024-1
calculated in accordance with the CAT Funding Model is reasonable.
Therefore, CAT Fee 2024-1 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
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Exchange Act \192\ and Rule 19b-4(f)(2)
thereunder,\193\ because it establishes or changes a due, or fee.
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\192\ 15 U.S.C. 78s(b)(3)(A)(ii).
\193\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend the rule
change if it appears to the Commission that the action is necessary or
appropriate in the public interest, for the protection of investors, or
would otherwise further the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-LTSE-2024-04 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-2024-04. 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-LTSE-2024-04 and should be
submitted on or before September 30, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\194\
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\194\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-20165 Filed 9-6-24; 8:45 am]
BILLING CODE 8011-01-P