[Federal Register Volume 88, Number 120 (Friday, June 23, 2023)]
[Notices]
[Pages 41142-41161]
[FR Doc No: 2023-13340]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97750; File No. 4-698]

Joint Industry Plan; Order Instituting Proceedings To Determine
Whether To Approve or Disapprove an Amendment to the National Market
System Plan Governing the Consolidated Audit Trail

June 16, 2023.

I. Introduction

    On March 13, 2023, the Consolidated Audit Trail, LLC (``CAT LLC''),
on behalf of the Participants \1\ to the National Market System Plan
Governing the Consolidated Audit Trail (``CAT NMS Plan'' or
``Plan''),\2\ filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 11A of the Exchange Act \3\ and
Rule 608 of Regulation National Market System (``Regulation NMS'')
thereunder,\4\ a proposed amendment to the CAT NMS Plan (``Proposed
Amendment'') 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 (``Proposed Participant Fee Schedule'').\5\ The Proposed
Amendment was published for comment in the Federal Register on March
21, 2023.\6\
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    \1\ The Participants are: BOX Exchange LLC, Cboe BYX Exchange,
Inc., Cboe BZX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe EDGA
Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe Exchange, Inc., The
Financial Industry Regulatory Authority, Inc. (``FINRA''), 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'').
    \2\ The CAT NMS Plan is a national market system plan approved
by the Commission pursuant to Section 11A of the Securities Exchange
Act of 1934 (``Exchange Act'') and the rules and regulations
thereunder. See Securities Exchange Act Release No. 78318 (Nov. 15,
2016), 81 FR 84696 (Nov. 23, 2016) (``CAT NMS Plan Approval
Order''). The CAT NMS Plan is Exhibit A to the CAT NMS Plan Approval
Order. See CAT NMS Plan Approval Order, 81 FR at 84943-85034. The
CAT NMS Plan functions as the limited liability company agreement of
the jointly owned limited liability company formed under Delaware
state law through which the Participants conduct the activities of
the CAT (``Company''). Each Participant is a member of the Company
and jointly owns the Company on an equal basis. The Participants
submitted to the Commission a proposed amendment to the CAT NMS Plan
on August 29, 2019, which they designated as effective on filing. On
August 29, 2019, the Participants replaced the CAT NMS Plan in its
entirety with the limited liability company agreement of a new
limited liability company, CAT LLC, which became the Company. See
Securities Exchange Act Release No. 87149 (Sept. 27, 2019), 84 FR
52905 (Oct. 3, 2019). The latest version of the CAT NMS Plan is
available at https://catnmsplan.com/about-cat/cat-nms-plan.
    \3\ 15 U.S.C. 78k-1.
    \4\ 17 CFR 242.608.
    \5\ See Letter from Brandon Becker, Chair, CAT NMS Plan
Operating Committee, to Vanessa Countryman, Secretary, Commission
(Mar. 13, 2023) (``Transmittal Letter'').
    \6\ See Securities Exchange Act Release No. 97151 (Mar. 15,
2023), 88 FR 17086 (Mar. 21, 2023) (``Notice''). Comments received
in response to the Notice can be found on the Commission's website
at https://www.sec.gov/comments/4-698/4-698-a.htm.
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    This order institutes proceedings, under Rule 608(b)(2)(i) of
Regulation NMS,\7\ to determine whether to disapprove the Proposed
Amendment or to approve the Proposed Amendment with any changes or
subject to any conditions the Commission deems necessary or
appropriate.\8\
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    \7\ 17 CFR 242.608(b)(2)(i).
    \8\ On June 15, 2023, the Participants submitted a letter
consenting to a 30-day extension (until July 20, 2023) of the date
by which the Commission shall, by order, approve or disapprove the
Proposed Amendment, or institute proceedings to determine whether
the Proposed Amendment should be disapproved. See Letter from
Brandon Becker, Chair, CAT NMS Plan Operating Committee, to Vanessa
Countryman, Secretary, Commission (Jun. 15, 2023). Nevertheless, the
Commission believes it is appropriate for the reasons stated herein
to institute proceedings under Rule 608(b)(2)(i) of Regulation NMS
and Rules 700 and 701 of the Commission's Rules of Practice.
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II. Background

    On July 11, 2012, the Commission adopted Rule 613 of Regulation
NMS, which required the SROs to submit a national market system
(``NMS'') plan to create, implement and maintain a consolidated audit
trail that would capture customer and order event information for
orders in NMS securities.\9\ On November 15, 2016, the Commission
approved the CAT NMS Plan.\10\ Under the CAT NMS Plan, the Operating
Committee of the Company, of which each Participant is a member,

has the discretion (subject to the funding principles set forth in the
Plan) to establish funding for the Company to operate the CAT,
including establishing fees to be paid by the Participants and Industry
Members.\11\
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    \9\ 17 CFR 242.613.
    \10\ See CAT NMS Plan, supra note 2.
    \11\ The CAT NMS Plan defines ``Industry Member'' as ``a member
of a national securities exchange or a member of a national
securities association.'' See CAT NMS Plan, supra note 2, at Section
1.1. See also id. at Section 11.1(b).
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    Under the CAT NMS Plan, CAT fees are to be implemented in
accordance with various funding principles, including an ``allocation
of the Company's related costs among Participants and Industry Members
that is consistent with the Exchange Act taking into account . . .
distinctions in the securities trading operations of Participants and
Industry Members and their relative impact upon the Company resources
and operations'' and the ``avoid[ance of] any disincentives such as
placing an inappropriate burden on competition and reduction in market
quality.'' \12\ The Plan specifies that, in establishing the funding of
the Company, the Operating Committee shall establish ``a tiered fee
structure in which the fees charged to: (1) CAT Reporters \13\ that are
Execution Venues,\14\ including ATSs,\15\ are based upon the level of
market share; (2) Industry Members' non-ATS activities are based upon
message traffic; and (3) the CAT Reporters with the most CAT-related
activity (measured by market share and/or message traffic, as
applicable) are 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).'' \16\
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    \12\ Id. at Section 11.2(b) and (e).
    \13\ The CAT NMS Plan defines ``CAT Reporter'' as ``each
national securities exchange, national securities association and
Industry Member that is required to record and report information to
the Central Repository pursuant to SEC Rule 613(c).'' Id. at Section
1.1.
    \14\ The CAT NMS Plan defines ``Execution Venue'' as ``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).'' Id.
    \15\ Id.
    \16\ CAT NMS Plan, supra note 2, at Section 11.2(c). See id. at
Article XI for additional detail.
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    On May 15, 2020, the Commission adopted amendments to the CAT NMS
Plan designed to increase the Participants' financial accountability
for the timely completion of the CAT (``Financial Accountability
Amendments'').\17\ The Financial Accountability Amendments added
Section 11.6 to the CAT NMS Plan to govern the recovery from Industry
Members of any fees, costs, and expenses (including legal and
consulting fees, costs and expenses) incurred by or for the Company in
connection with the development, implementation and operation of the
CAT from June 22, 2020 until such time that the Participants have
completed Full Implementation of CAT NMS Plan Requirements \18\
(``Post-Amendment Expenses''). Section 11.6 establishes target
deadlines for four Financial Accountability Milestones (Periods 1, 2, 3
and 4) \19\ and reduces the amount of fee recovery available to the
Participants if these deadlines are missed.\20\
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    \17\ See Securities Exchange Act Release No. 88890, 85 FR 31322
(May 22, 2020).
    \18\ ``Full Implementation of CAT NMS Plan Requirements'' means
``the point at which the Participants have satisfied all of their
obligations to build and implement the CAT, such that all CAT system
functionality required by Rule 613 and the CAT NMS Plan has been
developed, successfully tested, and fully implemented at the initial
Error Rates specified by Section 6.5(d)(i) or less, including
functionality that efficiently permits the Participants and the
Commission to access all CAT Data required to be stored in the
Central Repository pursuant to Section 6.5(a), including Customer
Account Information, Customer-ID, Customer Identifying Information,
and Allocation Reports, and to analyze the full lifecycle of an
order across the national market system, from order origination
through order execution or order cancellation, including any related
allocation information provided in an Allocation Report. This
Financial Accountability Milestone shall be considered complete as
of the date identified in a Quarterly Progress Report meeting the
requirements of Section 6.6(c).'' CAT NMS Plan, supra note 2, at
Section 1.1.
    \19\ Id. at Section 11.6(a)(i).
    \20\ Id. at Section 11.6(a)(ii) and (iii).
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III. Summary of Proposal 21
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    \21\ This section summarizes the proposed changes to the CAT NMS
Plan. For a full discussion of the Proposed Amendment, including the
Participants' justifications for the Proposed Amendment, such as
comparability to existing fees, alternatives considered, fee pass-
throughs, treatment of FINRA, cost transparency (including the
Historical CAT Costs prior to 2022) and satisfaction of the Exchange
Act and CAT NMS Plan requirements, see Notice, supra note 6.
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    CAT LLC proposes to replace the funding model set forth in Article
XI of the CAT NMS Plan (``Original Funding Model'') with the Executed
Share Model. The Original Funding Model involved 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.\22\ In contrast, the Executed
Share Model would charge fees based on the executed equivalent share
volume of transactions in Eligible Securities rather than based on
market share and message traffic.\23\ In addition, instead of charging
fees to Industry Members, under the Executed Share Model, fees would be
charged to each Industry Member that is a CAT Executing Broker \24\ for
the buyer in a transaction in Eligible Securities (``CAT Executing
Broker for the Buyer'' or ``CEBB'') and each Industry Member that is
the CAT Executing Broker for the seller in a transaction in Eligible
Securities (``CAT Executing Broker for the Seller'' or ``CEBS'').\25\
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    \22\ See CAT NMS Plan, supra note 2, at Section 11.3(a) and (b).
    \23\ See Notice, supra note 6, 88 FR at 17086.
    \24\ See infra Section III.A.1. for the definition of CAT
Executing Broker.
    \25\ See Notice, supra note 6, 88 FR at 17087.
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    Under the Executed Share Model, CAT LLC proposes to establish two
categories of CAT fees. The first category of CAT fees would be fees
(``CAT Fees'') payable by Participants and Industry Members that are
CAT Executing Brokers for the Buyer and for the Seller with regard to
CAT costs not previously paid by the Participants (``Prospective CAT
Costs'').\26\ The second category of CAT fees would be fees
(``Historical CAT Assessments'') to be payable by Industry Members that
are CAT Executing Brokers for the Buyer and for the Seller with regard
to CAT costs previously paid by the Participants (``Past CAT
Costs'').\27\ Each Historical CAT Assessment will recover an amount of
``Historical CAT Costs'', which will be Past CAT Costs minus Past CAT
Costs reasonably excluded from Historical CAT Costs by the Operating
Committee.\28\
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    \26\ Id. at 17086; see also proposed Section 11.3(a). The
defined term ``CAT Fees'' applies specifically to CAT fees related
to Prospective CAT Costs. Id.
    \27\ See Notice, supra note 6, 88 FR at 17086; see also proposed
Section 11.3(b).
    \28\ See Notice, supra note 6, 88 FR at 17096; see also proposed
Section 11.3(b)(i)(C).
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    For each category of fees, each CEBB and each CEBS will be required
to pay a CAT fee for each such transaction in Eligible Securities in
the prior month based on CAT Data.\29\ The CEBB's CAT fee or CEBS's CAT
fee (as applicable) for each transaction in Eligible Securities will be
calculated by multiplying the number of executed equivalent shares in
the transaction by one-third and by the reasonably determined Fee
Rate,\30\ as

described below.\31\ Participants would incur CAT Fees only for
Prospective CAT Costs and the Participant CAT Fee will be calculated by
multiplying the number of executed equivalent shares in the transaction
by one-third and by the reasonably determined Fee Rate.\32\ The
Participants' one-third share of Historical CAT Costs and such other
additional Past CAT Costs as reasonably determined by the Operating
Committee will be paid by the cancellation of loans made to the Company
on a pro rata basis based on the outstanding loan amounts due under the
loans.\33\
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    \29\ See Notice, supra note 6, 88 FR at 17093; see also proposed
Section 11.3(a)(iii), proposed Section 11.3(b)(iii).
    \30\ See Notice, supra note 6, 88 FR at 17124 for the definition
and description of the calculation of the Fee Rate.
    \31\ Id. at 17095; see also proposed Section 11.3(a)(iii),
proposed Section 11.3(b)(iii).
    \32\ See Notice, supra note 6, 88 FR at 17094; see also proposed
Section 11.3(a)(ii).
    \33\ See proposed Section 11.3(b)(ii).
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    As Plan Processor, FINRA CAT would be responsible for calculating
the CAT fees and submitting invoices to the CAT Executing Brokers based
on this CAT Data.\34\ All data used to calculate the fees under the
Executed Share Model would be CAT Data, and, therefore, it would be
available through the CAT for calculating CAT fees.\35\
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    \34\ See Notice, supra note 6, 88 FR at 17088.
    \35\ Id.
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    Once the Proposed Amendment has been approved by the Commission,
the Participants would separately file proposed rule changes pursuant
to Section 19(b) of the Exchange Act \36\ to establish the amounts of
the proposed CAT Fees and Historical CAT Assessments to be charged to
Industry Members, subject to the satisfaction of applicable Financial
Accountability Milestones as set forth in Section 11.6 of the CAT NMS
Plan and the implementation of the billing and collection system for
the CAT fees.\37\ In each proposed rule change, if the Participants
seek to recover amounts under the Financial Accountability Milestones,
they would need to discuss their completion of the applicable
milestone.\38\
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    \36\ 15 U.S.C. 78s(b).
    \37\ See Notice, supra note 6, 88 FR at 17086, 17122.
    \38\ Proposed Section 11.3(b)(iii)(B)(III) would prohibit any
Participant from filing proposed rule changes pursuant to Section
19(b) of the Exchange Act regarding any Historical CAT Assessment
until any applicable Financial Accountability Milestone in Section
11.6 of the CAT NMS Plan has been satisfied.
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A. Description of Amendments

