subject to exemptive relief that are slated for development.\622\ The
Commission disagrees that the changes cited by the commenter are new
CAT NMS Plan requirements; indeed the relevant Commission orders
granting exemptive relief discuss the various requirements under the
CAT NMS Plan that form the basis of the relief granted.\623\
Furthermore, any amendments to the requirements in the CAT NMS Plan
must be filed with the Commission and published for notice and comment
and generally shall not become effective unless approved by the
Commission.\624\ Regarding the suggested enhancements to improve CAT
transparency,\625\ the CAT NMS Plan and Rules 608 and 613 of Regulation
NMS provide for sufficient advance notice of material changes to the
CAT system and related costs. As discussed above, changes to the CAT
NMS Plan must be filed with the Commission as an NMS plan amendment
pursuant to Rule 608 of Regulation NMS and therefore be subject to
notice and comment, and the Commission shall consider, in determining
to approve the amendment, the impact of the amendment on efficiency,
competition and capital formation.\626\ Additionally, Section 6.9 of
the CAT NMS Plan requires a Supermajority Vote of the CAT Operating
Committee in order to make Material Amendments \627\ to the Technical
Specifications. Section 6.9, however, does not provide unfettered
discretion to the CAT Operating

Committee to make changes to the CAT system; any amendments to the CAT
Technical Specifications must be consistent with the CAT NMS Plan. If
the CAT Operating Committee or the Commission wish to impose additional
requirements that are not contemplated by the CAT NMS Plan, such
requirements must be proposed through an amendment to the CAT NMS Plan,
filed under Rule 608 of Regulation NMS, which must be published for
notice and comment.\628\ The Commission agrees with the commenter that
all CAT operating budgets should remain published on the CAT NMS Plan
website, as they have been since 2022, and understands that CAT LLC
will continue to do so in the future.\629\ Therefore, the Commission
does not believe it is necessary to add an explicit requirement to this
effect.
---------------------------------------------------------------------------

    \621\ See Citadel July Letter at 33-35.
    \622\ Id.
    \623\ See Securities Exchange Act Release No. 97350 (May 18,
2023), 88 FR 33655 (May 24, 2023); Securities Exchange Act Release
No. 90689 (Dec.16, 2020), 85 FR 83667 (Dec. 22, 2020); Securities
Exchange Act Release No. 90688 (Dec. 16, 2020), 85 FR 83634 (Dec.
22, 2020).
    \624\ See Rule 608(b)(1); 17 CFR 242.608(b)(1). However, a plan
amendment can be put into effect upon filing with the Commission if
it is designated as solely administrative, technical or ministerial.
See Rule 608(b)(3).
    \625\ See supra notes 530-532.
    \626\ Rule 613(a)(5). 17 CFR 242.613(a)(5).
    \627\ The CAT NMS Plan defines a ``Material Amendment'' as an
amendment to the Technical Specifications that ``would require a
Participant or an Industry Member to engage in significant changes
to the coding necessary to submit information to the Central
Repository pursuant to this Agreement or if it is required to
safeguard the security or confidentiality of the CAT Data.'' See CAT
NMS Plan, supra note 2, at Section 6.9(c).
    \628\ See Rule 608(b)(1). 17 CFR 242.608(b)(1).
    \629\ See CAT LLC May 2023 Response Letter at 10-11.
---------------------------------------------------------------------------

    The use of budgeted CAT costs is appropriate to determine the Fee
Rate because it ties the Fee Rate to the costs that the CAT will likely
incur during the relevant period which are also the Prospective CAT
Costs that will need to be apportioned among the Participants and CAT
Executing Brokers.\630\ Should the use of budgeted costs result in a
budget surplus, that surplus would translate to lower fees in the
coming year because there would be a lower requirement for
reserves.\631\ Also, using budgeted costs to determine the Fee Rate
facilitates financial stability, allowing CAT LLC to collect fees
before bills become payable.\632\
---------------------------------------------------------------------------

    \630\ See Notice, supra note 7, 88 FR at 17114.
    \631\ See infra Section III.A.5.c. (Reserve).
    \632\ See id.
---------------------------------------------------------------------------

    The requirements that the Operating Committee approve a
``reasonable'' operating budget for CAT LLC,\633\ that fees, costs and
expenses be ``reasonable'' and that they be ``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'' \634\ is
appropriate in the public interest.\635\ The existing CAT NMS Plan did
not include such language, potentially providing the Participants full
discretion to pass along to Industry Members costs that are not
reasonable. Such costs could have included costs that were incurred due
to Participant mismanagement, costs that were inflated or costs that
should reasonably be allocated to only the Participants. Requiring
these costs to be reasonable and reasonably budgeted imposes discipline
on CAT spending, and the Commission, Industry Members and others will
be able to review budget information during the rule filing process
under Section 19(b) of the Exchange Act.
---------------------------------------------------------------------------

    \633\ See proposed Section 11.1(a).
    \634\ Proposed Section 11.3(a)(i)(C).
    \635\ One commenter complained that Participants were not
providing the public with an opportunity to review the budget until
after it was finalized. See SIFMA May 2023 Letter at 8-10. As CAT
LLC explained, this appears to be based on a misunderstanding, as
CAT LLC provides the annual budget and quarterly updates to the
public. See CAT LLC May 2023 Response Letter at 11.
---------------------------------------------------------------------------

c. Reserve
    CAT LLC proposed to add a requirement to Section 11.1(a)(i) of the
CAT NMS Plan that the budget shall include ``a reserve and such other
cost categories as reasonably determined by the Operating Committee to
be included in the budget.'' \636\ CAT LLC also proposed to add
paragraph (ii) to Section 11.1(a) of the CAT NMS Plan to 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.''
\637\ Moreover, CAT LLC would calculate the reserve based on the amount
of the budget other than the reserve.\638\ In addition, 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.'' \639\ Proposed Section 11.1(a)(ii) of the CAT NMS
Plan provides 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).'' \640\
---------------------------------------------------------------------------

    \636\ Proposed Section 11.1(a)(i).
    \637\ Proposed Section 11.1(a)(ii).
    \638\ Specifically, 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.''
    \639\ Id.
    \640\ Id.
---------------------------------------------------------------------------

    One commenter stated that the proposed reserve of not more than 25%
of the CAT budget is excessive.\641\ The commenter noted that the
support provided for the proposed change was the Participants'
difficulty in forecasting CAT costs, which the commenter stated
demonstrates a need for an independent cost review mechanism.\642\
---------------------------------------------------------------------------

    \641\ See SIFMA January 2023 Letter at 6, n.15. See also Citadel
July Letter at 26 (objecting to the requirement that Industry
Members ``fund an additional 25% reserve over budgeted amounts each
year.'').
    \642\ See SIFMA January 2023 Letter at 6, n.15.
---------------------------------------------------------------------------

    The Proposed Amendment providing that the annual operating budget
include a reserve of not more than 25% of the annual budget is
reasonable.\643\ Because the CAT is a critical regulatory tool/system,
the CAT needs to have a stable funding source to build financial
stability to support the Company as a going concern.\644\ Funding for
the CAT, as noted in Section 11.1(b), is the responsibility of the
Participants and the industry.\645\ Because CAT fees are charged based
on the budget, which is based on anticipated volume, it is reasonable
to have a reserve on hand to prevent a shortfall in the event there is
an unexpectedly high volume in a given year. A reserve would help to
assure that the CAT has sufficient resources to cover costs should
there be unanticipated costs or costs that are higher than expected.
CAT LLC explained that the proposed reserve amount of not more than 25%
of the annual budget is based on a comparison of actual CAT costs and
budgeted costs from 2020 through the first nine months of 2022 that
demonstrated that actual CAT costs exceeded budgeted costs by 20%
during this time period.\646\ CAT LLC also noted difficulty in
predicting variable CAT costs in concluding to cap the reserve at
25%.\647\ Additionally, CAT LLC explained that CAT fees will be
collected approximately three months after trading activity on which a
CAT fee is based, or 25% of the year.\648\ CAT LLC stated that the
reserve would be available to address funding needs related to this
three-month delay.\649\ No commenter stated that they thought anything
higher than a 25% reserve was necessary and no commenter provided an
alternative solution to make sure that CAT remains funded and able to
pay its bills. The Commission therefore believes that a reserve of no
more than 25% is reasonable based on the factors listed by CAT LLC.
---------------------------------------------------------------------------

    \643\ See Notice, supra note 6, 88 FR at 17090.
    \644\ See CAT NMS Plan, supra note 2, at Section 11.2(f).
    \645\ Id. at Section 11.1(b).
    \646\ See Notice, supra note 7, 88 FR at 17090.
    \647\ Id.
    \648\ Id. at 17091.
    \649\ Id.
---------------------------------------------------------------------------

    In addition, the Commission recognizes that if CAT fees exceed CAT
costs, including the reserve, the surplus will be used to offset future
fees, and that a reserve will only be included in the annual budget on
which the fees are based if CAT LLC does not have a

sufficient reserve, which would be limited to 25% of the annual
budget.\650\ The Commission also recognizes that the Company must
operate on a break-even basis and that any surpluses would be treated
as an operational reserve to offset future fees and not be distributed
to Participants as profits.\651\ The Commission further recognizes that
proposed Section 11.1(a)(ii) states that CAT LLC will only include an
amount for the reserve in the annual budget if the Company does not
have a sufficient reserve; therefore, the Participants would not be
collecting additional fees if CAT LLC already has a reserve of 25% of
the annual budget.\652\ Furthermore, the reserve would be calculated by
CAT LLC based on the amount of the budget other than the reserve
because the reserve is meant to fund CAT LLC to pay its bills if
necessary.\653\ These requirements should obviate the need for a refund
mechanism.
---------------------------------------------------------------------------

    \650\ Id. See also proposed Section 11.1(a)(ii).
    \651\ The CAT NMS Plan requires that a surplus of the Company's
revenues over its expenses be treated as an operational reserve to
offset future fees. See CAT NMS Plan, supra note 2, at Section
11.1(c).
    \652\ See Notice, supra note 7, 88 FR at 17091. See also
proposed Section 11.1(a)(ii).
    \653\ See Notice, supra note 7, 88 FR at 17090. See also
proposed Section 11.1(a)(ii).
---------------------------------------------------------------------------

    To date, CAT has been solely funded by the Participants.\654\ The
CAT NMS Plan, however, requires funding for the CAT come from both
Participants and Industry Members.\655\ It is the Commission's view
that establishing a reserve is a reasonable way to ensure that future
funding is secured from all intended parties, rather than relying on
Participants alone.
---------------------------------------------------------------------------

    \654\ One commenter objected to CAT LLC's reference to the
financial viability of the CAT as an attempt to ``coerce the
Commission into prematurely opining on a funding proposal that does
not meet basic Exchange Act requirements.'' See Citadel August
Letter at 1. For the reasons explained in this order, the Funding
Model meets the applicable standard for approval.
    \655\ See CAT NMS Plan, supra note 2, at Section 11.1(b),
11.3(a) and (b).
---------------------------------------------------------------------------

d. Fee Filings Under Section 19(b) of the Exchange Act for Industry
Member CAT Fees
    CAT LLC described the information that Participants would be
required to include in their fee filings to be made pursuant to Section
19(b) of the Exchange Act and Rule 19b-4 thereunder for Industry Member
CAT Fees in proposed paragraph (B) of proposed Section 11.3(a)(iii) of
the CAT NMS Plan.\656\ Specifically, such filings would be required 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; \657\ (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.\658\ In addition, CAT LLC proposed
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.\659\
---------------------------------------------------------------------------

    \656\ CAT LLC stated that it expected 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-4(f)(2) thereunder. CAT
LLC further stated that 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. See Notice, supra note 7, 88 FR at
17095, n.38. Pursuant to Section 19(b)(3)(A) and Rule 19b-4(f)(2), a
proposed rule change can take effect upon filing with the Commission
if designated by the SRO as establishing or changing a due, fee, or
other charge imposed by the SRO. 15 U.S.C. 78s(b), 15 U.S.C.
78s(b)(3)(A), 17 CFR 240.19b-4(f)(2).
    \657\ CAT LLC stated that it 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.'' Notice, supra note 7, 88 FR at 17095, n.39.
    \658\ 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. See Notice, supra note 7, 88
FR at 17095, n.40.
    \659\ See proposed Section 11.3(a)(iii)(B).
---------------------------------------------------------------------------

