[Federal Register Volume 87, Number 105 (Wednesday, June 1, 2022)]
[Notices]
[Pages 33226-33250]
[FR Doc No: 2022-11675]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94984; File No. 4-698]

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

May 25, 2022.

I. Introduction

    On May 13, 2022, the Operating Committee for Consolidated Audit
Trail, LLC (``CAT LLC''), on behalf of the following parties to the
National Market System Plan Governing the Consolidated Audit Trail (the
``CAT NMS Plan'' or ``Plan''): \1\ BOX Exchange LLC; Cboe BYX Exchange,
Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX
Exchange, Inc., Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Financial
Industry Regulatory Authority, Inc., Investors Exchange LLC, Long-Term
Stock Exchange, Inc., MEMX, LLC, Miami International Securities
Exchange LLC, MIAX Emerald, LLC, MIAX PEARL, LLC, Nasdaq BX, Inc.,
Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, Nasdaq PHLX LLC,
The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE American
LLC, NYSE Arca, Inc., NYSE Chicago, Inc., and NYSE National, Inc.
(collectively, the ``Participants,'' ``self-regulatory organizations,''
or ``SROs'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') pursuant to Section 11A(a)(3) of the Securities
Exchange Act of 1934 (``Exchange Act''),\2\ and Rule 608 thereunder,\3\
a proposed amendment to the CAT NMS Plan to implement a revised funding
model (``Executed Share Model'') for the consolidated audit trail
(``CAT'') and to establish a fee schedule for Participant CAT fees in
accordance with the Executed Share Model.\4\ Exhibit A, attached
hereto, contains proposed revisions to Articles I and XI of the CAT NMS
Plan as well as proposed Appendix B to the Plan containing the fee
schedule setting forth the CAT fees to be paid by the Participants. In
addition, the Operating Committee provided an example of how the
Executed Share Model would operate for illustrative purposes only, as
attached hereto as Exhibit B. The example is provided in two charts
that, according to the Participants, set forth illustrative CAT fees
for each Participant, Industry Member that is the clearing member for
the seller in the transaction, and Industry Member that is the clearing
member for the buyer in the transaction. The Commission is publishing
this notice to solicit comments from interested persons on the
amendment.\5\
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    \1\ The CAT NMS Plan is a national market system plan approved
by the Commission pursuant to Section 11A of the Exchange Act and
the rules and regulations thereunder. See Securities Exchange Act
Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23,
2016).
    \2\ 15 U.S.C 78k-1(a)(3).
    \3\ 17 CFR 242.608.
    \4\ See Letter from Michael Simon, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman, Secretary, Commission, dated
May 13, 2022 (``Transmittal Letter'').
    \5\ 17 CFR 242.608.
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II. Description of the Plan

    Set forth in this Section II is the statement of the purpose and
summary of the amendment, along with information required by Rule
608(a) under the Exchange Act,\6\ substantially as prepared and
submitted by the Participants to the Commission.\7\
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    \6\ See 17 CFR 242.608(a).
    \7\ See Transmittal Letter, supra note 4. Unless otherwise
defined herein, capitalized terms used herein are defined as set
forth in the CAT NMS Plan.
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A. Description of the Amendments to the CAT NMS Plan

    The Operating Committee proposes to replace the funding model set
forth in Article XI of the CAT NMS Plan (the ``Original Funding
Model'') with the Executed Share Model. The Original Funding Model
involves a bifurcated approach, where costs associated with building
and operating the CAT would be borne by (1) Industry Members (other
than alternative trading systems (``ATSs'') that execute transactions
in Eligible Securities (``Execution Venue ATSs'')) through fixed tiered
fees based on message traffic for Eligible Securities, and (2)
Participants and Industry Members that are Execution Venue ATSs for
Eligible Securities through fixed tiered fees based on market share.
The Operating Committee proposes to amend the CAT NMS Plan to adopt the
Executed Share Model. The Executed Share Model would impose fees on CAT
Reporters based on the executed equivalent share volume of transactions
in Eligible Securities rather than based on market share and message
traffic. The Operating Committee also proposes to adopt a fee schedule
to establish the CAT fees applicable to Participants based on the
Executed Share Model. The Participants separately intend to file rule
filings under Section 19(b) to establish the CAT fees applicable to
Industry Members based on the Executed Share Model set forth in the CAT
NMS Plan.
1. Description of the Executed Share Model
    The Operating Committee proposes to amend the CAT NMS Plan to
describe the Executed Share Model. Under the Executed Share Model, the
Operating Committee would establish a fee structure in which the fees
charged to Participants and Industry Members are based on the executed
equivalent share volume of transactions in Eligible Securities using
CAT Data.\8\
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    \8\ The use of CAT Data in the Executed Share Model is discussed
in more detail in Section A.5.k below.
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    For each transaction in Eligible Securities based on CAT Data, the
Industry Member that is the clearing member for the seller in the
transaction (``Clearing Broker for the Seller'' or ``CBS''), the
Industry Member that is the clearing member for the buyer in the
transaction (``Clearing Broker for the Buyer'' or ``CBB''), and the
applicable Participant for the transaction each would pay a fee
calculated by multiplying the number of executed equivalent shares in
the transaction and the applicable Fee Rate (as defined below) and
dividing the product by three. The applicable Participant for the
transaction would be the national securities exchange on which the
transaction was executed, or FINRA for each transaction executed
otherwise than on an exchange. Accordingly, for each transaction, the
Clearing Broker for the Buyer would pay one-third of the fee
obligation, the Clearing Broker for the Seller would pay one-third of
the fee obligation, and the relevant Participant for the transaction
would pay the remaining one-third of the fee obligation.
    Both Participants and Industry Members would be required to pay CAT
fees with regard to CAT costs not previously paid by the Participants
(``Prospective CAT Costs''). These are the ongoing budgeted costs for
the CAT after the CAT fees become operative. The Fee Rate for the CAT
fees related to Prospective CAT Costs would be calculated by dividing
the budgeted CAT costs for the relevant period (as determined by the
Operating Committee) by the projected total executed equivalent share
volume of all

transactions in Eligible Securities for the relevant period based on
CAT Data. The Fee Rate for these CAT fees would be the same for the
calculation of fees for Participants, CBBs and CBSs.
    Industry Members also would be required to pay CAT fees with regard
to certain CAT costs previously paid by the Participants (``Past CAT
Costs'').\9\ To date, Participants have paid for all costs of the CAT
incurred. Accordingly, Participants would not be required to pay a CAT
fee related to Past CAT Costs. However, Participants would remain
responsible for one-third of Past CAT Costs, and would remain
responsible for 100% of certain other CAT costs incurred in the past
(as discussed in more detail below) which are excluded from Past CAT
Costs. The Fee Rate for the CAT fees related to Past CAT Costs would be
calculated by dividing the Past CAT Costs for the relevant period (as
determined by the Operating Committee) by the projected total executed
equivalent share volume of all transactions in Eligible Securities for
the relevant period based on CAT Data.
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    \9\ Past CAT Costs are discussed in more detail in Section A.3.b
below.
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2. Participant CAT Fees
    The proposed fee schedule in Exhibit B [sic] \10\ to the CAT NMS
Plan, entitled Consolidated Audit Trail Funding Fees for Participants,
would establish the CAT fees to be paid by Participants. These CAT fees
are designed to operate in accordance with the Executed Share Model as
described in proposed Article XI of the CAT NMS Plan. Accordingly, for
each transaction in Eligible Securities based on CAT Data, the
applicable Participant for the transaction would pay a fee calculated
by multiplying the number of executed equivalent shares in the
transaction and the applicable Fee Rate and dividing the product by
three. The applicable Participant for the transaction would be the
national securities exchange on which the transaction was executed, or
FINRA for each transaction executed otherwise than on an exchange. The
proposed fee schedule provides additional detail as to how the
Participant fees would be calculated.
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    \10\ The Commission notes that Appendix B contains the proposed
Consolidated Audit Trail Funding Fees for Participants. Exhibit B
sets forth an illustrative example of CAT fees calculated under the
Executed Share Model.
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    Because the Participants have paid all CAT costs to date, the
Participants would not make any additional payments to the CAT with
regard to CAT costs incurred in the past. The Participants would only
pay CAT fees on a going forward basis with regard to new CAT costs.
Accordingly, the proposed fee schedule describes these forward-looking
CAT fees for Participants.\11\
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    \11\ In contrast, as discussed in more detail below, the
Participants would propose to implement CAT fees for Industry
Members to reimburse the Participants for certain Past CAT Costs as
well as to pay for a share of ongoing CAT costs.
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a. Calculation of Fee Rate
    The Operating Committee would set the Fee Rate used in determining
the CAT fees at the beginning of each year. The Fee Rate would be
calculated by dividing the CAT costs budgeted for the upcoming year by
the projected total executed equivalent share volume of all
transactions in Eligible Securities for the year. The Operating
Committee may, but is not required to, adjust the Fee Rate once during
the year to seek to more closely coordinate the CAT fees with any
adjustments to the budgeted or actual CAT costs or to volume
projections during the year. The Operating Committee may only adjust
the Fee Rate once during the year to avoid changing the Fee Rate too
frequently for CAT Reporters.
    Once the Operating Committee has established a Fee Rate, it will
remain in effect until the Operating Committee adjusts the Fee Rate
during the year or adopts a new Fee Rate for the next year. The
proposal does not contemplate that any Fee Rate would automatically
terminate. This approach would avoid periods in which no CAT fees are
collected, as such a cessation in the collection of CAT fees would
adversely affect the ability of the CAT to fund its operations and,
therefore, would have a significant negative effect on the CAT's
ability to fulfill its regulatory purpose. This approach also
recognizes the practical timing issues of ensuring that the Operating
Committee has the appropriate CAT budget and CAT Data to calculate the
CAT fees.
    Once any Fee Rate has been established by a majority vote of the
Operating Committee in accordance with the Executed Share Model set
forth in the CAT NMS Plan, each Participant would be required to pay
the applicable CAT fee calculated in accordance with the proposed fee
schedule in the CAT NMS Plan. The Operating Committee does not plan to
submit an amendment to the CAT NMS Plan each time that the Fee Rate is
established or adjusted.\12\
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    \12\ In contrast, the Participants will file a fee filing
pursuant to Section 19(b) and Rule 19b-4 thereunder with regard to
Fee Rate changes applicable to Industry Members.
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    The Operating Committee would announce the Fee Rate at the
beginning of the year, and any adjustment to the Fee Rate during the
year via a CAT alert.\13\ In addition, the Operating Committee would
provide the Fee Rate and any adjustments, as well as the budget and
projection information, on a dedicated web page on the CAT NMS Plan
website to make it readily accessible to CAT Reporters.
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    \13\ Participants do not intend to file a new separate amendment
to the CAT NMS Plan for Participants each time a new Fee Rate is
approved by the Operating Committee.
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i. Budgeted CAT Costs
    The calculation of the Fee Rate requires the determination of the
budgeted CAT costs for the upcoming year. The budgeted CAT costs for
the upcoming year would be the costs set forth in the annual operating
budget for the Company \14\ required pursuant to Section 11.1(a) of the
CAT NMS Plan. Section 11.1(a) states that ``[o]n an annual basis the
Operating Committee shall approve an operating budget for the Company.
The budget shall include the projected costs of the Company, including
the costs of developing and operating the CAT for the upcoming year,
and the sources of all revenue to cover such costs, as well as the
funding of any reserve that the Operating Committee reasonably deems
appropriate for prudent operation of the Company.'' Using budgeted CAT
costs, rather than CAT costs already incurred, allows the Company to
collect fees prior to when bills become payable.
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    \14\ As defined in the CAT NMS Plan, the Company is the
Consolidated Audit Trail, LLC.
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    The CAT costs budgeted for the year would be comprised of all fees,
costs and expenses estimated to be incurred by or for the Company in
connection with the development, implementation and operation of the
CAT during the year. These CAT costs would include, but not be limited
to, Plan Processor costs, insurance costs, third-party support costs
and an operational reserve. Plan Processor costs would consist of the
Plan Processor's ongoing costs, including development costs. This
amount would be based upon the fees due to the Plan Processor pursuant
to the Company's agreement with the Plan Processor. Insurance costs
would include cyber insurance and director liability insurance. Third-
party support costs would include legal fees, consulting fees, vendor
fees and audit fees. In addition, the Operating Committee aims to
accumulate the necessary funds to establish an operating reserve for
the Company through the CAT fees charged to CAT Reporters. As set forth
in Section 11.1(a) of the CAT NMS Plan, the Operating Committee may
include in the budget