1. Definition of CAT Executing Broker
    The Executed Share Model would define ``CAT Executing Broker'' in
Section 1.1 of the CAT NMS Plan as:

    (a) with respect to a transaction in an Eligible Security that
is executed on an exchange, the Industry Member identified as the
Industry Member responsible for the order on the buy-side of the
transaction and the Industry Member responsible for the sell-side of
the transaction in the equity order trade event and option trade
event in the CAT Data submitted to the CAT by the relevant exchange
pursuant to the Participant Technical Specifications; and (b) with
respect to a transaction in an Eligible Security that is executed
otherwise than on an exchange and required to be reported to an
equity trade reporting facility of a registered national securities
association, the Industry Member identified as the executing broker
and the Industry Member identified as the contra-side executing
broker in the TRF/ORF/ADF transaction data event in the CAT Data
submitted to the CAT by FINRA pursuant to the Participant Technical
Specifications; provided, however, in those circumstances where
there is a non-Industry Member identified as the contra-side
executing broker in the TRF/ORF/ADF transaction data event or no
contra-side executing broker is identified in the TRF/ORF/ADF
transaction data event, then the Industry Member identified as the
executing broker in the TRF/ORF/ADF transaction data event would be
treated as CAT Executing Broker for the Buyer and for the Seller.

    Under the Participant Technical Specifications, for transactions
occurring on a Participant exchange, there is a field for the exchange
to report the market participant identifier (``MPID'') of ``the member
firm that is responsible for the order on this side of the trade.''
\39\ The Industry Members identified in these fields for the
transaction reports would be the CAT Executing Brokers for transactions
executed on an exchange.
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    \39\ See Section 4.7 (Order Trade Event) and Section <IP_ADDRESS>
(Simple Option Trade Event: Side Details) of the CAT Reporting
Technical Specifications for Plan Participants, Version 4.1.0-r17
(Feb. 21, 2023), https://www.catnmsplan.com/sites/default/files/2023-02/02.21.2023-CAT-Reporting-Technical-Specifications-for-Participants-4.1.0-r17.pdf.
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    FINRA is required to report to the CAT transactions in Eligible
Securities reported to a FINRA trade reporting facility (i.e., the
FINRA Trade Reporting Facilities (``TRF''), Over-the Counter Reporting
Facility (``ORF'') and Alternative Display Facility (``ADF'')).\40\
Under the Participant Technical Specifications, for such transactions
reported to a FINRA trade reporting facility, FINRA is required to
report the MPID of the executing party as well as the MPID of the
contra-side executing party. The Industry Members identified in these
two fields for the transaction reports would be the CAT Executing
Brokers for over-the-counter transactions.
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    \40\ See Section 6.1 of the CAT Reporting Technical
Specifications for Plan Participants (Feb. 21, 2023).
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    CAT LLC states that a CAT Executing Broker in over-the-counter
transactions identified on the TRF/ORF/ADF Transaction Data Event is
determined based on the tape or media report, that is, a trade report
that is submitted to a FINRA trade reporting facility and reported to
and publicly disseminated by the appropriate exclusive Securities
Information Processor. A CAT Executing Broker for over-the-counter
transactions is not determined based on a non-tape report (e.g., a
regulatory report or a clearing report), which are not publicly
disseminated.\41\
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    \41\ There is an exception to this statement for away-from-
market trades. These are non-media trades reported to the TRF with
an ``SRO Required Modifier Code'' of ``R''.
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    Therefore, with respect to transactions on an exchange and over-
the-counter transactions, CAT LLC would use transaction reports
reported to the CAT by FINRA or the exchanges to identify the
transaction, as well as the CAT Executing Broker for each transaction,
for purposes of calculating the CAT fees. Accordingly, all data used to
calculate the fees under the Executed Share Model would be CAT Data,
and, therefore, it would be available through the CAT for calculating
CAT fees. FINRA CAT would be responsible for calculating the CAT fees
\42\ and submitting invoices to the CAT Executing Brokers \43\ based on
this CAT Data.
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    \42\ According to CAT LLC, because CAT fees would be charged
based on the Equity Order Trade Events, Options Trade Events and the
ADF/ORF/TRF Transaction Data Events in the Participant Technical
Specifications and none of these transaction reports provide for
fractional quantities, CAT fees would be calculated without
reference to fractional shares or fractional share components of
executed orders. To the extent that FINRA's equity transaction
reporting facilities or the exchanges report transactions in
fractional shares in the future, then the calculation of CAT fees
would reflect fractional shares as well.
    \43\ CAT LLC states that each CAT Executing Broker could
determine, but would not be required, to pass their CAT fees through
to their clients, who, in turn, could pass their CAT fees to their
clients, until the fee is imposed on the ultimate participant in the
transaction.
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a. Treatment of ATSs
    The definition of a ``CAT Executing Broker'' as proposed above
would determine the CAT Executing Brokers for transactions executed on
an ATS. Specifically, if an ATS is identified as the executing party
and/or the contra-side executing party in the TRF/ORF/ADF Transaction
Data Event, then the ATS would be a CAT Executing Broker for purposes
of the Executed Share Model. If the ATS is identified as the executing
party for the buyer in such transaction reports, then the ATS would be
the CAT Executing Broker for the Buyer. If the ATS is identified as the
executing party for the seller in such

transaction reports, then the ATS would be the CAT Executing Broker for
the Seller. An ATS also could be identified as both the CAT Executing
Broker for the Buyer and the CAT Executing Broker for the Seller. ATSs
would determine the executing party and the contra-side executing party
reported to FINRA's equity trading facilities in accordance with the
transaction reporting requirements for FINRA's equity trading
facilities.
b. Non-Industry Members on Transaction Reports
    The Executed Share Model also would address how transactions that
involve a non-Industry Member would be treated (e.g., for internalized
trades or trades with a non-FINRA member). The FINRA trade reporting
requirements state that ``[w]hen reporting a trade with a broker-dealer
that is not a FINRA member, the non-member should not be identified on
the trade report as the contra party to the trade.'' \44\ Accordingly,
when the transaction in these cases is reported to CAT via the TRF/ORF/
ADF Transaction Data Event, the field for the reportingExecutingMpid
would be populated with the MPID of the executing broker and the field
for the contraExecutingMpid would be blank or null. As noted above, the
reportingExecutingMpid is a required field (include key = `R') that
must be entered on all CAT reports, but the contraExecutingMpid field
is conditional; it does not need to be populated, specifically to
account for cases like those at issue here (e.g., transactions with a
non-FINRA member). Therefore, in those scenarios where the
contraExecutingMpid is blank, the FINRA member identified in the
reportingExecutingMpid field would be treated as the CAT Executing
Broker for both the buy-side and the sell-side of the transaction, that
is, as the CEBS and CEBB.
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    \44\ FINRA Trade Reporting FAQ 202.1.
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    In addition, under the FINRA trade reporting requirements, there is
a limited exception to the general rule about not reporting a non-
member as the contra party to the trade. Specifically, pursuant to
FINRA Trade Reporting FAQ 202.1, ``[t]here is a limited exception where
a Canadian non-member firm uses the FINRA/NASDAQ TRF or ORF for
purposes of comparing trades pursuant to a valid Non-Member Addendum to
the NASDAQ Services Agreement. In that instance, however, the Canadian
non-member must appear on the trade report as the contra party to the
trade and not as the reporting party. For any trade report on which a
Canadian non-member appears as a party to the trade, the FINRA member
must appear as the reporting party.'' In this case involving the
Canadian non-member firm exception, the executing broker identified in
the reportingExecutingMpid field would be billed for both sides of the
transaction.
    CAT LLC proposes to include language in the definition of ``CAT
Executing Broker'' to address these scenarios. Specifically, CAT LLC
proposes to state the following in the definition of ``CAT Executing
Broker: ``in those circumstances where there is a non-Industry Member
identified as the contra-side executing broker in the TRF/ORF/ADF
transaction data event or no contra-side executing broker is identified
in the TRF/ORF/ADF transaction data event, then the Industry Member
identified as the executing broker in the TRF/ORF/ADF transaction data
event would be treated as CAT Executing Broker for the Buyer and for
the Seller.''
c. Cancellations and Corrections
    The Executed Share Model also would provide for cancellations and
corrections. CAT LLC expects to determine CAT fees based on the
transaction reports for a month as of a particular day. To the extent
that changes are made to the transaction reports on or before the day
the CAT fees are determined for the given month, the changes will be
reflected in the monthly bill. To the extent that changes are made to
the transaction reports after the day the CAT fees are determined for
that month, subsequent bills will reflect any changes via debits or
credits, as applicable. As CAT LLC is required by Section 11.1(d) of
the CAT NMS Plan to adopt policies, procedures, and practices regarding
the billing and collection of fees, CAT LLC will establish specific
policies and procedures regarding the treatment of such adjustments as
those related to cancellations and corrections. Furthermore, CAT LLC
will inform Industry Members and other market participants of these
policies and procedures via FAQs, CAT Alerts and/or other appropriate
methods.
2. CAT Budget
    Section 11.1(a) of the CAT NMS Plan describes the requirement for
the Operating Committee to approve an operating budget for CAT LLC on
an annual basis. It requires the budget to ``include the projected
costs of the Company, including the costs of developing and operating
the CAT for the upcoming year, and the sources of all revenues to cover
such costs, as well as the funding of any reserve that the Operating
Committee reasonably deems appropriate for prudent operation of the
Company.'' CAT LLC proposes to provide additional detail regarding the
CAT LLC operating budget by adding proposed subparagraphs (i) and (ii)
to Section 11.1(a) of the CAT NMS Plan.
a. Budgeted CAT Costs
    CAT LLC proposes to add subparagraph (i) to Section 11.1(a) of the
CAT NMS Plan to list the types of CAT costs to be included in the
budget. Specifically, proposed Section 11.1(a)(i) of the CAT NMS Plan
would state that ``[w]ithout limiting the foregoing, the reasonably
budgeted CAT costs shall include technology (including cloud hosting
services, operating fees, CAIS operating fees, change request fees and
capitalized developed technology costs), legal, consulting, insurance,
professional and administration, and public relations costs, a reserve,
and such other categories as reasonably determined by the Operating
Committee to be included in the budget.''
    CAT LLC proposes to require the inclusion of five subcategories of
technology costs in the budget: (1) cloud hosting services, (2)
operating fees, (3) Customer and Account Information System (``CAIS'')
operating fees, (4) change request fees, and (5) capitalized developed
technology costs.\45\ CAT LLC states that it will consider the need to
provide additional cost disclosure going forward.\46\
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    \45\ CAT LLC states that breaking out technology costs in this
manner is consistent with how such costs are broken out in the CAT
budgets available on the CAT website. The CAT LLC budgets are
available on the CAT website at https://www.catnmsplan.com/cat-financial-and-operating-budget. CAT LLC states that it currently
does not propose to require the disclosure of additional
subcategories of cost information, such as a further breakdown of
the category of cloud hosting services into production costs,
including linker costs and storage costs. Additionally, CAT LLC
notes that the CAT NMS Plan requires that detailed cost information
be made available to the Commission upon request, and detailed
information on CAT costs and operations is regularly made available
to the Commission staff and the Advisory Committee on a confidential
basis. See Notice, supra note 6, 88 FR at 17090.
    \46\ Id.
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    CAT LLC proposes to amend Section 11.1(a) of the CAT NMS Plan to
require CAT LLC to determine costs for the operating budget for the CAT
in a reasonable manner. Specifically, the first sentence of Section
11.1(a) of the CAT NMS Plan would be revised to read: ``On an annual
basis the Operating Committee shall approve a reasonable operating
budget for the Company.'' Similarly, CAT LLC proposes to include the
term ``reasonably'' in proposed paragraph (a)(i) of Section 11.1 of the

CAT NMS Plan. Specifically, that section would read: ``Without limiting
the foregoing, the reasonably budgeted CAT costs shall include
technology (including cloud hosting services, operating fees, CAIS
operating fees, change request fees, and capitalized developed
technology costs), legal, consulting, insurance, professional and
administration, and public relations costs, a reserve and such other
cost categories as reasonably determined by the Operating Committee to
be included in the budget.''
    Finally, CAT LLC proposes to amend Section 11.1(b) of the CAT NMS
Plan. Currently, Section 11.1(b) of the CAT NMS Plan states that:

    Subject to Section 11.2, 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
Participants. The Participants shall file with the SEC under Section
19(b) of the Exchange Act any such fees on Industry Members that the
Operating Committee approves, and such fees shall be labeled as
``Consolidated Audit Trail Funding Fees.''