    The collection of CAT Fees from Industry Members is subject to
Section 11.6 of the CAT NMS Plan regarding the Financial Accountability
Milestones.\660\ Accordingly, CAT LLC proposed to state that
Participants will not make fee filings pursuant to Section 19(b) of the
Exchange Act \661\ 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.\662\
---------------------------------------------------------------------------

    \660\ See CAT NMS Plan, supra note 2, at Section 11.6; see also
supra note 18.
    \661\ 15 U.S.C. 78s(b).
    \662\ See proposed Section 11.3(a)(iii)(C); see also CAT NMS
Plan, supra note 2, at Section 11.6(a)(i)(D).
---------------------------------------------------------------------------

    As discussed above, one commenter stated that the budget line-item
categories, which would be included in the Section 19(b) fee filings,
are too high level.\663\ The commenter urged the inclusion of much
greater detail and specificity on the budget spending choices,
especially in technology, to allow Industry Members and the public to
understand and evaluate CAT spending decisions.\664\
---------------------------------------------------------------------------

    \663\ See supra note 521.
    \664\ Id.
---------------------------------------------------------------------------

    The proposed process for implementing CAT Fees related to
Prospective CAT Costs for Industry Members is reasonable. Under the
Executed Share Model, the Participants would be required to submit fee
filings pursuant to Section 19(b) of the Exchange Act to change the Fee
Rates for Industry Members twice a year, once at the beginning and once
during the year.\665\ It is appropriate to accompany each Fee Rate
change with a Section 19(b) fee filing because it would provide notice
to Industry Members and the public of the Fee Rate change and permit
such entities to provide comment on the change.
---------------------------------------------------------------------------

    \665\ See proposed Section 11.3(a)(i)(A)(I) and (II).
---------------------------------------------------------------------------

    In addition to the budget information already provided by the
Participants on the CAT website, the detail provided in the fee filings
for the budget would provide transparency into the budget as it would
describe the line items of the budget and any changes to the budget and
allow the public the ability to comment on the budget.\666\ The fee
filings must discuss how the budget is reconciled to collected fees,
which would provide the public an opportunity to comment on the
effectiveness of the reconciliation.\667\ The Executed Share Model
establishes the framework for Industry Member CAT fees; details of the
Budgeted CAT Costs will be provided in the Section 19(b) fee filings
submitted by the Participants.
---------------------------------------------------------------------------

    \666\ See proposed Section 11.3(a)(iii)(B).
    \667\ Id.
---------------------------------------------------------------------------

    One commenter objected to how the Proposed Amendment addressed the
Financial Accountability Amendments Period 4 \668\ expenses.\669\ The
commenter stated that if full implementation does not occur by
September 27, 2023, the Operating Committee cannot recover from
Industry

Members any expenses related to Period 4.\670\ The commenter explained
that the Proposed Amendment states that costs incurred during Period 4
may be allocated to Industry Members and that the Operating Committee
had requested exemptive relief to extend the deadline for full
implementation until August 31, 2024, which would allow the
Participants to recover all Period 4 expenses from Industry
Members.\671\ The commenter stated that the expenses related to Period
4 would likely total more than $400 million, and expressed the belief
that this amount may be allocated in its entirety to Industry Members
if the terms of the CAT NMS Plan are not enforced.\672\
---------------------------------------------------------------------------

    \668\ See CAT NMS Plan, supra note 2, at Section 11.6.
    \669\ See Citadel July Letter at 24.
    \670\ Id.
    \671\ Id. at 24-25. The commenter further explained that the
Commission has reserved judgment on whether the terms of the
Financial Accountability Amendments in Section 11.6 of the CAT NMS
Plan would be enforced.
    \672\ Id. at 25.
---------------------------------------------------------------------------

    The commenter stated that this issue is ``highly relevant to the
Commission's analysis of the 2023 Funding Proposal'' \673\ and
recommended three alternatives for the Commission to address the
matter: (1) to state that relevant financial accountability provisions
will be enforced as written and permit the Operating Committee to
allocate Period 4 expenses only to the extent permitted by the CAT NMS
Plan (reduced by 75%, and by 100% if full implementation does not occur
by September 27, 2023); \674\ (2) defer judgment and provide that
Period 4 expenses cannot be allocated to Industry Members; \675\ or (3)
defer judgment and permit the Operating Committee to allocate Period 4
expenses to Industry Members and analyze the potential impact of
allocating all Period 4 costs to Industry Members on market efficiency,
competition and capital formation.\676\ The commenter urged the
Commission to conduct this analysis before waiting for a subsequent
filing, stating that once the Commission approves an allocation
methodology, ``the CAT Operating Committee would simply apply that
approved methodology to the costs incurred during a specific time
period.'' \677\
---------------------------------------------------------------------------

    \673\ Id.
    \674\ See Citadel July Letter at 25.
    \675\ Id.
    \676\ Id.
    \677\ Id. at 26.
---------------------------------------------------------------------------

    In response to the commenter's criticism that the Proposed
Amendment does not adequately address the Period 4 expenses,\678\ CAT
LLC stated that it recognizes the applicability of the Financial
Accountability Milestones on the collection of CAT Fees and Historical
CAT Assessments.\679\ CAT LLC stated that the Participants will not
file CAT fee filings until they believe any applicable Financial
Accountability Milestone has been satisfied, and noted that the
Commission has not made a determination regarding the Participants'
satisfaction of the Financial Accountability Milestones.\680\
---------------------------------------------------------------------------

    \678\ Id. at 24.
    \679\ See CAT LLC July 2023 Response Letter at 30.
    \680\ Id.
---------------------------------------------------------------------------

    As stated by the Participants, the Proposed Amendment acknowledges
that the Participants are prohibited from submitting Exchange Act
filings regarding Prospective CAT Fees until the Financial
Accountability Milestone related to Period 4 described in Section 11.6
of the CAT NMS Plan has been satisfied.\681\ This is a reasonable
approach for addressing how fee filings will be handled in conjunction
with a determination of the Participants' compliance with the Financial
Accountability Milestones. Under existing Section 11.6, the
Participants will not be able to recover the full costs of the CAT for
a period if the relevant Financial Accountability Milestone has not
been satisfied.\682\ Because the amount the Participants cannot recover
from Industry Members is not known until the Financial Accountability
Milestone has been satisfied, it would not be appropriate for the
Participants to require Industry Members to pay CAT costs in advance,
as the amount of such costs could be reduced.\683\ The Commission
acknowledges the concerns raised and suggestions offered by the
commenter but the Commission is not making a finding on the
satisfaction of the Period 4 Financial Accountability Milestone in this
Order nor is such a finding required. This filing merely establishes
the framework under which costs will be allocated, not the amount to be
allocated. The Participants will not be able to submit filings to
recover Prospective CAT Fees or Historical CAT Assessments to recover
Period 4 expenses until the Period 4 Milestone has been satisfied. When
they do submit such filings, the question of compliance will impact how
much can be recovered under the applicable framework; this model will
then be used to determine how to allocate that amount.
---------------------------------------------------------------------------

    \681\ See proposed Section 11.3(a)(iii)(C).
    \682\ See CAT NMS Plan, supra note 2, at Section 11.6.
    \683\ See infra note 807.
---------------------------------------------------------------------------

e. Participant CAT Fees for Prospective CAT Costs
    CAT LLC proposed to describe the Participant CAT Fees related to
Prospective CAT Costs in proposed Section 11.3(a)(ii) of the CAT NMS
Plan. Specifically, under proposed Section 11.3(a)(ii)(A) of the CAT
NMS Plan, 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.\684\ 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 proposed Section 11.3(a)(i).\685\
---------------------------------------------------------------------------

    \684\ See proposed Section 11.3(a)(ii)(A).
    \685\ Id.
---------------------------------------------------------------------------

    CAT LLC also proposed Section 11.3(a)(ii)(B) of the CAT NMS Plan to
provide that Participants would only be required to pay CAT Fees when
Industry Members are required to pay CAT Fees. CAT Fees charged to
Industry Members become effective in accordance with the requirements
of Section 19(b) of the Exchange Act.\686\ In contrast, 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.\687\ Specifically, to implement the Participant CAT fees,
CAT LLC proposed to add the Proposed Participant Fee Schedule, entitled
``Consolidated Audit Trail Funding Fees,'' to Appendix B of the CAT NMS
Plan. Proposed Paragraph (a) stated 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.'' \688\ Because
each Participant would be required to pay a CAT Fee once a Fee Rate has
been established by the Operating Committee, and because of the time
and burden required, CAT LLC stated that it would not submit an
amendment to the CAT NMS Plan every time the Fee Rate is established or
adjusted.\689\
---------------------------------------------------------------------------

    \686\ See proposed Section 11.3(a)(i)(A)(I) and (II); see also
15 U.S.C. 78s(b).
    \687\ See Notice, supra note 7, 88 FR at 17094.
    \688\ Paragraph (a) of the Proposed Participant Fee Schedule.
    \689\ See Notice, supra note 7, 88 FR at 17108-09.
---------------------------------------------------------------------------

    It is reasonable to require that each Participant pay a CAT Fee
related to

Prospective CAT Costs for each transaction in the prior month based on
CAT Data.\690\ The CAT NMS Plan requires the Participants to contribute
to the funding of the CAT.\691\ Additionally, as CAT LLC explained, the
Executed Share Model recognizes the Participants (as market regulators)
as one of the three parties who have primary roles in a
transaction,\692\ so it is appropriate for a transaction-based funding
model to assess a CAT Fee upon the Participants.
---------------------------------------------------------------------------

    \690\ See proposed Section 11.3(a)(ii).
    \691\ See CAT NMS Plan, supra note 2, at Section 11.1(b),
Section 11.3(a).
    \692\ See Notice, supra note 7, 88 FR at 17104.
---------------------------------------------------------------------------

    The Commission also believes it is reasonable that proposed Section
11.3(a)(ii)(B) provides that the Participants would be required to pay
CAT Fees only when Industry Members are required to pay CAT Fees. The
CAT Fees charged to Participants would be implemented through an
approval of the CAT Fees by the Operating Committee and not through a
plan amendment submitted each time the Fee Rate changes,\693\ while CAT
Fees charged to Industry Members may only become effective in
accordance with the requirements of Section 19(b) of the Exchange
Act.\694\ However, both Participants and Industry Members would be
subject to the same Fee Rate \695\ so it is appropriate to provide that
Participants would be required to pay the Participant CAT Fee once CAT
Fees based on the Fee Rate are effective for Industry Members.
---------------------------------------------------------------------------

    \693\ Id. at 17108-09.
    \694\ See proposed Section 11.3(a)(i)(A). See also 15 U.S.C.
78s(b).
    \695\ See proposed Section 11.3(a)(ii)(A) and (B).
---------------------------------------------------------------------------

    The Proposed Participant Fee Schedule is reasonable. As the
Proposed Participant Fee Schedule requires each Participant to pay the
CAT Fee detailed in Section 11.3(a) of the CAT NMS Plan on a monthly
basis, based on the Participant's transactions in Eligible Securities
in the prior month, in the manner prescribed by CAT LLC,\696\ the
proposed fee schedule is appropriate because it imposes the Executed
Share Model's Participant CAT Fee obligation on the Participants by
specifically requiring the Participants to pay a CAT Fee in accordance
with the Executed Share Model. The requirement in the Proposed
Participant Fee Schedule clearly sets forth how the Participants will
calculate their monthly CAT Fee obligation, and therefore does not
believe that it is necessary for the Participants to submit an
amendment to the CAT NMS Plan each time the Fee Rate changes; the
formula for calculating fees will be constant although the Fee Rate
that would be applied, which is objectively determined, will change
only following a Participant fee filing under section 19(b) of the
Exchange Act.\697\ This approach is reasonable in this circumstance
because the CAT NMS Plan sets forth the Executed Share Model, the
Participants are required to pay CAT Fees pursuant to the CAT NMS Plan
and the same Fee Rate that would apply to Industry Members would apply
to Participants.\698\
---------------------------------------------------------------------------

    \696\ See paragraph (a) of the Proposed Participant Fee
Schedule.
    \697\ See Notice, supra note 7, 88 FR at 17109.
    \698\ See proposed Section 11.3(a)(ii)(A) and (B).
---------------------------------------------------------------------------