``funding of any reserve that the Operating Committee reasonably deems
appropriate for prudent operation of the Company.'' \15\ As required by
Section 11.1(c) of the CAT NMS Plan, any surpluses collected will be
treated as an operational reserve to offset future fees and will not be
distributed to the Participants as profits.\16\
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    \15\ Although the Operating Committee may determine at its
discretion that a different level of reserves is appropriate in the
future, the Operating Committee proposes to include in the budget
for purposes of determining CAT fees an operational reserve
comprised of three months of ongoing CAT costs, such as Plan
Processor costs, third party support costs and insurance costs.
    \16\ CAT NMS Plan Approval Order at 84792.
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    To address potential changes related to the CAT during the year,
the Operating Committee may adjust the budgeted CAT costs for the year
as it reasonably deems appropriate for the prudent operation of the
Company. For example, the Operating Committee may determine that an
adjustment to the budget is necessary if actual costs during the year
are more or less than the budget, or if unanticipated expenditures are
necessary. To the extent that the Operating Committee adjusts the
budgeted CAT costs during the year and determines to adjust the Fee
Rate, the adjusted budgeted CAT costs would be used in calculating the
new Fee Rate for the remaining months of the year.
    The Operating Committee has determined to publicly provide the
annual operating budget for the Company as well as any updates to the
budget that occur during the year. This publicly available budget
information describes in detail the budget for the Company. For
example, among other things, the budget provides specific budgeted
technology costs (including cloud hosting services, operating fees,
Customer and Account Information System (``CAIS'') operating fees and
change request fees) and general and administrative costs (including
legal, consulting, insurance, professional and administration, and
public relations). The Company provides such budget information on a
dedicated web page on the CAT NMS Plan website to make it readily
accessible for CAT Reporters and others.\17\
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    \17\ The CAT budget, as of April 6, 2022, is currently available
on the CAT website at https://www.catnmsplan.com/cat-financial-and-operating-budget.
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ii. Projected Total Executed Equivalent Share Volume
    The calculation of the Fee Rate also requires the determination of
the projected total executed equivalent share volume of transactions in
Eligible Securities for the year. Each year, the Operating Committee
would determine this projection based on the total executed equivalent
share volume of transactions in Eligible Securities from the prior six
months.\18\ The projection for the year would be calculated by doubling
the total executed equivalent share volume from the prior six months.
The Operating Committee determined that the use of the data from the
prior six months provides an appropriate balance between using data
from a period that is sufficiently long to avoid short term
fluctuations while providing data close in time to the upcoming year.
During the year, the Operating Committee will monitor actual total
executed equivalent share volume on a regular basis to determine
whether the projected volume is deviating from the actual volume.
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    \18\ For example, although the six month look back will depend
on the circumstances of the filing, one example of such a six month
look back would be the use of CAT Data from July through December
2022 for a fee filing in January 2023.
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    To address potential deviations of the projections from actual
transactions during the year, the projected total executed equivalent
share volume for transactions in Eligible Securities may be adjusted as
the Operating Committee reasonably deems appropriate for the prudent
operation of the Company. Any adjusted projection would be based on the
total executed equivalent share volume of transactions in Eligible
Securities from the six months prior to the date of the determination
of the new projection.\19\ To the extent that the Operating Committee
adjusts this projection during the year and determines to adjust the
Fee Rate, the adjusted projection would be used in calculating the new
Fee Rate for the remaining months of the year.
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    \19\ For example, although the six month look back will depend
on the circumstances of the filing, one example of such a six month
look back for a July 2023 filing of an adjusted Fee Rate would be
the use of CAT Data from the prior January through June.
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    The Operating Committee will publicly provide the projected total
executed equivalent share volume for transactions in Eligible
Securities as well as any adjustment to the projections that occurs
during the year. The Company would include such projection information
on a dedicated web page on the CAT NMS Plan website to make it readily
accessible for CAT Reporters and others.
b. Transactions in Eligible Securities
    Under the Executed Share Model, a CAT fee would be imposed with
regard to each transaction in Eligible Securities as reported in CAT
Data. As set forth in Section 1.1 of the CAT NMS Plan, ``Eligible
Securities'' are defined to include all NMS Securities and all OTC
Equity Securities. Section 1.1 of the CAT NMS Plan, in turn, defines an
``NMS Security'' as ``any security or class of securities for which
transaction reports are collected, processed, and made available
pursuant to an effective transaction reporting plan, or an effective
national market system plan for reporting transactions in Listed
Options.'' In addition, Section 1.1 of the CAT NMS Plan defines an
``OTC Equity Security'' as ``any equity security, other than an NMS
Security, subject to prompt last sale reporting rules of a registered
national securities association and reported to one of such
association's equity trade reporting facilities.'' A CAT fee would be
imposed with regard to each transaction in Eligible Securities
regardless of whether the trade is executed on an exchange or otherwise
than on an exchange.
    The Executed Share Model uses the concept of executed equivalent
shares as the transactions subject to a CAT fee involve NMS Stocks,
Listed Options and OTC Equity Securities, each of which have different
trading characteristics.
    NMS Stocks. Under the Executed Share Model, each executed share for
a transaction in NMS Stocks will be counted as one executed equivalent
share.
    Listed Options. Recognizing that Listed Options trade in contracts
rather than shares, each executed contract for a transaction in Listed
Options will be counted using the contract multiplier applicable to the
specific Listed Option in the relevant transaction. Typically, a Listed
Option contract represents 100 shares; however, it may also represent
another designated number of shares.
    OTC Equity Securities. Similarly, in recognition of the different
trading characteristics of OTC Equity Securities as compared to NMS
Stocks, the Executed Share Model would discount the share volume of OTC
Equity Securities when calculating the CAT fees. Many OTC Equity
Securities are priced at less than one dollar--and a significant number
are priced at less than one penny--per share and low-priced shares tend
to trade in larger quantities. Accordingly, a disproportionately large
number of shares are involved in transactions involving OTC Equity
Securities versus NMS Stocks.\20\ Because the Executed

Share Model would calculate CAT fees based on executed share volume,
CAT Reporters trading OTC Equity Securities would likely be subject to
higher fees than their market activity may warrant. To address this
potential concern, the Executed Share Model would count each executed
share for a transaction in OTC Equity Securities as 0.01 executed
equivalent shares.
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    \20\ For example, based on data from 2021, (1) the average price
per executed share of OTC Equity Securities was $0.072 and the
average price per executed share for NMS Stocks was $49.51; and (2)
the average trade size for OTC Equity Securities was 63,474 and the
average trade size for NMS Stocks was 166 shares. Trades in OTC
Equity Securities accounted for 77% of the number of all equity
shares traded, but only 0.51% of the notional value of all equity
shares traded.
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    The discount to 1% was selected based on a reasoned analysis of a
variety of different metrics for comparing the markets for OTC Equity
Securities and NMS Stocks, rather than a simple calculation. For
example, using 2021 data, the Operating Committee calculated the
following metrics: (1) The ratio of total notional dollar value traded
for OTC Equity Securities to OTC Equity Securities and NMS Stocks was
0.051%; (2) the ratio of total trades in OTC Equity Securities to total
trades in OTC Equity Securities and NMS Stocks was 0.90%; and (3) the
ratio of average share price per trade of OTC Equities to average share
price per trade for OTC Equity Securities and NMS Stocks was 0.065%. In
recognition of the fact that these calculations involve averages and
for ease of application, the Operating Committee determined to round
these metrics to 1%.
c. Monthly Fees
    Participants would be required to pay monthly fees in accordance
with the proposed fee schedule. A Participant's fee for each month
would be calculated based on the Participant's transactions in Eligible
Securities from the prior month. The CAT fees for each Participant will
be calculated by the Plan Processor using the transaction data for such
Participant as set forth in the CAT Data. Specifically, each
Participant would pay a fee for each month, where the fee would be
calculated by multiplying the Participant's transactions in Eligible
Securities from the prior month by the Fee Rate determined by the
Operating Committee for that period and dividing the product by three.
The Operating Committee proposes to require the commencement of the
payment of the Participant CAT fees in the first month after the
conclusion of the period covered by the Financial Accountability
Milestones,\21\ subject to SEC approval of this Plan amendment and the
CAT fees becoming effective for both Participants and Industry Members.
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    \21\ See Securities Exchange Act Rel. No. 88890 (May 15, 2020),
85 FR 31322 (May 22, 2020) (``Financial Accountability Milestone
Release'').
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d. Collection of Fees
    Pursuant to Section 11.4 of the CAT NMS Plan, the Operating
Committee proposes to establish a system for the collection of CAT fees
from Participants and Industry Members. As set forth in Section 11.4 of
the CAT NMS Plan, each Participant would be required to pay its CAT
fees authorized under the CAT NMS Plan as required by Section 3.7(b) of
the CAT NMS Plan.\22\ Section 3.7(b) of the CAT NMS Plan provides the
following:
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    \22\ Participants would be responsible for a fee each month in
which they are a CAT Reporter. If a Participant ceases to the meet
the definition of a CAT Reporter during a month, the Participant
will still be responsible for CAT fees associated with its
transactions during that month.
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    Each Participant shall pay all fees or other amounts required to be
paid under this Agreement within thirty (30) days after receipt of an
invoice or other notice indicating payment is due (unless a longer
payment period is otherwise indicated) (the ``Payment Date''). The
Participant shall pay interest on the outstanding balance from the
Payment Date until such fee or amount is paid at a per annum rate equal
to the lesser of: (i) The Prime Rate plus 300 basis points; or (ii) the
maximum rate permitted by applicable law. If any such remaining
outstanding balance is not paid within thirty (30) days after the
Payment Date, the Participants shall file an amendment to this
Agreement requesting the termination of the participation in the
Company of such Participant, and its right to any Company Interest,
with the SEC. Such amendment shall be effective only when it is
approved by the SEC in accordance with SEC Rule 608 or otherwise
becomes effective pursuant to SEC Rule 608.
3. Implementation of Industry Member CAT Fees
    Both Participants and Industry Members would be obligated to pay
CAT fees under the Executed Share Model as described in proposed
Article XI of the CAT NMS Plan. The Operating Committee has voted to
charge CBBs and CBSs fees related to CAT costs in accordance with the
Executed Share Model as described in proposed Article XI of the CAT NMS
Plan. To implement CAT fees applicable to Industry Members, Section
11.1(b) of the CAT NMS Plan requires that the Participants ``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.' ''
Accordingly, each Participant would submit a fee filing pursuant to
Section 19(b) of the Exchange Act to propose to add a section entitled
``Consolidated Audit Trail Funding Fees'' to its fee schedule, and to
describe the CAT fees applicable to Industry Members in that section,
including the applicable Fee Rate. To implement any new Fee Rates or
adjustments thereto for Industry Members during the year, each
Participant would submit a fee filing under Section 19(b) of the
Exchange Act. Participants plan to submit fee filings for two
categories of Industry Member CAT fees: CAT fees related to Prospective
CAT Costs and CAT fees related to Past CAT Costs.\23\ Although the
proposed Industry Member CAT fees will be described in detail in the
Participant fee filings pursuant to Section 19(b) of the Exchange Act,
the following summarizes these fees.
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    \23\ The Participants anticipate providing advance notice of Fee
Rate changes prior to implementing such changes in the Fee Rate.
Such notice would provide additional transparency regarding the Fee
Rate and would assist in planning to implement a new Fee Rate.
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a. Industry Member Prospective CAT Fees
    Under the Executed Share Model, CBBs and CBSs would be required to
pay CAT fees related to Prospective CAT Costs. These are the ongoing
budgeted costs for the CAT after the implementation of the CAT fees.
For each transaction in Eligible Securities, the CBB would pay one-
third of the fee obligation, the CBS would pay one-third of the fee
obligation, and the relevant Participant for the transaction would pay
the remaining one-third of the fee obligation. To implement the CAT
fees applicable to CBBs and CBSs related to Prospective CAT Costs, the
Participants would file fee filings under Section 19(b) of the Exchange
Act. The fee filings would require each CBB and each CBS to pay a fee
for each transaction they clear in Eligible Securities from the prior
month, where the fee for each transaction will be calculated by
multiplying the number of executed equivalent shares in the transaction
by one-third and by the Fee Rate approved by the Operating Committee of
the CAT NMS Plan for the relevant time period. CBBs and CBSs would be
required to pay CAT fees related to Prospective CAT Costs calculated
using the same Fee Rate, including any adjustments to the Fee Rate,
that is applicable to the Participant CAT fees as described above. In
addition, like with the calculation of the Participant CAT fee, the CAT
fees for