    CAT LLC proposes to amend Section 11.1(b) to include a reference to
Section 11.1 as well as Section 11.2 in the ``subject to'' clause at
the beginning of the provision.
b. Reserve
    Section 11.1(a) of the CAT NMS Plan states that the budget shall
include ``the funding of any reserve that the Operating Committee
reasonably deems appropriate for prudent operation of the Company.'' In
addition, proposed Section 11.1(a)(i) of the CAT NMS Plan would state
that the budgeted CAT costs shall include a reserve. Section 11.1(c) of
the CAT NMS Plan states that ``[a]ny surplus of the Company's revenues
over its expenses shall be treated as an operational reserve to offset
future fees.''
    CAT LLC proposes to add paragraph (ii) to Section 11.1(a) of the
CAT NMS Plan to set forth the parameters for the size of the reserve.
Proposed Section 11.1(a)(ii) of the CAT NMS Plan would state that
``[f]or the reserve referenced in paragraph (a)(i) of this Section, the
budget will include an amount reasonably necessary to allow the Company
to maintain a reserve of not more than 25% of the annual budget.'' In
addition, proposed Section 11.1(a)(ii) of the CAT NMS Plan would state
that ``[f]or the avoidance of doubt, the calculation of the amount of
the reserve would exclude the amount of the reserve from the budget.''
    CAT LLC proposes to provide additional information as to how budget
surpluses would be treated for purposes of the reserve. Specifically,
proposed subparagraph (ii) of Section 11.1(a) of the CAT NMS Plan would
state that ``[t]o the extent collected CAT fees exceed CAT costs,
including the reserve of 25% of the annual budget, such surplus will be
used to offset future fees.'' In addition, CAT LLC further proposes to
state in proposed Section 11.1(a)(ii) of the CAT NMS Plan that ``[f]or
the avoidance of doubt, the Company will only include an amount for the
reserve in the annual budget if the Company does not have a sufficient
reserve (which shall be up to but not more than 25% of the annual
budget).''
3. CAT Fees Related to Prospective CAT Costs
    CAT LLC proposes to revise the introductory statement in proposed
Section 11.3(a) of the CAT NMS Plan to state that the Operating
Committee will establish the CAT Fees to be payable by Participants and
Industry Members with regard to Prospective CAT Costs.
a. Fee Rate for CAT Fees
    CAT LLC proposes to describe the timing and method for calculating
the Fee Rate for the CAT Fees related to Prospective CAT Costs in
proposed Section 11.3(a)(i) of the CAT NMS Plan, and to provide
additional detail regarding the Fee Rate in that provision. Proposed
Section 11.3(a)(i) of the CAT NMS Plan would state that CAT Fees
related to Prospective CAT Costs would be calculated twice a year, once
at the beginning of the year and once during the year.
    Proposed Section 11.3(a)(i)(A)(I) of the CAT NMS Plan would provide
that at the beginning of each year, the Operating Committee will
calculate the Fee Rate by dividing the reasonably budgeted CAT costs
for the year by the reasonably projected total executed equivalent
share volume of all transactions in Eligible Securities for the year.
Once the Operating Committee has approved such Fee Rate, the
Participants shall be required to file with the Commission pursuant to
Section 19(b) of the Exchange Act CAT Fees to be charged to Industry
Members calculated using such Fee Rate. Participants and Industry
Members will be required to pay CAT Fees calculated using this Fee Rate
once such CAT Fees are in effect with regard to Industry Members in
accordance with Section 19(b) of the Exchange Act.
    Proposed Section 11.3(a)(i)(A)(II) of the CAT NMS provides that
during each year, the Operating Committee will calculate a new Fee Rate
by dividing the reasonably budgeted CAT costs for the remainder of the
year by the reasonably projected total executed equivalent share volume
of all transactions in Eligible Securities for the remainder of the
year. Once the Operating Committee has approved the new Fee Rate, the
Participants shall be required to file with the Commission pursuant to
Section 19(b) of the Exchange Act CAT Fees to be charged to Industry
Members calculated using the new Fee Rate. Participants and Industry
Members will be required to pay CAT Fees calculated using this new Fee
Rate once such CAT Fees are in effect with regard to Industry Members
in accordance with Section 19(b) of the Exchange Act. CAT LLC also
proposes to add Section 11.3(a)(i)(A)(III) to the CAT NMS Plan to state
that CAT Fees related to Prospective CAT Costs do not sunset
automatically; such CAT Fees would remain in place until new CAT Fees
are in place with a new Fee Rate. The Executed Share Model is designed
to collect CAT fees continuously to provide uninterrupted revenue to
pay CAT bills.\47\
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    \47\ CAT LLC proposes to add proposed Section 11.3(a)(i)(A)(IV)
to the CAT NMS Plan. This provision would state that ``[f]or the
avoidance of doubt, the first CAT Fee may commence at the beginning
of the year or during the year. If it were to commence during the
year, the CAT Fee would be calculated as described in paragraph (II)
of this Section.''
---------------------------------------------------------------------------

b. Executed Equivalent Shares
    CAT LLC proposes to describe in proposed Section 11.3(a)(i)(B) of
the CAT NMS Plan how executed equivalent shares would be counted for
purposes of calculating CAT Fees. 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 would 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 CAT Fees. 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.
c. Budgeted CAT Costs
    The calculation of the Fee Rate for CAT Fees related to Prospective
CAT Costs requires the determination of the budgeted CAT costs for the
year or other relevant period. Proposed Section 11.3(a)(i)(C) of the
CAT NMS Plan would state that the budgeted CAT costs for the year shall
be comprised of all reasonable fees, costs and expenses reasonably
budgeted to be incurred by or for the Company in connection with the
development, implementation and operation of the CAT as set forth in
the annual operating budget approved by the Operating Committee
pursuant to Section 11.1(a) of the CAT NMS Plan, or as adjusted during
the year by the Operating Committee.
    In addition, proposed Section 11.3(a)(i)(C) of the CAT NMS Plan
would provide that the budgeted CAT costs for the year shall be
comprised of all reasonable fees, costs and expenses reasonably
budgeted to be incurred by or for the Company in connection with the
development, implementation and operation of the CAT as set forth in
the annual operating budget approved by the Operating Committee
pursuant to Section 11.1(a) of the CAT NMS Plan, or as adjusted during
the year by the Operating Committee.
d. Projected Total Executed Equivalent Share Volume
    The calculation of the Fee Rate for CAT Fees also requires the
determination of the projected total executed equivalent share volume
of transactions in Eligible Securities for each relevant period.
Pursuant to proposed Section 11.3(a)(i)(D) of the CAT NMS Plan, each
year, the Operating Committee would reasonably determine this
projection based on the total executed equivalent share volume of
transactions in Eligible Securities from the prior twelve months. As
set forth in proposed Section 11.3(a)(iii)(B), Participants will be
required to provide a description of the calculation of the projection
in their fee filings pursuant to Section 19(b) of the Exchange Act.
Furthermore, CAT LLC intends to calculate the CAT Fees based on a
reasonable determination of the projected total executed equivalent
share volume of transactions in Eligible Securities.
e. Participant CAT Fees for Prospective CAT Costs
    CAT LLC proposes to add paragraph (A) to proposed Section
11.3(a)(ii) of the CAT NMS Plan to describe the CAT Fee obligation of
the Participants. Each Participant that is a national securities
exchange will be required to pay the CAT Fee for each transaction in
Eligible Securities executed on the exchange in the prior month based
on CAT Data. Each Participant that is a national securities association
will be required to pay the CAT Fee for each transaction in Eligible
Securities executed otherwise than on an exchange in the prior month
based on CAT Data. The CAT 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 Fee Rate
determined pursuant to paragraph (a)(i) of Section 11.3.
    CAT LLC also proposes to include proposed paragraph (B) of proposed
Section 11.3(a)(ii) of the CAT NMS Plan to clarify that Participants
would only be required to pay CAT Fees when Industry Members are
required to pay CAT Fees. Under the Executed Share Model, CAT Fees are
designed to cover 100% of CAT costs by allocating costs between and
among Participants and Industry Members. However, the CAT Fees charged
to Participants are implemented via a different process than CAT Fees
charged to Industry Members. CAT Fees charged to Participants are
implemented via an approval of the CAT Fees by the Operating Committee
in accordance with the requirements of the CAT NMS Plan. In contrast,
CAT Fees charged to Industry Members may only become effective in
accordance with the requirements of Section 19(b) of the Exchange Act.
f. Industry Member CAT Fees for Prospective CAT Costs
    CAT LLC proposes to describe the CAT Fees related to Prospective
CAT Costs that would be charged to Industry Members in proposed Section
11.3(a)(iii)(A) of the CAT NMS Plan. Each Industry Member that is the
CEBB in a transaction in Eligible Securities and each Industry Member
that is the CEBS in a transaction in Eligible Securities) will be
required to pay a CAT Fee for each such transaction in Eligible
Securities in the prior month based on CAT Data. The CEBB's CAT Fee or
CEBS's CAT Fee (as applicable) for each transaction in Eligible
Securities will be calculated by multiplying the number of executed
equivalent shares in the transaction by one-third and by the Fee Rate
reasonably determined pursuant to paragraph (a)(i) of this Section
11.3.
    Proposed paragraph (B) of proposed Section 11.3(a)(iii) of the CAT
NMS Plan would require the fee filings to be made pursuant to Section
19(b) of the Exchange Act and Rule 19b-4 thereunder \48\ for Industry
Member CAT Fees to include with regard to the CAT Fee: (A) the Fee
Rate; (B) the budget for the upcoming year (or remainder of the year,
as applicable), including a brief description of each line item in the
budget, including (1) technology line items of cloud hosting services,
operating fees, CAIS operating fees, change request fees and
capitalized developed technology costs, (2) legal, (3) consulting, (4)
insurance, (5) professional and administration, and (6) public
relations costs, a reserve and/or such other categories as reasonably
determined by the Operating Committee to be included in the budget and
the reason for changes in each such line item from the prior CAT Fee
filing; \49\ (C) a discussion of how the budget is reconciled to the
collected fees; and (D) the projected total executed equivalent share
volume of all transactions in Eligible Securities for the year (or
remainder of the year, as applicable), and a description of the
calculation of the projection. This detail would describe how the Fee
Rate is calculated and explain how the budget used in the calculation
is reconciled to the collected fees.\50\
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    \48\ CAT LLC expects the fee filings required to be made by the
Participants pursuant to Section 19(b) of the Exchange Act with
regard to CAT Fees to be filed pursuant to Section 19(b)(3)(A) of
the Exchange Act and Rule 19b-(f)(2) thereunder. In accordance with
Section 19(b)(3)(A) of the Exchange Act and Rule 19b-4(f)(2)
thereunder, such fee filings would be effective upon filing.
    \49\ CAT LLC intends to include any other categories as
reasonably determined by the Operation Committee. Accordingly, this
provision refers to ``such other categories as reasonably determined
by the Operating Committee to be included in the budget.''
    \50\ As a practical matter, the fee filing would provide the
exact fee per executed equivalent share to be paid for the CAT Fees,
by multiplying the Fee Rate by one-third and describing the relevant
number of decimal places for the fee.
---------------------------------------------------------------------------

    In addition, in proposed Section 11.3(a)(iii)(B), CAT LLC proposes
to state that the budgeted CAT costs described in the fee filings must
provide sufficient detail to demonstrate that the CAT budget used in
calculating the CAT Fees is reasonable and appropriate.
    The collection of CAT Fees from Industry Members is subject to
Section 11.6 of the CAT NMS Plan regarding the Financial Accountability
Milestones. Accordingly, CAT LLC proposes to state in proposed
paragraph (C) to proposed