6. Historical CAT Assessment
a. Calculation of Historical CAT Assessment
    Under the Executed Share Model, Past CAT Costs will be recovered
from CEBBs and CEBSs through Historical CAT Assessments.\699\ Pursuant
to proposed Section 11.3(b) of the CAT NMS Plan the Operating Committee
will establish one or more Historical CAT Assessments depending upon
the timing of any approval of the Proposed Amendment and the completion
of the Financial Accountability Milestones.\700\ In establishing a
Historical CAT Assessment, the Operating Committee will determine a
``Historical Recovery Period'' \701\ and calculate a ``Historical Fee
Rate'' \702\ for that Historical Recovery Period. Then, for each month
in which a Historical CAT Assessment is in effect, each CEBB and each
CEBS will pay a fee (the Historical CAT Assessment) for each
transaction in Eligible Securities executed by the CEBB or CEBS from
the prior month as set forth in CAT Data, where the Historical CAT
Assessment for each transaction will be calculated by multiplying the
number of executed equivalent shares in the transaction by one-third
and by the Historical Fee Rate reasonably determined pursuant to
proposed Section 11.3(b)(i).\703\
---------------------------------------------------------------------------

    \699\ See Notice, supra note 7, 88 FR at 17086; see also
proposed Section 11.3(b); supra notes 32-33 and accompanying text
(defining Historical CAT Assessments).
    \700\ See proposed Section 11.3(b)(iii). See Notice, supra note
7, 88 FR at 17096, n.43; see also supra note 18 and CAT NMS Plan,
supra note 2, at Section 11.6.
    \701\ The Historical Recovery Period would be used to calculate
the Historical Fee Rate for a Historical CAT Assessment. Proposed
Section 11.3(b)(i)(D) of the CAT NMS Plan provides the Operating
Committee with the discretion to reasonably establish the length of
the Historical Recovery Period as long as no such period is less
than 24 months and more than five years. See infra Section
III.A.6.b.
    \702\ The Historical Fee Rate is the fee rate used to calculate
the Historical CAT Assessment. See infra Section III.A.6.c.
    \703\ See proposed Section 11.3(b)(iii)(A).
---------------------------------------------------------------------------

    The actual amount of Past CAT Costs to be recovered through the
Historical CAT Assessments would be reduced by an amount of ``Excluded
Costs.'' \704\ The resulting amount would be defined as ``Historical
CAT Costs'' in proposed Section 11.3(b)(i)(C) of the CAT NMS Plan.
Proposed Section 11.3(b)(i)(C) states that ``[t]he Operating Committee
will reasonably determine the Historical CAT Costs sought to be
recovered by each Historical CAT Assessment, where the Historical CAT
Costs will be Past CAT Costs minus Past CAT Costs reasonably excluded
from Historical CAT Costs by the Operating Committee.'' \705\ The
Historical CAT Costs would not include an amount of ``Excluded Costs''
so that Industry Members would not be assessed a Historical CAT
Assessment to recover such Excluded Costs.\706\
---------------------------------------------------------------------------

    \704\ The Excluded Costs would be $48,874,937 in CAT costs
incurred from November 15, 2017 through November 15, 2018, and
$14,749,362 in costs related to the termination of the initial Plan
Processor. See CAT LLC July 2023 Response Letter at 19.
    \705\ Proposed Section 11.3(b)(i)(C).
    \706\ See Notice, supra note 7, 88 FR at 17111. According to the
Proposed Amendment, ``[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.'' Proposed Section 11.3(b)(i)(C). The Historical CAT
Costs would be Past CAT Costs minus the Excluded Costs. Id.
---------------------------------------------------------------------------

    Certain commenters objected to the method of calculating the
Historical CAT Assessment using current transaction activity.\707\ One
commenter disagreed with the proposed method ``due to difficulty of
using current volumes and trading activity by individual Industry
Members as a mechanism for assessing costs in the past where the
trading volumes and individual Industry Member trading activity likely
were different.'' \708\ The commenter also stated that the proposed
assessment of Past CAT Costs on current Industry Members based on their
current trading activity is not fair or reasonable because new Industry
Members would be assessed a share of Past CAT Costs even if they were
not in operation when those costs were incurred, and that such costs
would be attributable to Industry Members that are no longer in
business.\709\ The

commenter added that the Proposed Amendment has not explained how
allocating ``approximately $350 million in historical costs . . . to a
small group of executing broker firms based on current market volumes''
is consistent with the Exchange Act or how it would impact liquidity
and competition.\710\ The commenter stated that since the proposed
allocation would be based on current market share and unrelated to the
firms or activity that contributed to historical costs, there would be
little ability for executing brokers to pass on such costs.\711\
Another commenter stated that the Proposed Amendment lacked a clear
mechanism for Industry Members to pass-on historical costs to other
market participants.\712\ The commenter stated, ``[i]t appears
challenging for the CAT Operating Committee to allocate historical
costs in a way that is directly tied to historical activity, which
makes it more difficult for Industry Members to pass-on these costs to
other market participants.'' \713\ Another commenter suggested a
``review of current market percentage share dictating cost structure--
e.g., industry fluctuations--how current market share [sic] not
reflective of past/future market shares- need for adjustments.'' \714\
---------------------------------------------------------------------------

    \707\ See SIFMA June 2023 Letter at 4; SIFMA January 2023 Letter
at 7; SIFMA October 2022 Letter at 5; Citadel July Letter at 24, 32;
MMI July Letter at 4; Virtu Letter at 4.
    \708\ SIFMA October 2022 Letter at 5.
    \709\ See SIFMA January 2023 Letter at 7. See also FIA Letter at
4 (stating that it is ``patently unfair'' to allocate all historical
costs to current Industry Members based on their current market
activity because current ``Industry Members had no control over the
stops and starts incurred in the development of CAT.'').
    \710\ SIFMA June 2023 Letter at 4. This statement was echoed by
another commenter. See Virtu Letter at 4.
    \711\ SIFMA June 2023 Letter at 4. The commenter also stated
that the assessment of ``retroactive liability for monies spent that
private parties had no control over'' for public purposes would
violate the Fifth Amendment Takings Clause. See infra Section
III.9.d.
    \712\ See Citadel July Letter at 24.
    \713\ Id. at 32.
    \714\ See MMI July Letter at 4.
---------------------------------------------------------------------------

    One commenter recommended a reevaluation of the use of transaction
fees to assess Past CAT Costs,\715\ and suggested an alternative
approach in which Past CAT Costs would be assigned to Industry Members
``based on the lesser of (i) the CAT Fees that would be assessed on an
Industry Member under the Participants' proposed approach of using
current trading activity or (ii) the CAT Fees that would be assessed on
such member based on their prior trading activity in the years since
2016 when the CAT was being built and then operationalized . . .''
\716\ The commenter stated that the share of Past CAT Costs belonging
to Industry Members that are no longer in business could be calculated
using this approach and then divided equally among the current Industry
Members, while Industry Members that entered into business after
certain Past CAT Costs were incurred would be assessed Past CAT Costs
starting in the year after which they started operating based on the
above approach.\717\ The commenter acknowledged that, while this
approach would require more effort by the Participants, it would be
``significantly closer to the fair and reasonable standard in the
Exchange Act than the approach set forth by the Participants in the
Executed Share Model.'' \718\
---------------------------------------------------------------------------

    \715\ See SIFMA October 2022 Letter at 5.
    \716\ SIFMA January 2023 Letter at 7.
    \717\ Id.
    \718\ Id.
---------------------------------------------------------------------------

    Additionally, commenters objected to the allocation of Past CAT
Costs to Industry Members.\719\ One commenter stated that the
Participants have failed to justify the allocation of Past CAT Costs to
Industry Members during the period when only Participants were
reporting to the CAT.\720\ Certain commenters stated that Industry
Members should not be assessed any fees related to the decision to
employ Thesys Technologies, LLC as the Plan Processor or legal or
consulting fees incurred by the Participants in the creation of the CAT
NMS Plan.\721\ One commenter stated that the Proposed Amendment fails
to provide how much of the allocation to Industry Members is related to
Thesys Technologies, LLC, and, therefore, the Participants have not
demonstrated how the Executed Share Model is consistent with the
Exchange Act.\722\
---------------------------------------------------------------------------

    \719\ See SIFMA January 2023 Letter at 6-7; SIFMA October 2022
Letter at 7; SIFMA June 2022 Letter at 7; Citadel July Letter at 3,
23, 24, 31, 32; FIA Letter at 4; MMI July Letter at 4 (suggesting
accountability for historic costs).
    \720\ See SIFMA October 2022 Letter at 7.
    \721\ See SIFMA June 2022 Letter at 7; SIFMA January 2023 Letter
at 6-7; FIA Letter at 4.
    \722\ See SIFMA June 2022 Letter at 7.
---------------------------------------------------------------------------

    Another commenter stated that it would be inappropriate to allocate
any costs related to Thesys Technologies, LLC's role as the plan
processor, including the costs of transitioning to a new plan
processor, or the Operating Committee's costs of litigation against the
Commission.\723\ The commenter expressed concern about a lack of
transparency into Historical CAT Costs and the size of such costs,
stating that the historical costs are excessive and inconsistent with
the CAT NMS Plan.\724\ The commenter stated that a lack of transparency
into historical costs raises questions about whether Industry Members
would be allocated costs for the period when Thesys Technologies, LLC
was the plan processor, noting that the Proposed Amendment only
intended to exclude $64 million in costs related to the ``failed
engagement of Thesys,'' when the costs were much higher; \725\ whether
Industry Members would be allocated costs related to litigation between
the Operating Committee and the Commission; \726\ and whether Industry
Members would be allocated costs related to repeated filing of prior
funding models.\727\ The commenter stated that, without knowing the
total amount of Historical CAT Costs, or basic information about such
costs, the Commission cannot determine whether Historical CAT Costs are
reasonable and cannot assess the impact of the proposed allocation on
market liquidity, efficiency and competition.\728\ For example, the
commenter stated that the CAT Operating Committee has not assessed
``whether trading activity may decline or bid-offer spreads may
widen.'' \729\ The commenter stated that the CAT Operating Committee
``recklessly argues'' that the proposed allocation of Historical CAT
Costs is not concerning due to the existence of higher transaction-
based fees.\730\ In addition, the commenter stated that Industry
Members have borne nearly all of the total CAT-related costs due to ``a
near-constant barrage'' of changes to technical specifications.\731\
The commenter recommended not allocating any historical costs to
Industry Members.\732\
---------------------------------------------------------------------------

    \723\ See Citadel July Letter at 31.
    \724\ Id. at 23. See also Citadel August Letter at 6-7.
    \725\ See Citadel July Letter at 23. See also id. at 23, n.100;
id. at 8 (stating that ``missteps'' by the Operating Committee
related to the hiring of the initial plan processor and the hiring
of FINRA CAT to replace the initial plan processor resulted in
``wasted expenditures'' of more than $100 million). See also Citadel
August Letter at 7.
    \726\ See Citadel July Letter at 23. See also Citadel August
Letter at 7.
    \727\ See Citadel July Letter at 24. See also Citadel August
Letter at 7.
    \728\ See Citadel August Letter at 7.
    \729\ Id.
    \730\ Id.
    \731\ See Citadel July Letter at 31. The commenter noted that in
2016, the Commission estimated that broker-dealers would incur 90%
of total CAT-related costs, even if not allocated any costs for
building and operating the CAT. The commenter stated that updates to
these estimates would show that this figure would underestimate
their cost burdens. See id.
    \732\ Id. at 3, 31, 32.
---------------------------------------------------------------------------

    One commenter stated that Industry Members were not subject to CAT
obligations before the CAT NMS Plan's approval, had no input into the
selection of the service providers, and that ``it is difficult to
envision how the Participants could demonstrate that such an allocation
provides for the equitable allocation of reasonable fees due to the
fact that the CAT NMS Plan

did not exist during the period prior to its approval.'' \733\
---------------------------------------------------------------------------

    \733\ See SIFMA June 2022 Letter at 7.
---------------------------------------------------------------------------

    The commenter also stated that the Participants have not analyzed
different alternatives to collecting Past CAT Costs and the costs
associated with such alternatives or the costs associated with the
proposed approach.\734\ The commenter urged collaboration between the
Participants and Industry Members on the allocation of Past CAT
Costs.\735\
---------------------------------------------------------------------------

    \734\ See SIFMA October 2022 Letter at 5.
    \735\ Id. See also SIFMA October 2022 Letter at 2 (``[w]e also
reiterate our call for the Participants to work with SIFMA and the
industry in a collaborative manner to establish a viable CAT funding
model.'').
---------------------------------------------------------------------------

