Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt FINRA Rule 6897(b) (CAT Cost Recovery Fees) 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, 73457-73463 [2024-20323]
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Federal Register / Vol. 89, No. 175 / Tuesday, September 10, 2024 / Notices
to Section 19(b)(2) of the Act,6 the
Commission designated a longer period
within which to approve the proposed
rule change or disapprove the proposed
rule change.7 On August 29, 2024, the
Exchange withdrew the proposed rule
change (SR–MEMX–2024–01).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–20328 Filed 9–9–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100920; File No. SR–
FINRA–2024–012]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Adopt FINRA Rule
6897(b) (CAT Cost Recovery Fees)
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 4, 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
26, 2024, the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by FINRA. FINRA
has designated the proposed rule change
as ‘‘establishing or changing a due, fee
or other charge’’ under Section
19(b)(3)(A)(ii) of the Act 3 and Rule 19b–
4(f)(2) thereunder,4 which renders the
proposal effective upon receipt of this
filing by the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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6 15
U.S.C. 78s(b)(2).
7 See Securities Exchange Act Release No. 100628
(Jul. 31, 2024), 89 FR 64010 (Aug. 6, 2024). The
Commission designated October 10, 2024 as the
date by it should approve or disapprove the
proposed rule change.
8 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to adopt FINRA
Rule 6897(b) (CAT Cost Recovery Fees)
to implement a Consolidated Audit
Trail (‘‘CAT’’) cost recovery fee
designed to permit FINRA substantially
to recoup its designated portion of the
reasonably budgeted CAT costs of the
National Market System Plan Governing
the Consolidated Audit Trail (the ‘‘CAT
NMS Plan’’ or ‘‘Plan’’) for the period of
July 16, 2024 through December 31,
2024.5
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA 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. FINRA 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
Background
On July 11, 2012, the Commission
adopted Rule 613 of Regulation NMS,
which required the self-regulatory
organizations 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.6 On November 15, 2016, the
Commission approved the CAT NMS
5 Pursuant to Section 11.3(a) of the CAT NMS
Plan, FINRA filed a separate proposed rule change
to establish fees assessed to Industry Members,
payable to Consolidated Audit Trail, LLC, related to
reasonably budgeted CAT costs for the period of
July 16, 2024 through December 31, 2024. See File
No. SR–FINRA–2024–011. Unless otherwise
specified, capitalized terms used in this rule filing
are defined as set forth in the CAT NMS Plan and
FINRA Rule 6800 Series (Consolidated Audit Trail
Compliance Rule).
6 See Securities Exchange Act Release No. 67457
(July 18, 2012), 77 FR 45722 (August 1, 2012).
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73457
Plan.7 Under the CAT NMS Plan, the
Operating Committee has the discretion
to establish funding for Consolidated
Audit Trail, LLC (‘‘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.8 The Operating Committee
adopted a revised funding model to
fund the CAT (‘‘CAT Funding Model’’)
and, 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.9
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; 10 and (2) CAT fees
assessed by CAT LLC and payable by
Participants and Industry Members to
fund Prospective CAT Costs, i.e., costs
not previously paid by the
Participants.11
With respect to CAT fees
implemented to fund Prospective CAT
Costs, to date, the CAT Operating
Committee has established CAT Fee
2024–1 to implement fees payable by
Industry Members regarding reasonably
budgeted Prospective CAT Costs for the
period July 16, 2024 through December
31, 2024 (‘‘Budgeted CAT Costs 2024–
1’’).12 Consistent with the Plan, the
Operating Committee has also
established fees payable to CAT LLC by
the Participants to collect the
Participants’ designated portion of
Budgeted CAT Costs 2024–1.13
7 See Securities Exchange Act Release No. 79318
(November 15, 2016), 81 FR 84696 (November 23,
2016) (‘‘CAT NMS Plan Approval Order’’).
8 See Section 11.1(b) of the CAT NMS Plan.
9 See Securities Exchange Act Release No. 98290
(September 6, 2023), 88 FR 62628 (September 12,
2023) (‘‘CAT Funding Model Approval Order’’).
10 See Section 11.3(b) of the CAT NMS Plan.
11 See Section 11.3(a) of the CAT NMS Plan.
12 As detailed in File No. SR–FINRA–2024–011,
Budgeted CAT Costs 2024–1 would be
$138,476,925. Industry Members would be
collectively responsible for two-thirds of those costs
or $92,317,950, and Participants would be
collectively responsible for one-third or
$46,158,975. See also Sections 11.3(a)(ii)(A) and
11.3(a)(iii)(A) of the CAT NMS Plan.
13 See Section 11.3(a)(ii) and Appendix B of the
CAT NMS Plan; see also CAT Funding Model
Approval Order, 88 FR 62628, 62660 (‘‘The CAT
Fees charged to Participants would be implemented
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Participants would only be required to
pay such fees once CAT Fee 2024–1 is
in effect with regard to Industry
Members in accordance with Section
19(b) of the Exchange Act.14
In light of the filing of File No. SR–
FINRA–2024–011, which implements
CAT Fee 2024–1 with regard to Industry
Members, FINRA is filing the instant
proposed rule change to establish a fee
that would allow FINRA substantially to
recover the monthly fees it is required
to pay to CAT LLC towards Budgeted
CAT Costs 2024–1 (‘‘Prospective CAT
Cost Recovery Fee 2024–1’’). In the
Approval Order, the Commission
acknowledged that ‘‘the Exchange Act
expressly contemplates the ability of the
Participants to recoup their costs to
fulfill their statutory obligations under
the Exchange Act.’’ 15 The Commission
also noted FINRA’s statement ‘‘that it
would file a rule change to increase its
member fees with the filing of any
proposed rule change to effectuate the
Funding Model.’’ 16 Given the approval
of the CAT Funding Model and FINRA’s
proposed rule change to establish CAT
Fee 2024–1 to effectuate the CAT
Funding Model,17 FINRA is submitting
through an approval of the CAT Fees by the
Operating Committee and not through a plan
amendment submitted each time the Fee Rate
changes, while CAT Fees charged to Industry
Members may only become effective in accordance
with the requirements of Section 19(b) of the
Exchange Act.’’).
14 See Section 11.3(a)(ii)(B) of the CAT NMS Plan;
see also CAT Funding Model Approval Order, 88
FR 62628, 62660 (‘‘The Commission also believes
it is reasonable that proposed Section 11.3(a)(ii)(B)
provides that the Participants would be required to
pay CAT Fees only when Industry Members are
required to pay CAT Fees.’’).
15 CAT Funding Model Approval Order, 88 FR
62628, 62636–37.
16 FINRA has consistently made clear its intention
to file a rule change to implement member CAT fees
simultaneous with the filing of any proposed rule
change to effectuate the CAT Funding Model. See
Letter from Marcia E. Asquith, Corporate Secretary,
EVP, Board and External Relations, FINRA, to
Vanessa Countryman, Secretary, Commission, dated
April 11, 2023 (‘‘FINRA April 2023 Letter’’) at 7 (‘‘If
the Funding Model is approved by the Commission,
FINRA intends to file a rule change to increase
member fees simultaneous with the filing of any
proposed rule change to effectuate the Funding
Model.’’); see also Letter from Marcia E. Asquith,
Corporate Secretary, EVP, Board and External
Relations, FINRA, to Vanessa Countryman,
Secretary, Commission, dated June 22, 2022
(‘‘FINRA June 2022 Letter’’) at 6 (‘‘[G]iven FINRA’s
unique nature, FINRA necessarily must seek
recovery in turn for the costs it is allocated.’’).
FINRA also requested that, if the Commission were
to approve the CAT Funding Model, it acknowledge
‘‘FINRA’s need and ability to cover CAT costs that
are not recovered through contractual arrangements
through member fee increases, so as not to
jeopardize FINRA’s ability to carry out its critical
regulatory mission.’’ See CAT Funding Model
Approval Order, 88 FR 62628, 62645.
17 See File No. SR–FINRA–2024–011.
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this filing to implement Prospective
CAT Cost Recovery Fee 2024–1.18
FINRA’s Designated Portion of Budgeted
CAT Costs 2024–1
As discussed in File No. SR–FINRA–
2024–011, the Operating Committee has
established CAT Fee 2024–1, payable to
CAT LLC by Industry Members, to
contribute toward the recovery of twothirds of the $138,476,925 in Budgeted
CAT Costs 2024–1 over the July 16,
2024 through December 31, 2024
period.19 The Operating Committee
further determined that the fee rate for
CAT Fee 2024–1 is
$0.0001043598251997246 per executed
equivalent share,20 and, under the CAT
Funding Model, each of the CAT
Executing Broker for the Buyer
(‘‘CEBB’’), the CAT Executing Broker for
18 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.’’ See
Section 11.3(a)(iii)(C) of the CAT NMS Plan. As
discussed in File No. SR–FINRA–2024–011, 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. 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, Full Implementation of CAT NMS Plan
Requirements was completed on July 15, 2024. See
CAT Q2 & Q3 2024 Quarterly Progress Report (July
29, 2024), https://www.catnmsplan.com/sites/
default/files/2024-07/CAT_Q2-and-Q3-2024QPR.pdf.
19 Consistent with Section 11.3(a)(iii)(B) of the
CAT NMS Plan, Budgeted CAT Costs 2024–1
include reasonably budgeted (1) technology line
items (including cloud hosting services, operating
fees, CAIS operating fees, change request fees, and
capitalized developed technology costs), (2) legal
fees, (3) consulting fees, (4) insurance, (5)
professional and administration expenses, (6)
public relations costs, and (7) a reserve. A detailed
description (including the amounts) of all such
costs budgeted during the July 16, 2024 through
December 31, 2024 period is provided in File No.
SR–FINRA–2024–011.