Section 11.3(a)(iii) that Participants will not make fee filings
pursuant to Section 19(b) of the Exchange Act regarding CAT Fees until
the Financial Accountability Milestone related to Period 4 described in
Section 11.6 of the CAT NMS Plan has been satisfied.
g. CAT Fee Details
    CAT LLC proposes to add proposed Section 11.3(a)(iv)(A) to the CAT
NMS Plan to state that details regarding the calculation of a
Participant or CAT Executing Broker's CAT Fees will be provided upon
request to such Participant or CAT Executing Broker. At a minimum, such
details would include each Participant or CAT Executing Broker's
executed equivalent share volume and corresponding fee by (1) Listed
Options, NMS Stocks and OTC Equity Securities, (2) by transactions
executed on each exchange and transactions executed otherwise than on
an exchange, and (3) by buy-side transactions and sell-side
transactions.''
    In addition, CAT LLC proposes to make certain aggregate statistics
regarding the CAT Fees publicly available, which would include, at a
minimum, the aggregate executed equivalent share volume and
corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC
Equity Securities, (2) by transactions executed on each exchange and
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions.\51\
---------------------------------------------------------------------------

    \51\ See proposed Section 11.3(a)(iv)(B) of the CAT NMS Plan.
---------------------------------------------------------------------------

4. Historical CAT Assessment
    CAT LLC proposes to revise Section 11.3(b) of the CAT NMS Plan to
provide that the Operating Committee will establish one or more
Historical CAT Assessments to be payable by Industry Members with
regard to Past CAT Costs.\52\
---------------------------------------------------------------------------

    \52\ There may be one or more Historical CAT Assessments,
depending upon the timing of any approval of the amendment to the
CAT NMS Plan and the completion of the Financial Accountability
Milestones. For a discussion of the Financial Accountability
Milestones, see Section 11.6 of the CAT NMS Plan.
---------------------------------------------------------------------------

a. Historical Fee Rate for Historical CAT Assessments
    Proposed paragraph (A) of proposed Section 11.3(b)(i) of the CAT
NMS Plan would state that the Operating Committee will calculate the
Historical Fee Rate for each Historical CAT Assessment by dividing the
Historical CAT Costs for each Historical CAT Assessment by the
reasonably projected total executed equivalent share volume of all
transactions in Eligible Securities for the Historical Recovery Period
for each Historical CAT Assessment. Once the Operating Committee has
approved such Historical Fee Rate, the Participants shall be required
to file with the Commission pursuant to Section 19(b) of the Exchange
Act such Historical CAT Assessment to be charged Industry Members
calculated using such Historical Fee Rate. Industry Members will be
required to pay such Historical CAT Assessment calculated using such
Historical Fee Rate once such Historical CAT Assessment is in effect in
accordance with Section 19(b) of the Exchange Act.
b. Executed Equivalent Shares
    Proposed Section 11.3(b)(i)(B) of the CAT NMS Plan would state that
the Historical CAT Assessment would be calculated based on the same
executed equivalent share calculation as CAT Fees related to
Prospective CAT Costs.
c. Historical CAT Costs
    Proposed Section 11.3(b)(i)(C) of the CAT NMS Plan would describe
the Historical CAT Costs for calculating Historical CAT Assessments and
would state that ``[t]he Operating Committee will reasonably determine
the Historical CAT Costs sought to be recovered by each Historical CAT
Assessment, where the Historical CAT Costs will be Past CAT Costs minus
Past CAT Costs reasonably excluded from Historical CAT Costs by the
Operating Committee.''
    CAT LLC proposes to further clarify the amount to be collected by
the Historical CAT Assessments by adding a clarifying statement in
proposed Section 11.3(b)(i)(C) that ``[e]ach Historical CAT Assessment
will seek to recover from CAT Executing Brokers two-thirds of
Historical CAT Costs incurred during the period covered by the
Historical CAT Assessment.'' Each CEBS and CEBB pays one-third, and,
therefore, two-thirds of the Historical CAT Costs would be collected
from CAT Executing Brokers.
    CAT LLC also proposes to add the term ``reasonably'' to the
following sentence in Section 11.1(c) of the CAT NMS Plan before the
word ``incurred'': ``In determining fees on Participants and Industry
Members the Operating Committee shall take into account fees, costs and
expenses (including legal and consulting fees) reasonably incurred by
the Participants on behalf of the Company prior to the Effective Date
in connection with the creation and implementation of the CAT.''
d. Historical Recovery Period
    Proposed Section 11.3(b)(i)(D)(I) of the CAT NMS Plan would
describe the Historical Recovery Period used in calculating the
Historical Fee Rate. This proposed provision would state that ``[t]he
length of the Historical Recovery Period used in calculating each
Historical Fee Rate will be reasonably established by the Operating
Committee based upon the amount of the Historical CAT Costs to be
recovered by the Historical CAT Assessment.'' This proposed provision,
however, would state that ``no Historical Recovery Period used in
calculating the Historical Fee Rate shall be less than 24 months or
more than five years.''
    Proposed Section 11.3(b)(i)(D)(II) of the CAT NMS Plan would
describe the length of the time that the Historical CAT Assessment
would be in effect, which may be greater than or less than the
Historical Recovery Period, depending on the amount of the Historical
CAT Assessments collected based on the actual volume during the time
that the Historical Assessment is in effect. Any Historical CAT
Assessment would remain in effect until the relevant Historical CAT
Costs are collected, whether that time is shorter or longer than the
Historical Recovery Period used in calculating the Historical Fee Rate.
e. Projected Total Executed Equivalent Share Volume
    The Historical Fee Rate for a Historical CAT Assessment would be
calculated by using the projected total executed equivalent share
volume of all transactions in Eligible Securities for the Historical
Recovery Period for such Historical CAT Assessment. As set forth in
proposed Section 11.3(b)(i)(E) of the CAT NMS Plan, ``[t]he Operating
Committee shall reasonably determine the projected total executed
equivalent share volume of all transactions in Eligible Securities for
each Historical Recovery Period based on the executed equivalent share
volume of all transactions in Eligible Securities for the prior twelve
months.'' In addition, CAT LLC proposes to allow the Operating
Committee to base its projection on the prior twelve months, but to use
its discretion to analyze the likely volume for the upcoming year. As
set forth in proposed Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan,
Participants will be required to provide a description of the
calculation of the projection in their fee filings pursuant to Section
19(b) of the Exchange Act for Historical CAT Assessments.

f. Past CAT Costs and Participants
    Proposed Section 11.3(b)(ii) of the CAT NMS Plan would clarify that
the Participants would not be required to pay the Historical CAT
Assessment as the Participants previously have paid all Past CAT Costs.
In addition, proposed Section 11.3(b)(ii) of the CAT NMS Plan would
state that ``[i]n lieu of a Historical CAT Assessment, the
Participants' one-third share of Historical CAT Costs and such other
additional Past CAT Costs as reasonably determined by the Operating
Committee will be paid by the cancellation of loans made to the Company
on a pro rata basis based on the outstanding loan amounts due under the
loans.'' Furthermore, proposed Section 11.3(b)(ii) of the CAT NMS Plan
would emphasize that ``[t]he Historical CAT Assessment is designed to
recover two-thirds of the Historical CAT Costs.''
g. Historical CAT Assessment for Industry Members
    CAT LLC proposes to describe the Historical CAT Assessment charged
to Industry Members in proposed Section 11.3(b)(iii)(A) of the CAT NMS
Plan. Each month in which a Historical CAT Assessment is in effect,
each CEBB and each CEBS shall pay a fee for each transaction in
Eligible Securities executed by the CEBB or CEBS from the prior month
as set forth in CAT Data, where the Historical CAT Assessment for each
transaction will be calculated by multiplying the number of executed
equivalent shares in the transaction by one-third and by the Historical
Fee Rate reasonably determined pursuant to paragraph (b)(i) of this
Section 11.3.
    CAT LLC proposes to provide additional details regarding the fee
filings to be filed by the Participants regarding each Historical CAT
Assessment pursuant to Section 19(b) of the Exchange Act in proposed
Section 11.3(b)(iii)(B) of the CAT NMS Plan.\53\ Specifically, CAT LLC
proposes to state that each Participant will be required to file a fee
filing pursuant to Section 19(b) of the Exchange Act to describe each
Historical CAT Assessment.\54\
---------------------------------------------------------------------------

    \53\ CAT LLC expects the fee filings required to be made by the
Participants pursuant to Section 19(b) of the Exchange Act with
regard to Historical CAT Assessments to be filed pursuant to Section
19(b)(3)(A) of the Exchange Act. In accordance with Section
19(b)(3)(A) of the Exchange Act, fee filings made pursuant to
Section 19(b)(3)(A) of the Exchange Act would be effective upon
filing.
    \54\ See proposed Section 11.3(b)(iii)(B)(I).
---------------------------------------------------------------------------

    CAT LLC also proposes to provide additional detail about the
information that Participants would be required to include in their fee
filings to be made pursuant to Section 19(b) of the Exchange and Rule
19b-4(f)(2) for Historical CAT Assessments in proposed paragraph
(b)(iii)(B)(II) of proposed Section 11.3 of the CAT NMS Plan.
Specifically, such filings would be required to include: (A) the
Historical Fee Rate; (B) a brief description of the amount and type of
Historical CAT Costs, including (1) the technology line items of cloud
hosting services, operating fees, CAIS operating fees, change request
fees and capitalized developed technology costs, (2) legal, (3)
consulting, (4) insurance, (5) professional and administration, and (6)
public relations costs; (C) the Historical Recovery Period and the
reasons for its length; and (D) the projected total executed equivalent
share volume of all transactions in Eligible Securities for the
Historical Recovery Period, and a description of the calculation of the
projection.\55\
---------------------------------------------------------------------------

    \55\ As a practical matter, the fee filing would provide the
exact fee per executed equivalent share to be paid for the
Historical CAT Assessment, by multiplying the Historical Fee Rate by
one-third and describing the relevant number of decimal places for
the fee.
---------------------------------------------------------------------------

    In addition, CAT LLC proposes to clarify in proposed Section
11.3(b)(iii)(B)(II) that the Historical CAT Costs described in the fee
filings must provide sufficient detail to demonstrate that such costs
are reasonable and appropriate.
    The collection of Historical CAT Assessments from Industry Members
is subject to Section 11.6 of the CAT NMS Plan regarding the Financial
Accountability Milestones. Accordingly, CAT LLC proposes to clarify in
proposed Section 11.3(b)(iii)(B)(III) that Participants will not make
CAT fee filings pursuant to Section 19(b) of the Exchange Act regarding
a Historical CAT Assessment until any applicable Financial
Accountability Milestone has been satisfied.
h. Historical CAT Assessment Details
    CAT LLC proposes to add proposed Section 11.3(b)(iv)(A) to the CAT
NMS Plan to state that details regarding the calculation of a CAT
Executing Broker's Historical CAT Assessments will be provided upon
request to such CAT Executing Broker. At a minimum, such details would
include each CAT Executing Broker's executed equivalent share volume
and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity
Securities, (2) by transactions executed on each exchange and
transactions executed otherwise than on an exchange, and (3) by buy-
side transactions and sell-side transactions.
    In addition, CAT LLC proposes to make certain aggregate statistics
regarding Historical CAT Assessments publicly available, which would
include, at a minimum, the aggregate executed equivalent share volume
and corresponding aggregate fee by (1) Listed Options, NMS Stocks and
OTC Equity Securities, (2) by transactions executed on each exchange
and transactions executed otherwise than on an exchange, and (3) by
buy-side transactions and sell-side transactions.\56\
---------------------------------------------------------------------------

    \56\ See proposed Section 11.3(b)(iv)(B) of the CAT NMS Plan.
---------------------------------------------------------------------------

5. Additional Changes From Original Funding Model
    CAT LLC proposes certain revisions to Article XI of the CAT NMS
Plan to implement the Executed Share Model. CAT LLC proposes to make
the following changes to the CAT NMS Plan in addition to the proposed
changes to the CAT NMS Plan discussed above.
a. Elimination of 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 Sections 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, CEBBs
and CEBSs. Accordingly, as the concept for an ``Execution Venue'' would
not be relevant for the Executed Share Model, CAT LLC proposes to
delete this term and its definition from Section 1.1 of the CAT NMS
Plan.
b. Use of Executed Equivalent Share Volume Under Executed Share Model
    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). CAT
LLC proposes to amend the CAT NMS Plan to require Participants, CEBBs
and CEBSs to pay CAT fees 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 ``[i]n 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.'' CAT LLC 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.'' CAT LLC represents that 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. CAT LLC represents that 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.'' CAT LLC 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.''
    In addition, CAT LLC proposes to amend the CAT funding principles
to clarify that CAT Fees and the Historical CAT Assessments are
intended to be cost-based fees--that is, the fees are designed to
recover the cost of the creation, implementation and operation of the
CAT. CAT LLC proposes to amend the funding principle set forth in
Section 11.2(c) by making a specific reference to the costs of the CAT.
    CAT LLC proposes to delete Section 11.3(a) of the CAT NMS Plan,
which provides additional detail regarding the market share-based fees
to be paid by Participants and Execution Venue ATSs under the Original
Funding Model, and replace it with a description of the CAT Fees
related to Prospective CAT Costs, as described above.
    CAT LLC proposes to delete Section 11.3(b) of the CAT NMS Plan,
which provides additional detail regarding the message traffic-based
CAT fees to be paid by Industry Members (other than Execution Venue
ATSs) under the Original Funding Model, and replace it with a
description of the Historical CAT Assessments, as described above.
c. Elimination of Tiered Fees
    CAT LLC proposes to eliminate the use of tiered fees that were
included in the Original Funding Model. Instead, under the Executed
Share Model, each Participant, CEBB or CEBS 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.
    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, CAT LLC proposes to
delete the reference to ``assignment of tiers'' from Section 11.1(d).
Similarly, CAT LLC also proposes to delete the following sentences from
Section 11.1(d) because the Executed Share Model would not use tiered
fees:

    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.