    With respect to one commenter's criticisms of the calculation and
assessment of the Historical CAT Assessment,\736\ CAT LLC stated that
the commenter had a ``persistent misunderstanding'' of the Historical
CAT Assessment, explaining that, contrary to the commenter's assertions
in its comment letters, the Historical CAT Assessment would be assessed
based on current market activity, not past market activity.\737\ While
the fee rate would be calculated based on Historical CAT Costs, the fee
rate would be applied to current market transactions.\738\ CAT LLC
stated that the process of assessing fees for the Historical CAT
Assessment would be exactly the same as with CAT Fees related to
Prospective CAT Costs, and would be passed through in the same manner
if a CEBB or CEBS so chooses.\739\ CAT LLC also stated that it would
provide CAT Executing Brokers with details of their CAT fees to
facilitate this process.\740\
---------------------------------------------------------------------------

    \736\ See SIFMA May 2023 Letter at 8; SIFMA October 2022 Letter
at 4-5; supra notes 708-713 and accompanying text.
    \737\ See CAT LLC May 2023 Response Letter at 9.
    \738\ Id.
    \739\ Id.
    \740\ Id.
---------------------------------------------------------------------------

    In response, the commenter stated that the CAT LLC Response Letter
did not meaningfully address the concerns it raised about ``the
inability of firms defined as `executing brokers' to transfer fees to
those who may be more appropriate to bear certain historical CAT costs
in the first place.'' \741\ CAT LLC reiterated that the Historical CAT
Assessment would be assessed in the same manner as CAT Fees for
Prospective CAT Costs, and could likewise be passed-through by the CEBB
or CEBS,\742\ and that CAT LLC would provide the relevant data to help
CAT Executing Brokers pass-through the fees.\743\
---------------------------------------------------------------------------

    \741\ See SIFMA June 2023 Letter at 2.
    \742\ See CAT LLC July 2023 Response Letter at 16.
    \743\ Id.
---------------------------------------------------------------------------

    In response to a commenter that stated that a small group of
broker-dealers would shoulder the Historical CAT Costs and asked
whether allocating these costs to a small group of executing brokers
based on current market volume is consistent with the Exchange
Act,\744\ CAT LLC stated that ``almost 700 of the 1100 Industry Members
would have an obligation to contribute to Historical CAT Costs. . . not
just a few CAT Executing Brokers'' \745\ and since ``the fees vary in
accordance with the market activity of the CAT Executing Brokers,
certain CAT Executing Brokers will have large bills for very
significant market activity.'' \746\ CAT LLC also reiterated that the
Section 11.2(b) of the CAT NMS Plan contemplates that Industry Members
would contribute to funding the costs of the CAT and that CAT Executing
Brokers may pass on their CAT fees so they would not have any
obligation to pay CAT fees.\747\ CAT LLC also clarified that Industry
Members would be allocated Historical CAT Costs over a period of time
that would be no less than 24 months and no more than five years, not
in a single lump sum,\748\ and stated that ``it would potentially be
appropriate to spread the Historical CAT Costs over a time period of a
little less than three years, a time period which is within the two to
five year range for the Historical Recovery Period.'' \749\
---------------------------------------------------------------------------

    \744\ See SIFMA June 2023 Letter at 4. See also Virtu Letter at
4.
    \745\ See CAT LLC July 2023 Response Letter at 15.
    \746\ Id.
    \747\ Id.
    \748\ Id.
    \749\ See CAT LLC July 2023 Response Letter at 17. CAT LLC also
provided a comparison of Historical CAT Costs to Prospective CAT
Costs, demonstrating that the $233 million 2023 CAT budget is
approximately 45% of the $518 million in Historical CAT Costs
(through 2022). Id.
---------------------------------------------------------------------------

    In response to the commenter that stated that Industry Members are
bearing almost all of the CAT-related costs,\750\ CAT LLC stated that
the commenter was conflating the Industry Members' internal costs to
comply with CAT reporting requirements with the direct costs of the
CAT.\751\ CAT LLC stated that the Proposed Amendment is intended to
address the funding of the direct costs of the CAT and not Participants
and Industry Members' compliance costs.\752\
---------------------------------------------------------------------------

    \750\ See Citadel July Letter at 31.
    \751\ See CAT LLC July 2023 Response Letter at 16.
    \752\ Id.
---------------------------------------------------------------------------

    CAT LLC provided a comparison of Historical CAT Costs to
Prospective CAT Costs, demonstrating that the $233 million 2023 CAT
budget is approximately 45% of the $518 million in Historical CAT Costs
(through 2022).\753\ CAT LLC stated that it expects to propose a fee
rate for the Historical CAT Assessment that would be similar to or
smaller than other transaction-based fees, and provided examples in
which CEBBs and CEBSs would be assessed less than 1/1000 of a penny per
executed equivalent share.\754\ CAT LLC noted that broker-dealers are
currently charged other transaction-based fees that are higher than the
proposed CAT fees.\755\
---------------------------------------------------------------------------

    \753\ Id. at 17.
    \754\ Id. at 18.
    \755\ Id. at 18-19.
---------------------------------------------------------------------------

    In response to commenters that objected to the allocation to
Industry Members of Historical CAT Costs related to the initial Plan
Processor,\756\ CAT LLC stated that the Historical CAT Costs to be
allocated to Industry Members would not include two categories of costs
related to the initial Plan Processor: $48,874,937 in CAT costs
incurred from November 15, 2017 through November 15, 2018, and
$14,749,362 in costs related to the termination of the initial Plan
Processor.\757\ CAT LLC stated that the Participants would remain
responsible for these costs.\758\
---------------------------------------------------------------------------

    \756\ See FIA Letter at 4; Citadel July Letter at 23, 31.
    \757\ See CAT LLC July 2023 Response Letter at 19.
    \758\ Id.
---------------------------------------------------------------------------

    In the Commission's view, the proposed recovery of Past CAT Costs
via the Historical CAT Assessment is reasonable, and it is reasonable
to require that each CEBB and CEBS pay a Historical CAT Assessment for
each transaction in the prior month based on CAT Data.\759\ First,
current Industry Members are actively reporting to the CAT \760\ and
therefore receive the benefits from the CAT. The CAT provides more
effective oversight of market activity, which could increase investor
confidence, resulting in expanded investment opportunities and
increased trading activity.\761\ Second, it would be difficult to
impose fees on Industry Members for their activity in the past because
some Industry Members may no longer be in business and such Industry
Members would not have taken into consideration the Historical CAT
Assessment when entering into the past transactions.\762\ In this case,
the Commission understands,

from CAT LLC's analysis of Industry Members, that there is
``substantial continuity'' among the largest Industry Members, going
back to 2020,\763\ and thus it is likely that the Industry Members
responsible for substantial transaction activity in 2020 (and perhaps
earlier, beyond the scope of CAT LLC's analysis) would also be
responsible for substantial transaction activity in 2023, mitigating
concerns that current Industry Members would be responsible for CAT
fees for the past transaction activity of non-operational Industry
Members.
---------------------------------------------------------------------------

    \759\ See proposed Section 11.3(a)(ii)(A) and (iii)(A).
    \760\ See Notice, supra note 7, 88 FR at 17113.
    \761\ CAT NMS Plan Approval Order, at 81 FR at 84993.
    \762\ See Notice, supra note 7, 88 FR at 17113.
    \763\ Id. at 17113, n.116 (stating that there has been
substantial continuity in the largest Industry Members over time and
providing statistics about the continuity).
---------------------------------------------------------------------------

    Additionally, requiring CAT Executing Brokers to pay Historical CAT
Assessments is appropriate because the Participants have thus far paid
all Past CAT Costs and the CAT NMS Plan contemplates that both Industry
Members and Participants would fund the Company.\764\ Furthermore, it
is reasonable, in the Commission's view, for the Participants to
exclude certain costs from the Past CAT Costs to be recovered from
Industry Members; for example, such excluded costs would encompass
costs incurred when Industry Members as a group were not reporting to
the CAT, and costs associated with the conclusion of the relationship
with the Initial Plan Processor.\765\ CAT LLC also proposes to require
the Operating Committee, in determining fees on Participants and
Industry Members, to 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.\766\
---------------------------------------------------------------------------

    \764\ See, e.g., CAT NMS Plan, supra note 2, at Section 11.1(b),
Section 11.1(c), Section 11.2(b), Section 11.3.
    \765\ See Notice, supra note 7, 88 FR at 17111.
    \766\ See proposed Section 11.1(c) (emphasis added).
---------------------------------------------------------------------------

    In the Commission's view, requiring the Operating Committee to 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, when determining fees for Participants and
Industry Members will constrain the Operating Committee from assessing
fees based on costs and expenses that are not reasonable. Further, the
proposed exclusion of the ``Excluded Costs'' from Past CAT Costs is
reasonable in the Commission's view because it would not require all
costs incurred by the Participants to be recovered from Industry
Members through the Historical CAT Assessment, specifically excluding
those costs related to the delay in the start of reporting to the CAT
and costs related to the conclusion of the relationship with the
Initial Plan Processor.\767\
---------------------------------------------------------------------------

    \767\ See Notice, supra note 7, 88 FR at 17111.
---------------------------------------------------------------------------

    Finally, the Proposed Amendment sets forth a process that the
Commission believes will offer an appropriate level of transparency
into Historical CAT Costs. In response to a commenter that objected to
the level of transparency provided about the total amount of Historical
CAT Costs, and basic information about such costs, and stated that, as
a result, the Commission cannot determine whether Historical CAT Costs
are reasonable and cannot assess the impact of the proposed allocation
on market liquidity, efficiency and competition,\768\ as discussed in
Section III.A.6.e. herein, the Section 19(b) fee filings to be filed
with the Commission by the Participants to impose the Historical CAT
Assessment on Industry Members must include detailed information on the
Historical CAT Costs, including the amount and type of Historical CAT
Costs, and will allow the public the ability to comment on the
Historical CAT Costs.\769\ In addition to addressing all relevant
statutory requirements, including the requirements that the fees are
reasonable, equitably allocated, not unfairly discriminatory, and do
not unduly burden competition,\770\ these proposed Section 19(b) fee
filings must contain ``sufficient detail to demonstrate that such costs
are reasonable and appropriate,'' \771\ which would provide the public
and the Commission the detail needed to evaluate the Historical CAT
Assessments. Once the proposed Section 19(b) fee filings are filed by
the Participants, the Commission will review them for consistency with
the Exchange Act and the CAT NMS Plan.
---------------------------------------------------------------------------

    \768\ See Citadel August Letter at 7.
    \769\ See proposed Section 11.3(b)(iii)(B)(II).
    \770\ 15 U.S.C. 78f(b)(4), 15 U.S.C. 78o-3(b)(5); 15 U.S.C.
78f(b)(5), 15 U.S.C. 78o-3(b)(6); 15 U.S.C. 78f(b)(8), 15 U.S.C.
78o-3(b)(9).
    \771\ See proposed Section 11.3(b)(iii)(B)(II).
---------------------------------------------------------------------------

    In response to the comment that stated that the CAT Operating
Committee has not assessed ``whether trading activity may decline or
bid-offer spreads may widen,'' \772\ and in response to the comment
that the CAT Operating Committee ``recklessly argues'' that the
proposed allocation of Historical CAT Costs is not concerning due to
the existence of higher transaction-based fees,\773\ as stated above,
the Proposed Amendment does not approve per se the amount of the
Historical CAT Costs; it sets forth the model but leaves the amount and
description of the Historical CAT Costs for the Section 19(b) fee
filings. The Commission recognizes, however, that the Participants have
disclosed the amount of the Historical CAT Costs in the Proposed
Amendment.\774\ While such Historical CAT Costs are not being approved
by the Commission at this time, the Commission understands that such
amounts provide an indication of what might be charged. In this regard,
the Commission notes the Participants have included in Exhibit C to the
Proposed Amendment a chart setting forth an example Historical CAT
Assessment, for illustrative purposes only, that each CAT Executing
Broker would pay based on its transactions in Eligible Securities in
December 2022 related to CAT costs from prior to 2022. The chart
indicated that the Historical Fee Rate for the assumed December 2022
period was $0.0000417950 per executed equivalent share. The Commission
believes that potential Historical CAT Assessments are likely to be
significantly lower than fees assessed pursuant to Section 31.\775\
Accordingly, the Commission believes that any potential impact on
trading activity or bid-ask spreads would likely be limited.
---------------------------------------------------------------------------