20 In approving the CAT Funding Model, the
Commission concluded that ‘‘the use of executed
equivalent share volume as the basis of the
proposed cost allocation methodology is reasonable
and consistent with the approach taken by the
funding principles of the CAT NMS Plan.’’ See CAT
Funding Model Approval Order, 88 FR 62628,
62640. Under the CAT NMS Plan, executed
equivalent shares in a transaction in Eligible
Securities are reasonably counted as follows: (1)
each executed share for a transaction in NMS
Stocks will be counted as one executed equivalent
share; (2) each executed contract for a transaction
in Listed Options will be counted based on the
multiplier applicable to the specific Listed Options
(i.e., 100 executed equivalent shares or such other
applicable multiplier); and (3) each executed share
for a transaction in OTC Equity Securities shall be
counted as 0.01 executed equivalent share. See
Section 11.3(a)(i)(B) and 11.3(b)(i)(B) of the CAT
NMS Plan.
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the Seller (‘‘CEBS’’), and the relevant
Participant for a given transaction in an
Eligible Security would be responsible
for one-third of that rate, or $0.000035
per executed equivalent share.21
Consequently, CEBBs collectively,
CEBSs collectively, and the Participants
collectively will each be responsible for
$46,158,975, which is one-third of
Budged CAT Costs 2024–1 during the
September 1, 2024 through December
31, 2024 CAT Fee 2024–1 period.22
For the twelve months from June 1,
2023 through May 31, 2024, the average
monthly executed equivalent share
volume in Eligible Securities where
FINRA was the relevant Participant (i.e.,
off-exchange transactions) was
approximately 104.7 billion shares.
Assuming similar monthly executed
equivalent share volume for offexchange transactions in Eligible
Securities for the period of September 1,
2024 through December 31, 2024,
FINRA would be responsible for paying
approximately $3.7 million per month
and approximately $14.7 million in total
to CAT LLC toward the Participants’
$46,158,975 designated portion of
Budgeted CAT Costs 2024–1 (or
approximately 31.8% of the total).
FINRA’s recovery of its designated
portion of Budgeted CAT Costs 2024–1
is reasonable and consistent with the
Exchange Act. As discussed herein and
in File No. SR–FINRA–2024–011,
Budgeted CAT Costs 2024–1 are
reasonable, appropriate and necessary
for the creation, implementation, and
maintenance of the CAT. And the
portion of Budgeted CAT Costs 2024–1
designated to FINRA has been
established under the SEC-approved
CAT Funding Model. As stated by
FINRA and permitted under the
Exchange Act, FINRA will seek to
recover its designated portion of the
Participants’ share of CAT costs to
ensure that FINRA can fulfill its
regulatory mandate and
responsibilities.23
Prospective CAT Cost Recovery Fee
2024–1
FINRA is proposing to adopt Rule
6897(b) (CAT Cost Recovery Fees) to
implement Prospective CAT Cost
Recovery Fee 2024–1 to allow FINRA
substantially to recover its designated
portion of Budgeted CAT Costs 2024–
1.24 FINRA intends that the fee
21 Dividing $0.0001043598251997246 by three
and rounding to six decimal places equals
$0.000035.
22 See File No. SR–FINRA–2024–011.
23 See supra note 16.
24 In approving the CAT Funding Model, the
Commission noted that it ‘‘believe[d] that FINRA’s
allocation of CAT fees likely will be passed through
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framework for the Prospective CAT Cost
Recovery Fee 2024–1 would generally
correspond to the framework put in
place by CAT LLC with respect to CAT
Fee 2024–1, as provided for in File No.
SR–FINRA–2024–011, as further
discussed below. FINRA also intends
that the timing and commencement of
payment for Prospective CAT Cost
Recovery Fee 2024–1 would correspond
No.
Field name
26 .....................
28 .....................
reportingExecutingMpid ....
contraExecutingMpid ........
with that established by CAT LLC with
respect to CAT Fee 2024–1, as provided
for in File No. SR–FINRA–2024–011.
Thus, as with CAT Fee 2024–1, FINRA
proposes that each member CAT
Executing Broker shall receive its first
invoice for Prospective CAT Cost
Recovery Fee 2024–1 in October 2024,
setting forth fees calculated based on
September 2024 transactions in Eligible
Data type
Member Alias
Member Alias
73459
Securities executed otherwise than on
an exchange, as reflected in CAT Data.
The following fields of the Participant
Technical Specifications indicate the
CAT Executing Brokers for transactions
executed otherwise than on an
exchange.25
TRF/ORF/ADF Transaction Data
Event 26
Include
key
Description
MPID of the executing party ...............................................................
MPID of the contra-side executing party ............................................
R
C
As discussed in File No. SR–FINRA–
2024–011, consistent with the CAT
Funding Model, in implementing CAT
Fee 2024–1, the Operating Committee
has determined that each of the CEBB,
CEBS and relevant Participant for a
given transaction in an Eligible Security
would be assessed a fee of $0.000035
per executed equivalent share.27 In line
with this approach, FINRA is proposing,
for Prospective CAT Cost Recovery Fee
2024–1, to split the fee rate that is
assessed to FINRA under CAT Fee
2024–1 between each of the CEBB and
CEBS for transactions where FINRA is
the relevant Participant, subject to
truncation at six decimal places. To
maintain consistency with CAT LLC’s
use of six decimal places,28 FINRA
proposes to use six decimal places for
Prospective CAT Cost Recovery Fee
2024–1.29 FINRA proposes to limit
Prospective CAT Cost Recovery Fee
2024–1 to six decimal places by
truncating the halved CAT Fee 2024–1
fee rate such that each member CEBB
and CEBS would pay a fee of $0.000017
per executed equivalent share for each
transaction in Eligible Securities
executed otherwise than on an
exchange.30
By truncating half of the CAT Fee
2024–1 fee rate in this manner, FINRA
would recover less per executed
equivalent share under Prospective CAT
Cost Recovery Fee 2024–1 ($0.000034)
than it will be invoiced each month for
CAT Fee 2024–1 ($0.000035), resulting
in a total deficit of approximately
$400,000 during the September 1, 2024
through December 31, 2024 period,
which FINRA is not seeking to
recover.31
To implement Prospective CAT Cost
Recovery Fee 2024–1, FINRA proposes
to adopt Rule 6897(b)(1)(C)(i) to provide
that each member CAT Executing
Broker shall receive its first invoice
from FINRA in October 2024, setting
forth the Prospective CAT Cost
Recovery Fee 2024–1 fees calculated
based on transactions in September
2024, and shall receive an invoice for
Prospective CAT Cost Recovery Fee
2024–1 from FINRA for each month
thereafter until January 2025. As
provided in proposed Rule
6897(b)(1)(C)(ii), FINRA shall provide
each member CAT Executing Broker
with an invoice for Prospective CAT
Cost Recovery Fee 2024–1 on a monthly
basis (which shall be separate from the
invoice provide by CAT LLC with
respect to CAT Fee 2024–1). Each
monthly invoice provided by FINRA
shall set forth a fee for each transaction
in Eligible Securities executed by the
CAT Executing Broker in its capacity as
the CEBB and/or the CEBS (as
applicable) otherwise than on an
exchange from the prior month as set
forth in CAT Data. The fee assessed to
each CEBB and CEBS for each such
transaction will be calculated by
multiplying the number of executed
equivalent shares in the transaction by
the Prospective CAT Cost Recovery Fee
2024–1 fee rate of $0.000017 per
executed equivalent share.
Further, as provided in proposed Rule
6897(b)(1)(C)(iii), notwithstanding the
last invoice date of January 2025 for
Prospective CAT Cost Recovery Fee
2024–1 in Rule 6897(b)(1)(C)(i),
Prospective CAT Cost Recovery Fee
2024–1 shall continue in effect after
January 2025, with each CAT Executing
Broker receiving an invoice for
Prospective CAT Cost Recovery Fee
2024–1 each month, until a new
subsequent Prospective CAT Cost
Recovery Fee is in effect with regard to
members in accordance with Section
to Industry Members.’’ See CAT Funding Model
Approval Order, 88 FR 62628, 62684.
25 As per Section 1.1 of the Plan, for a transaction
in an Eligible Security executed otherwise than on
an exchange and required to be reported to an
equity trade reporting facility of a registered
national securities association, i.e., one of FINRA’s
Trade Reporting Facilities (each a ‘‘TRF’’), OTC
Reporting Facility (‘‘ORF’’) or Alternative Display
Facility (‘‘ADF’’), the CEBB and CEBS are the
Industry Members identified as the executing
broker and the contra-side executing broker in the
TRF/ORF/ADF transaction data event in CAT Data.
In those circumstances where there is a nonIndustry 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, and be required to
pay the fee assessed to, both the CEBB and CEBS.
26 See Table 61, Section 6.1 (TRF/ORF/ADF
Transaction Data Event) of the CAT Reporting
Technical Specifications for Plan Participants.
27 As noted in File No. SR–FINRA–2024–011,
CAT LLC determined to use six decimal places for
the CAT Fee 2024–1 fee rate (i.e., $0.000035 per
executed equivalent share) to balance the accuracy
of the calculation with the potential systems and
other impracticalities of using additional decimal
places in the calculation.
28 See supra note 27.
29 FINRA believes that it is appropriate at this
time to use six decimal places to maintain
consistency with the approach determined by CAT
LLC. FINRA notes that the billing system used for
both invoices in connection with CAT Fee 2024–
1 and the Prospective CAT Cost Recovery Fee 2024–
1 is configured for up to six decimal places, making
extending the fee rate for Prospective CAT Cost
Recovery Fee 2024–1 to seven decimal places
impracticable in the near term.
30 Dividing $0.000035 by two equals $0.0000175.
31 Given that the average monthly executed
equivalent share volume in Eligible Securities
where FINRA was the relevant Participant was
approximately 104.7 billion shares for the 12
months from June 1, 2023 through May 31, 2024,
and assuming similar volumes for the period from
September 1, 2024 through December 31, 2024,
FINRA would be invoiced approximately $14.7
million for CAT Fee 2024–1 but would only bill
approximately $14.3 million to member CEBBs and
CEBSs via Prospective CAT Cost Recovery Fee
2024–1 during the same period.