each CBB and CBS would be calculated by the Plan Processor using the
transaction data for such Industry Members as set forth in the CAT
Data.
b. Industry Member CAT Fees for Past CAT Costs
    The Operating Committee also has determined to collect CAT fees
from Industry Members to recover certain Past CAT Costs. The Industry
Member CAT fees for Past CAT Costs would be calculated in accordance
with the Executed Share Model as set forth in proposed Article XI of
the CAT NMS Plan. The Fee Rate for the CAT fees related to Past CAT
Costs would be calculated by dividing the Past CAT Costs for the
relevant period (as determined by the Operating Committee) by the
projected total executed equivalent share volume of all transactions in
Eligible Securities for the relevant period based on CAT Data. To
implement the CAT fees related to Past CAT Costs applicable to CBBs and
CBSs, the Participants would file a fee filing or fee filings under
Section 19(b) of the Exchange Act. The fee filing(s) would require each
CBB and each CBS to pay a fee for each transaction in Eligible
Securities from the prior month, where the fee for each transaction
would be calculated by multiplying the number of executed equivalent
shares in the transaction by one-third and by the Fee Rate approved by
the Operating Committee of the CAT NMS Plan. CBBs and CBSs would be
responsible for any CAT fee related to Past CAT Costs in addition to
any CAT fee related to Prospective CAT Costs.
i. Participant Responsibility for Past CAT Costs
    Because the Participants have paid all CAT costs to date, the
Participants would not make any additional payments to the CAT with
regard to CAT costs incurred prior to the effectiveness of the CAT fees
via CAT fees; only Industry Members would be required to pay CAT fees
related to such costs. Proposed Section 11.3(a)(iv) would clarify the
Participant's responsibility with regard to CAT costs incurred prior to
the effectiveness of the CAT fees by stating that ``[n]otwithstanding
anything to contrary, Participants will not be required to a pay a CAT
fee related to CAT costs previously paid by the Participants in a
manner determined by the Operating Committee (`Past CAT Costs').''
However, Participants would remain responsible for the one-third of
Past CAT Costs allocated to Participants under the Executed Share
Model, as well as 100% of certain other past CAT Costs (as discussed in
more detail below).
    The CAT fees related to included Past CAT Costs would recoup two-
thirds of the included Past CAT Costs; the Participants have paid for
and would not be reimbursed for the remaining one-third of the included
Past CAT Costs. The CAT fees related to included Past CAT Costs paid by
the Industry Members would be used to reimburse the Participants for
the two-thirds of included Past CAT Costs allocated to Industry
Members. The CAT fees for the included Past CAT Costs collected from
Industry Members will be allocated to Participants for repayment of the
outstanding loan notes of the Participants to the Company on a pro rata
basis; such fees would not be allocated to Participants based on the
executed equivalent share volume of transactions in Eligible
Securities.
ii. Past CAT Costs
    The Fee Rate for CAT fees related to Past CAT Costs would be
calculated based on actual past costs incurred by the CAT (except for
certain costs that the Operating Committee has determined to exclude
from the calculation), rather than budgeted costs. The CAT fees related
to Past CAT Costs would be designed to collect from Industry Members
certain costs paid by the Participants prior to the effectiveness of
the CAT fees pursuant to the Executed Share Model.
    The Past CAT Costs would include a portion of certain costs
incurred prior to January 1, 2022 as well as costs incurred after
January 1, 2022 but prior to the effectiveness of the CAT fees pursuant
to the Executed Share Model. With regard to costs incurred prior to
January 1, 2022, the Participants would remain responsible for 100% of
$48,874,937 of Excluded Costs and certain costs related to the
conclusion of the relationship with the Initial Plan Processor. The
Excluded Costs are all CAT costs incurred from November 15, 2017
through November 15, 2018 due to the delay in the start of reporting to
the CAT. With these costs excluded, the CAT costs prior to January 1,
2022 are $337,688,610. Under the Executed Share Model, Industry Members
would be responsible for two-thirds of these CAT costs. Specifically,
one-third of these costs ($112,562,870) would be paid by CBBs, and one-
third ($112,562,870) would be paid by CBSs, for a total of
$225,125,740. The remaining one-third ($112,562,870) has previously
been paid by the Participants, and the Participants would remain
responsible for that third of the costs. These costs are set forth in
detail in the audited financial statements for the Company and its
predecessor CAT NMS, LLC, which are available on the CAT website.
    CBBs and CBSs similarly would pay CAT fees related to CAT costs
incurred after January 1, 2022 but prior to the implementation of the
CAT fees pursuant to the Executed Share Model. Budgeted CAT costs for
2022 are currently available on the CAT website; actual CAT costs for
2022 will be available in audited financial statements for the Company
after year end.
iii. Fee Calculation and Obligation
    The CAT fees related to Past CAT Costs would be calculated based on
current transactions, not transactions that occurred in the past when
the costs were incurred, and collected from current Industry Members,
not Industry Members active in the past when the costs were incurred.
For example, if the CAT fee were in place for June 2022, each CBB and
CBS with transactions in Eligible Securities in May 2022 would pay a
CAT fee related to Past CAT Costs calculated by multiplying the
executed equivalent share volume of the transactions they cleared in
May 2022 by the applicable Fee Rate (calculated based on Past CAT Costs
and current projected total equivalent share volume) and by one-third.
    The Operating Committee believes that it is appropriate to collect
fees from current Industry Members based on current activity because
current market participants are the beneficiaries of the regulatory
value provided by the CAT to the securities markets.\24\ In addition,
the approach recognizes the practical difficulties of imposing fees
retroactively on Industry Members' market activity from the past,
sometimes years in the past. For example, the practical difficulties
may include the following: (1) Some Industry Members may no longer be
in business; (2) it may be difficult to accurately establish the
transactions for the past years; and (3) retroactive fees could not
have been taken into consideration by market participants when they
decided to enter into the transactions in the past.
---------------------------------------------------------------------------

    \24\ The SEC has emphasized that the CAT provides a benefit to
all market participants. See generally Securities Exchange Act Rel.
No. 67457 (Jul. 18, 2012), 77 FR 45722 (Aug. 1, 2012) (``Rule 613
Adopting Release'').
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4. Example of Application of the Executed Share Model
    The Operating Committee has prepared an example of how the Executed
Share Model would operate for illustrative purposes only. Specifically,
the Operating Committee has prepared an example of CAT fees

calculated under the Executed Share Model based on the projected annual
CAT costs for 2022 and actual total executed equivalent share volume of
transactions in Eligible Securities in 2021. Set forth in Exhibit B to
this letter is a chart setting forth illustrative CAT fees for each
Participant, CBS and CBB for this period. Note Exhibit B only provides
an illustrative example of how the Executed Share Model would operate;
the calculation of actual fees will differ from this example in various
ways. For example, the Participants have paid or will have paid some or
all of these costs up to the time of any SEC approval of the Executed
Share Model, and, as a result, Participants would not be obligated to
pay CAT fees related to 2022 CAT costs to the extent the Participants
have already paid such costs. In addition, the illustrative example
calculates the fee rate using the total executed equivalent share
transactions in Eligible Securities for 2021, rather than the projected
volume for 2022 based on the previous six months. Furthermore, the CAT
Reporters' monthly CAT fee is not based on the CAT Reporters'
transactions from the prior month; instead, it is calculated by using
each CAT Reporter's transactions in 2021 and dividing the result by
twelve.
5. Advantages of the Executed Share Model
    The Executed Share Model provides a variety of advantages as
discussed in more detail below. The Executed Share Model is similar to
existing funding approaches employed by the SEC and the Participants.
The Executed Share Model is also straightforward to understand and to
administer; it provides for predictable fees for CAT Reporters; and it
provides equal or equivalent treatment of different trading venues and
products. By recognizing the importance of each of the three primary
participants in a transaction, the Executed Share Model requires
equitable contributions to the cost of the CAT by both Participants and
Industry Members.
a. Comparable to Existing Fee Precedent
    The Executed Share Model would operate in a manner similar to other
funding models employed by the SEC and the Participants, including the
SEC's Section 31 fees, FINRA's trading activity fee (``FINRA TAF'') and
the options regulatory fee (``ORF'') utilized by options exchanges. The
SEC previously has determined that the Participants' sales value fees
related to Section 31, the FINRA TAF and the ORF are consistent with
the Exchange Act.
i. Section 31 Fees
    Pursuant to Section 31 of the Exchange Act, a national securities
exchange must pay the Commission a fee based on the aggregate dollar
amount of sales of securities transacted on the exchange, and a
national securities association must pay the Commission a fee based on
the aggregate dollar amount of sales of securities transacted by or
through any member of the association otherwise than on a national
securities exchange (collectively, ``covered sales''). The SEC
calculates the amount of Section 31 fees due from each exchange or
FINRA by multiplying the aggregate dollar amount of its covered sales
by the fee rate set by the Commission in a procedure set forth in
Section 31(j) of the Exchange Act. These fees are designed to recover
the costs related to the government's supervision and regulation of the
securities markets and securities professionals. Section 31 requires
the SEC to make annual and, in some cases, mid-year adjustments to the
fee rate. These adjustments are necessary to make the SEC's total
collection of transaction fees in a given year as close as possible to
the amount of the regular appropriation to the Commission by Congress
for that fiscal year.
    To recover the costs of their Section 31 fee obligations, each of
the national securities exchanges and FINRA have adopted, and the SEC
has approved, rules assessing a regulatory transaction fee on their
members, the amount of which is set in accordance with Section 31.\25\
Broker-dealers, in turn, often impose fees on their customers that
provide the funds to pay the fees owed to the exchanges and FINRA.
---------------------------------------------------------------------------

    \25\ See, e.g., Section 3 of Schedule A of FINRA's By-Laws.
---------------------------------------------------------------------------

    Like the well-known, longstanding and accepted Section 31-related
fee model, the Executed Share Model would use a predetermined fee rate
for the calculation of the fees, seek to recover designated regulatory
costs (as CAT provides a solely regulatory function), and allow for the
adjustment of the fee rate during the year to seek to match regulatory
costs with fees collected. The Executed Share Model, however, would
impose fees based on executed equivalent share volume rather than the
sales values of certain transactions. Despite the different calculation
metric, the Executed Share Model is similar to a model well known, long
accepted and justified under the Exchange Act the purpose of which is
also to cover costs associated with the regulation of securities
markets and securities professionals.
ii. FINRA Trading Activity Fee
    The transaction-based fees charged under the Executed Share Model
also would be similar to FINRA's transaction-based trading activity
fee,\26\ which was modeled on the Commission's Section 31 fee.\27\
Although the FINRA TAF is designed to cover a subset of the costs of
FINRA services (e.g., costs to FINRA of the supervision and regulation
of members, including performing examinations, financial monitoring,
and policy, rulemaking, interpretive, and enforcement activities)
rather than all of FINRA's costs like the CAT, the transaction-based
calculation of the FINRA TAF and the proposed CAT fees are similar.
With the FINRA TAF, FINRA members on the sell-side of a transaction are
required to pay a per share fee for each sale of covered securities,
which includes exchange registered securities, equity securities traded
otherwise than on an exchange, security futures, TRACE-Eligible
Securities and municipal securities, subject to certain exceptions. In
approving the FINRA TAF, the SEC stated that the implementation of the
FINRA TAF ``is consistent with section 15A(b)(5) of the Act, in that
the proposal is reasonably designed to recover NASD costs related to
regulation and oversight of its members.'' \28\ The SEC further stated
that ``[t]he Commission recognizes the difficulties inherent in
restructuring the NASD's regulatory fees, and believes that the NASD
has done so in a manner that is fair and reasonable.'' \29\ The CAT
fees calculated under the Executed Share Model would be similar to the
FINRA TAF in that they would be transaction-based fees intended to
provide funding for regulatory costs.
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    \26\ Section 1 of Schedule A of FINRA's By-Laws.
    \27\ See Securities Exchange Act Rel. No. 46416 (Aug. 23, 2002),
67 FR 55901 (Aug. 30, 2002).
    \28\ Securities Exchange Act Rel. No. 47946 (May 30, 2003), 68
FR 34021, 34023 (June 6, 2003) (``TAF Release'').
    \29\ Id.
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iii. Options Regulatory Fee
    The fees charged under the Executed Share Model also would be
similar to the ORF charged by the options exchanges.\30\ The ORF is a
per contract fee charged by an options exchange for certain options
transactions to options members of the relevant exchange. The ORF is
collected indirectly from exchange members through their clearing firms
by the Options Clearing Corporation on behalf of the Exchange. Revenue
generated from the ORF is

