Self-Regulatory Organizations; MIAX PEARL LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Pearl Equities Fee Schedule To Establish Fees for Industry Members Related to Certain Historical Costs of the National Market System Plan Governing the Consolidated Audit Trail, 73950-73997 [2024-20478]
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Federal Register / Vol. 89, No. 176 / Wednesday, September 11, 2024 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100953; File No. SR–
PEARL–2024–37]
Self-Regulatory Organizations; MIAX
PEARL LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX Pearl
Equities Fee Schedule To Establish
Fees for Industry Members Related to
Certain Historical Costs of the National
Market System Plan Governing the
Consolidated Audit Trail
September 5, 2024.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (the ‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on August 23, 2024, MIAX PEARL, LLC
(‘‘MIAX Pearl’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the Exchange’s Fee Schedule
applicable to trading of equity securities
trading on the Exchange (the ‘‘Fee
Schedule’’) to establish fees for Industry
Members 3 related to certain historical
costs of the National Market System
Plan Governing the Consolidated Audit
Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’)
incurred prior to January 1, 2022. These
fees would be payable to Consolidated
Audit Trail, LLC (‘‘CAT LLC’’ or ‘‘the
Company’’) 4 and referred to as
Historical CAT Assessment 1, and
would be described in a section of the
Exchange’s fee schedule entitled
‘‘Consolidated Audit Trail Funding
Fees.’’ The fee rate for Historical CAT
Assessment 1 will be $0.000013 per
executed equivalent share. CAT
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 An ‘‘Industry Member’’ is defined as ‘‘a member
of a national securities exchange or a member of a
national securities association.’’ See Miami
International Securities Exchange LLC (‘‘MIAX
Rule’’) Rule 1701(u). The Exchange notes that MIAX
Chapter XVII is incorporated by reference into the
Exchange’s rulebook. As such, MIAX Chapter XVII
also applies to the Exchange. See also Section 1.1
of the CAT NMS Plan. Unless otherwise specified,
capitalized terms used in this rule filing are defined
as set forth in the CAT NMS Plan and/or the CAT
Compliance Rule. See MIAX Rule 1701.
4 The term ‘‘CAT LLC’’ may be used to refer to
Consolidated Audit Trail, LLC or CAT NMS, LLC,
depending on the context.
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Executing Brokers will receive their first
monthly invoice for Historical CAT
Assessment 1 in November 2024
calculated based on their transactions as
CAT Executing Brokers for the Buyer
(‘‘CEBB’’) and/or CAT Executing
Brokers for the Seller (‘‘CEBS’’) in
October 2024.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-equities/pearl-equities/rule-filings, at
MIAX Pearl’s principal office, 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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On July 11, 2012, the Commission
adopted Rule 613 of Regulation NMS,
which required the self-regulatory
organizations (‘‘SROs’’) to submit a
national market system (‘‘NMS’’) plan to
create, implement and maintain a
consolidated audit trail that would
capture customer and order event
information for orders in NMS securities
across all markets, from the time of
order inception through routing,
cancellation, modification or
execution.5 On November 15, 2016, the
Commission approved the CAT NMS
Plan.6 Under the CAT NMS Plan, the
Operating Committee has the discretion
to establish funding for CAT LLC to
operate the CAT, including establishing
fees for Industry Members to be assessed
by CAT LLC that would be implemented
on behalf of CAT LLC by the
Participants.7 The Operating Committee
adopted a revised funding model to
fund the CAT (‘‘CAT Funding Model’’).
5 Securities Exchange Act Rel. No. 67457 (July 18,
2012), 77 FR 45721 (Aug. 1, 2012) (‘‘Rule 613
Adopting Release’’).
6 Securities Exchange Act Rel. No. 79318 (Nov.
15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘CAT NMS
Plan Approval Order’’).
7 Section 11.1(b) of the CAT NMS Plan.
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On September 6, 2023, the Commission
approved the CAT Funding Model, after
concluding that the model was
reasonable and that it satisfied the
requirements of Section 11A of the
Exchange Act and Rule 608 thereunder.8
The CAT Funding Model provides a
framework for the recovery of the costs
to create, develop and maintain the
CAT, including providing a method for
allocating costs to fund the CAT among
Participants and Industry Members. The
CAT Funding Model establishes two
categories of fees: (1) CAT fees assessed
by CAT LLC and payable by certain
Industry Members to recover a portion
of historical CAT costs previously paid
by the Participants (‘‘Historical CAT
Assessment’’ fees); and (2) CAT fees
assessed by CAT LLC and payable by
Participants and Industry Members to
fund prospective CAT costs
(‘‘Prospective CAT Costs’’ fees).9
Under the CAT Funding Model, ‘‘[t]he
Operating Committee will establish one
or more fees (each a ‘Historical CAT
Assessment’) to be payable by Industry
Members with regard to CAT costs
previously paid by the Participants
(‘Past CAT Costs’).’’ 10 In establishing a
Historical CAT Assessment, the
Operating Committee will determine a
‘‘Historical Recovery Period’’ and
calculate a ‘‘Historical Fee Rate’’ for that
Historical Recovery Period. Then, for
each month in which a Historical CAT
Assessment is in effect, each CEBB and
CEBS would be required to pay the
fee—the Historical CAT Assessment—
for each transaction in Eligible
Securities executed by the CEBB or
CEBS from the prior month as set forth
in CAT Data, where the Historical CAT
Assessment for each transaction will be
calculated by multiplying the number of
executed equivalent shares in the
transaction by one-third and by the
Historical Fee Rate.11
8 Securities Exchange Act Rel. No. 98290 (Sept. 6,
2023), 88 FR 62628 (Sept. 12, 2023) (‘‘CAT Funding
Model Approval Order’’).
9 Under the CAT Funding Model, the Operating
Committee may establish one or more Historical
CAT Assessments. Section 11.3(b) of the CAT NMS
Plan. This filing only establishes Historical CAT
Assessment 1 related to certain Historical CAT
Costs as described herein; it does not address any
other potential Historical CAT Assessment related
to other Historical CAT Costs. In addition, under
the CAT Funding Model, the Operating Committee
also may establish CAT Fees related to CAT costs
going forward. Section 11.3(a) of the CAT NMS
Plan. This filing does not address any potential
CAT Fees related to CAT costs going forward. Any
such other fee for any other Historical CAT
Assessment or CAT Fee for Prospective CAT Costs
will be subject to a separate fee filing.
10 Section 11.3(b) of the CAT NMS Plan.
11 In approving the CAT Funding Model, the
Commission stated that, ‘‘[i]n the Commission’s
view, the proposed recovery of the Past CAT Costs
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Each Historical CAT Assessment to be
paid by CEBBs and CEBSs is designed
to contribute toward the recovery of
two-thirds of the Historical CAT Costs.
Because the Participants previously
have paid Past CAT Costs via loans to
the Company, the Participants would
not be required to pay any Historical
CAT Assessment. In lieu of a Historical
CAT Assessment, the Participants’ onethird share of Historical CAT Costs will
be paid by the cancellation of loans
made by the Participants to the
Company on a pro rata basis based on
the outstanding loan amounts due under
the loans, instead of through the
payment of a CAT fee.12 In addition, the
Participants also will be 100%
responsible for certain Excluded Costs
(as discussed below).
CAT LLC proposes to charge CEBBs
and CEBSs (as described in more detail
below) Historical CAT Assessment 1 to
recover certain historical CAT costs
incurred prior to January 1, 2022, in
accordance with the CAT Funding
Model. To implement this fee on behalf
of CAT LLC, the CAT NMS Plan
requires the Participants to ‘‘file with
the SEC under Section 19(b) of the
Exchange Act any such fees on Industry
Members that the Operating Committee
approves, and such fees shall be labeled
as ‘Consolidated Audit Trail Funding
Fees.’ ’’ 13 The Plan further states that
‘‘Participants will be required to file
with the SEC pursuant to Section 19(b)
of the Exchange Act a filing for each
Historical CAT Assessment.’’ 14
Accordingly, the purpose of this filing is
to implement a Historical CAT
Assessment on behalf of CAT LLC for
Industry Members, referred to as
Historical CAT Assessment 1, in
accordance with the CAT NMS Plan.15
The Exchange previously filed a fee
filing to implement Historical CAT
Assessment 1. On January 17, 2024, the
SEC published this prior filing for
Historical CAT Assessment 1,
temporarily suspended the fee filing,
and instituted proceedings to determine
whether to approve or disapprove the
fee filing.16 The Exchange has
withdrawn its original fee filing for
Historical CAT Assessment 1. This
Historical CAT Assessment 1 replaces
the prior Historical CAT Assessment 1
that was previously filed with the
Commission.
(1) CAT Executing Brokers
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(a) with respect to a transaction in an
Eligible Security that is executed on an
exchange, the Industry Member identified as
the Industry Member responsible for the
order on the buy-side of the transaction and
the Industry Member responsible for the sellside of the transaction in the equity order
trade event and option trade event in the
CAT Data submitted to the CAT by the
relevant exchange pursuant to the Participant
Technical Specifications; and (b) with
respect to a transaction in an Eligible
Security that is executed otherwise than on
an exchange and required to be reported to
an equity trade reporting facility of a
registered national securities association, the
Industry Member identified as the executing
broker and the Industry Member identified as
the contra-side executing broker in the TRF/
ORF/ADF transaction data event in the CAT
Data submitted to the CAT by FINRA
pursuant to the Participant Technical
Specifications; provided, however, in those
circumstances where there is a non-Industry
Member identified as the contra-side
executing broker in the TRF/ORF/ADF
transaction data event or no contra-side
executing broker is identified in the TRF/
ORF/ADF transaction data event, then the
Industry Member identified as the executing
broker in the TRF/ORF/ADF transaction data
event would be treated as CAT Executing
Broker for the Buyer and for the Seller.18
Historical CAT Assessment 1 will be
charged to each CEBB and CEBS for
The following fields of the Participant
each applicable transaction in Eligible
Technical Specifications indicate the
Securities.17 The CAT NMS Plan defines CAT Executing Brokers for the
transactions executed on an exchange.
a ‘‘CAT Executing Broker’’ to mean:
EQUITY ORDER TRADE (EOT) 19
No.
Field name
Data type
12.n.8/13.n.8 ....
member ............................
Member Alias
Include
key
Description
The identifier for the member firm that is responsible for the order
on this side of the trade. Not required if there is no order for the
side as indicated by the NOBUYID/NOSELLID instruction. This
must be provided if orderID is provided..
C
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OPTION TRADE (OT) 20
No.
Field name
Data type
16.n.13/17.n.13
member ............................
via the Historical CAT Assessment is reasonable.’’
CAT Funding Model Approval Order at 62662.
12 Section 11.3(b)(ii) of the CAT NMS Plan.
13 Section 11.1(b) of the CAT NMS Plan.
14 Section 11.3(b)(iii)(B)(I) of the CAT NMS Plan.
15 Note that there may be one or more Historical
CAT Assessments depending on the timing of the
completion of the Financial Accountability
Milestones, among other things. Section 11.3(b) of
the CAT NMS Plan.
16 Securities Exchange Act Rel. No. 99382 (Jan.
17, 2024), 89 FR 10658 (Feb. 13, 2024) (SR–PEARL–
2024–02).
17 In its approval of the CAT Funding Model, the
Commission determined that charging CAT fees to
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Member Alias
The identifier for the member firm that is responsible for the order ..
CAT Executing Brokers was reasonable. In reaching
this conclusion the Commission noted that the use
of CAT Executing Brokers is appropriate because
the CAT Funding Model is based upon the
calculation of executed equivalent shares, and,
therefore, charging CAT Executing Brokers would
reflect their executing role in each transaction.
Furthermore, the Commission noted that, because
CAT Executing Brokers are already identified in
transaction reports from the exchanges and FINRA’s
equity trade reporting facilities recorded in CAT
Data, charging CAT Executing Brokers could
streamline the billing process. CAT Funding Model
Approval Order at 62629.
18 Section 1.1 of the CAT NMS Plan. Note that
CEBBs and CEBSs may, but are not required to,
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pass-through their CAT fees to their clients, who
may, in turn, pass their fees to their clients until
they are imposed ultimately on the account that
executed the transaction. See CAT Funding Model
Approval Order at 62649.
19 See Table 23, Section 4.7 (Order Trade Event)
of the CAT Reporting Technical Specifications for
Plan Participants, Version 4.1.0-r21 (Apr. 15, 2024),
https://www.catnmsplan.com/sites/default/files/
2024-04/04.15.2024-CAT_Reporting_Technical_
Specifications_for_Participants_4.1.0-r21.pdf
(‘‘CAT Reporting Technical Specifications for Plan
Participants’’).
20 See Table 51, Section 5.2.5.1 (Simple Option
Trade Event) of the CAT Reporting Technical
Specifications for Plan Participants.
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In addition, the following fields of the
Participant Technical Specifications
would indicate the CAT Executing
Brokers for the transactions executed
otherwise than on an exchange.
TRF/ORF/ADF TRANSACTION DATA EVENT (TRF) 21
No.
Field name
Data type
26 .....................
28 .....................
reportingExecutingMpid ....
contraExecutingMpid ........
(2) Calculation of Historical Fee Rate 1
The Operating Committee determined
the Historical Fee Rate to be used in
calculating Historical CAT Assessment
1 (‘‘Historical Fee Rate 1’’) by dividing
the Historical CAT Costs for Historical
CAT Assessment 1 (‘‘Historical CAT
Costs 1’’) by the projected total executed
share volume of all transactions in
Eligible Securities for the Historical
Recovery Period for Historical CAT
Assessment 1 (‘‘Historical Recovery
Period 1’’), as discussed in detail below.
Based on this calculation, the Operating
Committee has determined that
Historical Fee Rate 1 would be
$0.00003994969693072937 per executed
equivalent share. This rate is then
divided by three and rounded to
determine the fee rate of $0.000013 per
executed equivalent share that will be
assessed to CEBBs and CEBSs, as also
discussed in detail below.
(A) Executed Equivalent Shares for
Transactions in Eligible Securities
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Under the CAT NMS Plan, for
purposes of calculating each Historical
CAT Assessment, executed equivalent
shares in a transaction in Eligible
Securities will be reasonably counted as
follows: (1) each executed share for a
transaction in NMS Stocks will be
counted as one executed equivalent
share; (2) each executed contract for a
transaction in Listed Options will be
counted based on the multiplier
applicable to the specific Listed Options
(i.e., 100 executed equivalent shares or
such other applicable multiplier); and
21 See Table 61, Section 6.1 (TRF/ORF/ADF
Transaction Data Event) of the CAT Reporting
Technical Specifications for Plan Participants.
22 Section 11.3(a)(i)(B) and 11.3(b)(i)(B) of the
CAT NMS Plan. In approving the CAT Funding
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Member Alias
Member Alias
MPID of the executing party ...............................................................
MPID of the contra-side executing party. ...........................................
(3) each executed share for a transaction
in OTC Equity Securities shall be
counted as 0.01 executed equivalent
share.22
(B) Historical CAT Costs 1
The CAT NMS Plan states that ‘‘[t]he
Operating Committee will reasonably
determine the Historical CAT Costs
sought to be recovered by each
Historical CAT Assessment, where the
Historical CAT Costs will be Past CAT
Costs minus Past CAT Costs reasonably
excluded from Historical CAT Costs by
the Operating Committee. Each
Historical CAT Assessment will seek to
recover from CAT Executing Brokers
two-thirds of Historical CAT Costs
incurred during the period covered by
the Historical CAT Assessment.’’ 23 As
described in detail below, Historical
CAT Costs 1 would be $318,059,819.
This figure includes Past CAT Costs of
$401,312,909 minus certain Excluded
Costs of $83,253,090. Participants
collectively will remain responsible for
one-third of Historical CAT Costs 1
(which is $106,019,939.67), plus the
Excluded Costs of $83,253,090. CEBBs
collectively will be responsible for onethird of Historical CAT Costs 1 (which
is $106,019,939.67), and CEBSs
collectively will be responsible for onethird of Historical CAT Costs 1 (which
is $106,019,939.67). The following
describes in detail Historical CAT Costs
1 with regard to four separate historical
time periods as well as Past CAT Costs
excluded from Historical CAT Costs 1
(‘‘Excluded Costs’’). The following cost
details are provided in accordance with
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
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the requirement in the CAT NMS Plan
to provide in the fee filing ‘‘a brief
description of the amount and type of
Historical CAT Costs, including (1) the
technology line items of cloud hosting
services, operating fees, CAIS operating
fees, change request fees, and
capitalized developed technology costs,
(2) legal, (3) consulting, (4) insurance,
(5) professional and administration and
(6) public relations costs.’’ 24 Each of the
costs described below are reasonable,
appropriate and necessary for the
creation, implementation and
maintenance of CAT.
(i) Historical CAT Costs Incurred Prior
to June 22, 2020 (Pre-FAM Costs)
Historical CAT Costs 1 would include
costs incurred by CAT prior to June 22,
2020 (‘‘Pre-FAM Period’’) and already
funded by the Participants, excluding
Excluded Costs (described further
below). Historical CAT Costs 1 would
include costs for the Pre-FAM Period of
$124,290,730. The Participants would
remain responsible for one-third of this
cost (which they have previously paid)
($41,430,243.33), and Industry Members
would be responsible for the remaining
two-thirds, with CEBBs paying onethird ($41,430,243.33) and CEBSs
paying one-third ($41,430,243.33).
These costs do not include Excluded
Costs, as discussed further below. The
following table breaks down Historical
CAT Costs 1 for the Pre-FAM Period
into the categories set forth in Section
11.3(b)(iii)(B)(II) of the CAT NMS Plan.
by the funding principles of the CAT NMS Plan.’’
CAT Funding Model Approval Order at 62640.
23 Section 11.3(b)(i)(C) of the CAT NMS Plan.
24 Section 11.3(b)(iii)(B)(II)(B) of the CAT NMS
Plan.
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Historical CAT costs 1 for
pre-FAM period
(prior to June 22, 2020) *
Operating expense
Capitalized Developed Technology Costs ** ...............................................................................................................
Technology Costs: .......................................................................................................................................................
Cloud Hosting Services ........................................................................................................................................
Operating Fees .....................................................................................................................................................
CAIS Operating Fees ...........................................................................................................................................
Change Request Fees .........................................................................................................................................
Legal ............................................................................................................................................................................
Consulting ....................................................................................................................................................................
Insurance .....................................................................................................................................................................
Professional and administration ..................................................................................................................................
Public relations ............................................................................................................................................................
$51,847,150
33,568,579
10,268,840
21,085,485
2,072,908
141,346
19,674,463
17,013,414
880,419
1,082,036
224,669
Total Operating Expenses ....................................................................................................................................
124,290,730
* The costs described in this table of costs for the Pre-FAM Period were calculated based upon CAT LLC’s review of applicable bills and invoices and related financial statements. CAT LLC financial statements are available on the CAT website. In addition, in accordance with Section
6.6(a)(i) of the CAT NMS Plan, in 2018 CAT LLC provided the SEC with ‘‘an independent audit of fees, costs, and expenses incurred by the Participants on behalf of the Company prior to the Effective Date of the Plan that will be publicly available.’’ The audit is available on the CAT
website.
** The non-cash amortization of these capitalized developed technology costs of $2,115,545 incurred during the period prior to June 22, 2020
have been appropriately excluded from the above table.25
The Pre-FAM Period includes a broad
range of CAT-related activity from 2012
through June 22, 2020, including the
evaluation of the requirements of SEC
Rule 613, the development of the CAT
NMS Plan, the evaluation and selection
of the initial and successor Plan
Processors, the commencement of the
creation and implementation of the CAT
to comply with Rule 613 and the CAT
NMS Plan, including technical
specifications for transaction reporting
and regulatory access, and related
technology and the commencement of
reporting to the CAT. The following
describes the costs for each of the
categories for the Pre-FAM Period.
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(a) Technology Costs—Cloud Hosting
Services
The $10,268,840 in technology costs
for cloud hosting services represent
costs incurred for services provided by
the cloud services provider for the CAT,
Amazon Web Services, Inc. (‘‘AWS’’),
during the Pre-FAM Period.
As part of its proposal for acting as
the successor Plan Processor for the
CAT, FCAT selected AWS as a
subcontractor to provide cloud hosting
services. In 2019, after reviewing the
capabilities of other cloud services
providers, FCAT determined that AWS
was the only cloud services provider at
that time sufficiently mature and
capable of providing the full suite of
necessary cloud services for the CAT,
25 With respect to certain costs that were
‘‘appropriately excluded,’’ such excluded costs
relate to the amortization of capitalized technology
costs, which are amortized over the life of the Plan
Processor Agreement. As such costs have already
been otherwise reflected in the filing, their
inclusion would double count the capitalized
technology costs. In addition, amortization is a noncash expense.
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including, for example, the security,
resiliency and complexity necessary for
the CAT computing requirements. The
use of cloud hosting services is standard
for this type of high-volume data
activity and reasonable and necessary
for implementation of the CAT,
particularly given the substantial data
volumes associated with the CAT.
Under the Plan Processor Agreement
with FCAT, CAT LLC is required to pay
FCAT the fees incurred by the Plan
Processor for cloud hosting services
provided by AWS as FCAT’s
subcontrator [sic] on a monthly basis for
the cloud hosting services, and FCAT,
in turn, pays such fees to AWS. The fees
for cloud hosting services were
negotiated by FCAT on an arm’s length
basis with the goals of managing cost
and receiving services required to
comply with the CAT NMS Plan and
Rule 613, taking into consideration a
variety of factors, including the
expected volume of data, the breadth of
services provided and market rates for
similar services. The fees for cloud
hosting services during the Pre-FAM
Period were paid to FCAT by CAT NMS,
LLC 26 and subsequently Consolidated
Audit Trail, LLC (as previously noted,
both entities are referred to generally as
‘‘CAT LLC’’),27 and FCAT, in turn, paid
26 CAT NMS, LLC was formed by FINRA and the
U.S. national securities exchanges to implement the
requirements of SEC Rule 613 under the Exchange
Act. SEC Rule 613 required the SROs to jointly
submit to the SEC the CAT NMS Plan to create,
implement and maintain the CAT. The SEC
approved the CAT NMS Plan on November 15,
2016. CAT NMS Plan Approval Order.
27 On August 29, 2019, the Participants formed a
new Delaware limited liability company named
Consolidated Audit Trail, LLC for the purpose of
conducting activities related to the CAT from and
after the effectiveness of the proposed amendment
of the CAT NMS Plan to replace CAT NMS, LLC.
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AWS. CAT LLC was funded via loan
contributions by the Participants.28
AWS was engaged by FCAT to
provide a broad array of cloud hosting
services for the CAT, including data
ingestion, data management, and
analytic tools. Services provided by
AWS include storage services,
databases, compute services and other
services (such as networking,
management tools and DevOps tools).
AWS also was engaged to provide
various environments for CAT, such as
development, performance testing, test
and production environments.
The cost for AWS services for the
CAT is a function of the volume of CAT
Data. The greater the amount of CAT
Data, the greater the cost of AWS
services to the CAT. During the PreFAM Period from the engagement of
AWS in February 2019 through June
2020, AWS provided cloud hosting
services for volumes of CAT Data far in
excess of the volume predictions set
forth in the CAT NMS Plan. The CAT
NMS Plan states, when all CAT
Reporters are submitting their data to
the CAT, it ‘‘must be sized to receive[,]
process and load more than 58 billion
records per day,’’ 29 and that ‘‘[i]t is
expected that the Central Repository
will grow to more than 29 petabytes of
raw, uncompressed data.’’ 30 However,
See Securities Exchange Act Rel. No. 87149 (Sept.
27, 2019), 84 FR 52905 (Oct. 3, 2019).
28 For each of the costs paid by CAT NMS, LLC
and Consolidated Audit Trail, LLC as discussed
throughout this filing, CAT NMS, LLC and
Consolidated Audit Trail, LLC paid these costs via
loan contributions by the Participants to CAT NMS,
LLC and Consolidated Audit Trail, LLC,
respectively.
29 Appendix D–4 of the CAT NMS Plan at n.262.
30 Appendix D–5 of the CAT NMS Plan.
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the volume of CAT Data for the PreFAM Period was far in excess of these
predicted levels. By the end of this
period, data submitted to the CAT
included options and equities
Participant Data,31 Phase 2a and Phase
2b Industry Member Data 32 (including
certain linkages), as well as SIP Data,33
reference data and other types of Other
Data.34 The following chart provides
data regarding the average daily volume,
cumulative total events, total compute
hours and storage footprint of the CAT
during the Pre-FAM Period.35
Date Range:
3/29/19 to 4/12/20 *
Average Daily Volume in Billions:
Participant—Equities ........................................................................................................
Participant—Options .........................................................................................................
Industry Member—Equities ..............................................................................................
Industry Member—Options ...............................................................................................
SIP—Options & Equities ..................................................................................................
Average Total Daily Volume .............................................................................................
Cumulative Total Events for the Period ..................................................................................
Total Compute Hours for the Period .......................................................................................
Storage Footprint at End of Period (Petabytes) ......................................................................
5
80
........................................
........................................
64
149
3,890
N/A ***
30.57
Date Range:
4/13/20 to 6/21/20 **
5
981
3
0.04
70
166
4,990
5,663,247
47.96
* The Participant Equities in RSA format.
** Start of Industry Member reporting on 4/13/2020.
*** Note that, although there were compute hours during this period, data related to such compute hours are no longer available in current
data.
(b) Technology Costs—Operating Fees
The $21,085,485 in technology costs
related to operating fees represent costs
incurred with regard to activities of
FCAT as the Plan Processor. Operating
fees are those fees paid by CAT LLC to
FCAT as the Plan Processor to operate
and maintain the CAT and to perform
business operations related to the
system, including compliance, security,
testing, training, communications with
the industry (e.g., management of the
FINRA CAT Helpdesk, FAQs, website
and webinars) and program
management as required by the CAT
NMS Plan.
FCAT was selected to assume the role
of the successor Plan Processor. Prior to
this selection, the Participants engaged
in discussions with two prior Bidders 36
for the successor Plan Processor role.
The Operating Committee formed a
Selection Subcommittee in accordance
with Section 4.12 of the CAT NMS Plan
to evaluate and review Bids and to make
a recommendation to the Operating
Committee with respect to the selection
of the successor Plan Processor. In an
April 9, 2019 letter to the Commission,
the Participants described the reasons
for its selection of the successor Plan
Processor:
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The Selection Subcommittee considered
factors including, but not limited to, the
following, in recommending FINRA to the
Operating Committee as the successor Plan
Processor:
31 See
Section 6.3(d) of the CAT NMS Plan.
Securities Exchange Rel. No. 88702 (Apr.
20, 2020), 85 FR 23075 (Apr. 24, 2020) (‘‘Phased
Reporting Exemptive Relief Order’’) for a
description of Phase 2a and Phase 2b Industry
Member Data.
33 See Section 6.5(a)(ii) of the CAT NMS Plan.
32 See
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a. FINRA’s specialized technical expertise
and capabilities in the area of broker-dealer
technology;
b. The need to appoint a successor Plan
Processor with specialized expertise to
develop, implement, and maintain the CAT
System in accordance with the CAT NMS
Plan and SEC Rule 613;
c. FINRA’s detailed proposal in response to
CATLLC’s recent inquiries; and
d. FINRA’s data query and analytics
systems demonstration to the Participants.
Based on these and other factors, the
Selection Subcommittee determined that
FINRA was the most appropriate Bidder to
become the successor Plan Processor.37
On February 26, 2019, the Operating
Committee (with FINRA recusing itself)
voted to select FINRA as the successor
Plan Processor pursuant to Section 6.1(t)
of the CAT NMS Plan.38 On March 29,
2019, CAT LLC and FCAT (a wholly
owned subsidiary of FINRA) entered
into a Plan Processor Agreement
pursuant to which FCAT would perform
the functions and duties of the Plan
Processor contemplated by the CAT
NMS Plan, including the management
and operation of the CAT.
Under the Plan Processor Agreement
with FCAT, CAT LLC is required to pay
FCAT a negotiated monthly fixed price
for the operation of the CAT. This fixed
price contract was negotiated on an
arm’s length basis with the goals of
managing costs and receiving services
required to comply with the CAT NMS
Plan and Rule 613, taking into
consideration a variety of factors,
34 See
appendix C–108 of the CAT NMS Plan.
that the volume data described in this
table does not include CAIS data.
36 The term ‘‘Bidder’’ is defined in Section 1.1 of
the CAT NMS Plan.
37 Letter from Michael J. Simon, Chair, CAT NMS,
LLC Operating Committee, to Brent J. Fields,
35 Note
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including the breadth of services
provided and market rates for similar
types of activity. The operating fees
during the Pre-FAM Period were paid to
FCAT by CAT LLC.
From March 29, 2019 (the
commencement of the Plan Processor
Agreement with FCAT) through June 22,
2020 (the end of the Pre-FAM Period),
the Plan Processor’s activities with
respect to the CAT included the
following:
• Commenced user acceptance testing
with market data provided by Exegy
Incorporated (‘‘Exegy’’), a market data
provider; 39
• Published Technical Specifications
and related reporting scenarios
documents for Phase 2a, 2b and 2c
reporting for Industry Members, after
substantial engagement with SEC staff,
Industry Members and Participants on
the Technical Specifications;
• Facilitated testing for Phase 2a and
2b reporting for Industry Members;
• Began developing Technical
Specifications and related reporting
scenarios documents for Phase 2d
reporting for Industry Members, after
substantial engagement with SEC staff,
Industry Members and Participants on
the Technical Specifications;
• Published Central Repository
Access Technical Specifications, and
provided regulator access to test data
from Industry Members;
Secretary, SEC (Apr. 9, 2019), https://www.sec.gov/
divisions/marketreg/rule613-info-notice-of-planprocessor-selection-040919.pdf.
38 Id.
39 The use of Exegy to provide market data,
including the costs and market data provided, is
discussed below in Section 3(a)(2)(B)(i)(i).
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• Facilitated Participant exchanges
that support options market makers
sending Quote Sent Time to the CAT;
• Facilitated the introduction of
OPRA and Options NBBO Other Data to
CAT;
• Addressed compliance items,
including drafting CAT policies and
procedures, and addressing
requirements under Regulation SCI;
• Provided support to the Operating
Committee, the Compliance
Subcommittee and CAT working
groups;
• Assisted with interpretive efforts
and exemptive requests regarding the
CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the
CAT, including with regard to
Participant and Industry Member
reporting;
• Provided support to subcontractors
under the Plan Processor Agreement;
• Provided support in discussions
with Participants, the SEC and its staff;
• Operated the FINRA CAT Helpdesk,
which is the primary source for answers
to questions about CAT, including
questions regarding: clock
synchronization, firm reporting
responsibilities, interpretive questions,
technical specifications for reporting to
CAT and more;
• Facilitated communications with
the industry, including via FAQs, CAT
Alerts, meetings, presentations and
webinars;
• Administered the CAT website and
all of its content; 40 and
• Provided technical support and
assistance with connectivity, data
access, and user support, including the
use of CAT Data and query tools, for
Participants and the SEC staff.
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(c) Technology Costs—CAIS Operating
Fees
The $2,072,908 in technology costs
related to CAIS operating fees represent
the fees paid for FCAT’s subcontractor
charged with the development and
operation of CAT’s Customer and
Account Information System (‘‘CAIS’’).
The CAT is required under the CAT
NMS Plan to capture and store
Customer Identifying Information and
Customer Account Information in a
database separate from the transactional
database and to create a CAT-CustomerID for each Customer.
During the Pre-FAM Period, the CAISrelated services were provided by the
Plan Processor through the Plan
Processor’s subcontractor, Kingland
Systems Incorporation (‘‘Kingland’’).
40 The CAT website is https://
www.catnmsplan.com.
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Kingland had experience operating in
the securities regulatory technology
space, and as a part of its proposal for
acting as the Plan Processor for the CAT,
FCAT selected Kingland as a
subcontractor to provide certain CAISrelated services.
Under the Plan Processor Agreement
with FCAT, CAT LLC is required to pay
to the Plan Processor the fees incurred
by FCAT for CAIS-related services
provided by FCAT through Kingland on
a monthly basis. FCAT negotiated the
fees for Kingland’s CAIS-related services
on an arm’s length basis with the goals
of managing costs and receiving services
required to comply with the CAT NMS
Plan, taking into consideration a variety
of factors, including the services to be
provided and market rates for similar
types of activity. The fees for CAISrelated services during the Pre-FAM
Period were paid by CAT LLC to FCAT.
FCAT, in turn, paid Kingland.
During the Pre-FAM Period, Kingland
began development of the CAIS
Technical Specifications and the
building of CAIS. In addition, Kingland
also worked on the build related to the
CCID Alternative, an alternative
approach to customer information that
was not included in the CAT NMS Plan
as originally adopted.41 Furthermore,
Kingland also worked on the
acceleration of the reporting of large
trader identifiers (‘‘LTID’’) earlier than
originally contemplated during this
period, in accordance with exemptive
relief granted by the SEC.42
(d) Technology Costs—Change Request
Fees
The technology costs related to
change request fees include costs related
to certain modifications, upgrades or
other changes to the CAT. Change
requests are standard practice and
necessary to reflect operational changes,
including changes related to new market
developments, such as new market
participants. In general, if CAT LLC
determines that a modification, upgrade
or other change to the functionality or
service is necessary and appropriate,
CAT LLC will submit a request for such
a change to the Plan Processor. The Plan
Processor will then respond to the
request with a proposal for
implementing the change, including the
cost (if any) of such a change. CAT LLC
then determines whether to approve the
proposed change. The change request
costs were paid by CAT LLC to FCAT.
During the Pre-FAM Period, CAT LLC
41 For a discussion of the CCID Alternative, see
Securities Exchange Act Rel. No. 88393 (Mar. 17,
2020), 85 FR 16152 (Mar. 20, 2020).
42 Phased Reporting Exemptive Relief Order at
23079–80.
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incurred costs of $141,346 related to
change requests implemented by FCAT.
Such change requests related to a
development fee regarding the OPRA
and SIP data feeds, and the reprocessing
of certain exchange data.43
(e) Technology Costs—Capitalized
Developed Technology Costs
This category of costs includes
capitalizable application development
costs incurred in the development of the
CAT. The capitalized developed
technology costs for the Pre-FAM Period
of $51,847,150 relate to technology
provided by the Initial Plan Processor
and the successor Plan Processor.
Initial Plan Processor: Thesys CAT,
LLC. The capitalized developed
technology costs related to the Initial
Plan Processor include costs incurred
with regard to testing for Participant
reporting, Participant reporting to the
CAT, a security assessment of the CAT,
and the development of the billing
function for the CAT.
On January 17, 2017, the Selection
Committee of the CAT NMS Plan
selected the Initial Plan Processor,
Thesys Technologies, LLC, for the CAT
NMS Plan pursuant to Article V of the
CAT NMS Plan.44 The Participants
utilized a request for proposal (‘‘RFP’’)
to seek proposals to build and operate
the CAT, receiving a number of
proposals in response to the RFP. The
Participants carefully reviewed and
considered each of the proposals,
including holding in-person meetings
with each of the Bidders. After several
rounds of review, the Participants
selected the Initial Plan Processor in
accordance with the CAT NMS Plan,
taking into consideration that the Initial
Plan Processor had experience operating
in the securities regulatory technology
space, among other considerations. On
April 6, 2017, CAT LLC entered into an
agreement with Thesys CAT LLC
(‘‘Thesys CAT’’), a Thesys affiliate, to
perform the functions and duties of the
Plan Processor contemplated by the
CAT NMS Plan, including the
management and operation of the CAT.
Under the agreement, CAT LLC would
pay Thesys CAT a negotiated, fixed
price fee for its role as the Initial Plan
Processor. Effective January 30, 2019,
the Plan Processor Agreement with
Thesys CAT was terminated, and FCAT
43 Note that CAT LLC also has incurred costs
related to specific Industry Members (e.g.,
reprocessing costs related to Industry Member
reporting errors).
44 Letter from the Participants to Brent J. Fields,
Secretary, SEC (Jan. 18, 2017), https://www.sec.gov/
divisions/marketreg/rule613-info-notice-of-planprocessor-selection.pdf.
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was subsequently selected as the
successor Plan Processor.
From January 17, 2017 through
January 30, 2019, the time in which the
Thesys CAT was engaged for the CAT,
but excluding the period from
November 15, 2017 through January 30,
2019, the Initial Plan Processor engaged
in various activities with respect to the
CAT, including preparing iterative
drafts of Participant Technical
Specifications, Industry Member
Technical Specifications and the Central
Repository Access Technical
Specifications. In addition, Thesys CAT
also developed CAT technology,
addressed compliance items, including
drafting CAT policies and procedures,
addressing Regulation SCI requirements,
establishing a CAT Compliance Officer
and a Chief Information Security
Officer, addressed security-related
matters for the CAT, and worked
towards the initiation of Participant
reporting per the Participant Technical
Specifications.
Successor Plan Processor: FCAT. The
capitalized developed technology costs
related to FCAT include: (1)
development costs incurred during the
application development stage to meet
various agreed-upon milestones
regarding the CAT, including the
completion of go-live functionality
related to options ingestion and
validation, equities regulatory services
agreement query tool updates and
unlinked options data query, options
linkages release, Industry Member Phase
2a file submission and data integrity
(including error corrections), and
Industry Member testing, including
reporting relationships, ATS order type
management, basic reporting statistics,
SFTP data integrity feedback and error
correction; (2) costs related to certain
modifications, upgrades, or other
changes to the CAT that were not
contemplated by the agreement between
CAT LLC and the Plan Processor,
including a one-time development fee
for a secure analytics workspace, a onetime development fee of an Industry
Member connectivity solution, and a
one-time development fee for the
acceleration of multi-factor
authentication; (3) CAIS
implementation fees; and (4) license
fees.
(f) Legal Costs
The legal costs of $19,674,463
represent the fees paid for legal services
provided by two law firms, Wilmer
Cutler Pickering Hale and Dorr LLP
(‘‘WilmerHale’’) and Pillsbury Winthrop
Shaw Pittman LLP (‘‘Pillsbury’’), during
the Pre-FAM Period. The legal costs
exclude those costs incurred from
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November 15, 2017 through November
15, 2018.
Law Firm: WilmerHale. Following the
adoption of Rule 613, the Participants
determined it was necessary to engage
external legal counsel to advise the
Participants with respect to corporate
and regulatory legal matters related to
the CAT, including drafting and
developing the CAT NMS Plan. The
Participants considered a variety of
factors in their analysis of prospective
law firms, including (1) the firm’s
qualifications, resources and expertise;
(2) the firm’s relevant experience and
understanding of the regulatory matters
raised by the CAT and in advising on
matters of similar scope; (3) the
composition of the legal team; and (4)
professional fees. Following a series of
interviews, the Participants acting as a
consortium determined that WilmerHale
was well qualified given the balance of
these considerations and engaged
WilmerHale in February 2013.
WilmerHale’s billing rates are
negotiated on an annual basis and are
determined with reference to the rates
charged by other leading law firms for
similar work. The Participants assess
WilmerHale’s performance and review
prospective budgets and staffing plans
submitted by WilmerHale on an annual
basis. WilmerHale’s compensation
arrangements are reasonable and
appropriate, and in line with the rates
charged by other leading law firms for
similar work.
The legal costs for WilmerHale during
the Pre-FAM Period included costs
incurred from 2013 until June 22, 2020
to address corporate and regulatory legal
matters related to the CAT. The legal
fees for this law firm during the period
from February 2013 until the formation
of the CAT NMS, LLC on November 15,
2016 were paid directly by the
exchanges and FINRA to WilmerHale.
After the formation of CAT NMS LLC,
the legal fees were paid by CAT LLC to
WilmerHale.
After WilmerHale was engaged in
2013 through the end of the Pre-FAM
Period on June 22, 2020 (excluding the
legal costs from November 15, 2017
through November 15, 2018),
WilmerHale provided legal assistance to
the CAT on a variety of matters,
including with regard to the following:
• Analyzed various legal matters
associated with the Selection Plan, and
drafted an amendment to the Selection
Plan;
• Assisted with the RFP and bidding
process for the CAT Plan Processor;
• Analyzed legal matters related to
the Development Advisory Group
(‘‘DAG’’);
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• Drafted the CAT NMS Plan,
analyzed various items related to the
CAT NMS Plan, and responded to
comment letters on CAT NMS Plan;
• Provided legal support for the
formation of the legal entity, the
governance of the CAT, including
governance support prior to the
adoption of the CAT NMS Plan, which
involved support for the full committee
of exchanges and FINRA as well as
subcommittees of this group (e.g., Joint
Subcommittee Group, Technical,
Industry Outreach, Cost and Funding
and Other Products) and the DAG,
governance support during the
transition to the new governance
structure under the CAT NMS Plan, and
governance support after the adoption of
the CAT NMS Plan, which involved
support for the Operating Committee,
Advisory Committee, Compliance
Subcommittee and CAT working
groups;
• Assisted with the development of
the CAT funding model and drafted
related amendments of the CAT NMS
Plan and related filings;
• Negotiated and drafted the plan
processor agreements with the Initial
Plan Processor and the successor Plan
Processor;
• Provided assistance with
compliance with Regulation SCI;
• Assisted with clock
synchronization study;
• Provided assistance with respect to
the establishment of CAT security;
• Drafted exemptive requests from
CAT NMS Plan requirements, including
with regard to options market maker
quotes, Customer IDs, CAT Reporter IDs,
linking allocations to executions, CAT
reporting timeline, FDIDs, customer and
account information, timestamp
granularity, small industry members,
data facility reporting and linkage,
allocation reports, SRO-assigned market
participant identifiers and cancelled
trade indicators, thereby seeking to
implement changes that would be cost
effective and benefit Industry Members
and Participants;
• Assisted with the Implementation
Plan required pursuant to Section
6.6(c)(i) of the CAT NMS Plan;
• Provided advice regarding CAT
policies and procedures;
• Analyzed the SEC’s amendment of
the CAT NMS Plan regarding financial
accountability;
• Provided interpretations of and
related to the CAT NMS Plan;
• Provided support with regard to
discussions with the SEC and its staff,
including with respect to addressing
interpretive and implementation issues;
and
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• Assisted with third-party vendor
agreements.
Law Firm: Pillsbury. The legal costs
for CAT during the Pre-FAM Period
include costs related to the legal
services performed by Pillsbury. The
Participants interviewed this law firm as
well as other potential law firms to
provide legal assistance regarding
certain liability matters. After
considering a variety of factors in its
analysis, including the relevant
expertise and fees of the firm, CAT LLC
determined to hire Pillsbury in April
2019. The hourly fee rates for this law
firm were in line with market rates for
specialized legal expertise. The legal
fees were paid by CAT LLC to Pillsbury.
The legal costs for Pillsbury during the
Pre-FAM Period included costs incurred
from April 2019 until June 22, 2020 to
address legal matters regarding the
agreements between CAT Reporters and
CAT LLC concerning certain terms
associated with CAT Reporting (the
‘‘Reporter Agreement’’). During that
period, Pillsbury advised CAT LLC
regarding applicable legal matters,
participated in negotiations between the
Participants and Industry Members,
participated in meetings with senior
SEC staff, the Chairman, and
Commissioners, represented CAT LLC
and the Participants in an SEC
administrative proceeding, and drafted a
proposed amendment to the CAT NMS
Plan regarding liability matters. Liability
issues related to the CAT are important
matters that needed to be resolved and
clarified. CAT LLC’s efforts to seek such
resolution and clarity work to the
benefit of Participants, Industry
Members and other market participants.
Moreover, litigation involving CAT LLC
is an expense of operating the CAT, and,
therefore, is appropriately an obligation
of both Participants and Industry
Members under the CAT Funding
Model.
(g) Consulting Costs
The consulting costs of $17,013,414
represent the fees paid to the consulting
firm Deloitte & Touche LLP (‘‘Deloitte’’)
as project manager during the Pre-FAM
Period, from October 2012 until June 22,
2020. These consulting costs include
costs for advisory services related to the
operation of the CAT, and meeting
facilitation and communications
coordination, vendor support and
financial analyses.
To help facilitate project management
given the unprecedented complexity
and scope of the CAT project, the
Participants determined it was
necessary to engage a consulting firm to
assist with the CAT project in 2012,
following the adoption of Rule 613. A
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variety of factors were considered in the
analysis of prospective consulting firms,
including (1) the firm’s qualifications,
resources, and expertise; (2) the firm’s
relevant experience and understanding
of the regulatory issues raised by the
CAT and in coordinating matters of
similar scope; (3) the composition of the
consulting team; and (4) professional
fees. Following a series of interviews,
the exchanges and FINRA as a
consortium determined that Deloitte
was well qualified given the balance of
these considerations and engaged
Deloitte on October 1, 2012.
Deloitte’s fee rates are negotiated on
an annual basis and are in line with
market rates for this type of specialized
consulting work. CAT LLC assesses
Deloitte’s performance and reviews
prospective budgets and staffing plans
submitted by Deloitte on an annual
basis. Deloitte’s compensation
arrangements are reasonable and
appropriate, and in line with the rates
charged by other leading consulting
firms for similar work.
The consulting costs for CAT during
the period from 2012 until the formation
of the CAT NMS, LLC were paid
directly by the Participants to Deloitte.
After the formation of CAT NMS, LLC,
the consulting fees were paid by CAT
LLC to Deloitte. CAT LLC reviewed the
consulting fees each month and
approved the invoices.
After Deloitte was hired in 2012
through the end of the Pre-FAM Period
on June 22, 2020 (excluding the
consulting costs from November 15,
2017 through November 15, 2018),
Deloitte provided a variety of consulting
services, including the following:
• Established and implemented
program operations for the CAT project,
including the program managment [sic]
office and workstream design;
• Assisted with the Plan Processor
selection process, including but not
limited to, the development of the RFP
and the bidder evaluation process, and
facilitation and consolidation of the
Participant’s independent reviews;
• Assisted with the development and
drafting of the CAT NMS Plan,
including conducting cost-benefit
studies, analyzing OATS and CAT
requirements, and drafting appendices
to the Plan;
• Assisted with cost and fundingrelated activities for the CAT, including
the development of the CAT funding
model and assistance with loans and the
CAT bank account for CAT funding;
• Provided governance support to the
CAT, including governance support
prior to the adoption of the CAT NMS
Plan, which involved support for the
full committee of exchanges and FINRA
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73957
as well as subcommittees of this group
(e.g., Joint Subcommittee Group,
Technical, Industry Outreach, Cost and
Funding and Other Products) and the
DAG, governance support during the
transition to the new governance
structure under the CAT NMS Plan and
governance support after the adoption of
the CAT NMS Plan, which involved
support for the Operating Committee,
Advisory Committee, Compliance
Subcommittee and CAT working
groups;
• Provided support to the Operating
Committee, the Chair of the Operating
Committee and the Leadership Team,
including project management support,
coordination and planning for meetings
and communications, and interfacing
with law firms and the SEC;
• Assisted with industry outreach
and communications regarding the CAT,
including assistance with industry
outreach events, the development of the
CAT website, frequently asked
questions, and coordinating with the
CAT LLC’s public relations firm;
• Provided support for updating the
SEC on the progress of the development
of the CAT;
• Provided active planning and
coordination with and support for the
Initial Plan Processor with regard to the
development of the CAT, and reported
to the Participants on the progress;
• Coordinated efforts regarding the
selection of the successor Plan
Processor;
• Assisted with the transition from
the Initial Plan Processor to the
successor Plan Processor, including
support for the Operating Committee
and successor Plan Processor for the
new role; and
• Provided support for third-party
vendors for the CAT, including FCAT,
Anchin and the law firms engaged by
CAT LLC.
(h) Insurance
The insurance costs of $880,419
represent the cost incurred for insurance
for CAT during the Pre-FAM Period.
Commencing in 2020, CAT LLC
performed an evaluation of various
potential alternatives for CAT insurance
policies, which included engaging in
discussions with different insurance
companies and conducting cost
comparisons of various alternative
approaches to insurance. Based on an
analysis of a variety of factors, including
coverage and premiums, CAT LLC
determined to purchase cyber security
liability insurance, directors’ and
officers’ liability insurance, and errors
and omissions liability insurance from
USI Insurance Services LLC (‘‘USI’’).
Such policies are standard for corporate
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entities, and cyber security liability
insurance is important for the CAT
System. The annual premiums for these
policies were competitive for the
coverage provided. The annual
premiums were paid by CAT LLC to
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(i) Professional and Administration
Costs
In adopting the CAT NMS Plan, the
Commission amended the Plan to add a
requirement that CAT LLC’s financial
statements be prepared in compliance
with GAAP, audited by an independent
public accounting firm, and made
publicly available.45 The professional
and administration costs include costs
related to accounting and accounting
advisory services to support the
operating and financial functions of
CAT, financial statement audit services
by an independent accounting firm,
preparation of tax returns, and various
cash management and treasury
functions. In addition, professional and
administration costs for the Pre-FAM
Period include costs related to the
receipt of market data and a security
assessment. The costs for these
professional and administration services
were $1,082,036 for the Pre-FAM
Period.
Financial Advisory Firm: Anchin
Accountants & Advisors (‘‘Anchin’’).
CAT LLC determined to hire a financial
advisory firm, Anchin, to assist with
financial matters for the CAT in April
2018. CAT LLC interviewed Anchin as
well as other potential financial
advisory firms to assist with the CAT
project, considering a variety of factors
in its analysis, including the firm’s
relevant expertise and fees. The hourly
fee rates for this firm were in line with
market rates for these financial advisory
services. The fees for these services
were paid by CAT LLC to Anchin.
After Anchin was hired in April 2018
through the end of the Pre-FAM Period
on June 22, 2020 (excluding the period
from April 2018 through November 15,
2018), Anchin provided a variety of
services, including the following:
• Developed, updated and
maintained internal controls;
• Provided cash management and
treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and
documentation in support of cash
disbursements;
• Provided accounting research and
consultations on various accounting,
financial reporting and tax matters;
45 Section
9.2 of the CAT NMS Plan.
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• Addressed not-for-profit tax and
accounting considerations;
• Prepared tax returns;
• Addressed various accounting,
financial and operating inquiries from
Participants;
• Developed and maintained
quarterly and annual operating and
financial budgets, including budget to
actual fluctuation analyses;
• Addressed accounting and financial
reporting matters relating to the
transition from CAT NMS, LLC to
Consolidated Audit Trail, LLC,
including supporting the dissolution of
CAT NMS, LLC;
• Supported compliance with the
CAT NMS Plan;
• Worked with and provided support
to the Operating Committee and various
CAT working groups;
• Prepared monthly, quarterly and
annual financial statements;
• Supported the annual financial
statement audits by an independent
auditor;
• Reviewed historical costs from
inception; and
• Provided accounting and financial
information in support of SEC filings.
Accounting Firm: Grant Thornton LLP
(‘‘Grant Thornton’’). In February 2020,
CAT LLC determined to engage an
independent accounting firm, Grant
Thornton, to complete the audit of CAT
LLC’s financial statements, in
accordance with the requirements of the
CAT NMS Plan. CAT LLC interviewed
this firm as well as another potential
accounting firm to audit CAT LLC’s
financial statements, considering a
variety of factors in its analysis,
including the relevant expertise and fees
of each of the firms. CAT LLC
determined that Grant Thornton was
well-qualified for the proposed role
given the balance of these
considerations. Grant Thornton’s fixed
fee rate compensation arrangement was
reasonable and appropriate, and in line
with the market rates charged for these
types of accounting services. The fees
for these services were paid by CAT LLC
to Grant Thornton.
Market Data Provider: Exegy. The
professional and administrative costs for
the Pre-FAM Period included costs
related to the receipt of certain market
data for the CAT pursuant to an
agreement with the CAT LLC, and then
with FCAT. Exegy provided SIP Data
required by the CAT NMS Plan.
After performing an analysis of the
available market data vendors to
confirm that the data provided met the
SIP Data requirements of the CAT NMS
Plan and comparing the costs of the
vendors providing the required SIP
Data, CAT LLC determined to purchase
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market data from Exegy from July 2018
through March 2019. CAT LLC
determined that, unlike certain other
vendors, Exegy provided market data
that included all data elements required
by the CAT NMS Plan.46 In addition, the
fees were reasonable and in line with
market rates for the market data
received. Accordingly, the professional
and administrative costs for the PreFAM Period include the Exegy costs
from November 2018 through March
2019. The cost of the market data was
reasonable for the market data received.
The fees for the market data were paid
directly by CAT LLC to Exegy.
Upon the termination of the contract
between CAT LLC and Exegy, FCAT
entered into a contract with Exegy to
purchase the required market data from
Exegy in July 2019. All costs under the
contract were treated as a direct pass
through cost to CAT LLC. Therefore, the
fees for the market data were paid by
CAT LLC to FCAT, who, in turn, paid
Exegy for the market data.
Security Assessment: RSM US LLP
(‘‘RSM’’). The operating costs for the
Pre-FAM Period include costs related to
a third party security assessment of the
CAT performed by RSM. The
assessment was designed to verify and
validate the effective design,
implementation, and operation of the
controls specified by NIST Special
Publication 800–53, Revision 4 and
related standards and guidelines. Such
a security assessment is in line with
industry practice and important given
the data included in the CAT. CAT LLC
determined to engage RSM to perform
the security assessment, after
considering a variety of factors in its
analysis, including the firm’s relevant
expertise and fees. The fees were
reasonable and in line with market rates
for such an assessment. RSM performed
the assessment from October 2018
through December 2018. Accordingly,
the costs for the Pre-FAM Period
include the costs incurred in November
and December 2018. The cost for the
security assessment were paid directly
to RSM by CAT LLC.
(j) Public Relations Costs
The public relations costs of $224,669
represent the fees paid to public
relations firms during the Pre-FAM
Period for professional communications
services to CAT, including media
relations consulting, strategy and
execution. By engaging a public
relations firm, CAT LLC was better
positioned to understand and address
CAT matters to the benefit of all market
participants. Specifically, the public
46 See
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Section 6.5(a)(ii) of the CAT NMS Plan.
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relations firms provided services related
to communications with the public
regarding the CAT, including
monitoring developments related to the
CAT (e.g., congressional efforts, public
comments and reaction to proposals,
press coverage of the CAT), reporting
such developments to CAT LLC, and
drafting and disseminating
communications to the public regarding
such developments as well as reporting
on developments related to the CAT
(e.g., amendments to the CAT NMS
Plan). Public relations services were
important for various reasons, including
monitoring comments made by market
participants about CAT and
understanding issues related to the CAT
discussed on the public record.
The services performed by each of the
public relations firms were comparable.
The fees for such services were
reasonable and in line with market
rates. Only one public relations firm
was engaged at a time; the three firms
were engaged sequentially as the
primary public relations contact moved
among the three firms during this time
period.
Public Relations Firm: Peppercomm,
Inc. (‘‘Peppercomm’’). The national
securities exchanges and FINRA, acting
as a consortium, determined to hire the
public relations firm Peppercomm in
October 2014 and continued to engage
this firm through September 2017. The
exchanges and FINRA made this
engagement decision after considering a
variety of factors in its analysis,
including the firm’s relevant expertise
and fees. The fee rates for this public
relations firm were negotiated on an
arm’s length basis and were in line with
market rates for these types of services.
The public relations costs during the
period from October 2014 until the
formation of the CAT NMS, LLC were
paid directly by the exchanges and
FINRA to the public relations firm. After
the formation of CAT NMS, LLC, the
consulting fees were paid by CAT LLC.
Public Relations Firm: Sloane &
Company (‘‘Sloane’’). CAT LLC
determined to hire a new public
relations firm, Sloane, in March 2018,
based on, among other things, their
expertise and the primary contact’s
history with the project. The fee rates
for this public relations firm were in
line with market rates for these types of
services. The fees during the Pre-FAM
Period were paid by CAT LLC to Sloane.
CAT LLC continued the engagement
with Sloane until February 2020.
Public Relations Firm: Peak
Strategies. CAT LLC determined to hire
73959
a new public relations firm, Peak
Strategies, in March 2020, based on,
among other things, their expertise and
the primary contact’s history with the
project. The fee rates for this public
relations firm were in line with market
rates for these types of services. The fees
during the Pre-FAM Period were paid
by CAT LLC to Peak Strategies.
(ii) Historical CAT Costs Incurred in
Financial Accountability Milestone
Period 1
Historical CAT Costs 1 would include
costs incurred by CAT and already
funded by the Participants during
Period 1 of the Financial Accountability
Milestones (‘‘FAM Period 1’’),47 which
covers the period from June 22, 2020—
July 31, 2020. Historical CAT Costs 1
would include costs for FAM Period 1
of $6,377,343. The Participants would
remain responsible for one-third of this
cost (which they have previously paid)
($2,125,781), and Industry Members
would be responsible for the remaining
two-thirds, with CEBBs paying onethird ($2,125,781) and CEBSs paying
one-third ($2,125,781). The following
table breaks down Historical CAT Costs
1 for FAM Period 1 into the categories
set forth in Section 11.3(b)(iii)(B)(II) of
the CAT NMS Plan.