    \772\ See Citadel August Letter at 7.
    \773\ Id.
    \774\ See Notice, supra note 7, 88 FR at 17110-11 (providing
Historical CAT Costs prior to 2022). CAT LLC also provided updated
Historical CAT Costs through 2022. See CAT LLC July 2023 Response
Letter at 17.
    \775\ See infra notes 1099-1102 and accompanying text (stating
that a comparison to recent Section 31 fees of $0.00009 per share to
$0.0004 per share indicates that the anticipated Historical Fee Rate
and Fee Rate, assuming the Fee Rate is of a similar magnitude as the
Historical Fee Rate, are expected to be relatively small). See also
infra note 1102 (discussing another example Historical Fee Rate that
was provided in the CAT LLC July 2023 Response Letter at 18-19 that
was close to the Historical Fee Rate in Exhibit C of the Proposed
Amendment).
---------------------------------------------------------------------------

b. Historical Recovery Period
    The ``Historical Recovery Period'' would be used to calculate the
Historical Fee Rate for a Historical CAT Assessment.\776\ Proposed
Section 11.3(b)(i)(D) of the CAT NMS Plan provides the Operating
Committee with the discretion to reasonably establish the length of the
Historical Recovery Period as long as no such period is less than 24
months and more than five years. CAT LLC analyzed potential recovery
periods and determined that the Historical Fee Rate calculated using

the proposed Historical Recovery Period of two to five years would be
reasonable for Industry Members even if they had to pay both the
ongoing CAT Fee and the Historical Fee Assessment simultaneously.\777\
Additionally, in determining the range for the Historical Recovery
Period, CAT LLC ``sought to weigh the need for a reasonable Historical
Fee Rate that spreads the Historical CAT Costs over an appropriate
amount of time and the need to repay the loan notes to the Participants
in a timely fashion.'' \778\ In the Commission's view, it is reasonable
for the Operating Committee to establish the length of the Historical
Recovery Period to be no less than 24 months and no more than five
years. According to the Participants, ``[t]he length of the Historical
Recovery Period used in calculating each Historical Fee Rate will be
reasonably established by the Operating Committee based on the amount
of the Historical CAT Costs to be recovered by the Historical CAT
Assessment.'' \779\ The Operating Committee is authorized by the CAT
NMS Plan to establish the funding of CAT LLC, including the fees to be
paid by Participants and Industry Members.\780\ Because the Historical
Recovery Period is used in the calculation of Historical CAT
Assessments to recover costs incurred to fund the CAT, the Commission
views it as appropriate for the Operating Committee to determine a
reasonable length of time for the Historical Recovery Period since the
Operating Committee has authority over CAT funding pursuant to the
Plan.
---------------------------------------------------------------------------

    \776\ See proposed Section 11.3(b)(i)(D)(I).
    \777\ See Notice, supra note 7, 88 FR at 17096-97. CAT LLC
acknowledged that the Historical CAT Assessment would need to be
calculated using up-to-date Historical CAT Costs and executed
equivalent share volume. Id. at 17097.
    \778\ Id. at 17096.
    \779\ Id. at 17097.
    \780\ See CAT NMS Plan, supra note 2, at Section 11.1(b).
---------------------------------------------------------------------------

c. Historical Fee Rate
    The Historical Fee Rate would be used to calculate Historical CAT
Assessments. 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.\781\ Additionally,
proposed Section 11.3(b)(i)(A) states that once the Operating Committee
has approved a Historical Fee Rate, the Participants will be required
to file with the Commission, pursuant to Section 19(b) of the Exchange
Act,\782\ the Historical CAT Assessment to be charged to Industry
Members using the Historical Fee Rate.\783\ Industry Members would be
required to pay such Historical CAT Assessment using such Historical
Fee Rate once such Historical CAT Assessment is in effect in accordance
with Section 19(b) of the Exchange Act.\784\
---------------------------------------------------------------------------

    \781\ See proposed Section 11.3(b)(i)(A). Proposed Section
11.3(b)(i)(B) provides that the executed equivalent shares used to
calculate the Historical CAT Assessment would be counted in the same
manner as executed equivalent shares used to calculate CAT Fees
related to Prospective CAT Costs.
    \782\ 15 U.S.C. 78s(b).
    \783\ See proposed Section 11.3(b)(i)(A).
    \784\ Id.; see also 15 U.S.C. 78s(b); see infra Section
III.A.6.e. (Historical CAT Assessment--Fee Filings under Section
19(b) of the Exchange Act for Industry Member CAT Fees) for a
discussion of Section 19(b) filing requirements.
---------------------------------------------------------------------------

    Proposed Section 11.3(b)(i)(E) of the CAT NMS Plan provides that
``[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.'' \785\ CAT LLC would allow the Operating
Committee to base its projected total executed equivalent share volume
on the prior twelve months, but to use its discretion to analyze the
likely volume for the upcoming year.\786\ Participants would be
required to describe the calculation of the projection in their fee
filings submitted to the Commission, pursuant to Section 19(b) of the
Exchange Act, to implement the Historical CAT Assessments on Industry
Members.\787\
---------------------------------------------------------------------------

    \785\ Proposed Section 11.3(b)(i)(E).
    \786\ See Notice, supra note 7, 88 FR at 17097.
    \787\ See proposed Section 11.3(b)(iii)(B)(II).
---------------------------------------------------------------------------

    The calculation of the Historical Fee Rate by dividing Historical
CAT Costs by the projected total executed equivalent share volume of
all transactions in Eligible Securities for the Historical Recovery
Period \788\ is reasonable. First, it is appropriate for the Historical
Fee Rate to be based on Historical CAT Costs. The Proposed Amendment
defines Historical CAT Costs as Past CAT Costs minus the Past CAT Costs
reasonably excluded from Historical CAT Costs by the Operating
Committee \789\ (e.g., the Excluded Costs).\790\ It is appropriate to
use the Historical CAT Costs related to a Historical CAT Assessment to
calculate the Historical Fee Rate used to calculate the Historical CAT
Assessment because the Participants are seeking to recover the
Historical CAT Costs through the Historical CAT Assessment.\791\ The
use of Historical CAT Costs is appropriate to determine the Historical
Fee Rate because it ties the Historical Fee Rate to the costs that the
CAT has incurred and will be apportioned among the CAT Executing
Brokers for recovery. Second, it is appropriate to use the projected
total executed equivalent share volume of all transactions in Eligible
Securities for the Historical Recovery Period to calculate the
Historical Fee Rate because this would provide the likely volume for
the Historical Recovery Period to be used as the denominator, similar
to the manner in which the Fee Rate for Prospective CAT Fees would be
calculated. This proposed projection of total executed equivalent share
volume based on the prior twelve months is appropriate because it
balances the use of data that is sufficiently long to avoid short term
fluctuations while providing data close in time to the calculation of
the Fee Rate or Historical Fee Rate.\792\ Additionally, it is
appropriate for CAT LLC to permit the Operating Committee to use its
discretion to analyze the likely volume for the upcoming year.\793\
This would allow the Operating Committee to use its judgment when
estimating projected total executed equivalent share volume if the
volume over the prior twelve months was unusual or otherwise unfit to
serve as the basis of a future volume estimate. Furthermore, since the
Participants would be required to describe the calculation of the
projected total executed equivalent share volume in the fee filings
submitted to the Commission, pursuant to Section 19(b) of the Exchange
Act, to implement the Historical CAT Assessments on Industry Members,
the public will have an opportunity to review the projection and
provide comment.\794\
---------------------------------------------------------------------------

    \788\ See proposed Section 11.3(b)(i)(A).
    \789\ See proposed Section 11.3(b)(i)(C).
    \790\ See Notice, supra note 7, 88 FR at 17111.
    \791\ See proposed Section 11.3(b)(i)(C).
    \792\ See Notice, supra note 7, 88 FR at 17116-17.
    \793\ Id. at 17097.
    \794\ See proposed Section 11.3(b)(iii)(B)(II).
---------------------------------------------------------------------------

d. Length of Time Historical CAT Assessment Would Be in Effect
    Proposed Section 11.3(b)(i)(D)(II) of the CAT NMS Plan would
describe the length of time that a Historical CAT Assessment would be
in effect. This period of time may be longer or shorter than the
Historical Recovery Period used to calculate the Historical Fee Rate
for a Historical CAT Assessment. Each Historical CAT Assessment
calculated

using the Historical Fee Rate would remain in effect until all
Historical CAT Costs for that Historical CAT Assessment are
collected.\795\ CAT LLC stated that ``[a]ny 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.'' \796\
The length of time that the Historical CAT Assessment would be in
effect would depend ``on the amount of the Historical CAT Assessments
collected based on the actual volume during the time that the
Historical CAT Assessment is in effect.'' \797\
---------------------------------------------------------------------------

    \795\ See proposed Section 11.3(b)(i)(D)(II).
    \796\ Notice, supra note 7, 88 FR at 17097.
    \797\ Id.
---------------------------------------------------------------------------

    In the Commission's view, it is reasonable for Industry Members to
be charged a Historical CAT Assessment until all Historical CAT Costs
for the Historical CAT Assessment are collected. The Commission
understands that the amount of Historical CAT Costs collected will vary
depending on how the actual volume compares to the estimated volume. To
the extent the actual volume exceeds the estimated volume, a Historical
CAT Assessment would be collected faster and thus would be in effect
for a shorter period. Similarly, to the extent the actual volume is
less than the estimated volume, the Historical CAT Assessment would be
collected slower and thus would be in effect for a longer period.
e. Fee Filings Under Section 19(b) of the Exchange Act for Industry
Member CAT Fees
    Once the Operating Committee has approved a Historical Fee Rate,
the Participants shall be required to file with the Commission,
pursuant to Section 19(b) of the Exchange Act,\798\ such Historical CAT
Assessment to be charged Industry Members calculated using such
Historical Fee Rate.\799\ 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. Specifically, this provision would describe that fee filings
would be required for each Historical CAT Assessment, the content of
such fee filings, and the effect of the Financial Accountability
Milestones described in Section 11.6 of the CAT NMS Plan on the fee
filings.\800\
---------------------------------------------------------------------------

    \798\ 15 U.S.C. 78s(b).
    \799\ See proposed Section 11.3(b)(i)(A).
    \800\ See proposed Section 11.3(b)(iii)(B)(I), (II), (III).
---------------------------------------------------------------------------

    Proposed Section 11.3(b)(iii)(B)(I) of the CAT NMS Plan would state
that ``Participants will be required to file with the SEC pursuant to
Section 19(b) of the Exchange Act a filing for each Historical CAT
Assessment.'' \801\ CAT LLC proposes to provide additional detail about
the information that Participants would be required to include in the
filings for the Historical CAT Assessments in proposed Section
11.3(b)(iii)(B)(II). The proposed paragraph sets forth the information
about the Historical CAT Assessments that should be included in the fee
filings required to be made by the Participants pursuant to Section
19(b) of the Exchange Act.\802\ 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.\803\
---------------------------------------------------------------------------

    \801\ Proposed Section 11.3(b)(iii)(B)(II).
    \802\ 15 U.S.C. 78s(b).
    \803\ See proposed Section 11.3(b)(iii)(B)(II).
---------------------------------------------------------------------------

    In addition, CAT LLC proposes to clarify that the Historical CAT
Costs described in the fee filings must provide sufficient detail to
demonstrate that such costs are reasonable and appropriate.\804\
Therefore, CAT LLC proposes to add the following sentence to proposed
Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan: ``The information
provided in this Section would be provided with sufficient detail to
demonstrate that the Historical CAT Costs are reasonable and
appropriate.'' \805\
---------------------------------------------------------------------------

    \804\ Id.
    \805\ Id.
---------------------------------------------------------------------------

    Proposed Section 11.3(b)(iii)(B)(III) provides that the
Participants will not make CAT fee filings pursuant to Section 19(b) of
the Exchange Act \806\ regarding a Historical CAT Assessment until any
applicable Financial Accountability Milestone has been satisfied. This
provision is appropriate as it takes into account existing requirements
set forth in Section 11.6 of the CAT NMS Plan that prevent the
Participants from recovering fees related to any given Financial
Accountability Milestone until that Financial Accountability Milestone
has been achieved.\807\
---------------------------------------------------------------------------