designed to recover a material portion of an options exchange's
regulatory costs related to the supervision and regulation of its
members' options business, including performing routine surveillance,
investigations, examinations and financial monitoring as well as
policy, rulemaking, interpretive, and enforcement activities. Exchange
members generally pass-through the ORF to their customers in the same
manner that firms pass-through to their customers the fees charged by
self-regulatory organizations (``SROs'') to help the SROs meet their
obligations under Section 31 of the Exchange Act.\31\ The CAT fees
calculated under the Executed Share Model would be similar to the ORF
in that they would be transaction-based fees intended to provide
funding for regulatory costs.
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    \30\ See, e.g., Cboe Fee Schedule, MIAX Fee Schedule, and NYSE
Arca Fee Schedule.
    \31\ See, e.g., Securities Exchange Act Rel. No. 58817 (Oct. 20,
2008), 73 FR 63744, 63745 (Oct. 27, 2008).
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b. Fee Metric: Transaction Volume
    The Operating Committee proposes to use the executed equivalent
share volume of transactions in Eligible Securities as the means for
allocating CAT costs among Participants and Industry Members. The use
of executed equivalent share volume would replace the use of message
traffic for allocating costs among Industry Members and the use of
market share for allocating costs among Participants as set forth in
the Original Funding Model. The use of executed equivalent share volume
is a reasonable and equitable method for allocating costs for a variety
of reasons, and the Operating Committee believes it improves upon the
use of message traffic.
    The proposed use of CAT-reported message traffic as set forth in
the Original Funding Model raised a variety of issues for allocating
CAT costs. First, based on a subsequent study of cost drivers for the
CAT, it was determined that message traffic may be a factor in the CAT
costs, but it is not the primary factor. CAT costs are dominated by
technology costs, and the predominant technology costs are data
processing (e.g., linker) and storage costs.\32\ The data processing
and storage costs are related to the level of message traffic, but such
costs also relate to other factors. The data processing and storage
costs also are directly related to the complexity of the reporting
requirements for the market activity. For example, in light of the
complexity of market activity, the CAT's order reporting and linkage
scenarios document is over 600 pages in length, addressing more than
170 scenarios. The processing and storage of such a large number of
complex reporting scenarios requires very complex algorithms, which, in
turn, lead to significant data processing and storage costs. The data
processing and storage costs also are driven by the stringent
performance, timelines and operational requirements for processing CAT
Data. For example, the CAT NMS Plan requires that CAT order events be
processed within established timeframes to ensure data can be made
available to Participants' regulatory staff and the SEC in a timely
manner. Accordingly, a CAT Reporter's message traffic may be a factor,
but not a primary factor, in terms of the costs of the CAT.
---------------------------------------------------------------------------

    \32\ For a detailed discussion of cost drivers of the CAT, see
CAT LLC Webinar, CAT Costs (Sept. 21, 2021), https://www.catnmsplan.com/events/cat-costs-september-21-2021.
---------------------------------------------------------------------------

    Second, in general, Industry Member revenue, including revenue
derived from fees Industry Members charge their clients, is often
driven by transactions. Because message traffic is separate from
whether or not a transaction occurs, fees based on message traffic may
not correlate with common revenue or fee models. As a result, CAT fees
based on message traffic could impose an outsized adverse financial
impact on certain Industry Members.
    Third, imposing CAT fees on each CAT Reporter based on its message
traffic may have an adverse effect on competition, liquidity or other
aspects of market structure, and may increase model complexity. For
example, the number of messages for any given order, whether or not
ultimately executed, could vary depending on how a given order is
processed, leading to a lack of predictability on the applicable cost
to process any given order or executions for broker-dealers or non-
broker-dealer customers.\33\ As one example, discussed in the context
of the previously proposed funding models, market makers in Eligible
Securities may have very high levels of message traffic due to their
quoting obligations. Such high levels of message traffic may lead to
outsized fees for market makers in comparison to their transaction
activity, thereby placing an excessive financial burden on market
makers. This, in turn, may lead to a decrease in the number of market
makers, resulting in a decrease in liquidity and a reduction in market
quality. To address this effect on market makers, the Operating
Committee proposed to discount the fees that market makers would need
to pay. However, such a discount adds complexity to the message traffic
approach, as the model must determine when a discount is necessary and
how much the discount should be.
---------------------------------------------------------------------------

    \33\ The predictability of fees is discussed further below in
Section A.3.f.
---------------------------------------------------------------------------

    The use of executed equivalent share volume to allocate CAT costs
addresses each of these concerns. As discussed in more detail below,
the fees are not divorced from transactions, the traditional source of
revenue for Industry Members; fees based on executed equivalent share
volume would not adversely impact certain market participants to the
detriment of the markets, and the model is simple to understand and
implement. Moreover, in addition to these benefits, the executed
equivalent share volume is related to, but not precisely linked to, the
CAT Reporter's burden on the CAT. In light of the many inter-related
cost drivers of the CAT (e.g., storage, message traffic, processing),
determining the precise cost burden imposed by each individual CAT
Reporter on the CAT is not feasible. Accordingly, the Operating
Committee has determined that trading activity provides a reasonable
proxy for cost burden on the CAT, and therefore is an appropriate
metric for allocating CAT costs among CAT Reporters. This conclusion is
consistent with the SEC's prior recognition of the use of transaction
volume in setting regulatory fees. For example, in approving the FINRA
TAF, the SEC recognized that transaction volume was closely enough
connected to FINRA's regulatory responsibilities to satisfy the
statutory standard in the Exchange Act.\34\
---------------------------------------------------------------------------

    \34\ TAF Release at 34024.
---------------------------------------------------------------------------

c. One-Third/One-Third/One-Third Allocation Between CBS, CBB and
Participant
    Under the Executed Share Model, the CBS, the CBB and the relevant
Participant each pay one-third of the fee obligation for each
transaction. The proposed allocation recognizes the three primary roles
in each transaction: The buyer, the seller and the market regulator,
and assigns an equal one-third share of the fee per transaction to each
of these three roles. The Exchange Act itself recognizes the importance
of these three roles in a transaction by imposing registration and
other regulatory obligations on the broker-dealers and regulator
involved in a transaction.\35\ This allocation is similar to the
approach taken with the FINRA TAF, ORF and Section 31 fees, and
recognizes the role of the market regulator and the

buyer in the transaction as well as the seller.
---------------------------------------------------------------------------

    \35\ See Sections 6, 15 and 15A of the Exchange Act.
---------------------------------------------------------------------------

    The proposed allocation of one-third of the CAT costs to the
Participants also addresses feedback expressed by some commenters on
prior fee filings about the amount allocated to Participants versus
Industry Members.\36\ In the prior fee proposals, Execution Venues,
which included Participants and certain ATSs, would have paid 25% of
the CAT costs. As a result, Participants would have paid 25% or less of
the CAT costs, and commenters questioned whether the Participant
allocation was too small. Under the Executed Share Model, CBBs, as a
group, would be responsible for paying for one-third of the CAT costs;
CBSs, as a group, would be responsible for paying one-third of the CAT
costs; and Participants, as a group, would be responsible for paying
one-third of the CAT costs. The proposed one-third allocation to
Participants with the Executed Share Model substantially increases the
Participant allocation and substantially reduces the Industry Member
allocation from prior proposals.\37\
---------------------------------------------------------------------------

    \36\ See Securities Exchange Act Rel. No. 92451 (July 20, 2021),
86 FR 40114, 40123-26 (July 26, 2021) (``Proceedings Order'').
    \37\ Not only does the Executed Share Model increase the
contribution of Participants as a group in comparison to prior
proposed models, but it also changes the contributions of each
Participant, depending upon the types and amount of securities
traded on each market or over-the-counter. For example, as described
in Exhibit B, FINRA's contribution likely would increase under the
Executed Share Model in comparison to prior models given FINRA's
responsibility for securities traded in the over-the-counter market.
---------------------------------------------------------------------------

d. Clearing Firms
    The Executed Share Model would impose the proposed CAT fees on the
clearing members for transactions in Eligible Securities. The Operating
Committee determined to charge clearing members (that is, the CBBs and
CBSs), rather than all Industry Members, as it is a process that is
currently used in other contexts. For example, the ORF is collected
indirectly from exchange members through their clearing firms by the
Options Clearing Corporation on behalf of the exchanges. Although
charging clearing firms reduces administrative issues, the Operating
Committee recognizes that imposing this obligation solely on clearing
members may impose an excessive financial burden on such firms.
Accordingly, CBBs and CBSs may, but are not required to, pass-through
the CAT fees to their clients, who may, in turn, pass the fees to their
clients until they are imposed ultimately on the account that executed
the transaction. This process would operate in a manner similar to the
manner in which Industry Members pass-through other fees imposed to
cover regulatory costs to their customers, for example, the fees
charged by SROs to help the SROs meet their obligation under Section 31
of the Exchange Act or the ORF charged by the options exchanges.
e. Straightforward Approach
    Another advantage of the Executed Share Model is that the approach
is simple, straightforward and easy to understand. Using the
predetermined Fee Rate, Participants, CBBs and CBSs would calculate
their fees by multiplying the number of executed equivalent shares in
their transactions in Eligible Securities by the Fee Rate and one-
third. Both values necessary for the calculation are readily available.
The Fee Rates (including initial and adjusted Fee Rates) would be
announced by the Operating Committee, and Participants, CBBs and CBSs
have easy access to their transaction data. Moreover, the two
adjustments--one for Listed Options and one for OTC Equity Securities--
are similarly straightforward calculations. The Executed Share Model
does not include other complexities, such as tiered fees, minimum or
maximum fees, excluded types of Eligible Securities or excluded
transactions in Eligible Securities.
f. Predictable Fees
    The Executed Share Model also provides CAT Reporters with
predictable CAT fees. Because the Fee Rate is established in advance,
Participants, CBBs and CBSs can calculate the CAT fee that applies to
each transaction when it occurs. Accordingly, CAT Reporters with a CAT
fee obligation are able to easily estimate and validate their
applicable fees based on their own trading data. In addition, to the
extent any CAT fees are passed on to customers, such customers also can
calculate the applicable CAT fee for each transaction.
    The predictability of CAT fees under the Executed Share Model
addresses feedback raised by commenters regarding the lack of fee
predictability present in prior fee filings.\38\ For example, with
potential message traffic models,\39\ CAT Reporters would not know the
actual per message rate until after the end of the relevant reporting
period for which they were assessed the fee and also could not
determine in advance the number of messages that may be associated with
a given order or the total number of messages, thereby making it
difficult for a CAT Reporter to predict a CAT fee related to its market
activity. In addition, this lack of predictability related to message-
based fees also could complicate efforts by Industry Members to
estimate, explain and directly pass message-based fees back to
customers, particularly if no trade has occurred.
---------------------------------------------------------------------------

    \38\ See Proceedings Order at 40122.
    \39\ Potential message traffic models, including the 2018 Fee
Proposal and 2021 Fee Proposals, and the message traffic only model
are discussed below.
---------------------------------------------------------------------------

g. Administrative Ease
    The Executed Share Model also would allow for ease of billing and
other administrative functions.\40\ As discussed above, the Executed
Share Model relies upon a basic calculation using a predetermined Fee
Rate, thereby making the fee determination a straightforward process.
In addition, the CAT fees will be collected in a manner similar to the
collection process that Industry Members are already accustomed,
thereby further reducing the administrative burden on the industry.
---------------------------------------------------------------------------

    \40\ Section 11.2(d) of the CAT NMS Plan.
---------------------------------------------------------------------------

h. Equal Treatment of Trading Venues
    The Executed Share Model also has the benefit of treating
transactions in Eligible Securities equally regardless of the trading
venue. The Fee Rate would be the same regardless of whether a trade was
executed on an exchange or in the OTC market, or how the trade
ultimately occurred more generally (e.g., in a manner that generated
more message traffic). As a result, it would not favor or unfairly
burden any one type of trading venue or method.
i. Equitable Treatment of Different Eligible Securities
    The Executed Share Model also recognizes and addresses the
different trading characteristics of different types of securities.
Recognizing that Listed Options trade in contracts rather than shares,
the Executed Share Model would count executed equivalent share volume
differently for Listed Options. Specifically, each executed contract
for a transaction in Listed Options would be counted based on the
multiplier applicable to the specific Listed Option contract in the
relevant transaction (e.g., 100 executed equivalent shares or such
other applicable equivalency). Similarly, in recognition of the
different trading characteristics of OTC Equity Securities as compared
to NMS Stocks, the Executed Share Model would discount the share volume
of OTC Equity Securities when calculating the

CAT fees. Specifically, each executed share for a transaction in OTC
Equity Securities would be counted as 0.01 executed equivalent shares.
As a result, the Executed Share Model would not favor or unfairly
burden any one type of product or product type.
j. Contributions by Both Industry Members and Participants
    The Executed Share Model would require both Participants and
Industry Members to contribute to the funding of the CAT by paying a
CAT fee. To date, the Participants have paid the full cost of the
creation, implementation and maintenance of the CAT since 2012, pending
Commission approval of a fee program. The continued funding of the CAT
solely by the Participants was and is not contemplated by the CAT NMS
Plan, nor is it a financially sustainable approach. As noted by the
SEC, the CAT ``substantially enhance[s] the ability of the SROs and the
Commission to oversee today's securities markets,'' \41\ thereby
benefiting all market participants. The Executed Share Model would
require both Participants and Industry Members to contribute to the
cost of the CAT, as contemplated by Rule 613 and the CAT NMS Plan.
---------------------------------------------------------------------------

    \41\ Rule 613 Adopting Release at 45726.
---------------------------------------------------------------------------

    Rule 613(a)(1)(vii)(D) specifically contemplates Industry Members
contributing to the payment of CAT costs. Specifically, this provision
requires the CAT NMS Plan to address ``[h]ow the plan sponsors propose
to fund the creation, implementation, and maintenance of the
consolidated audit trail, including the proposed allocation of such
estimated costs among the plan sponsors, and between the plan sponsors
and members of the plan sponsors.'' In approving Rule 613, the SEC
noted that ``although the plan sponsors likely would initially incur
the costs to establish and fund the central repository directly, they
may seek to recover some or all of these costs from their members.''
\42\
---------------------------------------------------------------------------

    \42\ Id. at 45795.
---------------------------------------------------------------------------

    In addition, as approved by the SEC, the CAT NMS Plan specifically
contemplates CAT fees to be paid by both Industry Members and
Participants. Section 11.1(b) of the CAT NMS Plan states that ``the
Operating Committee shall have discretion to establish funding for the
Company, including: (i) Establishing fees that the Participants shall
pay; and (ii) establishing fees for Industry Members that shall be
implemented by the Participants.'' \43\ The Commission stated in
approving the CAT NMS Plan the following:
---------------------------------------------------------------------------

    \43\ See also Sections 11.1(c), 11.2(c), and 11.3(a) and (b) of
the CAT NMS Plan.