Historical CAT costs for
FAM period 1 *
Operating expense
Capitalized Developed Technology Costs ** ...........................................................................................................
Technology Costs: ...................................................................................................................................................
Cloud Hosting Services ....................................................................................................................................
Operating Fees .................................................................................................................................................
CAIS Operating Fees .......................................................................................................................................
Change Request Fees .....................................................................................................................................
Legal ........................................................................................................................................................................
Consulting ................................................................................................................................................................
Insurance .................................................................................................................................................................
Professional and administration ..............................................................................................................................
Public relations ........................................................................................................................................................
$1,684,870
3,996,800
2,642,122
1,099,680
254,998
481,687
137,209
69,077
7,700
Total Operating Expenses ................................................................................................................................
6,377,343
lotter on DSK11XQN23PROD with NOTICES5
* The costs described in this table of costs for FAM Period 1 were calculated based upon CAT LLC’s review of applicable bills and invoices
and related financial statements. CAT LLC financial statements are available on the CAT website.
** The non-cash amortization of these capitalized developed technology costs of $362,121 incurred during FAM Period 1 have been appropriately excluded from the above table.48
By the completion of FAM Period 1,
CAT LLC was required to implement the
reporting by Industry Members
(excluding Small Industry Members that
are not OATS reporters) of equities
transaction data and options transaction
data, excluding Customer Account
Information, Customer-ID and Customer
Identifying Information.49 CAT LLC
47 Section
11.6(a)(i)(A) of the CAT NMS Plan.
discussed above, with respect to certain
costs that were ‘‘appropriately excluded,’’ such
excluded costs relate to the amortization of
capitalized technology costs, which are amortized
48 As
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completed the requirements of FAM
Period 1 by July 31, 2020. The following
describes the costs for each of the
categories for FAM Period 1.
(a) Technology Costs—Cloud Hosting
Services
CAT LLC continued to utilize AWS in
FAM Period 1 to provide a broad array
over the life of the Plan Processor Agreement. As
such costs have already been otherwise reflected in
the filing, their inclusion would double count the
capitalized technology costs. In addition,
amortization is a non-cash expense.
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of cloud hosting services for the CAT,
including data ingestion, data
management, and analytic tools. AWS
continued to provide storage services,
databases, compute services and other
services (such as networking,
management tools and DevOps tools), as
well as various environments for CAT,
such as development, performance
49 See definition of ‘‘Initial Industry Member Core
Equity and Options Reporting’’ in Section 1.1 of the
CAT NMS Plan.
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testing, test, and production
environments, during the FAM 1 Period.
Accordingly, the $2,642,122 in
technology costs for cloud hosting
services represent costs incurred for
services provided by AWS, as the cloud
services provider, during FAM Period 1.
The fee arrangement for AWS described
above with regard to the Pre-FAM
Period continued in place during FAM
Period 1 pursuant to the Plan Processor
Agreement. Moreover, CAT LLC
continued to believe that AWS’s
maturity in the cloud services space as
well as the significant cost and time
necessary to move the CAT to a different
cloud services provider supported the
continued engagement of AWS.
The cost for AWS cloud services for
the CAT continued to be a function of
the volume of CAT Data. During the
FAM 1 Period, the volume of CAT Data
continued to far exceed the original
predictions for the CAT as set forth in
the CAT NMS Plan. During this period,
data submitted to the CAT included
options and equities Participant Data,
Phase 2a and Phase 2b Industry Member
Data (including certain linkages) as well
as SIP Data, reference data and other
types of Other Data. The following chart
provides data regarding the average
daily volume, cumulative total events,
total compute hours and storage
footprint of the CAT during FAM Period
1.50
Date range:
6/22/20–7/31/20
Average Daily Volume in Billions:
Participant—Equities ....................................................................................................................................................
Participant—Options .....................................................................................................................................................
Industry Member—Equities ..........................................................................................................................................
Industry Member—Options ...........................................................................................................................................
SIP—Options & Equities ..............................................................................................................................................
Average Total Daily Volume .........................................................................................................................................
Cumulative Total Events for the Period ..............................................................................................................................
Total Compute Hours for the Period ...................................................................................................................................
Storage Footprint at End of Period (Petabytes) ..................................................................................................................
lotter on DSK11XQN23PROD with NOTICES5
(b) Technology Costs—Operating Fees
Pursuant to the Plan Processor
Agreement discussed above, FCAT
continued in its role as the Plan
Processor for the CAT during FAM
Period 1. Accordingly, the $1,099,680 in
technology costs for operating fees
represent costs incurred for the services
provided by FCAT under the Plan
Processor Agreement during FAM
Period 1. The fee arrangement for FCAT
described above with regard to the PreFAM Period continued in place during
FAM Period 1 pursuant to the Plan
Processor Agreement. During FAM
Period 1, FCAT’s activities with respect
to the CAT included the following:
• Published iterative drafts of draft
Technical Specifications for Phase 2d,
after substantial engagement with SEC
staff, Industry Members and Participants
on the Technical Specifications;
• Published iterative drafts of CAIS
Technical Specifications, after
substantial engagement with SEC staff,
Industry Members and Participants on
the Technical Specifications;
• Facilitated Industry Member
reporting of Quote Sent Time on
Options Market Maker quotes;
• Addressed compliance items,
including drafting CAT policies and
procedures, and addressing Regulation
SCI requirements;
• Provided support to the Operating
Committee, the Compliance
Subcommittee and CAT working
groups;
• Assisted with interpretive efforts
and exemptive requests regarding the
CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the
CAT, including with regard to
Participant and Industry Member
reporting;
• Provided support to subcontractors
under the Plan Processor Agreement;
• Provided support in discussions
with Participants and the SEC and its
staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with
the industry, including via FAQs, CAT
Alerts, meetings, presentations and
webinars;
• Administered the CAT website and
all of its content; and
• Provided technical support and
assistance with connectivity, data
access, and user support, including the
use of CAT Data and query tools, for
Participants and the SEC staff.
(c) Technology Costs—CAIS Operating
Fees
Pursuant to the Plan Processor
Agreement discussed above, Kingland
continued in its role as a subcontractor
for the development and
implementation of CAIS during FAM
Period 1. Accordingly, the $254,998 in
technology costs for CAIS operating fees
represent costs incurred for services
provided by Kingland during FAM
Period 1. The fee arrangement for
Kingland described above with regard to
the Pre-FAM Period continued in place
during FAM Period 1 pursuant to the
Plan Processor Agreement. During FAM
Period 1, Kingland continued the
development of the CAIS Technical
Specifications and building of CAIS. In
addition, Kingland continued to work
on the CAIS Technical Specifications
and build related to CCID Alternative, as
well as the acceleration of the reporting
of LTIDs.
(d) Technology Costs—Change Request
Fees
CAT LLC did not incur costs related
to change requests during FAM Period
1.
(e) Technology Costs—Capitalized
Developed Technology Costs
Capitalized developed technology
costs for FAM Period 1 of $1,684,870
include capitalizable application
development costs incurred in the
development of the CAT by FCAT. Such
costs include: (1) costs related to certain
modifications, upgrades, or other
changes to the CAT that were not
contemplated by the agreement between
CAT LLC and the Plan Processor,
including separate production and
industry test entitlements, and
reprocessing of exchange event
timestamps; (2) implementation fees;
and (3) license fees.
(f) Legal Costs
The legal costs of $481,687 represent
the fees paid for legal services provided
50 Note that the volume data described in this
table does not include CAIS data.
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6
103
7
0.31
74
185
5,190
2,612,082
57.47
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by two law firms, WilmerHale and
Pillsbury during FAM Period 1.
Law Firm: WilmerHale. CAT LLC
continued to employ WilmerHale
during FAM Period 1 based on, among
other things, their expertise and long
history with the project. The hourly fee
rates for this law firm were in line with
market rates for specialized legal
expertise. The legal fees during FAM
Period 1 were paid by CAT LLC to
WilmerHale. During FAM Period 1,
WilmerHale provided legal assistance to
the CAT including with regard to the
following:
• Assisted with the development of
the CAT funding model and drafted
related amendments and fee filings;
• Drafted exemptive requests from
CAT NMS Plan requirements regarding,
for example, verbal activity, options
market maker quote sent time, TRF
linkages, and allocations;
• Provided interpretations related to
CAT NMS Plan requirements, including
the Financial Accountability Milestone
amendment;
• Assisted with compliance with
Regulation SCI;
• Provided support for the Operating
Committee, Compliance Subcommittee,
working groups and Leadership Team,
including with regard to meetings with
the SEC staff;
• Assisted with the drafting of the
Implementation Plan required pursuant
to Section 6.6(c)(i) of the CAT NMS
Plan;
• Assisted with communications and
presentations for the industry regarding
CAIS;
• Drafted SRO rule filings related to
the CAT Compliance Rule;
• Provided support for Compliance
Subcommittee, including with regard to
response to OCIE examinations and the
annual assessment;
• Provided guidance regarding CAT
technical specifications;
• Assisted with third-party vendor
agreements; and
• Provided support with regard to
discussions with the SEC and its staff,
including with respect to addressing
interpretive and implementation issues.
Law Firm: Pillsbury. CAT LLC
continued to employ Pillsbury during
FAM Period 1 based on, among other
things, their expertise and history with
the project. The hourly fee rates for this
law firm were in line with market rates
for specialized legal expertise. The legal
fees during FAM Period 1 were paid by
CAT LLC to Pillsbury. During FAM
Period 1, Pillsbury provided legal
assistance to the CAT regarding the CAT
Reporter Agreement. During that period,
Pillsbury advised CAT LLC regarding
applicable legal matters and drafted a
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proposed amendment to the CAT NMS
Plan regarding liability matters. Liability
issues related to the CAT are important
matters that needed to be resolved and
clarified. CAT LLC’s efforts to seek such
resolution and clarity work to the
benefit of Participants, Industry
Members and other market participants.
(g) Consulting Costs
The consulting costs of $137,209
represent the fees paid to Deloitte as
project manager during FAM Period 1.
CAT LLC continued to employ Deloitte
during FAM Period 1 based on, among
other things, their expertise and
cumulative experience with the CAT.
The fee rates for Deloitte during FAM
Period 1 were negotiated and in line
with market rates for this type of
specialized consulting work. The
consulting fees during FAM Period 1
were paid by CAT LLC to the consulting
firm. CAT LLC reviewed the consulting
fees each month and approved the
invoices. During FAM Period 1,
Deloitte’s CAT-related activities
included the following:
• Implemented program operations
for the CAT project;
• Provided support to the Operating
Committee, the Chair of the Operating
Committee and the Leadership Team,
including project management support,
coordination and planning for meetings
and communications, and interfacing
with law firms and the SEC;
• Assisted with cost and funding
matters for the CAT, including the
development of the CAT funding model
and assistance with loans and the CAT
bank account for CAT funding;
• Provided support for updating the
SEC on the progress of the development
of the CAT;
• Assisted with the transition from
the Initial Plan Processor to the
successor Plan Processor; and
• Provided support for third-party
vendors for the CAT, including FCAT,
Anchin and the law firms engaged by
CAT LLC.
(h) Insurance
Although insurance was in effect
during FAM Period 1, CAT LLC did not
incur costs related to insurance during
FAM Period 1.
(i) Professional and Administration
Costs
Financial Advisory Firm: Anchin. The
professional and administration costs of
$69,077 represent the fees paid to
Anchin during FAM Period 1. CAT LLC
continued to employ Anchin during
FAM Period 1 based on, among other
things, their expertise and history with
the project. The hourly fee rates for this
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73961
firm were in line with market rates for
these type of financial advisory services.
The fees for these services during FAM
Period 1 were paid by CAT LLC to
Anchin. During FAM Period 1, Anchin
provided a variety of services, including
the following:
• Maintained internal controls;
• Provided cash management and
treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and
documentation in support of cash
disbursements;
• Provided accounting research and
consultations on various accounting,
financial reporting and tax matters;
• Addressed various accounting,
financial reporting and operating
inquiries from Participants;
• Developed and maintained
quarterly and annual operating and
financial budgets, including budget to
actual fluctuation analyses;
• Supported compliance with the
CAT NMS Plan;
• Worked with and provided support
to the Operating Committee and various
CAT working groups; and
• Prepared monthly and quarterly
financial statements.
(j) Public Relations Costs
The public relations costs of $7,700
represent the fees paid to Peak
Strategies during FAM Period 1. CAT
LLC continued to employ Peak
Strategies during FAM Period 1 based
on, among other things, their expertise
and history with the project. The fee
rates for this firm were reasonable and
in line with market rates for these types
of services. The fees for these services
during FAM Period 1 were paid by CAT
LLC to Peak Strategies. During FAM
Period 1, Peak Strategies continued to
provide professional communications
services to CAT LLC, including media
relations consulting, strategy and
execution. Specifically, the public
relations firm provided services related
to communications with the public
regarding the CAT, including
monitoring developments related to the
CAT (e.g., congressional efforts, public
comments and reaction to proposals,
press coverage of the CAT), reporting
such developments to CAT LLC, and
drafting and disseminating
communications to the public regarding
such developments as well as reporting
on developments related to the CAT
(e.g., amendments to the CAT NMS
Plan). As discussed above, such public
relations services were important for
various reasons, including monitoring
comments made by market participants
about the CAT and understanding issues
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related to the CAT discussed on the
public record. By engaging a public
relations firm, CAT LLC was better
positioned to understand and address
CAT matters to the benefit of all market
participants.
(iii) Historical CAT Costs Incurred in
Financial Accountability Milestone
Period 2
Historical CAT Costs 1 would include
costs incurred by CAT LLC and already
funded by Participants during Period 2
of the Financial Accountability
Milestones (‘‘FAM Period 2’’),51 which
covers the period from August 1, 2020–
December 31, 2020. Historical CAT
Costs 1 would include costs for FAM
Period 2 of $42,976,478. The
Participants would remain responsible
for one-third of this cost (which they
have previously paid) ($14,325,493),
and Industry Members would be
responsible for the remaining twothirds, with CEBBs paying one-third
($14,325,493) and CEBSs paying onethird ($14,325,493). The following table
breaks down Historical CAT Costs 1 for
FAM Period 2 into the categories set
forth in Section 11.3(b)(iii)(B)(II) of the
CAT NMS Plan.
Historical CAT costs
for FAM Period 2 *
Operating expense
Capitalized Developed Technology Costs ** ...............................................................................................................
Technology Costs ........................................................................................................................................................
Cloud Hosting Services ........................................................................................................................................
Operating Fees .....................................................................................................................................................
CAIS Operating Fees ...........................................................................................................................................
Change Request Fees .........................................................................................................................................
Legal ............................................................................................................................................................................
Consulting ....................................................................................................................................................................
Insurance .....................................................................................................................................................................
Professional and administration ..................................................................................................................................
Public relations ............................................................................................................................................................
$6,761,094
31,460,033
20,709,212
9,108,700
1,590,298
51,823
2,766,644
532,146
976,098
438,523
41,940
Total Operating Expenses ....................................................................................................................................
42,976,478
* The costs described in this table of costs for FAM Period 2 were calculated based upon CAT LLC’s review of applicable bills and invoices
and related financial statements. CAT LLC financial statements are available on the CAT website.
** The non-cash amortization of these capitalized developed technology costs of $1,892,505 incurred during FAM Period 2 have been appropriately excluded from the above table.52
By the completion of FAM Period 2,
CAT LLC was required to implement the
following with regard to the CAT:
(a) Industry Member reporting (excluding
reporting by Small Industry Members that are
not OATS reporters) for equities transactions,
excluding Customer Account Information,
CustomerID, and Customer Identifying
Information, is developed, tested, and
implemented at a 5% Error Rate or less and
with sufficient intra-firm linkage, inter-firm
linkage, national securities exchange linkage,
and trade reporting facilities linkage to
permit the Participants and the Commission
to analyze the full lifecycle of an order across
the national market system, excluding
linkage of representative orders, from order
origination through order execution or order
cancellation; and (b) the query tool
functionality required by Section
6.10(c)(i)(A) and appendix D, Sections 8.1.1–
8.1.3 and Section 8.2.1 incorporates the
Industry Member equities transaction data
described in condition (a) and is available to
the Participants and to the Commission.53
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CAT LLC completed the requirements
of FAM Period 2 by December 31, 2020.
51 Section
11.6(a)(i)(B) of the CAT NMS Plan.
discussed above, with respect to certain
costs that were ‘‘appropriately excluded,’’ such
excluded costs relate to the amortization of
capitalized technology costs, which are amortized
52 As
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The following describes the costs for
each of the categories for FAM Period 2.
(a) Technology Costs—Cloud Hosting
Services
CAT LLC continued to utilize AWS in
FAM Period 2 to provide a broad array
of cloud hosting services for the CAT,
including data ingestion, data
management, and analytic tools. AWS
continued to provide storage services,
databases, compute services and other
services (such as networking,
management tools and DevOps tools), as
well as various environments for CAT,
such as development, performance
testing, test, and production
environments, during the FAM 2 Period.
Accordingly, the $20,709,212 in
technology costs for cloud hosting
services represent costs incurred for
services provided by AWS, as the cloud
services provider, during FAM Period 2.
The fee arrangement for AWS described
above with regard to the Pre-FAM
over the life of the Plan Processor Agreement. As
such costs have already been otherwise reflected in
the filing, their inclusion would double count the
capitalized technology costs. In addition,
amortization is a non-cash expense.
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Period and FAM Period 1 continued in
place during FAM Period 2 pursuant to
the Plan Processor Agreement.
The cost for AWS cloud services for
the CAT continued to be a function of
the volume of CAT Data. During the
FAM 2 Period, the volume of CAT Data
continued to far exceed the original
predictions for the CAT as set forth in
the CAT NMS Plan. During this period,
data submitted to the CAT included
options and equities Participant Data,
Phase 2a and Phase 2b Industry Member
Data (including certain linkages) as well
as SIP Data, and Other Data, including
reference data. In addition, Industry
Members began reporting LTID account
information. The following chart
provides data regarding the average
daily volume, cumulative total events,
total compute hours and storage
footprint of the CAT during FAM Period
2.54
53 See definition of ‘‘Full Implementation of Core
Equity Reporting Requirements’’ in Section 1.1 of
the CAT NMS Plan.
54 Note that the volume data described in this
table does not include CAIS data.
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Average Daily Volume in Billions:
Participant—Equities ....................................................................................................................................................
Participant—Options .....................................................................................................................................................
Industry Member—Equities ..........................................................................................................................................
Industry Member—Options ...........................................................................................................................................
SIP—Options & Equities ..............................................................................................................................................
Average Total Daily Volume .........................................................................................................................................
Cumulative Total Events for the Period ..............................................................................................................................
Total Compute Hours for the Period ...................................................................................................................................
Storage Footprint at End of Period (Petabytes) ..................................................................................................................
(b) Technology Costs—Operating Fees
Pursuant to the Plan Processor
Agreement discussed above, FCAT
continued in its role as the Plan
Processor for the CAT during FAM
Period 2. Accordingly, the $9,108,700 in
technology costs for operating fees
represent costs incurred for the services
provided by FCAT under the Plan
Processor Agreement during FAM
Period 2. The fee arrangement for FCAT
described above with regard to the PreFAM Period and FAM Period 1
continued in place during FAM Period
2 pursuant to the Plan Processor
Agreement. During FAM Period 2,
FCAT’s activities with respect to the
CAT included publishing the Technical
Specifications for Phase 2d and
overseeing the reporting of firm to firm
and intrafirm linkages by Industry
Members. In addition, FCAT also
continued to engage in the following
activities during FAM Period 2:
• Addressed compliance items,
including drafting CAT policies and
procedures, and addressing Regulation
SCI requirements;
• Provided support to the Operating
Committee, Compliance Subcommittee
and CAT working groups;
• Assisted with interpretive efforts
and exemptive requests regarding the
CAT NMS Plan;
• Oversaw the development and
implementation of the security of the
CAT;
• Monitored the operation of the
CAT, including with regard to
Participant and Industry Member
reporting;
• Provided support to subcontractors
under the Plan Processor Agreement;
• Provided support in discussions
with the Participants and the SEC and
its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with
the industry, including via FAQs, CAT
Alerts, meetings, presentations and
webinars;
• Administered the CAT website and
all of its content; and
• Provided technical support and
assistance with connectivity, data
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access, and user support, including the
use of CAT Data and query tools, for
Participants and the SEC staff.
(c) Technology Costs—CAIS Operating
Fees
Pursuant to the Plan Processor
Agreement discussed above, Kingland
continued in its role as a subcontractor
for the development and
implementation of CAIS during FAM
Period 2. Accordingly, the $1,590,298 in
technology costs for CAIS operating fees
represent costs incurred for services
provided by Kingland during FAM
Period 2. The fee arrangement for
Kingland described above with regard to
the Pre-FAM Period and FAM Period 1
continued in place during FAM Period
2 pursuant to the Plan Processor
Agreement. During FAM Period 2,
Kingland continued the development of
the CAIS Technical Specifications and
building of CAIS. In addition, Kingland
continued to work on the CAIS
Technical Specifications and build
related to the CCID Alternative, as well
as the acceleration of the reporting of
LTIDs.
(d) Technology Costs—Change Request
Fees
During FAM Period 2, CAT LLC
engaged FCAT to pursue certain change
requests in accordance with the Plan
Processor Agreement. The change
request costs were paid by CAT LLC to
FCAT. Specifically, during FAM Period
2, CAT incurred costs of $51,823 related
to a change request regarding the
addition of functionality for exchange
Participants to report rejected messages
to the CAT.
(e) Technology Costs—Capitalized
Developed Technology Costs
Capitalized developed technology
costs for FAM Period 2 of $6,761,094
include capitalizable application
development costs incurred in the
development of the CAT by FCAT. Such
costs include (1) development costs
incurred during the application
development stage to meet various
agreed-upon milestones regarding the
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6
116
11
0.98
80
282
2,170
15,660,392
114.59
CAT, as defined in the agreement
between CAT LLC and the Plan
Processor; (2) costs related to certain
modifications, upgrades, or other
changes to the CAT that were not
contemplated by the agreement between
CAT LLC and the Plan Processor,
including costs related to separate
production and industry test
entitlements, market maker reference
data, and back-processing of exchange
exception logic; (3) implementation
fees; and (4) license fees.
(f) Legal Costs
The legal costs of $2,766,644
represent the fees paid for legal services
provided by two law firms, WilmerHale
and Pillsbury during FAM Period 2.
Law Firm: WilmerHale. CAT LLC
continued to employ WilmerHale
during FAM Period 2 based on, among
other things, their expertise and long
history with the project. The hourly fee
rates for this law firm were in line with
market rates for specialized legal
expertise. The legal fees during FAM
Period 2 were paid by CAT LLC to
WilmerHale. During FAM Period 2, the
legal assistance provided by
WilmerHale included providing legal
advice regarding the following:
• Assisted with the development of
the CAT funding model and drafting
related amendments and rule filings;
• Drafted exemptive requests from
CAT NMS Plan requirements regarding,
for example, allocations, exchange
activity, OTQT, initial data validation,
error corrections and recordkeeping;
• Provided interpretations related to
CAT NMS Plan requirements, including
with regard to the Financial
Accountability Milestone amendment,
FAQs and technical specifications;
• Provided support for the Operating
Committee, Compliance Subcommittees,
working groups and Leadership Team,
including with regard to meetings with
the SEC staff;
• Assisted with the Implementation
Plan and Quarterly Progress Reports
required pursuant to Section 6.6 of the
CAT NMS Plan;
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• Drafted SRO rule filings related to
the CAT Compliance Rule;
• Provided support for the
Compliance Subcommittee, including
with regard to responses to OCIE
examinations and the annual
assessment;
• Provided guidance regarding the
SEC’s proposed security amendments to
the CAT NMS Plan;
• Provided guidance regarding SRO
rule filings for the retirement of systems;
• Provided legal support for
Operating Committee meetings,
including drafting resolutions and other
materials and voting advice;
• Assisted with third-party vendor
agreements (e.g., with regard to Anchin,
Grant Thornton and insurance policies);
• Assisted with change requests; and
• Provided support with regard to
discussions with the SEC and its staff,
including with respect to addressing
interpretive and implementation issues.
Law Firm: Pillsbury. CAT LLC
continued to employ Pillsbury during
FAM Period 2 based on, among other
things, their expertise and history with
the project. The hourly fee rates for this
law firm were in line with market rates
for specialized legal expertise. The legal
fees during FAM Period 2 were paid by
CAT LLC to Pillsbury. During FAM
Period 2, Pillsbury provided legal
assistance to the CAT regarding the CAT
Reporter Agreement. During that period,
Pillsbury advised CAT LLC regarding
applicable legal matters and drafted and
filed a proposed amendment to the CAT
NMS Plan regarding liability matters. As
discussed above, liability issues related
to the CAT are important matters that
needed to be resolved and clarified.
CAT LLC’s efforts to seek such
resolution and clarity work to the
benefit of Participants, Industry
Members and other market participants.
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(g) Consulting Costs
The consulting costs of $532,146
represent the fees paid to Deloitte as
project manager during FAM Period 2.
CAT LLC continued to employ Deloitte
during FAM Period 2 based on, among
other things, their expertise and long
history with the project. The fee rates
for Deloitte during FAM Period 2 were
negotiated and in line with market rates
for this type of specialized consulting
work. The consulting fees during FAM
Period 2 were paid to Deloitte by CAT
LLC. CAT LLC reviewed the consulting
fees each month and approved the
invoices. During FAM Period 2,
Deloitte’s CAT-related activities
included the following:
• Implemented program operations
for the CAT project;
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(h) Insurance
The insurance costs of $976,098
represent the fees paid for insurance
during FAM Period 2. CAT LLC
continued to maintain cyber security
liability insurance, directors’ and
officers’ liability insurance, and errors
and omissions liability insurance
offered by USI. After engaging in a
process for renewing the coverage, CAT
LLC determined to purchase these
insurance policies from USI. The annual
premiums for these policies were
competitive for the coverage provided.
The annual premiums were paid by
CAT LLC to USI.
• Prepared tax returns;
• Addressed various accounting,
financial reporting and operating
inquiries from the Participants;
• Developed and maintained
quarterly and annual operating and
financial budgets, including budget to
actual fluctuation analyses;
• Supported compliance with the
CAT NMS Plan;
• Worked with and provided support
to the Operating Committee and various
CAT working groups;
• Prepared monthly, quarterly and
annual financial statements;
• Supported the annual financial
statement audit by an independent
auditor; and
• Reviewed historical costs from
inception.
Accounting Firm: Grant Thornton.
CAT LLC continued to employ the
accounting firm Grant Thornton during
FAM Period 2 based on, among other
things, its expertise and cumulative
knowledge of CAT LLC. CAT LLC
continued to believe that Grant
Thornton was well qualified for its role
and its fee rates were in line with with
market rates for these accounting
services. The fees for these services
during FAM Period 2 were paid by CAT
LLC to Grant Thornton. During FAM
Period 2, Grant Thornton performed a
financial statement audit for CAT LLC
as an independent accounting firm.
(i) Professional and Administration
Costs
The professional and administration
costs of $438,523 represent the fees paid
to Anchin and Grant Thornton for
financial services provided during FAM
Period 2.
Financial Advisory Firm: Anchin.
CAT LLC continued to engage Anchin
during FAM Period 2 based on, among
other things, their expertise and history
with the project. The hourly fee rates for
this firm were in line with market rates
for these types of financial advisory
services. The fees for these services
during FAM Period 2 were paid by CAT
LLC to Anchin. During FAM Period 2,
Anchin provided a variety of services,
including the following:
• Updated and maintained internal
controls;
• Provided cash management and
treasury functions;
• Faciliated [sic] bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and
documentation in support of cash
disbursements;
• Provided accounting research and
consultations on various accounting,
financial reporting and tax matters;
• Addressed not-for-profit tax and
accounting considerations;
(j) Public Relations Costs
The public relations costs of $41,940
represent the fees paid to Peak
Strategies during FAM Period 2. CAT
LLC continued to employ Peak
Strategies during FAM Period 2 based
on, among other things, their expertise
and history with the project. The fee
rates for this firm were in line with
market rates for these types of services.
The fees for these services during FAM
Period 2 were paid by CAT LLC to Peak
Strategies. During FAM Period 2, Peak
Strategies continued to provide
professional communications services to
CAT, including media relations
consulting, strategy and execution.
Specifically, the public relations firm
provided services related to
communications with the public
regarding the CAT, including
monitoring developments related to the
CAT (e.g., congressional efforts, public
comments and reaction to proposals,
press coverage of the CAT), reporting
such developments to CAT LLC, and
drafting and disseminating
communications to the public regarding
such developments as well as reporting
on developments related to the CAT
(e.g., amendments to the CAT NMS
Plan). As discussed above, such public
• Provided support to the Operating
Committee, the Chair of the Operating
Committee and the Leadership Team,
including project management support,
coordination and planning for meetings
and communications, and interfacing
with law firms and the SEC;
• Assisted with cost and funding
matters for the CAT, including the
development of the CAT funding model
and assistance with loans and the CAT
bank account for CAT funding;
• Provided support for updating the
SEC on the progress of the development
of the CAT; and
• Provided support for third-party
vendors for the CAT, including FCAT,
Anchin and the law firms engaged by
CAT LLC.
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relations services were important for
various reasons, including monitoring
comments made by market participants
about the CAT and understanding issues
related to the CAT discussed on the
public record. By engaging a public
relations firm, CAT LLC was better
positioned to understand and address
CAT matters to the benefit of all market
participants.
(iv) Historical CAT Costs Incurred in
Financial Accountability Milestone
Period 3
Historical CAT Costs 1 would include
costs incurred by CAT and already
funded by the Participants during
Period 3 of the Financial Accountability
Milestones (‘‘FAM Period 3’’),55 which
covers the period from January 1,
2021—December 31, 2021. Historical
CAT Costs 1 would include costs for
FAM Period 3 of $144,415,268. The
73965
Participants would remain responsible
for one-third of this cost (which they
have previously paid) ($48,138,423),
and Industry Members would be
responsible for the remaining twothirds, with CEBBs paying one-third
($48,138,423) and CEBSs paying onethird ($48,138,423). The following table
breaks down Historical CAT Costs 1 for
FAM Period 3 into the categories set
forth in Section 11.3(b)(iii)(B)(II) of the
CAT NMS Plan.
Historical CAT costs
for FAM Period 3 *
Operating expense
Capitalized Developed Technology Costs ** ...............................................................................................................
Technology Costs ........................................................................................................................................................
Cloud Hosting Services ........................................................................................................................................
Operating Fees .....................................................................................................................................................
CAIS Operating Fees ...........................................................................................................................................
Change Request Fees .........................................................................................................................................
Legal ............................................................................................................................................................................
Consulting ....................................................................................................................................................................
Insurance .....................................................................................................................................................................
Professional and administration ..................................................................................................................................
Public relations ............................................................................................................................................................
$10,763,372
123,639,402
94,574,759
23,106,091
5,562,383
396,169
6,333,248
1,408,209
1,582,714
595,923
92,400
Total Operating Expenses ....................................................................................................................................
144,415,268
* The costs described in this table of costs for FAM Period 3 were calculated based upon CAT LLC’s review of applicable bills and invoices
and related financial statements. CAT LLC financial statements are available on the CAT website.
** The non-cash amortization of these capitalized developed technology costs of $5,108,044 incurred during FAM Period 3 have been appropriately excluded from the above table.56
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By the completion of FAM Period 3,
CAT LLC was required to implement the
following requirements with regard the
CAT:
(a) reporting to the Order Audit Trail
System (‘‘OATS’’) is no longer required
for new orders; (b) Industry Member
reporting for equities transactions and
simple electronic options transactions,
excluding Customer Account
Information, Customer-ID, and
Customer Identifying Information, with
sufficient intra-firm linkage, inter-firm
linkage, national securities exchange
linkage, trade reporting facilities
linkage, and representative order
linkages (including any equities
allocation information provided in an
Allocation Report) to permit the
Participants and the Commission to
analyze the full lifecycle of an order
across the national market system, from
order origination through order
execution or order cancellation, is
developed, tested, and implemented at
a 5% Error Rate or less; (c) Industry
Member reporting for manual options
transactions and complex options
transactions, excluding Customer
55 Section
11.6(a)(i)(C) of the CAT NMS Plan.
discussed above, with respect to certain
costs that were ‘‘appropriately excluded,’’ such
excluded costs relate to the amortization of
capitalized technology costs, which are amortized
56 As
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Account Information, Customer-ID, and
Customer Identifying Information, with
all required linkages to permit the
Participants and the Commission to
analyze the full lifecycle of an order
across the national market system, from
order origination through order
execution or order cancellation,
including any options allocation
information provided in an Allocation
Report, is developed, tested, and fully
implemented; (d) the query tool
functionality required by Section
6.10(c)(i)(A) and appendix D, Sections
8.1.1–8.1.3, Section 8.2.1, and Section
8.5 incorporates the data described in
conditions (b)–(c) and is available to the
Participants and to the Commission; and
(e) the requirements of Section 6.10(a)
are met.57
CAT LLC completed the requirements
of FAM Period 3 by December 31, 2021.
The following describes the costs for
each of the categories for FAM Period 3.
(a) Technology Costs—Cloud Hosting
Services
CAT LLC continued to utilize AWS in
FAM Period 3 to provide a broad array
of cloud hosting services for the CAT,
over the life of the Plan Processor Agreement. As
such costs have already been otherwise reflected in
the filing, their inclusion would double count the
capitalized technology costs. In addition,
amortization is a non-cash expense.
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including data ingestion, data
management, and analytic tools. AWS
continued to provide storage services,
databases, compute services and other
services (such as networking,
management tools and DevOps tools), as
well as various environments for CAT,
such as development, performance
testing, test, and production
environments, during the FAM 3 Period.
Accordingly, the $94,574,759 in
technology costs for cloud hosting
services represents costs incurred for
services provided by AWS, as the cloud
services provider, during FAM Period 3.
The fee arrangement for AWS described
above for the earlier periods continued
in place during FAM Period 3 pursuant
to the Plan Processor Agreement.
The cost for AWS cloud services for
the CAT continued to be a function of
the volume of CAT Data. During FAM
Period 3, the volume of CAT Data
continued to far exceed the original
predictions for the CAT as set forth in
the CAT NMS Plan. During this period,
data submitted to the CAT included
options and equities Participant Data,
Phase 2a, Phase 2b, Phase 2c and Phase
2d Industry Member Data (including
57 See definition of ‘‘Full Availability and
Regulatory Utilization of Transactional Database
Functionality’’ in Section 1.1 of the CAT NMS Plan.
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certain linkages), SIP Data, Other Data,
including reference data, and LTID
account information. The following
chart provides data regarding the
average daily volume, cumulative total
events, total compute hours and storage
footprint of the CAT during FAM Period
3.58
Date range:
1/1/21 to 4/25/21
Average Daily Volume in Billions:
Participant—Equities ........................................................................................................
Participant—Options .........................................................................................................
Industry Member—Equities ..............................................................................................
Industry Member—Options ...............................................................................................
SIP—Options & Equities ..................................................................................................
Average Total Daily Volume .............................................................................................
Cumulative Total Events for the Period ..................................................................................
Total Compute Hours for the Period .......................................................................................
Storage Footprint at End of Period (Petabytes) ......................................................................
9
135
20
2
129
297
7,480
15,860,304
180.22
Date range:
4/26/21 to 12/31/21 *
9
136
19
2
137
304
5,310
33,487,318
284.62
* Start of Participant Equities in CAT format and SIP Equities on 4/26/21.
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(b) Technology Costs—Operating Fees
Pursuant to the Plan Processor
Agreement discussed above, FCAT
continued in its role as the Plan
Processor for the CAT during FAM
Period 3. Accordingly, the $23,106,091
in technology costs for operating fees
represent costs incurred for the services
provided by FCAT under the Plan
Processor Agreement during FAM
Period 3. The fee arrangement for FCAT
described above with regard to the prior
Periods continued in place during FAM
Period 3 pursuant to the Plan Processor
Agreement. During FAM Period 3,
FCAT’s activities with respect to the
CAT included the following:
• Facilitated Phase 2c and Phase 2d
testing for Industry Members;
• Oversaw creation of linkages of the
lifecycle of order events based on the
received data through Phase 2d;
• Addressed compliance items,
including drafting CAT policies and
procedures, and addressing Regulation
SCI requirements;
• Provided support to the Operating
Committee, the Compliance
Subcommittee and CAT working
groups;
• Assisted with interpretive efforts
and exemptive requests regarding the
CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the
CAT, including with regard to
Participant and Industry Member
reporting;
• Provided support to subcontractors
under the Plan Processor Agreement;
• Provided support in discussions
with the Participants and the SEC and
its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with
the industry, including via FAQs, CAT
Alerts, meetings, presentations and
webinars;
• Administered the CAT website and
all of its content; and
• Provided technical support and
assistance with connectivity, data
access, and user support, including the
use of CAT Data and query tools, for
Participants and the SEC staff.
following: (1) the addition of
functionality for exchange Participants
to report rejected messages to the CAT;
(2) the migration of MIRS query engine
to AWS to reduce operational costs and
increase resiliency; and (3) updating the
Participant Technical Specifications to
allow for two-sided Participant option
quote reporting.
(c) Technology Costs—CAIS Operating
Fees
(e) Technology Costs—Capitalized
Developed Technology Costs
Pursuant to the Plan Processor
Agreement with FCAT discussed above,
Kingland continued in its role as a
subcontractor for the development and
implementation of CAIS during FAM
Period 3. Accordingly, the $5,562,383 in
technology costs for CAIS operating fees
represents costs incurred for services
provided by Kingland during FAM
Period 3. The fee arrangement for
Kingland described above with regard to
the prior Periods continued in place
during FAM Period 3 pursuant to the
Plan Processor Agreement. During FAM
Period 3, Kingland continued the
development of the CAIS Technical
Specifications and building of CAIS. In
addition, Kingland continued to work
on the CAIS Technical Specifications
and build related to the CCID
Alternative, as well as the acceleration
of the reporting of LTIDs. The full CAIS
Technical Specifications were
published during FAM Period 3.
(d) Technology Costs—Change Request
Fees
During FAM Period 3, CAT LLC
engaged FCAT to pursue certain change
requests in accordance with the Plan
Processor Agreement. The change
request costs were paid by CAT LLC to
FCAT. Specifically, during FAM Period
3, CAT incurred costs of $396,169
related to change requests, including the
Capitalized developed technology
costs for FAM Period 3 of $10,763,372
include capitalizable application
development costs incurred in the
development of the CAT by FCAT. Such
costs include (1) development costs
incurred during the application
development stage to meet various
agreed-upon milestones regarding the
CAT, as defined in the agreement
between CAT LLC and the Plan
Processor, including the transition from
equity data received by FINRA pursuant
to various regulatory services
agreements between FINRA and
Participant exchanges to the equity CAT
Data, and the completion of the Industry
Member Phase 2d options manual and
complex orders go-live requirements; (2)
costs related to certain modifications,
upgrades, or other changes to the CAT
that were not contemplated by the
agreement between CAT LLC and the
Plan Processor, including costs related
to off-exchange volume concentration,
Participant 24-hour trading and an
external metastore; (3) implementation
fees; and (4) license fees.
(f) Legal Costs
The legal costs of $6,333,248
represent the fees paid for legal services
provided by three law firms,
WilmerHale, Pillsbury and Covington &
58 Note that the volume data described in this
table does not include CAIS data.
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Burling LLP (‘‘Covington’’) during FAM
Period 3.
Law Firm: WilmerHale. CAT LLC
continued to employ WilmerHale
during FAM Period 3 based on, among
other things, their expertise and long
history with the project. The hourly fee
rates for this law firm were in line with
market rates for specialized legal
expertise. The legal fees during FAM
Period 3 were paid by CAT LLC to
WilmerHale. During FAM Period 3, the
legal assistance provided by
WilmerHale included providing legal
advice regarding the following:
• Assisted with the development of
the CAT funding model and drafting
related amendments and rule filings;
• Drafted exemptive requests from
CAT NMS Plan requirements, including,
for example, verbal activity regarding
Phase 2c cutover, error reports, error
corrections, Phase 2d Reporting, unique
Order-ID on internal route events,
reporting addresses, recordkeeping, and
unique CCID for foreign customers;
• Provided interpretations related to
CAT NMS Plan requirements, including
with regard to the Financial
Accountability Milestone amendment,
FAQs, CAIS requirements, ADF, and
technical specifications;
• Provided support for the Operating
Committee, Compliance Subcommittee,
working groups and Leadership Team,
including with regard to meetings with
the SEC staff;
• Assisted with the Implementation
Plan and Quarterly Progress Reports
required pursuant to Section 6.6(c) of
the CAT NMS Plan;
• Drafted SRO rule filings related to
the CAT Compliance Rule;
• Provided support for Compliance
Subcommittee, including with regard to
responses to OCIE examinations and the
annual assessment;
• Provided guidance regarding the
SEC’s proposed security amendments to
the CAT NMS Plan;
• Provided guidance regarding SRO
rule filings for the retirement of systems;
• Provided legal support for
Operating Committee meetings,
including drafting resolutions and other
materials and voting advice;
• Provided assistance with change
requests;
• Provided guidance and regulatory
support for litigation regarding the
response to the SEC’s exemptive orders;
• Assisted with communications with
the industry, includng CAT Alerts and
presentations;
• Provided guidance regarding the
confidentiality of CAT Data, including
third-party information requests;
• Assisted with cost management
analysis and proposals; and
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• Provided support with regard to
discussions with the SEC and its staff,
including with respect to addressing
interpretive and implementation issues.
Law Firm: Pillsbury. CAT LLC
continued to employ Pillsbury during
FAM Period 3 based on, among other
things, their expertise and history with
the project. The hourly fee rates for this
law firm were in line with market rates
for specialized legal expertise. The legal
fees during FAM Period 3 were paid by
CAT LLC to Pillsbury. During FAM
Period 3, Pillsbury provided legal
assistance to the CAT regarding the CAT
Reporter Agreement. During this period,
Pillsbury advised CAT LLC regarding
applicable legal matters, reviewed and
responded to comment letters regarding
the proposed Plan amendment,
participated in meetings with senior
SEC staff, responded to comments
submitted following the SEC’s April 6,
2021 order instituting proceedings,59
and assessed legal matters regarding the
SEC’s October 29, 2021 order denying
the proposed Plan amendment.60
Law Firm: Covington. CAT LLC hired
Covington for litigation with the SEC
regarding certain exemptive orders
related to the CAT, including orders
issued in December 2020.61 CAT LLC
interviewed this law firm as well as
other potential law firms, considering a
variety of factors in its analysis for
choosing legal assistance, including the
relevant expertise and fees of the
potential lawyers. CAT LLC approved
the engagement of Covington in January
2021. The fee rates for this law firm,
which were calculated based on hourly
rates, were in line with market rates for
specialized services. The legal fees for
FAM Period 3 for this firm were paid by
CAT LLC to Covington.
After Covington was hired in 2021
through the end of 2021, the firm
provided legal assistance regarding the
litigation with the SEC regarding the
2020 Orders. These services included
researching, drafting, and filing motions
to stay the 2020 orders and related
materials in proceedings before the SEC,
as well as researching, drafting, and
filing petitions for judicial review of the
2020 Orders in proceedings before the
U.S. Court of Appeals for the D.C.
Circuit. Covington oversaw ongoing
litigation proceedings on these matters,
and also supported WilmerHale with
59 Securities Exchange Act Rel. No. 91487 (Apr.
6, 2021), 86 FR 19054 (Apr. 12, 2021).
60 Securities Exchange Act Rel. No. 93484 (Oct.
29, 2021), 86 FR 60933 (Nov. 4, 2021).
61 See Securities Exchange Act Rel. No. 90688
(Dec. 16, 2020), 85 FR 83634 (Dec. 22, 2020); and
Securities Exchange Act Rel. No. 90689 (Dec. 16,
2020), 85 FR 83667 (Dec. 22, 2020) (collectively, the
‘‘2020 Orders’’).
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73967
respect to settlement negotiations with
the SEC staff regarding the 2020 Orders.
In addition to these services, CAT
LLC engaged Covington in November
2021 to provide assistance with respect
to the SEC’s disapproval of CAT NMS
Plan amendments concerning a
proposed limitation on liability in the
event of a data breach or similar event.
Covington provided advice concerning
CAT’s response to the SEC’s disapproval
order. This work accounted for a
minority of Covington’s fees in 2021.62
(g) Consulting Costs
The consulting costs of $1,408,209
represent the fees paid to Deloitte as
project manager during FAM Period 3.
CAT LLC continued to employ Deloitte
during FAM Period 3 based on, among
other things, their expertise and long
history with the project. The fee rates
for Deloitte during FAM Period 3 were
negotiated and in line with market rates
for this type of specialized consulting
work. The consulting fees during FAM
Period 3 were paid to Deloitte by CAT
LLC. CAT LLC reviewed the consulting
fees each month and approved the
invoices. During FAM Period 3,
Deloitte’s CAT-related activities
included the following:
• Implemented program operations
for the CAT project;
• Provided support to the Operating
Committee, the Chair of the Operating
Committee and the Leadership Team,
including project management support,
coordination and planning for meetings
and communications, and interfacing
with law firms and the SEC;
• Assisted with cost and funding
matters for the CAT, including the
development of the CAT funding model
and assistance with loans and the CAT
bank account for CAT funding;
• Provided support for updating the
SEC on the progress of the development
of the CAT; and
• Provided support for third-party
vendors for the CAT, including FCAT,
Anchin and the law firms engaged by
CAT LLC.
(h) Insurance
The insurance costs of $1,582,714
represent the fees paid for insurance
during FAM Period 3. CAT LLC
continued to maintain cyber security
liability insurance, directors’ and
officers’ liability insurance, and errors
62 As discussed above with regard to Pillsbury’s
work on liability matters, liability issues related to
the CAT are important matters that needed to be
resolved and clarified. CAT LLC’s efforts to seek
such resolution and clarity work to the benefit of
Participants, Industry Members and other market
participants. Moreover, such activity is a necessary
part of the operation of the CAT.
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and omissions liability insurance
offered by USI. After engaging in a
process for renewing the coverage, CAT
LLC determined to purchase these
insurance policies from USI. The annual
premiums for these policies were
competitive for the coverage provided.
The annual premiums were paid by
CAT LLC to USI.
(i) Professional and Administration
Costs
The professional and administration
costs of $595,923 represent the fees paid
to Anchin and Grant Thornton for
financial services during FAM Period 3.
Financial Advisory Firm: Anchin.
CAT LLC continued to employ Anchin
during FAM Period 3 based on, among
other things, their expertise and history
with the project. The hourly fee rates for
this firm were in line with market rates
for these financial advisory services.
The fees for these services during FAM
Period 3 were paid by CAT LLC to
Anchin. During FAM Period 3, Anchin
provided a variety of services, including
the following:
• Updated and maintained internal
controls;
• Provided cash management and
treasury functions;
• Faciliated [sic] bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and
documentation in support of cash
disbursements;
• Provided accounting research and
consultations on various accounting,
financial reporting and tax matters;
• Addressed not-for-profit tax and
accounting considerations;
• Prepared tax returns;
• Addressed various accounting,
financial reporting and operating
inquiries from Participants;
• Developed and maintained
quarterly and annual operating and
financial budgets, including budget to
actual fluctuation analyses;
• Supported compliance with the
CAT NMS Plan;
• Worked with and provided support
to the Operating Committee and various
CAT working groups;
• Prepared monthly, quarterly and
annual financial statements;
• Supported the annual financial
statement audits by an independent
auditor;
• Reviewed historical costs from
inception; and
• Provided accounting and financial
information in support of SEC filings.
Accounting Firm: Grant Thornton.
CAT LLC continued to employ the
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accounting firm Grant Thornton during
FAM Period 3 based on, among other
things, their expertise and cumulative
knowledge of CAT LLC. CAT LLC
determined that Grant Thornton was
well qualified for its role and that its
fixed fee rates were in line with market
rates for these accountant services. The
fees for these services during FAM
Period 3 were paid by CAT LLC to Grant
Thornton. During FAM Period 3, Grant
Thornton provided audited financial
statements for CAT LLC.
(j) Public Relations Costs
The public relations costs of $92,400
represent the fees paid to Peak
Strategies during FAM Period 3. CAT
LLC continued to employ Peak
Strategies during FAM Period 3 based
on, among other things, their expertise
and history with the project. The fee
rates for this firm were in line with
market rates for these types of services.
The fees for these services during FAM
Period 3 were paid by CAT LLC to Peak
Strategies. During FAM Period 3, Peak
Strategies continued to provide
professional communications services to
CAT, including media relations
consulting, strategy and execution.
Specifically, the public relations firm
provided services related to
communications with the public
regarding the CAT, including
monitoring developments related to the
CAT (e.g., congressional efforts, public
comments and reaction to proposals,
press coverage of the CAT), reporting
such developments to CAT LLC, and
drafting and disseminating
communications to the public regarding
such developments as well as reporting
on developments related to the CAT
(e.g., amendments to the CAT NMS
Plan). As discussed above, such public
relations services were important for
various reasons, including monitoring
comments made by market participants
about the CAT and understanding issues
related to the CAT discussed on the
public record. By engaging a public
relations firm, CAT LLC was better
positioned to understand and address
CAT matters to the benefit of all market
participants.
(v) Excluded Costs
Historical CAT Costs 1 would not
include three categories of CAT costs
(‘‘Excluded Costs’’): (1) $14,749,362 of
costs related to the termination of the
relationship with the Initial Plan
Processor; (2) $48,874,937, which are all
CAT costs incurred from November 15,
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2017 through November 15, 2018; and
(3) $19,628,791, which are costs paid to
the the Initial Plan Processor from
November 16, 2018 through February
2019 when the relationship with the
Initial Plan Processor was concluded.
The Participants would remain
responsible for 100% of these costs,
which total $83,253,090. CAT LLC
determined to exclude these Excluded
Costs from Historical CAT Costs 1
because these costs relate to the delay in
the start of reporting to the CAT and the
conclusion of the relationship with the
Initial Plan Processor.63
(a) Costs Related to Conclusion of
Relationship With Initial Plan Processor
First, Historical CAT Costs 1 would
not include $14,749,362 of costs related
to the conclusion of the relationship
with the Initial Plan Processor. Such
costs include costs related to the
American Arbitration Association, the
legal assistance of Pillsbury with regard
to the arbitration with the Initial Plan
Processor, and the settlement costs
related to the arbitration with the Initial
Plan Processor. The Participants would
remain responsible for 100% of these
$14,749,362 in costs.
(b) Costs Incurred From November 15,
2017 Through November 15, 2018
Second, Historical CAT Costs 1 would
not include all CAT costs incurred from
November 15, 2017 through November
15, 2018. CAT LLC determined to
exclude all costs during this one-year
period of $48,874,937 from fees charged
to Industry Members due to the delay in
the start of reporting to the CAT. The
Participants would remain responsible
for 100% of these $48,874,937 in costs.
The following table breaks down these
costs into the categories set forth in
Section 11.3(b)(iii)(B)(II) of the CAT
NMS Plan.
63 In approving the CAT Funding Model, the
Commission states that the proposed exclusion of
the first two categories of Excluded Costs ‘‘is
reasonable in the Commission’s view because it
would not require all costs incurred by the
Participants to be recovered from Industry Members
through the Historical CAT Assessment, specifically
excluding those costs related to the delay in the
start of reporting to the CAT and costs related to
the conclusion of the relationship with the Initial
Plan Processor.’’ CAT Funding Model Approval
Order at 62663. In addition to the first two
categories of Excluded Costs, CAT LLC is now
proposing a third category of Excluded Costs that
would exclude all costs paid to the Initial Plan
Processor after November 15, 2018.
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Excluded costs for November
15, 2017–November 15, 2018 *
Operating expense
Capitalized Developed Technology Costs ...............................................................................................................
Technology Costs:
Cloud Hosting Services.
Operating Fees.
CAIS Operating Fees.
Change Request Fees.
Legal ........................................................................................................................................................................
Consulting ................................................................................................................................................................
Insurance.
Professional and administration ..............................................................................................................................
Public relations ........................................................................................................................................................
$37,852,083
Total Operating Expenses .........................................................................................................................
48,874,937
6,143,278
4,452,106
340,145
87,325
* The costs described in this table of Excluded Costs were calculated based upon CAT LLC’s review of applicable bills and invoices and related financial statements. CAT LLC financial statements are available on the CAT website.
The following provides additional
detail regarding the Excluded Costs.
(I) Technology Costs—Cloud Hosting
Services, Operating Fees, CAIS
Operating Fees and Change Request
Fees
CAT LLC did not incur technology
costs related to the categories of cloud
hosting services, operating fees, CAIS
operating fees or change requests during
the period from November 15, 2017
through November 15, 2018.
(II) Technology Costs—Capitalized
Developed Technology Costs
Capitalized developed technology
costs for the period from November 15,
2017 through November 15, 2018
include capitalizable application
development costs of $37,852,083
incurred in the development of the CAT
by the Initial Plan Processor. Such costs
include development costs incurred
during the application development
stage to meet various agreed-upon
milestones regarding the CAT, as
defined in the agreement between CAT
LLC and the Initial Plan Processor. Such
costs include costs related to Industry
Member technical specifications for
orders and transactions, the system
security plan, testing and production for
Participant CAT reporting, third-party
security assessment and response, query
portal, onboarding of the Chief
Information Security Officer, and
ingestion of FINRA TRF data and
FINRA data related to halts and
corporate actions.
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(III) Legal Costs
The legal costs of $6,143,278
represent the fees paid to WilmerHale
for legal services from November 15,
2017 through November 15, 2018.
During this period, WilmerHale
provided legal assistance to the CAT
including with regard to the following:
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• Provided legal support for the
governance of the CAT, including
governance support for the Operating
Committee, Advisory Committee,
Compliance Subcommittee, and CAT
working groups;
• Assisted with the development of
the CAT funding model and drafted
related amendments of the CAT NMS
Plan;
• Provided assistance related to CAT
security;
• Drafted exemptive requests,
including requests related to PII;
• Assisted with the Implementation
Plan required pursuant to Section
6.6(c)(i) of the CAT NMS Plan;
• Provided interpretations of and
related to the CAT NMS Plan;
• Provided advice with regard to
regulator access to the CAT;
• Assisted with the Plan Processor
transition;
• Provided assistance regarding
communications with the industry
regarding the CAT;
• Provided advice regarding
Customer Account Information and PII;
• Provided support for litigation
related to SEC exemptive orders; and
• Provided support with regard to
discussions with the SEC and its staff,
including with respect to addressing
interpretative and implementation
issues.
(IV) Consulting Costs
The consulting costs of $4,452,106
represent the fees paid to Deloitte for
their role as project manager for the
CAT from November 15, 2017 through
November 15, 2018. During this period,
Deloitte engaged in the following
activities with respect to the CAT:
• Implemented program operations
for the CAT project;
• Provided governance support to the
Operating Committee, including support
for Subcommittees and working groups
of the Operating Committee (e.g.,
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Compliance Subcommittee, Cost and
Funding Working Group, Technical
Working Group, Industry Outreach
Working Group, Security Working
Group and Steering Committee);
• Assisted with cost and funding
issues for the CAT, including the
development of the CAT funding model
and assistance with loans and the CAT
bank account for CAT funding;
• Provided support for updating the
SEC on the progress of the development
of the CAT; and
• Provided active planning and
coordination with and support for the
Initial Plan Processor with regard to the
development of the CAT, and reported
to the Participants on the progress.
(V) Insurance
CAT LLC did not incur costs related
to insurance during the period from
November 15, 2017 through November
15, 2018.
(VI) Professional and Administration
Costs
The professional and administration
costs of $340,145 represent the fees paid
to Anchin, Exegy and RSM from
November 15, 2017 through November
15, 2018.
Financial Advisory Firm: Anchin.
From the commencement of its
engagment [sic] in April 2018 through
November 15, 2018, Anchin engaged in
the following activities with respect to
the CAT:
• Developed, updated and
maintained internal controls;
• Provided cash management and
treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and
documentation in support of cash
disbursements;
• Provided accounting research and
consultations on various accounting,
financial reporting and tax matters;
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• Addressed not-for-profit tax and
accounting considerations;
• Prepared tax returns;
• Addressed various accounting,
financial reporting and operating
inquiries from Participants;
• Developed and maintained
quarterly and annual operating and
financial budgets, including budget to
actual fluctuation analyses;
• Addressed accounting and financial
matters relating to the transition from
CAT NMS, LLC to Consolidated Audit
Trail, LLC, including supporting the
dissolution of CAT NMS, LLC;
• Supported compliance with the
CAT NMS Plan;
• Worked with and provided support
to the Operating Committee and various
CAT working groups;
• Prepared monthly, quarterly and
annual financial statements;
• Supported the annual financial
statement audits by an independent
auditor;
• Reviewed historical costs from
inception; and
• Provided accounting and financial
information in support of SEC filings.
Market Data Provider: Exegy. From
July 2018 through November 15, 2018,
CAT LLC purchased market data from
Exegy (as described in more detail
above).