    CAT LLC also proposes to delete the references to ``tiered'' fees
from Section 11.2(c) of the CAT NMS Plan and paragraph (iii) of Section
11.2(c) of the CAT NMS Plan, which relates to the establishment of a
tiered fee structure.
    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.
d. No Fixed Fees
    As discussed above, CAT LLC 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),
11.3(a)(ii) and 11.3(b) and replaced them with references to ``fees.''
Under the Executed Share Model, the CAT fees to be paid by
Participants, CEBBs and CEBSs 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.
6. Plan Amendment Process for Fee Rate Changes
    Under the Executed Share Model, 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,\57\ each
Participant would be required to pay the applicable CAT Fee calculated
in accordance with the requirements set forth in the CAT NMS Plan
(subject to the requirement for the Industry Member CAT Fee to be in
effect). CAT LLC does not plan to submit an amendment to the CAT NMS
Plan each time that the Fee Rate for the CAT Fee is established or
adjusted because of the length of time and burden required to amend the
CAT NMS Plan for each adjustment to the Fee Rate.
---------------------------------------------------------------------------

    \57\ Participants would be required to pay the CAT Fee once the
CAT Fee is in effect with regard to Industry Members in accordance
with Section 19(b) of the Exchange Act.

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

B. CAT Fee Schedule for Participants

    To implement the Participant CAT fees, CAT LLC proposes to add a
fee schedule, entitled ``Consolidated Audit Trail Funding Fees,'' to
Appendix B of the CAT NMS Plan. Proposed paragraph (a) of the fee
schedule would describe the CAT Fees to be paid by the Participants
under the Executed Share Model. Specifically, paragraph (a) of the
Participant fee schedule would state that ``[e]ach Participant shall
pay the CAT Fee set forth in Section 11.3(a) of the CAT NMS Plan 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 Eligible Securities in the prior month.''

IV. Summary of Comments

A. Allocation of Fee Among Participants and Industry Members

    Under the Executed Share Model, CAT fees would be allocated one-
third to the applicable Participant, one-third to the CEBS and one-
third to the CEBB of a transaction. Two commenters opposed the proposed
allocation.\58\ One commenter stated that, while the Proposed Amendment
justified the fairness of the Executed Share Model because it would
operate like other fees, like FINRA's TAF, Section 31 fees, and the
options regulatory fee,\59\ the Proposed Amendment did not support why
those fee frameworks should be used as a model in this context.\60\ For
example, the commenter stated that the TAF is designed to recover the
costs of FINRA's regulatory activities, while the CAT fees are intended
to align with the costs to build, operate and administer the CAT.\61\
Further, the commenter stated that the Proposed Amendment has
insufficiently explained the connection between the TAF and CAT fees,
merely stating that they are similar fees because they are transaction-
based fees to provide funding for regulatory costs.\62\ The commenter
stated that ``CAT LLC's observations superficially focus on the fact
that these fees also use transaction-based metrics (and may be assessed
on members) and neglects other factors relevant to the analysis
including, for example, that these fees are used in combination with
other funding mechanisms and metrics to support an overall funding
framework.'' \63\
---------------------------------------------------------------------------

    \58\ See Letters to Vanessa Countryman, Secretary, Commission,
from Marcia E. Asquith, Corporate Secretary, EVP, Board and External
Relations, FINRA, dated May 25, 2023 (``FINRA May 2023 Letter'');
April 11, 2023 (``FINRA April 2023 Letter''); and June 22, 2022
(``FINRA June 2022 Letter'') (the FINRA June 2022 Letter was
submitted in response to the prior funding proposal and was attached
and incorporated by reference in the FINRA April 2023 Letter);
Letters to Vanessa Countryman, Secretary, Commission, from Ellen
Greene, Managing Director, Equities & Options Market Structure, and
Joseph Corcoran, Managing Director, Associate General Counsel,
SIFMA, dated June 5, 2023 (``SIFMA June 2023 Letter''); May 2, 2023
(``SIFMA May 2023 Letter''); January 12, 2023 (``SIFMA January 2023
Letter''); December 14, 2022 (``SIFMA December 2022 Letter'');
October 7, 2022 (``SIFMA October 2022 Letter''); and June 22, 2022
(``SIFMA June 2022 Letter'') (the SIFMA June 2022 Letter, SIFMA
October 2022 Letter, SIFMA December 2022 Letter and SIFMA January
2023 Letter were submitted in response to the prior funding proposal
and incorporated by reference in the SIFMA May 2023 Letter).
    \59\ See Notice, supra note 6, 88 FR at 17122.
    \60\ See FINRA June 2022 Letter at 4.
    \61\ See FINRA April 2023 Letter at 8.
    \62\ Id. The commenter also stated that ``it is unclear how
assessing on FINRA the largest allocation of the SRO portion of CAT
expenses `provides funding for regulatory costs' in any reasonable
and equitable sense comparable to the TAF . . .'' Id.
    \63\ FINRA May 2023 Letter at 3.
---------------------------------------------------------------------------

    Another commenter disagreed with the Participants' statement that
the Executed Share Model's similarity to other transaction-based fees
approved by the Commission is adequate justification for consistency
with the Exchange Act.\64\ The commenter stated that similarity to
other transaction-based fees is not an adequate basis to show that the
Executed Share Model is consistent with relevant standards; each
proposed fee must be individually supported.\65\
---------------------------------------------------------------------------

    \64\ See SIFMA June 2022 Letter at 4.
    \65\ Id.
---------------------------------------------------------------------------

    Commenters also questioned the Participants' justifications for the
one-third allocation methodology. One commenter argued that the
Proposed Amendment did not justify why the proposed allocation by
thirds to the Participant, buy-side and sell-side is equitable in the
context of the CAT NMS Plan.\66\ The commenter also argued that the
Proposed Amendment did not consider alternatives suggested by
commenters on a prior proposed funding model,\67\ such as a model
similar to Section 31 fees and a CAT funding model based on the ``Cost
Recovery Principle'' and the ``Benefits Received Principle.'' \68\ The
commenter urged that the Commission require those alternatives to be
analyzed.\69\
---------------------------------------------------------------------------

    \66\ See FINRA June 2022 Letter at 3.
    \67\ See Securities Exchange Act Release Nos. 94984 (May 25,
2022), 87 FR 33226 (June 1, 2022); 96394 (Nov. 28, 2022), 87 FR
74183 (Dec. 2, 2022); and Letter from Michael Simon, Chair Emeritus,
CAT NMS Plan Operating Committee, to Vanessa Countryman, Secretary,
Commission (Feb. 15, 2023).
    \68\ See FINRA April 2023 Letter at 5.
    \69\ Id.
---------------------------------------------------------------------------

    One commenter stated that the Participants have not met their
burden to demonstrate the proposed allocation is consistent with the
Exchange Act fee standards and not arbitrary.\70\ The commenter stated
that because FINRA is funded by Industry Members, Industry Members
would pay over 80% of CAT costs since they must pay not only their own
share but FINRA's as well; therefore, the Commission should disapprove
the proposal.\71\ The commenter also argued that the Proposed Amendment
fails to explain how allocating 80% of total CAT costs to the industry
in perpetuity without a mechanism to limit the budget \72\ is
consistent with the Exchange Act and guidance on SRO filings related to
fees when the industry has no role in the governance, oversight or
design of CAT and does not benefit from the CAT.\73\ The commenter
quoted a Commission release stating that the Participants are
potentially conflicted in allocating CAT fees to themselves and the
Industry Members.\74\
---------------------------------------------------------------------------

    \70\ See SIFMA May 2023 Letter at 6; SIFMA June 2023 Letter at
1-2. The commenter also stated that the Proposed Amendment provides
unsupported conclusory statements that it meets the requirements of
the Exchange Act. See SIFMA June 2023 Letter at 2; see also id. at n
11.
    \71\ See SIFMA May 2023 Letter at 2. See also SIFMA June 2022
Letter at 1-2 (stating that the proposed cost allocation methodology
is inconsistent with Exchange Act fee standards because most costs
would be imposed on Industry Members).
    \72\ The commenter noted that the CAT annual budget increased
over 30% in the last year. See SIFMA June 2023 Letter at 4.
    \73\ SIFMA June 2023 Letter at 3, 4. The commenter also stated
that approving such a proposal would ``directly threaten[ ]
efficiency, competition, and capital formation in U.S. securities
markets.'' Id.
    \74\ Id. at 4. See also Securities Exchange Act Release No.
89618 (Aug. 19, 2020), 85 FR 65470, 65482 (Oct. 15, 2020).
---------------------------------------------------------------------------

    Additionally, this commenter stated that the Participants do not
account for ``the time and expense Industry Members have devoted to
developing and maintaining internal systems to be able to report the
[sic] CAT, as well as the time and expense Industry Members have
devoted to assisting the Operating Committee with its job of developing
reporting specifications that allow the CAT to achieve its regulatory
purpose.'' \75\ The commenter stated that the Participants have not
taken Industry Members' time and expenses into account when deciding to
allocate two-thirds of the CAT costs to Industry Members and that
``this omission is a flaw with the Participants' decision to allocate
two-thirds of the CAT costs to Industry Members and its inclusion would
demonstrate that the Participants' Executed Share Model

does not provide for the equitable allocation of reasonable fees.''
\76\
---------------------------------------------------------------------------

    \75\ SIFMA June 2022 Letter at 4. See also SIFMA January 2023
Letter at 4.
    \76\ SIFMA June 2022 Letter at 4-5. See also SIFMA January 2023
Letter at 5.
---------------------------------------------------------------------------

    The commenter also objected to statements made in the Proposed
Amendment that the complexity of Industry Member business models
contributes substantially to the costs of the CAT.\77\ The commenter
stated that the proposed allocation of two-thirds of CAT costs to
Industry Members is unfair, unreasonable and arbitrary because the
Participants are equally responsible for the complexity of trading
activity in the markets.\78\ The commenter contested the Participants'
argument that the allocation satisfies Exchange Act fee standards
because Industry Members and the complexity of their business models
drive the costs of the CAT, by stating that the examples provided of
complexities were developed to address order types, activities and fee
structures (such as the maker-taker fee structure) established by the
Participant exchanges.\79\ The commenter argued that the Participants
are just as responsible for such cost-driving complex trading activity
in the equity and options markets as Industry Members due to the
``large number of equity and options exchanges established by the
exchange families with fundamentally different execution models and
order types.'' \80\ The commenter argued that the Participant exchanges
have not analyzed how their own business decisions have resulted in the
complexity of Industry Member order routing practices and CAT
costs.\81\ The commenter also dismissed other justifications made in
the Proposed Amendment for the proposed allocation; specifically, that
there are more Industry Members than Participants and that Industry
Members receive more in revenue than the Participants,\82\ stating that
these assertions are not relevant in demonstrating that the proposed
allocation is fair and reasonable.\83\ The commenter argued that the
Participants are justifying the allocation based on the ability to pay
rather than cost generation, which the commenter believes is
inconsistent ``with the Participant Exchanges' proposed approach. . .
of allocating CAT costs based on approximate responsibility for
generating them. . .'' and ``with the historical CAT decision to
allocate costs to the parties responsible for generating them.'' \84\
The commenter suggested an alternative allocation that would equally
split CAT costs between Participant exchanges and Industry Members,
while FINRA would be subject only to a nominal regulatory user fee to
access CAT Data.\85\
---------------------------------------------------------------------------