    \806\ 15 U.S.C. 78s(b).
    \807\ See, e.g., Section 11.6(a)(iv) (``The Participants will
only be permitted to collect Post-Amendment Industry Member Fees for
Period 1, Period 2, Period 3, or Period 4 at the end of each
respective Period.''). Section 11.6 of the CAT NMS Plan is designed
to reduce the amount of fees, costs, and expenses that the
Participants may recover from Industry Members if the Participants
miss the target deadlines established by that Section. To the extent
that the Participants miss a target deadline established by Section
11.6, the Participants would be responsible for paying a larger
amount of CAT-related fees, costs, and expenses on their own. The
Commission expects that the portion of these fees, costs, and
expenses that is attributable to for-profit national securities
exchanges would likely be paid out of their existing profits,
whereas the portion of these fees, costs, and expenses that is
attributable to non-profit national securities associations like
FINRA would likely be paid out of past revenue or new and/or
existing fees. The Commission would evaluate any such new or
existing fees in accordance with Section 6(b)(4) and Section
15A(b)(5) of the Exchange Act. 15 U.S.C. 78f(b)(4); 15 U.S.C. 78o-
3(b)(5).
---------------------------------------------------------------------------

    The Commission emphasizes that the fee filings filed with the
Commission, pursuant to Section 19(b) of the Exchange Act,\808\ to
implement each Historical CAT Assessment on Industry Members will need
to provide sufficient information to enable the Commission to make a
determination on whether and when the Participants have satisfied each
of the Financial Accountability Milestones--questions that the
Commission is not deciding herein. This Order only approves the
establishment of the framework by which the Participants will propose
Historical CAT Assessments to be charged to Industry Members.\809\
---------------------------------------------------------------------------

    \808\ 15 U.S.C. 78s(b).
    \809\ The Commission does not believe it could determine whether
the Historical CAT Costs associated with a Financial Accountability
Milestone are ``reasonable or appropriate'' under Section
11.3(b)(iii)(B)(II) without such information.
---------------------------------------------------------------------------

    In the Commission's view, the proposed requirement for the
Participants to file fee filings with the Commission, pursuant to
Section 19(b) of the Exchange Act,\810\ to implement each Historical
Fee Assessment on Industry Members is appropriate. The detail provided
in the fee filings for the Historical CAT Assessment would provide
transparency into the Past CAT Costs as it would describe the amount
and type of Historical CAT Costs and allow the public the ability to
comment on the Historical CAT Costs.\811\ The fee filings must contain
sufficient detail to demonstrate that the fees are consistent with the
Exchange Act, including that such costs are reasonable and

appropriate,\812\ and provide the public with the detail needed to
evaluate the Historical CAT Assessments for comment.
---------------------------------------------------------------------------

    \810\ 15 U.S.C. 78s(b).
    \811\ See proposed Section 11.3(b)(iii)(B)(II).
    \812\ Id.
---------------------------------------------------------------------------

    The Proposed Amendment offers an appropriate level of transparency
into the Past CAT Costs used for the Historical CAT Assessment so that
the industry and the public will be able to understand and assess the
Past CAT Costs and the Historical Fee Rate. The Proposed Amendment
requires the Section 19(b) fee filings to be submitted to the
Commission by the Participants to establish the Historical CAT
Assessments for Industry Members to contain the following information:
``(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.'' \813\ CAT LLC explained that this
information ``would provide Industry Members and other interested
parties with a clear understanding of the calculation of each
Historical CAT Assessment and its relationship to Historical CAT
Costs.'' \814\ In the Commission's view, the detail provided in the fee
filings for the Historical CAT Assessment would provide transparency
into the Past CAT Costs as the filings would describe the amount and
type of Historical CAT Costs and allow the public the ability to
comment on the Historical CAT Costs.\815\ Additionally, pursuant to the
Proposed Amendment being approved, the fee filings will also need to
contain ``sufficient detail to demonstrate that such costs are
reasonable and appropriate,'' \816\ which would provide the public and
the Commission the detail needed to evaluate the Historical CAT
Assessments for consistency with the Exchange Act and the CAT NMS Plan.
---------------------------------------------------------------------------

    \813\ Proposed Section 11.3(b)(iii)(B)(II).
    \814\ Notice, supra note 7, 88 FR at 17098.
    \815\ See proposed Section 11.3(b)(iii)(B)(II).
    \816\ Id.
---------------------------------------------------------------------------

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.
It would state that, ``[b]ecause Participants previously have paid Past
CAT Costs via loans to the Company, Participants would not be required
to pay any Historical CAT Assessment.'' \817\ In addition, proposed
Section 11.3(b)(ii) of the CAT NMS Plan would state that the Historical
CAT fees collected from Industry Members would be allocated to
Participants for repayment of the outstanding loan notes of the
Participants to the Company on a pro rata basis; such fees would not be
allocated to Participants based on the executed equivalent share volume
of transactions in Eligible Securities.\818\ Specifically, 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.'' \819\ 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.'' \820\
---------------------------------------------------------------------------

    \817\ Proposed Section 11.3(b)(ii).
    \818\ See Notice, supra note 7, 88 FR at 17112.
    \819\ Proposed Section 11.3(b)(ii).
    \820\ Id.
---------------------------------------------------------------------------

    The proposed allocation of the Historical CAT Assessment solely to
CEBSs and CEBBs, and ultimately Industry Members, is reasonable. The
Historical CAT Assessment will still be divided into thirds.\821\ CAT
LLC stated that 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'' and that the Participants will also be
100% responsible for the Excluded Costs.\822\ CAT LLC explained that
the terms of the loan agreements between CAT LLC and the Participants
dictate that repayment of the notes will be on a pro rata basis.\823\
The pro rata basis for cancelling the loans is appropriate because
repayment of the loans made by the Participants is required pro rata
per the loan agreements between the Participants and CAT LLC.\824\ The
CAT NMS Plan permits the Participants to seek recovery of CAT costs
from Industry Members, which includes Past CAT Costs.\825\ However,
similar to cancelling the loans, the Executed Share Model would require
the Participants to pay CAT fees related to Prospective CAT Costs.\826\
---------------------------------------------------------------------------

    \821\ Id.
    \822\ Notice, supra note 7, 88 FR at 17097, n.48.
    \823\ Id. at 17112.
    \824\ Id.
    \825\ See CAT NMS Plan, supra note 2, at Section 11.1(b),
Section 11.3(b).
    \826\ See proposed Section 11.3(a)(ii).
---------------------------------------------------------------------------

7. Calculation Information; Billing and Collection of CAT Fees
    CAT LLC proposed to provide Participants and CAT Executing Brokers
with details regarding the calculation of their CAT Fees upon
request.\827\ Specifically, CAT LLC proposed to add Section
11.3(a)(iv)(A) to the CAT NMS Plan to provide that ``[d]etails
regarding the calculation of a Participant or CAT Executing Brokers'
CAT Fees will be provided upon request to such Participant or CAT
Executing Broker.'' \828\ Similarly, for the Historical CAT Assessment,
under proposed Section 11.3(b)(iv)(A), ``at minimum, such details would
include each CAT Executing Broker's executed equivalent share volume
and corresponding fee.'' \829\ In both cases, the new sections require
that these details be separated 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.\830\ Additionally,
for each CAT Fee and Historical CAT Assessment, at a minimum, CAT LLC
will make publicly available the aggregate executed equivalent share
volume and corresponding aggregate fee also 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.\831\ The
Commission understands that the publicly available aggregate statistics
will be made available by CAT LLC on a monthly basis with each invoice.
---------------------------------------------------------------------------

    \827\ See Notice, supra note 7, 88 FR at 17086.
    \828\ Proposed Section 11.3(a)(iv)(A).
    \829\ Proposed Section 11.3(b)(iv)(A).
    \830\ See proposed Section 11.3(a)(iv)(A); proposed Section
11.3(b)(iv)(A)
    \831\ See proposed Section 11.3(a)(iv)(B); proposed Section
11.3(b)(iv)(B).
---------------------------------------------------------------------------

    CAT LLC stated that consistent with Section 11.1(d) of the CAT NMS
Plan, it will adopt policies, procedures and practices regarding the
billing and

collection of fees Section 11.4 of the CAT NMS Plan.\832\ In addition,
pursuant to Section 11.4 of the CAT NMS Plan, CAT LLC will establish a
system for the collection of CAT fees from Participants and Industry
Members.\833\ Under Section 11.4 of the CAT NMS Plan, the Participants
must require each Industry Member to pay all applicable fees authorized
under this Article XI within thirty (30) days after receipt of an
invoice or other notice indicating payment is due (unless a longer
payment period is otherwise indicated). If an Industry Member fails to
pay any such fee when due, such Industry Member shall pay interest on
the outstanding balance from such due date until such fee is paid at a
per annum rate equal to the lesser of: (a) the Prime Rate plus 300
basis points; or (b) the maximum rate permitted by applicable law.\834\
---------------------------------------------------------------------------

    \832\ See Notice, supra note 6, 88 FR at 17089.
    \833\ Id. at 17101.
    \834\ See CAT NMS Plan, supra note 2, at Section 11.4.
---------------------------------------------------------------------------

    Similarly, as set forth in Section 3.7(b) of the CAT NMS Plan, each
Participant must pay all fees or other amounts required to be paid
under the Plan within thirty (30) days after receipt of an invoice or
other notice indicating payment is due (unless a longer payment period
is otherwise indicated) (``Payment Date''). The Participant shall pay
interest on the outstanding balance from the Payment Date until such
fee or amount is paid at a per annum rate equal to the lesser of: (i)
the Prime Rate plus 300 basis points; or (ii) the maximum rate
permitted by applicable law.\835\ The Commission did not receive any
objections to nor any comments regarding the calculation of this
interest rate.
---------------------------------------------------------------------------

    \835\ Id. at Section 3.7(b). If any such remaining outstanding
balance is not paid within thirty (30) days after the Payment Date,
the Participants shall file an amendment to this Agreement
requesting the termination of the participation in the Company of
such Participant, and its right to any Company Interest, with the
Commission.
---------------------------------------------------------------------------

    The proposed provision to Participants and CAT Executing Brokers
with details regarding the calculation of their CAT Fees upon request
is reasonable. In the Commission's view, providing CAT Execution
Brokers information regarding the calculation of their CAT Fees will
aid in transparency and permit CAT Execution Brokers to confirm the
accuracy of their invoices for CAT Fees. The publication of the
aggregate executed equivalent share volume and aggregate fee is
appropriate because it would allow Participants and CAT Executing
Brokers a high-level validation of executed volume and fees.
8. Additional Changes From Original Funding Model
    CAT LLC proposed to delete the term ``Execution Venue'' and its
definition from Section 1.1 of the CAT NMS Plan, explaining that this
term is not relevant in the Executed Share Model.\836\ Section 1.1 of
the existing CAT NMS Plan defined ``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).''
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.\837\ In contrast, the Executed Share Model does not use the
term ``Execution Venue,'' as the Executed Share Model imposes fees
based on the executed equivalent shares of transactions in Eligible
Securities for three categories of CAT Reporters: Participants, CEBBs
and CEBSs.\838\
---------------------------------------------------------------------------

    \836\ See Notice, supra note 7, 88 FR at 17099.
    \837\ See CAT NMS Plan, supra note 2, at Section 11.3(a)(i) and
(ii); Section 11.3(b).
    \838\ See proposed Section 11.3(a)(ii) and (iii); proposed
Section 11.3(b)(iii).
---------------------------------------------------------------------------

    CAT LLC also proposed to amend Section 11.2(c) and Section 11.3(a)
and (b) of the CAT NMS Plan to require Participants and CAT Executing
Brokers to pay CAT fees based on the number of executed equivalent
shares in a transaction in Eligible Securities instead of based on
market share and message traffic.\839\
---------------------------------------------------------------------------

    \839\ See Notice, supra note 7, 88 FR at 17099.
---------------------------------------------------------------------------

    First, CAT LLC proposed to delete subparagraphs (i) and (ii) of
Section 11.2(c) 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.'' \840\ The deleted provisions
would have required the Operating Committee, in establishing the
funding of the Company, to seek 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 and (ii)
Industry Members' non-ATS activities are based upon message traffic.
---------------------------------------------------------------------------

    \840\ Proposed Section 11.2(c).
---------------------------------------------------------------------------

    Second, CAT LLC proposed to amend Sections 11.3(a) and 11.3(b) of
the CAT NMS Plan to remove detail regarding fixed fees and fee tiers
for market share and message traffic by Participants and Execution
Venue ATSs under the Original Funding Model.\841\ Section 11.3(a)
currently describes the fixed CAT fees to be paid by Participants and
Execution Venue ATSs based on market share and Section 11.3(b)
currently describes the fixed CAT fees to be paid by Industry Members
(other than Execution Venue ATSs) based on message traffic.\842\ The
text in these sections would be replaced with proposed Sections 11.3(a)
and (b), which, as discussed above, would describe the calculation and
application of the CAT Fees related to Prospective CAT Costs and the
Historical CAT Assessments. These proposed changes to Sections 11.3(a)
and (b) would also replace references to ``fixed fees'' with ``fees''
instead. CAT LLC explained that the concept of fixed fees is not
relevant in the Executed Share Model.\843\
---------------------------------------------------------------------------