However, FINRA intends to avoid a similar
shortfall from occurring with respect to future fee
recovery past December 2024 (e.g., by rounding up
the last digit instead of truncating, or another means
of addressing this issue). The fee rate resulting from
any such determinations would be subject to a
proposed rule change filed pursuant to Section
19(b) of the Exchange Act and Rule 19b–4
thereunder.
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19(b) of the Exchange Act.32 Proposed
paragraph (b)(1)(C)(iii) of Rule 6897 also
states that FINRA will provide notice
when Prospective CAT Cost Recovery
Fee 2024–1 will no longer be in effect.
Proposed Rule 6897(b)(1)(C)(iv)
provides that each member CAT
Executing Broker shall be required to
pay each invoice for Prospective CAT
Cost Recovery Fee 2024–1 as set forth in
Rule 6897(b)(2).
FINRA also proposes to adopt Rule
6897(b)(2) (Timing and Manner of
Payments), which provides that each
member CAT Executing Brokers shall
pay the CAT Cost Recovery Fees as
required pursuant to Rule 6897(b)(1)
each month to FINRA in the manner
prescribed by FINRA. In addition,
proposed paragraph (b)(2)(B) of Rule
6897 provides that each CAT Executing
Broker shall pay the CAT Cost Recovery
Fees required pursuant to Rule
6897(b)(1) within 30 days after receipt
of an invoice or other notice indicating
payment is due (unless a longer
payment period is otherwise indicated).
Beginning with the initial invoice for
Prospective CAT Cost Recovery Fee
2024–1 in October 2024, FINRA will
make available to each member CAT
Executing Broker a copy of the relevant
details for fee liable transactions
executed each month otherwise than on
an exchange. Similar to the information
that would be provided by CAT LLC to
CAT Executing Brokers in assessing the
off-exchange portion of CAT Fee 2024–
1 each month,33 such information
would provide member CAT Executing
Brokers with the ability to understand
the details regarding the calculation of
their Prospective CAT Cost Recovery
Fee 2024–1 fees. In addition, to provide
transparency to the industry, FINRA
will make publicly available on its
website: (i) the total amount invoiced
each month that Prospective CAT Cost
Recovery Fee 2024–1 is in effect, (ii) the
total amount invoiced for Prospective
CAT Cost Recovery Fee 2024–1 for all
months since its commencement, (iii)
the total amount that FINRA is invoiced
each month by CAT LLC in connection
32 As noted in File No. SR–FINRA–2024–011,
CAT Fee 2024–1 would continue in effect after
January 2025 until a new subsequent CAT Fee to
collect the Industry Members’ designated portion of
Budgeted CAT Costs is in effect, in accordance with
Section 19(b) of the Exchange Act. While CAT Fee
2024–1 remains in effect for Industry Members, the
Participants would continue to be assessed a
monthly fee based on that same fee rate, i.e.,
$0.000035 per executed equivalent share. Likewise,
unless amended, Prospective CAT Cost Recovery
Fee 2024–1 also would remain in effect to allow
FINRA to continue substantially to recoup funds in
connection with its monthly payment obligations
under CAT Fee 2024–1, until a new CAT Fee is
established by the Operating Committee.
33 See File No. SR–FINRA–2024–011.
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with CAT Fee 2024–1, (iv) the total
amount that FINRA has been invoiced
for CAT Fee 2024–1 for all months since
its commencement, and (v) the variance,
both on a monthly and cumulative
basis, between the amount invoiced by
FINRA under Prospective CAT Cost
Recovery 2024–1 and the amount
FINRA is invoiced under CAT Fee
2024–1.
FINRA has filed the proposed rule
change for immediate effectiveness. The
effective date and the implementation
date will be the date of filing.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,34 which
requires, among other things, that
FINRA 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 must not be
designed to permit unfair
discrimination between customers,
issuers, brokers or dealers. FINRA also
believes that the proposed rule change
is consistent with the provisions of
Section 15A(b)(5) of the Act,35 which
requires, among other things, that
FINRA rules provide for the equitable
allocation of reasonable dues, fees and
other charges among members and
issuers and other persons using any
facility or system that FINRA operates
or controls. FINRA further believes that
the proposed rule change is consistent
with Section 15A(b)(9) of the Act, which
requires that FINRA rules not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Exchange Act.36
Section 15A(b)(2) of the Act also
requires that FINRA 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.37
FINRA believes that this proposed
rule change is consistent with the Act
because it is designed to assist FINRA
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
U.S.C. 78o–3(b)(6).
U.S.C. 78o–3(b)(5).
36 15 U.S.C. 78o–3(b)(9).
37 See 15 U.S.C. 78o–3(b)(2).
market system, or is otherwise in
furtherance of the purposes of the
Act.’’ 38 To the extent that this proposed
rule change implements a requirement
that facilitates FINRA’s achievement of
its regulatory obligations under the Plan
and applies specific requirements to
FINRA members in this regard, FINRA
believes that this proposed rule change
furthers the objectives of the Plan, as
identified by the SEC, and is therefore
consistent with the Act.
As discussed in detail in File No. SR–
FINRA–2024–011, FINRA believes that
the proposed fees paid by the CEBBs
and CEBSs in connection with CAT Fee
2024–1 are reasonable, equitably
allocated and not unfairly
discriminatory. Prospective CAT Cost
Recovery Fee 2024–1 would similarly
allow FINRA substantially to recover
costs related to CAT Fee 2024–1 from
member CAT Executing Brokers in a fair
and reasonable manner, as
contemplated by the Exchange Act and
consistent with the CAT Funding Model
Approval Order.
Proposed Prospective CAT Cost
Recovery Fee 2024–1 would be charged
to member CAT Executing Brokers 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. The proposed fees
would not cover FINRA services
unrelated to the CAT and would not
result in any surplus to FINRA.39
Accordingly, FINRA believes that the
proposed fees are reasonable, equitable
and not unfairly discriminatory.
The reasonableness of Prospective
CAT Cost Recovery Fee 2024–1 and its
consistency with the Exchange Act
likewise is grounded in the facts
described above and detailed in File No.
SR–FINRA–2024–011. Specifically, the
reasonably budgeted expenses that
compose the portion of Budgeted CAT
Costs 2024–1 sought substantially to be
recovered through Prospective CAT Cost
Recovery Fee 2024–1 were recognized
by the SEC as appropriate for recovery
pursuant to the formula approved in the
CAT Funding Model (i.e., technology,
legal, consulting, insurance,
professional administration, and public
relations costs). FINRA has determined
that these costs, which are described in
detail in File No. SR–FINRA–2024–011,
are reasonable and it is appropriate that
FINRA substantially recover its
designated portion of such costs through
Prospective CAT Cost Recovery Fee
34 15
35 15
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38 CAT NMS Plan Approval Order, 81 FR 84696,
84697.
39 See supra note 31 and accompanying text.
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2024–1. FINRA also has determined that
Prospective CAT Cost Recovery Fee
2024–1 provides for the equitable
allocation of fees among FINRA
members and is not unfairly
discriminatory, as discussed herein.
Prospective CAT Cost Recovery Fee
2024–1 is designed to allow FINRA to
substantially recover its designated
portion of Budgeted CAT Costs 2024–1,
consistent with the Exchange Act and
the CAT Funding Model Approval
Order.40 In approving the CAT Funding
Model, the Commission noted FINRA’s
request that it acknowledge ‘‘FINRA’s
need and ability to cover CAT costs that
are not recovered through contractual
arrangements through member fee
increases, so as not to jeopardize
FINRA’s ability to carry out its critical
regulatory mission.’’ 41 The Commission
also recognized that ‘‘the Exchange Act
expressly contemplates the ability of the
Participants to recoup their costs to
fulfill their statutory obligations under
the Exchange Act.’’ 42 The Commission
further noted FINRA’s statement ‘‘that it
would file a rule change to increase its
member fees with the filing of any
proposed rule change to effectuate the
Funding Model.’’ 43 The instant
proposed rule change to adopt
Prospective CAT Cost Recovery Fee
2024–1 represents such a fee with
respect to Budgeted CAT Costs 2024–1.
Without a mechanism to recover its
CAT costs, FINRA, which is unique
among the Participants as a not-forprofit, national securities association,
would not be able to effectively sustain
its regulatory mission.44 Thus,
consistent with the cost allocation
framework put in place by the SECapproved CAT Funding Model, whereby
CEBBs and CEBSs share equal
responsibility for the costs assessed
directly to Industry Members based on
their transactions in Eligible Securities,
FINRA is seeking substantially to
recoup its designated portion of
Budgeted CAT Costs 2024–1 in a like
manner that is fair, reasonable, and
equitably allocated among FINRA’s
member firms in their capacity as CAT
Executing Brokers.
Prospective CAT Cost Recovery Fee
2024–1 is designed substantially to
recover FINRA’s designated portion of
budgeted CAT costs to be incurred by
CAT LLC associated with the
development, implementation, and
40 See supra note 16 and note 31 and
accompanying text.
41 See CAT Funding Model Approval Order, 88
FR 62628, 62645.
42 See CAT Funding Model Approval Order, 88
FR 62628, 62636.