Security Assessment: RSM. From
October 2018 through November 15,
2018, CAT LLC incurred costs for RSM’s
performance of a security assessment (as
described in more detail above).
(VII) Public Relations Costs
The public relations costs of $87,325
represent the fees paid to Sloane from
November 15, 2017 through November
15, 2018. From the commencement of
its engagment [sic] in March 2018
through November 15, 2018, Sloane
provided professional communications
services to CAT, including media
relations consulting, strategy and
execution. Specifically, Sloane provided
services related to communications with
the public regarding the CAT, including
monitoring developments related to the
CAT (e.g., congressional efforts, public
comments and reaction to proposals,
press coverage of the CAT), reporting
such developments to CAT LLC, and
drafting and disseminating
communications to the public regarding
such developments as well as reporting
on developments related to the CAT
(e.g., amendments to the CAT NMS
Plan).
(c) Costs Paid to Initial Plan Processor
From November 16, 2018 Through
February 2019
Third, Historical CAT Costs 1 would
not include the $19,628,791 in costs
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paid to the Initial Plan Processor from
November 16, 2018 through February
2019 when CAT LLC’s relationship with
the Initial Plan Processor concluded.
CAT LLC determined that Historical
CAT Costs 1 would not include any fees
paid to the Initial Plan Processor after
November 15, 2017,64 which was the
date by which Participants were
required to begin reporting to the
CAT.65 As discussed above, the
Participants determined that Historical
CAT Costs 1 would not include all CAT
costs incurred from November 15, 2017
through November 15, 2018, which
includes $37,852,083 in Initial Plan
Processor costs incurred from November
15, 2017 through November 15, 2018 (as
well as other CAT costs during this
period). The remaining Initial Plan
Processor costs incurred after November
15, 2018 are the $19,628,791 in costs for
the period from November 16, 2018
through February 2019 incurred in the
development of the CAT by the Initial
Plan Processor, as well as a transition
fee for the transition from the Initial
Plan Processor to the successor Plan
Processor. The Participants would
remain responsible for 100% of these
$19,628,791 in costs.
(C) Historical Recovery Period 1
Under the CAT NMS Plan, the
Operating Committee is required to
reasonably establish the length of the
Historical Recovery Period used in
calculating each Historical Fee Rate
based upon the amount of the Historical
CAT Costs to be recovered by the
Historical CAT Assessment, and to
describe the reasons for its length.66 The
Historical Recovery Period used in
calculating the Historical Fee Rate may
not be less than 24 months or more than
five years.67 The Operating Committee
has determined to establish a Historical
Recovery Period 1 of 24 months for
Historical CAT Assessment 1.
The Operating Committee determined
that the length of Historical Recovery
64 As discussed below, CAT LLC believes that it
is appropriate to recover costs related to the
services performed by the Initial Plan Processor
prior to November 15, 2017. See Section 3(a)(10)(E)
below.
65 The SEC approved the CAT NMS Plan on
November 15, 2016, and Participant reporting was
required to begin on the first anniversary of this
date, November 15, 2017. See Section 6.3 of the
CAT NMS Plan and CAT NMS Plan Approval
Order.
66 Section 11.3(b)(i)(D)(I) and Section
11.3(b)(iii)(B)(II) of the CAT NMS Plan.
67 Section 11.3(b)(i)(D)(I) of the CAT NMS Plan.
In the CAT Funding Model Approval Order, the
SEC stated that ‘‘[i]n the Commission’s view, it is
reasonable for the Operating Committee to establish
the length of the Historical Recovery Period to be
no less than 24 months and no more than five
years.’’ CAT Funding Model Approval Order at
62664.
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Period 1 appropriately weighs the need
for a reasonable Historical Fee Rate 1
that spreads the Historical CAT Costs
over an appropriate amount of time and
the need to repay the loans to the
Participants in a timely fashion. The
Operating Committee determined that
24 months for Historical Recovery
Period 1 would establish a fee rate that
is lower than other transaction-based
fees, including fees assessed pursuant to
Section 31.68 In addition, in establishing
a Historical Recovery Period of 24
months, the Operating Committee
recognized that the total costs for
Historical CAT Assessment 1 were less
than the total costs for 2022 and 2023,69
and therefore it would be reasonable
and appropriate to recover costs subject
to this filing over an approximate twoyear period.
The length of the Historical Recovery
Period 1 and the reasons for its length
are provided in this filing in accordance
with the requirement in the CAT NMS
Plan to provide such information in a
fee filing for a Historical CAT
Assessment.70
(D) Projected Total Executed Equivalent
Share Volume
The calculation of Historical Fee Rate
1 also requires the determination of the
projected total executed equivalent
share volume of transactions in Eligible
Securities for Historical Recovery Period
1. Under the CAT NMS Plan, the
Operating Committee is required to
‘‘reasonably determine the projected
total executed equivalent share volume
of all transactions in Eligible Securities
for each Historical Recovery Period
based on the executed equivalent share
volume of all transactions in Eligible
Securities for the prior twelve
months.’’ 71 The Operating Committee is
required to base its projection on the
prior twelve months, but it may use its
discretion to analyze the likely volume
for the upcoming year. Such discretion
would allow the Operating Committee
to use its judgment when estimating
projected total executed equivalent
share volume if the volume over the
prior twelve months was unusual or
otherwise unfit to serve as the basis of
a future volume estimate.72
68 As the SEC noted in the CAT Funding Model
Approval Order, recent Section 31 fees ranged from
$0.00009 per share to $0.0004 per share. CAT
Funding Model at 62682.
69 The total CAT costs for 2022 were
approximately $186 million and the total CAT costs
for 2023 were approximately $233 million.
70 Section 11.3(b)(iii)(B)(II)(C) of the CAT NMS
Plan.
71 Section 11.3(b)(i)(E) of the CAT NMS Plan.
72 CAT Funding Model Approval Order at 62664.
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The total executed equivalent share
volume of transactions in Eligible
Securities for the 12-month period from
June 2023 through May 2024 was
3,980,753,840,905.21 executed
equivalent shares. The Operating
Committee has determined to calculate
the projected total executed equivalent
share volume for the 24 months of
Historical Recovery Period 1 by
doubling the executed equivalent share
volume for the prior 12 months. The
Operating Committee determined that
such an approach was reasonable as the
CAT’s annual executed equivalent share
volume has remained relatively
constant. For example, the executed
equivalent share volume for 2021 was
3,963,697,612,395, the executed
equivalent share volume for 2022 was
4,039,821,841,560.31, and the executed
equivalent share volume for 2023 was
3,868,940,345,680.6. Accordingly, the
projected total executed equivalent
share volume for Historical Recovery
Period 1 is projected to be
7,961,507,681,810.42 executed
equivalent shares.73
The projected total executed
equivalent share volume of all
transactions in Eligible Securities for
Historical Recovery Period 1 and a
description of the calculation of the
projection is provided in this filing in
accordance with the requirement in the
CAT NMS Plan to provide such
information in a fee filing for a
Historical CAT Assessment.74
in a fee filing for a Historical CAT
Assessment.76
CEBB and CEBS is required to pay its
CAT fees ‘‘each month.’’
(3) Past CAT Costs and Participants
(5) Actual Recovery Period for Historical
CAT Assessment 1
The CAT NMS Plan states that,
‘‘[n]otwithstanding the length of the
Historical Recovery Period used in
calculating the Historical Fee Rate, each
Historical CAT Assessment calculated
using the Historical Fee Rate will
remain in effect until all Historical CAT
Costs for the Historical CAT Assessment
are collected.’’ 81 Accordingly,
Historical CAT Assessment 1 will
remain in effect until all Historical CAT
Costs 1 have been collected. The actual
recovery period for Historical CAT
Assessment 1 may be shorter or longer
than Historical Recovery Period 1
depending on the actual executed
equivalent share volumes during the
time that Historical CAT Assessment 1
is in effect.82
Participants would not be required to
pay any fees associated with Historical
CAT Assessment 1 as the Participants
previously have paid all Past CAT Costs.
The CAT NMS Plan explains that:
Because Participants previously have
paid Past CAT Costs via loans to the
Company, Participants would not be
required to pay any Historical CAT
Assessment. In lieu of a Historical CAT
Assessment, the Participants’ one-third
share of Historical CAT Costs and such
other additional Past CAT Costs as
reasonably determined by the Operating
Committee will be paid by the
cancellation of loans made to the
Company on a pro rata basis based on
the outstanding loan amounts due under
the loans.77
The CAT NMS Plan further states that
‘‘Historical CAT Assessments are
designed to recover two-thirds of the
Historical CAT Costs.’’ 78
(4) Monthly Fees
CEBBs and CEBSs would be required
to pay fees for Historical CAT
Assessment 1 on a monthly basis for the
period in which Historical CAT
Assessment 1 is in effect.79 A CEBB or
CEBS’s fee for each month would be
calculated based on the transactions in
Eligible Securities executed by the
CEBB or CEBS from the prior month.80
(E) Historical Fee Rate 1
Proposed paragraph (a)(1)(A) of the fee
Historical Fee Rate 1 would be
schedule would state that each CAT
calculated by dividing Historical CAT
Executing Broker would receive its first
Costs 1 by the reasonably projected total invoice in November 2024, and ‘‘would
executed equivalent share volume of all receive an invoice each month thereafter
transactions in Eligible Securities for
in which Historical CAT Assessment 1
Historical Recovery Period 1, as
is in effect.’’ Proposed paragraph
75
described in detail above. Specifically, (a)(1)(B) of the fee schedule would state
Historical Fee Rate 1 would be
that ‘‘Consolidated Audited Trail, LLC
calculated by dividing $318,059,819 by
shall provide each CAT Executing
7,961,507,681,810.42. As a result, the
Broker with an invoice for Historical
Historical Fee Rate 1 would be
CAT Assessment 1 on a monthly basis.’’
$0.00003994969693072937 per executed In addition, proposed paragraph (b)(1)
equivalent share. Historical Fee Rate 1
of the fee schedule states that each
is provided in this filing in accordance
with the requirement in the CAT NMS
76 Section 11.3(b)(iii)(B)(II)(A) of the CAT NMS
Plan to provide the Historical Fee Rate
Plan.
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77 Section
73 This projection was calculated by multiplying
3,980,753,840,905.21 executed equivalent shares by
two.
74 Section 11.3(b)(iii)(B)(II)(D) of the CAT NMS
Plan.
75 In approving the CAT Funding Model, the
Commission stated that ‘‘[t]he calculation of the
Historical Fee Rate by dividing the Historical CAT
Costs by the projected total executed equivalent
share volume of all transactions in Eligible
Securities for the Historical Recovery Period is
reasonable.’’ CAT Funding Model Approval Order
at 62664.
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11.3(b)(ii) of the CAT NMS Plan.
78 Id. In approving the CAT Funding Model, the
Commission stated that ‘‘[t]he proposed allocation
of the Historical CAT Assessment solely to CEBSs
and CEBBs, and ultimately Industry Members, is
reasonable. The Historical CAT Assessment will
still be divided into thirds,’’ as the Participants’
one-third share of Historical CAT Costs will be paid
by the cancellation of loans made to the Company.
CAT Funding Model Approval Order at 62666.
79 See Section 11.3(b)(iii)(A) of the CAT NMS
Plan.
80 See proposed paragraph (a)(1)(B) of the fee
schedule.
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(6) Consolidated Audit Trail Funding
Fees
To implement Historical CAT
Assessment 1, a new section would be
added to the Exchange’s fee schedule for
‘‘Consolidated Audit Trail Funding
Fees’’, and it would include the
proposed paragraphs described below.
(A) Fee Schedule for Historical CAT
Assessment 1
The CAT NMS Plan states that:
Each month in which a Historical CAT
Assessment is in effect, each CEBB and each
CEBS shall pay a fee for each transaction in
Eligible Securities executed by the CEBB or
CEBS from the prior month as set forth in
CAT Data, where the Historical CAT
Assessment for each transaction will be
calculated by multiplying the number of
executed equivalent shares in the transaction
by one-third and by the Historical Fee Rate
reasonably determined pursuant to paragraph
(b)(i) of this Section 11.3.83
Accordingly, based on the factors
discussed above, the Exchange proposes
to add paragraph (a)(1) to the
Consolidated Audit Trail Funding Fees
section of its fee schedule. Proposed
paragraph (a)(1) would state the
following:
(A) Each CAT Executing Broker shall
receive its first invoice for Historical CAT
Assessment 1 in November 2024, which shall
set forth the Historical CAT Assessment 1
fees calculated based on transactions in
81 Section
11.3(b)(i)(D)(II) of the CAT NMS Plan.
approving the CAT Funding Model, the
Commission stated that, ‘‘[i]n the Commission’s
view, it is reasonable for Industry Members to be
charged a Historical CAT Assessment until all
Historical CAT Costs for the Historical CAT
Assessment are collected.’’ CAT Funding Model
Approval Order at 62665.
83 Section 11.3(b)(iii)(A) of the CAT NMS Plan.
82 In
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October 2024, and shall receive an invoice
for Historical CAT Assessment 1 for each
month thereafter in which Historical CAT
Assessment 1 is in effect.
(B) Consolidated Audit Trail, LLC shall
provide each CAT Executing Broker with an
invoice for Historical CAT Assessment 1 on
a monthly basis. Each month, such invoices
shall set forth a fee for each transaction in
Eligible Securities executed by the CAT
Executing Broker in its capacity as a CAT
Executing Broker for the Buyer (‘‘CEBB’’)
and/or the CAT Executing Broker for the
Seller (‘‘CEBS’’) (as applicable) from the prior
month as set forth in CAT Data. The fee for
each such transaction will be calculated by
multiplying the number of executed
equivalent shares in the transaction by the
fee rate of $0.000013 per executed equivalent
share.
(C) Historical CAT Assessment 1 will
remain in effect until $212,039,879.34 (twothirds of Historical CAT Costs 1) are
collected from CAT Executing Brokers
collectively, which is estimated to be
approximately two years, but could be for a
longer or shorter period of time. Consolidated
Audit Trail, LLC will provide notice when
Historical CAT Assessment 1 will no longer
be in effect.
(D) Each CAT Executing Broker shall be
required to pay each invoice for Historical
CAT Assessment 1 in accordance with
paragraph (b).
As noted in the Plan amendment for
the CAT Funding Model, ‘‘as a practical
matter, the fee filing for a Historical
CAT Assessment would provide the
exact fee per executed equivalent share
to be paid for each Historical CAT
Assessment, by multiplying the
Historical Fee Rate by one-third and
describing the relevant number of
decimal places for the fee rate.84
Accordingly, proposed paragraph
(a)(1)(B) of the fee schedule would set
forth a fee rate of $0.000013 per
executed equivalent share. This fee rate
is calculated by multiplying Historical
Fee Rate 1 of $0.00003994969693072937
by one-third, and rounding the result to
6 decimal places.85 The Operating
Committee determined to use six
decimal places to balance the accuracy
of the calculation with the potential
systems and other impracticalities of
using additional decimal places in the
calculation.
The proposed language in paragraph
(a)(1)(A) of the fee schedule would
describe when CAT Executing Brokers
would receive their first monthly
invoice for Historical CAT Assessment
1. Specifically, CAT Executing Brokers
would receive their first monthly
invoice for Historical CAT Assessment 1
84 CAT Funding Model Approval Order at 62658,
n.658.
85 Dividing $0.00003994969693072937 by three
equals $0.00001331656564357646. Rounding
$0.00001331656564357646 to six decimal places
equals $0.000013.
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in November 2024 and the fees set forth
in that invoice would be calculated
based on transactions executed in the
prior month, that is, transactions
executed in October 2024. The payment
for the first invoice would be required
within 30 days after the receipt of the
first invoice (unless a longer period is
indicated), as described in paragraph
(b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the
fee schedule also would describe the
monthly cadence of the invoices for
Historical CAT Assessment 1.
Specifically, after the first invoices are
provided to CAT Executing Brokers in
November 2024, invoices will be sent to
CAT Executing Brokers each month
thereafter while Historical CAT
Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee
schedule would describe the invoices
for Historical CAT Assessment 1.
Proposed paragraph (a)(1)(B) of the fee
schedule would state that ‘‘Consolidated
Audit Trail, LLC shall provide each
CAT Executing Broker with an invoice
for Historical CAT Assessment 1 on a
monthly basis.’’ Proposed paragraph
(a)(1)(B) of the fee schedule also would
describe the fees to be set forth in the
invoices for Historical CAT Assessment
1. Specifically, it would state that
‘‘[e]ach month, such invoices shall set
forth a fee for each transaction in
Eligible Securities executed by the CAT
Executing Broker in its capacity as a
CAT Executing Broker for the Buyer
(‘‘CEBB’’) and/or the CAT Executing
Broker for the Seller (‘‘CEBS’’) (as
applicable) from the prior month as set
forth in CAT Data. The fee for each such
transaction will be calculated by
multiplying the number of executed
equivalent shares in the transaction by
the fee rate of $0.000013 per executed
equivalent share.’’
Furthermore, proposed paragraph
(a)(1)(C) of the fee schedule would
describe how long Historical CAT
Assessment 1 would remain in effect. It
would state that ‘‘Historical CAT
Assessment 1 will remain in effect until
$212,039,879.34 (two-thirds of
Historical CAT Costs 1) are collected
from CAT Executing Brokers
collectively, which is estimated to be
approximately two years, but could be
for a longer or shorter period of time.’’
This proposed paragraph would further
state that ‘‘Consolidated Audit Trail,
LLC will provide notice when Historical
CAT Assessment 1 will no longer be in
effect.’’
Historical CAT Assessment 1 will be
assessed for all transactions executed in
each month through the end of the
month in which two-thirds of Historical
CAT Costs 1 are assessed, and then CAT
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LLC will provide notice that Historical
CAT Assessment 1 is no longer in effect.
Since Historical CAT Assessment 1 is a
monthly fee based on transaction
volume from the prior month, Historical
CAT Assessment 1 may collect more
than two-thirds of Historical CAT Costs
1. To the extent that occurs, any excess
money collected during the final month
in which Historical CAT Assessment 1
is in effect will be used to offset future
fees and/or to fund the reserve for the
CAT.
Finally, proposed paragraph (a)(1)(D)
of the fee schedule sets forth the
requirement for the CAT Executing
Brokers to pay the invoices for
Historical CAT Assessment 1. It would
state that ‘‘[e]ach CAT Executing Broker
shall be required to pay each invoice for
Historical CAT Assessment 1 in
accordance with paragraph (b).’’
(B) Manner of Payment
Paragraph (b)(1) to the ‘‘Consolidated
Audit Trail Funding Fees’’ section of its
fee schedule describes the manner of
payment of Industry Member CAT fees.
Paragraph (b)(1) states that ‘‘[e]ach CAT
Executing Broker shall pay its CAT fees
as required pursuant to paragraph (a)
each month to the Consolidated Audit
Trail, LLC in the manner prescribed by
the Consolidated Audit Trail, LLC.’’ The
CAT NMS Plan requires the Operating
Committee to establish a system for the
collection of CAT fees.86 The Plan
Processor has established a billing
system for CAT fees.87 Therefore, the
Exchange proposes to require CAT
Executing Brokers to pay Historical CAT
Assessment 1 in accordance with such
system.
(C) Failure To Pay CAT Fees
The CAT NMS Plan further states
that:
Participants shall require each Industry
Member to pay all applicable fees authorized
under this Article XI within thirty (30) days
after receipt of an invoice or other notice
indicating payment is due (unless a longer
payment period is otherwise indicated). If an
Industry Member fails to pay any such fee
when due (as determined in accordance with
the preceding sentence), such Industry
Member shall pay interest on the outstanding
balance from such due date until such fee is
paid at a per annum rate equal to the lesser
of: (a) the Prime Rate plus 300 basis points;
86 Section
11.4 of the CAT NMS Plan.
billing process and system are described in
CAT Alert 2023–02 as well as the CAT FAQs
related to the billing of CAT fees, the Industry
Member CAT Reporter Portal User Guide, the FCAT
Industry Member Onboarding Guide, the FCAT
Connectivity Supplement for Industry Members and
the CAT Billing Webinars (dated Sept. 28, 2023,
and Nov. 7, 2023), each available on the CAT
website.
87 The
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or (b) the maximum rate permitted by
applicable law.88
Accordingly, the Exchange previously
has added this requirement to the
Exchange’s fee schedule. Specifically,
paragraph (b)(2) of the fee schedule
states:
Each CAT Executing Broker shall pay the
CAT fees required pursuant to paragraph (a)
within thirty days after receipt of an invoice
or other notice indicating payment is due
(unless a longer payment period is otherwise
indicated). If a CAT Executing Broker fails to
pay any such CAT fee when due, such CAT
Executing Broker shall pay interest on the
outstanding balance from such due date until
such fee is paid at a per annum rate equal
to the lesser of (i) the Prime Rate plus 300
basis points, or (ii) the maximum rate
permitted by applicable law.
The requirements of paragraph (b)(2)
would apply to Historical CAT
Assessment 1.
(7) Historical CAT Assessment Details
The CAT NMS Plan states that:
Details regarding the calculation of a CAT
Executing Broker’s Historical CAT
Assessment will be provided upon request to
such CAT Executing Broker. At a minimum,
such details would include each CAT
Executing Broker’s executed equivalent share
volume and corresponding fee by (1) Listed
Options, NMS Stocks and OTC Equity
Securities, (2) by transactions executed on
each exchange and transactions executed
otherwise than on an exchange, and (3) by
buy-side transactions and sell-side
transactions.89
Such information would provide
CEBBs and CEBSs with the ability to
understand the details regarding the
calculation of their Historical CAT
Assessment.90 CAT LLC will provide
CAT Executing Brokers with these
details regarding the calculation of their
Historical CAT Assessments on their
monthly invoice for the Historical CAT
Assessment.
In addition, CAT LLC will make
certain aggregate statistics regarding
Historical CAT Assessments publicly
available. Specifically, the CAT NMS
Plan states that, ‘‘[f]or each Historical
CAT Assessment, at a minimum, CAT
LLC will make publicly available the
aggregate executed equivalent share
volume and corresponding aggregate fee
by (1) Listed Options, NMS Stocks and
OTC Equity Securities, (2) by
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88 Section
11.4 of the CAT NMS Plan.
11.3(a)(iv)(A) of the CAT NMS Plan.
90 In approving the CAT Funding Model, the
Commission stated that, ‘‘[i]n the Commission’s
view, providing CAT Execut[ing] Brokers
information regarding the calculation of their CAT
Fees will aid in transparency and permit CAT
Execut[ing] Brokers to confirm the accuracy of their
invoices for CAT Fees.’’ CAT Funding Model
Approval Order at 62667.
transactions executed on each exchange
and transactions executed otherwise on
an exchange, and (3) by buy-side
transactions and sell-side
transactions.’’ 91 Such aggregate
statistics will be available on the CAT
website.
Furthermore, CAT LLC will make
publicly available on the CAT website
the total amount invoiced each month
that Historical CAT Assessment 1 is in
effect as well as the total amount
invoiced for Historical CAT Assessment
1 for all months since its
commencement. CAT LLC also will
make publicly available on the CAT
website the total costs to be collected
from Industry Members for Historical
CAT Assessment 1. By reviewing
statistics regarding how much has been
invoiced and how much remains to be
invoiced for Historical CAT Assessment
1, Industry Members would have
sufficient information to reasonably
track how much longer Historical CAT
Assessment 1 is likely to be in place.
(8) Implementation Assistance
To assist Industry Members with
compliance with the commencement of
Historical CAT Assessment 1, CAT LLC
has been making available to CAT
Executing Brokers mock invoices prior
to the commencement of Historical CAT
Assessment 1. Specifically, CAT
Executing Brokers have received mock
invoices based on transaction data each
month since November 2023. The mock
invoices are in the same form as the
actual, payable invoices, including both
the relevant transaction data and the
corresponding fee. However, no
payments have been required in
response to such mock invoices; they
have been used solely to assist CAT
Executing Brokers with the
development of their processes for
paying the CAT fees. Such data has
provided CAT Executing Brokers with a
preview of the transaction data used in
creating the invoices for Historical CAT
Assessment 1 fees, as the data will be
the same as data provided in actual
invoices. Such data preview is intended
to facilitate the payment of Historical
CAT Assessment 1.
(9) Financial Accountability Milestones
The CAT NMS Plan states that ‘‘[n]o
Participant will make a filing with the
SEC pursuant to Section 19(b) of the
89 Section
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91 Section 11.3(a)(iv)(B) of the CAT NMS Plan. In
approving the CAT Funding Model, the
Commission stated that ‘‘[t]he publication of the
aggregate executed equivalent share volume and
aggregate fee is appropriate because it would allow
Participants and CAT Executing Brokers a highlevel validation of executed volume and fees.’’ CAT
Funding Model Approval Order at 62667.
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73973
Exchange Act regarding any Historical
CAT Assessment until any applicable
Financial Accountability Milestone
described in Section 11.6 has been
satisfied.’’ 92 The CAT NMS Plan further
states that ‘‘in all filings submitted by
the Participants to the Commission
under Section 19(b) of the Exchange
Act, to establish or implement PostAmendment Industry Member Fees
pursuant to this Article, . . . the
Participants shall clearly indicate
whether such fees are related to PostAmendment Expenses incurred during
Period 1, Period 2, Period 3, or Period
4.’’ 93 As discussed in detail below, all
applicable Financial Accountability
Milestones for Historical CAT
Assessment 1—that is, Period 1, Period
2 and Period 3 of the Financial
Accountability Milestones—have been
satisfied. Furthermore, as discussed
below, this filing clearly indicates that
Historical CAT Assessment 1 relates to
Post-Amendment Expenses incurred
during Periods 1, 2 and 3 of the
Financial Accountability Milestones.
(A) Period 1 of the Financial
Accountability Milestones
In accordance with Section 11.6(b) of
the CAT NMS Plan, Historical CAT
Assessment 1 seeks to recover costs that
are related to ‘‘all fees, costs, and
expenses (including legal and
consulting fees, costs, and expenses)
incurred by or for the Company in
connection with the development,
implementation and operation of the
CAT from the effective date of [Section
11.6 of the CAT NMS Plan] until such
time as Full Implementation of CAT
NMS Plan Requirements has been
achieved’’ 94 (‘‘Post-Amendment
Expenses’’) incurred during FAM Period
1. FAM Period 1 began on June 22,
2020, the effective date of Section 11.6
of the CAT NMS Plan, and concluded
on July 31, 2020, the date of Initial
Industry Member Core Equity and
Options Reporting. Section 1.1 of the
CAT NMS Plan defines ‘‘Initial Industry
Member Core Equity and Options
Reporting’’ as:
The reporting by Industry Members
(excluding Small Industry Members that are
not OATS reporters) of both: (a) equities
transaction data, excluding Customer
Account Information, Customer-ID, and
Customer Identifying Information; and (b)
options transaction data, excluding Customer
Account Information, Customer-ID and
Customer Identifying Information.
92 Section 11.3(b)(iii)(B)(III) of the CAT NMS
Plan.
93 Section 11.6(b) of the CAT NMS Plan.
94 Section 11.6 of the CAT NMS Plan.
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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.95 As
indicated by the Participants’ Quarterly
Progress Report for the third quarter of
2020,96 Initial Industry Member Core
Equity and Option Reporting was
completed on schedule on July 22, 2020,
which is prior to the July 31, 2020
deadline.
Under the FAM Period 1 requirement
of Initial Industry Member Core Equity
and Options Reporting, Industry
Members—excluding Small Industry
Members that are not OATS reporters—
were required to report two categories of
data to the CAT: equites transaction data
and options transaction data (both
excluding Customer Account
Information, Customer-ID, and
Customer Identifying Information) by
July 31, 2020. Pursuant to exemptive
relief provided by the Commission, the
Commission authorized the
Participants’ Compliance Rules to allow
core equity reporting for Industry
Members (Phase 2a) to begin on June 22,
2020 and core options reporting for
Industry Members (Phase 2b) to begin
on July 20, 2020.97
In adopting the FAMs, the
Commission stated that the equities
transaction reporting required for FAM
Period 1 ‘‘is consistent with the
functionality that the Participants
describe on the CAT NMS Plan website
as ‘Production Go-Live for Equities 2a
file submission and data integrity
validations.’ ’’ 98 The Phase 2a Industry
Member Data is described in detail in
the SEC’s Phased Reporting Exemptive
Relief Order, and includes the following
95 The Quarterly Progress Reports are available at
https://www.catnmsplan.com/implementationplan.
96 See Q3 2020 Quarterly Progress Report (Oct. 30,
2020) and Updated Q3 2020 Quarterly Progress
Report (Jan. 29, 2021).
97 See Phased Reporting Exemptive Relief Order.
Under the CAT NMS Plan as adopted, the
Participants were required, through their
Compliance Rules, to require their Large Industry
Members to commence reporting Industry Member
Data to the Central Repository by November 15,
2018, and to require their Small Industry Members
to commence reporting Industry Member Data to
the Central Repository by November 15, 2019.
Sections 6.7(a)(v) and (vi) of the CAT NMS Plan.
The SEC granted exemptive relief from these
provisions of the CAT NMS Plan to allow for the
phased implementation of Industry Member
reporting via five phases addressing the reporting
requirements for Phase 2a Industry Member Data,
Phase 2b Industry Member Data, Phase 2c Industry
Member Data, Phase 2d Industry Member Data and
Phase 2e Industry Member Data.
98 Securities Exchange Act Rel. No. 88890 (May
15, 2020), 85 FR 31322, 31330 n.97 (May 22, 2020)
(‘‘FAM Adopting Release’’).
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data related to Eligible Securities that
are equities:
• All events and scenarios covered by
OATS, which includes information
related to the receipt or origination of
orders, order transmittal, and order
modifications, cancellations and
executions;
• Reportable Events for: (1)
proprietary orders, including market
maker orders, for Eligible Securities that
are equities; (2) electronic quotes in
listed equity Eligible Securities (i.e.,
NMS stocks) sent to a national securities
exchange or FINRA’s Alternative
Display Facility (‘‘ADF’’); (3) electronic
quotes in unlisted Eligible Securities
(i.e., OTC Equity Securities) received by
an Industry Member operating an
interdealer quotation system (‘‘IDQS’’);
and (4) electronic quotes in unlisted
Eligible Securities sent to an IDQS or
other quotation system not operated by
a Participant or Industry Member;
• Firm Designated IDs (‘‘FDIDs’’),
which Industry Members must report to
the CAT as required by Sections
6.3(d)(i)(A) and 6.4(d)(ii)(C) of the CAT
NMS Plan;
• Industry Members would be
required to report all street side
representative orders, including both
agency and proprietary orders and mark
such orders as representative orders,
except in certain limited exceptions as
described in the Industry Member
Technical Specifications;
• The link between the street side
representative order and the order being
represented when: (1) the representative
order was originated specifically to
represent a single order received either
from a customer or another brokerdealer; and (2) there is (a) an existing
direct electronic link in the Industry
Member’s system between the order
being represented and the representative
order and (b) any resulting executions
are immediately and automatically
applied to the represented order in the
Industry Member’s system;
• Manual and Electronic Capture
Time for Manual Order Events;
• Special handling instructions for
the original receipt or origination of an
order during Phase 2a; and
• When routing an order, whether the
order was routed as an intermarket
sweep order (‘‘ISO’’).
In Phase 2a, Industry Members were
not required to report modifications of
a previously routed order in certain
limited instances, nor were they
required to report a cancellation of an
order received from a Customer after the
order has been executed.99
99 Phased Reporting Exemptive Relief Order at
23076–78.
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The Quarterly Progress Report for the
third quarter of 2020 states that ‘‘Interim
Step: Production Go-Live for Equities 2a
file submission and data integrity
validation (Large Industry Members and
Small OATS Reporters)’’ was completed
on June 22, 2020. Accordingly, the FAM
Period 1 requirement of reporting by
Industry Members (excluding Small
Industry Members that are not OATS
reporters) of ‘‘equities transaction data,
excluding Customer Account
Information, Customer-ID, and
Customer Identifying Information’’ was
completed on June 22, 2020.
In adopting the FAMs, the
Commission stated that the options
transaction reporting required for FAM
Period 1 is ‘‘consistent with the
functionality that the Participants
describe on the CAT NMS Plan website
as ‘Production Go-Live for Options 2b
file submission and data integrity
validations.’ ’’ 100 The Phase 2b Industry
Member Data is described in detail in
the SEC’s Phased Reporting Exemptive
Relief Order, and includes the Industry
Member Data related to Eligible
Securities that are options and related to
simple electronic option orders,
excluding electronic paired option
orders. A simple electronic option order
is an order to buy or sell a single option
that is not related to or dependent on
any other transaction for pricing and
timing of execution that is either
received or routed electronically by an
Industry Member. Electronic receipt of
an order is defined as the initial receipt
of an order by an Industry Member in
electronic form in standard format
directly into an order handling or
execution system. Electronic routing of
an order is the routing of an order via
electronic medium in standard format
from one Industry Member’s order
handling or execution system to an
exchange or another Industry Member.
An electronic paired option order is an
electronic option order that contains
both the buy and sell side that is routed
to another Industry Member or exchange
for crossing and/or price improvement
as a single transaction on an exchange.
Responses to auctions of simple orders
and paired simple orders would be
reportable in Phase 2b. Furthermore,
combined orders in options would be
treated in Phase 2b in the same way as
equity representative orders are treated
in Phase 2a. A combined order would
mean, as permitted by SRO rules, a
single, simple order in Listed Options
created by combining individual, simple
orders in Listed Options from a
customer with the same exchange origin
code before routing to an exchange.
100 FAM
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During Phase 2b, the single combined
order sent to an exchange must be
reported and marked as a combined
order, but the linkage to the underlying
orders is not required to be reported
until Phase 2d.101
The Quarterly Progress Report for the
third quarter of 2020 states that ‘‘Interim
Step: Production Go-Live for Options 2b
file submission and data integrity
validations’’ was completed on July 20,
2020. Accordingly, the FAM Period 1
requirement of reporting by Industry
Members (excluding Small Industry
Members that are not OATS reporters)
of ‘‘options transaction data, excluding
Customer Account Information,
Customer-ID and Customer Identifying
Information’’ was completed on July 20,
2020.
As discussed above, the Historical
CAT Costs 1 to be recovered via
Historical CAT Assessment 1 would
include fees, costs and expenses
incurred by or for the Company in
connection with the development,
implementation and operation of the
CAT during the period from June 22,
2020 through July 31, 2020. The total
costs for this period, as discussed above,
are $6,377,343. Participants would
remain responsible for one-third of this
cost (which they have previously paid),
and Industry Members would be
responsible for the remaining twothirds, with CEBBs paying one-third
($2,125,781) and CEBSs paying onethird ($2,125,781).
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(B) Period 2 of the Financial
Accountability Milestones
Historical CAT Assessment 1 seeks to
recover costs that are related to PostAmendment Expenses incurred during
FAM Period 2. FAM Period 2 began on
August 1, 2020, and concluded on
December 31, 2020, the date of the Full
Implementation of Core Equity
Reporting. Section 1.1 of the CAT NMS
Plan defines ‘‘Full Implementation of
Core Equity Reporting’’ as:
the point at which: (a) Industry Member
reporting (excluding reporting by Small
Industry Members that are not OATS
reporters) for equities transactions, excluding
Customer Account Information, Customer-ID,
and Customer Identifying Information, is
developed, tested, and implemented at a 5%
Error Rate or less and with sufficient intrafirm linkage, inter-firm linkage, national
securities exchange linkage, and trade
reporting facilities linkage to permit the
Participants and the Commission to analyze
the full lifecycle of an order across the
national market system, excluding linkage of
representative orders, from order origination
through order execution or order
101 Phased Reporting Exemptive Relief Order at
23078.
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cancellation; and (b) the query tool
functionality required by Section
6.10(c)(i)(A) and appendix D, Sections 8.1.1–
8.1.3 and Section 8.2.1 incorporates the
Industry Member equities transaction data
described in condition (a) and is available to
the Participants and to the Commission. This
Financial Accountability Milestone shall be
considered complete as of the date identified
in a Quarterly Progress Report meeting the
requirements of Section 6.6(c).
Under Section 1.1 of the CAT NMS
Plan, this Financial Accountability
Milestone is considered complete as of
the date identified in the Participants’
Quarterly Progress Reports. As indicated
by the Participants’ Quarterly Progress
Report for the fourth quarter of 2020,102
Full Implementation of Core Equity
Reporting was completed on schedule
by December 31, 2020.
Specifically, the Full Implementation
of Core Equity Reporting requires the
satisfaction of two prongs. The first
prong requires Participants to have fully
implemented the first phase of equities
transaction reporting for Industry
Members (excluding Small Industry
Members that are not OATS reporters) at
an Error Rate of less than 5%. In
addition, equities transaction data
produced by the CAT at this stage must
also be sufficiently interlinked so as to
permit full analysis of an order’s
lifecycle across the national market,
excluding full linkage of representative
orders. As CAT LLC reported on its
Quarterly Progress Reports, Phase 2a
was fully implemented as of October 26,
2020, including intra-firm, inter-firm,
national securities exchange, and trade
reporting facilities linkages.103 In
addition to the reporting of Phase 2a
Industry Member Data as described
above with regard to FAM Period 1, the
following linkage data was added to the
CAT as described in the Quarterly
Progress Reports for the third and fourth
quarter of 2020:
• ‘‘Production Go-Live for Equities 2a
Intrafirm Linkage validations’’ was
completed on 7/27/2020; 104
• ‘‘Production Go-Live for Firm to
Firm Linkage validations for Equities 2a
(Large Industry Members and Small
OATS Reporters)’’ was completed on
October 26, 2020; and
• ‘‘Production Go-Live for Equities 2a
Exchange and TRF Linkage validations
(Large Industry Members and Small
OATS Reporters)’’ was completed on
October 26, 2020.
102 Q4 2020 Quarterly Progress Report (Jan. 29,
2021).
103 For a description of the requirements of
Phases 2a, see Phased Reporting Exemptive Relief
Order.
104 Q3 2020 Quarterly Progress Report (Oct. 20,
2021).
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Furthermore, as CAT LLC reported on
its Quarterly Progress Report for the
fourth quarter of 2020, the average
overall error rate for Phase 2a Industry
Member Data was less than 5% as of
December 31, 2020. The average overall
error rate was calculated by dividing the
compliance errors by processed records.
The second prong of this FAM
requires that the equities transaction
data collected by the CAT at this stage
be made available to regulators through
two basic query tools required by the
CAT NMS Plan—a targeted query tool
that will enable regulators to retrieve
data via an online query screen with a
variety of predefined selection criteria,
and a user-defined direct query tool that
will provide regulators with the ability
to query data using all available
attributes and data sources.105 As CAT
LLC reported on its Quarterly Progress
Reports, the query tool functionality
incorporating the data from Phase 2a
was available to the Participants and the
Commission as of December 31, 2020.106
The Commission has determined that
the Participants have sufficiently
complied with the conditions set forth
in the 2020 Orders and with the
technical requirements for Quarterly
Progress Reports set forth in Section
6.6(c) of the CAT NMS Plan for
purposes of determining compliance
with this FAM.107
As discussed above, Historical CAT
Costs 1 to be recovered via Historical
CAT Assessment 1 would include fees,
costs and expenses incurred by or for
the Company in connection with the
development, implementation and
operation of the CAT during the period
from August 1, 2020 through December
31, 2020. The total costs for this period,
as discussed above, are $42,976,478.
Participants would remain responsible
for one-third of this cost (which they
have previously paid), and Industry
Members would be responsible for the
remain [sic] two-thirds, with CEBBs
paying one-third ($14,325,492.70) and
105 Section 6.10(c)(i)(A) of the CAT NMS Plan
requires the Plan Processor to ‘‘provide Participants
and the SEC with access to all CAT Data stored in
the Central Repository’’ via an ‘‘online targeted
query tool.’’ Appendix D, Sections 8.1.1–8.1.3 of the
CAT NMS Plan describes the required functionality
associated with this regulatory tool. Appendix D,
Section 8.2.1 describes the required functionality
associated with a user-defined direct query tool that
will ‘‘deliver large sets of data that can then be used
in internal surveillance or market analysis
applications.’’
106 See Q3 2020 Quarterly Progress Report (Oct.
30, 2020); Updated Q3 2020 Quarterly Progress
Report (Jan. 29, 2021); and Q4 2020 Quarterly
Progress Report (Jan. 29, 2021).
107 Securities Exchange Act Rel. No. 98848 (Nov.
2, 2023), 88 FR 77128, 77129 n.13 (Nov. 8, 2023)
(‘‘Settlement Exemptive Order’’).
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CEBSs paying one-third
($14,325,492.70).
(C) Period 3 of the Financial
Accountability Milestones
Historical CAT Assessment 1 seeks to
recover costs that are related to PostAmendment Expenses incurred during
FAM Period 3. FAM Period 3 began on
January 1, 2021, and concluded on
December 31, 2021, the date of the Full
Availability and Regulatory Utilization
of Transactional Database Functionality.
Section 1.1 of the CAT NMS Plan
defines ‘‘Full Availability and
Regulatory Utilization of Transactional
Database Functionality’’ as:
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the point at which: (a) reporting to the Order
Audit Trail System (‘‘OATS’’) is no longer
required for new orders; (b) Industry Member
reporting for equities transactions and simple
electronic options transactions, excluding
Customer Account Information, Customer-ID,
and Customer Identifying Information, with
sufficient intra-firm linkage, inter-firm
linkage, national securities exchange linkage,
trade reporting facilities linkage, and
representative order linkages (including any
equities allocation information provided in
an Allocation Report) to permit the
Participants and the Commission to analyze
the full lifecycle of an order across the
national market system, from order
origination through order execution or order
cancellation, is developed, tested, and
implemented at a 5% Error Rate or less; (c)
Industry Member reporting for manual
options transactions and complex options
transactions, excluding Customer Account
Information, Customer-ID, and Customer
Identifying Information, with all required
linkages to permit the Participants and the
Commission to analyze the full lifecycle of an
order across the national market system, from
order origination through order execution or
order cancellation, including any options
allocation information provided in an
Allocation Report, is developed, tested, and
fully implemented; (d) the query tool
functionality required by Section
6.10(c)(i)(A) and appendix D, Sections 8.1.1–
8.1.3, Section 8.2.1, and Section 8.5
incorporates the data described in conditions
(b)–(c) and is available to the Participants
and to the Commission; and (e) the
requirements of Section 6.10(a) are met. This
Financial Accountability Milestone shall be
considered complete as of the date identified
in a Quarterly Progress Report meeting the
requirements of Section 6.6(c).
Under Section 1.1 of the CAT NMS
Plan, this Financial Accountability
Milestone is considered complete as of
the date identified in the Participants’
Quarterly Progress Reports. As indicated
by the Participants’ Quarterly Progress
Report for the fourth quarter of 2021,108
Full Availability and Regulatory
Utilization of Transactional Database
Functionality was completed on
schedule by December 31, 2021.
Specifically, the ‘‘Full Availability
and Regulatory Utilization of
Transactional Database Functionality’’
requires the satisfaction of five prongs.
The first prong requires that reporting to
the Order Audit Trail System (‘‘OATS’’)
is no longer required for new orders. As
CAT LLC reported on its Quarterly
Progress Report for the fourth quarter of
2021,109 FINRA retired OATS effective
September 1, 2021.110 Accordingly, after
the retirement of OATS, reporting to
OATS was no longer required.
In addition to Phase 2a and Phase 2b
Industry Member Data, the second and
third prongs of ‘‘Full Availability and
Regulatory Utilization of Transactional
Database Functionality’’ require
Industry Member reporting of Phase 2c
Industry Member Data and Phase 2d
Industry Member Data. The Phase 2c
Industry Member Data is described in
detail in the SEC’s Phased Reporting
Exemptive Relief Order. That Order
states that ‘‘Phase 2c Industry Member
Data’’ is Industry Member Data related
to Eligible Securities that are equities
other than Phase 2a Industry Member
Data, Phase 2d Industry Member Data,
or Phase 2e Industry Member Data.
Specifically, the Phase 2c Industry
Member Data includes Industry Member
Data that is related to Eligible Securities
that are equities and that is related to:
(1) Allocation Reports as required to be
recorded and reported to the Central
Repository pursuant to Section
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2)
quotes in unlisted Eligible Securities
sent to an IDQS operated by a CAT
Reporter (reportable by the Industry
Member sending the quotes) (except for
quotes reportable in Phase 2d, as
discussed below); (3) electronic quotes
in listed equity Eligible Securities (i.e.,
NMS stocks) that are not sent to a
national securities exchange or FINRA’s
Alternative Display Facility; (4)
reporting changes to client instructions
regarding modifications to algorithms;
(5) marking as a representative order
any order originated to work a customer
order in price guarantee scenarios, such
as a guaranteed VWAP; (6) flagging
rejected external routes to indicate a
route was not accepted by the receiving
destination; (7) linkage of duplicate
electronic messages related to a Manual
Order Event between the electronic
event and the original manual route; (8)
special handling instructions on order
route reports (other than the ISO, which
is required to be reported in Phase 2a);
109 Id.
108 Q4
2021 Quarterly Progress Report (Jan. 17,
2022).
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110 Securities
Exchange Act Rel. No. 92239 (June
23, 2021), 86 FR 34293 (June 29, 2021).
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(9) quote identifier on trade events; (10)
reporting of LTIDs (if applicable) for
accounts with Reportable Events that
are reportable to CAT as of and
including Phase 2c; (11) reporting of
date account opened or Account
Effective Date (as applicable) for
accounts and reporting of a flag
indicating the Firm Designated ID type
as account or relationship; (12) order
effective time for orders that are
received by an Industry Member and do
not become effective until a later time;
(13) the modification or cancellation of
an internal route of an order; and (14)
linkages to the customer orders(s) being
represented for representative order
scenarios, including agency average
price trades, net trades, aggregated
orders, and disconnected Order
Management System (‘‘OMS’’)—
Execution Management System (‘‘EMS’’)
scenarios, as required in the Industry
Member Technical Specifications.111
Phase 2c Industry Member Data also
includes electronic quotes that are
provided by or received in a CAT
Reporter’s order/quote handling or
execution systems in Eligible Securities
that are equities and are provided by an
Industry Member to other market
participants off a national securities
exchange under the following
conditions: (1) an equity bid or offer is
displayed publicly or has been
communicated (a) for listed securities to
the ADF operated by FINRA; or (b) for
unlisted equity securities to an
‘‘interdealer quotation system,’’ as
defined in FINRA Rule 6420(c); or (2) an
equity bid or offer which is accessible
electronically by customers or other
market participants and is immediately
actionable for execution or routing; i.e.,
no further manual or electronic action is
required by the responder providing the
quote in order to execute or cause a
trade to be executed). With respect to
OTC Equity Securities, OTC Equity
Securities quotes sent by an Industry
Member to an IDQS operated by an
Industry Member CAT Reporter (other
than such an IDQS that does not match
and execute orders) are reportable by
the Industry Member sending them in
Phase 2c. Accordingly, any response to
a request for quote or other form of
solicitation response provided in a
standard electronic format (e.g., FIX)
that meets this quote definition (i.e., an
equity bid or offer which is accessible
electronically by customers or other
market participants and is immediately
actionable for execution or routing)
would be reportable in Phase 2c.112
111 Phase Reporting Exemptive Relief Order at
23078–79.
112 Id. at 23079.
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The Phase 2d Industry Member Data
is described in detail in the SEC’s
Phased Reporting Exemptive Relief
Order. ‘‘Phase 2d Industry Member
Data’’ is Industry Member Data that is
related to Eligible Securities that are
options other than Phase 2b Industry
Member Data, Industry Member Data
that is related to Eligible Securities that
are equities other than Phase 2a
Industry Member Data or Phase 2c
Industry Member Data, and Industry
Member Data other than Phase 2e
Industry Member Data. Phase 2d
Industry Member Data includes with
respect to the Eligible Securities that are
options: (1) simple manual orders; (2)
electronic and manual paired orders; (3)
all complex orders with linkages to all
CAT-reportable legs; (4) LTIDs (if
applicable) for accounts with Reportable
Events for Phase 2d; (5) date account
opened or Account Effective Date (as
applicable) for accounts with an LTID
and flag indicating the Firm Designated
ID type as account or relationship for
such accounts; (6) Allocation Reports as
required to be recorded and reported to
the Central Repository pursuant to
Section 6.4(d)(ii)(A)(1) of the CAT NMS
Plan; (7) the modification or
cancellation of an internal route of an
order; and (8) linkage between a
combined order and the original
customer orders. Phase 2d Industry
Member Data also would include
electronic quotes that are provided by or
received in a CAT Reporter’s order/
quote handling or execution systems in
Eligible Securities that are options and
are provided by an Industry Member to
other market participants off a national
securities exchange under the following
conditions: a listed option bid or offer
which is accessible electronically by
customers or other market participants
and is immediately actionable (i.e., no
further action is required by the
responder providing the quote in order
to execute or cause a trade to be
executed). Accordingly, any response to
a request for quote or other form of
solicitation response provided in
standard electronic format (e.g., FIX)
that meets this definition is reportable
in Phase 2d for options.113
Phase 2d Industry Member Data also
includes with respect to Eligible
Securities that are options or equities (1)
receipt time of cancellation and
modification instructions through Order
Cancel Request and Order Modification
Request events; (2) modifications of
previously routed orders in certain
instances; and (3) OTC Equity Securities
quotes sent by an Industry Member to
an IDQS operated by an Industry
Member CAT Reporter that does not
match and execute orders. In addition,
subject to any exemptive or other relief,
Phase 2d Industry Member Data will
include verbal or manual quotes on an
exchange floor or in the over-thecounter market, where verbal quotes
and manual quotes are defined as bids
or offers in Eligible Securities provided
verbally or that are provided or received
other than via a CAT Reporter’s order
handling and execution system (e.g.,
quotations provided via email or instant
messaging).114
The Quarterly Progress Report for the
fourth quarter of 2021 states that ‘‘Phase
2a was fully implemented as of October
26, 2020;’’ ‘‘Phase 2b was fully
implemented as of January 4, 2021;’’
‘‘Phase 2c was implemented as of April
26, 2021;’’ and ‘‘Phase 2d was fully
implemented as of December 13,
2021.’’ 115 The Quarterly Progress
Reports for 2021 provide additional
detail regarding the implementation of
these steps including the following:
• ‘‘Production Go-Live for Equities 2c
reporting requirements (Large Industry
Members)’’ was completed on April 26,
2021;
• ‘‘LTID Account Information
Reporting Go-Live for Phases 2a, 2b and
2c (Large Industry Members)’’ was
completed on April 26, 2021;
• ‘‘FCAT Plan Processor creates
linkages of the lifecycle of order events
based on the received data through
Phase 2d Production Go-Live for
Options 2d reporting requirements
(Large Industry Members)’’ was
completed on December 13, 2021;
• ‘‘Production Go-Live for Options 2d
reporting requirements (Large Industry
Members)’’ was completed on December
13, 2021;
• ‘‘Production Go-Live for Options 2b
reporting requirements (Small OATS
Reporters and Small Non-OATS
Reporters)’’ was completed on
December 13, 2021;
• ‘‘Production Go-Live for Equities 2c
reporting requirements (Small OATS
Reporters and Small Non-OATS
Reporters)’’ was completed on
December 13, 2021;
• ‘‘Production Go-Live for Options 2d
reporting requirements (Small OATS
Reporters and Small Non-OATS
Reporters)’’ was completed on
December 13, 2021;
• ‘‘LTID Account Information
Reporting Go-Live for Phases 2d (Large
Industry Members)’’ was completed on
December 13, 2021; and
• ‘‘LTID Account Information
Reporting Go-Live for Phases 2a, 2b, 2c
114 Id.
at 23079–80.
Q4 2021 Quarterly Progress Report (Jan.
17, 2022).
115 See
113 Id.
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and 2d (Small Industry Members)’’ was
completed on December 13, 2021.116
The third prong of ‘‘Full Availability
and Regulatory Utilization of
Transactional Database Functionality’’
also imposes an Error Rate requirement
of 5% or less. The Quarterly Progress
Report for the fourth quarter of 2021
states the average overall error rate was
less than 5% as of December 31, 2021.
The average overall error rate was
calculated by dividing the compliance
errors by processed records.
The fourth prong of ‘‘Full Availability
and Regulatory Utilization of
Transactional Database Functionality’’
requires that the data collected by the
CAT at this stage be made available to
regulators through an online targeted
query tool and a user-defined direct
query tool. As CAT LLC reported on its
Quarterly Progress Report for the fourth
quarter of 2021, the query tool
functionality incorporating the data
from Phases 2a, 2b, 2c and 2d was
available to the Participants and to the
Commission as of December 31, 2021.117
The fifth prong requires the
requirements of Section 6.10(a) of the
CAT NMS Plan to have been met.
Section 6.10(a) of the CAT NMS Plan
requires the Participants to use the tools
described in appendix D to ‘‘develop
and implement a surveillance system, or
enhance existing surveillance systems,
reasonably designed to make use of the
consolidated information contained in
the Central Repository.’’ The Exchange
implemented a surveillance system, or
enhanced existing surveillance systems,
reasonably designed to make use of the
consolidated information contained in
the Central Repository as of December
31, 2021 in accordance with Section
6.10(a) of the CAT NMS Plan.118
The Commission has determined that
the Participants have sufficiently
complied with the conditions set forth
in the 2020 Orders and with the
technical requirements for Quarterly
Progress Reports set forth in Section
6.6(c) of the CAT NMS Plan for
purposes of determining compliance
with this FAM.119
As discussed above, Historical CAT
Costs 1 to be recovered via Historical
CAT Assessment 1 would include fees,
costs and expenses incurred by or for
116 See Q2 2021 Quarterly Progress Report (July
27, 2021); and Q4 2021 Quarterly Progress Report
(Jan. 17, 2022).
117 See Q4 2021 Quarterly Progress Report (Jan.
17, 2022).
118 See Q1 2021 Quarterly Progress Report (Apr.
30, 2021); Q2 2021 Quarterly Progress Report (July
27, 2021); Q3 2021 Quarterly Progress Report (Nov.
1, 2021); Q4 2021 Quarterly Progress Report (Jan.
17, 2022).
119 Settlement Exemptive Order at 77129 n.13.
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the Company in connection with the
development, implementation and
operation of the CAT during the period
from January 1, 2021 through December
31, 2021. The total costs for this period,
as discussed above, are $144,415,268.
Participants would remain responsible
for one-third of this cost (which they
have previously paid), and Industry
Members would be responsible for the
remaining two-thirds, with CEBBs
paying one-third ($48,138,422.70) and
CEBSs paying one-third
($48,138,422.70).
(D) Additional Considerations Related
to the Financial Accountability
Milestones
As discussed above, CAT LLC has
satisfied the Financial Accountability
Milestones (‘‘FAMs’’) for Periods 1
through 3.120 As discussed below, none
of the circumstances related to NIA
Electronic RFQ Responses, the 2023
Verbal Quotes Exemption, the
November 2023 Order, or Executing
Broker reporting, affect the conclusion
that the FAMs for Periods 1 through 3
were satisfied in a timely fashion.
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(i) NIA Electronic RFQ Responses
CAT LLC does not believe that the
exemptive relief relating to the reporting
of electronic responses for quotes
(‘‘RFQs’’) that are not immediately
actionable (‘‘NIA Electronic RFQ
Responses’’) affect the conclusion that
FAMs 1 through 3 have been satisfied.
The only reason CAT LLC pursued this
relief is because certain Industry
Members introduced concerns that NIA
Electronic RFQ Responses could be
considered ‘‘orders’’ reportable pursuant
to Rule 613(j)(8) and some Industry
Members were not prepared to report
such orders to CAT. Thus, the relief was
requested on behalf of Industry
Members. CAT LLC itself has not taken
any position on whether NIA Electronic
RFQ Responses are ‘‘orders,’’ as the
definition of ‘‘order’’ is an SEC rule and
the trading processes for NIA Electronic
RFQ Responses are the Industry
Members’, not those of the Participants
or CAT LLC. Accordingly, CAT LLC
stated in its letter that ‘‘Industry
Members must determine whether
trading interest falls within the
definition of an ‘order’ for CAT
purposes. To the extent an NIA
Electronic RFQ Response is not
120 In
May 2020, the Commission adopted
amendments to the CAT NMS Plan that establish
four Financial Accountability Milestones and set
target deadlines by which these milestones must be
achieved. These amendments also reduce the
amount of any fees, costs, and expenses that may
be recovered from Industry Members if the
Participants fail to meet the target deadlines. FAM
Adopting Release.