    The Commission believes that the proposed funding model reflects
a reasonable exercise of the Participants' funding authority to
recover the Participants' costs related to the CAT. The CAT is a
regulatory facility jointly owned by the Participants and, as noted
above, the Exchange Act specifically permits the Participants to
charge members fees to fund their self-regulatory obligations. The
Commission further believes that the proposed funding model is
designed to impose fees reasonably related to the Participants'
self-regulatory obligations because the fees would be directly
associated with the costs of establishing and maintaining the CAT,
and not unrelated SRO services.\44\
---------------------------------------------------------------------------

    \44\ CAT NMS Plan Approval Order at 84794.

    Likewise, the Commission stated that ``the Participants are
permitted to recoup their regulatory costs under the Exchange Act
through the collection of fees from their members, as long as such fees
are reasonable, equitably allocated and not unfairly discriminatory,
and otherwise are consistent with Exchange Act standards,'' \45\ and
noted that ``Rule 613(a)(1)(vii)(D) requires the Participants to
discuss in the CAT NMS Plan how they propose to fund the creation,
implementation and maintenance of the CAT, including the proposed
allocation of estimated costs among the Participants, and between the
Participants and Industry Members.'' \46\
---------------------------------------------------------------------------

    \45\ Id. at 84795.
    \46\ Id. at 84797 (emphasis added).
---------------------------------------------------------------------------

    In its amendments to the CAT NMS Plan regarding financial
accountability, the SEC reaffirmed the ability for the Participants to
charge Industry Members a CAT fee. Specifically, the SEC noted that the
amendments were not intended to change the basic funding structure for
the CAT, which may include fees established by the Operating Committee,
and implemented by the Participants, to recover from Industry Members
the costs and expenses incurred by the Participants in connection with
the development and implementation of the CAT.\47\
---------------------------------------------------------------------------

    \47\ Financial Accountability Milestone Release at 31329.
---------------------------------------------------------------------------

k. Use of CAT Data
    CAT Data would be used to calculate the CAT fees under the Executed
Share Model. CAT Data would be used to identify each transaction in
Eligible Securities for which a CAT fee would be collected.
Specifically, CAT fees will be charged with regard to trades reported
to CAT by FINRA via the Alternative Trading Facility (``ADF''), Over-
the-Counter Reporting Facility (``ORF'') and the Trade Reporting
Facilities (``TRF'') and by the exchanges. In addition, the same
transaction data in the CAT Data would be used in the calculation of
the projected total executed equivalent share volume for the Fee Rate.
Furthermore, the transaction data in the CAT Data provides the identity
of the relevant clearing broker for each trade. This data would be used
to identify the CBB and CBS for each trade for purposes of the CAT
fees. Using CAT Data for the CAT fee calculations provides
administrative efficiency, as the data will be accessible via the CAT.
In addition, the transaction data would be the same transaction data
used by the Participants in calculating their fee obligations with
regard to Section 31 of the Exchange Act.
l. Six Month Look Back
    The calculation of the Fee Rate also requires the determination of
the projected total executed equivalent share volume of transactions in
Eligible Securities for the year. The Operating Committee proposes to
determine this projection based on the total executed equivalent share
volume of transactions in Eligible Securities from the prior six
months. The Operating Committee determined that the use of the data
from the prior six months provides an appropriate balance between using
data from a period that is sufficiently long to avoid short term
fluctuations while providing data close in time to the calculation of
the Fee Rate. Moreover, given that the Executed Share Model
contemplates setting the Fee Rate at the beginning of the year, and
allows for an adjustment of the Fee Rate during the year, the
projections may be based on different sets of six months, thereby
ensuring that the projections are not always based on certain months of
the year that may exhibit different trading patterns from other times
of the year.
m. Cost Discipline Mechanisms
    The reasonableness of the Executed Share Model and the fees
calculated under the Executed Share Model are supported by key cost
discipline mechanisms for the CAT--a cost-based funding structure, cost
transparency, cost management efforts and oversight. Together, these
mechanisms help ensure the ongoing reasonableness of the CAT's costs
and the level of fees assessed to support those costs.
    First, the CAT NMS Plan requires that the Company operate on a
``break-even'' basis, with fees imposed to cover costs and an
appropriate reserve. Any surpluses would be treated as an operational
reserve to offset future fees and would not be distributed to the

Participants as profits.\48\ To ensure that the Participants' operation
of the CAT will not contribute to the funding of their other
operations, Section 11.1(c) of the CAT NMS Plan specifically states
that ``[a]ny surplus of the Company's revenues over its expenses shall
be treated as an operational reserve to offset future fees.'' In
addition, as set forth in Article VIII of the CAT NMS Plan, the Company
``intends to operate in a manner such that it qualifies as a `business
league' within the meaning of Section 501(c)(6) of the [Internal
Revenue] Code.'' To qualify as a business league, an organization must
``not [be] organized for profit and no part of the net earnings of [the
organization can] inure[ ] to the benefit of any private shareholder or
individual.'' \49\ As the SEC stated when approving the CAT NMS Plan,
``the Commission believes that the Company's application for Section
501(c)(6) business league status addresses issues raised by commenters
about the Plan's proposed allocation of profit and loss by mitigating
concerns that the Company's earnings could be used to benefit
individual Participants.'' \50\ The Internal Revenue Service has
determined that the Company is exempt from federal income tax under
Section 501(c)(6) of the Internal Revenue Code.
---------------------------------------------------------------------------

    \48\ CAT NMS Plan Approval Order at 84792.
    \49\ 26 U.S.C. 501(c)(6).
    \50\ CAT NMS Plan Approval Order at 84793.
---------------------------------------------------------------------------

    Second, the CAT's commitment to reasonable funding in support of
its regulatory obligations is further reinforced by the transparency it
has committed to provide on an ongoing basis regarding its financial
performance. The Company currently makes detailed financial information
about the CAT publicly available. Section 9.2(a) of the CAT NMS Plan
requires the Operating Committee to maintain a system of accounting
established and administered in accordance with GAAP and requires ``all
financial statements or information that may be supplied to the
Participants shall be prepared in accordance with GAAP (except that
unaudited statements shall be subject to year-end adjustments and need
not include footnotes).'' Section 9.2(a) of the CAT NMS Plan also
requires the Company to prepare and provide to each Participant ``as
soon as practicable after the end of each Fiscal Year, a balance sheet,
income statement, statement of cash flows and statement of changes in
equity for, or as of the end of, such year, audited by an independent
public accounting firm.'' The CAT NMS Plan requires that this audited
balance sheet, income statement, statement of cash flows and statement
of changes in equity be made publicly available. Among other things,
these financial statements provide operating expenses, including
technology, legal, consulting, insurance, professional and
administration and public relations costs. The Company also maintains a
dedicated web page on the CAT NMS Plan website that consolidates its
annual financial statements in a public and readily accessible
place.\51\
---------------------------------------------------------------------------

    \51\ See CAT Audited Financial Statements, https://www.catnmsplan.com/audited-financial-statements.
---------------------------------------------------------------------------

    In addition, the Company publicly provides the annual operating
budget for the Company as well as periodically provides updates to the
budget that occur during the year. The Company includes such budget
information on a dedicated web page on the CAT NMS Plan website to make
it readily accessible, like the CAT financial statements.
    The Operating Committee also has held webinars providing additional
detail about CAT costs and about potential alternative funding models
for the CAT.\52\ In addition, the Operating Committee plans to offer
additional webinars on cost and funding for the industry as appropriate
going forward. Collectively, these reports and other efforts provide
extensive and comprehensive information regarding the CAT's operations
with respect to its budgets, revenues, costs, and financial reserves,
among other information.
---------------------------------------------------------------------------

    \52\ See, e.g., CAT LLC Webinar CAT Costs (Sept. 21, 2021),
https://www.catnmsplan.com/events/cat-costs-september-21-2021; CAT
LLC Webinar, CAT Funding (Sept. 22, 2021), https://www.catnmsplan.com/events/cat-funding-september-22-2021; and CAT LLC
Webinar, CAT Funding (Apr. 6, 2022).
---------------------------------------------------------------------------

    Third, the Operating Committee regularly engages in and oversees
efforts to reduce CAT costs responsibly while appropriately funding its
regulatory obligations. The Operating Committee's efforts to manage its
expenses responsibly include oversight of the CAT's annual budget,
including technology and other expenditures and initiatives. This
oversight is informed by key CAT working groups, such as the Technology
Working Group, Regulatory Working Group and Interpretive Working Group,
each of which brings varied expertise to issues of responsible cost
management. In particular, the Operating Committee currently utilizes a
Cost Management Working Group to analyze opportunities to manage CAT
costs responsibly. In addition, the Plan Processor regularly reviews
options to lower compute and storage needs and works with CAT
technology providers to provide services in a cost-effective manner.
These collective efforts have led to a variety of technological changes
to reduce costs.
    Fourth, the CAT's funding and operations are subject to the
oversight of the Commission. The CAT is extensively supervised by the
Commission, including regular and continuous attendance at Operating
Committee, Subcommittee and working group meetings. In addition, CAT
fees as well as cost management efforts that require an amendment of
the CAT NMS Plan are subject to review by the Commission's Division of
Trading and Markets, as well as public comment.
6. Alternative Models Considered
    The Operating Committee has determined to propose the Executed
Share Model to fund the CAT for the reasons discussed above. In
reaching this conclusion, the Operating Committee considered the
advantages and disadvantages of a variety of possible alternative
funding and cost allocation models for the CAT in detail. After
analyzing the various alternatives and considering comments on the
previously proposed models, the Operating Committee determined that,
although various funding models may be reasonable and appropriate, the
Executed Share Model provides a variety of advantages in comparison to
the alternatives, and satisfies the requirements of the Exchange Act,
including providing for an equitable allocation of reasonable fees
among CAT Reporters, not being designed to permit unfair discrimination
among CAT Reporters and not imposing any burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act.
a. 2018 Fee Proposal
    The Operating Committee previously filed a fee proposal in line
with the CAT NMS Plan--the 2018 Fee Proposal.\53\ Under that model, the
Operating Committee, among other things, proposed a 75%-25% allocation
of CAT costs between Execution Venues (which included Participants and
Execution Venue ATSs) and Industry Members (other than Execution Venue
ATSs), and required Execution Venues to pay fees based on market share,
and Industry

Members (other than Execution Venue ATSs) to pay fees based on CAT
message traffic.\54\
---------------------------------------------------------------------------

    \53\ For a description of the 2018 Fee Proposal, see Securities
Exchange Act Rel. No. 82451 (Jan. 5, 2018), 83 FR 1399 (Jan. 11,
2018) (``2018 Fee Proposal Release''). The Participants later
withdrew this proposed amendment. Securities Exchange Act Rel. No.
82892 (Mar. 16, 2018), 83 FR 12633 (Mar. 22, 2018).
    \54\ In developing the 2018 Fee Proposal, the Operating
Committee considered many variations of different aspects of that
model. For example, the Operating Committee evaluated different cost
allocations between Industry Members (other than Execution Venue
ATSs) and Execution Venues, including 80%-20%, 75%-25%, 70%-30% and
65%-35% allocations, and different cost allocations between Equity
and Options Execution Venues. The Operating Committee also
considered different discounts for equities and options market
makers, different numbers of tiers of Industry Members and Execution
Venues, different fee levels for each tier, and other aspects of the
model.
---------------------------------------------------------------------------