43 See supra note 41.
44 See supra note 16.
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operation of the CAT system under the
CAT NMS Plan. Thus, Prospective CAT
Cost Recovery Fee 2024–1 also generally
is designed to support FINRA’s efforts to
align its operating expenses with its
operating revenues, target break-even
cash flows, and continue to responsibly
manage expenses driven by mandatory
initiatives, like the CAT NMS Plan, in
a manner consistent with FINRA’s
public Financial Guiding Principles.45
FINRA’s approach in determining
Prospective CAT Cost Recovery Fee
2024–1, which generally is consistent
with the approach provided for under
the SEC-approved CAT Funding Model,
is also reasonable and consistent with
the Exchange Act. Specifically, similar
to the CAT cost assessment
methodology approved by the
Commission, FINRA proposes to
allocate equally among member CEBBs
and CEBSs FINRA’s designated portion
of the Participants’ one-third share of
Budgeted CAT Costs 2024–1.46 FINRA
proposes to determine the rate for
Prospective CAT Cost Recovery Fee
2024–1 by dividing the fee rate assessed
to the Participants in connection with
the implementation of CAT Fee 2024–1,
i.e., $0.000035 per executed equivalent
share, by two and then truncating the
result to six decimal places such that
member CEBBs and CEBSs would each
be subject to an equal fee, i.e.,
$0.000017 per executed equivalent
share, for each transaction in Eligible
Securities executed otherwise than on
an exchange. Therefore, for each month
that Prospective CAT Cost Recovery Fee
2024–1 is in effect, member CEBBs and
CEBSs will pay a fee to FINRA based on
the same transactions used to determine
fees payable by CEBBs and CEBSs to
CAT LLC under CAT Fee 2024–1 for offexchange transactions.47 FINRA
45 See FINRA’s Financial Guiding Principles,
https://www.finra.org/sites/default/files/finra_
financial_guiding_principles_0.pdf. See also
Securities Exchange Act Release No. 90176 (October
14, 2020), 85 FR 66592, 66602–03 (October 20,
2020) (Notice of Filing and Immediate Effectiveness
of File No. SR–FINRA–2020–032).
46 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 FINRA’s equity trade
reporting facilities recorded in CAT Data, charging
CAT Executing Brokers could streamline the billing
process. See CAT Funding Model Approval Order,
88 FR 62628, 62629.
47 Based on historical executed equivalent share
volumes in Eligible Securities where FINRA was
the relevant Participant, FINRA would expect to
recoup roughly $3.6 million per month during the
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73461
believes that this approach is reasonable
in that, as is the case with the SECapproved CAT Funding Model, it
apportions the assessed fee for members
equally between the CAT Executing
Broker for the buyer and the seller.48
FINRA believes that it is reasonable,
appropriate, and consistent with the
Exchange Act to determine Prospective
CAT Cost Recovery Fee 2024–1 by
dividing CAT Fee 2024–1, i.e.,
$0.000035 per executed equivalent
share, by two (which equals
$0.0000175) and then truncating the
result to six decimal places such that
member CEBBs and CEBSs would each
be subject to an equal fee of $0.000017
per executed equivalent share. As
discussed above, equally apportioning
the fee between the CEBBs and CEBSs
is consistent with the approach to
apportioning costs between Executing
Brokers under the SEC-approved CAT
Funding Model.49 In addition, FINRA
believes it is reasonable and appropriate
at this time to truncate half of CAT Fee
2024–1 to limit the Prospective CAT
Cost Recovery Fee 2024–1 fee rate to six
decimal places. As noted above and in
File No. SR–FINRA–2024–011, CAT
LLC determined to use six decimal
places for the CAT Fee 2024–1 fee rate
to balance the accuracy of the
calculation with the potential systems
and other impracticalities of using
additional decimal places in the
calculation. FINRA likewise believes
that it is appropriate at this time to use
six decimal places to maintain
consistency with the approach
determined by CAT LLC, to which
members have been testing since earlier
this year, which should reduce potential
complexity in connection with the fee
and billing structure for Prospective
CAT Cost Recovery Fee 2024–1.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA 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. Section
15A(b)(9) of the Act 50 requires that
FINRA’s rules not impose any burden
on competition that is not necessary or
appropriate in furtherance of the
purpose of the Exchange Act. FINRA
notes that Prospective CAT Cost
Recovery Fee 2024–1 is designed to
time that Prospective CAT Cost Recovery Fee 2024–
1 is in effect. See supra note 31.
48 See supra note 46.
49 See supra note 46.
50 15 U.S.C. 78o-3(b)(9).
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Federal Register / Vol. 89, No. 175 / Tuesday, September 10, 2024 / Notices
assist FINRA in meeting its regulatory
obligations pursuant to the Plan.
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.51 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.52 Based on
this analysis, the SEC approved the CAT
Funding Model as compliant with the
Exchange Act. The Prospective CAT
Cost Recovery Fee 2024–1 framework
generally is consistent with the fee
framework of the CAT Funding Model,
as approved by the SEC.
As discussed in File No. SR–FINRA–
2024–011, each of the inputs into the
calculation of CAT Fee 2024–1 is
reasonable and the resulting fee rate for
CAT Fee 2024–1 is reasonable.
Therefore, Prospective CAT Cost
Recovery Fee 2024–1, for these same
reasons, is reasonable and would not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purpose of the
Exchange Act.
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Economic Impact Assessment
Based on the regulatory need
discussed above, FINRA has undertaken
an economic impact assessment, as set
forth below, to analyze the potential
economic impacts of the proposed rule
change, including potential costs,
benefits, and distributional and
competitive effects, relative to the
current baseline.
Regulatory Need
As discussed above under the
‘‘FINRA’s Designated Portion of
Budgeted CAT Costs 2024–1’’ section,
FINRA is filing a proposed rule change
to establish Prospective CAT Cost
Recovery Fee 2024–1 substantially to
recover its designated portion of the
Participants’ share of Budgeted CAT
Costs 2024–1. FINRA intends that the
fee framework and timeline for
Prospective CAT Cost Recovery Fee
51 See CAT Funding Model Approval Order, 88
FR 62628, 62678–86.
52 See supra note 51.
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2024–1 generally correspond to the fee
framework and timeline put in place by
CAT LLC with respect to CAT Fee
2024–1, as provided for in File No. SR–
FINRA–2024–011 and as discussed
above.
Economic Baseline
Also, as discussed above under the
‘‘FINRA’s Designated Portion of
Budgeted CAT Costs 2024–1’’ section,
FINRA arrived at the fee rate for
Prospective CAT Cost Recovery Fee
2024–1 by dividing by two the fee rate
assessed to the Participants in
connection with the implementation of
CAT Fee 2024–1, i.e., $0.000035 per
executed equivalent share, and
truncating the result to six decimal
places.53
For the twelve months from June 1,
2023, through May 31, 2024, based on
transactions reported to a FINRA TRF or
to the ORF, there were 896 firm MPIDs
that executed at least one purchase or
sale of an equivalent share of an Eligible
Security.54 The top 50 MPIDs by
reported executed equivalent share
volume bought and/or sold
2,161,308,428,108 equivalent shares, or
85.08% of total shares bought and/or
sold.
Economic Impacts
FINRA’s proposal substantially to
recover its designated portion of the
Participants’ share of Prospective CAT
Costs applies an approach generally
consistent with the CAT Funding Model
as approved by the SEC in that it
assesses half of the fee rate that is
assessed to FINRA under CAT Fee
2024–1 (truncated to six decimal places)
to each of the CEBB and CEBS for
transactions where FINRA is the
relevant Participant.55 With regard to
off-exchange transactions in Eligible
Securities, generally the same members
that will be assessed Prospective CAT
Cost Recovery Fee 2024–1 will also be
assessed CAT Fee 2024–1. Therefore,
FINRA’s proposed approach in
substantially recovering its designated
portion of Budgeted CAT Costs 2024–1
53 See
also File No. SR–FINRA–2024–011.
the twelve months from June 1, 2023,
through May 31,2024, approximately 1.25 trillion
shares of NMS stocks were reported to the TRF, and
approximately 1.16 trillion shares of OTC Equity
Securities were reported to ORF. Given that each
executed share for a transaction in an OTC Equity
Security is counted as 0.01 equivalent share, FINRA
estimates that the executed equivalent share volume
for NMS stocks and OTC Equity Securities reported
to a FINRA equity trade reporting facility in that
twelve-month period is approximately 1.26 trillion
shares. Dividing that figure by twelve provides the
average monthly executed equivalent share volume
of approximately 104.7 billion shares.
55 See also File No. SR–FINRA–2024–011 and
CAT Funding Model Approval Order, 88 FR 62628.
54 For
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should reduce potential complexity in
connection with the fee and billing
structure for Prospective CAT Cost
Recovery Fee 2024–1.56
As the SEC noted in approving the
revised CAT Funding Model, if FINRA
passes on its portion of the CAT fee
allocation to its member firms and
exchanges choose not to pass through
their CAT fee allocations to their
members, the cost to transact offexchange may increase relative to
executing on an exchange, potentially
giving exchanges a competitive
advantage.57 However, we do not know
whether or to what extent (or how) the
exchanges may seek to recover their
portion of the Budgeted CAT Costs
2024–1, and we do not know whether or
to what extent member firms will
choose to pass through exchangeincurred CAT fees to customers. We also
note that FINRA members remain
subject to regulatory obligations, such as
best execution obligations, with respect
to their order routing decisions.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Exchange Act 58
and Rule 19b–4(f)(2) thereunder,59
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.
56 See supra notes 29 through 31 and
accompanying text.
57 See CAT Funding Model Approval Order, 88
FR 62628, 62684.
58 15 U.S.C. 78s(b)(3)(A)(ii).
59 17 CFR 240.19b–4(f)(2).
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Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
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–FINRA–2024–012 on the subject
line.
Paper Comments
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• 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–FINRA–2024–012. 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
FINRA. 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–FINRA–2024–012 and
should be submitted on or before
October 1, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.60
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–20323 Filed 9–9–24; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–100918; File No. SR–NYSE–
2024–47]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change To
Amend Section 102.01 of the NYSE
Listed Company Manual To Provide
That the Distribution Standard Therein
Will Be Calculated on a Worldwide
Basis
September 4, 2024.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on August
22, 2024, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory 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 proposes to amend
Section 102.01 of the NYSE Listed
Company Manual to provide that the
distribution standard therein will be
calculated on a worldwide basis. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
60 17
CFR 200.30–3(a)(12).