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considered an ‘order’’ as defined in Rule
613(j)(8) and the CAT NMS Plan, it
would not be reportable to CAT.’’ 121
Only ‘‘orders’’ as defined in SEC Rule
613(j)(8) are reportable to CAT. There is
no agreement across the industry or
among regulators as to whether NIA
Electronic RFQ Responses are ‘‘orders’’
reportable to CAT. Certain Industry
Members have raised the question as to
whether NIA Electronic RFQ Responses
are orders, but others have argued that
they are not orders under Rule
613(j)(8).122 Indeed, members of the
Advisory Committee, which CAT LLC
relies upon for guidance with regard to
Industry Member issues, have not had a
definitive view on whether NIA
Electronic RFQ Responses are orders. As
Rule 613(j)(8) is an SEC rule, CAT LLC
believes that only the SEC can provide
a definitive determination as to if, and
under what circumstances, an NIA
Electronic RFQ Response is considered
an ‘‘order’’ reportable to CAT. The issue
has persisted for some time. As a result,
CAT LLC filed an exemptive request
regarding NIA Electronic RFQ
Responses for clarity on the interpretive
issue. As recently as April 2024,
Industry Members have re-raised this
issue stating that the SEC agrees that it
must provide additional guidance on
this interpretive issue to resolve the
CAT reporting issue for NIA Electronic
RFQ Responses:
As further discussed in the prior FIF
letters, even if the Commission had the legal
authority to require the reporting of NIA RFQ
responses to CAT without an amendment to
Rule 613, the Commission has not provided
guidance to industry members as to the
conditions under which NIA RFQ responses
would be reportable to CAT. In subsequent
discussions with industry members,
Commission representatives have agreed that,
prior to NIA RFQ responses being reportable
to CAT, it would be necessary for the
Commission to provide further guidance to
industry members as to the conditions under
which NIA RFQ responses would be
reportable to CAT.123
On May 20, 2024, the Commission
granted CAT LLC’s request for
exemptive relief from certain CAT
reporting requirements pertaining to
NIA Electronic RFQ Responses to the
extent such responses are considered
‘‘orders’’ reportable pursuant to Rule
121 See Letter from Brandon Becker, Chair, CAT
NMS Plan Operating Committee to Vanessa
Countryman, Secretary, Commission (Feb. 13, 2024)
at 2.
122 See, e.g., Letter from Howard Meyerson,
Managing Director, FIF, to Sai Rao, Counsel for
Trading and Markets, Office of the Chair (Apr. 25,
2024).
123 Id.
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613(j)(8).124 The Commission, however,
did not provide additional guidance
regarding the conditions under which
NIA Electronic RFQ Responses would
be reportable to CAT. The Commission
stated in its exemptive order that ‘‘[t]o
the extent that the Participants are
availing themselves of exemptive relief
from a CAT NMS Plan requirement,
such requirement shall not be included
in the requirements for the Financial
Accountability Milestones, provided
that any conditions of the exemption are
satisfied.’’ 125
When the Commission proposed the
FAMs, the Participants expressed
concern that, ‘‘by conditioning the
ability of CAT LLC and the Participants
to collect Post-Amendment Industry
Member Fees on factors dependent on
the efforts of Industry Members, the
Commission’s proposals inadvertently
establish a perverse incentive for
Industry Members to devote less than
maximum efforts to comply with their
obligations related to the CAT as they
will pay less fees in such instances.’’ 126
The Participants further warned that
‘‘Industry Members may request or
require unanticipated reporting delays
to address Industry Member
implementation issues or concerns,’’ but
that, ‘‘[f]aced with financial penalties
for missed deadlines, the Participants
may not be able to fully address
legitimate industry concerns or
accommodate requests for delays with
respect to future deadlines.’’ 127 CAT
LLC has engaged in good faith to help
address NIA Electronic RFQ Responses
and other concerns relevant to the
ability of Industry Members to meet
their CAT reporting obligations. CAT
LLC should not be penalized financially
for seeking in good faith to resolve a
difficult interpretive issue for the
benefit of Industry Members.
(ii) 2023 Verbal Quotes Exemption
CAT LLC does not believe that the
Commission’s May 19, 2023 order
granting temporary exemptive relief
relating to certain verbal floor activity
and unstructured verbal and electronic
upstairs activity (the ‘‘2023 Verbal
Quotes Exemption’’) affects the
conclusion that FAMs 1 through 3 have
been satisfied. The 2023 Verbal Quotes
Exemption, which was issued on May
19, 2023, is not relevant for purposes of
FAM Periods 1 through 3, which only
124 Securities Exchange Act Rel. No. 100181 (May
20, 2024), 89 FR 45715 (May 23, 2024).
125 Id. at n.11.
126 See Letter from Michael Simon, CAT NMS
Plan Operating Committee Chair, to Vanessa
Countryman, Secretary, Commission at 9 (Oct. 28,
2019).
127 Id. at 10.
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cover the period through December 31,
2021. The relevant exemption for this
time period is the Commission’s
November 12, 2020 order, which
granted relief for the same activity
through July 31, 2023 (the ‘‘2020 Verbal
Quotes Order’’).128 The Commission has
stated that, ‘‘to the extent that the
Participants are availing themselves of
exemptive relief from a CAT NMS Plan
requirement, such requirement shall not
be included in the requirements for a
Financial Accountability Milestone,
provided that the conditions of the
exemption are satisfied.’’ 129 Here, the
2020 Verbal Quotes Order was in effect
and the conditions of the exemption
were satisfied as of December 31, 2021,
and therefore may be relied upon for
purposes of determining compliance
with FAM Periods 1 through 3.130
(iii) November 2023 Order
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CAT LLC does not believe that the
Commission’s November 2, 2023 order
granting relief from certain CAT NMS
Plan requirements (the ‘‘November 2023
Order’’) affects the conclusion that
FAMs 1 through 3 have been satisfied.
The November 2023 Order is not
relevant for purposes of FAM Periods 1
through 3, which only cover the period
through December 31, 2021. As
described in the November 2023 Order,
the relevant exemptive orders for this
time period were issued on December
16, 2020, which also states that ‘‘the
Commission has determined that the
Participants have sufficiently complied
with the conditions set forth in the prior
Orders and with the technical
requirements for Quarterly Progress
Reports set forth in section 6.6(c) of the
CAT NMS Plan, including for purposes
of determining compliance with any
applicable Financial Accountability
128 Securities Exchange Act Rel. No. 90405, 85 FR
73544 (Nov. 18, 2020) (the ‘‘2020 Verbal Quotes
Exemption’’).
129 See, e.g., Securities Exchange Act Rel. No.
89051 (June 11, 2020), 85 FR 36631, 36633 (June 17,
2020). The straightforward reading of the
Commission’s statement is that compliance with the
conditions of an exemption will be measured as of
the deadline for a particular FAM Period.
130 As a condition to the 2020 Verbal Quotes
Exemption, the Commission required that the
Participants provide a written status update on the
reporting of these quotes and orders by July 31,
2022, including the estimated costs of reporting
these quotes and orders and an implementation
plan for the reporting of these quotes and orders.
As noted, the 2020 Verbal Quotes Order was in
effect and the conditions of the exemption were
satisfied as of December 31, 2021, and therefore
may be relied upon for purposes of determining
compliance with FAM Periods 1 through 3. In any
event, on June 3, 2022, the Participants provided
the required written status update. See Letter from
Michael Simon, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman,
Secretary, Commission (June 3, 2022).
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Milestones.’’ 131 The November 2023
Exemption Order is consistent with the
Commission’s repeated statements in
the FAM adopting release that it would
have ‘‘authority to grant exemptive
relief from any requirement associated
with a particular Financial
Accountability Milestone,’’ citing
Section 36 of the Exchange Act and Rule
608.132 Similarly, the CAT NMS Plan
expressly contemplates the
Commission’s ability to grant exemptive
relief from any CAT NMS Plan
requirement.133
(iv) Executing Broker Reporting
CAT LLC also completed the
requirements of FAM Period 2,
including the required linkages, by
December 31, 2020. Although
Participant exchanges may report the
Executing Broker to CAT differently in
certain situations, these reporting
differences are irrelevant for linkage
purposes as the fields used for CAT
Executing Broker are not used for
linkage.
(10) Additional Support for
Reasonableness of Historical CAT Costs
The CAT Funding Model approved by
the Commission permits the recovery of
reasonable costs in each of the
categories of CAT costs sought to be
recovered via Historical CAT
Assessment 1.134 As described in detail
above and in further detail below, the
CAT costs to be recovered for each
category are reasonable. The following
discusses in further details how each of
the following costs are reasonable: (1)
costs incurred prior to the effective date
of the CAT NMS Plan; (2) cloud hosting
131 Id.
at 77129 n.12.
Adopting Release at 31335 (May 22,
2020). Section 36 of the Exchange Act grants the
Commission the authority to ‘‘conditionally or
unconditionally exempt any person, security, or
transaction . . . from any provision or provisions
of [the Exchange Act] or of any rule or regulation
thereunder, to the extent that such exemption is
necessary or appropriate in the public interest, and
is consistent with the protection of investors.’’ 15
U.S.C. 78mm(a)(1). Under Rule 608(e) of Regulation
NMS, the Commission may ‘‘exempt from [Rule
608], either unconditionally or on specified terms
and conditions, any self-regulatory organization,
member thereof, or specified security, if the
Commission determines that such exemption is
consistent with the public interest, the protection
of investors, the maintenance of fair and orderly
markets and the removal of impediments to, and
perfection of the mechanism of, a national market
system.’’ 17 CFR 242.608(e).
133 Section 12.3 of the CAT NMS Plan (‘‘[T]o the
extent the SEC grants exemptive relief applicable to
any provision of this Agreement, Participants and
Industry Members shall be entitled to comply with
such provision pursuant to the terms of the
exemptive relief so granted at the time such relief
is granted irrespective of whether this Agreement
has been amended.’’)
134 See Sections 11.1(a)(i) and 11.3(b)(iii)(B)(II) of
the CAT NMS Plan.
132 FAM
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services costs; (3) costs related to
funding model filings; (4) costs related
to litigation with the SEC regarding the
CAT NMS Plan; (5) costs related to the
Initial Plan Processor; (6) CAIS
implementation costs; (7) public
relations costs; (8) legal costs related to
the limitation of liability provision in
the CAT Reporter agreements; and (9)
costs for the Chair of CAT Operating
Committee. As discussed in detail
below, each of these costs is reasonable
and should be recoverable in
accordance with the CAT Funding
Model.
(A) Costs Incurred Prior to the Effective
Date of CAT NMS Plan
CAT LLC believes that it is reasonable
to seek recovery of costs incurred prior
to when the CAT NMS Plan became
effective in November 2016, such as
legal and consulting fees incurred to
create the CAT NMS Plan. Rule 613
specifically mandates that the CAT be
created, implemented and maintained,
and further provides that the CAT NMS
Plan include a proposed allocation of
estimated costs to fund the creation,
implementation and maintenance of the
CAT among the Participants (referred to
as ‘‘plan sponsors’’), and between the
Participants and Industry Members
(referred to as ‘‘members of the plan
sponsors’’).135 Consistent with Rule 613,
the CAT NMS Plan, as approved by the
Commission, specifically authorizes
charging Industry Members fees for
costs reasonably incurred prior to the
date of the approval of the CAT NMS
Plan by the Commission in November
2016, including legal and consulting
costs. Section 11.1(c) of the CAT NMS
Plan states that:
[i]n determining fees on Participants and
Industry Members the Operating Committee
shall take into account fees, costs and
expenses (including legal and consulting fees
and expenses) reasonably incurred by
Participants on behalf of the Company prior
to the Effective Date in connection with the
creation and implementation of the CAT.
Accordingly, the CAT NMS Plan
specifically permits the recovery of
costs, including legal and consulting
costs, reasonably incurred prior to
November 2016 in connection with the
creation and implementation of the
CAT.
Furthermore, the costs incurred to
create and implement the CAT prior to
the effective date of the CAT NMS Plan
(‘‘Pre-Formation Costs’’) were
reasonable both in scope and amount, in
accordance with the requirements of
Section 11.1(c) of the CAT NMS Plan.
135 See, e.g., Rule 613(a)(1)(vii)(D) of the CAT
NMS Plan.
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During the four-year period from 2012
to 2016, a total of $13,842,881 in PreFormation Costs were incurred. This is
an average of approximately $3.5
million per year over this period. The
Pre-Formation Costs fell into three
categories: legal costs, consulting costs
and public relations costs. This includes
legal costs of $3,196,434; consulting
costs of $10,589,273; and public
relations costs of $57,174. The legal,
consulting and public relations services
were performed by WilmerHale, Deloitte
and Peppercomm, respectively. The
selection considerations and fees for
these three firms are described in detail
above and are described further below.
The Pre-Formation Costs are direct costs
of CAT, which have been funded
entirely by the Participants through
non-interest-bearing notes. The PreFormation Costs do not include the
significant costs incurred by each of the
individual Participants in responding to
the adoption of Rule 613.
The Pre-Formation Costs are
reasonable and appropriate as they
reflect the extensive efforts that were
necessary to create the CAT NMS Plan
as mandated after the SEC’s adoption of
Rule 613. As described in more detail
below, these efforts included, among
other things, developing a plan for
selecting the Plan Processor, soliciting
and evaluating bids, engaging a diverse
set of market participants and the SEC
in the development of the Plan,
interacting with the SEC in their
oversight of the development of the
Plan, and seeking appropriate
exemptive relief to address areas of
concern in Rule 613.136
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(i) Request for Proposal (‘‘RFP’’)
The Participants determined to utilize
an RFP to ensure that potential
alternative solutions for creating the
Plan could be presented and considered,
and that a detailed and meaningful costbenefit analysis could be performed.
The SEC supported the use of an RFP,
and approved its use as it is described
in extensive detail in the CAT NMS
Plan.137
In the context of the SEC’s adoption
of Rule 613, commenters urged the
136 The Participants described in detail the
process for drafting the CAT NMS Plan in its
original filing of the CAT NMS Plan. See Letter
from Mike Simon, on behalf of the Participants of
the CAT NMS Plan, to Brent J. Fields, Secretary,
Commission (Sept. 30, 2014). A non-exclusive list
of filings and activities associated with CAT,
including certain pre-2016 filings, are available on
the SEC’s website: https://www.sec.gov/divisions/
marketreg/rule613-info.
137 See detailed discussion of RFP questions in
appendix C of the CAT NMS Plan, and
incorporation of RFP requirements in appendix D
at D–2.
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Commission to utilize an RFP process to
assist in the planning and design of the
NMS plan.138 Specifically, the
Commission explained:
In this regard, several commenters
suggested that the Commission undergo a
RFP or request for information (‘‘RFI’’)
process to create and implement a
consolidated audit trail. Specifically, FIF
urged the Commission to perform a RFP
process ‘‘to determine the best technical
solution for developing a consolidated audit
trail.’’ FIF suggested that the Commission
‘‘should outline a set of goals and guiding
principles they are striving to achieve as part
of the adopted CAT filing and leave the
determination of data elements and other
technical requirements to [an] industry
working group.’’ Similarly, Direct Edge
suggested that Commission staff should form
and engage in a working group to develop an
RFP for publication by the Commission.
DirectEdge explained that an RFP process
would facilitate the identification of the costs
and benefits of the audit trail, as well as the
consideration of a wider range of
technological solutions. Further,
commenters, including Broadridge Financial
Solutions, Inc., a technology provider, also
requested more specific information about
the audit trail system to better assess the
Commission’s initial cost estimates and to
determine the best approach to the
consolidated audit trail.139
In response to these comments, the
Commission modified Rule 613 to
require the Participants to address
certain important considerations
regarding the features and details of the
NMS plan and to extend the timeframe
for submission of the CAT NMS Plan by
the Participants from the 90 days as
originally proposed to 270 days, in part,
to accommodate a process that would
address these considerations.140 As the
SEC noted, ‘‘[i]n light of the numerous
specific requirements of Rule 613, the
Participants concluded that publication
of a request for proposal (‘RFP’) was
necessary to ensure that potential
alternative solutions to creating the
consolidated audit trail can be
presented and considered by the
Participants and that a detailed and
meaningful cost/benefit analysis can be
performed, both of which are required
considerations to be addressed in the
CAT NMS Plan.’’ 141
The SEC specifically recognized that
the Participants planned to use an RFP
when it approved the Selection Plan,
and stated that the RFP was a reasonable
138 For example, in its comments on proposed
Rule 613, FIF suggested ‘‘that the SROs should
select the processor through a ‘request for
proposal.’ ’’ Rule 613 Adopting Release at 45785.
139 Rule 613 Adopting Release at 45738–39.
140 Rule 613 Adopting Release at 45739.
141 Securities Exchange Act Rel. No. 71596 (Feb.
21, 2014), 79 FR 11152, 11152 (Feb. 27, 2014)
(‘‘Selection Plan Approval Order’’).
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approach.142 As the SEC described in its
approval order for the Selection Plan,
‘‘[t]he Participants filed the [Selection]
Plan to govern how the SROs will
proceed with formulating and
submitting the CAT NMS Plan—and, as
part of that process, how to review,
evaluate, and narrow down the bids
submitted in response to the RFP
(‘Bids’)—and ultimately choosing the
plan processor that will build, operate,
and maintain the consolidated audit
trail (‘Plan Processor’).’’ 143 After
evaluating the Selection Plan, including
the use of an RFP process, the
Commission stated that it ‘‘believes the
[Selection] Plan is reasonably designed
to govern the process by which the
SROs will formulate and submit the
CAT NMS Plan, including the review,
evaluation, and narrowing down of Bids
in response to the RFP, and ultimately
choosing the Plan Processor that will
build, operate, and maintain the
consolidated audit trail.’’ 144
On February 26, 2013, the
Participants published an RFP soliciting
bids from parties interested in serving as
the plan processor for the CAT. Initially,
31 firms submitted intentions to bid. In
the following months, the Participants
engaged with potential bidders with
respect to, among other things, the
selection process, selection criteria, and
potential bidders’ questions and
concerns. On March 21, 2014, the
Participants received ten bids in
response to the RFP.
(ii) Selection Plan
On September 4, 2013, the
Participants filed with the Commission
a national market system plan to govern
the process for Participant review of the
bids submitted in response to the RFP,
the procedures for evaluating the bids,
and, ultimately, selection of the plan
processor (the ‘‘Selection Plan’’).145 The
Commission approved the Selection
Plan as filed on February 21, 2014.146 In
approving the Selection Plan, the
Commission concluded that ‘‘it is
reasonably designed to achieve its
objective of facilitating the development
of the CAT NMS Plan and the selection
of the Plan Processor.’’ 147
The Selection Plan divided the review
and evaluation of bids, and the selection
of the plan processor, into various
stages. Specifically, pursuant to the
Selection Plan, a selection committee
reviewed all bids and determined which
142 Id.
143 Id.
at 11153
at 11159.
145 See Securities Exchange Act Rel. No. 70892
(Nov. 15, 2013), 78 FR 69910 (Nov. 21, 2013).
146 See Selection Plan Approval Order.
147 Selection Plan Approval Order at 11160.
144 Id.
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bids contained sufficient information to
allow the Participants to meaningfully
assess and evaluate the bids. The ten
submitted bids were deemed ‘‘Qualified
Bids,’’ and so passed to the next stage,
in which each bidder presented its bids
to the Participants on a confidential
basis. On July 1, 2014, after conducting
careful analysis and comparison of the
bids, the Selection Committee voted and
selected a shortlist of six eligible
bidders. The Selection Committee
determined which shortlisted bidders
would be provided the opportunity to
revise their bids. After the Selection
Committee assessed and evaluated the
revised bids, the Selection Committee
selected the plan processor via two
rounds of voting by the Participants, as
described in the Selection Plan.
The Selection Plan established an
Operating Committee responsible for
formulating, drafting, and filing with the
Commission the CAT NMS Plan and for
ensuring that the Participants’ joint
obligations under Rule 613 were met in
a timely and efficient manner. In
formulating the CAT NMS Plan, the
Participants also engaged multiple
persons across a wide range of roles and
expertise, engaged the consulting firm
Deloitte as project manager, and
engaged the law firm WilmerHale to
serve as legal counsel in drafting the
Plan. Within this structure, the
Participants focused on, among other
things, comparative analyses of the
proposed technologies and operating
models, development of funding models
to support the building and operation of
the CAT, and detailed review of
governance considerations. Given the
complexity and scope of developing the
CAT NMS Plan, these efforts were
extensive.
When it approved the CAT NMS Plan
in 2016, the Commission reiterated its
belief that the Selection Plan remains a
‘‘reasonable approach,’’ that ‘‘the
competitive bidding process to select
the Plan Processor is a reasonable and
effective way to choose a Plan
Processor,’’ and that ‘‘the process set
forth in the Selection Plan should be
permitted to continue’’:
In approving the Selection Plan, the
Commission stated that the Selection Plan is
reasonably designed to achieve its objective
of facilitating the development of the CAT
NMS Plan and the selection of the Plan
Processor. The Commission also found that
the Selection Plan is reasonably designed to
govern the process by which the SROs will
formulate and submit the CAT NMS Plan,
including the review, evaluation, and
narrowing down of Bids in response to the
RFP, and ultimately choosing the Plan
Processor that will build, operate, and
maintain the consolidated audit trail. The
Commission believes that the process set out
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in the Selection Plan for selecting a Plan
Processor remains a reasonable approach,
which will facilitate the selection of Plan
Processor through a fair, transparent and
competitive process and that no
modifications to the Selection Plan are
required to meet the approval standard. . . .
In response to the comment that offered
support for a specific Bidder, the
Commission agrees with the Participants that
the competitive bidding process to select the
Plan Processor is a reasonable and effective
way to choose a Plan Processor and thus
believes that the process set forth in the
Selection Plan should be permitted to
continue.148
(iii) Engagement With Market
Participants and SEC
During the process of developing the
CAT NMS Plan, the Participants
engaged in extensive and meaningful
dialogue with market participants and
the SEC. To this end, the Participants
created a website to update the public
on the progress of the CAT NMS Plan,
published a request for comment on
multiple issues related to the Plan, held
multiple public events to inform the
industry of the progress of the CAT and
to address inquiries, and formed, and
later expanded, a DAG to solicit more
input from a representative industry
group.149
The DAG included representatives of
Participants and Industry Members and
conducted meetings to discuss, among
other things, technical and operational
aspects the Participants were
considering for the Plan. The
Participants issued press releases
soliciting participants for the DAG, and
a wide spectrum of firms was
deliberately chosen to provide insight
from various industry segments affected
by CAT. The DAG meetings included
discussions of topics such as option
market maker quote reporting,
requirements for capturing Customer
IDs, timestamps and clock
synchronization, reporting requirements
for order handling scenarios, costs and
funding, error handling and corrections,
and potential elimination of systems
made redundant by the CAT. From the
inception of the DAG through
September 2014, the DAG participated
in 36 meetings, as well as a variety of
DAG subcommittee meetings.
(iv) Request for Exemption From Certain
Requirements Under Rule 613
Following multiple discussions
between the Participants and both the
DAG and the bidders, as well as among
the Participants themselves, the
148 See
CAT NMS Plan Approval Order at 84737.
Section D(11) of appendix C of the CAT
NMS Plan.
149 See
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Participants recognized that some
provisions of Rule 613 would not permit
certain solutions to be included in the
Plan that the Participants, in
coordination with the DAG, determined
advisable to effectuate the most efficient
and cost-effective CAT. Specifically,
‘‘the SROs reached the conclusion that
additional flexibility in certain of the
minimum requirements specified in
Rule 613 would allow them to propose
a more efficient and cost-effective
approach without adversely affecting
the reliability or accuracy of CAT Data,
or its security and confidentiality.’’ 150
Consequently, the Participants
submitted a request for exemptive relief
from certain provisions of Rule 613
regarding: (1) options market maker
quotes; (2) Customer-IDs; (3) CATReporter-IDs; (4) CAT-Order-IDs on
allocation reports; and (5) timestamp
granularity.151 The Participants filed
two supplements to the request for
exemptive relief.152
After reviewing the exemptive
request, the Commission determined
that it was appropriate in the public
interest and consistent with the
protection of investors to grant the
requested exemptive relief.153 In
granting the exemptive relief, the
Commission stated:
[T]he Commission is persuaded to provide
flexibility in the discrete areas discussed in
the Exemption Request so that the alternative
approaches can be included in the CAT NMS
Plan and subject to notice and comment.
Doing so could allow for more efficient and
cost-effective approaches than otherwise
would be permitted. The Commission at this
stage is not deciding whether the proposed
approaches detailed below are more efficient
or effective than those in Rule 613. However,
the Commission believes the proposed
approaches should be within the permissible
range of alternatives available to the SROs.154
The Commission further stated that
the requested exemptive relief is
consistent with the protection of
investors. The Commission noted that:
Doing so will provide the public an
opportunity to consider and comment on
whether these proposed alternative
approaches would indeed be more efficient
and cost-effective than those otherwise
required by Rule 613, and whether such
approaches would adversely affect the
150 Securities Exchange Rel. No. 77265 (Mar. 1,
2016), 81 FR 11856 (Mar. 7, 2016) (‘‘2016
Exemptive Order’’).
151 Letter from Robert Colby, FINRA, on behalf of
the SROs, to Brent J. Fields, Secretary, Commission
(Jan. 30, 2015).
152 See Letter from Robert Colby, FINRA, on
behalf of the SROs, to Brent J. Fields, Secretary,
Commission (Apr. 3, 2015); Letter from the SROs
to Brent J. Fields, Secretary, Commission (Sept. 2,
2015).
153 See 2016 Exemptive Order.
154 Id. at 11857.
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reliability or accuracy of CAT Data or
otherwise undermine the goals of Rule 613.
Moreover, if—as the SROs represent—
efficiency gains and cost savings would
result from including the proposed
approaches in the CAT NMS Plan without
adverse effects, then the resultant benefits
could potentially flow to investors (e.g.,
lower broker-dealer reporting costs resulting
in fewer costs passed on to Customers).155
The Participants incorporated the
exemptive relief into the proposed CAT
NMS Plan, which was noticed for
comment, and the Commission
ultimately approved the CAT NMS Plan
with the more efficient and costeffective alternative approaches
described in the exemptive relief.
Accordingly, the Participants believe
that the costs incurred in developing the
exemptive request were critical to the
creation of a better CAT than was
originally contemplated by Rule 613,
and therefore should be recoverable as
part of Historical CAT Assessment 1.
(v) Request for Extensions for Filing the
CAT NMS Plan
Rule 613(a)(1) under Regulation NMS
required the Participants to jointly file
the CAT NMS Plan on or before April
28, 2013, less than a year after the
adoption of Rule 613. In recognition of
the complexity of the project to create
the CAT NMS Plan as well as industry
interest in limiting or eliminating
certain requirements of Rule 613 (e.g.,
addressing the reporting of options
market maker quotes), the Participants
requested two extensions of the
deadline to file the CAT NMS Plan. The
Participants described the need for
additional time as follows:
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The SROs stated in their Request Letter
that they do not believe that the 270-day time
period provided for in Rule 613(a)(1)
provides sufficient time for the development
of the RFP, formulation and submission of
bids, and review and evaluation of such bids.
The SROs also stated that they believe
additional time beyond the 270 days
provided for in Rule 613(a)(1) is necessary in
order to provide sufficient time for effective
consultation with and input from the
industry and the public on the proposed
solution chosen by the SROs for the creation
of the consolidated audit trail at the
conclusion of the RFP process and the NMS
plan itself.156
In recognition of the need for
additional time to refine the technical
description of and requirements for the
CAT and to allow for additional
evaluation of the proposed cost and
funding considerations, the SEC granted
155 Id.
156 Securities Exchange Act Rel. No. 69060 (Mar.
7, 2013),78 FR 15771, 15772 (Mar. 12, 2013)
(‘‘March 2013 Exemptive Order’’).
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two extensions of this deadline.157 The
SEC determined that both extensions
were appropriate, in the public interest,
and consistent with the protection of
investors.158 In reaching this
conclusion, the Commission stated that
‘‘it understands that the creation of a
consolidated audit trail is a significant
undertaking and that a proposed NMS
plan must include detailed information
and discussion about many things.’’ 159
The SEC also noted the following:
This additional time to complete the RFP
process should allow the SROs to engage in
a more thoughtful and comprehensive
process for the development of an NMS plan.
In this regard, the Commission notes that the
additional time to solicit comment from the
industry and the public at certain key points
in the development of the NMS plan could
identify issues that can be resolved earlier in
the development of the consolidated audit
trail and prior to filing the NMS plan with
the Commission.160
Given the Commission’s recognition of
the reasonableness and value of the
extension of the deadline to file the CAT
NMS Plan, the Participants believe that
the costs incurred in developing the
extension request were important to the
process of developing the CAT NMS
Plan, and therefore should be
recoverable as part of Historical CAT
Assessment 1.
(vi) Submission and Approval of the
CAT NMS Plan
After extensive analyses and
discussions with the DAG, bidders,
market participants and the SEC staff,
the Participants finalized the draft of the
CAT NMS Plan and filed the CAT NMS
Plan with the SEC on September 30,
2014. Following additional discussions,
the Participants filed several
amendments to the CAT NMS Plan
during 2015 and 2016. With these
additional changes, the SEC published
the CAT NMS Plan for notice and
comment in May 2016.161 Following the
comment period, the SEC approved the
Plan in November 2016.162
(vii) Legal Costs Incurred Prior to the
Effective Date of the CAT NMS Plan
The Pre-Formation Costs include legal
costs of $3,196,434. The legal services
were performed by WilmerHale. The
selection considerations and fees for
157 See March 2013 Exemptive Order; Securities
Exchange Act Rel. No. 71018 (Dec. 6, 2013), 78 FR
75669 (Dec. 12, 2013) (‘‘December 2013 Exemptive
Order’’).
158 March 2013 Exemptive Order at 15772;
December 2013 Exemptive Order at 75670.
159 March 2013 Exemptive Order at 15772.
160 Id. at 15773.
161 See Securities Exchange Act Rel. No. 77724
(Apr. 27, 2016), 81 FR 30614 (May 17, 2016).
162 See CAT NMS Plan Approval Order.
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WilmerHale were described in detail
above. Prior to the creation of CAT LLC,
WilmerHale was engaged to represent
the consortium of SROs, not the
individual Participants. For
administrative purposes, FINRA agreed
to receive such legal bills, although such
costs were shared among the
Participants. Therefore, the legal costs
incurred with respect to WilmerHale do
not include legal costs incurred by the
individual Participants. These preformation legal costs are described in
detail above and are further described
below:
• Analyzed various legal matters
associated with the Selection Plan and
drafted an amendment to Selection
Plan;
• Assisted with the RFP and bidding
process for the CAT Plan Processor;
• Analyzed legal matters related to
the DAG;
• Drafted the CAT NMS Plan,
analyzed various items related to the
CAT NMS Plan, and responded to
comment letters on the CAT NMS Plan;
• Provided legal support for the
formation of the legal entity, the
governance of the CAT, including
governance support prior to the
adoption of the CAT NMS Plan, which
involved support for the full committee
of exchanges and FINRA as well as
subcommittees of this group (e.g., Joint
Subcommittee Group, Technical,
Industry Outreach, Cost and Funding,
and Other Products) and the DAG, and
governance support during the
transition to the new governance
structure under the CAT NMS Plan;
• Drafted exemptive requests;
• Provided interpretations related to
the CAT NMS Plan;
• Provided support with regard to
discussions among the exchanges,
FINRA and other third parties, such as
Deloitte;
• Provided tax advice with regard to
CAT’s status as a tax-exempt
organization; and
• Provided support with regard to
discussions with the SEC and its staff,
including with respect to addressing
interpretive and implementation issues.
(viii) Consulting Costs Incurred Prior to
the Effective Date of the CAT NMS Plan
The Pre-Formation Costs include
consulting costs of $10,589,273. The
consulting services were performed by
Deloitte. The selection considerations
and fees for Deloitte were described in
detail above. Prior to the creation of
CAT LLC, for administrative purposes,
Deloitte was engaged by FINRA to
provide consulting services related to
CAT, but the costs were shared by the
consortium of SROs per agreement.
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Therefore, the consulting costs incurred
with respect to Deloitte do not include
consulting costs incurred by the
individual Participants. The preformation consulting costs include the
following:
• Established and implemented
program operations for the CAT project,
including the program management
office and workstream design;
• Assisted with the Plan Processor
selection process, including but not
limited to, the development of the RFP
and the bidder evaluation process, and
facilitation and consolidation of the
Participants’ independent reviews;
• Assisted with the development and
drafting of the CAT NMS Plan,
including conducting cost-benefit
studies, reviewing technical
requirements of other NMS plans,
analyzing OATS and CAT requirements,
and drafting appendices to the Plan;
• Provided governance support to the
CAT, including governance support
prior to the adoption of the CAT NMS
Plan, which involved support for the
full committee of exchanges and FINRA
as well as subcommittees of this group
(e.g., Joint Subcommittee Group,
Technical, Industry Outreach, Cost and
Funding, and Other Products) and the
DAG;
• Provided support for updating the
SEC on the progress of the development
of the CAT;
• Provided support for industry
outreach sessions, including with regard
to program design and agenda
development, program support and
logistics and coordination; and
• Provided support in fact finding,
drafting content and meeting
coordination for WilmerHale with
regard to the CAT and the development
of the CAT NMS Plan.
Such Pre-Formation Costs did not
include costs related to the Chair of the
CAT NMS Plan Operating Committee, as
the CAT NMS Plan had not yet been
adopted.
(ix) Public Relations Costs Incurred
Prior to the Effective Date of the CAT
NMS Plan
The Pre-Formation Costs include
public relations costs of $57,174. The
public relations services were
performed by Peppercomm. The
selection considerations and fees for
Peppercomm are described in detail
above. The costs related to Peppercomm
were shared among the SROs. Therefore,
the public relations costs do not include
public relations costs incurred by the
individual Participants. The preformation public relations costs include
services related to communications with
the public regarding the CAT, including
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monitoring developments related to the
CAT (e.g., congressional efforts, public
comments and reaction to proposals,
press coverage of the CAT), reporting
such developments to CAT LLC, and
drafting and disseminating
communications to the public regarding
such developments as well as reporting
on developments related to the CAT.
(B) Cloud Hosting Services
In approving the CAT Funding Model,
the Commission recognized that it is
appropriate to recover reasonable costs
related to cloud hosting services as a
part of Historical CAT Assessments.
CAT LLC believes that the costs related
to cloud hosting services described in
detail above are reasonable and
appropriate given the strict data
processing timelines and storage
requirements imposed by the
Commission-approved CAT NMS Plan
and should be recoverable as a part of
Historical CAT Assessment 1.
(i) Reasonableness of AWS Costs Given
the Requirements of the CAT NMS Plan
CAT LLC believes that the costs for
the cloud hosting services are
reasonable, both in terms of the level of
the fees paid by CAT LLC for cloud
hosting services provided by AWS and
the scope of the services performed by
AWS for CAT LLC. CAT LLC believes
that both the scope and amount of the
costs for cloud hosting services are
reasonable given the current
requirements of the CAT NMS Plan
adopted pursuant to Rule 613, including
the strict data processing timeline,
storage and other technical
requirements under the Commissionapproved CAT NMS Plan.
CAT LLC believes that the level of
fees for the cloud hosting services is
reasonable, taking into consideration a
variety of factors, including the
expected volume of data and the
breadth of services provided and market
rates for similar services.
CAT LLC also believes that the scope
of services provided by AWS for the
CAT are appropriate given the current
requirements of the Commissionapproved CAT NMS Plan. As described
above, the cloud hosting services costs
reflect a variety of factors including,
among other things:
• Breadth of Cloud Activities. AWS
was engaged by FCAT, the Plan
Processor, to provide a broad range of
services to the CAT, including data
ingestion, data management, and
analytic tools. Services provided by
AWS necessary to the CAT include
storage services, databases, compute
services, and other services (such as
networking, management tools and
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development operations (‘‘DevOps’’)
tools). AWS also was engaged to provide
the various environments for CAT, such
as the development, performance
testing, test and production
environments, which are required by
the CAT NMS Plan.
• High Data Volume. The cost for
AWS services for the CAT is a function
of the volume of CAT Data. While it is
not linear, the greater the amount of
CAT Data, the greater the cost of AWS
services to the CAT. The data volume
handled by AWS now far exceeds the
original volume estimates for the CAT.
• Plan Requirements. The cost for
AWS services also reflects the technical
requirements necessary to meet the
stringent performance and other
requirements for processing CAT Data.
These Plan-dictated processing
timelines, storage, testing, security and
other technical requirements are
significant drivers of AWS costs.
• Cost Avoidance Efforts. CAT LLC
and FCAT have engaged in ongoing
efforts to seek to avoid and minimize
AWS costs where permissible under the
Plan. Accordingly, these cost avoidance
efforts have limited the extent of AWS
costs.
In addition, various requirements of
the CAT NMS Plan adopted pursuant to
Rule 613 contribute to the significant
cloud hosting services costs, and that
various Plan requirements could be
amended or removed without affecting
the regulatory purpose of the CAT.
Indeed, CAT LLC has repeatedly sought
exemptive relief and filed amendments
to the CAT NMS Plan, and has even
filed suit against the Commission, to
seek to revise or eliminate certain costly
requirements related to the CAT.
However, despite these efforts, absent
the Commission granting exemptive
relief or approving cost savings
amendments to the CAT NMS Plan,
CAT LLC, the Participants and Industry
Members are all required to comply
with such requirements.
(ii) Effect of CAT Design on CAT Costs
(a) Efficient CAT Design
CAT is reasonably designed to
efficiently and effectively utilize cloud
computing and storage services, given
the requirements of the Commissionapproved CAT NMS Plan, including
requirements related to security,
operational reliance and quality
assurance, and maintainability.
The Plan Processor uses state-of-theart software that meets the strict security
standards of the CAT NMS Plan. CAT
utilizes a big data processing framework
that is extensively used by large data
processing companies, such as Apple,
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Meta, Netflix, IBM and Google. As such,
it has substantial commercial support
and support in the open-source
community. It is also well suited for use
with regard to iterative types of
algorithms and query functions and
analytics that the CAT requires, and it
provides the heightened security
necessary for the CAT.
The development and implementation
of the design of CAT is not and has not
been static. CAT LLC and the Plan
Processor are always evaluating new
innovations and service offerings from
AWS and other providers to seek to
maximize efficiency and cost avoidance
while still satisfying the requirements of
the CAT NMS Plan. These efforts have
led to substantial savings to date. The
cloud hosting costs for 2023 were less
than the cloud hosting costs for 2022 by
$8 million despite processing seven
trillion more events in 2023 due to the
efficiency and cost avoidance efforts for
cloud hosting services. For example,
when AWS introduced new storage
options, FCAT adopted the cost-efficient
new storage option after establishing
that the new offering would satisfy the
security and other standards of the CAT
NMS Plan. This change led to millions
of dollars of savings in storage costs.
Similarly, when AWS introduced a new
compute processor, FCAT adopted this
new compute processor, which lead to
millions of dollars in savings in
compute costs. However, in other cases,
new cloud technology developments
could not be implemented in CAT
because they would not satisfy the
security or other requirements of the
CAT NMS Plan.
When evaluating the design of the
CAT, it must be kept in mind that the
CAT is not a typical commercial
technology project. The ability to make
use of technology approaches that may
lead to cost avoidance is also subject to
the restrictive requirements of the CAT
NMS Plan, such as processing
timeframes, requirements for retention
of data versions, query requirements,
and security standards. Because such
requirements are set forth in the CAT
NMS Plan, any modification of such
requirements are subject to the timeconsuming process of amending the
CAT NMS Plan or seeking an exemption
from the relevant requirement. For
example, CAT LLC recently has filed an
amendment to address several of these
expensive Plan requirements.163
163 See, e.g., Securities Exchange Act Rel. No.
99938 (Apr. 10, 2024), 89 FR 26983 (Apr. 16, 2024);
Letter from Brandon Becker, CAT NMS Plan
Operating Committee Chair, to Vanessa
Countryman, Secretary, Commission (Mar. 27,
2024) (proposing amendments to the CAT NMS
Plan for $23 million in annual savings).
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(b) CAT Was Designed To Minimize
Industry Member Effort
The CAT System also was designed to
minimize the extent to which Industry
Members would need to alter their
systems to report to CAT. During the
design process, Industry Member groups
argued that it would make more sense
financially for the CAT to accommodate
differences in industry systems, than for
all Industry Members to change their
systems. Moreover, such design choices
would facilitate consistency, uniformity
and accuracy in reporting. Requiring the
CAT to make such accommodations
may increase CAT costs while
accommodating CAT Reporters.
Based on the requirements in the CAT
NMS Plan and/or in response to
industry requests for functionality to be
embedded with the Plan Processor to
streamline or limit Industry Member
system changes, the CAT has been
designed to limit the effect on Industry
Members. The following provides
examples of such accommodations:
• Industry Member Reporting. In light
of the complexity of Industry Member
market activity, the CAT’s order
reporting and linkage scenarios
document for Industry Members is over
800 pages in length, addressing nearly
200 scenarios.164 The Industry Member
Technical Specifications allow for
dozens of specific event types, which
drive complexity for the Plan Processor,
but streamline reporting for Industry
Members. Furthermore, the Plan
Processor greatly expanded Industry
Member linkage requirements to
support, among other things, child
events and supplemental events,
allowing for ‘‘stateless as-you-go’’ and
‘‘batch end-of-day’’ reporting when all
data is available. Accordingly, CAT
takes on the significant cost and effort
of providing the required linkages
between CAT events; correspondingly,
Industry Members are not required to
perform this costly task.
• File Submission Process. The CAT
was designed to accommodate the
varying needs of CAT Reporters with
regard to the file submission process.
For example, in a 2018 letter, FIF stated
that ‘‘[t]he SFTP-based submission
process is cumbersome, exposes
industry members to unnecessary
complexity, and puts the burden of
support on the CAT Reporter rather than
imbedding more functionality into the
Plan Processor.’’ 165 Currently, FCAT
provides two mechanisms for
submitting files: SFTP via a private
164 See CAT Industry Member Reporting
Scenarios v.4.10 (Oct. 21, 2022).
165 Letter from Janet Early, FIF, to Thesys CAT
(Mar. 29, 2018).
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network, and the Web via Reporter Web
Portal.
• Error Corrections. The industry also
emphasized the need for the CAT to
provide error correction tools and
functionalities to identify, rectify and
re-submit corrections within the
required timeframe. For example, FIF
stated in a 2018 letter the following:
To be clear, if OATS-like error correction
tools are not made available on Day 1,
hundreds of firms will be required to create
and test their own tools or obtain vendor
alternatives prior to the CAT Go-Live Date.
Proprietary tools will require additional
system builds, access to and ingestion of CAT
data to perform system validation, and
testing which will further stress the limited
number of subject matter experts (‘‘SMEs’’)
dedicated to the implementation of CAT
reporting. Should this occur, inevitably firms
(especially small firms who lack the
necessary IT staff to write code and develop
proprietary systems), may be put in the
position of passing onto investors the cost
required to build hundreds of redundant
systems.166
CAT provides various tools to help
Industry Members identify and rectify
errors.
• Data Ingestion Format. The
industry also recommended that CAT
adopt a flexible input format that
provides an option for Industry
Members to submit data in formats that
are already in use to reduce costs and
potential reporting errors. For example,
FIF argued the following:
FIF CAT WG is not proposing a specific
format; rather, we are proposing flexibility of
input formats which includes support of
existing formats (e.g., OATS, FIX) as well as
a baseline specification where all fields are
defined, and normalized. The input formats
must be clearly and thoroughly defined in
Technical Specifications, including FAQs.
Mandating a uniform format for reporting
data to the CAT simplifies the task for the
Central Repository of consolidating/storing
data, but it puts the burden on each CAT
Reporter to accurately translate their current
(e.g., OATS) reporting information into a
uniform CAT interface. However, that is
likely to yield more errors because it is very
dependent on accurate, complete and timely
information (Technical Specifications, FAQs,
meta-data, competent CAT help desk)
available to CAT Reporters, availability of
sophisticated CAT test tools to validate
interface protocols, and the skill levels of the
estimated 300+ unique CAT Reporters/
Submitters during Phase 1 of CAT.
Concentrating the responsibility of data
conversions with the Central Repository is a
reasonable trade-off that should yield fewer
errors, and greater accuracy.167
166 Letter from Christopher Bok, FIF, to Jay
Clayton, Chair, Commission, at 4 (Dec. 11, 2018).
167 Letter from Mary Lou Von Kaenel, Managing
Director, FIF, to Brent Fields, Secretary,
Commission at 92 (July 18, 2016), https://
www.sec.gov/comments/4-698/4698-13.pdf.
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CAT provides such a flexible input
format.
(c) Effect of Initial Plan Processor Design
The costs for cloud hosting services
are appropriate and have not been
adversely affected by the original design
and approaches of the Initial Plan
Processor. FCAT’s design costs are the
result of the requirements of the
Commission-approved CAT NMS Plan.
When FCAT took over as the Plan
Processor from Thesys, it utilized
certain aspects of the technical
specifications created by Thesys in its
design. However, FCAT has not
maintained aspects of the original
design that would not be appropriate for
the CAT. FCAT revised and enhanced
the original technical specifications of
the CAT System to increase its
efficiency and efficacy, and to ensure its
compliance with the CAT NMS Plan.
For example, the Initial Plan Processor’s
approach utilized many more fields
than FCAT’s approach, which relies on
additional linkages. With the additional
linkages, the CAT System takes on more
of the CAT-related burdens than the
Industry Members. Such an approach
serves to facilitate consistency,
uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the
system built by the Initial Plan
Processor; it rebuilt the CAT System
based on revised technical
specifications. For example, the Initial
Plan Processor used an on-premises
processing approach which was not
geared toward the huge amounts of data
stored in the CAT, while FCAT adopted
a cloud-based solution in response to
such data demands.
Furthermore, given the very short
timeframe to develop the CAT System
and the prior optimization of certain
query tools (e.g., Diver) for regulatory
use with significant amounts of data,
FCAT determined to rely upon certain
existing FINRA tools and adapt them for
use with the CAT.
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(iii) Consideration of AWS Alternatives
CAT LLC continues to support the
selection of AWS as the cloud hosting
services provider for CAT given the
compliance, operational, and security
requirements of the CAT. Independent
analyses confirm these conclusions,
noting that ‘‘AWS is an excellent choice
for either strategic or tactical use and
recommends considering AWS for
almost all cloud IaaS or IaaS+PaaS
scenarios.’’ 168 AWS provides the
168 See, e.g., Lydia Leong and Adrian Wong,
Solution Comparison for Strategic Cloud Integrated
IaaS and PaaS Providers (July 28, 2023) (‘‘Strategic
Cloud Assessment Article’’).
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following benefits to CAT, among
others:
• Broad Suitability. AWS has a long
track record of successfully serving
cloud customers with mission-critical
projects.
• Proven Scalability. AWS has
demonstrated that it is capable of
building and delivering services on a
large scale.
• Track Record of Innovation. AWS
continues to rapidly innovate, both in
terms of new domains of capability and
at a fundamental level, thereby
facilitating innovation for its customers.
• Resiliency/Dependability. Another
benefit of AWS is its resiliency; it has
a strong track record of stable services.
As noted in a review of cloud service
providers, ‘‘[c]ustomers like to have a
broad set of options for resilience and
for their cloud providers to have a
strong track record of stable services
(continuously available, without
operational quirks). Only AWS fulfills
both desires.’’ 169
• Technical and Customer Support.
AWS consistently provides high-quality
technical and customer support and
engagement. Given the size, scope and
regulatory importance of CAT, customer
support and engagement that CAT has
with the highest levels of AWS are very
important to the success of the CAT.
• Scale. AWS is capable of
supporting large-scale solutions, which
is critical given the size and magnitude
of the CAT.
• Security. AWS provides the security
features necessary for the CAT.
In addition, the nature of the CAT,
including the amount of data it must
process and the size of its data footprint,
does not allow for a multi-cloud
solution as this would be cost
prohibitive and greatly increase the
security boundary and associated risk
profile of the CAT. For example, a
multi-cloud hosting option would
increase costs, complexity, and risk for
operations with regard to, for example,
DevOps, production support, and
networking. Similarly, with regard to
security, a multi-cloud solution would
increase risk, including with regard to
the need for data transfers between
cloud providers and the expansion of
the security boundary. With regard to
labor, a multi-cloud solution would lose
economies of scale due to the need to
support unique cloud requirements.
Accordingly, the use of single-cloud
solution continues to provide
advantages with regard to cost,
complexity, and risk. Indeed, ‘‘[t]he best
practice is to focus on a single primary
strategic provider.’’ 170
Furthermore, if another cloud service
provider were determined to be a better
match for the CAT at some future date,
switching cloud service providers
would be a very significant, expensive
and time-consuming effort. Such an
effort would likely be a 10-to-15-year
commitment at a substantial expense.
Such a move would require the
replication or redesign of the underlying
cloud environments (e.g., organizational
setup, identify management, accounts,
environments, DevOps tooling likes
release management/config
management/network management), as
the new provider likely would not have
the same infrastructure and software.
Once that process has been completed,
an exabyte of CAT data would need to
be securely migrated to the new
platform.
(C) Funding Model Filings
CAT LLC believes that the recovery of
costs related to the development of the
funding model is appropriate, and that
the amount and scope of such costs, as
described above, are reasonable.
Funding the CAT is a critical aspect
of Rule 613 and the CAT NMS Plan.
Article XI of the CAT NMS Plan
describes in detail the requirements for
funding the CAT, and the Participants
are required to comply with and enforce
compliance with the funding
requirements of the CAT NMS Plan, just
as with other aspects of the Plan.
Accordingly, the development and
implementation of a funding model for
the CAT is as much a part of the
requirements of the CAT NMS Plan as
the development and operation of the
CAT System. CAT LLC sees no reason
to distinguish the efforts to develop a
funding model from, for example, efforts
to develop the CAT System, in seeking
to recover reasonable CAT costs.
Moreover, in approving the CAT
Funding Model, the Commission
recognized that it is appropriate to
recover reasonable costs for legal
services as a part of Historical CAT
Assessments. As approved by the SEC,
the CAT NMS Plan states that ‘‘the
reasonably budgeted CAT costs shall
include . . . legal costs.’’ 171 In addition,
the CAT NMS Plan also requires
Participants to include in their fee
filings ‘‘a brief description of the
amount and type of the Historical CAT
Costs, including . . . legal . . .
costs.’’ 172 In keeping with these
170 Id.
171 Section
172 Section
169 Strategic
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11.1(a)(i) of the CAT NMS Plan.
11.3(b)(iii)(B)(II) of the CAT NMS
Plan.
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provisions, this filing provides a brief
description of reasonably budgeted legal
costs above. These legal costs include
costs related to the development of the
CAT Funding Model.
In addition, the legal costs incurred
for the assistance in developing the CAT
Funding Model are reasonable in both
amount and scope and should be
recoverable as a part of Historical CAT
Assessment 1. As described above, the
specialized services were performed by
experienced counsel at negotiated rates
for such services that reflect both the
extent of the services and market rates.
Moreover, the scope of the legal costs
associated with the development of the
funding model reflect the complexity of
the task in satisfying the detailed
requirements of the CAT NMS Plan, the
standards of the Exchange Act, and the
many perspectives of the different
market constituents potentially affected
by or interested in the funding model,
including Industry Members,
Participants and investors. The many
and varied comments by market
participants on CAT funding over the
years demonstrate the complexity of the
task.
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(D) Costs Related to Litigation With the
SEC
CAT LLC believes that the recovery of
legal costs related to the litigation with
the SEC regarding the CAT NMS Plan is
appropriate, and that the amount and
scope of such costs, as described above,
are reasonable.
As a preliminary matter, as discussed
above, the Commission recognized that
it is appropriate to recover reasonable
costs for legal services as a part of
Historical CAT Assessments.173
Moreover, CAT LLC initiated such
litigation, and incurred the related legal
costs, because it was critical to address
the Commission’s interpretations of the
CAT NMS Plan. Among other things,
such interpretations threatened to
impose unnecessary costs on the CAT,
which would be borne by the
Participants and Industry Members.
Indeed, in response to the litigation, the
Commission provided exemptive relief
that allowed alternative, more costeffective approaches to the
implementation of the CAT.
Specifically, in the 2023 exemptive
order, the Commission stated:
The conditional exemptive relief in this
Order allows for the implementation of
alternative regulatory solutions that continue
to advance the regulatory goals that Rule 613
and the CAT NMS Plan were intended to
promote, while reducing the implementation
173 See Sections 11.1(a)(i) and 11.3(b)(iii)(B)(II) of
the CAT NMS Plan.
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and operational costs, burdens, and/or
difficulties that would otherwise be incurred
by the Participants and Industry Members
that must fund the CAT.174
CAT LLC believes it is reasonable and
appropriate to incur costs to limit the
need to incur even greater costs due to
certain interpretations of the Plan.
In addition, the legal costs incurred
during the litigation are reasonable in
both amount and scope and should be
recoverable as a part of Historical CAT
Assessment 1. As described above, the
specialized services were performed by
experienced counsel at market rates for
such services. As such, the legal costs
related to this litigation incurred during
the period covered by Historical CAT
Assessment 1 were reasonable.
Finally, Industry Members will
directly benefit from the result of the
litigation because it has addressed CAT
NMS Plan requirements that would
have imposed significantly greater costs
on the CAT. Accordingly, it is
reasonable and appropriate that the
costs of such litigation be included in
the Historical CAT Costs 1.
(E) Costs Related to the Initial Plan
Processor
CAT LLC believes that it is
appropriate to recover costs related to
the services performed by the Initial
Plan Processor prior to November 15,
2017, which was the date by which
Participants were required to begin
reporting to the CAT, due to the delay
in the commencement of reporting to
the CAT. As discussed above, the
Participants determined to exclude all
CAT costs incurred from November 15,
2017 through November 15, 2018,
which includes $37,852,083 in Thesys
costs incurred from November 15, 2017
through November 15, 2018 (as well as
other CAT costs during this period). The
remaining Thesys costs incurred after
November 15, 2018 are the $19,628,791
in capitalized developed technology
costs for the period from November 16,
2018 through February 2019 incurred in
the development of the CAT by the
Initial Plan Processor, as well as a
transition fee for the transition from the
Initial Plan Processor to the successor
Plan Processor. The Participants would
remain responsible for 100% of these
$19,628,791 in costs.
CAT LLC believes that it is
appropriate to recover costs related to
the services performed by the Initial
Plan Processor prior to November 15,
2017. CAT LLC notes that the
development and implementation of the
CAT System, while unprecedented in
scope and design, is like any other large
174 Settlement
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and innovative technology project in
that, inevitably, there were adjustments
and refinements in the technical
approach as the project developed, even
with substantial planning efforts and
oversight prior to the build. This is even
more likely when the project faces a
very tight implementation schedule,
such as the one imposed by the
Commission in Rule 613 and the CAT
NMS Plan. However, an adjusted
approach does not mean that the funds
were not valid expenditures and should
not be recovered.
The reasonableness of Thesys costs
should be evaluated by the Commission
as of the time they were incurred, not
in hindsight. As detailed above, the
Commission concluded in 2016 that
‘‘the competitive bidding process to
select the Plan Processor is a reasonable
and effective way to choose a Plan
Processor,’’ and that ‘‘the process set
forth in the Selection Plan should be
permitted to continue.’’ 175 Following
this process, the Participants notified
the Commission of the selection of
Thesys as the Initial Plan Processor on
January 17, 2017.176 At the time, neither
the Commission nor the industry argued
that the selection of the Initial Plan
Processor was unreasonable or
otherwise inconsistent with the CAT
NMS Plan, nor did they predict the
selection would result in unanticipated
delays in the implementation of the
CAT System. On the contrary, on April
4, 2017, the President of SIFMA wrote
that ‘‘SIFMA looks forward to
commencing work with the SROs and
Thesys.’’ 177
As noted in the CAT Funding Model
Approval Order, ‘‘[i]n Rule 613, the
Commission made the determination
that the costs of the CAT should be
shared by the Participants and Industry
Members.’’ 178 If the CAT Funding
Model had existed on Day 1, the risk of
any unanticipated costs or challenges
associated with the Initial Plan
Processor would have been fairly and
reasonably shared among the
Participants and Industry Members on
an ongoing basis. Given that the
Commission concluded in 2012 that the
costs of the CAT would be shared by the
Participants and Industry Members, it is
not fair or reasonable to determine in
175 CAT
NMS Plan Approval Order at 84737.
from the Participants to Brent J. Fields,
Secretary, SEC (Jan. 18, 2017), https://www.sec.gov/
divisions/marketreg/rule613-info-notice-of-planprocessor-selection.pdf.
177 Letter from Kenneth E. Bentsen, Jr., SIFMA, to
Participants re: Selection of Thesys as CAT
Processor (Apr. 4, 2017), https://www.sifma.org/wpcontent/uploads/2017/05/SIFMA-SubmitsComment-Letter-to-SRO-on-the-selection-of-Thesysas-the-CAT-Processor.pdf.
178 CAT Funding Model Approval Order at 62650.
176 Letter
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hindsight that all of the risk involved in
developing the CAT should be allocated
entirely to the Participants.
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(F) CAIS Implementation Costs
CAT LLC believes that the recovery of
CAIS-related costs is appropriate, and
that the amount and scope of such costs,
as described above, are reasonable, and
that the reasonableness of historical
costs should be evaluated by the
Commission as of the time they were
incurred, not in hindsight.