    Each Industry Member (other than Execution Venue ATSs) would be
placed into one of seven tiers of fixed fees, based on CAT message
traffic in Eligible Securities. Options Market Maker and equity market
maker quotes would be discounted when calculating message traffic.
    The Operating Committee determined to allocate 67% of Execution
Venue costs recovered to Equity Execution Venues and 33% to Options
Execution Venues. Each Equity Execution Venue would be placed in one of
four tiers of fixed fees based on market share, and each Options
Execution Venue would be placed in one of two tiers of fixed fees based
on market share. Equity Execution Venue market share would be
determined by calculating each Equity Execution Venue's proportion of
the total volume of NMS Stock and OTC Equity shares reported by all
Equity Execution Venues during the relevant time period. For purposes
of calculating market share, the OTC Equity Securities market share of
Execution Venue ATSs trading OTC Equity Securities as well as the
market share of the FINRA OTC reporting facility would be discounted.
Similarly, market share for Options Execution Venues would be
determined by calculating each Options Execution Venue's proportion of
the total volume of Listed Options contracts reported by all Options
Execution Venues during the relevant time period.
    The 2018 Fee Proposal was a very complex model with many
interrelated parts, including allocation percentages, discounts for
certain market behavior, and multiple tiered fees, and the complexity
raised concerns from the Commission regarding its use as the CAT
funding model. In addition, in response to the proposal, the industry
provided a number of other comments related to the proposal, including
comments regarding the proposed allocation of CAT costs between
Participants and Industry Members, and the ability of certain market
segments to afford the proposed CAT fee.\55\
---------------------------------------------------------------------------

    \55\ For a discussion of comments made regarding the Original
Funding Model and the 2018 Fee Proposal, see generally 2018 Fee
Proposal Release.
---------------------------------------------------------------------------

b. 2021 Fee Proposal
    In response to the comments on the 2018 Fee Proposal, the Operating
Committee determined to revise various aspects of the proposed model,
thereby developing the 2021 Fee Proposal.\56\ The 2021 Fee Proposal
would have continued to require many of the same elements as the 2018
model, including the bifurcated funding approach, and the use of market
share and message traffic for allocating costs, as required by the
current CAT NMS Plan. The 2021 Fee Proposal, however, proposed to
revise the model in certain ways, including (1) dividing the CAT costs
between Participants and Industry Members, rather than between
Execution Venues and Industry Members (other than Execution Venue
ATSs); (2) eliminating the use of tiers in calculating CAT fees for
Participants and Industry Members; (3) adopting certain minimum and
maximum CAT fees for Industry Members and Participants; (4) revising
the allocation between Equity Execution Venues and Options to be 60%-
40%; and (5) excluding, rather than discounting, market share in OTC
Equity Shares from the calculation of market share for FINRA.
---------------------------------------------------------------------------

    \56\ Securities Exchange Act Rel. No. 91555 (Apr. 14, 2021), 86
FR 21050 (Apr. 21, 2021).
---------------------------------------------------------------------------

    Although the revisions of the 2021 Fee Proposal addressed certain
comments on the prior 2018 Fee Proposal, commenters continued to raise
issues regarding the proposal. For example, commenters provided
feedback regarding the 75%-25% cost allocation between Industry Members
and Participants, the 60%-40% cost allocation between Equity
Participants and Options Participants, the use of market share and
message traffic for allocating costs among Participants and Industry
Members, respectively, and the proposed minimum and maximum fees.
Noting these and other issues, the SEC determined to institute
proceedings to determine whether to disapprove the 2021 Fee Proposal or
to approve the proposal with any changes or subject to any conditions
the SEC deemed necessary or appropriate after considering public
comment.\57\ Ultimately, the Operating Committee determined to withdraw
the 2021 Fee Proposal.\58\
---------------------------------------------------------------------------

    \57\ Securities Exchange Act Rel. No. 92451 (July 20, 2021), 86
FR 40114 (July 26, 2021). See also Securities Exchange Act Rel. No.
93227 (Oct. 1, 2021), 86 FR 55900 (Oct. 7, 2021).
    \58\ Letter to Vanessa Countryman, Secretary, SEC from Mike
Simon, Chair, CAT NMS Plan Operating Committee re: File Number 4-
698--Withdrawal of Amendment to the National Market System Plan
Governing the Consolidated Audit Trail (Dec. 8, 2021).
---------------------------------------------------------------------------

c. Revenue Funding Model
    The Operating Committee also considered a model in which all CAT
Reporters, including both Industry Members and Participants, would pay
fees based solely on revenue. The concept underlying this proposal is
that CAT costs would be borne by CAT Reporters based on their ability
to pay. Under this model, Industry Member revenue would be calculated
based on revenue reported in FOCUS reports, and Participant revenue
would be calculated based on revenue information in Form 1 amendments
and other publicly reported figures.
    The Operating Committee did not select this model for various
reasons. Under this approach, Participants as a group would only pay
approximately 4% of the total CAT costs. Given their role as SROs and
their use of the CAT, the Operating Committee did not believe that such
a small allocation of the CAT costs to the Participants was
appropriate. Using revenue also raised a variety of practical issues.
For example, questions were raised as to what revenue was appropriate
to include in the calculation of revenue for Industry Members. The
gross revenue set forth on FOCUS reports was proposed, as it was
similar to an existing FINRA regulatory fee.\59\ However, questions
were raised as to whether revenue unrelated to NMS Securities or OTC
Equity Securities, or otherwise unrelated to the CAT, should be
included for calculation of the CAT fee. Eliminating revenue unrelated
to CAT-related activity would have been difficult or impossible. In
addition, the lack of a uniform approach to calculating revenue for the
Participants could raise inequities in the collection of a CAT fee.
---------------------------------------------------------------------------

    \59\ See paragraphs (c) and (d) of Section 1 of Schedule A of
FINRA's By-Laws regarding FINRA's annual Gross Income Assessment.
---------------------------------------------------------------------------

    To address the issues regarding the 96%-4% allocation and the
calculation of the Participant revenue in the straight revenue model
described above, the Operating Committee considered an alternative
version of the revenue model in which the CAT costs would be allocated
between Industry Members and Participants based on a set percentage
(e.g., 75%-25%) and the Industry Member allocation would be allocated
among Industry Members

based on revenue and the Participant allocation would be allocated
among Participants based on market share. However, this alternative
revenue model failed to address the issues regarding the appropriate
revenue calculations for Industry Members.
d. Message Traffic Only Model
    The Operating Committee considered a funding model in which CAT
costs were allocated across all CAT Reporters--both Industry Members
and Participants--based on message traffic in the CAT. Specifically,
the Operating Committee considered eliminating the concepts of a
Participant allocation and an Industry Member allocation entirely, and
treating Participants and Industry Members the same under the model.
The use of message traffic, however, raised issues regarding the
predictability of fees. It also introduced complexity to the model, as
discounts were necessary for certain types of activity to avoid fees
that may adversely impact market making activity and other market
activity.
e. Alternative Allocation for Executed Share Model
    The Operating Committee also discussed an alternative funding model
that would calculate fees in a manner similar to the Executed Share
Model, but would allocate the fee to one Industry Member, the CBS,
rather than allocating one-third of the fees each to the CBS, the CBB
and the applicable Participant. This allocation would more closely
parallel the existing Section 31 fee allocation structure that is
already in place. This alternative allocation for the Executed Share
Model would eliminate complexity from the fee process, including the
process of allocating fees among Industry Members and Participants that
are likely to be passed through to the ultimate investors, and would
provide for a more transparent funding process for investors. Instead
of using this approach, the Operating Committee determined to allocate
costs among the main participants in a transaction and allow those
participants to determine whether and how to recover the costs.
f. Sales Value Model
    The Operating Committee also considered a funding model in which
fees would be calculated based on transaction sales values, similar to
the method used in the Section 31/sales value fee programs. Under this
model, the per sales value fee rate would be calculated by dividing the
annual CAT budget by the projected annual total industry transaction
sales values. The fee would be calculated by multiplying the sales
value fee rate by a given trade's sales value. The CBB, the CBS and the
relevant Participant would each be assessed one-third of the fee, or,
in the alternative, the CBS would be assessed two-thirds of the fee and
the relevant Participants would be assessed one-third of the fee. The
same rate would apply to all transactions equally, regardless of the
type of product in the trade (i.e., NMS Stocks, Listed Options or OTC
Equity Securities). Based on an analysis of 2021 data, the Operating
Committee observed that the sales value model could potentially impose
a disproportionate share of the CAT costs on Participants and Industry
Members trading NMS Stocks versus Listed Options. In comparison, also
based on an analysis of 2021 data, the Operating Committee observed
that the Executed Share Model would impose an equitable allocation of
fees among Participants and Industry Members trading NMS Stocks and
Listed Options, as well as OTC Equity Securities.
g. Other Models
    The Operating Committee also considered other possible funding
models. For example, the Participants considered allocating the CAT
costs equally among each of the Participants, and then permitting each
Participant to charge its own members as it deems appropriate. The
Operating Committee determined that such an approach raised a variety
of issues, including the likely inconsistency of the ensuing charges,
potential for lack of transparency, and the impracticality of multiple
SROs submitting invoices for CAT charges. The Operating Committee also
discussed the advantages and disadvantages of various alternative
models during the development of the CAT NMS Plan, such as a cost
allocation based on a strict pro-rata distribution, regardless of the
type or size of the CAT Reporters.\60\ The Operating Committee believes
that the Executed Share Model provides advantages over each of these
previously considered models and provides an equitable allocation of
reasonable fees among CAT Reporters.
---------------------------------------------------------------------------

    \60\ For a discussion of alternatives considered in the drafting
of the CAT NMS Plan, see Appendix C of the CAT NMS Plan at C-88-C-
89.
---------------------------------------------------------------------------

7. Proposed Amendments to CAT NMS Plan for the Executed Share Model
    To implement the Executed Share Model and to impose the associated
CAT fees on the Participants, the Operating Committee proposes to the
amend CAT NMS Plan. The following discusses the proposed amendments to
the CAT NMS Plan, including the addition of a Participant CAT fee
schedule, entitled ``Consolidated Audit Trail Funding Fees,'' to
Exhibit B [sic] of the CAT NMS Plan.
a. Definition of Execution Venue
    Section 1.1 of the CAT NMS Plan defines the term ``Execution
Venue'' to mean ``a Participant or an alternative trading system
(`ATS') (as defined in Rule 300 of Regulation ATS) that operates
pursuant to Rule 301 of Regulation ATS (excluding any such ATS that
does not execute orders).'' Currently, the term ``Execution Venue'' is
used in Section 11.2 and 11.3 of the CAT NMS Plan to describe how CAT
costs would be allocated among CAT Reporters under the Original Funding
Model. The Original Funding Model would have imposed fees based on
market share to CAT Reporters that are Execution Venues, including
ATSs, and fees based on message traffic for Industry Members' non-ATS
activities. In contrast, the Executed Share Model would impose fees
based on the executed equivalent shares of transactions in Eligible
Securities for three categories of CAT Reporters: Participants, CBBs
and CBSs. Accordingly, as the concept for an ``Execution Venue'' would
not be relevant for the Executed Share Model, the Operating Committee
proposes to delete this term and its definition from Section 1.1 of the
CAT NMS Plan.
b. Use of Executed Equivalent Shares for CAT Fees
    The Original Funding Model set forth in the CAT NMS Plan requires
Participants and Execution Venue ATSs to pay CAT fees based on market
share and Industry Members (other than Execution Venue ATSs) to pay CAT
fees based on message traffic. The CAT NMS Plan also describes how the
market share based fee would be calculated for Participants and other
Execution Venue ATSs and how the message traffic-based fee would be
calculated for Industry Members (other than Execution Venue ATSs). The
Operating Committee proposes to amend the CAT NMS Plan to require each
of the Participants, CBBs and CBSs to pay a CAT fee based on the number
of executed equivalent shares in a transaction in Eligible Securities,
rather than based on market share and message traffic. Accordingly, the
Operating Committee proposes to amend Section 11.2(b) and (c) and
Section 11.3(a) and (b) of the CAT NMS Plan to reflect the proposed use
of the number of executed equivalent shares in

transactions in Eligible Securities in calculating CAT Fees.
    Section 11.2(b) of the CAT NMS Plan states that ``In establishing
the funding of the Company, the Operating Committee shall seek . . .
(b) to establish an allocation of the Company's related costs among
Participants and Industry Members that is consistent with the Exchange
Act, taking into account the timeline for implementation of the CAT and
distinctions in the securities trading operations of Participants and
Industry Members and their relative impact upon Company resources and
operations.'' The Operating Committee proposes to delete the
requirement to take into account ``distinctions in the securities
trading operations of Participants and Industry Members and their
relative impact upon Company resources and operations.'' This
requirement related to using message traffic and market share in the
calculation of CAT fees, as message traffic and market share were
metrics related to the impact of a CAT Reporter on the Company's
resources and operations. With the proposed move to the use of the
executed equivalent shares metric instead of message traffic and market
share, the requirement is no longer relevant.
    Section 11.2(c) of the CAT NMS Plan states that ``[i]n establishing
the funding of the Company, the Operating Committee shall seek . . .
(c) to establish a tiered fee structure in which the fees charged to:
(i) CAT Reporters that are Execution Venues, including ATSs, are based
upon the level of market share; (ii) Industry Members' non-ATS
activities are based upon message traffic.'' The Operating Committee
proposes to delete subparagraphs (i) and (ii) and replace these
subparagraphs with the requirement that the fee structure in which the
fees charged to ``Participants and Industry Members are based upon the
executed equivalent share volume of transactions in Eligible
Securities.'' \61\
---------------------------------------------------------------------------