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73463
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Section 102.01A of the Manual sets
forth the Exchange’s minimum initial
listing requirements with respect to
distribution for companies seeking to
list under the Exchange’s ‘‘domestic’’
initial listing standards. A note included
in Section 102.01B (under the heading
‘‘Calculations under the Distribution
Criteria’’) provides that, when
considering a listing application from a
company organized under the laws of
Canada, Mexico or the United States
(‘‘North America’’), the Exchange will
include all North American holders and
North American trading volume in
applying the minimum stockholder and
trading volume requirements of Section
102.01A.
Notwithstanding the foregoing, the
note included in Section 102.01B also
provides that, in connection with the
listing of any issuer from outside North
America, the Exchange will have the
discretion, but will not be required, to
consider holders and trading volume in
the company’s home country market or
primary trading market outside the
United States in determining whether a
company is qualified for listing under
Section 102.01, provided such market is
a regulated stock exchange. The note
specifies that, in exercising this
discretion, the Exchange would
consider all relevant factors including:
(i) whether the information was derived
from a reliable source, preferably either
a regulated securities market or a
transfer agent that was subject to
governmental regulation; (ii) whether
there existed efficient mechanisms for
the transfer of securities between the
company’s non-U.S. trading market and
the United States; and (iii) the number
of shareholders and the extent of trading
in the company’s securities in the
United States prior to the listing.
The Exchange proposes to amend the
note in Section 102.01B under the
heading ‘‘Calculations under the
Distribution Criteria’’ to provide that,
when considering a listing application
from a company regardless of whether
the company is domestic or foreign, the
Exchange will include all holders on a
global basis and worldwide trading
volume in applying the minimum
stockholder and trading volume
requirements of Section 102.01A. As the
discretion provided with respect to the
inclusion of non-U.S. holders and
trading volume in the current rule
would no longer be relevant if there was
no geographic limitation on the
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]]>Agencies
[Federal Register Volume 89, Number 175 (Tuesday, September 10, 2024)]
[Notices]
[Pages 73457-73463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-20323]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100920; File No. SR-FINRA-2024-012]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Adopt FINRA Rule 6897(b) (CAT Cost Recovery
Fees) 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 4, 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 26, 2024, the Financial Industry Regulatory
Authority, Inc. (``FINRA'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
FINRA. FINRA has designated the proposed rule change as ``establishing
or changing a due, fee or other charge'' under Section 19(b)(3)(A)(ii)
of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the
proposal effective upon receipt of this filing by the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt FINRA Rule 6897(b) (CAT Cost Recovery
Fees) to implement a Consolidated Audit Trail (``CAT'') cost recovery
fee designed to permit FINRA substantially to recoup its designated
portion of the reasonably budgeted CAT costs of the National Market
System Plan Governing the Consolidated Audit Trail (the ``CAT NMS
Plan'' or ``Plan'') for the period of July 16, 2024 through December
31, 2024.\5\
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\5\ Pursuant to Section 11.3(a) of the CAT NMS Plan, FINRA filed
a separate proposed rule change to establish fees assessed to
Industry Members, payable to Consolidated Audit Trail, LLC, related
to reasonably budgeted CAT costs for the period of July 16, 2024
through December 31, 2024. See File No. SR-FINRA-2024-011. Unless
otherwise specified, capitalized terms used in this rule filing are
defined as set forth in the CAT NMS Plan and FINRA Rule 6800 Series
(Consolidated Audit Trail Compliance Rule).
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The text of the proposed rule change is available on FINRA's
website at https://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA 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. FINRA 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
Background
On July 11, 2012, the Commission adopted Rule 613 of Regulation
NMS, which required the self-regulatory organizations 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.\6\ On November 15, 2016, the Commission approved the CAT NMS
Plan.\7\ Under the CAT NMS Plan, the Operating Committee has the
discretion to establish funding for Consolidated Audit Trail, LLC
(``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.\8\ The Operating Committee
adopted a revised funding model to fund the CAT (``CAT Funding Model'')
and, 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.\9\
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\6\ See Securities Exchange Act Release No. 67457 (July 18,
2012), 77 FR 45722 (August 1, 2012).
\7\ See Securities Exchange Act Release No. 79318 (November 15,
2016), 81 FR 84696 (November 23, 2016) (``CAT NMS Plan Approval
Order'').
\8\ See Section 11.1(b) of the CAT NMS Plan.
\9\ See Securities Exchange Act Release No. 98290 (September 6,
2023), 88 FR 62628 (September 12, 2023) (``CAT Funding Model
Approval Order'').
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The CAT Funding Model provides a framework for the recovery of the
costs to create, develop, and maintain the CAT, including providing a
method for allocating costs to fund the CAT among Participants and
Industry Members. The CAT Funding Model establishes two categories of
fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry
Members to recover a portion of historical CAT costs previously paid by
the Participants; \10\ and (2) CAT fees assessed by CAT LLC and payable
by Participants and Industry Members to fund Prospective CAT Costs,
i.e., costs not previously paid by the Participants.\11\
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\10\ See Section 11.3(b) of the CAT NMS Plan.
\11\ See Section 11.3(a) of the CAT NMS Plan.
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With respect to CAT fees implemented to fund Prospective CAT Costs,
to date, the CAT Operating Committee has established CAT Fee 2024-1 to
implement fees payable by Industry Members regarding reasonably
budgeted Prospective CAT Costs for the period July 16, 2024 through
December 31, 2024 (``Budgeted CAT Costs 2024-1'').\12\ Consistent with
the Plan, the Operating Committee has also established fees payable to
CAT LLC by the Participants to collect the Participants' designated
portion of Budgeted CAT Costs 2024-1.\13\
[[Page 73458]]
Participants would only be required to pay such fees once CAT Fee 2024-
1 is in effect with regard to Industry Members in accordance with
Section 19(b) of the Exchange Act.\14\
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\12\ As detailed in File No. SR-FINRA-2024-011, Budgeted CAT
Costs 2024-1 would be $138,476,925. Industry Members would be
collectively responsible for two-thirds of those costs or
$92,317,950, and Participants would be collectively responsible for
one-third or $46,158,975. See also Sections 11.3(a)(ii)(A) and
11.3(a)(iii)(A) of the CAT NMS Plan.
\13\ See Section 11.3(a)(ii) and Appendix B of the CAT NMS Plan;
see also CAT Funding Model Approval Order, 88 FR 62628, 62660 (``The
CAT Fees charged to Participants would be implemented through an
approval of the CAT Fees by the Operating Committee and not through
a plan amendment submitted each time the Fee Rate changes, while CAT
Fees charged to Industry Members may only become effective in
accordance with the requirements of Section 19(b) of the Exchange
Act.'').
\14\ See Section 11.3(a)(ii)(B) of the CAT NMS Plan; see also
CAT Funding Model Approval Order, 88 FR 62628, 62660 (``The
Commission also believes it is reasonable that proposed Section
11.3(a)(ii)(B) provides that the Participants would be required to
pay CAT Fees only when Industry Members are required to pay CAT
Fees.'').
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In light of the filing of File No. SR-FINRA-2024-011, which
implements CAT Fee 2024-1 with regard to Industry Members, FINRA is
filing the instant proposed rule change to establish a fee that would
allow FINRA substantially to recover the monthly fees it is required to
pay to CAT LLC towards Budgeted CAT Costs 2024-1 (``Prospective CAT
Cost Recovery Fee 2024-1''). In the Approval Order, the Commission
acknowledged that ``the Exchange Act expressly contemplates the ability
of the Participants to recoup their costs to fulfill their statutory
obligations under the Exchange Act.'' \15\ The Commission also noted
FINRA's statement ``that it would file a rule change to increase its
member fees with the filing of any proposed rule change to effectuate
the Funding Model.'' \16\ Given the approval of the CAT Funding Model
and FINRA's proposed rule change to establish CAT Fee 2024-1 to
effectuate the CAT Funding Model,\17\ FINRA is submitting this filing
to implement Prospective CAT Cost Recovery Fee 2024-1.\18\
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\15\ CAT Funding Model Approval Order, 88 FR 62628, 62636-37.
\16\ FINRA has consistently made clear its intention to file a
rule change to implement member CAT fees simultaneous with the
filing of any proposed rule change to effectuate the CAT Funding
Model. See Letter from Marcia E. Asquith, Corporate Secretary, EVP,
Board and External Relations, FINRA, to Vanessa Countryman,
Secretary, Commission, dated April 11, 2023 (``FINRA April 2023
Letter'') at 7 (``If the Funding Model is approved by the
Commission, FINRA intends to file a rule change to increase member
fees simultaneous with the filing of any proposed rule change to
effectuate the Funding Model.''); see also Letter from Marcia E.
Asquith, Corporate Secretary, EVP, Board and External Relations,
FINRA, to Vanessa Countryman, Secretary, Commission, dated June 22,
2022 (``FINRA June 2022 Letter'') at 6 (``[G]iven FINRA's unique
nature, FINRA necessarily must seek recovery in turn for the costs
it is allocated.''). FINRA also requested that, if the Commission
were to approve the CAT Funding Model, it acknowledge ``FINRA's need
and ability to cover CAT costs that are not recovered through
contractual arrangements through member fee increases, so as not to
jeopardize FINRA's ability to carry out its critical regulatory
mission.'' See CAT Funding Model Approval Order, 88 FR 62628, 62645.
\17\ See File No. SR-FINRA-2024-011.
\18\ 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.'' See Section 11.3(a)(iii)(C) of
the CAT NMS Plan. As discussed in File No. SR-FINRA-2024-011, 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. 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, Full Implementation of CAT NMS
Plan Requirements was completed on July 15, 2024. See CAT Q2 & Q3
2024 Quarterly Progress Report (July 29, 2024), https://www.catnmsplan.com/sites/default/files/2024-07/CAT_Q2-and-Q3-2024-QPR.pdf.