    \77\ See Notice, supra note 6, 88 FR at 17104.
    \78\ See SIFMA May 2023 Letter at 3. See also SIFMA January 2023
Letter at 2, 3-4.
    \79\ See SIFMA May 2023 Letter at 6-7. See also SIFMA January
2023 Letter at 3; Notice, supra note 6, 88 FR at 17104.
    \80\ SIFMA January 2023 Letter at 3.
    \81\ See SIFMA May 2023 Letter at 7.
    \82\ Id. See also Notice, supra note 6, 88 FR at 17104.
    \83\ See SIFMA May 2023 Letter at 7. See also SIFMA January 2023
Letter at 4.
    \84\ See SIFMA May 2023 Letter at 7. The commenter cited to the
funding principles in Section 11.2 of the CAT NMS Plan.
    \85\ See SIFMA January 2023 Letter at 4. See also SIFMA May 2023
Letter at 8; SIFMA June 2022 Letter at 5; SIFMA October 2022 Letter
at 4. This commenter also suggested another alternative allocation
in which costs would be allocated to those Participants and Industry
Members most directly responsible for the costs. Under this
alternative, Industry Members would be responsible for the cost
associated with initial ingestion of the data into the CAT system.
The commenter explained that Participants would be responsible for
the costs associated with the stages after the data is initially
ingested into the CAT system because the regulators directly control
and benefit from these stages of the CAT system after ingestion. See
SIFMA June 2022 Letter at 5-6.
---------------------------------------------------------------------------

    Commenters also argued against statements in the Proposed Amendment
that CAT costs would be passed on to investors.\86\ One commenter
stated, ``[s]uch an assertion is inaccurate because it is almost
certain that there will be scenarios faced by Industry Members in which
they will not be able to figure out who was responsible for generating
certain Historical CAT Costs.'' \87\ The commenter warned that such
assertions would minimize the Participants' obligation to allocate fees
consistent with Exchange Act fee standards and could result in the
inequitable allocation of CAT fees to Industry Members under the
assumption that such fees would be passed down to investors.\88\
Another commenter objected to statements in the Proposed Amendment that
Industry Members can pass through to their customers their CAT cost
allocation and additional costs resulting from an increase in FINRA
fees.\89\ The commenter stated that ``[s]ummarily stating that
investors can be made to bear the costs resulting from the Funding
Model without a detailed description of and transparency into how these
fees would be determined or passed on to customers is inadequate, and
does not provide interested parties sufficient information to consider
the costs and benefits related to the Fee Proposal.'' \90\
---------------------------------------------------------------------------

    \86\ See SIFMA May 2023 Letter at 8; FINRA April 2023 Letter at
6-7.
    \87\ See SIFMA May 2023 Letter at 8.
    \88\ Id.
    \89\ See FINRA April 2023 Letter at 6-7.
    \90\ Id. at 7.
---------------------------------------------------------------------------

    In response to the comment noting that the Participants had not
analyzed a suggested Section 31-style approach to a funding model,\91\
CAT LLC stated that the CAT fee approach is similar to the Section 31
fee approach in how an exchange would be obligated to pay a transaction
fee based on transactions occurring on that exchange, and that FINRA
would be obligated to pay a transaction fee based on transactions in
the over-the-counter market.\92\ CAT LLC argued that the approaches are
also similar because, in both, an exchange would be able to determine
to pass the fee onto its members, as would FINRA.\93\ CAT LLC stated
that if the Section 31 approach would comply with the Exchange Act,
then the proposed CAT fee approach should also comply with the Exchange
Act and CEBBs and CEBSs could determine whether to pass such fees onto
their clients.\94\
---------------------------------------------------------------------------

    \91\ Id. at 5.
    \92\ See Letter to Vanessa Countryman, Secretary, Commission,
from Brandon Becker, Chair, CAT NMS Plan Operating Committee, dated
May 18, 2023 (``CAT LLC Response Letter''), at 9.
    \93\ Id.
    \94\ Id.
---------------------------------------------------------------------------

    In response, the commenter stated that the CAT LLC Response Letter
misrepresented the commenter's letter by incorrectly stating that the
commenter's letter recommended an approach similar to Section 31
fees.\95\ The commenter clarified that it was noting that the
Commission had received comments suggesting a model like the Section 31
fees, that the Participants had not ``meaningfully analyzed'' the
suggested alternatives in the Proposed Amendment, and that the
Commission should require the Participants to analyze the
alternatives.\96\
---------------------------------------------------------------------------

    \95\ See FINRA May 2023 Letter at 3, n.8.
    \96\ Id.
---------------------------------------------------------------------------

    In response to the comments on whether Participants' models are
equally to blame for the complexity of the markets,\97\ CAT LLC stated
that its analysis of the complexity of the industry's business models
is based on the effects of those models on the costs of the CAT, which
it stated are more profound than those of Participants, not on
complexity of the market in general.\98\ CAT LLC explained that the
complexity of the Industry Members' business models results in
significant data processing and storage costs, which Participants do
not contribute to as they do not originate market activity or

orders.\99\ CAT LLC also stated that the Participants would pay the
same amount as the CEBB and CEBS in each transaction.\100\
---------------------------------------------------------------------------

    \97\ See SIFMA May 2023 Letter at 3. See also SIFMA January 2023
Letter at 2, 3-4.
    \98\ See CAT LLC Response Letter at 6.
    \99\ Id. at 7.
    \100\ Id. at 6.
---------------------------------------------------------------------------

    CAT LLC also disagreed with one commenter's dismissal of CAT LLC's
consideration of the Industry Members' relative ability to pay,\101\
stating that the Exchange Act specifically requires that the fees be
fair and reasonable, which necessitates consideration of the relative
ability to pay.\102\ Additionally, CAT LLC objected to the commenter's
statement that the proposed allocation is ``inconsistent with the
historical CAT decision to allocate costs to the parties responsible
for generating them.'' \103\ CAT LLC stated that, while the CAT NMS
Plan does not require CAT costs to be allocated to the parties
responsible for generating such costs, the proposed allocation
addresses cost burden on the CAT by (i) taking into account the impact
of Industry Member activity on CAT costs, and (ii) using trading
activity, which CAT LLC believes is a ``reasonable proxy for cost
burden on the CAT,'' \104\ as the metric for cost allocation.\105\
---------------------------------------------------------------------------

    \101\ See SIFMA May 2023 Letter at 7. See also SIFMA January
2023 Letter at 4.
    \102\ CAT LLC Response Letter at 7.
    \103\ Id.; SIFMA May 2023 Letter at 7.
    \104\ CAT LLC Response Letter at 7.
    \105\ Id.
---------------------------------------------------------------------------

    Additionally, CAT LLC responded to the commenter's suggested
alternative proposal that would equally allocate CAT costs to
Participant exchanges and Industry Members, stating that the commenter
did not explain why the alternative would satisfy the Exchange Act
standards, and noting that CAT LLC had previously considered such an
allocation but believed that it would not result in a fair and
equitable allocation due to the greater number of Industry Members than
Participants, the greater financial resources of Industry Members, and
the failure of the suggested allocation to take into account how the
complexity of Industry Member business models contributes substantially
to CAT costs.\106\
---------------------------------------------------------------------------

    \106\ Id.
---------------------------------------------------------------------------

    In response, the commenter stated that the CAT LLC Response Letter
did not meaningfully address the concerns it raised about the
allocation of CAT costs between Participants and Industry Members.\107\
---------------------------------------------------------------------------

    \107\ See SIFMA June 2023 Letter at 2.
---------------------------------------------------------------------------

B. Executed Equivalent Shares

a. Executed Equivalent Share Volume
    One commenter stated that the Participants failed to justify why
the Executed Share Model would appropriately treat high-volume trades
in low-priced stocks, arguing that Section 31 fees are charged only on
the sell-side of a transaction and are based on the notional value of a
trade.\108\
---------------------------------------------------------------------------

    \108\ See SIFMA October 2022 Letter at 7.
---------------------------------------------------------------------------

    Another commenter argued that the Proposed Amendment does not
explain why the use of executed share volume as the basis of the cost
allocation methodology, instead of message traffic, is equitable.\109\
The commenter explained that in prior models, message traffic was the
key proxy for cost generation used to align CAT fees with CAT costs,
but the Executed Share Model would base its cost allocation methodology
entirely on executed share volume.\110\ The commenter stated that the
Participants' argument that executed share volume is related to cost
generation is not enough to demonstrate that its use is reasonable and
equitable.\111\ This commenter further stated that the Executed Share
Model is inconsistent with the ``cost alignment'' funding principle in
Section 11.2(b) of the CAT NMS Plan, which requires the Participants to
seek to establish an allocation of costs that takes into account
distinctions in the securities trading operations of Participants and
Industry Members and their relative impact upon Company resources and
operations.\112\ The commenter stated that ``the Proposal fails to
establish a sufficient nexus between executed share volume and the
technology burdens that generate CAT costs and fails to relate each
reporter group's allocation to the burden that each reporter group
imposes on CAT.'' \113\
---------------------------------------------------------------------------

    \109\ See FINRA June 2022 Letter at 3.
    \110\ Id.
    \111\ Id. at 4.
    \112\ Id. See also FINRA April 2023 Letter at 7-9.
    \113\ FINRA June 2022 Letter at 4.
---------------------------------------------------------------------------

    CAT LLC responded to the commenter's statement that the proposed
allocation is inconsistent with the cost alignment principles of the
CAT NMS Plan by noting that the Proposed Amendment incorporates the
concept of cost burden in at least two ways.\114\ Specifically, CAT LLC
stated that it does so because ``the allocation of CAT costs
contemplates the effect of Industry Member activity on the cost of the
CAT. . . and because trading activity provides a reasonable proxy for
cost burden on the CAT, trading activity is an appropriate metric for
allocating CAT costs among CAT Reporters.'' \115\ CAT LLC added that
because there are other examples of trading activity-based fees, the
Executed Share Model would not be novel or unique.\116\
---------------------------------------------------------------------------

    \114\ CAT LLC Response Letter at 7.
    \115\ Id.
    \116\ Id.
---------------------------------------------------------------------------

    With respect to the deletion in Section 11.2(b) of the requirement
that, when establishing the funding of the CAT, the Operating Committee
must take into account ``distinctions in the securities trading
operations of Participants and Industry Members and their relative
impact upon Company resources and operations,'' the same commenter
argued that the Participants have proposed to delete the language in
Section 11.2(b) because the proposed Executed Share Model is
inconsistent with the language.\117\ This commenter stated that the
Proposed Amendment ``seeks to amend the core funding principles to
align with an unjustified allocation methodology.'' \118\ The commenter
stated that any changes to the funding principles ``must be well-
reasoned and transparent and must continue to support the achievement
of a fair and equitable outcome.'' \119\
---------------------------------------------------------------------------

    \117\ See FINRA June 2022 Letter at 4; see also FINRA April 2023
Letter at 7.
    \118\ FINRA June 2022 Letter at 4. The commenter states that the
Executed Share Model instead places the greatest emphasis on the
funding principle relating to the ``ease of billing and other
administrative functions,'' favoring that principle over cost
alignment. Id. at 5.
    \119\ Id.; FINRA April 2023 Letter at 8-9.
---------------------------------------------------------------------------

    Additionally, the commenter objected to the statement in the
Proposed Amendment 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.'' \120\ The commenter stated
that this statement is inconsistent with information that demonstrates
that volume from FINRA trading facilities (``TRF'') contributes ``a
very small percentage of annual CAT compute and storage costs.'' \121\
The commenter stated, ``. . . despite the minimal data compute and
storage costs for transactions reported to the TRF, FINRA would be
assessed an estimated 34% of the total CAT costs to be borne amongst
the 25 Participants, and more than all options exchanges combined.''
\122\ The commenter stated that as a result, it cannot support the
Participants' assertion that trading activity is a reasonable proxy for
cost burden.\123\ The commenter stated that the Proposed Amendment
``fails to provide for reasonable fees that are equitably allocated and
not unfairly discriminatory, does not reflect a reasonable approach to
allocating costs

amongst the Participants, nor does it transparently or accurately
present information regarding the true sources of cost burdens on the
CAT.'' \124\
---------------------------------------------------------------------------