    \61\ As discussed in the next section, the Operating Committee
also proposes to delete the reference to a ``tiered'' fee structure.
---------------------------------------------------------------------------

    Section 11.3(a) of the CAT NMS Plan provides additional detail
regarding the market share based fees to be paid by Participants and
Execution Venue ATSs under the Original Funding Model. Specifically,
Section 11.3(a) of the CAT NMS Plan states:
    (a) The Operating Committee will establish fixed fees to be payable
by Execution Venues as provided in this Section 11.3(a):
    (i) Each Execution Venue that: (A) Executes transactions; or (B) in
the case of a national securities association, has trades reported by
its members to its trade reporting facility or facilities for reporting
transactions effected otherwise than on an exchange, in NMS Stocks or
OTC Equity Securities will pay a fixed fee depending on the market
share of that Execution Venue in NMS Stocks and OTC Equity Securities,
with the Operating Committee establishing at least two and no more than
five tiers of fixed fees, based on an Execution Venue's NMS Stocks and
OTC Equity Securities market share. For these purposes, market share
for Execution Venues that execute transactions will be calculated by
share volume, and market share for a national securities association
that has trades reported by its members to its trade reporting facility
or facilities for reporting transactions effected otherwise than on an
exchange in NMS Stocks or OTC Equity Securities will be calculated
based on share volume of trades reported, provided, however, that the
share volume reported to such national securities association by an
Execution Venue shall not be included in the calculation of such
national security association's market share.
    (ii) Each Execution Venue that executes transactions in Listed
Options will pay a fixed fee depending on the Listed Options market
share of that Execution Venue, with the Operating Committee
establishing at least two and no more than five tiers of fixed fees,
based on an Execution Venue's Listed Options market share. For these
purposes, market share will be calculated by contract volume.
    The Operating Committee proposes to delete Section 11.3(a) of the
CAT NMS Plan and replace this paragraph with a description of the fees
to be paid by each Participant under the Executed Share Model.
Specifically, proposed Section 11.3(a)(i) of the CAT NMS Plan would
state that ``[e]ach Participant that is a national securities exchange
will be required to pay a fee for each transaction in Eligible
Securities executed on the exchange based on CAT Data. Each Participant
that is a national securities association will be required to pay a fee
for each transaction in Eligible Securities executed otherwise than on
an exchange based on CAT Data.'' Proposed Section 11.3(a)(ii) of the
CAT NMS Plan would state that ``[t]he fee for each transaction in
Eligible Securities will be calculated by multiplying the number of
executed equivalent shares in the transaction by one-third and by the
applicable fee rate for the relevant period.''
    The Operating Committee proposes to add proposed Section
11.3(a)(iii), which would require Participants ``to pay a CAT fee with
regard to CAT costs not previously paid by the Participants
(``Prospective CAT Costs'').'' Proposed Section 11.3(a)(iii) would
describe how the Fee Rate would be calculated for these CAT fees.
Specifically, proposed Section 11.3(a)(iii) would state that ``[t]he
Fee Rate for the CAT fees related to Prospective CAT Costs will be
calculated by dividing the budgeted CAT costs for the relevant period
(as determined by the Operating Committee) by the projected total
executed equivalent share volume of all transactions in Eligible
Securities for the relevant period based on CAT Data.'' The Operating
Committee would utilize budgeted costs in calculating the proposed
forward-looking fees.
    The Operating Committee also proposes to add Section 11.3(a)(iv) to
describe Participants' obligations under the funding model with regard
to CAT costs previously paid by Participants. Specifically, proposed
Section 11.3(a)(iv) would state that ``[n]otwithstanding anything to
contrary, Participants will not be required to a pay a CAT fee related
to CAT costs previously paid by the Participants in a manner determined
by the Operating Committee (`Past CAT Costs').'' Accordingly, under
those circumstances, Industry Members would be required to pay two-
thirds of such Past CAT Costs in accordance with the Executed Share
Model. The Participants would remain responsible for the other one-
third of the Past CAT Costs, but such one-third of the Past CAT Costs
has already been paid in a manner determined by the Operating
Committee; that one-third of Past CAT Costs would not be paid pursuant
to the Executed Share Model. The two-thirds of the Past CAT Costs to be
collected from Industry Members would be allocated to the Participants
for repayment of the outstanding loan notes of the Participants to the
Company on a pro rata basis.
    Section 11.3(b) of the CAT NMS Plan provides additional detail
regarding the message traffic-based CAT fees to be paid by Industry
Members (other than Execution Venue ATSs). Specifically, Section
11.3(b) of the CAT NMS Plan states:
    The Operating Committee will establish fixed fees to be payable by
Industry Members, based on the message traffic generated by such
Industry Member, with the Operating Committee establishing at least
five and no more than nine tiers of fixed fees, based on message
traffic. For the avoidance of doubt, the fixed fees payable by Industry
Members pursuant

to this paragraph shall, in addition to any other applicable message
traffic, include message traffic generated by: (i) An ATS that does not
execute orders that is sponsored by such Industry Member; and (ii)
routing orders to and from any ATS sponsored by such Industry Member.
    The Operating Committee proposes to delete Section 11.3(b) of the
CAT NMS Plan and replace this paragraph with a description of the fees
to be paid by CBBs and CBSs under the Executed Share Model as follows:
    The Operating Committee will establish fees to be payable by
Industry Members as follows:
    (i) Each Industry Member that is the clearing firm for the buyer in
a transaction in Eligible Securities (``Clearing Broker for the Buyer''
or ``CBB'') will be required to pay a fee for each such transaction in
Eligible Securities based on CAT Data. The CBB's fee for each
transaction Eligible Securities will be calculated by multiplying the
number of executed equivalent shares in the transaction by one-third
and by the Fee Rate.
    (ii) Each Industry Member that is the clearing firm for the seller
in a transaction in Eligible Securities (``Clearing Broker for the
Seller'' or ``CBS'') will be required to pay a fee for each transaction
in Eligible Securities based on CAT Data. The CBS's fee for each
transaction in Eligible Securities will be calculated by multiplying
the number of executed equivalent shares in the transaction by one-
third and the Fee Rate.
    The Operating Committee proposes to add proposed Section
11.3(b)(iii) to the CAT NMS Plan to further describe the fee
obligations of CBBs and CBSs with regard to Past CAT Costs.
Specifically, proposed Section 11.3(b)(iii) would state that ``CBBs and
CBSs will be required to pay CAT fees related to Past CAT Costs. The
Fee Rate for the CAT fees related to Past CAT Costs will be calculated
by dividing the Past CAT Costs for the relevant period (as determined
by the Operating Committee) by the projected total executed equivalent
share volume of all transactions in Eligible Securities for the
relevant period based on CAT Data.'' As discussed in detail above, the
Operating Committee would utilize actual CAT costs in calculating these
CAT fees.
    The Operating Committee also proposes to add proposed Section
11.3(b)(iv) to the CAT NMS Plan to further describe the fee obligations
of CBBs and CBSs with regard to Prospective CAT Costs. Specifically,
proposed Section 11.3(b)(iv) would state that ``CBBs and CBSs will be
required to pay CAT fees related to Prospective CAT Costs. The Fee Rate
for the CAT fees related to Prospective CAT Costs will be the same as
set forth in paragraph (a)(iv) above.'' Accordingly, the Participants,
CBBs and CBSs would pay the same Fee Rate for CAT fees related to
Prospective CAT Costs.
c. Elimination of Tiered Fees
    The Operating Committee proposes to eliminate the use of tiered
fees for the Executed Share Model. Instead, under the Executed Share
Model, each Participant, CBB or CBS would pay a fee based solely on its
transactions in Eligible Securities. The Operating Committee therefore
proposes to amend Sections 11.1(d), 11.2(c), 11.3(a) and 11.3(b) of the
CAT NMS Plan to eliminate tiered fees and related concepts.
    By removing the concept of fee tiering for both Industry Members
and Participants, the Executed Share Model addresses various comments
regarding the use of tiering.\62\ Utilizing a tiered fee structure, by
its nature, would create certain inequities among the CAT fees paid by
CAT Reporters. For example, two CAT Reporters with comparable executed
equivalent share volume may pay notably different fees if one falls in
a higher tier and the other falls within a lower tier. Correspondingly,
a tiered fee structure generally reduces fees for CAT Reporters with
higher executed share volume in one tier, while increasing fees for
Industry Members with lower executed share volume in the same tier, as
compared to a non-tiered fee. Furthermore, CAT Reporters in lower tiers
potentially pay more than they would without the use of tiers. While
tiering appropriately exists in various other self-regulatory fee
programs, in response to feedback on the 2018 and 2021 Fee Proposals,
the Operating Committee is proposing to eliminate the tiering concept,
rendering past comments about a tiered model moot.
---------------------------------------------------------------------------

    \62\ For a discussion of comments on prior fee models, see,
e.g., Securities Exchange Act Rel. No. 80167 (June 30, 2017), 82 FR
31656, 31664 (July 7, 2017).
---------------------------------------------------------------------------

    By charging each Participant, CBB and CBS a CAT fee directly based
on its own executed equivalent share volume, rather than charging a
tiered fee, the Executed Share Model would result in a CAT fee being
tied more directly to the CAT Reporter's executed share volume. In
contrast, with a tiered fee, CAT Reporters with different levels of
executed equivalent share volume that are placed in the same tier would
all pay the same CAT fee, thereby limiting the correlation between a
CAT Reporter's activity and its CAT fee.
    The proposed non-tiering approach is simpler and more objective to
administer than the tiering approach. With a tiering approach, the
number of tiers for Participants, CBBs and CBSs, the boundaries for
each tier and the fees assigned to each tier must be established. In
the absence of clear groupings of CAT Reporters, selecting the number
of, boundaries for, and the fees associated with each tier would be
subject to some level of subjectivity. Furthermore, the establishment
of tiers would need to be continually reassessed based on changes in
the executed equivalent share volume of transactions in Eligible
Securities, thereby requiring regular subjective assessments.
Accordingly, the removal of tiering from the funding model eliminates a
variety of subjective analyses and judgments from the model and
simplifies the determination of CAT fees.
    Section 11.1(d) of the CAT NMS Plan states that ``[c]onsistent with
this Article XI, the Operating Committee shall adopt policies,
procedures, and practices regarding the budget and budgeting process,
assignment of tiers, resolution of disputes, billing and collection of
fees, and other related matters.'' With the elimination of tiered fees,
the reference to the ``assignment of tiers'' would no longer be
relevant for the Executed Share Model. Therefore, the Operating
Committee proposes to delete the reference to ``assignment of tiers''
from Section 11.1(d).
    Section 11.1(d) of the CAT NMS Plan also states that:
    For the avoidance of doubt, as part of its regular review of fees
for the CAT, the Operating Committee shall have the right to change the
tier assigned to any particular Person in accordance with fee schedules
previously filed with the Commission that are reasonable, equitable and
not unfairly discriminatory and subject to public notice and comment,
pursuant to this Article XI. Any such changes will be effective upon
reasonable notice to such Person.
    As noted above, unlike the Original Funding Model, the Executed
Share Model would not utilize tiered fees. Accordingly, these two
sentences would not be applicable to the Executed Share Model.
Therefore, the Operating Committee proposes to delete these two
sentences from Section 11.1(d) of the CAT NMS Plan.
    The Operating Committee proposes to delete the reference to
``tiered'' fees from Section 11.2(c) of the CAT NMS Plan. Section
11.2(c) of the CAT NMS Plan states that ``[i]n establishing the

funding of the Company, the Operating Committee shall seek: . . . (c)
to establish a tiered fee structure . . .'' The Participants propose to
delete the word ``tiered'' from this provision as the CAT fees would
not be tiered under the Executed Share Model.
    The Operating Committee also proposes to delete paragraph (iii) of
Section 11.2(c) of the CAT NMS Plan. Paragraph (iii) of Section 11.2(c)
of the CAT NMS Plan states that the Operating Committee shall seek to
establish a tiered fee structure in which fees charged to:

The CAT Reporters with the most CAT-related activity (measured by
market share and/or message traffic, as applicable) be generally
comparable (where for these comparability purposes, the tiered fee
structure takes into consideration affiliations between or among CAT
Reporters, whether Execution Venues and/or Industry Members).