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FINRA's Designated Portion of Budgeted CAT Costs 2024-1
As discussed in File No. SR-FINRA-2024-011, the Operating Committee
has established CAT Fee 2024-1, payable to CAT LLC by Industry Members,
to contribute toward the recovery of two-thirds of the $138,476,925 in
Budgeted CAT Costs 2024-1 over the July 16, 2024 through December 31,
2024 period.\19\ The Operating Committee further determined that the
fee rate for CAT Fee 2024-1 is $0.0001043598251997246 per executed
equivalent share,\20\ and, under the CAT Funding Model, each of the CAT
Executing Broker for the Buyer (``CEBB''), the CAT Executing Broker for
the Seller (``CEBS''), and the relevant Participant for a given
transaction in an Eligible Security would be responsible for one-third
of that rate, or $0.000035 per executed equivalent share.\21\
Consequently, CEBBs collectively, CEBSs collectively, and the
Participants collectively will each be responsible for $46,158,975,
which is one-third of Budged CAT Costs 2024-1 during the September 1,
2024 through December 31, 2024 CAT Fee 2024-1 period.\22\
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\19\ Consistent with Section 11.3(a)(iii)(B) of the CAT NMS
Plan, Budgeted CAT Costs 2024-1 include reasonably budgeted (1)
technology line items (including cloud hosting services, operating
fees, CAIS operating fees, change request fees, and capitalized
developed technology costs), (2) legal fees, (3) consulting fees,
(4) insurance, (5) professional and administration expenses, (6)
public relations costs, and (7) a reserve. A detailed description
(including the amounts) of all such costs budgeted during the July
16, 2024 through December 31, 2024 period is provided in File No.
SR-FINRA-2024-011.
\20\ In approving the CAT Funding Model, the Commission
concluded that ``the use of executed equivalent share volume as the
basis of the proposed cost allocation methodology is reasonable and
consistent with the approach taken by the funding principles of the
CAT NMS Plan.'' See CAT Funding Model Approval Order, 88 FR 62628,
62640. Under the CAT NMS Plan, executed equivalent shares in a
transaction in Eligible Securities are reasonably counted as
follows: (1) each executed share for a transaction in NMS Stocks
will be counted as one executed equivalent share; (2) each executed
contract for a transaction in Listed Options will be counted based
on the multiplier applicable to the specific Listed Options (i.e.,
100 executed equivalent shares or such other applicable multiplier);
and (3) each executed share for a transaction in OTC Equity
Securities shall be counted as 0.01 executed equivalent share. See
Section 11.3(a)(i)(B) and 11.3(b)(i)(B) of the CAT NMS Plan.
\21\ Dividing $0.0001043598251997246 by three and rounding to
six decimal places equals $0.000035.
\22\ See File No. SR-FINRA-2024-011.
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For the twelve months from June 1, 2023 through May 31, 2024, the
average monthly executed equivalent share volume in Eligible Securities
where FINRA was the relevant Participant (i.e., off-exchange
transactions) was approximately 104.7 billion shares. Assuming similar
monthly executed equivalent share volume for off-exchange transactions
in Eligible Securities for the period of September 1, 2024 through
December 31, 2024, FINRA would be responsible for paying approximately
$3.7 million per month and approximately $14.7 million in total to CAT
LLC toward the Participants' $46,158,975 designated portion of Budgeted
CAT Costs 2024-1 (or approximately 31.8% of the total).
FINRA's recovery of its designated portion of Budgeted CAT Costs
2024-1 is reasonable and consistent with the Exchange Act. As discussed
herein and in File No. SR-FINRA-2024-011, Budgeted CAT Costs 2024-1 are
reasonable, appropriate and necessary for the creation, implementation,
and maintenance of the CAT. And the portion of Budgeted CAT Costs 2024-
1 designated to FINRA has been established under the SEC-approved CAT
Funding Model. As stated by FINRA and permitted under the Exchange Act,
FINRA will seek to recover its designated portion of the Participants'
share of CAT costs to ensure that FINRA can fulfill its regulatory
mandate and responsibilities.\23\
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\23\ See supra note 16.
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Prospective CAT Cost Recovery Fee 2024-1
FINRA is proposing to adopt Rule 6897(b) (CAT Cost Recovery Fees)
to implement Prospective CAT Cost Recovery Fee 2024-1 to allow FINRA
substantially to recover its designated portion of Budgeted CAT Costs
2024-1.\24\ FINRA intends that the fee
[[Page 73459]]
framework for the Prospective CAT Cost Recovery Fee 2024-1 would
generally correspond to the framework put in place by CAT LLC with
respect to CAT Fee 2024-1, as provided for in File No. SR-FINRA-2024-
011, as further discussed below. FINRA also intends that the timing and
commencement of payment for Prospective CAT Cost Recovery Fee 2024-1
would correspond with that established by CAT LLC with respect to CAT
Fee 2024-1, as provided for in File No. SR-FINRA-2024-011. Thus, as
with CAT Fee 2024-1, FINRA proposes that each member CAT Executing
Broker shall receive its first invoice for Prospective CAT Cost
Recovery Fee 2024-1 in October 2024, setting forth fees calculated
based on September 2024 transactions in Eligible Securities executed
otherwise than on an exchange, as reflected in CAT Data.
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\24\ In approving the CAT Funding Model, the Commission noted
that it ``believe[d] that FINRA's allocation of CAT fees likely will
be passed through to Industry Members.'' See CAT Funding Model
Approval Order, 88 FR 62628, 62684.
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The following fields of the Participant Technical Specifications
indicate the CAT Executing Brokers for transactions executed otherwise
than on an exchange.\25\
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\25\ As per Section 1.1 of the Plan, for a transaction in an
Eligible Security executed otherwise than on an exchange and
required to be reported to an equity trade reporting facility of a
registered national securities association, i.e., one of FINRA's
Trade Reporting Facilities (each a ``TRF''), OTC Reporting Facility
(``ORF'') or Alternative Display Facility (``ADF''), the CEBB and
CEBS are the Industry Members identified as the executing broker and
the contra-side executing broker in the TRF/ORF/ADF transaction data
event in CAT Data. 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, and be required
to pay the fee assessed to, both the CEBB and CEBS.
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TRF/ORF/ADF Transaction Data Event 26
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\26\ See Table 61, Section 6.1 (TRF/ORF/ADF Transaction Data
Event) of the CAT Reporting Technical Specifications for Plan
Participants.
----------------------------------------------------------------------------------------------------------------
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.
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As discussed in File No. SR-FINRA-2024-011, consistent with the CAT
Funding Model, in implementing CAT Fee 2024-1, the Operating Committee
has determined that each of the CEBB, CEBS and relevant Participant for
a given transaction in an Eligible Security would be assessed a fee of
$0.000035 per executed equivalent share.\27\ In line with this
approach, FINRA is proposing, for Prospective CAT Cost Recovery Fee
2024-1, to split the fee rate that is assessed to FINRA under CAT Fee
2024-1 between each of the CEBB and CEBS for transactions where FINRA
is the relevant Participant, subject to truncation at six decimal
places. To maintain consistency with CAT LLC's use of six decimal
places,\28\ FINRA proposes to use six decimal places for Prospective
CAT Cost Recovery Fee 2024-1.\29\ FINRA proposes to limit Prospective
CAT Cost Recovery Fee 2024-1 to six decimal places by truncating the
halved CAT Fee 2024-1 fee rate such that each member CEBB and CEBS
would pay a fee of $0.000017 per executed equivalent share for each
transaction in Eligible Securities executed otherwise than on an
exchange.\30\
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\27\ As noted in File No. SR-FINRA-2024-011, CAT LLC determined
to use six decimal places for the CAT Fee 2024-1 fee rate (i.e.,
$0.000035 per executed equivalent share) to balance the accuracy of
the calculation with the potential systems and other
impracticalities of using additional decimal places in the
calculation.
\28\ See supra note 27.
\29\ FINRA believes that it is appropriate at this time to use
six decimal places to maintain consistency with the approach
determined by CAT LLC. FINRA notes that the billing system used for
both invoices in connection with CAT Fee 2024-1 and the Prospective
CAT Cost Recovery Fee 2024-1 is configured for up to six decimal
places, making extending the fee rate for Prospective CAT Cost
Recovery Fee 2024-1 to seven decimal places impracticable in the
near term.
\30\ Dividing $0.000035 by two equals $0.0000175.
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By truncating half of the CAT Fee 2024-1 fee rate in this manner,
FINRA would recover less per executed equivalent share under
Prospective CAT Cost Recovery Fee 2024-1 ($0.000034) than it will be
invoiced each month for CAT Fee 2024-1 ($0.000035), resulting in a
total deficit of approximately $400,000 during the September 1, 2024
through December 31, 2024 period, which FINRA is not seeking to
recover.\31\
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\31\ Given that the average monthly executed equivalent share
volume in Eligible Securities where FINRA was the relevant
Participant was approximately 104.7 billion shares for the 12 months
from June 1, 2023 through May 31, 2024, and assuming similar volumes
for the period from September 1, 2024 through December 31, 2024,
FINRA would be invoiced approximately $14.7 million for CAT Fee
2024-1 but would only bill approximately $14.3 million to member
CEBBs and CEBSs via Prospective CAT Cost Recovery Fee 2024-1 during
the same period.
However, FINRA intends to avoid a similar shortfall from
occurring with respect to future fee recovery past December 2024
(e.g., by rounding up the last digit instead of truncating, or
another means of addressing this issue). The fee rate resulting from
any such determinations would be subject to a proposed rule change
filed pursuant to Section 19(b) of the Exchange Act and Rule 19b-4
thereunder.