    \120\ Notice, supra note 6, 88 FR at 17103.
    \121\ FINRA May 2023 Letter at 2.
    \122\ Id.
    \123\ See id. See also FINRA April 2023 Letter at 8.
    \124\ FINRA May 2023 Letter at 4.
---------------------------------------------------------------------------

b. FINRA Allocation
    Two commenters objected to the proposed allocation of Participant
CAT fees to FINRA.\125\ Both commenters objected to the allocation to
FINRA of 34% of the total CAT costs \126\ to be borne by the
Participants.\127\ One commenter argued that this amount was a
``disproportionate share of CAT costs,'' \128\ especially as FINRA does
not operate a market,\129\ and that the Proposed Amendment would place
an undue burden on FINRA.\130\ The commenter stated that FINRA's share
was ``more than double that of the next highest Participant and $4
million more than all option exchanges combined.'' \131\ The commenter
also stated that FINRA's allocation would largely be based on
transaction volume reported to the TRF; however, the commenter stated
that TRF transactions generate fewer costs for the CAT,\132\ as opposed
to options activity, but that only 25% of total Participant CAT fees
would be assessed for options activity, while the remaining 75% would
be assessed for equities activity.\133\ The commenter stated that ``. .
. FINRA would be assessed an estimated 34% of the total CAT costs to be
borne amongst the 25 Participants, and more than all options exchanges
combined.'' \134\
---------------------------------------------------------------------------

    \125\ See FINRA May 2023 Letter; FINRA April 2023 Letter; FINRA
June 2022 Letter; SIFMA May 2023 Letter; SIFMA June 2022 Letter;
SIFMA October 2022 Letter. One of the commenters supported the
points raised in the FINRA April 2023 Letter that argued that the
Proposed Amendment would result in the inequitable allocation of
fees and should be disapproved. See SIFMA May 2023 Letter at 2.
    \126\ One commenter stated that this estimate is based on 2021
data and urged the Commission to require the Participants to amend
the Proposed Amendment to include the 2022 data and fee allocation
estimates, stating that the CAT budget has grown significantly from
2021. See FINRA April 2023 Letter at 3, 4-5. In its response to
comments, CAT LLC provided the Historical CAT Costs for 2022. See
Notice, supra note 6, 88 FR at 17111; CAT LLC Response Letter at 13.
    \127\ See FINRA May 2023 Letter at 2; FINRA April 2023 Letter at
3; SIFMA May 2023 Letter at 2.
    \128\ FINRA April 2023 Letter at 3.
    \129\ Id.
    \130\ FINRA June 2022 Letter at 6.
    \131\ FINRA April 2023 Letter at 4; see also FINRA June 2022
Letter at 5.
    \132\ See FINRA April 2023 Letter at 8, n.23.
    \133\ Id.; FINRA May 2023 Letter at 2.
    \134\ FINRA May 2023 Letter at 2.
---------------------------------------------------------------------------

    The commenter argued that, unlike the exchange Participants,
transactions are not executed on a FINRA marketplace and FINRA does not
receive commercial revenue for those transactions.\135\ The commenter
explained that ``while the NMS stock allocation to FINRA under the
Funding Model is based on transactions that are reported to FINRA
[TRFs], these transactions are not executed on a FINRA marketplace and
FINRA does not retain commercial revenues from those transactions''
\136\ unlike the exchanges that operate each FINRA TRF, which retain
the market data and trade reporting revenue of the TRF.\137\ The
commenter stated that, unlike FINRA, these exchanges would thus have a
revenue stream related to the transactions that would be assessed a CAT
fee, and that also, unlike FINRA, exchanges generate revenue from
listings and proprietary data feeds in NMS securities.\138\ The
commenter also stated that FINRA members can report over-the-counter
transactions in listed stocks to the FINRA Alternative Display
Facility, although most transactions are reported to a TRF.\139\
---------------------------------------------------------------------------

    \135\ See FINRA April 2023 Letter at 3.
    \136\ Id.
    \137\ Id.
    \138\ Id. at 4.
    \139\ Id. at 3, n.8.
---------------------------------------------------------------------------

    The commenter further stated that FINRA cannot necessarily recoup
its costs through regulatory services agreements (``RSAs'') that it has
entered into with certain exchanges \140\ because the exchanges must
first agree to be charged CAT costs under the RSAs; therefore, RSAs
would not be a reliable source of CAT funding for FINRA.\141\
Additionally, the commenter questioned CAT LLC's statement that the
Proposed Amendment ``reflects a reasonable effort to allocate costs
based on the extent to which different CAT Reporters participate in and
benefit from the equities and options markets.'' \142\ Specifically,
the commenter asked how CAT LLC's statement explains the size of
FINRA's allocation \143\ and noted that this statement ``conflates the
costs to create and operate the CAT with the usage of CAT data.'' \144\
---------------------------------------------------------------------------

    \140\ This statement was made in response to a statement in the
Proposed Amendment that FINRA, like the exchange Participants, has
revenue sources other than membership fees, giving as an example the
RSAs. See Notice, supra note 6, 88 FR at 17107.
    \141\ See FINRA April 2023 Letter at 4.
    \142\ Id. at 7.
    \143\ Id.
    \144\ Id.; see also FINRA June 2022 Letter at 6.
---------------------------------------------------------------------------

    Two commenters expressed concern about alleged arbitrary treatment
of FINRA by the other Participants of the CAT NMS Plan.\145\ One
commenter believes that FINRA's ``outsized allocation'' \146\ was
because of its limited voting power, only having one out of 25 votes on
the Operating Committee as it does not control, nor is under common
control with, any other Participant.\147\ Another commenter stated that
the current CAT NMS Plan voting structure results in the unfair and
inequitable treatment of FINRA.\148\ Both commenters believe that the
exchange Participants treat FINRA arbitrarily to benefit themselves,
treating FINRA as a market center in the CAT NMS Plan while not as a
market center under the National Market System Plan Regarding
Consolidated Equity Market Data (``CT Plan''),\149\ which governs the
public dissemination of real-time consolidated market data for national
market system stocks.\150\ One commenter argued that the Participants
do not treat FINRA as a market center under the CT Plan in order to
limit FINRA's voting power and therefore its ability to decide how to
allocate market data revenue.\151\ The commenter stated that this
example demonstrates the ``. . . inherent conflicts of interest that
for-profit exchanges have in operating as SROs . . .'' \152\ The
commenter suggested that the Commission issue an order soliciting
comment on whether the Operating Committee should be reorganized
consistent with the CT

Plan.\153\ This commenter further stated, ``[w]e believe such a
governance structure for the CAT would help facilitate a fairer
structure for the views of the SROs and industry to be heard and
incorporated into any further CAT funding proposal by reducing the
ability of the largest exchange groups to dictate the terms of any CAT
funding proposal over the objections of other SRO Participants and the
industry.'' \154\
---------------------------------------------------------------------------

    \145\ See FINRA April 2023 Letter at 6, n.16; SIFMA October 2022
Letter at 3. See also SIFMA May 2023 Letter at 6, n.11.
    \146\ FINRA April 2023 Letter at 7; FINRA June 2022 Letter at 6.
    \147\ FINRA April 2023 Letter at 4, 8. See also FINRA June 2022
Letter at 8.
    \148\ See SIFMA January 2023 Letter at 3, n.7.
    \149\ See Joint Industry Plan; Order Approving, as Modified, a
National Market System Plan Regarding Consolidated Equity Market
Data; Securities Exchange Act Release No. 92586 (Aug. 6, 2021), 86
FR 44142 (Aug. 11, 2021) (File No. 4-757) (``Order Approving the CT
Plan''). The Order Approving the CT Plan was vacated by the D.C.
Circuit on July 5, 2022. See The NASDAQ Stock Market LLC et al. v.
SEC, Case No. 21-1167, D.C. Cir. (July 5, 2022). See also Securities
Exchange Act Release No. 88827; File No. 4-757 (May 6, 2020), 85 FR
28702 (May 13, 2020) (Order Directing the Exchanges and the
Financial Industry Regulatory Authority to Submit a New National
Market System Plan Regarding Consolidated Equity Market Data).
    \150\ See FINRA April 2023 Letter at 6; SIFMA October 2022
Letter at 3. See also SIFMA May 2023 Letter at 6, n.11. One
commenter argued that the Participants treat FINRA in ways that are
financially beneficial to them without considering FINRA's role in
the marketplace ``. . . as the not-for-profit self-regulator for the
entire brokerage industry . . .'' SIFMA October 2022 Letter at 3.
See also SIFMA January 2023 Letter at 4; SIFMA October 2022 Letter
at 4; SIFMA May 2023 Letter at 8 (recommending that FINRA be treated
differently from the Participant exchanges due to its unique role).
    \151\ See SIFMA October 2022 Letter at 3-4. See also SIFMA May
2023 Letter at 6, n.11.
    \152\ SIFMA October 2022 Letter at 3. See also SIFMA June 2023
Letter at 4 (quoting a Commission release stating that the
Participants are potentially conflicted in allocating CAT fees to
themselves and the Industry Members); supra note 74.
    \153\ SIFMA October 2022 Letter at 2.
    \154\ Id. The commenter also argued that the Industry Members
are not voting members of the Operating Committee and have no way to
direct the cost control efforts of the Participants or change their
course if the cost control efforts prove to be unsuccessful. See
SIFMA June 2022 Letter at 8.
---------------------------------------------------------------------------

    Both commenters also believe the allocation to FINRA would increase
the allocation to Industry Members.\155\ One commenter stated that
FINRA, which relies on regulatory fees from its members for funding,
must increase its member fees in order to fund CAT costs that it cannot
recover from contractual arrangements with TRF business members.\156\
The commenter stated that the Proposed Amendment does not adequately
analyze the allocation's impact, including whether the allocation would
increase Industry Members' allocation of total costs beyond two-
thirds.\157\ The commenter dismissed as inadequate the Participants'
argument that Industry Members can pass through their costs, stating
that the Proposed Amendment lacks a detailed description of and
transparency into how the fees may be passed on to customers.\158\
Another commenter argued that the Participants ``do not address the
fact that the Executed Share Model for Prospective CAT Costs allocates
two-thirds of CAT costs to Industry Members for exchange transactions
and more for off-exchange transactions'' \159\ because they cannot
demonstrate that the proposed allocation results in an equitable
allocation of reasonable fees.\160\ The commenter stated that Industry
Members, who would be subject to two-thirds of Prospective CAT Costs
under the Executed Share Model, already pay FINRA's operating costs
through regulatory fines and fees; therefore, Industry Members would
additionally be indirectly assessed FINRA's one-third CAT fee for off-
exchange transactions.\161\ The commenter suggested an alternative
allocation \162\ that would subject FINRA only to a nominal regulatory
user fee to access CAT Data.\163\
---------------------------------------------------------------------------

    \155\ See FINRA April 2023 Letter at 5-7; SIFMA June 2022 Letter
at 4. See also SIFMA October 2022 Letter at 2, 3.
    \156\ See FINRA April 2023 Letter at 5-6; see also FINRA June
2022 Letter at 7.
    \157\ See FINRA April 2023 Letter at 6.
    \158\ Id. at 6-7.
    \159\ SIFMA June 2022 Letter at 4. See also SIFMA October 2022
Letter at 3 (``. . . we believe the proposal is flawed because it
fails to appropriately consider that Industry Members pay the full
costs of operating FINRA.'').
    \160\ See SIFMA June 2022 Letter at 4.
    \161\ Id. The commenter also stated that the proposed allocation
would result in two-thirds of CAT costs for exchange transactions
being imposed on Industry Members, and that this amount would be
higher for off-exchange transactions as FINRA would be assessed one-
third as the venue fee and Industry Members would be indirectly
assessed FINRA's portion of CAT costs as they pay the entire costs
of operating FINRA. Id. See also SIFMA October 2022 Letter at 2.
    \162\ See supra notes 84-85 and accompanying text.
    \163\ See SIFMA January 2023 Letter at 4. See also SIFMA May
2023 Letter at 8; SIFMA June 2022 Letter at 5; SIFMA October 2022
Letter at 4.
---------------------------------------------------------------------------

    One commenter requested that if the Commission were to approve the
Proposed Amendment, that it acknowledge ``FINRA's need and ability to
cover CAT costs that are not recovered through contractual arrangements
through member fee increases, so as not to jeopardize FINRA's ability
to carry out its critical regulatory mission.'' \164\ The commenter
stated that FINRA would file a rule change to increase its member fees
with the filing of any proposed rule change to effectuate the Funding
Model.\165\
---------------------------------------------------------------------------

    \164\ FINRA April 2023 Letter at 7.
    \165\ Id.
---------------------------------------------------------------------------

    CAT LLC disagreed with one commenter's proposal to charge FINRA
only a nominal regulatory fee.\166\ CAT LLC stated that the proposed
transaction-based CAT fee is purposely agnostic as to the location of
where a trade occurs, and an intent of this design is to avoid
influencing whether or where any trading activity would take place.
Moreover, CAT LLC stated that FINRA is no different from the exchanges
in terms of its regulatory obligations regarding the CAT.\167\
---------------------------------------------------------------------------