In approving the CAT Funding Model,
the Commission recognized that it is
appropriate to recover reasonable CAIS
operating costs as a part of Historical
CAT Assessments. As approved by the
SEC, the CAT NMS Plan states that ‘‘the
reasonably budgeted CAT costs shall
include . . . CAIS operating fees.’’ 179 In
addition, the CAT NMS Plan also
requires Participants to include in their
fee filings ‘‘a brief description of the
amount and type of the Historical CAT
Costs, including . . . CAIS operating
fees.’’ 180 In keeping with these
provisions, this filing provides a brief
description of reasonably budgeted
CAIS operating fees.
In addition, CAT LLC determined that
the CAIS operating fees described above
are reasonable in both amount and
scope and should be recoverable as a
part of Historical CAT Assessment 1.
The ‘‘CAIS Operating Costs’’ for
Historical CAT Assessment 1 total
$9,480,587, with Pre-FAM costs of
$2,072,908, FAM 1 costs of $254,998,
FAM 2 costs of $1,590,298, and FAM 3
costs of $5,562,383. As described above,
the CAIS operating fees were incurred
with regard to two categories of CAISrelated efforts: (1) the acceleration of the
reporting of LTIDs; and (2) the
development of the CAIS Technical
Specifications and the building of CAIS.
These two categories of costs are
discussed in more detail below.
(i) LTID Reporting
During the period covered by
Historical CAT Assessment 1, the CAIS
operating costs included costs related to
the acceleration of the reporting of
LTIDs earlier than originally
contemplated during this period at the
request of the SEC and in accordance
with exemptive relief granted by the
SEC.181 As the SEC approved in this
exemptive relief, the Participants
proposed ‘‘to require the reporting of
LTIDs to the CAT in Phases 2c and 2d,
instead of with the rest of Customer
179 Section
180 Section
11.1(a)(i) of the CAT NMS Plan.
11.3(b)(iii)(B)(II) of the CAT NMS
Plan.
181 See Phased Reporting Exemptive Relief Order
at 23079–80.
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Account Information in Phase 2e, which
potentially could result in an earlier
elimination of broker-dealer
recordkeeping, reporting and
monitoring requirements of the Large
Trader Rule.’’ 182 To implement the
reporting of LTIDs to the CAT, the
following steps were taken during the
period covered by Historical CAT
Assessment 1:
• After FCAT developed the LTID
Technical Specifications, the LTID
Technical Specifications were
published on January 31, 2020, with
additional updates provided to the LTID
Technical Specifications through April
2021.183
• The LTID account information
testing environment opened on August
24, 2020.
• The LTID account information
reporting production environment
opened on December 14, 2020.
• CAT Reporters were required to
request their production readiness
certification for account information
related to LTIDs by the deadline of April
9, 2021.
• The LTID account information
reporting for Phases 2a, 2b and 2c for
Large Industry Members went live on
April 26, 2021.
• The LTID account information
reporting for Phases 2d for Large
Industry Members went live on
December 13, 2021.
• The LTID account information
reporting for Phases 2a, 2b, 2c and 2d
for Small Industry Members went live
on April 26, 2021.
Throughout this project, FCAT and
CAT LLC worked closely with the
industry on LTID and CAIS reporting.
Between December 2019 and December
2021, at least 57 checkpoint calls,
webinars, and technical working group
meetings with industry representatives
were hosted to address issues and to
educate CAT Reporters regarding LTID
and CAIS reporting.184
The LTID reporting project was
successfully completed in a timely
fashion, and the fees related to the
project were reasonable. Accordingly,
CAT LLC appropriately seeks to recover
such costs via Historical CAT
Assessment 1.
(ii) CAIS Reporting
During the period covered by
Historical CAT Assessment 1, FCAT
182 Id.
at 23078–79, n.70.
LTID Technical Specifications, including
original drafts and updated versions, are available
on the Industry Member Specifications page of the
CAT website (https://www.catnmsplan.com/
specifications/im).
184 Such contact points with the industry are
described in detail on the Events web page of the
CAT website (https://www.catnmsplan.com/events).
183 The
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began the development of the full CAIS
Technical Specifications and the
building of CAIS. The CAIS Technical
Specifications were developed during
this period as follows:
• Iterative drafts of the CAIS
Technical Specifications were
published on June 30, 2020, December
1, 2020, and January 1, 2021.185
• The full, final CAIS Technical
Specifications were published on
January 29, 2021.
• Updated versions of the CAIS
Technical Specifications were
published throughout 2021.186
As discussed above, FCAT and CAT
LLC frequently engaged with the
industry regarding the development of
CAIS, hosting regular checkpoint calls,
webinars, and technical working group
meetings with industry representatives
to address any issues, including
addressing the interplay between
Industry Members’ existing customer
systems and CAIS, and to educate CAT
Reporters regarding LTID and CAIS
reporting. Such engagement was critical
to the CAIS development process as the
CAIS project was unprecedented in
terms of its content, scope and
complexity.
During this period, FCAT also
commenced the building of the CAIS
system in accordance with the CAIS
Technical Specifications during the
period covered by Historical CAT
Assessment 1. The CAIS system was
ready for industry testing shortly after
the end of this period in January 2022.
The CAIS Technical Specifications
and the CAIS system, as developed
during this period, continue to be in use
today. Industry Members have been
required to report, and have
continuously reported, required data to
CAIS on a daily basis since November
7, 2022, consistent with interim
reporting obligations. The CAIS system
accepts and validates the CAIS data
submitted by Industry Members and
provides Industry Members with initial
feedback on data errors. In light of the
unprecedented nature of the CAIS
system, certain changes to the system,
such as changes related to error
corrections and the CAIS regulatory
portal, were necessary to finalize CAIS
reporting. FCAT worked to address
these remaining issues,187 and, as of
185 The CAIS Technical Specifications, including
original drafts and updated versions, are available
on the Industry Member Specifications page of the
CAT website (https://www.catnmsplan.com/
specifications/im).
186 Six updated versions of the CAIS Technical
Specifications were published during 2021, in
March, May, June, August, October and December.
187 See, e.g., CAT Q4 2023 Quarterly Progress
Report (Jan. 30, 2024) (https://
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average cost per year for these services
was approximately $36,000.
May 31, 2024, FCAT indicated that it
had achieved the final CAIS reporting
milestone. Accordingly, CAT LLC
appropriately seeks to recover CAIS
operating costs via Historical CAT
Assessment 1.
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(G) Public Relations Costs
CAT LLC believes that the recovery of
public relations costs is appropriate and
that the amount and scope of such costs,
as described above, are reasonable.
The Commission has long recognized
that external public relations costs are
reasonably associated with creating,
implementing and maintaining the CAT.
In the CAT NMS Plan Approval Order,
the Commission estimated that the
Participants had collectively spent
approximately $2,400,000 in
preparation of the CAT NMS Plan on
external public relations, legal, and
consulting costs, and estimated that the
Participants would continue to incur
external public relations costs
associated with maintaining the CAT
upon approval of the CAT NMS Plan.188
In approving the CAT Funding Model,
the Commission recognized that it is
appropriate to recover reasonable costs
for public relations services as a part of
Historical CAT Assessments. As
approved by the SEC, the CAT NMS
Plan states that ‘‘the reasonably
budgeted CAT costs shall include . . .
public relations costs.’’ 189 In addition,
the CAT NMS Plan also requires
Participants to include in their fee
filings ‘‘a brief description of the
amount and type of the Historical CAT
Costs, including . . . public relations
costs.’’ 190 In keeping with these
provisions, a brief description of
reasonable public relations costs are
described above.
In addition, CAT LLC determined that
the public relations costs described
above are reasonable in both amount
and scope and should be recoverable as
a part of Historical CAT Assessment 1.
The services performed by the public
relations firms through 2021 were
limited in scope to assist CAT LLC,
which has no employees of its own, to
be better positioned to understand and
address CAT matters to the benefit of all
market participants and to communicate
on important CAT topics with the
public. In addition, the costs for these
services were appropriately limited.
During the 10-year period covered by
Historical CAT Assessment 1, the
www.catnmsplan.com/sites/default/files/2024-01/
CAT-Q4-2023-QPR.pdf).
188 CAT NMS Plan Approval Order at 84917–18.
189 Section 11.1(a)(i) of the CAT NMS Plan.
190 Section 11.3(b)(iii)(B)(II) of the CAT NMS
Plan.
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(H) Legal Costs Related to the Limitation
of Liability Provision in CAT Reporter
Agreements
CAT LLC believes that the recovery of
legal costs related to the limitation of
liability provision, including costs
related to the proceedings before the
SEC and costs related to the proposed
amendment to the Consolidated Audit
Trail Reporter Agreement and the
Consolidated Audit Trail Reporting
Agent Agreement (the ‘‘Reporting
Agreements’’) is appropriate and that
the amount and scope of such costs as
described above are reasonable.
As a preliminary matter, as discussed
above, the Commission recognized that
it is appropriate to recover reasonable
costs for legal services as a part of
Historical CAT Assessments.191 In
addition, CAT LLC determined that the
legal costs incurred for the assistance
with regard to the limitation of liability
provisions are reasonable in both
amount and scope and should be
recoverable as a part of Historical CAT
Assessment 1.
Moreover, it is critical that CAT LLC,
which has no employees of its own,
have the ability to fund a legal defense
in litigation and other legal proceedings
against it. In response to CAT LLC
requiring Industry Members to agree to
the limitation of liability provision to
submit data to the CAT, SIFMA filed an
application for review of actions taken
by CAT LLC and the Participants
pursuant to Sections 19(d) and 19(f) of
the Exchange Act. Contemporaneously
with the filing of this proceeding,
SIFMA moved for a stay of the
requirement that Industry Members sign
a Reporter Agreement, or in the
alternative, asked the Commission to
further delay the launch of CAT
reporting on June 22, 2020. CAT LLC
must have the resources to defend itself
from litigious actions by others, like
these.
Although a limitation of liability
provision ultimately was not adopted as
proposed, it was a reasonable provision
to propose for the CAT Reporter
Agreements, given that such provisions
are in accordance with industry norms.
Limitations of liability are ubiquitous
within the securities industry and have
long governed the economic
relationships between self-regulatory
organizations and the entities that they
regulate. For example, U.S. securities
exchanges have adopted rules to limit
their liability for losses that Industry
191 See Sections 11.1(a)(i) and 11.3(b)(iii)(B)(II) of
the CAT NMS Plan.
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Members incur through their use of
exchange facilities.192 Similarly,
FINRA’s former order audit trail, OATS,
which has functioned as an integrated
audit trail of order, quote, and trade data
for equity securities, required FINRA
members to acknowledge an agreement
that includes a limitation of liability
provision.193 In addition, such a
provision was intended to ensure the
financial stability of the CAT.
Accordingly, it was reasonable for CAT
LLC to propose the use of such a
provision.194
Furthermore, as described above, the
specialized services were performed by
experienced counsel at market rates for
such services. Accordingly, the legal
costs for the efforts related to the
limitation of liability provision were
reasonable.
(I) Costs for the Chair of CAT Operating
Committee
CAT LLC believes that the recovery of
consulting costs related to the Chair of
the CAT Operating Committee is
appropriate and that the amount and
scope of such costs are reasonable.
As a preliminary matter, the selection
of the Chair of the Operating Committee
complies with the requirements of
Section 4.2 of the CAT NMS Plan. The
initial Chair that served during the
period covered by Historical CAT
Assessment was designated by a
Participant as the Participant’s alternate
voting member. Accordingly, the Chair
is a representative of the Participants, as
required by the CAT NMS Plan.
In addition, in approving the CAT
Funding Model, the Commission
recognized that it is appropriate to
recover reasonable costs for consulting
as a part of Historical CAT Assessments.
As approved by the SEC, the CAT NMS
Plan states that ‘‘the reasonably
budgeted CAT costs shall include . . .
consulting . . .’’ costs.195 In addition,
the CAT NMS Plan also requires
Participants to include in their fee
filings ‘‘a brief description of the
amount and type of the Historical CAT
Costs, including . . . consulting’’ 196
192 See,
e.g., NASDAQ Equities Rule 4626.
Rule 1013(a)(1)(R) requires all
applicants for FINRA Membership to acknowledge
the FINRA Entitlement Program Agreement and
Terms of Use, which applies to OATS. Industry
Members click to indicate that they agree to its
terms—including its limitation of liability
provision—every time they access FINRA’s OATS
system to report trade information (i.e., repeatedly
over the course of a trading day for many Industry
Members).
194 See Letter from Michael Simon, Chair, CAT
Operating Committee, to Vanessa Countryman,
Secretary, Commission (Dec. 18, 2020).
195 Section 11.1(a)(i) of the CAT NMS Plan.
196 Section 11.3(b)(iii)(B)(II) of the CAT NMS
Plan.
193 FINRA
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costs. In keeping with these provisions,
a brief description of reasonable
consulting costs is included in this
filing, and such reasonable consulting
costs include the costs related to the
Chair position.
The Participants determined that the
position of the Chair was a critical role
for the implementation of the CAT, and
an independent Chair would
appropriately consider and address the
views of each of the Participants. The
Participants also determined that it was
important to have a Chair with a strong
background regarding issues related to
the regulatory obligations of selfregulatory organizations, including their
obligations under national market
system plans. The compensation paid to
the Chair is appropriate for a person
with such background and skills. The
average annual amount paid to the Chair
from 2017 through the end of FAM 3
was $292,733.30. Separate from the
Chair, CAT LLC relies upon a
Leadership Team of representatives of
the SROs to oversee the day-to-day
implementation of the CAT NMS Plan.
CAT LLC does not compensate any
member of the Leadership Team.
(11) Fee Implementation Assistance for
Industry Members
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(A) Reconciliation of CAT Invoices
(i) Reconciliation of CAT Invoices to
Underlying Trades Provided by CAT
CAT LLC understands that there are
three types of reconciliation processes
related to the invoices:
• Reconciliation of CAT Invoices to
Underlying Trades: Reconciling the
CAT invoice amount to the underlying
trades provided by CAT;
• Matching Trades to Books and
Records: Providing the means to match
the underlying trades provided by CAT
with CAT invoices to other books and
records independently maintained by
individual CAT Reporters (e.g.,
exchange trade journals/
acknowledgements) and data sources of
self-regulatory organizations
independent of CAT; and
• Order Originator Identification:
Providing the ability to identify the
order originator for the underlying
trades provided by CAT with CAT
invoices, which would facilitate firms’
ability to pass through CAT Fees to their
customers.
As discussed further below, CAT LLC
only considers the first type of process
to be a ‘‘reconciliation’’ and the only
type of process that is required under
the CAT NMS Plan. CAT LLC provides
the means to reconcile the CAT invoice
amount to the underlying trades
provided by CAT.
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The CAT NMS Plan does not require
CAT LLC to facilitate the second type of
process: matching underlying trades for
a CAT invoice with a firm’s internal
books and records. CAT LLC has access
only to the underlying trades provided
by CAT; it does not have access to a
firm’s internal books and records.
Although beyond the requirements of
the CAT NMS Plan and involving firm
specific considerations, CAT LLC
voluntarily has provided guidance and
processes to assist CAT Reporters in
their efforts to match the underlying
trades with their own books and
records.
The CAT NMS Plan also does not
require CAT LLC to provide the ability
to identify the order originator for the
underlying trades for the CAT invoices.
Accordingly, the billing guidance and
processes do not provide CAT Reporters
with the ability to identify the order
originator for the underlying trades
provided by CAT with CAT invoices.
CAT LLC has been working closely with
CAT Reporters to explain its billing
approach and to address any
outstanding billing questions. But, it
should not be lost that CAT LLC
provides information sufficient to allow
CAT Reporters to reconcile CAT invoice
amounts with the underlying trades
provided by CAT LLC.
(ii) Match the Underlying Trades
Provided by CAT With CAT Invoices to
Firms’ Internal Books and Records
Independent of CAT
The CAT NMS Plan does not require
CAT LLC to facilitate the matching of
underlying trades for a CAT invoice
with a firm’s internal books and records,
which may consist of trading data from
various sources external to CAT.
Although beyond the requirements of
the CAT NMS Plan and involving firm
specific considerations, CAT LLC
voluntarily has provided guidance and
processes to assist CAT Reporters in
their efforts to match the underlying
trades with their own books and
records.
In this regard, it is important to
recognize that CAT LLC has developed
a billing approach that greatly improves
upon existing billing practices for
similar regulatory fees (e.g., fees related
to Section 31). Accordingly, with the
additional information voluntarily
provided by CAT LLC, CAT Reporters
generally will have sufficient
information to match their underlying
trades provided by CAT with their own
internal books and records that are
independent of CAT or to SRO data that
is independent of CAT data. However,
CAT LLC emphasizes that providing
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such additional information is not
required by the CAT NMS Plan.
To facilitate the introduction of CAT
fees, CAT LLC has worked with FCAT
to develop an approach to CAT billing
that is consistent with existing billing
constructs used with regard to Section
31-related sales values fees, subject to
certain enhancements. Under this
billing approach, FCAT is providing
additional linkage elements, not
necessarily provided in the Section 31sales value fee context, to facilitate CAT
Reporters’ ability to match the
underlying trades provided by CAT
with their internal books and records
and to reduce the complexity of that
process. Specifically, FCAT is providing
various key elements of the trade itself,
such as the tradeID and branch
sequence,197 to CAT Reporters in the
trade billing details provided with their
CAT invoices (‘‘Additional Trade
Details’’). As a result, CAT Reporters
now have numerous alternative
methods for matching a trade with their
internal books and records where they
previously did not have such matching
methods in other fee contexts.
With the Additional Trade Details,
CAT LLC and FCAT believe that the
overwhelming majority of underlying
trades provided by CAT bills can be
matched with a CAT Reporter’s internal
books and records. CAT LLC recognizes
that there may be certain cases in which
such matching is more difficult given
various firm-specific considerations, but
believes that such instances are
significantly more limited than with
regard to the SRO fees charged in
relation to Section 31.198 By providing
Additional Trade Details that are not
available in other fee contexts, FCAT
enhances the Industry Members’ ability
to match the underlying trades provided
with CAT invoices with books and
197 See CAT Technical Specifications for Billing
Trade Details; Trade Details Schema (https://
catnmsplan.com/sites/default/files/2024-02/
02.05.24-Billing-Trade-Details-Schema.json); CAT
Billing Scenarios, Version 1.0 (Nov. 30, 2023)
(https://www.catnmsplan.com/sites/default/files/
2024-01/01.12.2024-CAT-Billing-Scenariosv1.0.pdf).
198 For years, broker-dealers have faced similar
reconciliation issues with regard to SRO fees related
to Section 31. Broker-dealers have responded to this
issue in the Section 31 context by exercising their
discretion as to whether and the manner and extent
to which they pass on those fees (e.g., by rounding
up its fees to the nearest cent, or decide to charge
for, or not charge for, certain transactions, or assess
a specific fee or incorporate the costs into other fee
programs). See, e.g., Securities Exchange Act Rel.
No. 49928 (June 28, 2004), 69 FR 41060, 41072 (July
7, 2004) (noting that broker-dealers may ‘‘overcollect’’ Section 31-related fees charged to their
clients due to rounding practices, and doublecounting with regard to certain transactions).
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records and SRO data, both of which are
independent of CAT data.
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(iii) CAT LLC Is Not Required To
Facilitate CAT Reporters’ Ability To
Pass Through Fees to Their Customers
Similar to other regulatory fees, the
CAT NMS Plan does not address the
manner or extent to which CAT
Executing Brokers may seek to pass any
CAT fees on to their customers, nor does
it impose any obligation on CAT LLC or
the Plan Processor to facilitate firms’
ability to do so. Accordingly, Historical
CAT Assessment 1 does not address the
process by which any CAT Reporters
may pass through the fee to their
customers. Likewise, the CAT billing
approach provided by the Plan
Processor is designed to address the
needs of CAT Reporters with regard to
the reconciliation of CAT invoices with
the underlying trades provided by CAT
LLC with the invoices; they are not
designed to address issues related to any
pass-through fees. Accordingly,
facilitating CAT Reporters’ ability to
pass through fees to their clients is
outside the scope of this fee filing.
Nevertheless, as described below, CAT
LLC and the Plan Processor have
expended significant efforts to provide
technical assistance to Industry
Members regarding the implementation
of Historical CAT Assessment 1,
including providing Additional Trade
Details that provide significant details
about each underlying trade.
(a) Originating Brokers Versus Executing
Brokers
In its approval of the CAT Funding
Model, the Commission approved
charging CAT fees to the CAT Executing
Broker, rather than the originating
broker. This fee filing must comply with
the requirements of the CAT Funding
Model, and, therefore, charges the
Historical CAT Assessment 1 to CAT
Executing Brokers.
Moreover, charging originating
brokers would introduce significant
complexity to the billing process from
the CAT’s perspective, and would
increase the costs of implementing CAT
fees. Charging the CAT Executing
Broker is simple and straightforward,
and leverages a one-to-one relationship
between billable events (trades) and
billable parties, similar to other
transaction-based fees. In contrast, for a
single trade event, there may be many
originating brokers, and each trade must
be broken down on a pro-rata basis, to
account for one or more layers of
aggregation, disaggregation, and
representation of the underlying orders.
While CAT is indeed designed to
capture and unwind complex
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aggregation scenarios, the data and
linkages are structured to facilitate
regulatory use, and not a billing
mechanism that assesses fees on a
distinct set of executed trades; it is not
simply a matter of using existing CAT
linkages. Furthermore, charging
originating brokers would implicate
issues related to lifecycle linkage rates,
and issues related to corrections,
cancellations and allocations, while
charging CAT Executing Brokers would
avoid such issues.
(b) Identification of Order Originator for
Underlying Trades
As noted, the CAT NMS Plan does not
address the manner or extent to which
CAT Executing Brokers may seek to pass
any CAT Fees on to their customers, nor
does it impose any obligation on CAT
LLC or the Plan Processor to facilitate
firms’ ability to do so. Nevertheless, the
Additional Trade Details provided with
regard to the underlying trades on CAT
invoices may assist with this process.
Like with Section 31-related sales value
fees, however, it is not always possible
to trace every fee on a transaction back
to the originating party. Industry
Members have faced these issues under
Section 31-related sales values fees for
many years.199 However, with the
Additional Trade Details provided
under the CAT billing approach, in
many cases, CAT Reporters will be able
to identify the order originator for the
underlying trades provided by CAT
with CAT invoices. In some cases, CAT
LLC believes that certain issues related
to certain types of market activity may
implicate CAT Reporters’ ability to
identify the order originator for a
limited set of underlying trades for the
CAT invoices. Although CAT LLC does
not believe that it is required to address
these issues, CAT LLC and FCAT have
been carefully researching and
analyzing these types of issues as they
are identified, and have been working
voluntarily to assist CAT Reporters with
these issues as necessary and when
possible. In addition, CAT LLC intends
to continue to provide CAT Reporters
with billing guidance through FAQs,
199 ‘‘FINRA charges a Regulatory Transaction Fee
(‘‘RTF’’) to industry members to reimburse FINRA
for the Section 31 fees that FINRA pays to the
Commission. FINRA does not currently provide
industry members with the data that industry
members require for proper reconciliation of RTF
fees. This has been a major problem for the industry
for many years.’’ Letter from Howard Meyerson,
Managing Director, FIF, to Robert Cook, Chief
Executive Officer, FINRA at 2 (Dec. 15. 2023)
(https://fif.com/index.php/working-groups/
category/271-comment-letters?download=2820:fifletter-to-finra-on-pass-through-of-finra-catfees&view=category).
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CAT Alerts and Helpdesk responses to
address outstanding billing questions.
(B) Significant Technical Assistance
CAT LLC has worked with FCAT to
provide significant technical assistance
to Industry Members to allow the
Industry Members to understand how
Historical CAT Assessment 1 will be
implemented and billed, including
webinars, CAT alerts, mock invoices,
and responses to questions posed to the
FCAT Help Desk.
• Technical Specifications and
Scenarios. CAT LLC has provided
detailed technical documentation for
CAT billing, including (1) technical
specifications, which describe the CAT
Billing Trade Details Files associated
with monthly CAT invoices, including
detailed information about data
elements and file formats as well as
access instructions, network and
transport options; 200 (2) trade details
schemas; 201 and (3) CAT billing
scenarios.202
• Industry Webinars. CAT LLC has
hosted two industry webinars
specifically dedicated to CAT billing.
The first webinar, hosted on September
28, 2023, discussed the operational
implementation of the CAT Reporter
billing process.203 The second webinar,
hosted on November 7, 2023, provided
(1) a demonstration of the CAT Reporter
Portal and how to access CAT billing
documents, including CAT invoices;
and (2) additional information on
underlying trade details in relation to
the CAT Reporter billing process and an
overview of the CAT Contact
Management System.204 485
participants and 394 participants
attended the two webinars, respectively.
• CAT Alert. CAT LLC has published
a detailed CAT Alert that describes how
FCAT, as the Plan Processor acting on
behalf of CAT LLC, will calculate
applicable fees, issue invoices to and
collect payment from CAT Executing
Brokers.205
200 CAT Technical Specifications for Billing
Trade Details, Version 1.0 r1 (Dec. 8. 2023) (https://
catnmsplan.com/sites/default/files/2023-12/
12.07.2023-CAT-Techical-Specifications-for-BillingTrade-Details-v1.0r1_CLEAN.pdf).
201 Trade Details Schema (https://
catnmsplan.com/sites/default/files/2024-02/
02.05.24-Billing-Trade-Details-Schema.json).
202 CAT Billing Scenarios, Version 1.0 (Nov. 30,
2023) (https://www.catnmsplan.com/sites/default/
files/2024-01/01.12.2024-CAT-Billing-Scenariosv1.0.pdf).
203 CAT Billing Webinar, Part 1 (Sept. 28, 2023)
(https://www.catnmsplan.com/events/part-1-catbilling-webinar).
204 CAT Billing Webinar, Part 2 (Nov. 7, 2023)
(https://www.catnmsplan.com/events/part-2-catbilling-webinar).
205 See CAT Alert 2023–02 (Oct. 12, 2023)
(https://www.catnmsplan.com/sites/default/files/
2023-10/10.12.23-CAT-Alert-2023-02.pdf).
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• Frequently Asked Questions
(FAQs). CAT LLC also has continued to
engage with the industry on billing
issues by making responses to billing
FAQs available on the CAT website. The
FAQs address a broad range of
frequently asked questions, including,
for example, which Industry Members
will receive invoices, how fees are
calculated, when and how fees are
required to be paid, how to access
invoices, and how to update the billing
contact. To date, responses to 27 FAQs
are available on the CAT website, and
CAT LLC will provide additional
responses to FAQs as warranted.206
• Mock Invoices. To assist Industry
Members with compliance with the
commencement of Historical CAT
Assessment 1, CAT LLC has been
making available to CAT Executing
Brokers mock invoices for Historical
CAT Assessment 1 since December 2023
for billable activity occurring in
November 2023. The mock invoices are
in the same form as the actual, payable
invoices, including both the relevant
transaction data and the corresponding
fee (as originally contemplated).
However, no payments are required in
response to such mock invoices; they
are to be used solely to assist CAT
Executing Brokers with the
development of their processes for
paying the CAT fees. Such data provides
CAT Executing Brokers with a preview
of the transaction data used in creating
the invoices for Historical CAT
Assessment 1 fees, as the data will be
the same as data provided in actual
invoices. Such data preview is intended
to facilitate the payment of Historical
CAT Assessment 1. For the November,
December, and January billing periods,
FCAT has generated trade detail files for
569 distinct firms that are CAT
Executing Brokers. As such, CAT
Reporters have actively engaged in the
billing process via the mock invoices.
• Help Desk Assistance. CAT LLC
also provides detailed, individualized
assistance to Industry Members
regarding CAT fees and the billing
process through the FCAT Help Desk.207
For example, the Help Desk has assisted
with 406 cases related to the billing of
CAT fees from July 2023 through March
2024.
206 See CAT Billing FAQs, Section V of CAT
FAQs (https://www.catnmsplan.com/faq?search_
api_fulltext=&field_topics=271&sort_by=field_faq_
number).
207 The CAT NMS Plan requires that the Plan
Processor ‘‘staff a CAT help desk, as described in
appendix D, CAT Help Desk, to provide technical
expertise.’’ Section 6.10(c)(vi) of the CAT NMS
Plan. See also Section 10.3 of appendix D of the
CAT NMS Plan for a description of the Plan
requirements for the CAT Help Desk.
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By providing such detailed and
sustained assistance to Industry
Members regarding CAT fees and
billing, CAT LLC has successfully
addressed questions raised by Industry
Members regarding the CAT fees and
billing processes.
(C) Ample Preparation Time
CAT LLC has provided Industry
Members with ample time to comply
with the implementation of Historical
CAT Assessment 1. CAT LLC originally
proposed issuing the first invoices for
Historical CAT Assessment 1 in
December 2023 based on transactions in
Eligible Securities in November 2023. In
consideration of the feedback about the
need for additional time to implement
the new fee, CAT LLC pushed back this
timeline by four months, proposing to
issue the first Historical CAT
Assessment 1 in April 2024 based on
transactions in March 2024.208 This
filing pushes this timeline back even
further for implementing Historical CAT
Assessment 1, proposing to issue the
first invoices for Historical CAT
Assessment 1 in November 2024 based
on transactions in Eligible Securities in
October 2024. Moreover, as discussed
above, during these additional months,
FCAT has been working closely with
Industry Members to provide guidance
regarding their mock bills and
reconciliation efforts related thereto.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
requirements of the Exchange Act. The
Exchange believes that the proposed
rule change is consistent with Section
6(b)(5) of the Act,209 which requires,
among other things, that the Exchange’s
rules must be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest,
and not designed to permit unfair
discrimination between customers,
issuers, brokers and dealers. The
Exchange also believes that the
proposed rule change is consistent with
the provisions of Section 6(b)(4) of the
Act,210 because it provides for the
equitable allocation of reasonable dues,
fees and other charges among members
and issuers and other persons using its
facilities and does not unfairly
discriminate between customers,
issuers, brokers or dealers. The
Exchange further believes that the
208 Securities Exchange Act Rel. No. 99382 (Jan.
17, 2024), 89 FR 10658 (Feb. 13, 2024) (SR–PEARL–
2024–02).
209 15 U.S.C. 78f(b)(6).
210 15 U.S.C. 78f(b)(4).
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proposed rule change is consistent with
Section 6(b)(8) of the Act,211 which
requires that the Exchange’s rules not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purpose of the
Exchange Act. These provisions also
require that the Exchange be ‘‘so
organized and [have] the capacity to be
able to carry out the purposes’’ of the
Act and ‘‘to comply, and . . . to enforce
compliance by its members and persons
associated with its members,’’ with the
provisions of the Exchange Act.212
Accordingly, a reasonable reading of the
Act indicates that it intended that
regulatory funding be sufficient to
permit an exchange to fulfill its
statutory responsibility under the Act,
and contemplated that such funding
would be achieved through equitable
assessments on the members, issuers,
and other users of an exchange’s
facilities.
The Exchange believes that this
proposal is consistent with the Act
because it implements provisions of the
Plan and is designed to assist the
Exchange in meeting regulatory
obligations pursuant to the Plan. In
approving the Plan, the SEC noted that
the Plan ‘‘is necessary and appropriate
in the public interest, for the protection
of investors and the maintenance of fair
and orderly markets, to remove
impediments to, and perfect the
mechanism of a national market system,
or is otherwise in furtherance of the
purposes of the Act.’’ 213 To the extent
that this proposal implements the Plan
and applies specific requirements to
Industry Members, the Exchange
believes that this proposal furthers the
objectives of the Plan, as identified by
the SEC, and is therefore consistent with
the Act.
The Exchange believes that the
proposed fees paid by the CEBBs and
CEBSs are reasonable, equitably
allocated and not unfairly
discriminatory. First, the Historical CAT
Assessment 1 fees to be collected are
directly associated with the costs of
establishing and maintaining the CAT,
where such costs include Plan Processor
costs and costs related to technology,
legal, consulting, insurance,
professional and administration, and
public relations costs. The Exchange has
already incurred such development and
implementation costs and the proposed
Historical CAT Assessment 1 fees,
therefore, would allow the Exchange to
collect certain of such costs in a fair and
reasonable manner from Industry
211 15
U.S.C. 78f(b)(8).
Section 6(b)(1) of the Exchange Act.
213 CAT NMS Plan Approval Order at 84697.
212 See
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Members, as contemplated by the CAT
NMS Plan.
The proposed Historical CAT
Assessment 1 fees would be charged to
Industry Members in support of the
maintenance of a consolidated audit
trail for regulatory purposes. The
proposed fees, therefore, are consistent
with the Commission’s view that
regulatory fees be used for regulatory
purposes and not to support the
Exchange’s business operations. The
proposed fees would not cover
Exchange services unrelated to the CAT.
In addition, any surplus would be used
as a reserve to offset future fees. Given
the direct relationship between CAT
fees and CAT costs, the Exchange
believes that the proposed fees are
reasonable, equitable and not unfairly
discriminatory.
As further discussed below, the SEC
approved the CAT Funding Model,
finding it was reasonable and that it
equitably allocates fees among
Participants and Industry Members. The
Exchange believes that the proposed
fees adopted pursuant to the CAT
Funding Model approved by the SEC are
reasonable, equitably allocated and not
unfairly discriminatory.
(1) Implementation of CAT Funding
Model in CAT NMS Plan
Section 11.1(b) of the CAT NMS Plan
states that ‘‘[t]he Participants shall file
with the SEC under Section 19(b) of the
Exchange Act any such fees on Industry
Members that the Operating Committee
approves.’’ Per Section 11.1(b) of the
CAT NMS Plan, the Exchange has filed
this fee filing to implement the Industry
Member CAT fees included in the CAT
Funding Model. The Exchange believes
that this proposal is consistent with the
Exchange Act because it is consistent
with, and implements, the CAT Funding
Model in the CAT NMS Plan, and is
designed to assist the Exchange and its
Industry Members in meeting regulatory
obligations pursuant to the CAT NMS
Plan. In approving the CAT NMS Plan,
the SEC noted that the Plan ‘‘is
necessary and appropriate in the public
interest, for the protection of investors
and the maintenance of fair and orderly
markets, to remove impediments to, and
perfect the mechanism of a national
market system, or is otherwise in
furtherance of the purposes of the
Act.’’ 214 Similarly, in approving the
CAT Funding Model, the SEC
concluded that the CAT Funding Model
met this standard.215 As this proposal
implements the Plan and the CAT
Funding Model described therein, and
214 CAT
215 CAT
NMS Plan Approval Order at 84696.
Funding Model Approval Order at 62686.
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applies specific requirements to
Industry Members in compliance with
the Plan, the Exchange believes that this
proposal furthers the objectives of the
Plan, as identified by the SEC, and is
therefore consistent with the Exchange
Act.
(2) Calculation of Fee Rate for Historical
CAT Assessment 1 Is Reasonable
The SEC has determined that the CAT
Funding Model is reasonable and
satisfies the requirements of the
Exchange Act. Specifically, the SEC has
concluded that the method for
determining Historical CAT
Assessments as set forth in Section 11.3
of the CAT NMS Plan, including the
formula for calculating the Historical
Fee Rate, the identification of the parties
responsible for payment and the
transactions subject to the fee rate for
the Historical CAT Assessment, is
reasonable and satisfies the Exchange
Act.216 In each respect, as discussed
above, Historical CAT Assessment 1 is
calculated, and would be applied, in
accordance with the requirements
applicable to Historical CAT
Assessments as set forth in the CAT
NMS Plan. Furthermore, as discussed
below, the Exchange believes that each
of the figures for the variables in the
SEC-approved formula for calculating
the fee rate for Historical CAT
Assessment 1 is reasonable and
consistent with the Exchange Act.
Calculation of the Historical Fee Rate for
Historical CAT Assessment 1 requires
the figures for the Historical CAT Costs
1, the executed equivalent share volume
for the prior twelve months, the
determination of Historical Recovery
Period 1, and the projection of the
executed equivalent share volume for
Historical Recovery Period 1. Each of
these variables is reasonable and
satisfies the Exchange Act, as discussed
throughout this filing.
(A) Historical CAT Costs 1
The formula for calculating a
Historical Fee Rate requires the amount
of Historical CAT Costs to be recovered.
Specifically, Section 11.3(b)(iii)(B)(II) of
the CAT NMS Plan requires a fee filing
to provide:
a brief description of the amount and type of
the Historical CAT Costs, including (1) the
technology line items of cloud hosting
services, operating fees, CAIS operating fees,
change request fees, and capitalized
developed technology costs, (2) legal, (3)
consulting, (4) insurance, (5) professional
and administration and (6) public relations
costs.
216 Id.
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In accordance with this requirement, the
Exchange has set forth the amount and
type of Historical CAT Costs 1 for each
of these categories of costs above.
Section 11.3(b)(iii)(B)(II) of the CAT
NMS Plan also requires that the fee
filing provide ‘‘sufficient detail to
demonstrate that the Historical CAT
Costs are reasonable and appropriate.’’
As discussed below, the Exchange
believes that the amounts set forth in
this filing for each of these cost
categories is ‘‘reasonable and
appropriate.’’ Each of the costs included
in Historical CAT Costs 1 are reasonable
and appropriate because the costs are
consistent with standard industry
practice, based on the need to comply
with the requirements of the CAT NMS
Plan, incurred subject to negotiations
performed on an arm’s length basis,
and/or are consistent with the needs of
any legal entity, particularly one with
no employees.
(i) Technology: Cloud Hosting Services
In approving the CAT Funding Model,
the Commission recognized that it is
appropriate to recover costs related to
cloud hosting services as a part of
Historical CAT Assessments.217 CAT
LLC determined that the costs related to
cloud hosting services described in this
filing are reasonable and should be
included as a part of Historical CAT
Costs 1. As described above, the cloud
hosting services costs reflect, among
other things, the breadth of the CAT
cloud activities, data volume far in
excess of the original volume estimates,
the need for specialized cloud services
given the volume and unique nature of
the CAT, the processing time
requirements of the Plan, and regular
efforts to seek to minimize costs where
permissible under the Plan. CAT LLC
determined that use of cloud hosting
services is necessary for implementation
of the CAT, particularly given the
substantial data volumes associated
with the CAT, and that the fees for
cloud hosting services negotiated by
FCAT were reasonable, taking into
consideration a variety of factors,
including the expected volume of data
and the breadth of services provided
and market rates for similar services.218
Indeed, the actual costs of the CAT are
far in excess of the original estimated
costs of the CAT due to various factors,
including the higher volumes and
greater complexity of the CAT than
217 Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT
NMS Plan.
218 For a discussion of the amount and type of
cloud hosting services fees, see Sections
3(a)(2)(B)(i)(a), 3(a)(2)(B)(ii)(a), 3(a)(2)(B)(iii)(a) and
3(a)(2)(B)(iv)(A) above.
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anticipated when Rule 613 was
originally adopted.
To comply with the requirements of
the Plan, the breadth of the cloud
activities related to the CAT is
substantial. The cloud services not only
include the production environment for
the CAT, but they also include two
industry testing environments, support
environments for quality assurance and
stress testing and disaster recovery
capabilities. Moreover, the cloud storage
costs are driven by the requirements of
the Plan, which requires the storage of
multiple versions of the data, from the
original submitted version of the data
through various processing steps, to the
final version of the data.
Data volume is a significant driver of
costs for cloud hosting services. When
the Commission adopted the CAT NMS
Plan in 2016, it estimated that the CAT
would need to receive 58 billion records
per day 219 and that annual operating
costs for the CAT would range from
$36.5 million to $55 million.220
Through 2021, the actual data volumes
have been five times that original
estimate. The data volumes for each
period are set forth in detail above.221
In addition to the effect of the data
volume on the cloud hosting costs, the
processing timelines set forth in the
Plan contribute to the cloud hosting
costs. Although CAT LLC has
proactively sought to manage cloud
hosting costs while complying with the
Plan, including through requests to the
Commission for exemptive relief and an
amendment to the CAT NMS Plan,
stringent CAT NMS Plan requirements
do not allow for any material flexibility
in cloud architecture design choices,
processing timelines (e.g., the use of
non-peak processing windows), or
lower-cost storage tiers. As a result, the
required CAT processing timelines
contribute to the cloud hosting costs of
the CAT.
The costs for cloud hosting services
also reflect the need for specialized
cloud hosting services given the data
volume and unique processing needs of
the CAT. The data volume as well as the
data processing needs of the CAT
necessitate the use of cloud hosting
services. The equipment, power and
services required for an on-premises
data model, the alternative to cloud
hosting services, would be cost
prohibitive. Moreover, as CAT was
being developed, there were limited
cloud hosting providers that could
satisfy all the necessary CAT
219 Appendix
D–4 of the CAT NMS Plan at n.262.
NMS Plan Approval Order at 84801.
221 See Sections 3(a)(2)(B)(i)(a), 3(a)(2)(B)(ii)(a),
3(a)(2)(B)(iii)(a) and 3(a)(2)(B)(iv)(A) above.
220 CAT
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requirements, including the operational
and security criteria. Over time more
providers offering cloud hosting
services that would satisfy these criteria
have entered the market. CAT LLC will
continue to evaluate alternative cloud
hosting services, recognizing that the
time and cost to move to an alternative
cloud provider would be substantial.
The reasonableness of the cloud
hosting services costs is further
supported by key cost discipline
mechanisms for the CAT—a cost-based
funding structure, cost transparency,
cost management efforts (including
regular efforts to lower compute and
storage costs where permitted by the
Plan) and oversight. Together, these
mechanisms help ensure the ongoing
reasonableness of the CAT’s costs and
the level of fees assessed to support
those costs.222
(ii) Technology: Operating Fees
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover costs related to operating fees
as a part of Historical CAT
Assessments.223 CAT LLC determined
that the costs related to operating fees
described in this filing are reasonable
and should be included as a part of
Historical CAT Costs 1. The operating
fees include the negotiated fees paid by
CAT LLC to the Plan Processor to
operate and maintain the system for
order-related information and to
perform business operations related to
the system, including compliance,
security, testing, training,
communications with the industry (e.g.,
management of the FINRA CAT
Helpdesk, FAQs, website and webinars)
and program management. CAT LLC
determined that the selection of FCAT
as the Plan Processor was reasonable
and appropriate given its expertise with
securities regulatory reporting, after a
process of considering other potential
candidates.224 CAT LLC also
determined that the fixed price contract,
negotiated on an arm’s length basis with
the goals of managing costs and
receiving services required to comply
with the CAT NMS Plan and Rule 613,
was reasonable and appropriate, taking
into consideration a variety of factors,
including the breadth of services
provided and market rates for similar
types of activity.225 The services
222 See Securities Exchange Act Rel. No. 97151
(Mar. 15, 2023), 88 FR 17086, 17117 (Mar. 21, 2023)
(describing key cost discipline mechanisms for the
CAT).
223 Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT
NMS Plan.
224 See Section 3(a)(2)(B)(i)(b) above.
225 See Sections 3(a)(2)(B)(i)(b), 3(a)(2)(B)(ii)(b),
3(a)(2)(B)(iii)(b) and 3(a)(2)(B)(iv)(b) above.
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performed by FCAT for each period and
the costs related to such services are
described above.226
(iii) Technology: CAIS Operating Fees
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover costs related to CAIS
operating fees as a part of Historical
CAT Assessments.227 CAT LLC
determined that the costs related to
CAIS operating fees described in this
filing are reasonable and should be
included as a part of Historical CAT
Costs 1. The CAIS operating fees
include the fees paid to the Plan
Processor to operate and maintain CAIS
and to perform the business operations
related to the system, including
compliance, security, testing, training,
communications with the industry (e.g.,
management of the FINRA CAT
Helpdesk, FAQs, website and webinars)
and program management. CAT LLC
determined that the FCAT-negotiated
fees for Kingland’s CAIS-related
services, negotiated on an arm’s length
basis with the goals of managing costs
and receiving services required to
comply with the CAT NMS Plan, taking
into consideration a variety of factors,
including the services to be provided
and market rates for similar types of
activity, were reasonable and
appropriate.228 The services performed
by Kingland for each period and the
costs for each period are described
above.229
(iv) Technology: Change Request Fees
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover costs related to change
request fees as a part of Historical CAT
Assessments.230 CAT LLC determined
that the costs related to change request
fees described in this filing are
reasonable and should be included as a
part of Historical CAT Costs 1. It is
common practice to utilize a change
request process to address evolving
needs in technology projects. This is
particularly true for a project like CAT
that is the first of its kind, both in
substance and in scale. The substance
and costs of each of the change requests
are evaluated by the Operating
Committee, and approved in accordance
with the requirements for Operating
Committee meetings. In each case, CAT
LLC determined that the change
226 Id.
227 Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT
NMS Plan.
228 See Sections 3(a)(2)(B)(i)(c), 3(a)(2)(B)(ii)(c),
3(a)(2)(B)(iii)(c) and 3(a)(2)(B)(iv)(c) above.
229 Id.
230 Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT
NMS Plan.
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requests were necessary to implement
the CAT. As described above, the
change requests cover various
technology changes, including, for
example, changes related to CAT
reporting, data feeds and exchange
functionality. CAT LLC also determined
that the costs for each change request
were appropriate for the relevant
technology change. A description of the
change requests for each FAM Period
and their total costs are set described
above.231 As noted above, the total costs
for change requests through FAM Period
3 represent a small percentage of
Historical CAT Costs 1—that is, 0.25%
of Historical CAT Costs 1.
(v) Capitalized Developed Technology
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In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover costs related to capitalized
developed technology costs as a part of
Historical CAT Assessments.232
Capitalized developed technology costs
include costs related to certain
development costs, costs related to
certain modifications, upgrades and
other changes to the CAT, CAIS
implementation fees and license fees.
The amount and type of costs for each
period are described in more detail
above.233 CAT LLC determined that
these costs are reasonable and should be
included as a part of Historical CAT
Costs 1.
These costs involve the activity of
both the Initial Plan Processor and
FCAT, as the successor Plan
Processor.234 With regard to the Initial
Plan Processor, the Participants utilized
an RFP to seek proposals to build and
operate the CAT, receiving a number of
proposals in response to the RFP. The
Participants carefully reviewed and
considered each of the proposals,
including holding in-person meetings
with each of the Bidders. After several
rounds of review, the Participants
selected the Initial Plan Processor in
accordance with the CAT NMS Plan.
CAT LLC entered into an agreement
with the Initial Plan Processor in which
CAT LLC would pay the Initial Plan
Processor a negotiated, fixed price
fee.235 In addition, as described above,
CAT LLC determined that is was
appropriate to enter into an agreement
231 See Sections 3(a)(2)(B)(i)(d), 3(a)(2)(B)(ii)(d),
3(a)(2)(B)(iii)(d) and 3(a)(2)(B)(iv)(d) above.
232 Section 11.3(b)(iii)(B)(II)(B)(1) of the CAT
NMS Plan.
233 See Sections 3(a)(2)(B)(i)(e), 3(a)(2)(B)(ii)(e),
3(a)(2)(B)(iii)(e) and 3(a)(2)(B)(iv)(e) above.
234 Id.
235 See Section 3(a)(2)(B)(i)(e) above.
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with FCAT as the successor Plan
Processor.236
(vi) Legal
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover costs related to legal fees as
a part of Historical CAT Assessments.237
CAT LLC determined that the legal costs
described in this filing are reasonable
and should be included as a part of
Historical CAT Costs 1. Given the
unique nature of the CAT, the number
of parties involved with the CAT
(including, for example, the SEC,
Participants, Industry Members, and
vendors) and the many regulatory issues
associated with the CAT, the scope of
the necessary legal services are
substantial. CAT LLC determined that
the scope of the legal services is
necessary to implement and maintain
the CAT and that the legal rates reflect
the specialized services necessary for
such a project. When hiring each law
firm for a CAT project, CAT LLC
interviewed multiple firms, and
determined to hire each firm based on
a variety of factors, including the
relevant expertise and fees. In each case,
CAT LLC determined that the hourly fee
rates were in line with market rates for
the specialized legal expertise. In
addition, CAT LLC determined that the
total costs incurred for each CAT project
were appropriate given the breadth of
services provided. The services
performed by each law firm for each
period and the costs related to such
services are described above.238
(vii) Consulting
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover consulting costs as a part of
Historical CAT Assessments.239 CAT
LLC determined that the consulting
costs described in this filing are
reasonable and should be included as a
part of Historical CAT Costs 1. Because
there are no CAT employees 240 and
because of the significant number of
issues associated with the CAT, the
consultants provided assistance in the
management of various CAT matters
and the processes related to such
236 See
Section 3(a)(2)(B)(i)(b) above.
11.3(b)(iii)(B)(II)(B)(2) of the CAT
NMS Plan.
238 See Sections 3(a)(2)(B)(i)(f), 3(a)(2)(B)(ii)(f),
3(a)(2)(B)(iii)(f) and 3(a)(2)(B)(iv)(f) above.
239 Section 11.3(b)(iii)(B)(II)(B)(3) of the CAT
NMS Plan.
240 As stated in the filing of the proposed CAT
NMS Plan, ‘‘[i]t is the intent of the Participants that
the Company have no employees.’’ Securities
Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 FR
30614, 30621 (May 17, 2016).
237 Section
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matters.241 CAT LLC considered a
variety of factors in choosing a
consulting firm and determined to select
Deloitte after an interview process.242
CAT LLC also determined that the
consulting services were provided at
reasonable market rates, as the fees were
negotiated annually and comparable to
the rates charged by other consulting
firms for similar work.243 Moreover, the
total costs for such consulting services
were appropriate in light of the breadth
of services provided by Deloitte. The
services performed by Deloitte and the
costs related to such services are
described above.244
(viii) Insurance
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover insurance costs as a part of
Historical CAT Assessments.245 CAT
LLC determined that the insurance costs
described in this filing are reasonable
and should be included as a part of
Historical CAT Costs 1. CAT LLC
determined that it is common practice
to have directors’ and officers’ liability
insurance, and errors and omissions
liability insurance. CAT LLC further
determined that it was important to
have cyber security insurance given the
nature of the CAT, and such a decision
is consistent with the CAT NMS Plan,
which states that the cyber incident
response plan may include ‘‘[i]nsurance
against security breaches.’’ 246 In
selecting the insurance providers for
these policies, CAT LLC engaged in an
evaluation of alternative insurers,
including a comparison of the pricing
offered by the alternative insurers.247
Based on this analysis, CAT LLC
determined that the selected insurance
policies provided appropriate coverage
at reasonable market rates.248
(ix) Professional and Administration
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover professional and
administration costs as a part of
Historical CAT Assessments.249 CAT
LLC determined that the professional
241 CAT LLC uses certain third parties to perform
tasks that may be performed by administrators for
other NMS Plans. See, e.g., CTA Plan and CQ Plan.
242 See Section 3(a)(2)(B)(i)(g) above.
243 See Sections 3(a)(2)(B)(i)(g), 3(a)(2)(B)(ii)(g),
3(a)(2)(B)(iii)(g) and 3(a)(2)(B)(iv)(g) above.
244 Id.
245 Section 11.3(b)(iii)(B)(II)(B)(4) of the CAT
NMS Plan.
246 Section 4.1.5 of appendix D of the CAT NMS
Plan.
247 See Sections 3(a)(2)(B)(i)(h), 3(a)(2)(B)(ii)(h),
3(a)(2)(B)(iii)(h) and 3(a)(2)(B)(iv)(h) above.
248 Id.
249 Section 11.3(b)(iii)(B)(II)(B)(5) of the CAT
NMS Plan.
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and administration costs described in
this filing are reasonable and should be
included as a part of Historical CAT
Costs 1. Because there are no CAT
employees, all required accounting,
financial, tax, cash management and
treasury functions for CAT LLC have
been outsourced at market rates. In
addition, the required annual financial
statement audit of CAT LLC is included
in professional and administration
costs, which costs are also at market
rates.
CAT LLC determined to hire a
financial advisory firm, Anchin, to
assist with financial matters for the
CAT. CAT LLC interviewed Anchin as
well as other potential financial
advisory firms to assist with the CAT
project, considering a variety of factors
in its analysis, including the firm’s
relevant expertise and fees.250 The
hourly fee rates for this firm were in line
with market rates for the financial
advisory services provided.251
Moreover, the total costs for such
financial advisory services was
appropriate in light of the breadth of
services provided by Anchin. The
services performed by Anchin and the
costs related to such services are
described above.252
CAT LLC also determined to engage
an independent accounting firm, Grant
Thornton, to complete the audit of CAT
LLC’s financial statements, in
accordance with the requirements of the
CAT NMS Plan. CAT LLC interviewed
this firm as well as another potential
accounting firm to audit CAT LLC’s
financial statements, considering a
variety of factors in its analysis,
including the relevant expertise and fees
of each of the firms. CAT LLC
determined that Grant Thornton was
well-qualified for the role given the
balanace of these considerations.253
Grant Thornton’s fixed fee rate
compensation arrangement was
reasonable and appropriate, and in line
with the market rates charged for these
types of accounting services.254
Moreover, the total costs for such
financial advisory services was
appropriate in light of the breadth of
services provided by Grant Thornton.
The services performed by Grant
Thornton and the costs related to such
services are described above.255
The professional and administrative
costs also include costs related to the
receipt of certain market data from
Exegy. After performing an analysis of
the available market data vendors to
confirm that the data provided met the
SIP Data requirements of the CAT NMS
Plan and comparing the costs of the
vendors providing the required SIP
Data, CAT LLC determined to purchase
market data from Exegy. Exegy provided
the data elements required by the CAT
NMS Plan, and the fees were reasonable
and in line with market rates for the
market data received.256
The professional and administrative
costs also include costs related to a third
party security assessment of the CAT
performed by RSM. The assessment was
designed to verify and validate the
effective design, implementation and
operation of the controls specified by
NIST Special Publication 800–53,
Revision 4 and related standards and
guidelines. Such a security assessment
is in line with industry practice and
important given the data included in the
CAT. CAT LLC determined to engage
RSM to perform the security assessment,
after considering a variety of factors in
its analysis, including the firm’s
relevant expertise and fees. The fees
were reasonable and in line with market
rates for such an assessment.257
(x) Public Relations Costs
In approving the CAT Funding Model,
the SEC recognized that it is appropriate
to recover public relations costs as a
part of Historical CAT Assessments.258
CAT LLC determined that the public
relations costs described in this filing
are reasonable and should be included
as a part of Historical CAT Costs 1. CAT
LLC determined that the types of public
relations services utilized were
beneficial to the CAT and market
participants more generally. Public
relations services were important for
various reasons, including monitoring
comments made by market participants
about CAT and understanding issues
related to the CAT discussed on the
public record.259 By engaging a public
relations firm, CAT LLC was better
positioned to understand and address
CAT issues to the benefit of all market
participants.260 Moreover, CAT LLC
determined that the rates charged for
such services were in line with market
rates.261 As noted above, the total public
relations costs through FAM Period 3
represent a small percentage of
250 See
256 See
251 See
257 Id.
Section 3(a)(2)(B)(i)(i) above.
Sections 3(a)(2)(B)(i)(i), 3(a)(2)(B)(ii)(i),
3(a)(2)(B)(iii)(i) and 3(a)(2)(B)(iv)(i) above.
252 Id.
253 See Section 3(a)(2)(B)(i)(i) above.
254 See Sections 3(a)(2)(B)(i)(i), 3(a)(2)(B)(ii)(i),
3(a)(2)(B)(iii)(i) and 3(a)(2)(B)(iv)(i) above.
255 Id.
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Section 3(a)(2)(B)(i)(i) above.
258 Section 11.3(b)(iii)(B)(II)(B)(6) of the CAT
NMS Plan.
259 See Section 3(a)(2)(B)(i)(j) above.
260 See Sections 3(a)(2)(B)(i)(j), 3(a)(2)(B)(ii)(j),
3(a)(2)(B)(iii)(j) and 3(a)(2)(B)(iv)(j) above.
261 Id.
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73995
Historical CAT Costs 1—that is, 0.1% of
Historical CAT Costs 1.
(B) Total Executed Equivalent Share
Volume for the Prior 12 Months
The total executed equivalent share
volume of transactions in Eligible
Securities for the 12-month period from
June 2023 through May 2024 was
3,980,753,840,905.21 executed
equivalent shares. CAT LLC determined
the total executed equivalent share
volume for the prior twelve months by
counting executed equivalent shares in
the same manner as it will count
executed equivalent shares for CAT
billing purposes.
(C) Historical Recovery Period 1
CAT LLC has determined to establish
a Historical Recovery Period of 24
months for Historical CAT Assessment
1 and that such length is reasonable.