    \841\ See Notice, supra note 7, 88 FR at 17100-01.
    \842\ See CAT NMS Plan, supra note 2, at Section 11.3(a) and
(b).
    \843\ See Notice, supra note 7, 88 FR at 17101.
---------------------------------------------------------------------------

    CAT LLC also proposed 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 because the Executed Share Model does not utilize
tiering.\844\ First, CAT LLC proposed to remove a reference to the
``assignment of tiers'' from Section 11.1(d). CAT LLC also proposed to
remove two sentences from Section 11.1(d) permitting the Operating
Committee to change the tier assigned to any Person. Second, CAT LLC
proposed to amend Section 11.2(c) to delete a reference to a tiered fee
structure (specifically, deleting the word ``tiered'') so that CAT fees
would not be tiered under the Executed Share Model. Third, CAT LLC
proposed to delete subparagraph (iii) of Section 11.2(c), which
required the Operating Committee, in establishing the funding of the
Company, to seek to establish a fee structure in which the fees charged
to 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 affiliates between or among CAT Reporters,
whether Execution Venues and/or Industry Members).\845\ CAT LLC
explained that this comparability provision was a factor used to
determine the tiers for Industry Members and Execution Venues under the
Original Funding Model, but that it is no longer necessary since the
proposed Executed Share

Model would not use a tiered fee structure.\846\ Finally, as discussed
above, CAT LLC proposed to amend Sections 11.3(a) and (b) to replace
the language with proposed Sections 11.3(a) and (b), which would
describe the calculation and application of the CAT Fees related to
Prospective CAT Costs and the Historical CAT Assessments. CAT LLC
states that such proposed changes would remove the references to tiers
in Sections 11.3(a)(i) and (ii) and 11.3(b).\847\
---------------------------------------------------------------------------

    \844\ Id. at 17100-01.
    \845\ Id. at 17100.
    \846\ Id.
    \847\ Id. at 17100-01.
---------------------------------------------------------------------------

    In addition, CAT LLC proposed to amend the CAT funding principles
to clarify that CAT Fees and the Historical CAT Assessments are
intended to be cost-based fees.\848\ Specifically, CAT LLC proposed to
amend the funding principle set forth in Section 11.2(c) by making a
specific reference to ``the costs of the CAT.'' Proposed Section
11.2(c) would state, ``[i]n establishing the funding of the Company,
the Operating Committee shall seek . . . to establish a fee structure
in which the fees charged to Participants and Industry Members are
based upon the executed equivalent share volume of transactions in
Eligible Securities, and the costs of the CAT (emphasis added).'' \849\
---------------------------------------------------------------------------

    \848\ Id. at 17099.
    \849\ Proposed Section 11.2(c).
---------------------------------------------------------------------------

    In the Commission's view, the proposed deletion of the term
``Execution Venue'' from the CAT NMS Plan is reasonable because the
term is no longer relevant to the CAT NMS Plan. The proposed Executed
Share Model does not impose fees on Execution Venues and would instead
impose fees on Participants and CAT Executing Brokers (and, ultimately,
Industry Members) and therefore it is appropriate to delete the term.
    Additionally, it is reasonable to amend Section 11.2(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. These changes are appropriate
because, unlike the Original Funding Model, the proposed Executed Share
Model would not use message traffic, or a tiered fee structure.
    Further, the proposed elimination of tiered fees and related
concepts from the CAT NMS Plan and the proposed replacement of ``fixed
fees'' with references to ``fees'' in the CAT NMS Plan are reasonable.
The Original Funding Model would use a tiered fee structure of fixed
fees; however, the proposed Executed Share Model would require each
Participant and CAT Executing Broker to pay a CAT fee based on its
transactions in Eligible Securities.\850\ CAT LLC explained that
``[t]he proposed non-tiering approach is simpler and more objective to
administer than the tiering approach'' \851\ and that removing tiers
``eliminates a variety of subjective analyses and judgments from the
model and simplifies the determination of CAT fees.'' \852\
Additionally, the Proposed Amendment would replace the concept of
``fixed fees'' with ``fees'' because CAT fees will vary in accordance
with the number of executed equivalent shares in a transaction.\853\
The proposed elimination of tiered fees and related concepts from the
CAT NMS Plan and the proposed replacement of ``fixed fees'' with
references to ``fees'' in the CAT NMS Plan are reasonable because these
changes conform the CAT NMS Plan funding model to the proposed Executed
Share Model.
---------------------------------------------------------------------------

    \850\ See proposed Section 11.3(a)(ii)(A), (a)(iii)(A),
(b)(iii)(A).
    \851\ Notice, supra note 7, 88 FR at 17100.
    \852\ Id.
    \853\ Id. at 17101.
---------------------------------------------------------------------------

    Additionally, the Proposed Amendment would amend Section 11.2(c) to
make clear that the fee structure established by the Operating
Committee to charge fees to Participants and Industry Members would
also be based on the costs of the CAT.\854\ CAT LLC explained that the
change clarifies that the CAT fees are cost-based fees designed to
recover the cost of the creation, implementation and operation of the
CAT.\855\ These proposed changes are appropriate because they would
update language in the Original Funding Model to reflect the operation
of the proposed Executed Share Model.
---------------------------------------------------------------------------

    \854\ See proposed Section 11.2(c) (``. . . fees charged to
Participants and Industry Members are based upon the executed
equivalent share volume of transactions in Eligible Securities, and
the costs of the CAT.'' (emphasis added)).
    \855\ See Notice, supra note 7, 88 FR at 17099.
---------------------------------------------------------------------------

9. Other Comments
a. Lack of Industry Input
    A number of commenters stated that the Proposed Amendment lacks
input from the industry.\856\ One commenter stated that the
Participants did not meaningfully solicit input from the industry when
developing the Executed Share Model.\857\ Another commenter stated that
the Proposed Amendment reflects a lack of representation by executing
brokers and offered its participation in future discussions and
advisory committees on the topic of CAT funding.\858\ One commenter
stated that ``[t]he impact of CAT on the brokerage community must be
taken seriously by the SRO committee, and brokers need their voice
heard on the committee's recommendations. To date, we have seen little
evidence of either.'' \859\ This commenter also suggested the
allocation of human resources to hire industry experts in industry
workflows and public-private engagement to assist with building the
CAT.\860\
---------------------------------------------------------------------------

    \856\ See DASH April 2023 Letter at 2; DASH January 2023 Letter
at 3; SIFMA June 2023 Letter at 4; SIFMA May 2023 Letter at 2; SIFMA
June 2022 Letter at 2; SIFMA January 2023 Letter at 2; Citadel July
Letter at 9-10. See also FINRA June 2022 Letter at 8, 9 (advocating
for a more inclusive development process that would include input
from the industry); MMI July Letter at 2, 4; Virtu Letter at 6
(stating that they would like to have a meaningful dialogue with the
Participants and that the best way forward is for the interested
parties to meet and devise an equitable solution); FIA Letter at 4
(stating that they have ``raised concerns over the lack of industry
participation in the development, operation and cost allocation
processes of the CAT'' and they ``believe that at a minimum, the CAT
Operating Committee should be reconfigured, with Industry Members
comprising the percentage of the Committee equivalent to whatever
cost allocation percentage is eventually allocated to them.'').
    \857\ See SIFMA May 2023 Letter at 2. See also SIFMA June 2023
Letter at 4, 5; SIFMA June 2022 Letter at 2; SIFMA January 2023
Letter at 2.
    \858\ See DASH April 2023 Letter at 2; DASH January 2023 Letter
at 3.
    \859\ MMI July Letter at 4.
    \860\ Id.
---------------------------------------------------------------------------

    In response, CAT LLC stated that it has engaged with the industry
on the funding model over the past seven years, explaining that it has
discussed funding model issues with the CAT Advisory Committee, which
includes representation from the industry, as well as with industry
associations such as SIFMA and the Financial Information Forum, and
with individual Industry Members; analyzed and responded to comment
letters on the prior proposals; and hosted webinars for the industry on
funding issues.\861\ CAT LLC stated that it welcomes industry input on
the funding model but believes a decision on the model is overdue.\862\
---------------------------------------------------------------------------

    \861\ See CAT LLC May 2023 Response Letter at 12.
    \862\ Id.
---------------------------------------------------------------------------

    In response, one commenter stated that Industry Members are willing
to work with the Commission and the Participants to develop a CAT
funding model.\863\ The commenter urged collaboration and dialogue
between the Participants and the Industry Members before the filing of
a formal proposal with the Commission.\864\ The commenter also stated
that limiting industry input to the notice and comment process for NMS
plan amendments is an inefficient process

resulting in significant delays.\865\ Another commenter stated that the
Operating Committee refuses to engage the industry in constructive
dialogue, instead choosing to file funding proposals that are
inconsistent with the Exchange Act.\866\ The commenter also stated that
the CAT Advisory Committee has been completely ignored by the Operating
Committee and that its recommendations are non-binding.\867\
---------------------------------------------------------------------------

    \863\ See SIFMA June 2023 Letter at 4.
    \864\ Id.
    \865\ Id. at 4-5.
    \866\ See Citadel July Letter at 9-10.
    \867\ Id. at 6.
---------------------------------------------------------------------------

    CAT LLC further responded to two commenters that stated that CAT
LLC refused to collaborate with the industry in the development of the
Proposed Amendment.\868\ CAT LLC stated that it has engaged with the
industry over the last seven years, discussing funding model issues
with the CAT Advisory Committee, holding industry-wide webinars on
funding issues, and meeting with industry associations and individual
Industry Members to discuss funding model issues.\869\ CAT LLC stated
that it has ``repeatedly sought the views of SIFMA and other industry
participants on specific aspects of the model.'' \870\ CAT LLC listed
ideas suggested by the industry that it adopted in revised versions of
the funding model \871\ and stated ``the current model results from
years of modifications that have been made in significant part in
response to industry comments to earlier versions.'' \872\
---------------------------------------------------------------------------

    \868\ See MMI July Letter at 2; SIFMA June 2023 Letter at 4.
    \869\ See CAT LLC July 2023 Response Letter at 26-27.
    \870\ Id. at 28.
    \871\ Id. at 27-28.
    \872\ Id. at 28.
---------------------------------------------------------------------------

    The Commission understands that Industry Members and other market
participants have been able to provide input into CAT funding through
meetings with CAT LLC, participation in webinars held by CAT LLC on CAT
costs and potential alternative funding models,\873\ and through the
provision of comments on the current and prior proposed funding
models.\874\ The Commission encourages frequent and constructive
collaboration between the industry and CAT LLC.
---------------------------------------------------------------------------

    \873\ See CAT Industry Webinar: CAT Costs (Sept. 21, 2021),
available at https://catnmsplan.com/sites/default/files/2021-09/09.21.21-CAT-Costs_0.pdf; CAT Industry Webinar: Fee Models (Sept.
22, 2021), available at https://catnmsplan.com/sites/default/files/2021-09/09.22.21-CAT-Fee-Model.pdf.
    \874\ See, e.g., supra note 58; see also https://www.sec.gov/comments/4-698/4-698-a.htm.
---------------------------------------------------------------------------

b. Implementation
    One commenter suggested that upon approval of any CAT funding
model, Industry Members should be given at least a year ``to implement
any necessary changes to systems and processes for them to be able to
capture their portion of CAT costs.'' \875\ CAT LLC responded that it
was unlikely to take Industry Members a year to implement any needed
changes, particularly given the relatively small fees likely to be
incurred by most small Industry Members that would not require
extensive new processes to pay.\876\
---------------------------------------------------------------------------

    \875\ SIFMA May 2023 Letter at 2.
    \876\ See CAT LLC May 2023 Response Letter at 12.
---------------------------------------------------------------------------

    The Commission acknowledges this comment but highlights, as did CAT
LLC,\877\ that the Participants have entirely funded the CAT to date;
in the Commission's view, it is imperative that CAT funding be
established in a timely manner after approval of the Executed Share
Model.
---------------------------------------------------------------------------