    \166\ See CAT LLC Response Letter at 8.
    \167\ Id.
---------------------------------------------------------------------------

C. CAT Executing Broker

    Two commenters objected to the proposed definition of ``CAT
Executing Broker.'' \168\ One commenter argued that the term ``CAT
Executing Broker'' ``does not appear to be universally defined or
accepted by Option Industry Members or Participants'' and that such
lack of acceptance ``present[s] a challenge when firms try to assess
the impact the `Funding Proposal' will have on their respective
businesses.'' \169\ Accordingly, the commenter advocated that the
Executed Share Model follow the ``structure already in place for
[collecting] Regulatory Fees,'' such as charging Clearing Brokers.\170\
---------------------------------------------------------------------------

    \168\ See SIFMA May 2023 Letter; Letter from Timothy Miller,
Chief Operating Officer, DASH Financial Technologies, LLC to Vanessa
Countryman, Secretary, Commission (April 11, 2023) (``DASH April
2023 Letter''), at 1-2. The DASH April 2023 Letter also incorporated
by reference a separate letter submitted by the commenter on the
prior funding proposal (stating that the concerns expressed in the
prior letter concerning the operating and competitive burdens of the
proposed funding model are unchanged). See Letter from Timothy
Miller, Chief Operating Officer, DASH Financial Technologies LLC, to
Vanessa Countryman, Secretary, Commission (Jan. 3, 2023) (``DASH
January 2023 Letter'').
    \169\ DASH April 2023 Letter at 1.
    \170\ Id. at 2.
---------------------------------------------------------------------------

    Another commenter argued that the proposed definition of executing
broker would result in the inequitable allocation of fees.\171\ While
the commenter supported the change from having clearing firms be
assessed Industry Member CAT fees to executing brokers having this
obligation,\172\ because clearing firms would have been unfairly
burdened with CAT costs and could have been placed in situations in
which they would have been unable to identify the client responsible
for the costs,\173\ the commenter expressed concerns with how the
Participants determined which entities would be considered executing
brokers.\174\ In comment letters on the prior proposal, which was
amended to require executing brokers instead of clearing firms to be
assessed CAT fees, the commenter requested additional detail on how an
executing broker would be defined.\175\ The commenter subsequently
stated that the definition in the current Proposed Amendment suffers
from the same problems as the prior proposal in which CAT fees were
allocated to clearing firms and would result in the inequitable
allocation of CAT fees among Industry Members.\176\
---------------------------------------------------------------------------

    \171\ See SIFMA May 2023 Letter at 3.
    \172\ Id. See also SIFMA January 2023 Letter at 7-8.
    \173\ See SIFMA May 2023 Letter at 3-4. See also SIFMA October
2022 Letter at 5. The commenter also argued against the assessment
of CAT fees on clearing firms because clearing firms would be
required to collect fees and thus would have to develop new systems
and processes under the Executed Share Model, and because a clearing
firm for a buyer or seller would not always be a party to a trade as
it could be the clearer of a trade on behalf of an executing broker.
See SIFMA June 2022 Letter at 9; SIFMA October 2022 Letter at 7.
    \174\ See SIFMA May 2023 Letter at 4.
    \175\ See SIFMA January 2023 Letter at 2, 8; SIFMA December 2022
Letter at 3. See also SIFMA May 2023 Letter at 4.
    \176\ See SIFMA May 2023 Letter at 4. See also SIFMA June 2022
Letter at 9-10; SIFMA October 2022 Letter at 5.
---------------------------------------------------------------------------

    The commenter explained that CAT operates on a cost-recovery basis,
with costs resulting from the number of messages that Participants and
Industry Members report to the CAT, the processing and linking of such

messages, and the costs of providing tools to regulators to analyze CAT
data.\177\ The commenter stated that the use of message traffic as the
basis of fees, in the Original Funding Model, would have ensured that
all CAT Reporters would contribute to CAT's funding.\178\ However, the
commenter stated that, since the Proposed Amendment would not impose
fees on all CAT Reporters, instead imposing fees on executing brokers,
it would result in an inequitable allocation of fees as the executing
brokers would be the last broker among many other brokers handling an
order.\179\ The commenter stated that any analysis of such a funding
model must evaluate whether (i) the executing brokers would pass-
through or absorb the CAT fees and any negative impacts on competition,
noting that the Proposed Amendment would require executing brokers to
incur expenses that other Industry Members would not incur since they
would be required to collect the Industry Member portion of CAT fees on
behalf of the Participants,\180\ and (ii) Industry Members that
executed trades for introducing brokers and acting as order
consolidators and ATSs would be responsible for CAT fees for
transactions they did not originate and would have to either pay the
fee for their clients or develop software and processes to collect the
fees from their clients as they often are not capable of passing
through fees to the clients that sent them the orders.\181\ The
commenter stated that the Proposed Amendment would subject executing
brokers to unfair burdens and require them to ``shoulder CAT costs in
scenarios in which they could not determine which client firm was
responsible for creating the CAT costs by initiating the transaction.''
\182\
---------------------------------------------------------------------------

    \177\ See SIFMA May 2023 Letter at 4.
    \178\ Id.
    \179\ Id. at 4-5.
    \180\ Id. at 5.
    \181\ Id.
    \182\ Id.
---------------------------------------------------------------------------

    The commenter argued instead in favor of an allocation in which the
Industry Member that originated an order would be treated as an
``executing broker'' and therefore be responsible for Industry Member
CAT fees.\183\ Under this alternative, ``the Industry Member who
originates a new principal order or the Industry Member who initially
receives and routes a customer order for execution on an agency basis
would be directly assessed CAT Fees.'' \184\ The commenter stated that
this would be the most reasonable way to allocate CAT costs among
Industry Members \185\ and that it would be ``relatively easy to
accommodate this approach.'' \186\
---------------------------------------------------------------------------

    \183\ See SIFMA May 2023 Letter at 5.
    \184\ Id. at 6.
    \185\ Id. at 5.
    \186\ Id. at 6.
---------------------------------------------------------------------------

    One commenter expressed concerns about the imposition of CAT fees
on CAT Executing Brokers.\187\ The commenter argued that charging CAT
Executing Brokers ``inordinately burdens Broker Dealers, especially
small to medium-sized firms.'' \188\ This commenter recommended using
instead the existing structure for regulatory fees, including ``the
efficiencies afforded by the current structure, and the resulting
alleviation of risk.'' \189\ In this regard, the commenter stated that
``Clearing Firms are best suited to process the collection of fees as
it can occur at trade settlement and the cost is ultimately borne by
the end beneficiary of each transaction.'' \190\ The commenter also
stated that small and medium-sized executing brokers could expect a
significant negative impact on their net capital as a result of the
proposal, stating, ``. . . the firms will be forced to recoup these
costs by passing them on to their clients, either in the form of higher
commission rates or as a separate transactional fee. Using [Clearing
Member Trade Agreement] commission invoicing and/or SEC 31(b) fees in a
broker-to-broker relationship as a proxy, these invoices are generally
paid well after the 60-day milestone to qualify the receivable as `good
capital.' '' \191\
---------------------------------------------------------------------------

    \187\ See DASH April 2023 Letter.
    \188\ Id. at 1; see also DASH January 2023 Letter at 1.
    \189\ DASH January 2023 Letter at 3; see also DASH April 2023
Letter at 1-2.
    \190\ DASH April 2023 Letter at 1; see also DASH January 2023
Letter at 1.
    \191\ DASH January 2023 Letter at 2.
---------------------------------------------------------------------------

    In response to the comment about the definition of CAT Executing
Broker and the billing and collection process being better suited for
clearing firms, CAT LLC stated that the proposed assessment of CAT fees
on CAT Executing Brokers only addresses the party obligated to pay the
CAT fee.\192\ CAT LLC stated that a CAT Executing Broker can decide to
enter into an arrangement with its clearing broker for the clearing
broker to collect and pass-through the CAT fees like it does in other
contexts.\193\ With respect to alternatives to the proposed definition
of the CAT Executing Broker, CAT LLC stated that the ``originating
broker'' suggestion was from a commenter who had previously recommended
charging executing brokers in comment letters on the prior proposed
funding model.\194\ CAT LLC stated that the commenter's objection to
charging executing brokers in the Executed Share Model was an attempt
to further delay the approval of a funding model and the resultant
payment of CAT fees by its members, rather than expressing a concern
about the merits of charging executing brokers.\195\
---------------------------------------------------------------------------

    \192\ See CAT LLC Response Letter at 12.
    \193\ Id.
    \194\ Id. at 2.
    \195\ Id. at 3.
---------------------------------------------------------------------------

    In response, the commenter stated that the CAT Operating Committee
mischaracterized the commenter's position on the assessment of CAT fees
to executing brokers by stating in the CAT LLC Response Letter that the
commenter changed its position on this proposed change to delay
adoption of a CAT funding model.\196\ The commenter represented that it
stated in comment letters it submitted on the prior funding model that
initially proposed the use of executing brokers that (1) the
Participants did not define who would be an executing broker in a
transaction, (2) a clear definition is necessary for Industry Members
to understand when they would be assessed costs under the Executed
Share Model, and (3) its understanding was that the concept of
executing broker generally refers to the Industry Member that initiates
an order.\197\ The commenter stated that the Participants only provided
a definition of executing broker in the Proposed Amendment.\198\ The
commenter stated that it provided concerns about the proposed
definition in its May 2023 comment letter which the commenter argued
were mischaracterized by the CAT Operating Committee in the CAT LLC
Response Letter.\199\ The commenter stated that the CAT Operating
Committee mischaracterized the commenter's position to rush the
Commission to a decision on the Proposed Amendment.\200\
---------------------------------------------------------------------------

    \196\ See SIFMA June 2023 Letter at 5.
    \197\ Id.
    \198\ Id.
    \199\ Id. at 5-6.
    \200\ Id. at 6.
---------------------------------------------------------------------------

    In response to the comment that imposing fees on executing brokers
would result in an inequitable allocation of fees and the suggestion
that the use of message traffic as the basis of fees would have ensured
that all CAT Reporters would contribute to CAT's funding, CAT LLC
disagreed and stated that because the 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.\201\ CAT

LLC stated that, as a result, CAT fees based on message traffic could
impose an outsized adverse financial impact on certain Industry
Members, raising this same issue of an inequitable allocation of
fees.\202\ Further, in response to the commenter's criticism that in
charging executing brokers, the fee would be charged to a subset of
Industry Members and, as a result, that subset of Industry Members
would incur expenses that other Industry Members would not incur, CAT
LLC stated that it continues to believe that charging CAT Executing
Brokers would satisfy the requirements of the Exchange Act.\203\ CAT
LLC stated that in the past, the Commission has approved fees that are
charged to some, but not all, broker-dealers.\204\ CAT LLC noted that,
for example, FINRA's trading activity fee is assessed to a subset of
FINRA members--that is, it is assessed on the sell side of member
transactions.\205\ CAT LLC also stated that the options exchanges
charge options regulatory fees per executed contract side, and, for
both options and equities, Section 31-related fees are charged to the
sell-side in a transaction.\206\ CAT LLC recognized that, under the
proposal to charge CAT Executing Brokers, the CAT Executing Broker, but
not other Industry Members involved in a given order lifecycle, would
be required to pay the CAT fees, and that Industry Members that sought
to recoup such fees would have to develop processes to collect such
fees from their clients.\207\ CAT LLC stated that this regulatory
requirement would have a similar effect as other types of regulatory
fees, such as the FINRA trading activity fee, the options regulatory
fee and Section 31-related sales value pass-through fees because,
``[i]n each such case, a subset of broker-dealers is required to pay a
transaction-based regulatory fee, and those broker-dealers seeking to
recover such fees from other broker-dealers or non-broker-dealers have
established processes with regard to the pass-through of such fees.''
\208\
---------------------------------------------------------------------------

    \201\ See CAT LLC Response Letter at 4.
    \202\ Id.
    \203\ Id. at 3.
    \204\ Id.
    \205\ Id.
    \206\ See CAT LLC Response Letter at 3.
    \207\ Id. at 4.
    \208\ Id.
---------------------------------------------------------------------------

    CAT LLC further stated that it disagrees with charging an
originating broker instead of an executing broker because there are
already several existing examples of transaction-based fees being
assessed to executing brokers as opposed to the originating broker, and
it disagrees with the assertion that charging originating brokers would
be easier.\209\ CAT LLC stated that charging the originating Industry
Member would be difficult to implement and would increase the costs of
implementing CAT fees, whereas charging CAT Executing Brokers is
simple, straightforward and in line with existing fee and business
models because for any given trade (buy or sell), there is only one CAT
Executing Broker to which shares can be allocated.\210\ As such, CAT
LLC stated that ``charging the CAT Executing Broker is simple and