CAT LLC determined that the length of
Historical Recovery Period 1
appropriately weighs the need for a
reasonable Historical Fee Rate 1 that
spreads the Historical CAT Costs over
an appropriate amount of time and the
need to repay the loans notes to the
Participants in a timely fashion. CAT
LLC determined that 24 months for
Historical Recovery Period 1 would
establish a fee rate that is lower than
other transaction-based fees, including
fees assessed pursuant to Section 31.262
In addition, in establishing a Historical
Recovery Period of 24 months, CAT LLC
recognized that the total costs for
Historical CAT Assessment 1 was less
than the total costs for 2022 and 2023,
and therefore it would be appropriate to
recover those costs in two years.
(D) Projected Executed Equivalent Share
Volume for Historical Recovery Period 1
CAT LLC has determined to calculate
the projected total executed equivalent
share volume for the 24 months of
Historical Recovery Period 1 by
doubling the executed equivalent share
volume for the prior 12 months. CAT
LLC determined that such an approach
was reasonable as the CAT’s annual
executed equivalent share volume has
remained relatively constant in recent
years. For example, the executed
equivalent share volume for 2021 was
3,963,697,612,395, the executed
equivalent share volume for 2022 was
4,039,821,841,560.31, and the executed
equivalent share volume for 2023 was
3,868,940,345,680.6. Accordingly, the
projected total executed equivalent
share volume for Historical Recovery
262 As the SEC noted in the CAT Funding Model
Approval Order, recent Section 31 fees ranged from
$0.00009 per share to $0.0004 per share. CAT
Funding Model Approval Order at 62682.
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Period 1 is projected to be
7,961,507,681,810.42 executed
equivalent shares.263
(3) Historical CAT Assessment 1
Provides for an Equitable Allocation of
Fees
(E) Actual Fee Rate for Historical CAT
Assessment 1
Historical CAT Assessment 1 provides
for an equitable allocation of fees, as it
equitably allocates CAT costs between
and among the Participants and
Industry Members. The SEC approved
the CAT Funding Model, finding that
each aspect of the CAT Funding Model
satisfied the requirements of the
Exchange Act, including the formula for
calculating Historical CAT Assessments
as well as the Industry Members to be
charged the Historical CAT
Assessments.267 In approving the CAT
Funding Model, the SEC stated that
‘‘[t]he Participants have sufficiently
demonstrated that the proposed
allocation of fees is reasonable.’’ 268
Accordingly, the CAT Funding Model
sets forth the requirements for allocating
fees related to Historical CAT Costs
among Participants and Industry
Members, and the fee filings for
Historical CAT Assessments must
comply with those requirements.
Historical CAT Assessment 1 provides
for an equitable allocation of fees as it
complies with the requirements
regarding the calculation of Historical
CAT Assessments as set forth in the
CAT NMS Plan. For example, as
described above, the calculation of
Historical CAT Assessment 1 complies
with the formula set forth in Section
11.3(b) of the CAT NMS Plan. In
addition, Historical CAT Assessment 1
would be charged to CEBBs and CEBSs
in accordance with Section 11.3(b) of
the CAT NMS Plan. Furthermore, the
Participants would continue to remain
responsible for their designated share of
Past CAT Costs through the cancellation
of loans made by the Participants to
CAT LLC.
In addition, as discussed above, each
of the inputs into the calculation of
Historical CAT Assessment 1—
Historical CAT Costs 1 (including
Excluded Costs), the count for the
executed equivalent share volume for
the prior 12 months, the length of the
Historical Recovery Period, and the
projected executed equivalent share
volume for the Historical Recovery
Period—are reasonable. Moreover, these
inputs lead to a reasonable fee rate for
Historical CAT Assessment 1 that is
lower than other fee rates for
transaction-based fees. A reasonable fee
rate allocated in accordance with the
requirements of the CAT Funding
Model provides for an equitable
allocation of fees.
(i) Decimal Places
As noted in the Plan amendment for
the CAT Funding Model, as a practical
matter, the fee filing for a Historical
CAT Assessment would provide the
exact fee per executed equivalent share
to be paid for each Historical CAT
Assessment, by multiplying the
Historical Fee Rate by one-third and
describing the relevant number of
decimal places for the fee rate.264
Accordingly, proposed paragraph
(a)(1)(B) of the fee schedule would set
forth a fee rate of $0.000013 per
executed equivalent share. This fee rate
is calculated by multiplying Historical
Fee Rate 1 by one-third, and rounding
the result to 6 decimal places. CAT LLC
determined that the use of six decimal
places is reasonable as it balances the
accuracy of the calculation with the
potential systems and other
impracticalities of using additional
decimal places in the calculation.
(ii) Reasonable Fee Level
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The Exchange believes that imposing
Historical CAT Assessment 1 with a fee
rate of $0.000013 per executed
equivalent share is reasonable because it
provides for a revenue stream for the
Company that is aligned with Historical
CAT Costs 1 and such costs would be
spread out over an appropriate recovery
period, as discussed above. Moreover,
the Exchange believes that the level of
the fee rate is reasonable, as it is
comparable to other transaction-based
fees. Indeed, Historical CAT Assessment
1 is significantly lower than fees
assessed pursuant to Section 31 (e.g.,
$0.0009 per share to 0.0004 per
share),265 and, as a result, the magnitude
of Historical CAT Assessment 1 is small,
and therefore will mitigate any potential
adverse economic effects or
inefficiencies.266 Furthermore, the
reasonable fee rate for Historical CAT
Assessment 1 further supports CAT
LLC’s decision to seek to recover all
Historical CAT Costs prior to 2022,
rather than establishing separate
Historical CAT Assessments for preFAM, FAM 1, FAM 2 and FAM 3 costs.
263 This projection was calculated by multiplying
3,980,753,840,905.21 executed equivalent shares by
two.
264 CAT Funding Model Approval Order at 62658,
n.658.
265 CAT Funding Model Approval Order at 62663,
62682.
266 Id.
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267 See
Section 11.3(b) of the CAT NMS Plan.
Funding Model Approval Order at 62629.
268 CAT
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(4) Historical CAT Assessment 1 Is Not
Unfairly Discriminatory
Historical CAT Assessment 1 is not an
unfairly discriminatory fee. The SEC
approved the CAT Funding Model,
finding that each aspect of the CAT
Funding Model satisfied the
requirements of the Exchange Act. In
reaching this conclusion, the SEC
analyzed the potential effect of
Historical CAT Assessments calculated
pursuant to the CAT Funding Model on
affected categories of market
participants, including Participants
(including exchanges and FINRA),
Industry Members (including
subcategories of Industry Members,
such as alternative trading systems, CAT
Executing Brokers and market makers),
and investors generally, and considered
market effects related to equities and
options, among other things. Historical
CAT Assessment 1 complies with the
requirements regarding the calculation
of Historical CAT Assessments as set
forth in the CAT NMS Plan. In addition,
as discussed above, each of the inputs
into the calculation of Historical CAT
Assessment 1 and the resulting fee rate
for Historical CAT Assessment 1 is
reasonable. Therefore, Historical CAT
Assessment 1 does not impose an
unfairly discriminatory fee on Industry
Members.
Finally, the Exchange believes the
proposed fees established pursuant to
the CAT Funding Model promote just
and equitable principles of trade, and,
in general, protect investors and the
public interest, and are provided in a
transparent manner and specificity in
the fee schedule. The Exchange also
believes that the proposed fees are
reasonable because they would provide
ease of calculation, ease of billing and
other administrative functions, and
predictability of a fee based on fixed
rate per executed equivalent share. Such
factors are crucial to estimating a
reliable revenue stream for CAT LLC
and for permitting Exchange members to
reasonably predict their payment
obligations for budgeting purposes.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Section 6(b)(8) of the Act 269 requires
that the Exchange’s rules not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Exchange Act. The
Exchange does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
269 15
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Exchange notes that Historical CAT
Assessment 1 implements provisions of
the CAT NMS Plan that were approved
by the Commission and is designed to
assist the Exchange in meeting its
regulatory obligations pursuant to the
Plan.
In addition, all Participants (including
exchanges and FINRA) are proposing to
introduce Historical CAT Assessment 1
on behalf of CAT LLC to implement the
requirements of the CAT NMS Plan.
Therefore, this is not a competitive fee
filing, and, therefore, it does not raise
competition issues between and among
the Participants.
Furthermore, in approving the CAT
Funding Model, the SEC analyzed the
potential competitive impact of the CAT
Funding Model, including competitive
issues related to market services, trading
services and regulatory services,
efficiency concerns, and capital
formation.270 The SEC also analyzed the
potential effect of CAT fees calculated
pursuant to the CAT Funding Model on
affected categories of market
participants, including Participants
(including exchanges and FINRA),
Industry Members (including
subcategories of Industry Members,
such as alternative trading systems, CAT
Executing Brokers and market makers),
and investors generally, and considered
market effects related to equities and
options, among other things. Based on
this analysis, the SEC approved the CAT
Funding Model as compliant with the
Exchange Act. Historical CAT
Assessment 1 is calculated and
implemented in accordance with the
CAT Funding Model as approved by the
SEC.
As discussed above, each of the
inputs into the calculation of Historical
CAT Assessment 1 is reasonable and the
resulting fee rate for Historical CAT
Assessment 1 calculated in accordance
with the CAT Funding Model is
reasonable. Therefore, Historical CAT
Assessment 1 would not impose any
burden on competition that is not
270 CAT
Funding Model Approval Order at
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necessary or appropriate in furtherance
of the purpose of the Exchange Act.
Commission, 100 F Street NE,
Washington, DC 20549–1090.
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.
All submissions should refer to file
number SR–PEARL–2024–37. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–PEARL–2024–37 and should be
submitted on or before October 2, 2024.
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 271
and Rule 19b–4(f)(2) thereunder,272
because it establishes or changes a due,
or fee.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend the rule change if
it appears to the Commission that the
action is necessary or appropriate in the
public interest, for the protection of
investors, or would otherwise further
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
PEARL–2024–37 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
U.S.C. 78s(b)(3)(A)(ii).
272 17 CFR 240.19b–4(f)(2).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.273
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–20478 Filed 9–10–24; 8:45 am]
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]]>Agencies
[Federal Register Volume 89, Number 176 (Wednesday, September 11, 2024)]
[Notices]
[Pages 73950-73997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-20478]
[[Page 73949]]
Vol. 89
Wednesday,
No. 176
September 11, 2024
Part VI
Securities and Exchange Commission
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Self-Regulatory Organizations; MIAX PEARL LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
Pearl Equities Fee Schedule To Establish Fees for Industry Members
Related to Certain Historical Costs of the National Market System Plan
Governing the Consolidated Audit Trail; Notice
Federal Register / Vol. 89, No. 176 / Wednesday, September 11, 2024 /
Notices
[[Page 73950]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100953; File No. SR-PEARL-2024-37]
Self-Regulatory Organizations; MIAX PEARL LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
Pearl Equities Fee Schedule To Establish Fees for Industry Members
Related to Certain Historical Costs of the National Market System Plan
Governing the Consolidated Audit Trail
September 5, 2024.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\
notice is hereby given that on August 23, 2024, MIAX PEARL, LLC (``MIAX
Pearl'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the Exchange's Fee
Schedule applicable to trading of equity securities trading on the
Exchange (the ``Fee Schedule'') to establish fees for Industry Members
\3\ related to certain historical costs of the National Market System
Plan Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or
``Plan'') incurred prior to January 1, 2022. These fees would be
payable to Consolidated Audit Trail, LLC (``CAT LLC'' or ``the
Company'') \4\ and referred to as Historical CAT Assessment 1, and
would be described in a section of the Exchange's fee schedule entitled
``Consolidated Audit Trail Funding Fees.'' The fee rate for Historical
CAT Assessment 1 will be $0.000013 per executed equivalent share. CAT
Executing Brokers will receive their first monthly invoice for
Historical CAT Assessment 1 in November 2024 calculated based on their
transactions as CAT Executing Brokers for the Buyer (``CEBB'') and/or
CAT Executing Brokers for the Seller (``CEBS'') in October 2024.
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\3\ An ``Industry Member'' is defined as ``a member of a
national securities exchange or a member of a national securities
association.'' See Miami International Securities Exchange LLC
(``MIAX Rule'') Rule 1701(u). The Exchange notes that MIAX Chapter
XVII is incorporated by reference into the Exchange's rulebook. As
such, MIAX Chapter XVII also applies to the Exchange. See also
Section 1.1 of the CAT NMS Plan. Unless otherwise specified,
capitalized terms used in this rule filing are defined as set forth
in the CAT NMS Plan and/or the CAT Compliance Rule. See MIAX Rule
1701.
\4\ The term ``CAT LLC'' may be used to refer to Consolidated
Audit Trail, LLC or CAT NMS, LLC, depending on the context.
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The text of the proposed rule change is available on the Exchange's
website at https://www.miaxglobal.com/markets/us-equities/pearl-equities/rule-filings, at MIAX Pearl's principal office, 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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On July 11, 2012, the Commission adopted Rule 613 of Regulation
NMS, which required the self-regulatory organizations (``SROs'') to
submit a national market system (``NMS'') plan to create, implement and
maintain a consolidated audit trail that would capture customer and
order event information for orders in NMS securities across all
markets, from the time of order inception through routing,
cancellation, modification or execution.\5\ On November 15, 2016, the
Commission approved the CAT NMS Plan.\6\ Under the CAT NMS Plan, the
Operating Committee has the discretion to establish funding for CAT LLC
to operate the CAT, including establishing fees for Industry Members to
be assessed by CAT LLC that would be implemented on behalf of CAT LLC
by the Participants.\7\ The Operating Committee adopted a revised
funding model to fund the CAT (``CAT Funding Model''). On September 6,
2023, the Commission approved the CAT Funding Model, after concluding
that the model was reasonable and that it satisfied the requirements of
Section 11A of the Exchange Act and Rule 608 thereunder.\8\
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\5\ Securities Exchange Act Rel. No. 67457 (July 18, 2012), 77
FR 45721 (Aug. 1, 2012) (``Rule 613 Adopting Release'').
\6\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81
FR 84696 (Nov. 23, 2016) (``CAT NMS Plan Approval Order'').
\7\ Section 11.1(b) of the CAT NMS Plan.
\8\ Securities Exchange Act Rel. No. 98290 (Sept. 6, 2023), 88
FR 62628 (Sept. 12, 2023) (``CAT Funding Model Approval Order'').
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The CAT Funding Model provides a framework for the recovery of the
costs to create, develop and maintain the CAT, including providing a
method for allocating costs to fund the CAT among Participants and
Industry Members. The CAT Funding Model establishes two categories of
fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry
Members to recover a portion of historical CAT costs previously paid by
the Participants (``Historical CAT Assessment'' fees); and (2) CAT fees
assessed by CAT LLC and payable by Participants and Industry Members to
fund prospective CAT costs (``Prospective CAT Costs'' fees).\9\
---------------------------------------------------------------------------
\9\ Under the CAT Funding Model, the Operating Committee may
establish one or more Historical CAT Assessments. Section 11.3(b) of
the CAT NMS Plan. This filing only establishes Historical CAT
Assessment 1 related to certain Historical CAT Costs as described
herein; it does not address any other potential Historical CAT
Assessment related to other Historical CAT Costs. In addition, under
the CAT Funding Model, the Operating Committee also may establish
CAT Fees related to CAT costs going forward. Section 11.3(a) of the
CAT NMS Plan. This filing does not address any potential CAT Fees
related to CAT costs going forward. Any such other fee for any other
Historical CAT Assessment or CAT Fee for Prospective CAT Costs will
be subject to a separate fee filing.
---------------------------------------------------------------------------
Under the CAT Funding Model, ``[t]he Operating Committee will
establish one or more fees (each a `Historical CAT Assessment') to be
payable by Industry Members with regard to CAT costs previously paid by
the Participants (`Past CAT Costs').'' \10\ In establishing a
Historical CAT Assessment, the Operating Committee will determine a
``Historical Recovery Period'' and calculate a ``Historical Fee Rate''
for that Historical Recovery Period. Then, for each month in which a
Historical CAT Assessment is in effect, each CEBB and CEBS would be
required to pay the fee--the Historical CAT Assessment--for each
transaction in Eligible Securities executed by the CEBB or CEBS from
the prior month as set forth in CAT Data, where the Historical CAT
Assessment for each transaction will be calculated by multiplying the
number of executed equivalent shares in the transaction by one-third
and by the Historical Fee Rate.\11\
---------------------------------------------------------------------------
\10\ Section 11.3(b) of the CAT NMS Plan.
\11\ In approving the CAT Funding Model, the Commission stated
that, ``[i]n the Commission's view, the proposed recovery of the
Past CAT Costs via the Historical CAT Assessment is reasonable.''
CAT Funding Model Approval Order at 62662.
---------------------------------------------------------------------------
[[Page 73951]]
Each Historical CAT Assessment to be paid by CEBBs and CEBSs is
designed to contribute toward the recovery of two-thirds of the
Historical CAT Costs. Because the Participants previously have paid
Past CAT Costs via loans to the Company, the Participants would not be
required to pay any Historical CAT Assessment. In lieu of a Historical
CAT Assessment, the Participants' one-third share of Historical CAT
Costs will be paid by the cancellation of loans made by the
Participants to the Company on a pro rata basis based on the
outstanding loan amounts due under the loans, instead of through the
payment of a CAT fee.\12\ In addition, the Participants also will be
100% responsible for certain Excluded Costs (as discussed below).
---------------------------------------------------------------------------
\12\ Section 11.3(b)(ii) of the CAT NMS Plan.
---------------------------------------------------------------------------
CAT LLC proposes to charge CEBBs and CEBSs (as described in more
detail below) Historical CAT Assessment 1 to recover certain historical
CAT costs incurred prior to January 1, 2022, in accordance with the CAT
Funding Model. To implement this fee on behalf of CAT LLC, the CAT NMS
Plan requires the Participants to ``file with the SEC under Section
19(b) of the Exchange Act any such fees on Industry Members that the
Operating Committee approves, and such fees shall be labeled as
`Consolidated Audit Trail Funding Fees.' '' \13\ The Plan further
states that ``Participants will be required to file with the SEC
pursuant to Section 19(b) of the Exchange Act a filing for each
Historical CAT Assessment.'' \14\ Accordingly, the purpose of this
filing is to implement a Historical CAT Assessment on behalf of CAT LLC
for Industry Members, referred to as Historical CAT Assessment 1, in
accordance with the CAT NMS Plan.\15\
---------------------------------------------------------------------------
\13\ Section 11.1(b) of the CAT NMS Plan.
\14\ Section 11.3(b)(iii)(B)(I) of the CAT NMS Plan.
\15\ Note that there may be one or more Historical CAT
Assessments depending on the timing of the completion of the
Financial Accountability Milestones, among other things. Section
11.3(b) of the CAT NMS Plan.
---------------------------------------------------------------------------
The Exchange previously filed a fee filing to implement Historical
CAT Assessment 1. On January 17, 2024, the SEC published this prior
filing for Historical CAT Assessment 1, temporarily suspended the fee
filing, and instituted proceedings to determine whether to approve or
disapprove the fee filing.\16\ The Exchange has withdrawn its original
fee filing for Historical CAT Assessment 1. This Historical CAT
Assessment 1 replaces the prior Historical CAT Assessment 1 that was
previously filed with the Commission.
---------------------------------------------------------------------------
\16\ Securities Exchange Act Rel. No. 99382 (Jan. 17, 2024), 89
FR 10658 (Feb. 13, 2024) (SR-PEARL-2024-02).
---------------------------------------------------------------------------
(1) CAT Executing Brokers
Historical CAT Assessment 1 will be charged to each CEBB and CEBS
for each applicable transaction in Eligible Securities.\17\ The CAT NMS
Plan defines a ``CAT Executing Broker'' to mean:
---------------------------------------------------------------------------
\17\ In its approval of the CAT Funding Model, the Commission
determined that charging CAT fees to CAT Executing Brokers was
reasonable. In reaching this conclusion the Commission noted that
the use of CAT Executing Brokers is appropriate because the CAT
Funding Model is based upon the calculation of executed equivalent
shares, and, therefore, charging CAT Executing Brokers would reflect
their executing role in each transaction. Furthermore, the
Commission noted that, because CAT Executing Brokers are already
identified in transaction reports from the exchanges and FINRA's
equity trade reporting facilities recorded in CAT Data, charging CAT
Executing Brokers could streamline the billing process. CAT Funding
Model Approval Order at 62629.
(a) with respect to a transaction in an Eligible Security that
is executed on an exchange, the Industry Member identified as the
Industry Member responsible for the order on the buy-side of the
transaction and the Industry Member responsible for the sell-side of
the transaction in the equity order trade event and option trade
event in the CAT Data submitted to the CAT by the relevant exchange
pursuant to the Participant Technical Specifications; and (b) with
respect to a transaction in an Eligible Security that is executed
otherwise than on an exchange and required to be reported to an
equity trade reporting facility of a registered national securities
association, the Industry Member identified as the executing broker
and the Industry Member identified as the contra-side executing
broker in the TRF/ORF/ADF transaction data event in the CAT Data
submitted to the CAT by FINRA pursuant to the Participant Technical
Specifications; provided, however, in those circumstances where
there is a non-Industry Member identified as the contra-side
executing broker in the TRF/ORF/ADF transaction data event or no
contra-side executing broker is identified in the TRF/ORF/ADF
transaction data event, then the Industry Member identified as the
executing broker in the TRF/ORF/ADF transaction data event would be
treated as CAT Executing Broker for the Buyer and for the
Seller.\18\
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\18\ Section 1.1 of the CAT NMS Plan. Note that CEBBs and CEBSs
may, but are not required to, pass-through their CAT fees to their
clients, who may, in turn, pass their fees to their clients until
they are imposed ultimately on the account that executed the
transaction. See CAT Funding Model Approval Order at 62649.
The following fields of the Participant Technical Specifications
indicate the CAT Executing Brokers for the transactions executed on an
exchange.
---------------------------------------------------------------------------
\19\ See Table 23, Section 4.7 (Order Trade Event) of the CAT
Reporting Technical Specifications for Plan Participants, Version
4.1.0-r21 (Apr. 15, 2024), https://www.catnmsplan.com/sites/default/files/2024-04/04.15.2024-CAT_Reporting_Technical_Specifications_for_Participants_4.1.0-r21.pdf (``CAT Reporting Technical Specifications for Plan
Participants'').
\20\ See Table 51, Section 5.2.5.1 (Simple Option Trade Event)
of the CAT Reporting Technical Specifications for Plan Participants.
Equity Order Trade (EOT) \19\
----------------------------------------------------------------------------------------------------------------
No. Field name Data type Description Include key
----------------------------------------------------------------------------------------------------------------
12.n.8/13.n.8......... member............................ Member Alias........ The identifier C
for the member
firm that is
responsible for
the order on
this side of the
trade. Not
required if
there is no
order for the
side as
indicated by the
NOBUYID/NOSELLID
instruction.
This must be
provided if
orderID is
provided..
----------------------------------------------------------------------------------------------------------------
Option Trade (OT) \20\
----------------------------------------------------------------------------------------------------------------
No. Field name Data type Description Include key
----------------------------------------------------------------------------------------------------------------
16.n.13/17.n.13....... member............................ Member Alias........ The identifier R
for the member
firm that is
responsible for
the order.
----------------------------------------------------------------------------------------------------------------
[[Page 73952]]
In addition, the following fields of the Participant Technical
Specifications would indicate the CAT Executing Brokers for the
transactions executed otherwise than on an exchange.
---------------------------------------------------------------------------
\21\ See Table 61, Section 6.1 (TRF/ORF/ADF Transaction Data
Event) of the CAT Reporting Technical Specifications for Plan
Participants.
TRF/ORF/ADF Transaction Data Event (TRF) \21\
----------------------------------------------------------------------------------------------------------------
No. Field name Data type Description Include key
----------------------------------------------------------------------------------------------------------------
26.................... reportingExecutingMpid............ Member Alias........ MPID of the R
executing party.
28.................... contraExecutingMpid............... Member Alias........ MPID of the C
contra-side
executing party..
----------------------------------------------------------------------------------------------------------------
(2) Calculation of Historical Fee Rate 1
The Operating Committee determined the Historical Fee Rate to be
used in calculating Historical CAT Assessment 1 (``Historical Fee Rate
1'') by dividing the Historical CAT Costs for Historical CAT Assessment
1 (``Historical CAT Costs 1'') by the projected total executed share
volume of all transactions in Eligible Securities for the Historical
Recovery Period for Historical CAT Assessment 1 (``Historical Recovery
Period 1''), as discussed in detail below. Based on this calculation,
the Operating Committee has determined that Historical Fee Rate 1 would
be $0.00003994969693072937 per executed equivalent share. This rate is
then divided by three and rounded to determine the fee rate of
$0.000013 per executed equivalent share that will be assessed to CEBBs
and CEBSs, as also discussed in detail below.
(A) Executed Equivalent Shares for Transactions in Eligible Securities
Under the CAT NMS Plan, for purposes of calculating each Historical
CAT Assessment, executed equivalent shares in a transaction in Eligible
Securities will be reasonably counted as follows: (1) each executed
share for a transaction in NMS Stocks will be counted as one executed
equivalent share; (2) each executed contract for a transaction in
Listed Options will be counted based on the multiplier applicable to
the specific Listed Options (i.e., 100 executed equivalent shares or
such other applicable multiplier); and (3) each executed share for a
transaction in OTC Equity Securities shall be counted as 0.01 executed
equivalent share.\22\
---------------------------------------------------------------------------
\22\ Section 11.3(a)(i)(B) and 11.3(b)(i)(B) of the CAT NMS
Plan. In approving the CAT Funding Model, the Commission concluded
that ``the use of executed equivalent share volume as the basis of
the proposed cost allocation methodology is reasonable and
consistent with the approach taken by the funding principles of the
CAT NMS Plan.'' CAT Funding Model Approval Order at 62640.
---------------------------------------------------------------------------
(B) Historical CAT Costs 1
The CAT NMS Plan states that ``[t]he Operating Committee will
reasonably determine the Historical CAT Costs sought to be recovered by
each Historical CAT Assessment, where the Historical CAT Costs will be
Past CAT Costs minus Past CAT Costs reasonably excluded from Historical
CAT Costs by the Operating Committee. Each Historical CAT Assessment
will seek to recover from CAT Executing Brokers two-thirds of
Historical CAT Costs incurred during the period covered by the
Historical CAT Assessment.'' \23\ As described in detail below,
Historical CAT Costs 1 would be $318,059,819. This figure includes Past
CAT Costs of $401,312,909 minus certain Excluded Costs of $83,253,090.
Participants collectively will remain responsible for one-third of
Historical CAT Costs 1 (which is $106,019,939.67), plus the Excluded
Costs of $83,253,090. CEBBs collectively will be responsible for one-
third of Historical CAT Costs 1 (which is $106,019,939.67), and CEBSs
collectively will be responsible for one-third of Historical CAT Costs
1 (which is $106,019,939.67). The following describes in detail
Historical CAT Costs 1 with regard to four separate historical time
periods as well as Past CAT Costs excluded from Historical CAT Costs 1
(``Excluded Costs''). The following cost details are provided in
accordance with the requirement in the CAT NMS Plan to provide in the
fee filing ``a brief description of the amount and type of Historical
CAT Costs, including (1) the technology line items of cloud hosting
services, operating fees, CAIS operating fees, change request fees, and
capitalized developed technology costs, (2) legal, (3) consulting, (4)
insurance, (5) professional and administration and (6) public relations
costs.'' \24\ Each of the costs described below are reasonable,
appropriate and necessary for the creation, implementation and
maintenance of CAT.
---------------------------------------------------------------------------
\23\ Section 11.3(b)(i)(C) of the CAT NMS Plan.
\24\ Section 11.3(b)(iii)(B)(II)(B) of the CAT NMS Plan.
---------------------------------------------------------------------------
(i) Historical CAT Costs Incurred Prior to June 22, 2020 (Pre-FAM
Costs)
Historical CAT Costs 1 would include costs incurred by CAT prior to
June 22, 2020 (``Pre-FAM Period'') and already funded by the
Participants, excluding Excluded Costs (described further below).
Historical CAT Costs 1 would include costs for the Pre-FAM Period of
$124,290,730. The Participants would remain responsible for one-third
of this cost (which they have previously paid) ($41,430,243.33), and
Industry Members would be responsible for the remaining two-thirds,
with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third
($41,430,243.33). These costs do not include Excluded Costs, as
discussed further below. The following table breaks down Historical CAT
Costs 1 for the Pre-FAM Period into the categories set forth in Section
11.3(b)(iii)(B)(II) of the CAT NMS Plan.
[[Page 73953]]
------------------------------------------------------------------------
Historical CAT costs 1 for
Operating expense pre-FAM period (prior to
June 22, 2020) *
------------------------------------------------------------------------
Capitalized Developed Technology Costs **.. $51,847,150
Technology Costs:.......................... 33,568,579
Cloud Hosting Services................. 10,268,840
Operating Fees......................... 21,085,485
CAIS Operating Fees.................... 2,072,908
Change Request Fees.................... 141,346
Legal...................................... 19,674,463
Consulting................................. 17,013,414
Insurance.................................. 880,419
Professional and administration............ 1,082,036
Public relations........................... 224,669
----------------------------
Total Operating Expenses............... 124,290,730
------------------------------------------------------------------------
* The costs described in this table of costs for the Pre-FAM Period were
calculated based upon CAT LLC's review of applicable bills and
invoices and related financial statements. CAT LLC financial
statements are available on the CAT website. In addition, in
accordance with Section 6.6(a)(i) of the CAT NMS Plan, in 2018 CAT LLC
provided the SEC with ``an independent audit of fees, costs, and
expenses incurred by the Participants on behalf of the Company prior
to the Effective Date of the Plan that will be publicly available.''
The audit is available on the CAT website.
** The non-cash amortization of these capitalized developed technology
costs of $2,115,545 incurred during the period prior to June 22, 2020
have been appropriately excluded from the above table.\25\
The Pre-FAM Period includes a broad range of CAT-related activity
from 2012 through June 22, 2020, including the evaluation of the
requirements of SEC Rule 613, the development of the CAT NMS Plan, the
evaluation and selection of the initial and successor Plan Processors,
the commencement of the creation and implementation of the CAT to
comply with Rule 613 and the CAT NMS Plan, including technical
specifications for transaction reporting and regulatory access, and
related technology and the commencement of reporting to the CAT. The
following describes the costs for each of the categories for the Pre-
FAM Period.
---------------------------------------------------------------------------
\25\ With respect to certain costs that were ``appropriately
excluded,'' such excluded costs relate to the amortization of
capitalized technology costs, which are amortized over the life of
the Plan Processor Agreement. As such costs have already been
otherwise reflected in the filing, their inclusion would double
count the capitalized technology costs. In addition, amortization is
a non-cash expense.
---------------------------------------------------------------------------
(a) Technology Costs--Cloud Hosting Services
The $10,268,840 in technology costs for cloud hosting services
represent costs incurred for services provided by the cloud services
provider for the CAT, Amazon Web Services, Inc. (``AWS''), during the
Pre-FAM Period.
As part of its proposal for acting as the successor Plan Processor
for the CAT, FCAT selected AWS as a subcontractor to provide cloud
hosting services. In 2019, after reviewing the capabilities of other
cloud services providers, FCAT determined that AWS was the only cloud
services provider at that time sufficiently mature and capable of
providing the full suite of necessary cloud services for the CAT,
including, for example, the security, resiliency and complexity
necessary for the CAT computing requirements. The use of cloud hosting
services is standard for this type of high-volume data activity and
reasonable and necessary for implementation of the CAT, particularly
given the substantial data volumes associated with the CAT.
Under the Plan Processor Agreement with FCAT, CAT LLC is required
to pay FCAT the fees incurred by the Plan Processor for cloud hosting
services provided by AWS as FCAT's subcontrator [sic] on a monthly
basis for the cloud hosting services, and FCAT, in turn, pays such fees
to AWS. The fees for cloud hosting services were negotiated by FCAT on
an arm's length basis with the goals of managing cost and receiving
services required to comply with the CAT NMS Plan and Rule 613, taking
into consideration a variety of factors, including the expected volume
of data, the breadth of services provided and market rates for similar
services. The fees for cloud hosting services during the Pre-FAM Period
were paid to FCAT by CAT NMS, LLC \26\ and subsequently Consolidated
Audit Trail, LLC (as previously noted, both entities are referred to
generally as ``CAT LLC''),\27\ and FCAT, in turn, paid AWS. CAT LLC was
funded via loan contributions by the Participants.\28\
---------------------------------------------------------------------------
\26\ CAT NMS, LLC was formed by FINRA and the U.S. national
securities exchanges to implement the requirements of SEC Rule 613
under the Exchange Act. SEC Rule 613 required the SROs to jointly
submit to the SEC the CAT NMS Plan to create, implement and maintain
the CAT. The SEC approved the CAT NMS Plan on November 15, 2016. CAT
NMS Plan Approval Order.
\27\ On August 29, 2019, the Participants formed a new Delaware
limited liability company named Consolidated Audit Trail, LLC for
the purpose of conducting activities related to the CAT from and
after the effectiveness of the proposed amendment of the CAT NMS
Plan to replace CAT NMS, LLC. See Securities Exchange Act Rel. No.
87149 (Sept. 27, 2019), 84 FR 52905 (Oct. 3, 2019).
\28\ For each of the costs paid by CAT NMS, LLC and Consolidated
Audit Trail, LLC as discussed throughout this filing, CAT NMS, LLC
and Consolidated Audit Trail, LLC paid these costs via loan
contributions by the Participants to CAT NMS, LLC and Consolidated
Audit Trail, LLC, respectively.
---------------------------------------------------------------------------
AWS was engaged by FCAT to provide a broad array of cloud hosting
services for the CAT, including data ingestion, data management, and
analytic tools. Services provided by AWS include storage services,
databases, compute services and other services (such as networking,
management tools and DevOps tools). AWS also was engaged to provide
various environments for CAT, such as development, performance testing,
test and production environments.
The cost for AWS services for the CAT is a function of the volume
of CAT Data. The greater the amount of CAT Data, the greater the cost
of AWS services to the CAT. During the Pre-FAM Period from the
engagement of AWS in February 2019 through June 2020, AWS provided
cloud hosting services for volumes of CAT Data far in excess of the
volume predictions set forth in the CAT NMS Plan. The CAT NMS Plan
states, when all CAT Reporters are submitting their data to the CAT, it
``must be sized to receive[,] process and load more than 58 billion
records per day,'' \29\ and that ``[i]t is expected that the Central
Repository will grow to more than 29 petabytes of raw, uncompressed
data.'' \30\ However,
[[Page 73954]]
the volume of CAT Data for the Pre-FAM Period was far in excess of
these predicted levels. By the end of this period, data submitted to
the CAT included options and equities Participant Data,\31\ Phase 2a
and Phase 2b Industry Member Data \32\ (including certain linkages), as
well as SIP Data,\33\ reference data and other types of Other Data.\34\
The following chart provides data regarding the average daily volume,
cumulative total events, total compute hours and storage footprint of
the CAT during the Pre-FAM Period.\35\
---------------------------------------------------------------------------
\29\ Appendix D-4 of the CAT NMS Plan at n.262.
\30\ Appendix D-5 of the CAT NMS Plan.
\31\ See Section 6.3(d) of the CAT NMS Plan.
\32\ See Securities Exchange Rel. No. 88702 (Apr. 20, 2020), 85
FR 23075 (Apr. 24, 2020) (``Phased Reporting Exemptive Relief
Order'') for a description of Phase 2a and Phase 2b Industry Member
Data.
\33\ See Section 6.5(a)(ii) of the CAT NMS Plan.
\34\ See appendix C-108 of the CAT NMS Plan.
\35\ Note that the volume data described in this table does not
include CAIS data.
----------------------------------------------------------------------------------------------------------------
Date Range: 3/29/19 to Date Range: 4/13/20 to
4/12/20 * 6/21/20 **
----------------------------------------------------------------------------------------------------------------
Average Daily Volume in Billions:
Participant--Equities..................................... 5 5
Participant--Options...................................... 80 981
Industry Member--Equities................................. ....................... 3
Industry Member--Options.................................. ....................... 0.04
SIP--Options & Equities................................... 64 70
Average Total Daily Volume................................ 149 166
Cumulative Total Events for the Period........................ 3,890 4,990
Total Compute Hours for the Period............................ N/A *** 5,663,247
Storage Footprint at End of Period (Petabytes)................ 30.57 47.96
----------------------------------------------------------------------------------------------------------------
* The Participant Equities in RSA format.
** Start of Industry Member reporting on 4/13/2020.
*** Note that, although there were compute hours during this period, data related to such compute hours are no
longer available in current data.
(b) Technology Costs--Operating Fees
The $21,085,485 in technology costs related to operating fees
represent costs incurred with regard to activities of FCAT as the Plan
Processor. Operating fees are those fees paid by CAT LLC to FCAT as the
Plan Processor to operate and maintain the CAT and to perform business
operations related to the system, including compliance, security,
testing, training, communications with the industry (e.g., management
of the FINRA CAT Helpdesk, FAQs, website and webinars) and program
management as required by the CAT NMS Plan.
FCAT was selected to assume the role of the successor Plan
Processor. Prior to this selection, the Participants engaged in
discussions with two prior Bidders \36\ for the successor Plan
Processor role. The Operating Committee formed a Selection Subcommittee
in accordance with Section 4.12 of the CAT NMS Plan to evaluate and
review Bids and to make a recommendation to the Operating Committee
with respect to the selection of the successor Plan Processor. In an
April 9, 2019 letter to the Commission, the Participants described the
reasons for its selection of the successor Plan Processor:
---------------------------------------------------------------------------
\36\ The term ``Bidder'' is defined in Section 1.1 of the CAT
NMS Plan.
The Selection Subcommittee considered factors including, but not
limited to, the following, in recommending FINRA to the Operating
Committee as the successor Plan Processor:
a. FINRA's specialized technical expertise and capabilities in
the area of broker-dealer technology;
b. The need to appoint a successor Plan Processor with
specialized expertise to develop, implement, and maintain the CAT
System in accordance with the CAT NMS Plan and SEC Rule 613;
c. FINRA's detailed proposal in response to CATLLC's recent
inquiries; and
d. FINRA's data query and analytics systems demonstration to the
Participants.
Based on these and other factors, the Selection Subcommittee
determined that FINRA was the most appropriate Bidder to become the
successor Plan Processor.\37\
---------------------------------------------------------------------------
\37\ Letter from Michael J. Simon, Chair, CAT NMS, LLC Operating
Committee, to Brent J. Fields, Secretary, SEC (Apr. 9, 2019),
https://www.sec.gov/divisions/marketreg/rule613-info-notice-of-plan-
processor-selection-040919.pdf.
On February 26, 2019, the Operating Committee (with FINRA recusing
itself) voted to select FINRA as the successor Plan Processor pursuant
to Section 6.1(t) of the CAT NMS Plan.\38\ On March 29, 2019, CAT LLC
and FCAT (a wholly owned subsidiary of FINRA) entered into a Plan
Processor Agreement pursuant to which FCAT would perform the functions
and duties of the Plan Processor contemplated by the CAT NMS Plan,
including the management and operation of the CAT.
---------------------------------------------------------------------------
\38\ Id.
---------------------------------------------------------------------------
Under the Plan Processor Agreement with FCAT, CAT LLC is required
to pay FCAT a negotiated monthly fixed price for the operation of the
CAT. This fixed price contract was negotiated on an arm's length basis
with the goals of managing costs and receiving services required to
comply with the CAT NMS Plan and Rule 613, taking into consideration a
variety of factors, including the breadth of services provided and
market rates for similar types of activity. The operating fees during
the Pre-FAM Period were paid to FCAT by CAT LLC.
From March 29, 2019 (the commencement of the Plan Processor
Agreement with FCAT) through June 22, 2020 (the end of the Pre-FAM
Period), the Plan Processor's activities with respect to the CAT
included the following:
Commenced user acceptance testing with market data
provided by Exegy Incorporated (``Exegy''), a market data provider;
\39\
---------------------------------------------------------------------------
\39\ The use of Exegy to provide market data, including the
costs and market data provided, is discussed below in Section
3(a)(2)(B)(i)(i).
---------------------------------------------------------------------------
Published Technical Specifications and related reporting
scenarios documents for Phase 2a, 2b and 2c reporting for Industry
Members, after substantial engagement with SEC staff, Industry Members
and Participants on the Technical Specifications;
Facilitated testing for Phase 2a and 2b reporting for
Industry Members;
Began developing Technical Specifications and related
reporting scenarios documents for Phase 2d reporting for Industry
Members, after substantial engagement with SEC staff, Industry Members
and Participants on the Technical Specifications;
Published Central Repository Access Technical
Specifications, and provided regulator access to test data from
Industry Members;
[[Page 73955]]
Facilitated Participant exchanges that support options
market makers sending Quote Sent Time to the CAT;
Facilitated the introduction of OPRA and Options NBBO
Other Data to CAT;
Addressed compliance items, including drafting CAT
policies and procedures, and addressing requirements under Regulation
SCI;
Provided support to the Operating Committee, the
Compliance Subcommittee and CAT working groups;
Assisted with interpretive efforts and exemptive requests
regarding the CAT NMS Plan;
Oversaw the security of the CAT;
Monitored the operation of the CAT, including with regard
to Participant and Industry Member reporting;
Provided support to subcontractors under the Plan
Processor Agreement;
Provided support in discussions with Participants, the SEC
and its staff;
Operated the FINRA CAT Helpdesk, which is the primary
source for answers to questions about CAT, including questions
regarding: clock synchronization, firm reporting responsibilities,
interpretive questions, technical specifications for reporting to CAT
and more;
Facilitated communications with the industry, including
via FAQs, CAT Alerts, meetings, presentations and webinars;
Administered the CAT website and all of its content; \40\
and
---------------------------------------------------------------------------
\40\ The CAT website is https://www.catnmsplan.com.
---------------------------------------------------------------------------
Provided technical support and assistance with
connectivity, data access, and user support, including the use of CAT
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
The $2,072,908 in technology costs related to CAIS operating fees
represent the fees paid for FCAT's subcontractor charged with the
development and operation of CAT's Customer and Account Information
System (``CAIS''). The CAT is required under the CAT NMS Plan to
capture and store Customer Identifying Information and Customer Account
Information in a database separate from the transactional database and
to create a CAT-Customer-ID for each Customer.
During the Pre-FAM Period, the CAIS-related services were provided
by the Plan Processor through the Plan Processor's subcontractor,
Kingland Systems Incorporation (``Kingland''). Kingland had experience
operating in the securities regulatory technology space, and as a part
of its proposal for acting as the Plan Processor for the CAT, FCAT
selected Kingland as a subcontractor to provide certain CAIS-related
services.
Under the Plan Processor Agreement with FCAT, CAT LLC is required
to pay to the Plan Processor the fees incurred by FCAT for CAIS-related
services provided by FCAT through Kingland on a monthly basis. FCAT
negotiated the fees for Kingland's CAIS-related services on an arm's
length basis with the goals of managing costs and receiving services
required to comply with the CAT NMS Plan, taking into consideration a
variety of factors, including the services to be provided and market
rates for similar types of activity. The fees for CAIS-related services
during the Pre-FAM Period were paid by CAT LLC to FCAT. FCAT, in turn,
paid Kingland.
During the Pre-FAM Period, Kingland began development of the CAIS
Technical Specifications and the building of CAIS. In addition,
Kingland also worked on the build related to the CCID Alternative, an
alternative approach to customer information that was not included in
the CAT NMS Plan as originally adopted.\41\ Furthermore, Kingland also
worked on the acceleration of the reporting of large trader identifiers
(``LTID'') earlier than originally contemplated during this period, in
accordance with exemptive relief granted by the SEC.\42\
---------------------------------------------------------------------------
\41\ For a discussion of the CCID Alternative, see Securities
Exchange Act Rel. No. 88393 (Mar. 17, 2020), 85 FR 16152 (Mar. 20,
2020).
\42\ Phased Reporting Exemptive Relief Order at 23079-80.
---------------------------------------------------------------------------
(d) Technology Costs--Change Request Fees
The technology costs related to change request fees include costs
related to certain modifications, upgrades or other changes to the CAT.
Change requests are standard practice and necessary to reflect
operational changes, including changes related to new market
developments, such as new market participants. In general, if CAT LLC
determines that a modification, upgrade or other change to the
functionality or service is necessary and appropriate, CAT LLC will
submit a request for such a change to the Plan Processor. The Plan
Processor will then respond to the request with a proposal for
implementing the change, including the cost (if any) of such a change.
CAT LLC then determines whether to approve the proposed change. The
change request costs were paid by CAT LLC to FCAT. During the Pre-FAM
Period, CAT LLC incurred costs of $141,346 related to change requests
implemented by FCAT. Such change requests related to a development fee
regarding the OPRA and SIP data feeds, and the reprocessing of certain
exchange data.\43\
---------------------------------------------------------------------------
\43\ Note that CAT LLC also has incurred costs related to
specific Industry Members (e.g., reprocessing costs related to
Industry Member reporting errors).
---------------------------------------------------------------------------
(e) Technology Costs--Capitalized Developed Technology Costs
This category of costs includes capitalizable application
development costs incurred in the development of the CAT. The
capitalized developed technology costs for the Pre-FAM Period of
$51,847,150 relate to technology provided by the Initial Plan Processor
and the successor Plan Processor.
Initial Plan Processor: Thesys CAT, LLC. The capitalized developed
technology costs related to the Initial Plan Processor include costs
incurred with regard to testing for Participant reporting, Participant
reporting to the CAT, a security assessment of the CAT, and the
development of the billing function for the CAT.
On January 17, 2017, the Selection Committee of the CAT NMS Plan
selected the Initial Plan Processor, Thesys Technologies, LLC, for the
CAT NMS Plan pursuant to Article V of the CAT NMS Plan.\44\ The
Participants utilized a request for proposal (``RFP'') to seek
proposals to build and operate the CAT, receiving a number of proposals
in response to the RFP. The Participants carefully reviewed and
considered each of the proposals, including holding in-person meetings
with each of the Bidders. After several rounds of review, the
Participants selected the Initial Plan Processor in accordance with the
CAT NMS Plan, taking into consideration that the Initial Plan Processor
had experience operating in the securities regulatory technology space,
among other considerations. On April 6, 2017, CAT LLC entered into an
agreement with Thesys CAT LLC (``Thesys CAT''), a Thesys affiliate, to
perform the functions and duties of the Plan Processor contemplated by
the CAT NMS Plan, including the management and operation of the CAT.
Under the agreement, CAT LLC would pay Thesys CAT a negotiated, fixed
price fee for its role as the Initial Plan Processor. Effective January
30, 2019, the Plan Processor Agreement with Thesys CAT was terminated,
and FCAT
[[Page 73956]]
was subsequently selected as the successor Plan Processor.
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\44\ Letter from the Participants to Brent J. Fields, Secretary,
SEC (Jan. 18, 2017), https://www.sec.gov/divisions/marketreg/rule613-info-notice-of-plan-processor-selection.pdf.
---------------------------------------------------------------------------
From January 17, 2017 through January 30, 2019, the time in which
the Thesys CAT was engaged for the CAT, but excluding the period from
November 15, 2017 through January 30, 2019, the Initial Plan Processor
engaged in various activities with respect to the CAT, including
preparing iterative drafts of Participant Technical Specifications,
Industry Member Technical Specifications and the Central Repository
Access Technical Specifications. In addition, Thesys CAT also developed
CAT technology, addressed compliance items, including drafting CAT
policies and procedures, addressing Regulation SCI requirements,
establishing a CAT Compliance Officer and a Chief Information Security
Officer, addressed security-related matters for the CAT, and worked
towards the initiation of Participant reporting per the Participant
Technical Specifications.
Successor Plan Processor: FCAT. The capitalized developed
technology costs related to FCAT include: (1) development costs
incurred during the application development stage to meet various
agreed-upon milestones regarding the CAT, including the completion of
go-live functionality related to options ingestion and validation,
equities regulatory services agreement query tool updates and unlinked
options data query, options linkages release, Industry Member Phase 2a
file submission and data integrity (including error corrections), and
Industry Member testing, including reporting relationships, ATS order
type management, basic reporting statistics, SFTP data integrity
feedback and error correction; (2) costs related to certain
modifications, upgrades, or other changes to the CAT that were not
contemplated by the agreement between CAT LLC and the Plan Processor,
including a one-time development fee for a secure analytics workspace,
a one-time development fee of an Industry Member connectivity solution,
and a one-time development fee for the acceleration of multi-factor
authentication; (3) CAIS implementation fees; and (4) license fees.
(f) Legal Costs
The legal costs of $19,674,463 represent the fees paid for legal
services provided by two law firms, Wilmer Cutler Pickering Hale and
Dorr LLP (``WilmerHale'') and Pillsbury Winthrop Shaw Pittman LLP
(``Pillsbury''), during the Pre-FAM Period. The legal costs exclude
those costs incurred from November 15, 2017 through November 15, 2018.
Law Firm: WilmerHale. Following the adoption of Rule 613, the
Participants determined it was necessary to engage external legal
counsel to advise the Participants with respect to corporate and
regulatory legal matters related to the CAT, including drafting and
developing the CAT NMS Plan. The Participants considered a variety of
factors in their analysis of prospective law firms, including (1) the
firm's qualifications, resources and expertise; (2) the firm's relevant
experience and understanding of the regulatory matters raised by the
CAT and in advising on matters of similar scope; (3) the composition of
the legal team; and (4) professional fees. Following a series of
interviews, the Participants acting as a consortium determined that
WilmerHale was well qualified given the balance of these considerations
and engaged WilmerHale in February 2013.
WilmerHale's billing rates are negotiated on an annual basis and
are determined with reference to the rates charged by other leading law
firms for similar work. The Participants assess WilmerHale's
performance and review prospective budgets and staffing plans submitted
by WilmerHale on an annual basis. WilmerHale's compensation
arrangements are reasonable and appropriate, and in line with the rates
charged by other leading law firms for similar work.
The legal costs for WilmerHale during the Pre-FAM Period included
costs incurred from 2013 until June 22, 2020 to address corporate and
regulatory legal matters related to the CAT. The legal fees for this
law firm during the period from February 2013 until the formation of
the CAT NMS, LLC on November 15, 2016 were paid directly by the
exchanges and FINRA to WilmerHale. After the formation of CAT NMS LLC,
the legal fees were paid by CAT LLC to WilmerHale.
After WilmerHale was engaged in 2013 through the end of the Pre-FAM
Period on June 22, 2020 (excluding the legal costs from November 15,
2017 through November 15, 2018), WilmerHale provided legal assistance
to the CAT on a variety of matters, including with regard to the
following:
Analyzed various legal matters associated with the
Selection Plan, and drafted an amendment to the Selection Plan;
Assisted with the RFP and bidding process for the CAT Plan
Processor;
Analyzed legal matters related to the Development Advisory
Group (``DAG'');
Drafted the CAT NMS Plan, analyzed various items related
to the CAT NMS Plan, and responded to comment letters on CAT NMS Plan;
Provided legal support for the formation of the legal
entity, the governance of the CAT, including governance support prior
to the adoption of the CAT NMS Plan, which involved support for the
full committee of exchanges and FINRA as well as subcommittees of this
group (e.g., Joint Subcommittee Group, Technical, Industry Outreach,
Cost and Funding and Other Products) and the DAG, governance support
during the transition to the new governance structure under the CAT NMS
Plan, and governance support after the adoption of the CAT NMS Plan,
which involved support for the Operating Committee, Advisory Committee,
Compliance Subcommittee and CAT working groups;
Assisted with the development of the CAT funding model and
drafted related amendments of the CAT NMS Plan and related filings;
Negotiated and drafted the plan processor agreements with
the Initial Plan Processor and the successor Plan Processor;
Provided assistance with compliance with Regulation SCI;
Assisted with clock synchronization study;
Provided assistance with respect to the establishment of
CAT security;
Drafted exemptive requests from CAT NMS Plan requirements,
including with regard to options market maker quotes, Customer IDs, CAT
Reporter IDs, linking allocations to executions, CAT reporting
timeline, FDIDs, customer and account information, timestamp
granularity, small industry members, data facility reporting and
linkage, allocation reports, SRO-assigned market participant
identifiers and cancelled trade indicators, thereby seeking to
implement changes that would be cost effective and benefit Industry
Members and Participants;
Assisted with the Implementation Plan required pursuant to
Section 6.6(c)(i) of the CAT NMS Plan;
Provided advice regarding CAT policies and procedures;
Analyzed the SEC's amendment of the CAT NMS Plan regarding
financial accountability;
Provided interpretations of and related to the CAT NMS
Plan;
Provided support with regard to discussions with the SEC
and its staff, including with respect to addressing interpretive and
implementation issues; and
[[Page 73957]]
Assisted with third-party vendor agreements.
Law Firm: Pillsbury. The legal costs for CAT during the Pre-FAM
Period include costs related to the legal services performed by
Pillsbury. The Participants interviewed this law firm as well as other
potential law firms to provide legal assistance regarding certain
liability matters. After considering a variety of factors in its
analysis, including the relevant expertise and fees of the firm, CAT
LLC determined to hire Pillsbury in April 2019. The hourly fee rates
for this law firm were in line with market rates for specialized legal
expertise. The legal fees were paid by CAT LLC to Pillsbury. The legal
costs for Pillsbury during the Pre-FAM Period included costs incurred
from April 2019 until June 22, 2020 to address legal matters regarding
the agreements between CAT Reporters and CAT LLC concerning certain
terms associated with CAT Reporting (the ``Reporter Agreement'').
During that period, Pillsbury advised CAT LLC regarding applicable
legal matters, participated in negotiations between the Participants
and Industry Members, participated in meetings with senior SEC staff,
the Chairman, and Commissioners, represented CAT LLC and the
Participants in an SEC administrative proceeding, and drafted a
proposed amendment to the CAT NMS Plan regarding liability matters.
Liability issues related to the CAT are important matters that needed
to be resolved and clarified. CAT LLC's efforts to seek such resolution
and clarity work to the benefit of Participants, Industry Members and
other market participants. Moreover, litigation involving CAT LLC is an
expense of operating the CAT, and, therefore, is appropriately an
obligation of both Participants and Industry Members under the CAT
Funding Model.
(g) Consulting Costs
The consulting costs of $17,013,414 represent the fees paid to the
consulting firm Deloitte & Touche LLP (``Deloitte'') as project manager
during the Pre-FAM Period, from October 2012 until June 22, 2020. These
consulting costs include costs for advisory services related to the
operation of the CAT, and meeting facilitation and communications
coordination, vendor support and financial analyses.
To help facilitate project management given the unprecedented
complexity and scope of the CAT project, the Participants determined it
was necessary to engage a consulting firm to assist with the CAT
project in 2012, following the adoption of Rule 613. A variety of
factors were considered in the analysis of prospective consulting
firms, including (1) the firm's qualifications, resources, and
expertise; (2) the firm's relevant experience and understanding of the
regulatory issues raised by the CAT and in coordinating matters of
similar scope; (3) the composition of the consulting team; and (4)
professional fees. Following a series of interviews, the exchanges and
FINRA as a consortium determined that Deloitte was well qualified given
the balance of these considerations and engaged Deloitte on October 1,
2012.
Deloitte's fee rates are negotiated on an annual basis and are in
line with market rates for this type of specialized consulting work.
CAT LLC assesses Deloitte's performance and reviews prospective budgets
and staffing plans submitted by Deloitte on an annual basis. Deloitte's
compensation arrangements are reasonable and appropriate, and in line
with the rates charged by other leading consulting firms for similar
work.
The consulting costs for CAT during the period from 2012 until the
formation of the CAT NMS, LLC were paid directly by the Participants to
Deloitte. After the formation of CAT NMS, LLC, the consulting fees were
paid by CAT LLC to Deloitte. CAT LLC reviewed the consulting fees each
month and approved the invoices.
After Deloitte was hired in 2012 through the end of the Pre-FAM
Period on June 22, 2020 (excluding the consulting costs from November
15, 2017 through November 15, 2018), Deloitte provided a variety of
consulting services, including the following:
Established and implemented program operations for the CAT
project, including the program managment [sic] office and workstream
design;
Assisted with the Plan Processor selection process,
including but not limited to, the development of the RFP and the bidder
evaluation process, and facilitation and consolidation of the
Participant's independent reviews;
Assisted with the development and drafting of the CAT NMS
Plan, including conducting cost-benefit studies, analyzing OATS and CAT
requirements, and drafting appendices to the Plan;
Assisted with cost and funding-related activities for the
CAT, including the development of the CAT funding model and assistance
with loans and the CAT bank account for CAT funding;
Provided governance support to the CAT, including
governance support prior to the adoption of the CAT NMS Plan, which
involved support for the full committee of exchanges and FINRA as well
as subcommittees of this group (e.g., Joint Subcommittee Group,
Technical, Industry Outreach, Cost and Funding and Other Products) and
the DAG, governance support during the transition to the new governance
structure under the CAT NMS Plan and governance support after the
adoption of the CAT NMS Plan, which involved support for the Operating
Committee, Advisory Committee, Compliance Subcommittee and CAT working
groups;
Provided support to the Operating Committee, the Chair of
the Operating Committee and the Leadership Team, including project
management support, coordination and planning for meetings and
communications, and interfacing with law firms and the SEC;
Assisted with industry outreach and communications
regarding the CAT, including assistance with industry outreach events,
the development of the CAT website, frequently asked questions, and
coordinating with the CAT LLC's public relations firm;
Provided support for updating the SEC on the progress of
the development of the CAT;
Provided active planning and coordination with and support
for the Initial Plan Processor with regard to the development of the
CAT, and reported to the Participants on the progress;
Coordinated efforts regarding the selection of the
successor Plan Processor;
Assisted with the transition from the Initial Plan
Processor to the successor Plan Processor, including support for the
Operating Committee and successor Plan Processor for the new role; and
Provided support for third-party vendors for the CAT,
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
The insurance costs of $880,419 represent the cost incurred for
insurance for CAT during the Pre-FAM Period. Commencing in 2020, CAT
LLC performed an evaluation of various potential alternatives for CAT
insurance policies, which included engaging in discussions with
different insurance companies and conducting cost comparisons of
various alternative approaches to insurance. Based on an analysis of a
variety of factors, including coverage and premiums, CAT LLC determined
to purchase cyber security liability insurance, directors' and
officers' liability insurance, and errors and omissions liability
insurance from USI Insurance Services LLC (``USI''). Such policies are
standard for corporate
[[Page 73958]]
entities, and cyber security liability insurance is important for the
CAT System. The annual premiums for these policies were competitive for
the coverage provided. The annual premiums were paid by CAT LLC to USI.