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To implement Prospective CAT Cost Recovery Fee 2024-1, FINRA
proposes to adopt Rule 6897(b)(1)(C)(i) to provide that each member CAT
Executing Broker shall receive its first invoice from FINRA in October
2024, setting forth the Prospective CAT Cost Recovery Fee 2024-1 fees
calculated based on transactions in September 2024, and shall receive
an invoice for Prospective CAT Cost Recovery Fee 2024-1 from FINRA for
each month thereafter until January 2025. As provided in proposed Rule
6897(b)(1)(C)(ii), FINRA shall provide each member CAT Executing Broker
with an invoice for Prospective CAT Cost Recovery Fee 2024-1 on a
monthly basis (which shall be separate from the invoice provide by CAT
LLC with respect to CAT Fee 2024-1). Each monthly invoice provided by
FINRA shall set forth a fee for each transaction in Eligible Securities
executed by the CAT Executing Broker in its capacity as the CEBB and/or
the CEBS (as applicable) otherwise than on an exchange from the prior
month as set forth in CAT Data. The fee assessed to each CEBB and CEBS
for each such transaction will be calculated by multiplying the number
of executed equivalent shares in the transaction by the Prospective CAT
Cost Recovery Fee 2024-1 fee rate of $0.000017 per executed equivalent
share.
Further, as provided in proposed Rule 6897(b)(1)(C)(iii),
notwithstanding the last invoice date of January 2025 for Prospective
CAT Cost Recovery Fee 2024-1 in Rule 6897(b)(1)(C)(i), Prospective CAT
Cost Recovery Fee 2024-1 shall continue in effect after January 2025,
with each CAT Executing Broker receiving an invoice for Prospective CAT
Cost Recovery Fee 2024-1 each month, until a new subsequent Prospective
CAT Cost Recovery Fee is in effect with regard to members in accordance
with Section
[[Page 73460]]
19(b) of the Exchange Act.\32\ Proposed paragraph (b)(1)(C)(iii) of
Rule 6897 also states that FINRA will provide notice when Prospective
CAT Cost Recovery Fee 2024-1 will no longer be in effect. Proposed Rule
6897(b)(1)(C)(iv) provides that each member CAT Executing Broker shall
be required to pay each invoice for Prospective CAT Cost Recovery Fee
2024-1 as set forth in Rule 6897(b)(2).
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\32\ As noted in File No. SR-FINRA-2024-011, CAT Fee 2024-1
would continue in effect after January 2025 until a new subsequent
CAT Fee to collect the Industry Members' designated portion of
Budgeted CAT Costs is in effect, in accordance with Section 19(b) of
the Exchange Act. While CAT Fee 2024-1 remains in effect for
Industry Members, the Participants would continue to be assessed a
monthly fee based on that same fee rate, i.e., $0.000035 per
executed equivalent share. Likewise, unless amended, Prospective CAT
Cost Recovery Fee 2024-1 also would remain in effect to allow FINRA
to continue substantially to recoup funds in connection with its
monthly payment obligations under CAT Fee 2024-1, until a new CAT
Fee is established by the Operating Committee.
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FINRA also proposes to adopt Rule 6897(b)(2) (Timing and Manner of
Payments), which provides that each member CAT Executing Brokers shall
pay the CAT Cost Recovery Fees as required pursuant to Rule 6897(b)(1)
each month to FINRA in the manner prescribed by FINRA. In addition,
proposed paragraph (b)(2)(B) of Rule 6897 provides that each CAT
Executing Broker shall pay the CAT Cost Recovery Fees required pursuant
to Rule 6897(b)(1) within 30 days after receipt of an invoice or other
notice indicating payment is due (unless a longer payment period is
otherwise indicated).
Beginning with the initial invoice for Prospective CAT Cost
Recovery Fee 2024-1 in October 2024, FINRA will make available to each
member CAT Executing Broker a copy of the relevant details for fee
liable transactions executed each month otherwise than on an exchange.
Similar to the information that would be provided by CAT LLC to CAT
Executing Brokers in assessing the off-exchange portion of CAT Fee
2024-1 each month,\33\ such information would provide member CAT
Executing Brokers with the ability to understand the details regarding
the calculation of their Prospective CAT Cost Recovery Fee 2024-1 fees.
In addition, to provide transparency to the industry, FINRA will make
publicly available on its website: (i) the total amount invoiced each
month that Prospective CAT Cost Recovery Fee 2024-1 is in effect, (ii)
the total amount invoiced for Prospective CAT Cost Recovery Fee 2024-1
for all months since its commencement, (iii) the total amount that
FINRA is invoiced each month by CAT LLC in connection with CAT Fee
2024-1, (iv) the total amount that FINRA has been invoiced for CAT Fee
2024-1 for all months since its commencement, and (v) the variance,
both on a monthly and cumulative basis, between the amount invoiced by
FINRA under Prospective CAT Cost Recovery 2024-1 and the amount FINRA
is invoiced under CAT Fee 2024-1.
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\33\ See File No. SR-FINRA-2024-011.
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FINRA has filed the proposed rule change for immediate
effectiveness. The effective date and the implementation date will be
the date of filing.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\34\ which requires, among
other things, that FINRA 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 must not be designed to permit unfair
discrimination between customers, issuers, brokers or dealers. FINRA
also believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(5) of the Act,\35\ which requires, among
other things, that FINRA rules provide for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system that FINRA operates or
controls. FINRA further believes that the proposed rule change is
consistent with Section 15A(b)(9) of the Act, which requires that FINRA
rules not impose any burden on competition that is not necessary or
appropriate in furtherance of the purpose of the Exchange Act.\36\
Section 15A(b)(2) of the Act also requires that FINRA 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.\37\
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\34\ 15 U.S.C. 78o-3(b)(6).
\35\ 15 U.S.C. 78o-3(b)(5).
\36\ 15 U.S.C. 78o-3(b)(9).
\37\ See 15 U.S.C. 78o-3(b)(2).
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FINRA believes that this proposed rule change is consistent with
the Act because it is designed to assist FINRA 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.'' \38\ To the extent that this proposed rule change
implements a requirement that facilitates FINRA's achievement of its
regulatory obligations under the Plan and applies specific requirements
to FINRA members in this regard, FINRA believes that this proposed rule
change furthers the objectives of the Plan, as identified by the SEC,
and is therefore consistent with the Act.
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\38\ CAT NMS Plan Approval Order, 81 FR 84696, 84697.
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As discussed in detail in File No. SR-FINRA-2024-011, FINRA
believes that the proposed fees paid by the CEBBs and CEBSs in
connection with CAT Fee 2024-1 are reasonable, equitably allocated and
not unfairly discriminatory. Prospective CAT Cost Recovery Fee 2024-1
would similarly allow FINRA substantially to recover costs related to
CAT Fee 2024-1 from member CAT Executing Brokers in a fair and
reasonable manner, as contemplated by the Exchange Act and consistent
with the CAT Funding Model Approval Order.
Proposed Prospective CAT Cost Recovery Fee 2024-1 would be charged
to member CAT Executing Brokers 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. The proposed fees would not cover
FINRA services unrelated to the CAT and would not result in any surplus
to FINRA.\39\ Accordingly, FINRA believes that the proposed fees are
reasonable, equitable and not unfairly discriminatory.
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\39\ See supra note 31 and accompanying text.
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The reasonableness of Prospective CAT Cost Recovery Fee 2024-1 and
its consistency with the Exchange Act likewise is grounded in the facts
described above and detailed in File No. SR-FINRA-2024-011.
Specifically, the reasonably budgeted expenses that compose the portion
of Budgeted CAT Costs 2024-1 sought substantially to be recovered
through Prospective CAT Cost Recovery Fee 2024-1 were recognized by the
SEC as appropriate for recovery pursuant to the formula approved in the
CAT Funding Model (i.e., technology, legal, consulting, insurance,
professional administration, and public relations costs). FINRA has
determined that these costs, which are described in detail in File No.
SR-FINRA-2024-011, are reasonable and it is appropriate that FINRA
substantially recover its designated portion of such costs through
Prospective CAT Cost Recovery Fee
[[Page 73461]]
2024-1. FINRA also has determined that Prospective CAT Cost Recovery
Fee 2024-1 provides for the equitable allocation of fees among FINRA
members and is not unfairly discriminatory, as discussed herein.
Prospective CAT Cost Recovery Fee 2024-1 is designed to allow FINRA
to substantially recover its designated portion of Budgeted CAT Costs
2024-1, consistent with the Exchange Act and the CAT Funding Model
Approval Order.\40\ In approving the CAT Funding Model, the Commission
noted FINRA's request that it acknowledge ``FINRA's need and ability to
cover CAT costs that are not recovered through contractual arrangements
through member fee increases, so as not to jeopardize FINRA's ability
to carry out its critical regulatory mission.'' \41\ The Commission
also recognized that ``the Exchange Act expressly contemplates the
ability of the Participants to recoup their costs to fulfill their
statutory obligations under the Exchange Act.'' \42\ The Commission
further noted FINRA's statement ``that it would file a rule change to
increase its member fees with the filing of any proposed rule change to
effectuate the Funding Model.'' \43\ The instant proposed rule change
to adopt Prospective CAT Cost Recovery Fee 2024-1 represents such a fee
with respect to Budgeted CAT Costs 2024-1.
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\40\ See supra note 16 and note 31 and accompanying text.
\41\ See CAT Funding Model Approval Order, 88 FR 62628, 62645.
\42\ See CAT Funding Model Approval Order, 88 FR 62628, 62636.
\43\ See supra note 41.
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Without a mechanism to recover its CAT costs, FINRA, which is
unique among the Participants as a not-for-profit, national securities
association, would not be able to effectively sustain its regulatory
mission.\44\ Thus, consistent with the cost allocation framework put in
place by the SEC-approved CAT Funding Model, whereby CEBBs and CEBSs
share equal responsibility for the costs assessed directly to Industry
Members based on their transactions in Eligible Securities, FINRA is
seeking substantially to recoup its designated portion of Budgeted CAT
Costs 2024-1 in a like manner that is fair, reasonable, and equitably
allocated among FINRA's member firms in their capacity as CAT Executing
Brokers.
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\44\ See supra note 16.