    Under the Original Funding Model, the comparability provision was
an important factor in determining the tiers for Industry Members and
Execution Venues. In determining the tiers, the Operating Committee
sought to establish comparable fees among the CAT Reporters with the
most Reportable Events.\63\ Under the Executed Share Model, however,
the comparability provision is no longer necessary, as a tiered fee
structure would not be used for Industry Members or Participants.
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    \63\ See, e.g., Securities Exchange Act Rel. No. 82451 (Jan. 5,
2018), 83 FR 1399, 1406-07 (Jan. 11, 2018).
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    As discussed above, the Operating Committee proposes to replace the
language in Sections 11.3(a) and (b) of the CAT NMS Plan with language
implementing the Executed Share Model. These proposed changes would
remove the references to tiers in Sections 11.3(a)(i) and (ii) and
11.3(b) of the CAT NMS Plan, along with the other proposed changes.
Specifically, Section 11.3(a)(i) of the CAT NMS Plan states that the
Operating Committee, when establishing fees for Execution Venues for
NMS Stocks and OTC Equity Securities, will establish ``at least two and
no more than five tiers of fixed fees, based on an Execution Venue's
NMS Stocks and OTC Equity Securities market share.'' Similarly, Section
11.3(a)(ii) of the CAT NMS Plan states that the Operating Committee,
when establishing fees for Execution Venues that execute transactions
in Listed Options, will establish ``at least two and no more than five
tiers of fixed fees, based on an Execution Venue's Listed Options
market share.'' Section 11.3(b) of the CAT NMS Plan states that the
Operating Committee, when establishing fees to be payable by Industry
Members, will establish ``at least five and no more than nine tiers of
fixed fees, based on message traffic.'' The Operating Committee
proposes to delete each of these references to tiers from the CAT NMS
Plan.
d. No Fixed Fees
    As discussed above, the Operating Committee proposes to replace the
language in Sections 11.3(a) and (b) of the CAT NMS Plan with language
implementing the Executed Share Model. These proposed changes also
would remove the references to ``fixed fees'' in Sections 11.3(a),
11.3(a)(i) and 11.3(a)(ii) and replaced them with references to
``fees.'' Under the Executed Share Model, the CAT fees to be paid by
Participants, CBBs and CBSs will vary in accordance with their executed
equivalent share volume of transactions in Eligible Securities,
although the Fee Rate will be fixed for a relevant period. Therefore,
the concept of a fixed fee--that is, a fee that does not vary depending
on circumstances--is not relevant under the Executed Share Model.
e. Proposed CAT Fee Schedule for Participants
    To implement the Participant CAT fees, the Operating Committee
proposes to add a fee schedule, entitled ``Consolidated Audit Trail
Funding Fees,'' to Exhibit B [sic] of the CAT NMS Plan. Proposed
paragraph (a) of the fee schedule would describe the CAT fee to be paid
by the Participants under the Executed Share Model. Specifically,
paragraph (a)(1) of the fee schedule would state that ``[e]ach
Participant that is a national securities exchange shall pay a fee for
each transaction in Eligible Securities executed on the exchange based
on CAT Data, where the fee for each transaction will be calculated by
multiplying the number of executed equivalent shares in the transaction
by one-third and by the Fee Rate.'' Paragraph (a)(2) of the fee
schedule would state that ``[e]ach Participant that is a national
securities association shall pay a fee for each transaction in Eligible
Securities executed otherwise than on exchange based on CAT Data, where
the fee for each transaction will be calculated by multiplying the
number of executed equivalent shares in the transaction by one-third
and by the Fee Rate.''
    Proposed paragraph (b) of the fee schedule would describe how and
when the Operating Committee would set the Fee Rate. Proposed paragraph
(b)(1) of the fee schedule would state that ``[t]he Operating Committee
will calculate the Fee Rate at the beginning of each year by dividing
the budgeted CAT costs for the year by the projected total executed
equivalent share volume of all transactions in Eligible Securities for
the year. After setting the Fee Rate at the beginning of the year, the
Fee Rate may be adjusted once during the year, if necessary, due to
changes in the budgeted or actual costs or projected or actual total
executed equivalent share volume during the year.''
    Proposed paragraph (b)(2) of the fee schedule would describe the
method for counting executed equivalent shares in a transaction in
Eligible Securities. Specifically, proposed paragraph (b)(2)(i) would
state that ``each executed share for a transaction in NMS Stocks will
be counted as one executed equivalent share.'' Proposed paragraph
(b)(2)(ii) of the fee schedule would state that ``each executed
contract for a transaction in Listed Options will be counted based on
the multiplier applicable to the specific Listed Option (i.e., 100
executed equivalent shares or such other applicable multiplier).''
Proposed paragraph (b)(2)(iii) of the fee schedule would state that
``each executed share for a transaction in OTC Equity Securities shall
be counted as 0.01 executed equivalent share.''
    Proposed paragraph (b)(3) of the fee schedule would describe the
budgeted CAT costs and adjustments to the budgeted CAT costs to be used
in calculating the Fee Rate. Proposed paragraph (b)(3) of the fee
schedule would state that ``[t]he budgeted CAT costs for the year shall
be comprised of all fees, costs and expenses budgeted to be incurred by
or for the Company in connection with the development, implementation
and operation of the CAT as set forth in the annual operating budget
approved by the Operating Committee pursuant to Section 11.1(a) of the
CAT NMS Plan, or as adjusted during the year by the Operating
Committee.''
    Proposed paragraph (b)(4) of the fee schedule would describe the
projected total executed equivalent share volume of transactions in
Eligible Securities to be used in calculating the Fee Rate as well as
any adjustments to such projections. Proposed paragraph (b)(4) of the
fee schedule would state that ``[t]he Operating Committee shall
determine the projected total executed equivalent share volume of all
transactions in Eligible Securities for each relevant period based on
the executed equivalent share volume of all transactions in Eligible
Securities for the prior six months.''
    Proposed paragraph (c) of the fee schedule would describe the
payment of

the CAT fees by Participants. Proposed paragraph (c) would state that
``[e]ach Participant shall pay the CAT fee set forth in paragraph (a)
to Consolidated Audit Trail, LLC in the manner prescribed by
Consolidated Audit Trail, LLC on a monthly basis based on the
Participant's transactions in the prior month.''
8. Satisfaction of Exchange Act and CAT NMS Plan Requirements
    The Executed Share Model offers a variety of benefits and satisfies
the funding principles and other requirements of the CAT NMS Plan, as
proposed to be revised herein, as well as the applicable requirements
of the Exchange Act.
a. Funding Principle: Section 11.2(a) of the CAT NMS Plan
    The Executed Share Model satisfies the funding principles set forth
in Section 11.2(a) of the CAT NMS Plan, as proposed to be modified
herein. Section 11.2(a) requires the Operating Committee, in
establishing the funding of the Company, to seek ``to create
transparent, predictable revenue streams for the Company that are
aligned with the anticipated costs to build, operate and administer the
CAT and the other costs of the Company.''
    First, by adopting a CAT-specific fee tied directly to CAT costs,
the Operating Committee would be fully transparent regarding the costs
of the CAT and how those costs would be allocated among CAT Reporters.
The CAT fees would be designed solely to cover CAT costs, and no other
regulatory costs. In contrast, charging a general regulatory fee, which
might otherwise be used to cover CAT costs as well as other regulatory
costs, would be less transparent than the selected approach of charging
a fee designated to cover CAT-related costs only. Such a general
regulatory fee could cover a variety of regulatory costs without
differentiating those costs related to the CAT.
    Second, the Executed Share Model would provide a predictable
revenue stream for the Company. The Executed Share Model is designed to
collect the annual CAT costs each year, thereby providing for a
predictable revenue stream. In addition, to address the possibility of
some variability in the collected CAT fees, an unexpected increase in
costs or variations from the budgeted costs or projected executed
equivalent share volume of transactions in Eligible Securities, the CAT
costs covered by the Executed Share Model would include an operational
reserve. The operational reserve could be used in the event that the
total CAT fees collected differ from the actual CAT costs. Moreover,
the Executed Share Model includes a method for adjusting the
calculation of the Fee Rate during the year if there are changes in the
projected total volume of transactions in Eligible Securities or the
CAT costs.
    Third, as discussed above, the Executed Share Model provides for a
revenue stream for the Company that is aligned with the anticipated
costs to build, operate and administer the CAT and the other costs of
the Company. The total CAT fees to be collected from CAT Reporters are
designed to cover the CAT costs. Any surpluses collected would be
treated as an operational reserve to offset future fees and would not
be distributed to the Participants as profits.\64\
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    \64\ CAT NMS Plan Approval Order at 84792.
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b. Funding Principle: Section 11.2(b) of the CAT NMS Plan
    The Executed Share Model satisfies the funding principle set forth
in Section 11.2(b) of the CAT NMS Plan, as proposed to be amended
herein, which would require the Operating Committee to seek ``to
establish an allocation of the Company's related costs among
Participants and Industry Members that is consistent with the Exchange
Act, taking into account the timeline for implementation of the CAT.''
As described in more detail below, the Executed Share Model establishes
an allocation of Company's related costs among Participants and
Industry Members that is consistent with the Exchange Act. In addition,
as described in more detail below, the Executed Share Model provides
for an equitable allocation of reasonable dues, is not unfairly
discriminatory and does not impose a burden on competition that is not
necessary or appropriate in furtherance of the Exchange Act. In
addition, the Executed Share Model takes into account the timeline for
implementation of the CAT. The CAT fees are designed to cover the CAT
costs for each relevant period.
c. Funding Principle: Section 11.2(c) of the CAT NMS Plan
    The Executed Share Model satisfies the funding principle set forth
in Section 11.2(c) of the CAT NMS Plan, as proposed to be modified
herein. Section 11.2(c), as proposed to be modified herein, requires
the Operating Committee to seek ``to establish a fee structure in which
the fees charged to Participants and Industry Members are based upon
the executed equivalent share volume of transactions in Eligible
Securities.'' The Executed Share Model requires Participants and
Industry Members to pay a fee based upon the executed equivalent share
volume of transactions in Eligible Securities.
d. Funding Principle: Section 11.2(d) of the CAT NMS Plan
    The Executed Share Model satisfies the funding principle set forth
in Section 11.2(d) of the CAT NMS Plan, which requires the Operating
Committee to seek ``to provide for ease of billing and other
administrative functions.'' The Executed Share Model satisfies this
principle in several ways. The Executed Share Model is modeled after
the existing Section 31-related fee programs, with which the
Participants and Industry Members have a longstanding familiarity. The
Executed Share Model relies upon a basic calculation using a
predetermined Fee Rate along with an Industry Member or Participant's
own information regarding its executed equivalent share volume, thereby
making the fee determination a straightforward process.
    Furthermore, the Executed Share Model provides CAT Reporters with
predictable CAT fees. Because the Fee Rate is established in advance
for a relevant time period, Participants, CBBs and CBSs know the CAT
fee that applies to each transaction when it occurs. Accordingly,
Participants, CBBs and CBSs are able to easily estimate and validate
their applicable fees based on their own trading data. In addition, to
the extent any CAT fees are passed on to customers, the customers, too,
can calculate the applicable CAT fee for each transaction.
e. Funding Principle: Section 11.2(e) of the CAT NMS Plan
    The Executed Share Model satisfies the funding principle set forth
in Section 11.2(e) of the CAT NMS Plan, which requires the Operating
Committee to seek ``to avoid any disincentives such as placing an
inappropriate burden on competition and a reduction in market
quality.'' The Executed Share Model would operate in a manner similar
to the funding models employed by the SEC and the Participants related
to Section 31 of the Exchange Act, the FINRA TAF and the ORF. These
fees are long-standing, and have been approved by the Commission as
satisfying the requirements under the Exchange Act, including not
imposing a burden on the competition that is not necessary or
appropriate under the Exchange Act. In addition, the Executed Share
Model avoids potentially burdensome fees for market makers or other
market participants based on message traffic. Furthermore, the

Executed Share Model addresses the specific trading characteristics of
Listed Options and OTC Equity Securities to avoid adverse effects of
the trading of those instruments. For example, the Executed Share Model
also includes the discounting of transactions involving OTC Equity