(i) Professional and Administration Costs
In adopting the CAT NMS Plan, the Commission amended the Plan to
add a requirement that CAT LLC's financial statements be prepared in
compliance with GAAP, audited by an independent public accounting firm,
and made publicly available.\45\ The professional and administration
costs include costs related to accounting and accounting advisory
services to support the operating and financial functions of CAT,
financial statement audit services by an independent accounting firm,
preparation of tax returns, and various cash management and treasury
functions. In addition, professional and administration costs for the
Pre-FAM Period include costs related to the receipt of market data and
a security assessment. The costs for these professional and
administration services were $1,082,036 for the Pre-FAM Period.
---------------------------------------------------------------------------
\45\ Section 9.2 of the CAT NMS Plan.
---------------------------------------------------------------------------
Financial Advisory Firm: Anchin Accountants & Advisors
(``Anchin''). CAT LLC determined to hire a financial advisory firm,
Anchin, to assist with financial matters for the CAT in April 2018. CAT
LLC interviewed Anchin as well as other potential financial advisory
firms to assist with the CAT project, considering a variety of factors
in its analysis, including the firm's relevant expertise and fees. The
hourly fee rates for this firm were in line with market rates for these
financial advisory services. The fees for these services were paid by
CAT LLC to Anchin.
After Anchin was hired in April 2018 through the end of the Pre-FAM
Period on June 22, 2020 (excluding the period from April 2018 through
November 15, 2018), Anchin provided a variety of services, including
the following:
Developed, updated and maintained internal controls;
Provided cash management and treasury functions;
Facilitated bill payments;
Provided monthly bookkeeping;
Reviewed vendor invoices and documentation in support of
cash disbursements;
Provided accounting research and consultations on various
accounting, financial reporting and tax matters;
Addressed not-for-profit tax and accounting
considerations;
Prepared tax returns;
Addressed various accounting, financial and operating
inquiries from Participants;
Developed and maintained quarterly and annual operating
and financial budgets, including budget to actual fluctuation analyses;
Addressed accounting and financial reporting matters
relating to the transition from CAT NMS, LLC to Consolidated Audit
Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
Supported compliance with the CAT NMS Plan;
Worked with and provided support to the Operating
Committee and various CAT working groups;
Prepared monthly, quarterly and annual financial
statements;
Supported the annual financial statement audits by an
independent auditor;
Reviewed historical costs from inception; and
Provided accounting and financial information in support
of SEC filings.
Accounting Firm: Grant Thornton LLP (``Grant Thornton''). In
February 2020, CAT LLC determined to engage an independent accounting
firm, Grant Thornton, to complete the audit of CAT LLC's financial
statements, in accordance with the requirements of the CAT NMS Plan.
CAT LLC interviewed this firm as well as another potential accounting
firm to audit CAT LLC's financial statements, considering a variety of
factors in its analysis, including the relevant expertise and fees of
each of the firms. CAT LLC determined that Grant Thornton was well-
qualified for the proposed role given the balance of these
considerations. Grant Thornton's fixed fee rate compensation
arrangement was reasonable and appropriate, and in line with the market
rates charged for these types of accounting services. The fees for
these services were paid by CAT LLC to Grant Thornton.
Market Data Provider: Exegy. The professional and administrative
costs for the Pre-FAM Period included costs related to the receipt of
certain market data for the CAT pursuant to an agreement with the CAT
LLC, and then with FCAT. Exegy provided SIP Data required by the CAT
NMS Plan.
After performing an analysis of the available market data vendors
to confirm that the data provided met the SIP Data requirements of the
CAT NMS Plan and comparing the costs of the vendors providing the
required SIP Data, CAT LLC determined to purchase market data from
Exegy from July 2018 through March 2019. CAT LLC determined that,
unlike certain other vendors, Exegy provided market data that included
all data elements required by the CAT NMS Plan.\46\ In addition, the
fees were reasonable and in line with market rates for the market data
received. Accordingly, the professional and administrative costs for
the Pre-FAM Period include the Exegy costs from November 2018 through
March 2019. The cost of the market data was reasonable for the market
data received. The fees for the market data were paid directly by CAT
LLC to Exegy.
---------------------------------------------------------------------------
\46\ See Section 6.5(a)(ii) of the CAT NMS Plan.
---------------------------------------------------------------------------
Upon the termination of the contract between CAT LLC and Exegy,
FCAT entered into a contract with Exegy to purchase the required market
data from Exegy in July 2019. All costs under the contract were treated
as a direct pass through cost to CAT LLC. Therefore, the fees for the
market data were paid by CAT LLC to FCAT, who, in turn, paid Exegy for
the market data.
Security Assessment: RSM US LLP (``RSM''). The operating costs for
the Pre-FAM Period include costs related to a third party security
assessment of the CAT performed by RSM. The assessment was designed to
verify and validate the effective design, implementation, and operation
of the controls specified by NIST Special Publication 800-53, Revision
4 and related standards and guidelines. Such a security assessment is
in line with industry practice and important given the data included in
the CAT. CAT LLC determined to engage RSM to perform the security
assessment, after considering a variety of factors in its analysis,
including the firm's relevant expertise and fees. The fees were
reasonable and in line with market rates for such an assessment. RSM
performed the assessment from October 2018 through December 2018.
Accordingly, the costs for the Pre-FAM Period include the costs
incurred in November and December 2018. The cost for the security
assessment were paid directly to RSM by CAT LLC.
(j) Public Relations Costs
The public relations costs of $224,669 represent the fees paid to
public relations firms during the Pre-FAM Period for professional
communications services to CAT, including media relations consulting,
strategy and execution. By engaging a public relations firm, CAT LLC
was better positioned to understand and address CAT matters to the
benefit of all market participants. Specifically, the public
[[Page 73959]]
relations firms provided services related to communications with the
public regarding the CAT, including monitoring developments related to
the CAT (e.g., congressional efforts, public comments and reaction to
proposals, press coverage of the CAT), reporting such developments to
CAT LLC, and drafting and disseminating communications to the public
regarding such developments as well as reporting on developments
related to the CAT (e.g., amendments to the CAT NMS Plan). Public
relations services were important for various reasons, including
monitoring comments made by market participants about CAT and
understanding issues related to the CAT discussed on the public record.
The services performed by each of the public relations firms were
comparable. The fees for such services were reasonable and in line with
market rates. Only one public relations firm was engaged at a time; the
three firms were engaged sequentially as the primary public relations
contact moved among the three firms during this time period.
Public Relations Firm: Peppercomm, Inc. (``Peppercomm''). The
national securities exchanges and FINRA, acting as a consortium,
determined to hire the public relations firm Peppercomm in October 2014
and continued to engage this firm through September 2017. The exchanges
and FINRA made this engagement decision after considering a variety of
factors in its analysis, including the firm's relevant expertise and
fees. The fee rates for this public relations firm were negotiated on
an arm's length basis and were in line with market rates for these
types of services. The public relations costs during the period from
October 2014 until the formation of the CAT NMS, LLC were paid directly
by the exchanges and FINRA to the public relations firm. After the
formation of CAT NMS, LLC, the consulting fees were paid by CAT LLC.
Public Relations Firm: Sloane & Company (``Sloane''). CAT LLC
determined to hire a new public relations firm, Sloane, in March 2018,
based on, among other things, their expertise and the primary contact's
history with the project. The fee rates for this public relations firm
were in line with market rates for these types of services. The fees
during the Pre-FAM Period were paid by CAT LLC to Sloane. CAT LLC
continued the engagement with Sloane until February 2020.
Public Relations Firm: Peak Strategies. CAT LLC determined to hire
a new public relations firm, Peak Strategies, in March 2020, based on,
among other things, their expertise and the primary contact's history
with the project. The fee rates for this public relations firm were in
line with market rates for these types of services. The fees during the
Pre-FAM Period were paid by CAT LLC to Peak Strategies.
(ii) Historical CAT Costs Incurred in Financial Accountability
Milestone Period 1
Historical CAT Costs 1 would include costs incurred by CAT and
already funded by the Participants during Period 1 of the Financial
Accountability Milestones (``FAM Period 1''),\47\ which covers the
period from June 22, 2020--July 31, 2020. Historical CAT Costs 1 would
include costs for FAM Period 1 of $6,377,343. The Participants would
remain responsible for one-third of this cost (which they have
previously paid) ($2,125,781), and Industry Members would be
responsible for the remaining two-thirds, with CEBBs paying one-third
($2,125,781) and CEBSs paying one-third ($2,125,781). The following
table breaks down Historical CAT Costs 1 for FAM Period 1 into the
categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS
Plan.
---------------------------------------------------------------------------
\47\ Section 11.6(a)(i)(A) of the CAT NMS Plan.
\48\ As discussed above, with respect to certain costs that were
``appropriately excluded,'' such excluded costs relate to the
amortization of capitalized technology costs, which are amortized
over the life of the Plan Processor Agreement. As such costs have
already been otherwise reflected in the filing, their inclusion
would double count the capitalized technology costs. In addition,
amortization is a non-cash expense.
------------------------------------------------------------------------
Historical CAT costs for FAM
Operating expense period 1 *
------------------------------------------------------------------------
Capitalized Developed Technology Costs ** $1,684,870
Technology Costs:........................ 3,996,800
Cloud Hosting Services............... 2,642,122
Operating Fees....................... 1,099,680
CAIS Operating Fees.................. 254,998
Change Request Fees.................. -
Legal.................................... 481,687
Consulting............................... 137,209
Insurance................................ -
Professional and administration.......... 69,077
Public relations......................... 7,700
------------------------------
Total Operating Expenses............. 6,377,343
------------------------------------------------------------------------
* The costs described in this table of costs for FAM Period 1 were
calculated based upon CAT LLC's review of applicable bills and
invoices and related financial statements. CAT LLC financial
statements are available on the CAT website.
** The non-cash amortization of these capitalized developed technology
costs of $362,121 incurred during FAM Period 1 have been appropriately
excluded from the above table.\48\
By the completion of FAM Period 1, CAT LLC was required to
implement the reporting by Industry Members (excluding Small Industry
Members that are not OATS reporters) of equities transaction data and
options transaction data, excluding Customer Account Information,
Customer-ID and Customer Identifying Information.\49\ CAT LLC completed
the requirements of FAM Period 1 by July 31, 2020. The following
describes the costs for each of the categories for FAM Period 1.
---------------------------------------------------------------------------
\49\ See definition of ``Initial Industry Member Core Equity and
Options Reporting'' in Section 1.1 of the CAT NMS Plan.
---------------------------------------------------------------------------
(a) Technology Costs--Cloud Hosting Services
CAT LLC continued to utilize AWS in FAM Period 1 to provide a broad
array of cloud hosting services for the CAT, including data ingestion,
data management, and analytic tools. AWS continued to provide storage
services, databases, compute services and other services (such as
networking, management tools and DevOps tools), as well as various
environments for CAT, such as development, performance
[[Page 73960]]
testing, test, and production environments, during the FAM 1 Period.
Accordingly, the $2,642,122 in technology costs for cloud hosting
services represent costs incurred for services provided by AWS, as the
cloud services provider, during FAM Period 1. The fee arrangement for
AWS described above with regard to the Pre-FAM Period continued in
place during FAM Period 1 pursuant to the Plan Processor Agreement.
Moreover, CAT LLC continued to believe that AWS's maturity in the cloud
services space as well as the significant cost and time necessary to
move the CAT to a different cloud services provider supported the
continued engagement of AWS.
The cost for AWS cloud services for the CAT continued to be a
function of the volume of CAT Data. During the FAM 1 Period, the volume
of CAT Data continued to far exceed the original predictions for the
CAT as set forth in the CAT NMS Plan. During this period, data
submitted to the CAT included options and equities Participant Data,
Phase 2a and Phase 2b Industry Member Data (including certain linkages)
as well as SIP Data, reference data and other types of Other Data. The
following chart provides data regarding the average daily volume,
cumulative total events, total compute hours and storage footprint of
the CAT during FAM Period 1.\50\
---------------------------------------------------------------------------
\50\ Note that the volume data described in this table does not
include CAIS data.
------------------------------------------------------------------------
Date range: 6/22/20-7/
31/20
------------------------------------------------------------------------
Average Daily Volume in Billions:
Participant--Equities...................... 6
Participant--Options....................... 103
Industry Member--Equities.................. 7
Industry Member--Options................... 0.31
SIP--Options & Equities.................... 74
Average Total Daily Volume................. 185
Cumulative Total Events for the Period......... 5,190
Total Compute Hours for the Period............. 2,612,082
Storage Footprint at End of Period (Petabytes). 57.47
------------------------------------------------------------------------
(b) Technology Costs--Operating Fees
Pursuant to the Plan Processor Agreement discussed above, FCAT
continued in its role as the Plan Processor for the CAT during FAM
Period 1. Accordingly, the $1,099,680 in technology costs for operating
fees represent costs incurred for the services provided by FCAT under
the Plan Processor Agreement during FAM Period 1. The fee arrangement
for FCAT described above with regard to the Pre-FAM Period continued in
place during FAM Period 1 pursuant to the Plan Processor Agreement.
During FAM Period 1, FCAT's activities with respect to the CAT included
the following:
Published iterative drafts of draft Technical
Specifications for Phase 2d, after substantial engagement with SEC
staff, Industry Members and Participants on the Technical
Specifications;
Published iterative drafts of CAIS Technical
Specifications, after substantial engagement with SEC staff, Industry
Members and Participants on the Technical Specifications;
Facilitated Industry Member reporting of Quote Sent Time
on Options Market Maker quotes;
Addressed compliance items, including drafting CAT
policies and procedures, and addressing Regulation SCI requirements;
Provided support to the Operating Committee, the
Compliance Subcommittee and CAT working groups;
Assisted with interpretive efforts and exemptive requests
regarding the CAT NMS Plan;
Oversaw the security of the CAT;
Monitored the operation of the CAT, including with regard
to Participant and Industry Member reporting;
Provided support to subcontractors under the Plan
Processor Agreement;
Provided support in discussions with Participants and the
SEC and its staff;
Operated the FINRA CAT Helpdesk;
Facilitated communications with the industry, including
via FAQs, CAT Alerts, meetings, presentations and webinars;
Administered the CAT website and all of its content; and
Provided technical support and assistance with
connectivity, data access, and user support, including the use of CAT
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
Pursuant to the Plan Processor Agreement discussed above, Kingland
continued in its role as a subcontractor for the development and
implementation of CAIS during FAM Period 1. Accordingly, the $254,998
in technology costs for CAIS operating fees represent costs incurred
for services provided by Kingland during FAM Period 1. The fee
arrangement for Kingland described above with regard to the Pre-FAM
Period continued in place during FAM Period 1 pursuant to the Plan
Processor Agreement. During FAM Period 1, Kingland continued the
development of the CAIS Technical Specifications and building of CAIS.
In addition, Kingland continued to work on the CAIS Technical
Specifications and build related to CCID Alternative, as well as the
acceleration of the reporting of LTIDs.
(d) Technology Costs--Change Request Fees
CAT LLC did not incur costs related to change requests during FAM
Period 1.
(e) Technology Costs--Capitalized Developed Technology Costs
Capitalized developed technology costs for FAM Period 1 of
$1,684,870 include capitalizable application development costs incurred
in the development of the CAT by FCAT. Such costs include: (1) costs
related to certain modifications, upgrades, or other changes to the CAT
that were not contemplated by the agreement between CAT LLC and the
Plan Processor, including separate production and industry test
entitlements, and reprocessing of exchange event timestamps; (2)
implementation fees; and (3) license fees.
(f) Legal Costs
The legal costs of $481,687 represent the fees paid for legal
services provided
[[Page 73961]]
by two law firms, WilmerHale and Pillsbury during FAM Period 1.
Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during
FAM Period 1 based on, among other things, their expertise and long
history with the project. The hourly fee rates for this law firm were
in line with market rates for specialized legal expertise. The legal
fees during FAM Period 1 were paid by CAT LLC to WilmerHale. During FAM
Period 1, WilmerHale provided legal assistance to the CAT including
with regard to the following:
Assisted with the development of the CAT funding model and
drafted related amendments and fee filings;
Drafted exemptive requests from CAT NMS Plan requirements
regarding, for example, verbal activity, options market maker quote
sent time, TRF linkages, and allocations;
Provided interpretations related to CAT NMS Plan
requirements, including the Financial Accountability Milestone
amendment;
Assisted with compliance with Regulation SCI;
Provided support for the Operating Committee, Compliance
Subcommittee, working groups and Leadership Team, including with regard
to meetings with the SEC staff;
Assisted with the drafting of the Implementation Plan
required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
Assisted with communications and presentations for the
industry regarding CAIS;
Drafted SRO rule filings related to the CAT Compliance
Rule;
Provided support for Compliance Subcommittee, including
with regard to response to OCIE examinations and the annual assessment;
Provided guidance regarding CAT technical specifications;
Assisted with third-party vendor agreements; and
Provided support with regard to discussions with the SEC
and its staff, including with respect to addressing interpretive and
implementation issues.
Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during
FAM Period 1 based on, among other things, their expertise and history
with the project. The hourly fee rates for this law firm were in line
with market rates for specialized legal expertise. The legal fees
during FAM Period 1 were paid by CAT LLC to Pillsbury. During FAM
Period 1, Pillsbury provided legal assistance to the CAT regarding the
CAT Reporter Agreement. During that period, Pillsbury advised CAT LLC
regarding applicable legal matters and drafted a proposed amendment to
the CAT NMS Plan regarding liability matters. Liability issues related
to the CAT are important matters that needed to be resolved and
clarified. CAT LLC's efforts to seek such resolution and clarity work
to the benefit of Participants, Industry Members and other market
participants.
(g) Consulting Costs
The consulting costs of $137,209 represent the fees paid to
Deloitte as project manager during FAM Period 1. CAT LLC continued to
employ Deloitte during FAM Period 1 based on, among other things, their
expertise and cumulative experience with the CAT. The fee rates for
Deloitte during FAM Period 1 were negotiated and in line with market
rates for this type of specialized consulting work. The consulting fees
during FAM Period 1 were paid by CAT LLC to the consulting firm. CAT
LLC reviewed the consulting fees each month and approved the invoices.
During FAM Period 1, Deloitte's CAT-related activities included the
following:
Implemented program operations for the CAT project;
Provided support to the Operating Committee, the Chair of
the Operating Committee and the Leadership Team, including project
management support, coordination and planning for meetings and
communications, and interfacing with law firms and the SEC;
Assisted with cost and funding matters for the CAT,
including the development of the CAT funding model and assistance with
loans and the CAT bank account for CAT funding;
Provided support for updating the SEC on the progress of
the development of the CAT;
Assisted with the transition from the Initial Plan
Processor to the successor Plan Processor; and
Provided support for third-party vendors for the CAT,
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
Although insurance was in effect during FAM Period 1, CAT LLC did
not incur costs related to insurance during FAM Period 1.
(i) Professional and Administration Costs
Financial Advisory Firm: Anchin. The professional and
administration costs of $69,077 represent the fees paid to Anchin
during FAM Period 1. CAT LLC continued to employ Anchin during FAM
Period 1 based on, among other things, their expertise and history with
the project. The hourly fee rates for this firm were in line with
market rates for these type of financial advisory services. The fees
for these services during FAM Period 1 were paid by CAT LLC to Anchin.
During FAM Period 1, Anchin provided a variety of services, including
the following:
Maintained internal controls;
Provided cash management and treasury functions;
Facilitated bill payments;
Provided monthly bookkeeping;
Reviewed vendor invoices and documentation in support of
cash disbursements;
Provided accounting research and consultations on various
accounting, financial reporting and tax matters;
Addressed various accounting, financial reporting and
operating inquiries from Participants;
Developed and maintained quarterly and annual operating
and financial budgets, including budget to actual fluctuation analyses;
Supported compliance with the CAT NMS Plan;
Worked with and provided support to the Operating
Committee and various CAT working groups; and
Prepared monthly and quarterly financial statements.
(j) Public Relations Costs
The public relations costs of $7,700 represent the fees paid to
Peak Strategies during FAM Period 1. CAT LLC continued to employ Peak
Strategies during FAM Period 1 based on, among other things, their
expertise and history with the project. The fee rates for this firm
were reasonable and in line with market rates for these types of
services. The fees for these services during FAM Period 1 were paid by
CAT LLC to Peak Strategies. During FAM Period 1, Peak Strategies
continued to provide professional communications services to CAT LLC,
including media relations consulting, strategy and execution.
Specifically, the public relations firm provided services related to
communications with the public regarding the CAT, including monitoring
developments related to the CAT (e.g., congressional efforts, public
comments and reaction to proposals, press coverage of the CAT),
reporting such developments to CAT LLC, and drafting and disseminating
communications to the public regarding such developments as well as
reporting on developments related to the CAT (e.g., amendments to the
CAT NMS Plan). As discussed above, such public relations services were
important for various reasons, including monitoring comments made by
market participants about the CAT and understanding issues
[[Page 73962]]
related to the CAT discussed on the public record. By engaging a public
relations firm, CAT LLC was better positioned to understand and address
CAT matters to the benefit of all market participants.
(iii) Historical CAT Costs Incurred in Financial Accountability
Milestone Period 2
Historical CAT Costs 1 would include costs incurred by CAT LLC and
already funded by Participants during Period 2 of the Financial
Accountability Milestones (``FAM Period 2''),\51\ which covers the
period from August 1, 2020-December 31, 2020. Historical CAT Costs 1
would include costs for FAM Period 2 of $42,976,478. The Participants
would remain responsible for one-third of this cost (which they have
previously paid) ($14,325,493), and Industry Members would be
responsible for the remaining two-thirds, with CEBBs paying one-third
($14,325,493) and CEBSs paying one-third ($14,325,493). The following
table breaks down Historical CAT Costs 1 for FAM Period 2 into the
categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS
Plan.
---------------------------------------------------------------------------
\51\ Section 11.6(a)(i)(B) of the CAT NMS Plan.
\52\ As discussed above, with respect to certain costs that were
``appropriately excluded,'' such excluded costs relate to the
amortization of capitalized technology costs, which are amortized
over the life of the Plan Processor Agreement. As such costs have
already been otherwise reflected in the filing, their inclusion
would double count the capitalized technology costs. In addition,
amortization is a non-cash expense.
------------------------------------------------------------------------
Historical CAT costs for
Operating expense FAM Period 2 *
------------------------------------------------------------------------
Capitalized Developed Technology Costs **.. $6,761,094
Technology Costs........................... 31,460,033
Cloud Hosting Services................. 20,709,212
Operating Fees......................... 9,108,700
CAIS Operating Fees.................... 1,590,298
Change Request Fees.................... 51,823
Legal...................................... 2,766,644
Consulting................................. 532,146
Insurance.................................. 976,098
Professional and administration............ 438,523
Public relations........................... 41,940
----------------------------
Total Operating Expenses............... 42,976,478
------------------------------------------------------------------------
* The costs described in this table of costs for FAM Period 2 were
calculated based upon CAT LLC's review of applicable bills and
invoices and related financial statements. CAT LLC financial
statements are available on the CAT website.
** The non-cash amortization of these capitalized developed technology
costs of $1,892,505 incurred during FAM Period 2 have been
appropriately excluded from the above table.\52\
By the completion of FAM Period 2, CAT LLC was required to
implement the following with regard to the CAT:
(a) Industry Member reporting (excluding reporting by Small
Industry Members that are not OATS reporters) for equities
transactions, excluding Customer Account Information, CustomerID,
and Customer Identifying Information, is developed, tested, and
implemented at a 5% Error Rate or less and with sufficient intra-
firm linkage, inter-firm linkage, national securities exchange
linkage, and trade reporting facilities linkage to permit the
Participants and the Commission to analyze the full lifecycle of an
order across the national market system, excluding linkage of
representative orders, from order origination through order
execution or order cancellation; and (b) the query tool
functionality required by Section 6.10(c)(i)(A) and appendix D,
Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry
Member equities transaction data described in condition (a) and is
available to the Participants and to the Commission.\53\
---------------------------------------------------------------------------
\53\ See definition of ``Full Implementation of Core Equity
Reporting Requirements'' in Section 1.1 of the CAT NMS Plan.
CAT LLC completed the requirements of FAM Period 2 by December 31,
2020. The following describes the costs for each of the categories for
FAM Period 2.
(a) Technology Costs--Cloud Hosting Services
CAT LLC continued to utilize AWS in FAM Period 2 to provide a broad
array of cloud hosting services for the CAT, including data ingestion,
data management, and analytic tools. AWS continued to provide storage
services, databases, compute services and other services (such as
networking, management tools and DevOps tools), as well as various
environments for CAT, such as development, performance testing, test,
and production environments, during the FAM 2 Period. Accordingly, the
$20,709,212 in technology costs for cloud hosting services represent
costs incurred for services provided by AWS, as the cloud services
provider, during FAM Period 2. The fee arrangement for AWS described
above with regard to the Pre-FAM Period and FAM Period 1 continued in
place during FAM Period 2 pursuant to the Plan Processor Agreement.
The cost for AWS cloud services for the CAT continued to be a
function of the volume of CAT Data. During the FAM 2 Period, the volume
of CAT Data continued to far exceed the original predictions for the
CAT as set forth in the CAT NMS Plan. During this period, data
submitted to the CAT included options and equities Participant Data,
Phase 2a and Phase 2b Industry Member Data (including certain linkages)
as well as SIP Data, and Other Data, including reference data. In
addition, Industry Members began reporting LTID account information.
The following chart provides data regarding the average daily volume,
cumulative total events, total compute hours and storage footprint of
the CAT during FAM Period 2.\54\
---------------------------------------------------------------------------
\54\ Note that the volume data described in this table does not
include CAIS data.
[[Page 73963]]
------------------------------------------------------------------------
Date range: 8/1/20-12/
31/20
------------------------------------------------------------------------
Average Daily Volume in Billions:
Participant--Equities...................... 6
Participant--Options....................... 116
Industry Member--Equities.................. 11
Industry Member--Options................... 0.98
SIP--Options & Equities.................... 80
Average Total Daily Volume................. 282
Cumulative Total Events for the Period......... 2,170
Total Compute Hours for the Period............. 15,660,392
Storage Footprint at End of Period (Petabytes). 114.59
------------------------------------------------------------------------
(b) Technology Costs--Operating Fees
Pursuant to the Plan Processor Agreement discussed above, FCAT
continued in its role as the Plan Processor for the CAT during FAM
Period 2. Accordingly, the $9,108,700 in technology costs for operating
fees represent costs incurred for the services provided by FCAT under
the Plan Processor Agreement during FAM Period 2. The fee arrangement
for FCAT described above with regard to the Pre-FAM Period and FAM
Period 1 continued in place during FAM Period 2 pursuant to the Plan
Processor Agreement. During FAM Period 2, FCAT's activities with
respect to the CAT included publishing the Technical Specifications for
Phase 2d and overseeing the reporting of firm to firm and intrafirm
linkages by Industry Members. In addition, FCAT also continued to
engage in the following activities during FAM Period 2:
Addressed compliance items, including drafting CAT
policies and procedures, and addressing Regulation SCI requirements;
Provided support to the Operating Committee, Compliance
Subcommittee and CAT working groups;
Assisted with interpretive efforts and exemptive requests
regarding the CAT NMS Plan;
Oversaw the development and implementation of the security
of the CAT;
Monitored the operation of the CAT, including with regard
to Participant and Industry Member reporting;
Provided support to subcontractors under the Plan
Processor Agreement;
Provided support in discussions with the Participants and
the SEC and its staff;
Operated the FINRA CAT Helpdesk;
Facilitated communications with the industry, including
via FAQs, CAT Alerts, meetings, presentations and webinars;
Administered the CAT website and all of its content; and
Provided technical support and assistance with
connectivity, data access, and user support, including the use of CAT
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
Pursuant to the Plan Processor Agreement discussed above, Kingland
continued in its role as a subcontractor for the development and
implementation of CAIS during FAM Period 2. Accordingly, the $1,590,298
in technology costs for CAIS operating fees represent costs incurred
for services provided by Kingland during FAM Period 2. The fee
arrangement for Kingland described above with regard to the Pre-FAM
Period and FAM Period 1 continued in place during FAM Period 2 pursuant
to the Plan Processor Agreement. During FAM Period 2, Kingland
continued the development of the CAIS Technical Specifications and
building of CAIS. In addition, Kingland continued to work on the CAIS
Technical Specifications and build related to the CCID Alternative, as
well as the acceleration of the reporting of LTIDs.
(d) Technology Costs--Change Request Fees
During FAM Period 2, CAT LLC engaged FCAT to pursue certain change
requests in accordance with the Plan Processor Agreement. The change
request costs were paid by CAT LLC to FCAT. Specifically, during FAM
Period 2, CAT incurred costs of $51,823 related to a change request
regarding the addition of functionality for exchange Participants to
report rejected messages to the CAT.
(e) Technology Costs--Capitalized Developed Technology Costs
Capitalized developed technology costs for FAM Period 2 of
$6,761,094 include capitalizable application development costs incurred
in the development of the CAT by FCAT. Such costs include (1)
development costs incurred during the application development stage to
meet various agreed-upon milestones regarding the CAT, as defined in
the agreement between CAT LLC and the Plan Processor; (2) costs related
to certain modifications, upgrades, or other changes to the CAT that
were not contemplated by the agreement between CAT LLC and the Plan
Processor, including costs related to separate production and industry
test entitlements, market maker reference data, and back-processing of
exchange exception logic; (3) implementation fees; and (4) license
fees.
(f) Legal Costs
The legal costs of $2,766,644 represent the fees paid for legal
services provided by two law firms, WilmerHale and Pillsbury during FAM
Period 2.
Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during
FAM Period 2 based on, among other things, their expertise and long
history with the project. The hourly fee rates for this law firm were
in line with market rates for specialized legal expertise. The legal
fees during FAM Period 2 were paid by CAT LLC to WilmerHale. During FAM
Period 2, the legal assistance provided by WilmerHale included
providing legal advice regarding the following:
Assisted with the development of the CAT funding model and
drafting related amendments and rule filings;
Drafted exemptive requests from CAT NMS Plan requirements
regarding, for example, allocations, exchange activity, OTQT, initial
data validation, error corrections and recordkeeping;
Provided interpretations related to CAT NMS Plan
requirements, including with regard to the Financial Accountability
Milestone amendment, FAQs and technical specifications;
Provided support for the Operating Committee, Compliance
Subcommittees, working groups and Leadership Team, including with
regard to meetings with the SEC staff;
Assisted with the Implementation Plan and Quarterly
Progress Reports required pursuant to Section 6.6 of the CAT NMS Plan;
[[Page 73964]]
Drafted SRO rule filings related to the CAT Compliance
Rule;
Provided support for the Compliance Subcommittee,
including with regard to responses to OCIE examinations and the annual
assessment;
Provided guidance regarding the SEC's proposed security
amendments to the CAT NMS Plan;
Provided guidance regarding SRO rule filings for the
retirement of systems;
Provided legal support for Operating Committee meetings,
including drafting resolutions and other materials and voting advice;
Assisted with third-party vendor agreements (e.g., with
regard to Anchin, Grant Thornton and insurance policies);
Assisted with change requests; and
Provided support with regard to discussions with the SEC
and its staff, including with respect to addressing interpretive and
implementation issues.
Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during
FAM Period 2 based on, among other things, their expertise and history
with the project. The hourly fee rates for this law firm were in line
with market rates for specialized legal expertise. The legal fees
during FAM Period 2 were paid by CAT LLC to Pillsbury. During FAM
Period 2, Pillsbury provided legal assistance to the CAT regarding the
CAT Reporter Agreement. During that period, Pillsbury advised CAT LLC
regarding applicable legal matters and drafted and filed a proposed
amendment to the CAT NMS Plan regarding liability matters. As discussed
above, liability issues related to the CAT are important matters that
needed to be resolved and clarified. CAT LLC's efforts to seek such
resolution and clarity work to the benefit of Participants, Industry
Members and other market participants.
(g) Consulting Costs
The consulting costs of $532,146 represent the fees paid to
Deloitte as project manager during FAM Period 2. CAT LLC continued to
employ Deloitte during FAM Period 2 based on, among other things, their
expertise and long history with the project. The fee rates for Deloitte
during FAM Period 2 were negotiated and in line with market rates for
this type of specialized consulting work. The consulting fees during
FAM Period 2 were paid to Deloitte by CAT LLC. CAT LLC reviewed the
consulting fees each month and approved the invoices. During FAM Period
2, Deloitte's CAT-related activities included the following:
Implemented program operations for the CAT project;
Provided support to the Operating Committee, the Chair of
the Operating Committee and the Leadership Team, including project
management support, coordination and planning for meetings and
communications, and interfacing with law firms and the SEC;
Assisted with cost and funding matters for the CAT,
including the development of the CAT funding model and assistance with
loans and the CAT bank account for CAT funding;
Provided support for updating the SEC on the progress of
the development of the CAT; and
Provided support for third-party vendors for the CAT,
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
The insurance costs of $976,098 represent the fees paid for
insurance during FAM Period 2. CAT LLC continued to maintain cyber
security liability insurance, directors' and officers' liability
insurance, and errors and omissions liability insurance offered by USI.
After engaging in a process for renewing the coverage, CAT LLC
determined to purchase these insurance policies from USI. The annual
premiums for these policies were competitive for the coverage provided.
The annual premiums were paid by CAT LLC to USI.
(i) Professional and Administration Costs
The professional and administration costs of $438,523 represent the
fees paid to Anchin and Grant Thornton for financial services provided
during FAM Period 2.
Financial Advisory Firm: Anchin. CAT LLC continued to engage Anchin
during FAM Period 2 based on, among other things, their expertise and
history with the project. The hourly fee rates for this firm were in
line with market rates for these types of financial advisory services.
The fees for these services during FAM Period 2 were paid by CAT LLC to
Anchin. During FAM Period 2, Anchin provided a variety of services,
including the following:
Updated and maintained internal controls;
Provided cash management and treasury functions;
Faciliated [sic] bill payments;
Provided monthly bookkeeping;
Reviewed vendor invoices and documentation in support of
cash disbursements;
Provided accounting research and consultations on various
accounting, financial reporting and tax matters;
Addressed not-for-profit tax and accounting
considerations;
Prepared tax returns;
Addressed various accounting, financial reporting and
operating inquiries from the Participants;
Developed and maintained quarterly and annual operating
and financial budgets, including budget to actual fluctuation analyses;
Supported compliance with the CAT NMS Plan;
Worked with and provided support to the Operating
Committee and various CAT working groups;
Prepared monthly, quarterly and annual financial
statements;
Supported the annual financial statement audit by an
independent auditor; and
Reviewed historical costs from inception.
Accounting Firm: Grant Thornton. CAT LLC continued to employ the
accounting firm Grant Thornton during FAM Period 2 based on, among
other things, its expertise and cumulative knowledge of CAT LLC. CAT
LLC continued to believe that Grant Thornton was well qualified for its
role and its fee rates were in line with with market rates for these
accounting services. The fees for these services during FAM Period 2
were paid by CAT LLC to Grant Thornton. During FAM Period 2, Grant
Thornton performed a financial statement audit for CAT LLC as an
independent accounting firm.
(j) Public Relations Costs
The public relations costs of $41,940 represent the fees paid to
Peak Strategies during FAM Period 2. CAT LLC continued to employ Peak
Strategies during FAM Period 2 based on, among other things, their
expertise and history with the project. The fee rates for this firm
were in line with market rates for these types of services. The fees
for these services during FAM Period 2 were paid by CAT LLC to Peak
Strategies. During FAM Period 2, Peak Strategies continued to provide
professional communications services to CAT, including media relations
consulting, strategy and execution. Specifically, the public relations
firm provided services related to communications with the public
regarding the CAT, including monitoring developments related to the CAT
(e.g., congressional efforts, public comments and reaction to
proposals, press coverage of the CAT), reporting such developments to
CAT LLC, and drafting and disseminating communications to the public
regarding such developments as well as reporting on developments
related to the CAT (e.g., amendments to the CAT NMS Plan). As discussed
above, such public
[[Page 73965]]
relations services were important for various reasons, including
monitoring comments made by market participants about the CAT and
understanding issues related to the CAT discussed on the public record.
By engaging a public relations firm, CAT LLC was better positioned to
understand and address CAT matters to the benefit of all market
participants.
(iv) Historical CAT Costs Incurred in Financial Accountability
Milestone Period 3
Historical CAT Costs 1 would include costs incurred by CAT and
already funded by the Participants during Period 3 of the Financial
Accountability Milestones (``FAM Period 3''),\55\ which covers the
period from January 1, 2021--December 31, 2021. Historical CAT Costs 1
would include costs for FAM Period 3 of $144,415,268. The Participants
would remain responsible for one-third of this cost (which they have
previously paid) ($48,138,423), and Industry Members would be
responsible for the remaining two-thirds, with CEBBs paying one-third
($48,138,423) and CEBSs paying one-third ($48,138,423). The following
table breaks down Historical CAT Costs 1 for FAM Period 3 into the
categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS
Plan.
---------------------------------------------------------------------------
\55\ Section 11.6(a)(i)(C) of the CAT NMS Plan.
------------------------------------------------------------------------
Historical CAT costs for
Operating expense FAM Period 3 *
------------------------------------------------------------------------
Capitalized Developed Technology Costs **.. $10,763,372
Technology Costs........................... 123,639,402
Cloud Hosting Services................. 94,574,759
Operating Fees......................... 23,106,091
CAIS Operating Fees.................... 5,562,383
Change Request Fees.................... 396,169
Legal...................................... 6,333,248
Consulting................................. 1,408,209
Insurance.................................. 1,582,714
Professional and administration............ 595,923
Public relations........................... 92,400
----------------------------
Total Operating Expenses............... 144,415,268
------------------------------------------------------------------------
* The costs described in this table of costs for FAM Period 3 were
calculated based upon CAT LLC's review of applicable bills and
invoices and related financial statements. CAT LLC financial
statements are available on the CAT website.
** The non-cash amortization of these capitalized developed technology
costs of $5,108,044 incurred during FAM Period 3 have been
appropriately excluded from the above table.\56\
By the completion of FAM Period 3, CAT LLC was required to
implement the following requirements with regard the CAT:
---------------------------------------------------------------------------
\56\ As discussed above, with respect to certain costs that were
``appropriately excluded,'' such excluded costs relate to the
amortization of capitalized technology costs, which are amortized
over the life of the Plan Processor Agreement. As such costs have
already been otherwise reflected in the filing, their inclusion
would double count the capitalized technology costs. In addition,
amortization is a non-cash expense.
(a) reporting to the Order Audit Trail System (``OATS'') is no
longer required for new orders; (b) Industry Member reporting for
equities transactions and simple electronic options transactions,
excluding Customer Account Information, Customer-ID, and Customer
Identifying Information, with sufficient intra-firm linkage, inter-firm
linkage, national securities exchange linkage, trade reporting
facilities linkage, and representative order linkages (including any
equities allocation information provided in an Allocation Report) to
permit the Participants and the Commission to analyze the full
lifecycle of an order across the national market system, from order
origination through order execution or order cancellation, is
developed, tested, and implemented at a 5% Error Rate or less; (c)
Industry Member reporting for manual options transactions and complex
options transactions, excluding Customer Account Information, Customer-
ID, and Customer Identifying Information, with all required linkages to
permit the Participants and the Commission to analyze the full
lifecycle of an order across the national market system, from order
origination through order execution or order cancellation, including
any options allocation information provided in an Allocation Report, is
developed, tested, and fully implemented; (d) the query tool
functionality required by Section 6.10(c)(i)(A) and appendix D,
Sections 8.1.1-8.1.3, Section 8.2.1, and Section 8.5 incorporates the
data described in conditions (b)-(c) and is available to the
Participants and to the Commission; and (e) the requirements of Section
6.10(a) are met.\57\
---------------------------------------------------------------------------
\57\ See definition of ``Full Availability and Regulatory
Utilization of Transactional Database Functionality'' in Section 1.1
of the CAT NMS Plan.
CAT LLC completed the requirements of FAM Period 3 by December 31,
2021. The following describes the costs for each of the categories for
FAM Period 3.
(a) Technology Costs--Cloud Hosting Services
CAT LLC continued to utilize AWS in FAM Period 3 to provide a broad
array of cloud hosting services for the CAT, including data ingestion,
data management, and analytic tools. AWS continued to provide storage
services, databases, compute services and other services (such as
networking, management tools and DevOps tools), as well as various
environments for CAT, such as development, performance testing, test,
and production environments, during the FAM 3 Period. Accordingly, the
$94,574,759 in technology costs for cloud hosting services represents
costs incurred for services provided by AWS, as the cloud services
provider, during FAM Period 3. The fee arrangement for AWS described
above for the earlier periods continued in place during FAM Period 3
pursuant to the Plan Processor Agreement.
The cost for AWS cloud services for the CAT continued to be a
function of the volume of CAT Data. During FAM Period 3, the volume of
CAT Data continued to far exceed the original predictions for the CAT
as set forth in the CAT NMS Plan. During this period, data submitted to
the CAT included options and equities Participant Data, Phase 2a, Phase
2b, Phase 2c and Phase 2d Industry Member Data (including
[[Page 73966]]
certain linkages), SIP Data, Other Data, including reference data, and
LTID account information. The following chart provides data regarding
the average daily volume, cumulative total events, total compute hours
and storage footprint of the CAT during FAM Period 3.\58\
---------------------------------------------------------------------------
\58\ Note that the volume data described in this table does not
include CAIS data.
----------------------------------------------------------------------------------------------------------------
Date range: 1/1/21 to 4/ Date range: 4/26/21 to
25/21 12/31/21 *
----------------------------------------------------------------------------------------------------------------
Average Daily Volume in Billions:
Participant--Equities..................................... 9 9
Participant--Options...................................... 135 136
Industry Member--Equities................................. 20 19
Industry Member--Options.................................. 2 2
SIP--Options & Equities................................... 129 137
Average Total Daily Volume................................ 297 304
Cumulative Total Events for the Period........................ 7,480 5,310
Total Compute Hours for the Period............................ 15,860,304 33,487,318
Storage Footprint at End of Period (Petabytes)................ 180.22 284.62
----------------------------------------------------------------------------------------------------------------
* Start of Participant Equities in CAT format and SIP Equities on 4/26/21.
(b) Technology Costs--Operating Fees
Pursuant to the Plan Processor Agreement discussed above, FCAT
continued in its role as the Plan Processor for the CAT during FAM
Period 3. Accordingly, the $23,106,091 in technology costs for
operating fees represent costs incurred for the services provided by
FCAT under the Plan Processor Agreement during FAM Period 3. The fee
arrangement for FCAT described above with regard to the prior Periods
continued in place during FAM Period 3 pursuant to the Plan Processor
Agreement. During FAM Period 3, FCAT's activities with respect to the
CAT included the following:
Facilitated Phase 2c and Phase 2d testing for Industry
Members;
Oversaw creation of linkages of the lifecycle of order
events based on the received data through Phase 2d;
Addressed compliance items, including drafting CAT
policies and procedures, and addressing Regulation SCI requirements;
Provided support to the Operating Committee, the
Compliance Subcommittee and CAT working groups;
Assisted with interpretive efforts and exemptive requests
regarding the CAT NMS Plan;
Oversaw the security of the CAT;
Monitored the operation of the CAT, including with regard
to Participant and Industry Member reporting;
Provided support to subcontractors under the Plan
Processor Agreement;
Provided support in discussions with the Participants and
the SEC and its staff;
Operated the FINRA CAT Helpdesk;
Facilitated communications with the industry, including
via FAQs, CAT Alerts, meetings, presentations and webinars;
Administered the CAT website and all of its content; and
Provided technical support and assistance with
connectivity, data access, and user support, including the use of CAT
Data and query tools, for Participants and the SEC staff.
(c) Technology Costs--CAIS Operating Fees
Pursuant to the Plan Processor Agreement with FCAT discussed above,
Kingland continued in its role as a subcontractor for the development
and implementation of CAIS during FAM Period 3. Accordingly, the
$5,562,383 in technology costs for CAIS operating fees represents costs
incurred for services provided by Kingland during FAM Period 3. The fee
arrangement for Kingland described above with regard to the prior
Periods continued in place during FAM Period 3 pursuant to the Plan
Processor Agreement. During FAM Period 3, Kingland continued the
development of the CAIS Technical Specifications and building of CAIS.
In addition, Kingland continued to work on the CAIS Technical
Specifications and build related to the CCID Alternative, as well as
the acceleration of the reporting of LTIDs. The full CAIS Technical
Specifications were published during FAM Period 3.
(d) Technology Costs--Change Request Fees
During FAM Period 3, CAT LLC engaged FCAT to pursue certain change
requests in accordance with the Plan Processor Agreement. The change
request costs were paid by CAT LLC to FCAT. Specifically, during FAM
Period 3, CAT incurred costs of $396,169 related to change requests,
including the following: (1) the addition of functionality for exchange
Participants to report rejected messages to the CAT; (2) the migration
of MIRS query engine to AWS to reduce operational costs and increase
resiliency; and (3) updating the Participant Technical Specifications
to allow for two-sided Participant option quote reporting.
(e) Technology Costs--Capitalized Developed Technology Costs
Capitalized developed technology costs for FAM Period 3 of
$10,763,372 include capitalizable application development costs
incurred in the development of the CAT by FCAT. Such costs include (1)
development costs incurred during the application development stage to
meet various agreed-upon milestones regarding the CAT, as defined in
the agreement between CAT LLC and the Plan Processor, including the
transition from equity data received by FINRA pursuant to various
regulatory services agreements between FINRA and Participant exchanges
to the equity CAT Data, and the completion of the Industry Member Phase
2d options manual and complex orders go-live requirements; (2) costs
related to certain modifications, upgrades, or other changes to the CAT
that were not contemplated by the agreement between CAT LLC and the
Plan Processor, including costs related to off-exchange volume
concentration, Participant 24-hour trading and an external metastore;
(3) implementation fees; and (4) license fees.
(f) Legal Costs
The legal costs of $6,333,248 represent the fees paid for legal
services provided by three law firms, WilmerHale, Pillsbury and
Covington &
[[Page 73967]]
Burling LLP (``Covington'') during FAM Period 3.
Law Firm: WilmerHale. CAT LLC continued to employ WilmerHale during
FAM Period 3 based on, among other things, their expertise and long
history with the project. The hourly fee rates for this law firm were
in line with market rates for specialized legal expertise. The legal
fees during FAM Period 3 were paid by CAT LLC to WilmerHale. During FAM
Period 3, the legal assistance provided by WilmerHale included
providing legal advice regarding the following:
Assisted with the development of the CAT funding model and
drafting related amendments and rule filings;
Drafted exemptive requests from CAT NMS Plan requirements,
including, for example, verbal activity regarding Phase 2c cutover,
error reports, error corrections, Phase 2d Reporting, unique Order-ID
on internal route events, reporting addresses, recordkeeping, and
unique CCID for foreign customers;
Provided interpretations related to CAT NMS Plan
requirements, including with regard to the Financial Accountability
Milestone amendment, FAQs, CAIS requirements, ADF, and technical
specifications;
Provided support for the Operating Committee, Compliance
Subcommittee, working groups and Leadership Team, including with regard
to meetings with the SEC staff;
Assisted with the Implementation Plan and Quarterly
Progress Reports required pursuant to Section 6.6(c) of the CAT NMS
Plan;
Drafted SRO rule filings related to the CAT Compliance
Rule;
Provided support for Compliance Subcommittee, including
with regard to responses to OCIE examinations and the annual
assessment;
Provided guidance regarding the SEC's proposed security
amendments to the CAT NMS Plan;
Provided guidance regarding SRO rule filings for the
retirement of systems;
Provided legal support for Operating Committee meetings,
including drafting resolutions and other materials and voting advice;
Provided assistance with change requests;
Provided guidance and regulatory support for litigation
regarding the response to the SEC's exemptive orders;
Assisted with communications with the industry, includng
CAT Alerts and presentations;
Provided guidance regarding the confidentiality of CAT
Data, including third-party information requests;
Assisted with cost management analysis and proposals; and
Provided support with regard to discussions with the SEC
and its staff, including with respect to addressing interpretive and
implementation issues.
Law Firm: Pillsbury. CAT LLC continued to employ Pillsbury during
FAM Period 3 based on, among other things, their expertise and history
with the project. The hourly fee rates for this law firm were in line
with market rates for specialized legal expertise. The legal fees
during FAM Period 3 were paid by CAT LLC to Pillsbury. During FAM
Period 3, Pillsbury provided legal assistance to the CAT regarding the
CAT Reporter Agreement. During this period, Pillsbury advised CAT LLC
regarding applicable legal matters, reviewed and responded to comment
letters regarding the proposed Plan amendment, participated in meetings
with senior SEC staff, responded to comments submitted following the
SEC's April 6, 2021 order instituting proceedings,\59\ and assessed
legal matters regarding the SEC's October 29, 2021 order denying the
proposed Plan amendment.\60\
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\59\ Securities Exchange Act Rel. No. 91487 (Apr. 6, 2021), 86
FR 19054 (Apr. 12, 2021).
\60\ Securities Exchange Act Rel. No. 93484 (Oct. 29, 2021), 86
FR 60933 (Nov. 4, 2021).
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Law Firm: Covington. CAT LLC hired Covington for litigation with
the SEC regarding certain exemptive orders related to the CAT,
including orders issued in December 2020.\61\ CAT LLC interviewed this
law firm as well as other potential law firms, considering a variety of
factors in its analysis for choosing legal assistance, including the
relevant expertise and fees of the potential lawyers. CAT LLC approved
the engagement of Covington in January 2021. The fee rates for this law
firm, which were calculated based on hourly rates, were in line with
market rates for specialized services. The legal fees for FAM Period 3
for this firm were paid by CAT LLC to Covington.
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\61\ See Securities Exchange Act Rel. No. 90688 (Dec. 16, 2020),
85 FR 83634 (Dec. 22, 2020); and Securities Exchange Act Rel. No.
90689 (Dec. 16, 2020), 85 FR 83667 (Dec. 22, 2020) (collectively,
the ``2020 Orders'').
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After Covington was hired in 2021 through the end of 2021, the firm
provided legal assistance regarding the litigation with the SEC
regarding the 2020 Orders. These services included researching,
drafting, and filing motions to stay the 2020 orders and related
materials in proceedings before the SEC, as well as researching,
drafting, and filing petitions for judicial review of the 2020 Orders
in proceedings before the U.S. Court of Appeals for the D.C. Circuit.
Covington oversaw ongoing litigation proceedings on these matters, and
also supported WilmerHale with respect to settlement negotiations with
the SEC staff regarding the 2020 Orders.
In addition to these services, CAT LLC engaged Covington in
November 2021 to provide assistance with respect to the SEC's
disapproval of CAT NMS Plan amendments concerning a proposed limitation
on liability in the event of a data breach or similar event. Covington
provided advice concerning CAT's response to the SEC's disapproval
order. This work accounted for a minority of Covington's fees in
2021.\62\
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\62\ As discussed above with regard to Pillsbury's work on
liability matters, liability issues related to the CAT are important
matters that needed to be resolved and clarified. CAT LLC's efforts
to seek such resolution and clarity work to the benefit of
Participants, Industry Members and other market participants.
Moreover, such activity is a necessary part of the operation of the
CAT.
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(g) Consulting Costs
The consulting costs of $1,408,209 represent the fees paid to
Deloitte as project manager during FAM Period 3. CAT LLC continued to
employ Deloitte during FAM Period 3 based on, among other things, their
expertise and long history with the project. The fee rates for Deloitte
during FAM Period 3 were negotiated and in line with market rates for
this type of specialized consulting work. The consulting fees during
FAM Period 3 were paid to Deloitte by CAT LLC. CAT LLC reviewed the
consulting fees each month and approved the invoices. During FAM Period
3, Deloitte's CAT-related activities included the following:
Implemented program operations for the CAT project;
Provided support to the Operating Committee, the Chair of
the Operating Committee and the Leadership Team, including project
management support, coordination and planning for meetings and
communications, and interfacing with law firms and the SEC;
Assisted with cost and funding matters for the CAT,
including the development of the CAT funding model and assistance with
loans and the CAT bank account for CAT funding;
Provided support for updating the SEC on the progress of
the development of the CAT; and
Provided support for third-party vendors for the CAT,
including FCAT, Anchin and the law firms engaged by CAT LLC.
(h) Insurance
The insurance costs of $1,582,714 represent the fees paid for
insurance during FAM Period 3. CAT LLC continued to maintain cyber
security liability insurance, directors' and officers' liability
insurance, and errors
[[Page 73968]]
and omissions liability insurance offered by USI. After engaging in a
process for renewing the coverage, CAT LLC determined to purchase these
insurance policies from USI. The annual premiums for these policies
were competitive for the coverage provided. The annual premiums were
paid by CAT LLC to USI.
(i) Professional and Administration Costs
The professional and administration costs of $595,923 represent the
fees paid to Anchin and Grant Thornton for financial services during
FAM Period 3.
Financial Advisory Firm: Anchin. CAT LLC continued to employ Anchin
during FAM Period 3 based on, among other things, their expertise and
history with the project. The hourly fee rates for this firm were in
line with market rates for these financial advisory services. The fees
for these services during FAM Period 3 were paid by CAT LLC to Anchin.
During FAM Period 3, Anchin provided a variety of services, including
the following:
Updated and maintained internal controls;
Provided cash management and treasury functions;
Faciliated [sic] bill payments;
Provided monthly bookkeeping;
Reviewed vendor invoices and documentation in support of
cash disbursements;
Provided accounting research and consultations on various
accounting, financial reporting and tax matters;
Addressed not-for-profit tax and accounting
considerations;
Prepared tax returns;
Addressed various accounting, financial reporting and
operating inquiries from Participants;
Developed and maintained quarterly and annual operating
and financial budgets, including budget to actual fluctuation analyses;
Supported compliance with the CAT NMS Plan;
Worked with and provided support to the Operating
Committee and various CAT working groups;
Prepared monthly, quarterly and annual financial
statements;
Supported the annual financial statement audits by an
independent auditor;
Reviewed historical costs from inception; and
Provided accounting and financial information in support
of SEC filings.
Accounting Firm: Grant Thornton. CAT LLC continued to employ the
accounting firm Grant Thornton during FAM Period 3 based on, among
other things, their expertise and cumulative knowledge of CAT LLC. CAT
LLC determined that Grant Thornton was well qualified for its role and
that its fixed fee rates were in line with market rates for these
accountant services. The fees for these services during FAM Period 3
were paid by CAT LLC to Grant Thornton. During FAM Period 3, Grant
Thornton provided audited financial statements for CAT LLC.
(j) Public Relations Costs
The public relations costs of $92,400 represent the fees paid to
Peak Strategies during FAM Period 3. CAT LLC continued to employ Peak
Strategies during FAM Period 3 based on, among other things, their
expertise and history with the project. The fee rates for this firm
were in line with market rates for these types of services. The fees
for these services during FAM Period 3 were paid by CAT LLC to Peak
Strategies. During FAM Period 3, Peak Strategies continued to provide
professional communications services to CAT, including media relations
consulting, strategy and execution. Specifically, the public relations
firm provided services related to communications with the public
regarding the CAT, including monitoring developments related to the CAT
(e.g., congressional efforts, public comments and reaction to
proposals, press coverage of the CAT), reporting such developments to
CAT LLC, and drafting and disseminating communications to the public
regarding such developments as well as reporting on developments
related to the CAT (e.g., amendments to the CAT NMS Plan). As discussed
above, such public relations services were important for various
reasons, including monitoring comments made by market participants
about the CAT and understanding issues related to the CAT discussed on
the public record. By engaging a public relations firm, CAT LLC was
better positioned to understand and address CAT matters to the benefit
of all market participants.