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Prospective CAT Cost Recovery Fee 2024-1 is designed substantially
to recover FINRA's designated portion of budgeted CAT costs to be
incurred by CAT LLC associated with the development, implementation,
and operation of the CAT system under the CAT NMS Plan. Thus,
Prospective CAT Cost Recovery Fee 2024-1 also generally is designed to
support FINRA's efforts to align its operating expenses with its
operating revenues, target break-even cash flows, and continue to
responsibly manage expenses driven by mandatory initiatives, like the
CAT NMS Plan, in a manner consistent with FINRA's public Financial
Guiding Principles.\45\
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\45\ See FINRA's Financial Guiding Principles, https://www.finra.org/sites/default/files/finra_financial_guiding_principles_0.pdf. See also Securities
Exchange Act Release No. 90176 (October 14, 2020), 85 FR 66592,
66602-03 (October 20, 2020) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2020-032).
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FINRA's approach in determining Prospective CAT Cost Recovery Fee
2024-1, which generally is consistent with the approach provided for
under the SEC-approved CAT Funding Model, is also reasonable and
consistent with the Exchange Act. Specifically, similar to the CAT cost
assessment methodology approved by the Commission, FINRA proposes to
allocate equally among member CEBBs and CEBSs FINRA's designated
portion of the Participants' one-third share of Budgeted CAT Costs
2024-1.\46\ FINRA proposes to determine the rate for Prospective CAT
Cost Recovery Fee 2024-1 by dividing the fee rate assessed to the
Participants in connection with the implementation of CAT Fee 2024-1,
i.e., $0.000035 per executed equivalent share, by two and then
truncating the result to six decimal places such that member CEBBs and
CEBSs would each be subject to an equal fee, i.e., $0.000017 per
executed equivalent share, for each transaction in Eligible Securities
executed otherwise than on an exchange. Therefore, for each month that
Prospective CAT Cost Recovery Fee 2024-1 is in effect, member CEBBs and
CEBSs will pay a fee to FINRA based on the same transactions used to
determine fees payable by CEBBs and CEBSs to CAT LLC under CAT Fee
2024-1 for off-exchange transactions.\47\ FINRA believes that this
approach is reasonable in that, as is the case with the SEC-approved
CAT Funding Model, it apportions the assessed fee for members equally
between the CAT Executing Broker for the buyer and the seller.\48\
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\46\ 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 FINRA's equity trade
reporting facilities recorded in CAT Data, charging CAT Executing
Brokers could streamline the billing process. See CAT Funding Model
Approval Order, 88 FR 62628, 62629.
\47\ Based on historical executed equivalent share volumes in
Eligible Securities where FINRA was the relevant Participant, FINRA
would expect to recoup roughly $3.6 million per month during the
time that Prospective CAT Cost Recovery Fee 2024-1 is in effect. See
supra note 31.
\48\ See supra note 46.
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FINRA believes that it is reasonable, appropriate, and consistent
with the Exchange Act to determine Prospective CAT Cost Recovery Fee
2024-1 by dividing CAT Fee 2024-1, i.e., $0.000035 per executed
equivalent share, by two (which equals $0.0000175) and then truncating
the result to six decimal places such that member CEBBs and CEBSs would
each be subject to an equal fee of $0.000017 per executed equivalent
share. As discussed above, equally apportioning the fee between the
CEBBs and CEBSs is consistent with the approach to apportioning costs
between Executing Brokers under the SEC-approved CAT Funding Model.\49\
In addition, FINRA believes it is reasonable and appropriate at this
time to truncate half of CAT Fee 2024-1 to limit the Prospective CAT
Cost Recovery Fee 2024-1 fee rate to six decimal places. As noted above
and in File No. SR-FINRA-2024-011, CAT LLC determined to use six
decimal places for the CAT Fee 2024-1 fee rate to balance the accuracy
of the calculation with the potential systems and other
impracticalities of using additional decimal places in the calculation.
FINRA likewise believes that it is appropriate at this time to use six
decimal places to maintain consistency with the approach determined by
CAT LLC, to which members have been testing since earlier this year,
which should reduce potential complexity in connection with the fee and
billing structure for Prospective CAT Cost Recovery Fee 2024-1.
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\49\ See supra note 46.
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA 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. Section 15A(b)(9) of the Act
\50\ requires that FINRA's rules not impose any burden on competition
that is not necessary or appropriate in furtherance of the purpose of
the Exchange Act. FINRA notes that Prospective CAT Cost Recovery Fee
2024-1 is designed to
[[Page 73462]]
assist FINRA in meeting its regulatory obligations pursuant to the
Plan.
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\50\ 15 U.S.C. 78o-3(b)(9).
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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.\51\
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.\52\ Based on this analysis,
the SEC approved the CAT Funding Model as compliant with the Exchange
Act. The Prospective CAT Cost Recovery Fee 2024-1 framework generally
is consistent with the fee framework of the CAT Funding Model, as
approved by the SEC.
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\51\ See CAT Funding Model Approval Order, 88 FR 62628, 62678-
86.
\52\ See supra note 51.
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As discussed in File No. SR-FINRA-2024-011, each of the inputs into
the calculation of CAT Fee 2024-1 is reasonable and the resulting fee
rate for CAT Fee 2024-1 is reasonable. Therefore, Prospective CAT Cost
Recovery Fee 2024-1, for these same reasons, is reasonable and would
not impose any burden on competition that is not necessary or
appropriate in furtherance of the purpose of the Exchange Act.
Economic Impact Assessment
Based on the regulatory need discussed above, FINRA has undertaken
an economic impact assessment, as set forth below, to analyze the
potential economic impacts of the proposed rule change, including
potential costs, benefits, and distributional and competitive effects,
relative to the current baseline.
Regulatory Need
As discussed above under the ``FINRA's Designated Portion of
Budgeted CAT Costs 2024-1'' section, FINRA is filing a proposed rule
change to establish Prospective CAT Cost Recovery Fee 2024-1
substantially to recover its designated portion of the Participants'
share of Budgeted CAT Costs 2024-1. FINRA intends that the fee
framework and timeline for Prospective CAT Cost Recovery Fee 2024-1
generally correspond to the fee framework and timeline put in place by
CAT LLC with respect to CAT Fee 2024-1, as provided for in File No. SR-
FINRA-2024-011 and as discussed above.
Economic Baseline
Also, as discussed above under the ``FINRA's Designated Portion of
Budgeted CAT Costs 2024-1'' section, FINRA arrived at the fee rate for
Prospective CAT Cost Recovery Fee 2024-1 by dividing by two the fee
rate assessed to the Participants in connection with the implementation
of CAT Fee 2024-1, i.e., $0.000035 per executed equivalent share, and
truncating the result to six decimal places.\53\
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\53\ See also File No. SR-FINRA-2024-011.
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For the twelve months from June 1, 2023, through May 31, 2024,
based on transactions reported to a FINRA TRF or to the ORF, there were
896 firm MPIDs that executed at least one purchase or sale of an
equivalent share of an Eligible Security.\54\ The top 50 MPIDs by
reported executed equivalent share volume bought and/or sold
2,161,308,428,108 equivalent shares, or 85.08% of total shares bought
and/or sold.
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\54\ For the twelve months from June 1, 2023, through May
31,2024, approximately 1.25 trillion shares of NMS stocks were
reported to the TRF, and approximately 1.16 trillion shares of OTC
Equity Securities were reported to ORF. Given that each executed
share for a transaction in an OTC Equity Security is counted as 0.01
equivalent share, FINRA estimates that the executed equivalent share
volume for NMS stocks and OTC Equity Securities reported to a FINRA
equity trade reporting facility in that twelve-month period is
approximately 1.26 trillion shares. Dividing that figure by twelve
provides the average monthly executed equivalent share volume of
approximately 104.7 billion shares.
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Economic Impacts
FINRA's proposal substantially to recover its designated portion of
the Participants' share of Prospective CAT Costs applies an approach
generally consistent with the CAT Funding Model as approved by the SEC
in that it assesses half of the fee rate that is assessed to FINRA
under CAT Fee 2024-1 (truncated to six decimal places) to each of the
CEBB and CEBS for transactions where FINRA is the relevant
Participant.\55\ With regard to off-exchange transactions in Eligible
Securities, generally the same members that will be assessed
Prospective CAT Cost Recovery Fee 2024-1 will also be assessed CAT Fee
2024-1. Therefore, FINRA's proposed approach in substantially
recovering its designated portion of Budgeted CAT Costs 2024-1 should
reduce potential complexity in connection with the fee and billing
structure for Prospective CAT Cost Recovery Fee 2024-1.\56\
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\55\ See also File No. SR-FINRA-2024-011 and CAT Funding Model
Approval Order, 88 FR 62628.
\56\ See supra notes 29 through 31 and accompanying text.
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As the SEC noted in approving the revised CAT Funding Model, if
FINRA passes on its portion of the CAT fee allocation to its member
firms and exchanges choose not to pass through their CAT fee
allocations to their members, the cost to transact off-exchange may
increase relative to executing on an exchange, potentially giving
exchanges a competitive advantage.\57\ However, we do not know whether
or to what extent (or how) the exchanges may seek to recover their
portion of the Budgeted CAT Costs 2024-1, and we do not know whether or
to what extent member firms will choose to pass through exchange-
incurred CAT fees to customers. We also note that FINRA members remain
subject to regulatory obligations, such as best execution obligations,
with respect to their order routing decisions.
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\57\ See CAT Funding Model Approval Order, 88 FR 62628, 62684.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Exchange Act \58\ and Rule 19b-4(f)(2)
thereunder,\59\ because it establishes or changes a due, or fee.
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\58\ 15 U.S.C. 78s(b)(3)(A)(ii).
\59\ 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.
[[Page 73463]]
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-FINRA-2024-012 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-FINRA-2024-012. 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 FINRA. 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-FINRA-2024-012 and
should be submitted on or before October 1, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
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\60\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-20323 Filed 9-9-24; 8:45 am]
BILLING CODE 8011-01-P