(v) Excluded Costs
Historical CAT Costs 1 would not include three categories of CAT
costs (``Excluded Costs''): (1) $14,749,362 of costs related to the
termination of the relationship with the Initial Plan Processor; (2)
$48,874,937, which are all CAT costs incurred from November 15, 2017
through November 15, 2018; and (3) $19,628,791, which are costs paid to
the the Initial Plan Processor from November 16, 2018 through February
2019 when the relationship with the Initial Plan Processor was
concluded. The Participants would remain responsible for 100% of these
costs, which total $83,253,090. CAT LLC determined to exclude these
Excluded Costs from Historical CAT Costs 1 because these costs relate
to the delay in the start of reporting to the CAT and the conclusion of
the relationship with the Initial Plan Processor.\63\
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\63\ In approving the CAT Funding Model, the Commission states
that the proposed exclusion of the first two categories of Excluded
Costs ``is reasonable in the Commission's view because it would not
require all costs incurred by the Participants to be recovered from
Industry Members through the Historical CAT Assessment, specifically
excluding those costs related to the delay in the start of reporting
to the CAT and costs related to the conclusion of the relationship
with the Initial Plan Processor.'' CAT Funding Model Approval Order
at 62663. In addition to the first two categories of Excluded Costs,
CAT LLC is now proposing a third category of Excluded Costs that
would exclude all costs paid to the Initial Plan Processor after
November 15, 2018.
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(a) Costs Related to Conclusion of Relationship With Initial Plan
Processor
First, Historical CAT Costs 1 would not include $14,749,362 of
costs related to the conclusion of the relationship with the Initial
Plan Processor. Such costs include costs related to the American
Arbitration Association, the legal assistance of Pillsbury with regard
to the arbitration with the Initial Plan Processor, and the settlement
costs related to the arbitration with the Initial Plan Processor. The
Participants would remain responsible for 100% of these $14,749,362 in
costs.
(b) Costs Incurred From November 15, 2017 Through November 15, 2018
Second, Historical CAT Costs 1 would not include all CAT costs
incurred from November 15, 2017 through November 15, 2018. CAT LLC
determined to exclude all costs during this one-year period of
$48,874,937 from fees charged to Industry Members due to the delay in
the start of reporting to the CAT. The Participants would remain
responsible for 100% of these $48,874,937 in costs. The following table
breaks down these costs into the categories set forth in Section
11.3(b)(iii)(B)(II) of the CAT NMS Plan.
[[Page 73969]]
------------------------------------------------------------------------
Excluded costs for November
Operating expense 15, 2017-November 15, 2018 *
------------------------------------------------------------------------
Capitalized Developed Technology Costs... $37,852,083
Technology Costs:
Cloud Hosting Services...............
Operating Fees.......................
CAIS Operating Fees..................
Change Request Fees..................
Legal.................................... 6,143,278
Consulting............................... 4,452,106
Insurance................................
Professional and administration.......... 340,145
Public relations......................... 87,325
------------------------------
Total Operating Expenses......... 48,874,937
------------------------------------------------------------------------
* The costs described in this table of Excluded Costs were calculated
based upon CAT LLC's review of applicable bills and invoices and
related financial statements. CAT LLC financial statements are
available on the CAT website.
The following provides additional detail regarding the Excluded
Costs.
(I) Technology Costs--Cloud Hosting Services, Operating Fees, CAIS
Operating Fees and Change Request Fees
CAT LLC did not incur technology costs related to the categories of
cloud hosting services, operating fees, CAIS operating fees or change
requests during the period from November 15, 2017 through November 15,
2018.
(II) Technology Costs--Capitalized Developed Technology Costs
Capitalized developed technology costs for the period from November
15, 2017 through November 15, 2018 include capitalizable application
development costs of $37,852,083 incurred in the development of the CAT
by the Initial Plan Processor. Such costs include development costs
incurred during the application development stage to meet various
agreed-upon milestones regarding the CAT, as defined in the agreement
between CAT LLC and the Initial Plan Processor. Such costs include
costs related to Industry Member technical specifications for orders
and transactions, the system security plan, testing and production for
Participant CAT reporting, third-party security assessment and
response, query portal, onboarding of the Chief Information Security
Officer, and ingestion of FINRA TRF data and FINRA data related to
halts and corporate actions.
(III) Legal Costs
The legal costs of $6,143,278 represent the fees paid to WilmerHale
for legal services from November 15, 2017 through November 15, 2018.
During this period, WilmerHale provided legal assistance to the CAT
including with regard to the following:
Provided legal support for the governance of the CAT,
including governance support for the Operating Committee, Advisory
Committee, Compliance Subcommittee, and CAT working groups;
Assisted with the development of the CAT funding model and
drafted related amendments of the CAT NMS Plan;
Provided assistance related to CAT security;
Drafted exemptive requests, including requests related to
PII;
Assisted with the Implementation Plan required pursuant to
Section 6.6(c)(i) of the CAT NMS Plan;
Provided interpretations of and related to the CAT NMS
Plan;
Provided advice with regard to regulator access to the
CAT;
Assisted with the Plan Processor transition;
Provided assistance regarding communications with the
industry regarding the CAT;
Provided advice regarding Customer Account Information and
PII;
Provided support for litigation related to SEC exemptive
orders; and
Provided support with regard to discussions with the SEC
and its staff, including with respect to addressing interpretative and
implementation issues.
(IV) Consulting Costs
The consulting costs of $4,452,106 represent the fees paid to
Deloitte for their role as project manager for the CAT from November
15, 2017 through November 15, 2018. During this period, Deloitte
engaged in the following activities with respect to the CAT:
Implemented program operations for the CAT project;
Provided governance support to the Operating Committee,
including support for Subcommittees and working groups of the Operating
Committee (e.g., Compliance Subcommittee, Cost and Funding Working
Group, Technical Working Group, Industry Outreach Working Group,
Security Working Group and Steering Committee);
Assisted with cost and funding issues for the CAT,
including the development of the CAT funding model and assistance with
loans and the CAT bank account for CAT funding;
Provided support for updating the SEC on the progress of
the development of the CAT; and
Provided active planning and coordination with and support
for the Initial Plan Processor with regard to the development of the
CAT, and reported to the Participants on the progress.
(V) Insurance
CAT LLC did not incur costs related to insurance during the period
from November 15, 2017 through November 15, 2018.
(VI) Professional and Administration Costs
The professional and administration costs of $340,145 represent the
fees paid to Anchin, Exegy and RSM from November 15, 2017 through
November 15, 2018.
Financial Advisory Firm: Anchin. From the commencement of its
engagment [sic] in April 2018 through November 15, 2018, Anchin engaged
in the following activities with respect to the CAT:
Developed, updated and maintained internal controls;
Provided cash management and treasury functions;
Facilitated bill payments;
Provided monthly bookkeeping;
Reviewed vendor invoices and documentation in support of
cash disbursements;
Provided accounting research and consultations on various
accounting, financial reporting and tax matters;
[[Page 73970]]
Addressed not-for-profit tax and accounting
considerations;
Prepared tax returns;
Addressed various accounting, financial reporting and
operating inquiries from Participants;
Developed and maintained quarterly and annual operating
and financial budgets, including budget to actual fluctuation analyses;
Addressed accounting and financial matters relating to the
transition from CAT NMS, LLC to Consolidated Audit Trail, LLC,
including supporting the dissolution of CAT NMS, LLC;
Supported compliance with the CAT NMS Plan;
Worked with and provided support to the Operating
Committee and various CAT working groups;
Prepared monthly, quarterly and annual financial
statements;
Supported the annual financial statement audits by an
independent auditor;
Reviewed historical costs from inception; and
Provided accounting and financial information in support
of SEC filings.
Market Data Provider: Exegy. From July 2018 through November 15,
2018, CAT LLC purchased market data from Exegy (as described in more
detail above).
Security Assessment: RSM. From October 2018 through November 15,
2018, CAT LLC incurred costs for RSM's performance of a security
assessment (as described in more detail above).
(VII) Public Relations Costs
The public relations costs of $87,325 represent the fees paid to
Sloane from November 15, 2017 through November 15, 2018. From the
commencement of its engagment [sic] in March 2018 through November 15,
2018, Sloane provided professional communications services to CAT,
including media relations consulting, strategy and execution.
Specifically, Sloane provided services related to communications with
the public regarding the CAT, including monitoring developments related
to the CAT (e.g., congressional efforts, public comments and reaction
to proposals, press coverage of the CAT), reporting such developments
to CAT LLC, and drafting and disseminating communications to the public
regarding such developments as well as reporting on developments
related to the CAT (e.g., amendments to the CAT NMS Plan).
(c) Costs Paid to Initial Plan Processor From November 16, 2018 Through
February 2019
Third, Historical CAT Costs 1 would not include the $19,628,791 in
costs paid to the Initial Plan Processor from November 16, 2018 through
February 2019 when CAT LLC's relationship with the Initial Plan
Processor concluded. CAT LLC determined that Historical CAT Costs 1
would not include any fees paid to the Initial Plan Processor after
November 15, 2017,\64\ which was the date by which Participants were
required to begin reporting to the CAT.\65\ As discussed above, the
Participants determined that Historical CAT Costs 1 would not include
all CAT costs incurred from November 15, 2017 through November 15,
2018, which includes $37,852,083 in Initial Plan Processor costs
incurred from November 15, 2017 through November 15, 2018 (as well as
other CAT costs during this period). The remaining Initial Plan
Processor costs incurred after November 15, 2018 are the $19,628,791 in
costs for the period from November 16, 2018 through February 2019
incurred in the development of the CAT by the Initial Plan Processor,
as well as a transition fee for the transition from the Initial Plan
Processor to the successor Plan Processor. The Participants would
remain responsible for 100% of these $19,628,791 in costs.
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\64\ As discussed below, CAT LLC believes that it is appropriate
to recover costs related to the services performed by the Initial
Plan Processor prior to November 15, 2017. See Section 3(a)(10)(E)
below.
\65\ The SEC approved the CAT NMS Plan on November 15, 2016, and
Participant reporting was required to begin on the first anniversary
of this date, November 15, 2017. See Section 6.3 of the CAT NMS Plan
and CAT NMS Plan Approval Order.
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(C) Historical Recovery Period 1
Under the CAT NMS Plan, the Operating Committee is required to
reasonably establish the length of the Historical Recovery Period used
in calculating each Historical Fee Rate based upon the amount of the
Historical CAT Costs to be recovered by the Historical CAT Assessment,
and to describe the reasons for its length.\66\ The Historical Recovery
Period used in calculating the Historical Fee Rate may not be less than
24 months or more than five years.\67\ The Operating Committee has
determined to establish a Historical Recovery Period 1 of 24 months for
Historical CAT Assessment 1.
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\66\ Section 11.3(b)(i)(D)(I) and Section 11.3(b)(iii)(B)(II) of
the CAT NMS Plan.
\67\ Section 11.3(b)(i)(D)(I) of the CAT NMS Plan. In the CAT
Funding Model Approval Order, the SEC stated that ``[i]n the
Commission's view, it is reasonable for the Operating Committee to
establish the length of the Historical Recovery Period to be no less
than 24 months and no more than five years.'' CAT Funding Model
Approval Order at 62664.
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The Operating Committee determined that the length of Historical
Recovery Period 1 appropriately weighs the need for a reasonable
Historical Fee Rate 1 that spreads the Historical CAT Costs over an
appropriate amount of time and the need to repay the loans to the
Participants in a timely fashion. The Operating Committee determined
that 24 months for Historical Recovery Period 1 would establish a fee
rate that is lower than other transaction-based fees, including fees
assessed pursuant to Section 31.\68\ In addition, in establishing a
Historical Recovery Period of 24 months, the Operating Committee
recognized that the total costs for Historical CAT Assessment 1 were
less than the total costs for 2022 and 2023,\69\ and therefore it would
be reasonable and appropriate to recover costs subject to this filing
over an approximate two-year period.
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\68\ As the SEC noted in the CAT Funding Model Approval Order,
recent Section 31 fees ranged from $0.00009 per share to $0.0004 per
share. CAT Funding Model at 62682.
\69\ The total CAT costs for 2022 were approximately $186
million and the total CAT costs for 2023 were approximately $233
million.
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The length of the Historical Recovery Period 1 and the reasons for
its length are provided in this filing in accordance with the
requirement in the CAT NMS Plan to provide such information in a fee
filing for a Historical CAT Assessment.\70\
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\70\ Section 11.3(b)(iii)(B)(II)(C) of the CAT NMS Plan.
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(D) Projected Total Executed Equivalent Share Volume
The calculation of Historical Fee Rate 1 also requires the
determination of the projected total executed equivalent share volume
of transactions in Eligible Securities for Historical Recovery Period
1. Under the CAT NMS Plan, the Operating Committee is required to
``reasonably determine the projected total executed equivalent share
volume of all transactions in Eligible Securities for each Historical
Recovery Period based on the executed equivalent share volume of all
transactions in Eligible Securities for the prior twelve months.'' \71\
The Operating Committee is required to base its projection on the prior
twelve months, but it may use its discretion to analyze the likely
volume for the upcoming year. Such discretion would allow the Operating
Committee to use its judgment when estimating projected total executed
equivalent share volume if the volume over the prior twelve months was
unusual or otherwise unfit to serve as the basis of a future volume
estimate.\72\
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\71\ Section 11.3(b)(i)(E) of the CAT NMS Plan.
\72\ CAT Funding Model Approval Order at 62664.
[[Page 73971]]
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The total executed equivalent share volume of transactions in
Eligible Securities for the 12-month period from June 2023 through May
2024 was 3,980,753,840,905.21 executed equivalent shares. The Operating
Committee has determined to calculate the projected total executed
equivalent share volume for the 24 months of Historical Recovery Period
1 by doubling the executed equivalent share volume for the prior 12
months. The Operating Committee determined that such an approach was
reasonable as the CAT's annual executed equivalent share volume has
remained relatively constant. For example, the executed equivalent
share volume for 2021 was 3,963,697,612,395, the executed equivalent
share volume for 2022 was 4,039,821,841,560.31, and the executed
equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly,
the projected total executed equivalent share volume for Historical
Recovery Period 1 is projected to be 7,961,507,681,810.42 executed
equivalent shares.\73\
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\73\ This projection was calculated by multiplying
3,980,753,840,905.21 executed equivalent shares by two.
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The projected total executed equivalent share volume of all
transactions in Eligible Securities for Historical Recovery Period 1
and a description of the calculation of the projection is provided in
this filing in accordance with the requirement in the CAT NMS Plan to
provide such information in a fee filing for a Historical CAT
Assessment.\74\
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\74\ Section 11.3(b)(iii)(B)(II)(D) of the CAT NMS Plan.
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(E) Historical Fee Rate 1
Historical Fee Rate 1 would be calculated by dividing Historical
CAT Costs 1 by the reasonably projected total executed equivalent share
volume of all transactions in Eligible Securities for Historical
Recovery Period 1, as described in detail above.\75\ Specifically,
Historical Fee Rate 1 would be calculated by dividing $318,059,819 by
7,961,507,681,810.42. As a result, the Historical Fee Rate 1 would be
$0.00003994969693072937 per executed equivalent share. Historical Fee
Rate 1 is provided in this filing in accordance with the requirement in
the CAT NMS Plan to provide the Historical Fee Rate in a fee filing for
a Historical CAT Assessment.\76\
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\75\ In approving the CAT Funding Model, the Commission stated
that ``[t]he calculation of the Historical Fee Rate by dividing the
Historical CAT Costs by the projected total executed equivalent
share volume of all transactions in Eligible Securities for the
Historical Recovery Period is reasonable.'' CAT Funding Model
Approval Order at 62664.
\76\ Section 11.3(b)(iii)(B)(II)(A) of the CAT NMS Plan.
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(3) Past CAT Costs and Participants
Participants would not be required to pay any fees associated with
Historical CAT Assessment 1 as the Participants previously have paid
all Past CAT Costs. The CAT NMS Plan explains that:
Because Participants previously have paid Past CAT Costs via loans
to the Company, Participants would not be required to pay any
Historical CAT Assessment. In lieu of a Historical CAT Assessment, the
Participants' one-third share of Historical CAT Costs and such other
additional Past CAT Costs as reasonably determined by the Operating
Committee will be paid by the cancellation of loans made to the Company
on a pro rata basis based on the outstanding loan amounts due under the
loans.\77\
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\77\ Section 11.3(b)(ii) of the CAT NMS Plan.
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The CAT NMS Plan further states that ``Historical CAT Assessments
are designed to recover two-thirds of the Historical CAT Costs.'' \78\
---------------------------------------------------------------------------
\78\ Id. In approving the CAT Funding Model, the Commission
stated that ``[t]he proposed allocation of the Historical CAT
Assessment solely to CEBSs and CEBBs, and ultimately Industry
Members, is reasonable. The Historical CAT Assessment will still be
divided into thirds,'' as the Participants' one-third share of
Historical CAT Costs will be paid by the cancellation of loans made
to the Company. CAT Funding Model Approval Order at 62666.
---------------------------------------------------------------------------
(4) Monthly Fees
CEBBs and CEBSs would be required to pay fees for Historical CAT
Assessment 1 on a monthly basis for the period in which Historical CAT
Assessment 1 is in effect.\79\ A CEBB or CEBS's fee for each month
would be calculated based on the transactions in Eligible Securities
executed by the CEBB or CEBS from the prior month.\80\ Proposed
paragraph (a)(1)(A) of the fee schedule would state that each CAT
Executing Broker would receive its first invoice in November 2024, and
``would receive an invoice each month thereafter in which Historical
CAT Assessment 1 is in effect.'' Proposed paragraph (a)(1)(B) of the
fee schedule would state that ``Consolidated Audited Trail, LLC shall
provide each CAT Executing Broker with an invoice for Historical CAT
Assessment 1 on a monthly basis.'' In addition, proposed paragraph
(b)(1) of the fee schedule states that each CEBB and CEBS is required
to pay its CAT fees ``each month.''
---------------------------------------------------------------------------
\79\ See Section 11.3(b)(iii)(A) of the CAT NMS Plan.
\80\ See proposed paragraph (a)(1)(B) of the fee schedule.
---------------------------------------------------------------------------
(5) Actual Recovery Period for Historical CAT Assessment 1
The CAT NMS Plan states that, ``[n]otwithstanding the length of the
Historical Recovery Period used in calculating the Historical Fee Rate,
each Historical CAT Assessment calculated using the Historical Fee Rate
will remain in effect until all Historical CAT Costs for the Historical
CAT Assessment are collected.'' \81\ Accordingly, Historical CAT
Assessment 1 will remain in effect until all Historical CAT Costs 1
have been collected. The actual recovery period for Historical CAT
Assessment 1 may be shorter or longer than Historical Recovery Period 1
depending on the actual executed equivalent share volumes during the
time that Historical CAT Assessment 1 is in effect.\82\
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\81\ Section 11.3(b)(i)(D)(II) of the CAT NMS Plan.
\82\ In approving the CAT Funding Model, the Commission stated
that, ``[i]n the Commission's view, it is reasonable for Industry
Members to be charged a Historical CAT Assessment until all
Historical CAT Costs for the Historical CAT Assessment are
collected.'' CAT Funding Model Approval Order at 62665.
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(6) Consolidated Audit Trail Funding Fees
To implement Historical CAT Assessment 1, a new section would be
added to the Exchange's fee schedule for ``Consolidated Audit Trail
Funding Fees'', and it would include the proposed paragraphs described
below.
(A) Fee Schedule for Historical CAT Assessment 1
The CAT NMS Plan states that:
Each month in which a Historical CAT Assessment is in effect,
each CEBB and each CEBS shall pay a fee for each transaction in
Eligible Securities executed by the CEBB or CEBS from the prior
month as set forth in CAT Data, where the Historical CAT Assessment
for each transaction will be calculated by multiplying the number of
executed equivalent shares in the transaction by one-third and by
the Historical Fee Rate reasonably determined pursuant to paragraph
(b)(i) of this Section 11.3.\83\
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\83\ Section 11.3(b)(iii)(A) of the CAT NMS Plan.
Accordingly, based on the factors discussed above, the Exchange
proposes to add paragraph (a)(1) to the Consolidated Audit Trail
Funding Fees section of its fee schedule. Proposed paragraph (a)(1)
---------------------------------------------------------------------------
would state the following:
(A) Each CAT Executing Broker shall receive its first invoice
for Historical CAT Assessment 1 in November 2024, which shall set
forth the Historical CAT Assessment 1 fees calculated based on
transactions in
[[Page 73972]]
October 2024, and shall receive an invoice for Historical CAT
Assessment 1 for each month thereafter in which Historical CAT
Assessment 1 is in effect.
(B) Consolidated Audit Trail, LLC shall provide each CAT
Executing Broker with an invoice for Historical CAT Assessment 1 on
a monthly basis. Each month, such invoices shall set forth a fee for
each transaction in Eligible Securities executed by the CAT
Executing Broker in its capacity as a CAT Executing Broker for the
Buyer (``CEBB'') and/or the CAT Executing Broker for the Seller
(``CEBS'') (as applicable) from the prior month as set forth in CAT
Data. The fee for each such transaction will be calculated by
multiplying the number of executed equivalent shares in the
transaction by the fee rate of $0.000013 per executed equivalent
share.
(C) Historical CAT Assessment 1 will remain in effect until
$212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected
from CAT Executing Brokers collectively, which is estimated to be
approximately two years, but could be for a longer or shorter period
of time. Consolidated Audit Trail, LLC will provide notice when
Historical CAT Assessment 1 will no longer be in effect.
(D) Each CAT Executing Broker shall be required to pay each
invoice for Historical CAT Assessment 1 in accordance with paragraph
(b).
As noted in the Plan amendment for the CAT Funding Model, ``as a
practical matter, the fee filing for a Historical CAT Assessment would
provide the exact fee per executed equivalent share to be paid for each
Historical CAT Assessment, by multiplying the Historical Fee Rate by
one-third and describing the relevant number of decimal places for the
fee rate.\84\ Accordingly, proposed paragraph (a)(1)(B) of the fee
schedule would set forth a fee rate of $0.000013 per executed
equivalent share. This fee rate is calculated by multiplying Historical
Fee Rate 1 of $0.00003994969693072937 by one-third, and rounding the
result to 6 decimal places.\85\ The Operating Committee determined to
use six decimal places to balance the accuracy of the calculation with
the potential systems and other impracticalities of using additional
decimal places in the calculation.
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\84\ CAT Funding Model Approval Order at 62658, n.658.
\85\ Dividing $0.00003994969693072937 by three equals
$0.00001331656564357646. Rounding $0.00001331656564357646 to six
decimal places equals $0.000013.
---------------------------------------------------------------------------
The proposed language in paragraph (a)(1)(A) of the fee schedule
would describe when CAT Executing Brokers would receive their first
monthly invoice for Historical CAT Assessment 1. Specifically, CAT
Executing Brokers would receive their first monthly invoice for
Historical CAT Assessment 1 in November 2024 and the fees set forth in
that invoice would be calculated based on transactions executed in the
prior month, that is, transactions executed in October 2024. The
payment for the first invoice would be required within 30 days after
the receipt of the first invoice (unless a longer period is indicated),
as described in paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule also would
describe the monthly cadence of the invoices for Historical CAT
Assessment 1. Specifically, after the first invoices are provided to
CAT Executing Brokers in November 2024, invoices will be sent to CAT
Executing Brokers each month thereafter while Historical CAT Assessment
1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the
invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B)
of the fee schedule would state that ``Consolidated Audit Trail, LLC
shall provide each CAT Executing Broker with an invoice for Historical
CAT Assessment 1 on a monthly basis.'' Proposed paragraph (a)(1)(B) of
the fee schedule also would describe the fees to be set forth in the
invoices for Historical CAT Assessment 1. Specifically, it would state
that ``[e]ach month, such invoices shall set forth a fee for each
transaction in Eligible Securities executed by the CAT Executing Broker
in its capacity as a CAT Executing Broker for the Buyer (``CEBB'') and/
or the CAT Executing Broker for the Seller (``CEBS'') (as applicable)
from the prior month as set forth in CAT Data. The fee for each such
transaction will be calculated by multiplying the number of executed
equivalent shares in the transaction by the fee rate of $0.000013 per
executed equivalent share.''
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule would
describe how long Historical CAT Assessment 1 would remain in effect.
It would state that ``Historical CAT Assessment 1 will remain in effect
until $212,039,879.34 (two-thirds of Historical CAT Costs 1) are
collected from CAT Executing Brokers collectively, which is estimated
to be approximately two years, but could be for a longer or shorter
period of time.'' This proposed paragraph would further state that
``Consolidated Audit Trail, LLC will provide notice when Historical CAT
Assessment 1 will no longer be in effect.''
Historical CAT Assessment 1 will be assessed for all transactions
executed in each month through the end of the month in which two-thirds
of Historical CAT Costs 1 are assessed, and then CAT LLC will provide
notice that Historical CAT Assessment 1 is no longer in effect. Since
Historical CAT Assessment 1 is a monthly fee based on transaction
volume from the prior month, Historical CAT Assessment 1 may collect
more than two-thirds of Historical CAT Costs 1. To the extent that
occurs, any excess money collected during the final month in which
Historical CAT Assessment 1 is in effect will be used to offset future
fees and/or to fund the reserve for the CAT.
Finally, proposed paragraph (a)(1)(D) of the fee schedule sets
forth the requirement for the CAT Executing Brokers to pay the invoices
for Historical CAT Assessment 1. It would state that ``[e]ach CAT
Executing Broker shall be required to pay each invoice for Historical
CAT Assessment 1 in accordance with paragraph (b).''
(B) Manner of Payment
Paragraph (b)(1) to the ``Consolidated Audit Trail Funding Fees''
section of its fee schedule describes the manner of payment of Industry
Member CAT fees. Paragraph (b)(1) states that ``[e]ach CAT Executing
Broker shall pay its CAT fees as required pursuant to paragraph (a)
each month to the Consolidated Audit Trail, LLC in the manner
prescribed by the Consolidated Audit Trail, LLC.'' The CAT NMS Plan
requires the Operating Committee to establish a system for the
collection of CAT fees.\86\ The Plan Processor has established a
billing system for CAT fees.\87\ Therefore, the Exchange proposes to
require CAT Executing Brokers to pay Historical CAT Assessment 1 in
accordance with such system.
---------------------------------------------------------------------------
\86\ Section 11.4 of the CAT NMS Plan.
\87\ The billing process and system are described in CAT Alert
2023-02 as well as the CAT FAQs related to the billing of CAT fees,
the Industry Member CAT Reporter Portal User Guide, the FCAT
Industry Member Onboarding Guide, the FCAT Connectivity Supplement
for Industry Members and the CAT Billing Webinars (dated Sept. 28,
2023, and Nov. 7, 2023), each available on the CAT website.
---------------------------------------------------------------------------
(C) Failure To Pay CAT Fees
The CAT NMS Plan further states that:
Participants shall require each Industry Member to pay all
applicable fees authorized under this Article XI within thirty (30)
days after receipt of an invoice or other notice indicating payment
is due (unless a longer payment period is otherwise indicated). If
an Industry Member fails to pay any such fee when due (as determined
in accordance with the preceding sentence), such Industry Member
shall pay interest on the outstanding balance from such due date
until such fee is paid at a per annum rate equal to the lesser of:
(a) the Prime Rate plus 300 basis points;
[[Page 73973]]
or (b) the maximum rate permitted by applicable law.\88\
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\88\ Section 11.4 of the CAT NMS Plan.
Accordingly, the Exchange previously has added this requirement to the
Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee
---------------------------------------------------------------------------
schedule states:
Each CAT Executing Broker shall pay the CAT fees required
pursuant to paragraph (a) within thirty days after receipt of an
invoice or other notice indicating payment is due (unless a longer
payment period is otherwise indicated). If a CAT Executing Broker
fails to pay any such CAT fee when due, such CAT Executing Broker
shall pay interest on the outstanding balance from such due date
until such fee is paid at a per annum rate equal to the lesser of
(i) the Prime Rate plus 300 basis points, or (ii) the maximum rate
permitted by applicable law.
The requirements of paragraph (b)(2) would apply to Historical CAT
Assessment 1.
(7) Historical CAT Assessment Details
The CAT NMS Plan states that:
Details regarding the calculation of a CAT Executing Broker's
Historical CAT Assessment will be provided upon request to such CAT
Executing Broker. At a minimum, such details would include each CAT
Executing Broker's executed equivalent share volume and
corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity
Securities, (2) by transactions executed on each exchange and
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions.\89\
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\89\ Section 11.3(a)(iv)(A) of the CAT NMS Plan.
Such information would provide CEBBs and CEBSs with the ability to
understand the details regarding the calculation of their Historical
CAT Assessment.\90\ CAT LLC will provide CAT Executing Brokers with
these details regarding the calculation of their Historical CAT
Assessments on their monthly invoice for the Historical CAT Assessment.
---------------------------------------------------------------------------
\90\ In approving the CAT Funding Model, the Commission stated
that, ``[i]n the Commission's view, providing CAT Execut[ing]
Brokers information regarding the calculation of their CAT Fees will
aid in transparency and permit CAT Execut[ing] Brokers to confirm
the accuracy of their invoices for CAT Fees.'' CAT Funding Model
Approval Order at 62667.
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In addition, CAT LLC will make certain aggregate statistics
regarding Historical CAT Assessments publicly available. Specifically,
the CAT NMS Plan states that, ``[f]or each Historical CAT Assessment,
at a minimum, CAT LLC will make publicly available the aggregate
executed equivalent share volume and corresponding aggregate fee by (1)
Listed Options, NMS Stocks and OTC Equity Securities, (2) by
transactions executed on each exchange and transactions executed
otherwise on an exchange, and (3) by buy-side transactions and sell-
side transactions.'' \91\ Such aggregate statistics will be available
on the CAT website.
---------------------------------------------------------------------------
\91\ Section 11.3(a)(iv)(B) of the CAT NMS Plan. In approving
the CAT Funding Model, the Commission stated that ``[t]he
publication of the aggregate executed equivalent share volume and
aggregate fee is appropriate because it would allow Participants and
CAT Executing Brokers a high-level validation of executed volume and
fees.'' CAT Funding Model Approval Order at 62667.
---------------------------------------------------------------------------
Furthermore, CAT LLC will make publicly available on the CAT
website the total amount invoiced each month that Historical CAT
Assessment 1 is in effect as well as the total amount invoiced for
Historical CAT Assessment 1 for all months since its commencement. CAT
LLC also will make publicly available on the CAT website the total
costs to be collected from Industry Members for Historical CAT
Assessment 1. By reviewing statistics regarding how much has been
invoiced and how much remains to be invoiced for Historical CAT
Assessment 1, Industry Members would have sufficient information to
reasonably track how much longer Historical CAT Assessment 1 is likely
to be in place.
(8) Implementation Assistance
To assist Industry Members with compliance with the commencement of
Historical CAT Assessment 1, CAT LLC has been making available to CAT
Executing Brokers mock invoices prior to the commencement of Historical
CAT Assessment 1. Specifically, CAT Executing Brokers have received
mock invoices based on transaction data each month since November 2023.
The mock invoices are in the same form as the actual, payable invoices,
including both the relevant transaction data and the corresponding fee.
However, no payments have been required in response to such mock
invoices; they have been used solely to assist CAT Executing Brokers
with the development of their processes for paying the CAT fees. Such
data has provided CAT Executing Brokers with a preview of the
transaction data used in creating the invoices for Historical CAT
Assessment 1 fees, as the data will be the same as data provided in
actual invoices. Such data preview is intended to facilitate the
payment of Historical CAT Assessment 1.
(9) Financial Accountability Milestones
The CAT NMS Plan states that ``[n]o Participant will make a filing
with the SEC pursuant to Section 19(b) of the Exchange Act regarding
any Historical CAT Assessment until any applicable Financial
Accountability Milestone described in Section 11.6 has been
satisfied.'' \92\ The CAT NMS Plan further states that ``in all filings
submitted by the Participants to the Commission under Section 19(b) of
the Exchange Act, to establish or implement Post-Amendment Industry
Member Fees pursuant to this Article, . . . the Participants shall
clearly indicate whether such fees are related to Post-Amendment
Expenses incurred during Period 1, Period 2, Period 3, or Period 4.''
\93\ As discussed in detail below, all applicable Financial
Accountability Milestones for Historical CAT Assessment 1--that is,
Period 1, Period 2 and Period 3 of the Financial Accountability
Milestones--have been satisfied. Furthermore, as discussed below, this
filing clearly indicates that Historical CAT Assessment 1 relates to
Post-Amendment Expenses incurred during Periods 1, 2 and 3 of the
Financial Accountability Milestones.
---------------------------------------------------------------------------
\92\ Section 11.3(b)(iii)(B)(III) of the CAT NMS Plan.
\93\ Section 11.6(b) of the CAT NMS Plan.
---------------------------------------------------------------------------
(A) Period 1 of the Financial Accountability Milestones
In accordance with Section 11.6(b) of the CAT NMS Plan, Historical
CAT Assessment 1 seeks to recover costs that are related to ``all fees,
costs, and expenses (including legal and consulting fees, costs, and
expenses) incurred by or for the Company in connection with the
development, implementation and operation of the CAT from the effective
date of [Section 11.6 of the CAT NMS Plan] until such time as Full
Implementation of CAT NMS Plan Requirements has been achieved'' \94\
(``Post-Amendment Expenses'') incurred during FAM Period 1. FAM Period
1 began on June 22, 2020, the effective date of Section 11.6 of the CAT
NMS Plan, and concluded on July 31, 2020, the date of Initial Industry
Member Core Equity and Options Reporting. Section 1.1 of the CAT NMS
Plan defines ``Initial Industry Member Core Equity and Options
Reporting'' as:
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\94\ Section 11.6 of the CAT NMS Plan.
The reporting by Industry Members (excluding Small Industry
Members that are not OATS reporters) of both: (a) equities
transaction data, excluding Customer Account Information, Customer-
ID, and Customer Identifying Information; and (b) options
transaction data, excluding Customer Account Information, Customer-
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ID and Customer Identifying Information.
[[Page 73974]]
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.\95\ As
indicated by the Participants' Quarterly Progress Report for the third
quarter of 2020,\96\ Initial Industry Member Core Equity and Option
Reporting was completed on schedule on July 22, 2020, which is prior to
the July 31, 2020 deadline.
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\95\ The Quarterly Progress Reports are available at https://www.catnmsplan.com/implementation-plan.
\96\ See Q3 2020 Quarterly Progress Report (Oct. 30, 2020) and
Updated Q3 2020 Quarterly Progress Report (Jan. 29, 2021).
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Under the FAM Period 1 requirement of Initial Industry Member Core
Equity and Options Reporting, Industry Members--excluding Small
Industry Members that are not OATS reporters--were required to report
two categories of data to the CAT: equites transaction data and options
transaction data (both excluding Customer Account Information,
Customer-ID, and Customer Identifying Information) by July 31, 2020.
Pursuant to exemptive relief provided by the Commission, the Commission
authorized the Participants' Compliance Rules to allow core equity
reporting for Industry Members (Phase 2a) to begin on June 22, 2020 and
core options reporting for Industry Members (Phase 2b) to begin on July
20, 2020.\97\
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\97\ See Phased Reporting Exemptive Relief Order. Under the CAT
NMS Plan as adopted, the Participants were required, through their
Compliance Rules, to require their Large Industry Members to
commence reporting Industry Member Data to the Central Repository by
November 15, 2018, and to require their Small Industry Members to
commence reporting Industry Member Data to the Central Repository by
November 15, 2019. Sections 6.7(a)(v) and (vi) of the CAT NMS Plan.
The SEC granted exemptive relief from these provisions of the CAT
NMS Plan to allow for the phased implementation of Industry Member
reporting via five phases addressing the reporting requirements for
Phase 2a Industry Member Data, Phase 2b Industry Member Data, Phase
2c Industry Member Data, Phase 2d Industry Member Data and Phase 2e
Industry Member Data.
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In adopting the FAMs, the Commission stated that the equities
transaction reporting required for FAM Period 1 ``is consistent with
the functionality that the Participants describe on the CAT NMS Plan
website as `Production Go-Live for Equities 2a file submission and data
integrity validations.' '' \98\ The Phase 2a Industry Member Data is
described in detail in the SEC's Phased Reporting Exemptive Relief
Order, and includes the following data related to Eligible Securities
that are equities:
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\98\ Securities Exchange Act Rel. No. 88890 (May 15, 2020), 85
FR 31322, 31330 n.97 (May 22, 2020) (``FAM Adopting Release'').
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All events and scenarios covered by OATS, which includes
information related to the receipt or origination of orders, order
transmittal, and order modifications, cancellations and executions;
Reportable Events for: (1) proprietary orders, including
market maker orders, for Eligible Securities that are equities; (2)
electronic quotes in listed equity Eligible Securities (i.e., NMS
stocks) sent to a national securities exchange or FINRA's Alternative
Display Facility (``ADF''); (3) electronic quotes in unlisted Eligible
Securities (i.e., OTC Equity Securities) received by an Industry Member
operating an interdealer quotation system (``IDQS''); and (4)
electronic quotes in unlisted Eligible Securities sent to an IDQS or
other quotation system not operated by a Participant or Industry
Member;
Firm Designated IDs (``FDIDs''), which Industry Members
must report to the CAT as required by Sections 6.3(d)(i)(A) and
6.4(d)(ii)(C) of the CAT NMS Plan;
Industry Members would be required to report all street
side representative orders, including both agency and proprietary
orders and mark such orders as representative orders, except in certain
limited exceptions as described in the Industry Member Technical
Specifications;
The link between the street side representative order and
the order being represented when: (1) the representative order was
originated specifically to represent a single order received either
from a customer or another broker-dealer; and (2) there is (a) an
existing direct electronic link in the Industry Member's system between
the order being represented and the representative order and (b) any
resulting executions are immediately and automatically applied to the
represented order in the Industry Member's system;
Manual and Electronic Capture Time for Manual Order
Events;
Special handling instructions for the original receipt or
origination of an order during Phase 2a; and
When routing an order, whether the order was routed as an
intermarket sweep order (``ISO'').
In Phase 2a, Industry Members were not required to report
modifications of a previously routed order in certain limited
instances, nor were they required to report a cancellation of an order
received from a Customer after the order has been executed.\99\
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\99\ Phased Reporting Exemptive Relief Order at 23076-78.
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The Quarterly Progress Report for the third quarter of 2020 states
that ``Interim Step: Production Go-Live for Equities 2a file submission
and data integrity validation (Large Industry Members and Small OATS
Reporters)'' was completed on June 22, 2020. Accordingly, the FAM
Period 1 requirement of reporting by Industry Members (excluding Small
Industry Members that are not OATS reporters) of ``equities transaction
data, excluding Customer Account Information, Customer-ID, and Customer
Identifying Information'' was completed on June 22, 2020.
In adopting the FAMs, the Commission stated that the options
transaction reporting required for FAM Period 1 is ``consistent with
the functionality that the Participants describe on the CAT NMS Plan
website as `Production Go-Live for Options 2b file submission and data
integrity validations.' '' \100\ The Phase 2b Industry Member Data is
described in detail in the SEC's Phased Reporting Exemptive Relief
Order, and includes the Industry Member Data related to Eligible
Securities that are options and related to simple electronic option
orders, excluding electronic paired option orders. A simple electronic
option order is an order to buy or sell a single option that is not
related to or dependent on any other transaction for pricing and timing
of execution that is either received or routed electronically by an
Industry Member. Electronic receipt of an order is defined as the
initial receipt of an order by an Industry Member in electronic form in
standard format directly into an order handling or execution system.
Electronic routing of an order is the routing of an order via
electronic medium in standard format from one Industry Member's order
handling or execution system to an exchange or another Industry Member.
An electronic paired option order is an electronic option order that
contains both the buy and sell side that is routed to another Industry
Member or exchange for crossing and/or price improvement as a single
transaction on an exchange. Responses to auctions of simple orders and
paired simple orders would be reportable in Phase 2b. Furthermore,
combined orders in options would be treated in Phase 2b in the same way
as equity representative orders are treated in Phase 2a. A combined
order would mean, as permitted by SRO rules, a single, simple order in
Listed Options created by combining individual, simple orders in Listed
Options from a customer with the same exchange origin code before
routing to an exchange.
[[Page 73975]]
During Phase 2b, the single combined order sent to an exchange must be
reported and marked as a combined order, but the linkage to the
underlying orders is not required to be reported until Phase 2d.\101\
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\100\ FAM Adopting Release at 31330, n.98.
\101\ Phased Reporting Exemptive Relief Order at 23078.
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The Quarterly Progress Report for the third quarter of 2020 states
that ``Interim Step: Production Go-Live for Options 2b file submission
and data integrity validations'' was completed on July 20, 2020.
Accordingly, the FAM Period 1 requirement of reporting by Industry
Members (excluding Small Industry Members that are not OATS reporters)
of ``options transaction data, excluding Customer Account Information,
Customer-ID and Customer Identifying Information'' was completed on
July 20, 2020.
As discussed above, the Historical CAT Costs 1 to be recovered via
Historical CAT Assessment 1 would include fees, costs and expenses
incurred by or for the Company in connection with the development,
implementation and operation of the CAT during the period from June 22,
2020 through July 31, 2020. The total costs for this period, as
discussed above, are $6,377,343. Participants would remain responsible
for one-third of this cost (which they have previously paid), and
Industry Members would be responsible for the remaining two-thirds,
with CEBBs paying one-third ($2,125,781) and CEBSs paying one-third
($2,125,781).
(B) Period 2 of the Financial Accountability Milestones
Historical CAT Assessment 1 seeks to recover costs that are related
to Post-Amendment Expenses incurred during FAM Period 2. FAM Period 2
began on August 1, 2020, and concluded on December 31, 2020, the date
of the Full Implementation of Core Equity Reporting. Section 1.1 of the
CAT NMS Plan defines ``Full Implementation of Core Equity Reporting''
as:
the point at which: (a) Industry Member reporting (excluding
reporting by Small Industry Members that are not OATS reporters) for
equities transactions, excluding Customer Account Information,
Customer-ID, and Customer Identifying Information, is developed,
tested, and implemented at a 5% Error Rate or less and with
sufficient intra-firm linkage, inter-firm linkage, national
securities exchange linkage, and trade reporting facilities linkage
to permit the Participants and the Commission to analyze the full
lifecycle of an order across the national market system, excluding
linkage of representative orders, from order origination through
order execution or order cancellation; and (b) the query tool
functionality required by Section 6.10(c)(i)(A) and appendix D,
Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry
Member equities transaction data described in condition (a) and is
available to the Participants and to the Commission. This Financial
Accountability Milestone shall be considered complete as of the date
identified in a Quarterly Progress Report meeting the requirements
of Section 6.6(c).
Under Section 1.1 of the CAT NMS Plan, this Financial
Accountability Milestone is considered complete as of the date
identified in the Participants' Quarterly Progress Reports. As
indicated by the Participants' Quarterly Progress Report for the fourth
quarter of 2020,\102\ Full Implementation of Core Equity Reporting was
completed on schedule by December 31, 2020.
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\102\ Q4 2020 Quarterly Progress Report (Jan. 29, 2021).
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Specifically, the Full Implementation of Core Equity Reporting
requires the satisfaction of two prongs. The first prong requires
Participants to have fully implemented the first phase of equities
transaction reporting for Industry Members (excluding Small Industry
Members that are not OATS reporters) at an Error Rate of less than 5%.
In addition, equities transaction data produced by the CAT at this
stage must also be sufficiently interlinked so as to permit full
analysis of an order's lifecycle across the national market, excluding
full linkage of representative orders. As CAT LLC reported on its
Quarterly Progress Reports, Phase 2a was fully implemented as of
October 26, 2020, including intra-firm, inter-firm, national securities
exchange, and trade reporting facilities linkages.\103\ In addition to
the reporting of Phase 2a Industry Member Data as described above with
regard to FAM Period 1, the following linkage data was added to the CAT
as described in the Quarterly Progress Reports for the third and fourth
quarter of 2020:
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\103\ For a description of the requirements of Phases 2a, see
Phased Reporting Exemptive Relief Order.
---------------------------------------------------------------------------
``Production Go-Live for Equities 2a Intrafirm Linkage
validations'' was completed on 7/27/2020; \104\
---------------------------------------------------------------------------
\104\ Q3 2020 Quarterly Progress Report (Oct. 20, 2021).
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``Production Go-Live for Firm to Firm Linkage validations
for Equities 2a (Large Industry Members and Small OATS Reporters)'' was
completed on October 26, 2020; and
``Production Go-Live for Equities 2a Exchange and TRF
Linkage validations (Large Industry Members and Small OATS Reporters)''
was completed on October 26, 2020.
Furthermore, as CAT LLC reported on its Quarterly Progress Report
for the fourth quarter of 2020, the average overall error rate for
Phase 2a Industry Member Data was less than 5% as of December 31, 2020.
The average overall error rate was calculated by dividing the
compliance errors by processed records.
The second prong of this FAM requires that the equities transaction
data collected by the CAT at this stage be made available to regulators
through two basic query tools required by the CAT NMS Plan--a targeted
query tool that will enable regulators to retrieve data via an online
query screen with a variety of predefined selection criteria, and a
user-defined direct query tool that will provide regulators with the
ability to query data using all available attributes and data
sources.\105\ As CAT LLC reported on its Quarterly Progress Reports,
the query tool functionality incorporating the data from Phase 2a was
available to the Participants and the Commission as of December 31,
2020.\106\
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\105\ Section 6.10(c)(i)(A) of the CAT NMS Plan requires the
Plan Processor to ``provide Participants and the SEC with access to
all CAT Data stored in the Central Repository'' via an ``online
targeted query tool.'' Appendix D, Sections 8.1.1-8.1.3 of the CAT
NMS Plan describes the required functionality associated with this
regulatory tool. Appendix D, Section 8.2.1 describes the required
functionality associated with a user-defined direct query tool that
will ``deliver large sets of data that can then be used in internal
surveillance or market analysis applications.''
\106\ See Q3 2020 Quarterly Progress Report (Oct. 30, 2020);
Updated Q3 2020 Quarterly Progress Report (Jan. 29, 2021); and Q4
2020 Quarterly Progress Report (Jan. 29, 2021).
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The Commission has determined that the Participants have
sufficiently complied with the conditions set forth in the 2020 Orders
and with the technical requirements for Quarterly Progress Reports set
forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining
compliance with this FAM.\107\
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\107\ Securities Exchange Act Rel. No. 98848 (Nov. 2, 2023), 88
FR 77128, 77129 n.13 (Nov. 8, 2023) (``Settlement Exemptive
Order'').
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As discussed above, Historical CAT Costs 1 to be recovered via
Historical CAT Assessment 1 would include fees, costs and expenses
incurred by or for the Company in connection with the development,
implementation and operation of the CAT during the period from August
1, 2020 through December 31, 2020. The total costs for this period, as
discussed above, are $42,976,478. Participants would remain responsible
for one-third of this cost (which they have previously paid), and
Industry Members would be responsible for the remain [sic] two-thirds,
with CEBBs paying one-third ($14,325,492.70) and
[[Page 73976]]
CEBSs paying one-third ($14,325,492.70).
(C) Period 3 of the Financial Accountability Milestones
Historical CAT Assessment 1 seeks to recover costs that are related
to Post-Amendment Expenses incurred during FAM Period 3. FAM Period 3
began on January 1, 2021, and concluded on December 31, 2021, the date
of the Full Availability and Regulatory Utilization of Transactional
Database Functionality. Section 1.1 of the CAT NMS Plan defines ``Full
Availability and Regulatory Utilization of Transactional Database
Functionality'' as:
the point at which: (a) reporting to the Order Audit Trail System
(``OATS'') is no longer required for new orders; (b) Industry Member
reporting for equities transactions and simple electronic options
transactions, excluding Customer Account Information, Customer-ID,
and Customer Identifying Information, with sufficient intra-firm
linkage, inter-firm linkage, national securities exchange linkage,
trade reporting facilities linkage, and representative order
linkages (including any equities allocation information provided in
an Allocation Report) to permit the Participants and the Commission
to analyze the full lifecycle of an order across the national market
system, from order origination through order execution or order
cancellation, is developed, tested, and implemented at a 5% Error
Rate or less; (c) Industry Member reporting for manual options
transactions and complex options transactions, excluding Customer
Account Information, Customer-ID, and Customer Identifying
Information, with all required linkages to permit the Participants
and the Commission to analyze the full lifecycle of an order across
the national market system, from order origination through order
execution or order cancellation, including any options allocation
information provided in an Allocation Report, is developed, tested,
and fully implemented; (d) the query tool functionality required by
Section 6.10(c)(i)(A) and appendix D, Sections 8.1.1-8.1.3, Section
8.2.1, and Section 8.5 incorporates the data described in conditions
(b)-(c) and is available to the Participants and to the Commission;
and (e) the requirements of Section 6.10(a) are met. This Financial
Accountability Milestone shall be considered complete as of the date
identified in a Quarterly Progress Report meeting the requirements
of Section 6.6(c).
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability
Milestone is considered complete as of the date identified in the
Participants' Quarterly Progress Reports. As indicated by the
Participants' Quarterly Progress Report for the fourth quarter of
2021,\108\ Full Availability and Regulatory Utilization of
Transactional Database Functionality was completed on schedule by
December 31, 2021.
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\108\ Q4 2021 Quarterly Progress Report (Jan. 17, 2022).
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Specifically, the ``Full Availability and Regulatory Utilization of
Transactional Database Functionality'' requires the satisfaction of
five prongs. The first prong requires that reporting to the Order Audit
Trail System (``OATS'') is no longer required for new orders. As CAT
LLC reported on its Quarterly Progress Report for the fourth quarter of
2021,\109\ FINRA retired OATS effective September 1, 2021.\110\
Accordingly, after the retirement of OATS, reporting to OATS was no
longer required.
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\109\ Id.
\110\ Securities Exchange Act Rel. No. 92239 (June 23, 2021), 86
FR 34293 (June 29, 2021).
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In addition to Phase 2a and Phase 2b Industry Member Data, the
second and third prongs of ``Full Availability and Regulatory
Utilization of Transactional Database Functionality'' require Industry
Member reporting of Phase 2c Industry Member Data and Phase 2d Industry
Member Data. The Phase 2c Industry Member Data is described in detail
in the SEC's Phased Reporting Exemptive Relief Order. That Order states
that ``Phase 2c Industry Member Data'' is Industry Member Data related
to Eligible Securities that are equities other than Phase 2a Industry
Member Data, Phase 2d Industry Member Data, or Phase 2e Industry Member
Data. Specifically, the Phase 2c Industry Member Data includes Industry
Member Data that is related to Eligible Securities that are equities
and that is related to: (1) Allocation Reports as required to be
recorded and reported to the Central Repository pursuant to Section
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible
Securities sent to an IDQS operated by a CAT Reporter (reportable by
the Industry Member sending the quotes) (except for quotes reportable
in Phase 2d, as discussed below); (3) electronic quotes in listed
equity Eligible Securities (i.e., NMS stocks) that are not sent to a
national securities exchange or FINRA's Alternative Display Facility;
(4) reporting changes to client instructions regarding modifications to
algorithms; (5) marking as a representative order any order originated
to work a customer order in price guarantee scenarios, such as a
guaranteed VWAP; (6) flagging rejected external routes to indicate a
route was not accepted by the receiving destination; (7) linkage of
duplicate electronic messages related to a Manual Order Event between
the electronic event and the original manual route; (8) special
handling instructions on order route reports (other than the ISO, which
is required to be reported in Phase 2a); (9) quote identifier on trade
events; (10) reporting of LTIDs (if applicable) for accounts with
Reportable Events that are reportable to CAT as of and including Phase
2c; (11) reporting of date account opened or Account Effective Date (as
applicable) for accounts and reporting of a flag indicating the Firm
Designated ID type as account or relationship; (12) order effective
time for orders that are received by an Industry Member and do not
become effective until a later time; (13) the modification or
cancellation of an internal route of an order; and (14) linkages to the
customer orders(s) being represented for representative order
scenarios, including agency average price trades, net trades,
aggregated orders, and disconnected Order Management System (``OMS'')--
Execution Management System (``EMS'') scenarios, as required in the
Industry Member Technical Specifications.\111\
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\111\ Phase Reporting Exemptive Relief Order at 23078-79.
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Phase 2c Industry Member Data also includes electronic quotes that
are provided by or received in a CAT Reporter's order/quote handling or
execution systems in Eligible Securities that are equities and are
provided by an Industry Member to other market participants off a
national securities exchange under the following conditions: (1) an
equity bid or offer is displayed publicly or has been communicated (a)
for listed securities to the ADF operated by FINRA; or (b) for unlisted
equity securities to an ``interdealer quotation system,'' as defined in
FINRA Rule 6420(c); or (2) an equity bid or offer which is accessible
electronically by customers or other market participants and is
immediately actionable for execution or routing; i.e., no further
manual or electronic action is required by the responder providing the
quote in order to execute or cause a trade to be executed). With
respect to OTC Equity Securities, OTC Equity Securities quotes sent by
an Industry Member to an IDQS operated by an Industry Member CAT
Reporter (other than such an IDQS that does not match and execute
orders) are reportable by the Industry Member sending them in Phase 2c.
Accordingly, any response to a request for quote or other form of
solicitation response provided in a standard electronic format (e.g.,
FIX) that meets this quote definition (i.e., an equity bid or offer
which is accessible electronically by customers or other market
participants and is immediately actionable for execution or routing)
would be reportable in Phase 2c.\112\
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\112\ Id. at 23079.
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[[Page 73977]]
The Phase 2d Industry Member Data is described in detail in the
SEC's Phased Reporting Exemptive Relief Order. ``Phase 2d Industry
Member Data'' is Industry Member Data that is related to Eligible
Securities that are options other than Phase 2b Industry Member Data,
Industry Member Data that is related to Eligible Securities that are
equities other than Phase 2a Industry Member Data or Phase 2c Industry
Member Data, and Industry Member Data other than Phase 2e Industry
Member Data. Phase 2d Industry Member Data includes with respect to the
Eligible Securities that are options: (1) simple manual orders; (2)
electronic and manual paired orders; (3) all complex orders with
linkages to all CAT-reportable legs; (4) LTIDs (if applicable) for
accounts with Reportable Events for Phase 2d; (5) date account opened
or Account Effective Date (as applicable) for accounts with an LTID and
flag indicating the Firm Designated ID type as account or relationship
for such accounts; (6) Allocation Reports as required to be recorded
and reported to the Central Repository pursuant to Section
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (7) the modification or
cancellation of an internal route of an order; and (8) linkage between
a combined order and the original customer orders. Phase 2d Industry
Member Data also would include electronic quotes that are provided by
or received in a CAT Reporter's order/quote handling or execution
systems in Eligible Securities that are options and are provided by an
Industry Member to other market participants off a national securities
exchange under the following conditions: a listed option bid or offer
which is accessible electronically by customers or other market
participants and is immediately actionable (i.e., no further action is
required by the responder providing the quote in order to execute or
cause a trade to be executed). Accordingly, any response to a request
for quote or other form of solicitation response provided in standard
electronic format (e.g., FIX) that meets this definition is reportable
in Phase 2d for options.\113\
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\113\ Id.
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Phase 2d Industry Member Data also includes with respect to
Eligible Securities that are options or equities (1) receipt time of
cancellation and modification instructions through Order Cancel Request
and Order Modification Request events; (2) modifications of previously
routed orders in certain instances; and (3) OTC Equity Securities
quotes sent by an Industry Member to an IDQS operated by an Industry
Member CAT Reporter that does not match and execute orders. In
addition, subject to any exemptive or other relief, Phase 2d Industry
Member Data will include verbal or manual quotes on an exchange floor
or in the over-the-counter market, where verbal quotes and manual
quotes are defined as bids or offers in Eligible Securities provided
verbally or that are provided or received other than via a CAT
Reporter's order handling and execution system (e.g., quotations
provided via email or instant messaging).\114\
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\114\ Id. at 23079-80.
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The Quarterly Progress Report for the fourth quarter of 2021 states
that ``Phase 2a was fully implemented as of October 26, 2020;'' ``Phase
2b was fully implemented as of January 4, 2021;'' ``Phase 2c was
implemented as of April 26, 2021;'' and ``Phase 2d was fully
implemented as of December 13, 2021.'' \115\ The Quarterly Progress
Reports for 2021 provide additional detail regarding the implementation
of these steps including the following:
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\115\ See Q4 2021 Quarterly Progress Report (Jan. 17, 2022).
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``Production Go-Live for Equities 2c reporting
requirements (Large Industry Members)'' was completed on April 26,
2021;
``LTID Account Information Reporting Go-Live for Phases
2a, 2b and 2c (Large Industry Members)'' was completed on April 26,
2021;
``FCAT Plan Processor creates linkages of the lifecycle of
order events based on the received data through Phase 2d Production Go-
Live for Options 2d reporting requirements (Large Industry Members)''
was completed on December 13, 2021;