    \877\ Id.
---------------------------------------------------------------------------

c. Rule 613 and the CAT NMS Plan
    Certain commenters stated that the CAT as it is structured today is
not what was contemplated by Rule 613 of Regulation NMS.\878\ One
commenter recommended that the Commission come up with a new structure
for the CAT.\879\ The commenter stated that Rule 613 and the 2016 CAT
NMS Plan do not support CAT as it is currently structured \880\ and
provided examples where it believes that subsequent changes to the CAT
requested by the Commission have caused the CAT to become inconsistent
with the requirements of Rule 613 and the 2016 CAT NMS Plan.\881\
According to the commenter: (1) Rule 613 requires the reporting of
certain events and that the events must be linked to their originating
order, but the Commission has required the reporting of events that are
not CAT-reportable and are not linked to particular orders (for
example, Rule 613 requires the reporting of the cancellation of an
order, but the Commission has also required the reporting of messages
acknowledging the receipt of a cancellation request); \882\ (2) the
Commission expanded the CAT to include OTC equities and requests-for-
quotes; \883\ (3) the CAT NMS Plan contemplates that data will be
available to the Commission on a T+5 basis, but the Commission and
staff have insisted that certain data be available to the Commission
for use before T+5; \884\ (4) Rule 613 requires the reporting of every
material term of an order, but the Commission has also required the
reporting of the port-level settings applicable to all orders sent to a
port on an exchange.\885\ The commenter stated that these changes to
CAT resulted from discussions between the Commission and the
Participants, that such changes ``significantly increased CAT costs,''
and that Industry Members with ``no voice and little transparency''
into the building of the CAT system would be allocated most of the
increased CAT costs.\886\ The commenter stated that the Commission
approval of a funding proposal for a system that is not consistent with
Rule 613 and the CAT NMS Plan would be arbitrary and capricious
action.\887\
---------------------------------------------------------------------------

    \878\ See SIFMA June 2023 Letter at 2, 6-7; Citadel July Letter
at 5; FIA Letter at 5; FIF and SIFMA Letter at 4, 5, 8-23.
    \879\ See SIFMA Letter June 2023 at 6.
    \880\ Id. at 6-7.
    \881\ Id. at 6.
    \882\ Id. at 6-7.
    \883\ Id. at 7.
    \884\ See SIFMA June 2023 Letter at 6.
    \885\ Id. See also Citadel July Letter at 32-33.
    \886\ See SIFMA June 2023 Letter at 7.
    \887\ Id.
---------------------------------------------------------------------------

    Another commenter stated that some of the drivers of CAT costs are
the addition of various new system features and reporting requirements
that were established as the result of discussion between Commission
staff and the CAT Operating Committee.\888\ The commenter stated that
some of these requirements have been driven by ``informal
reinterpretations'' of the Plan and have resulted in material changes
to the CAT without proper weighing of costs and benefits associated
with such changes.\889\ The commenter further stated that the
Participants should confirm that the existing CAT system meets the
requirements of the Plan, before the funding proposal is
finalized.\890\
---------------------------------------------------------------------------

    \888\ See FIA Letter at 5.
    \889\ Id.
    \890\ Id.
---------------------------------------------------------------------------

    One commenter believes that the Commission should require an
amendment to the CAT NMS Plan for new reporting requirements or
enhancements for which costs and benefits were never considered by
Commission in the economic analysis for the approval of the CAT NMS
Plan.\891\ This commenter believes that the Commission is imposing CAT
processing requirements that are not required by Rule 613 and the CAT
NMS Plan.\892\ The commenter further believes these ``changes'' should
be subject to greater review by the Industry Members and the public at
large, and therefore

should be filed as amendments to the CAT NMS Plan, thereby requiring a
cost-benefit analysis to be conducted by the Commission and public
disclosure.\893\ The commenter stated that the Commission has mandated
additional reporting requirements for CAT that the commenter does not
believe to be within the scope of Rule 613 and the CAT NMS Plan, and
that these additional reporting requirements should be subject to an
appropriate cost-benefit analysis.\894\ The commenter stated their
concern that these reporting requirements would be very costly to
implement and questioned whether the surveillance value of these
additional reporting requirements justified the additional costs that
will be imposed on market participants (and potentially passed through
to customers).\895\ The commenter further stated that, to the extent
that these additional reporting requirements are found to be within the
scope of Rule 613 and the CAT NMS Plan, the Commission should grant
exemptive relief with respect to these requirements because of the
additional costs.\896\ The commenter also stated that if the Commission
does not grant exemptive relief, then the Commission should require an
amendment to the CAT NMS Plan, that sets forth the costs and benefits,
for each of these additional reporting requirements because the
commenter believes that these reporting requirements were not
considered as part of the cost estimates in the CAT NMS Plan.\897\
---------------------------------------------------------------------------

    \891\ See FIF and SIFMA Letter at 4, 5.
    \892\ Id. at 9-12 (discussing various ``processing changes'' the
commenter believes the Commission intends to impose, as well as
summarizing the objections made by the Participants to these
``changes'').
    \893\ Id. at 10-11. This commenter also stated that there were
several ``processing requirements'' that could reduce CAT operating
costs and that the Commission should direct the Participants to
analyze these ``processing requirements'' and make that analysis
available to the public for discussion. Id. at 12-13.
    \894\ See FIF and SIFMA Letter at 13-23 (discussing various
reporting requirements that the commenter does not consider to be
within the scope of Rule 613 and the CAT NMS Plan or believes that
exemptive relief should be granted because of the costs for
implementing these requirements, including: requiring CAT reporting
of verbal (unstructured) activity; requiring CAT reporting of non-
executable RFQ responses; requiring CAT reporting of request
messages; requiring that an order recipient report rejections to
CAT; requiring an order sender to report venue (order recipient)
port settings; requiring CAT reporting of linkage of representative
to customer orders and linkage of order fulfillments to
representative and principal orders; various requirements with
respect to CAIS reporting; and other CAT reporting requirements
relating to quoting activity on the OTC Link ATS operated by OTC
Markets).
    \895\ Id. at 14.
    \896\ Id.
    \897\ Id.
---------------------------------------------------------------------------

    Another commenter stated that changes and cost overruns have
changed the structure of the CAT from what was contemplated by Rule
613.\898\ The commenter believes that the Operating Committee and the
Commission have engaged in ad-hoc discussions to interpret what the
Plan requires ``without adequate notice to Industry Members or due
consideration of the costs and benefits associated with such
interpretations.'' \899\ The commenter stated that the Commission has
not regularly assessed whether costs resulting from a specific
interpretation of Rule 613 and the CAT NMS Plan outweigh benefits.\900\
The commenter requested that the Commission revisit its assumptions
from the CAT NMS Plan Approval Order \901\ due to inaccurate cost
estimates, a failure to retire duplicative systems, impracticality of
technology requirements, a lack of effective governance, and a lack of
processes to consider requests to add more data.\902\
---------------------------------------------------------------------------

    \898\ See Citadel July Letter at 7.
    \899\ Id. at 6.
    \900\ Id.
    \901\ See supra note 2.
    \902\ See Citadel July Letter at 5; see also FIF and SIFMA
Letter at 24-26.
---------------------------------------------------------------------------

    The commenter also stated that the Commission must update the
economic analysis from the CAT NMS Plan Approval Order \903\ to revise
its estimates of costs to build and operate CAT using actual costs
incurred,\904\ to project average annual increases in the CAT operating
budget,\905\ and to update its analysis of CAT-related costs to be
borne by Industry Members.\906\ The commenter stated that the 2016 CAT
NMS Plan lacked a funding model, so the Commission did not consider the
implications of allocating costs to Industry Members to build and
operate the CAT.\907\ The commenter stated that the Proposed Amendment
would allocate at least 78% and up to 100% of costs to Industry Members
and a small group of Industry Members will pay the majority of these
costs (and potentially both historical and ongoing costs
simultaneously).\908\ The commenter stated that the proposed allocation
would have ``dramatic effects'' on market efficiency, competition and
capital formation,\909\ stating that ``[t]he allocation methodology
will have a direct and negative impact on market efficiency,
competition, and capital formation, and the Commission must
comprehensively assess those impacts before approving this filing.''
\910\
---------------------------------------------------------------------------

    \903\ See CAT NMS Plan Approval Order, supra note 2.
    \904\ See Citadel July Letter at 12. The commenter stated that
2016 figures underestimated such implementation costs for larger
broker-dealers by assuming cost savings would be realized through
retirement of other reporting systems which haven't been retired
yet. Id. at 12-13.
    \905\ Id. at 13.
    \906\ Id. at 12.
    \907\ Id.
    \908\ See Citadel July Letter at 12; id. at 12, n.57.
    \909\ Id. at 12.
    \910\ Id. at 15.
---------------------------------------------------------------------------

    Additionally, the commenter stated that Rule 613 requires the
Participants to provide an estimate of the costs associated with
creating, implementing and maintaining the CAT, the costs, benefits and
rationale for the choices made in developing the CAT NMS Plan, and
their own analysis of the plan's impact on competition, efficiency and
capital formation.\911\ The commenter requested the Commission to
require the members of the Operating Committee to update the analysis
required by Rule 613 in light of a ``massive increase'' in costs since
2016.\912\ Another commenter similarly suggested that additional
oversight and public review of the actual costs and purpose of the CAT
is called for, and also requested additional transparency on the status
of legacy reporting systems, since their retirement could offset some
of the CAT fees.\913\
---------------------------------------------------------------------------

    \911\ Id. at 14-15; see also FIF and SIFMA Letter at 24-25.
    \912\ See Citadel July Letter at 15.
    \913\ See MMI July Letter at 6. This commenter did not
specifically request that the Operating Committee update the Rule
613 analysis.
---------------------------------------------------------------------------

    In response to one commenter that stated that Rule 613 and the CAT
NMS Plan no longer reflect the operation of the CAT,\914\ CAT LLC
stated that the CAT was implemented in accordance with Rule 613 and the
CAT NMS Plan and that the CAT NMS Plan permits the recovery of costs
incurred in the creation, implementation and maintenance of the
CAT.\915\
---------------------------------------------------------------------------

    \914\ See SIFMA June 2023 Letter at 7.
    \915\ See CAT LLC July 2023 Response Letter at 28.
---------------------------------------------------------------------------

    CAT LLC also responded to comments that raised concerns about the
Commission's interpretations of CAT NMS Plan requirements that were not
related to the funding model and the costs and benefits of those
interpretations.\916\ CAT LLC stated that the Proposed Amendment is not
the appropriate forum to resolve interpretive questions.\917\ CAT LLC
also stated that, for proposed changes to the CAT NMS Plan, the
Participants are following the process in Rule 608 for plan amendments
and noted that material changes to the CAT system would require an
amendment to the CAT NMS Plan,\918\ but not a material change to a
technology contract as the CAT NMS Plan permits the Operating

Committee to enter into, modify or terminate a material contract.\919\
---------------------------------------------------------------------------

    \916\ See Citadel July Letter at 32-34; FIA Letter at 3, 4; MMI
July Letter at 4.
    \917\ See CAT LLC July 2023 Response Letter at 29.
    \918\ Id.
    \919\ Id. at 30 (citing to Section 4.3 of the CAT NMS Plan).
---------------------------------------------------------------------------

    The CAT NMS Plan is consistent with Rule 613 and we do not believe
that any changes have been made that are inconsistent with the Plan as
approved in 2016, as amended in 2020.\920\ The examples provided by
commenters of changes to the CAT requested by the Commission,\921\ in
the Commission's view, were included in the CAT NMS Plan approved by
the Commission in 2016.\922\ Rule 608 and Rule 613 of Regulation NMS
provide advance notice of material changes to the CAT system and
related costs by requiring changes to the CAT NMS Plan to be filed with
the Commission as an NMS plan amendment pursuant to Rule 608 of
Regulation NMS and thereby be subject to notice and comment, and
require that the Commission consider, in determining to approve the
amendment, the impact of the amendment on efficiency, competition and
capital formation.\923\ Section 6.9 of the CAT NMS Plan does not
provide unfettered discretion to the CAT Operating Committee to make
Material Amendments to the CAT system. If the CAT Operating Committee
or the Commission wish to impose additional requirements to the CAT NMS
Plan, such requirements must be proposed through an amendment to the
CAT NMS Plan, filed under Rule 608 of Regulation NMS. Such amendments
must be published for notice and comment.\924\ Additionally, Rule
613(a)(5) of Regulation NMS \925\ requires the Commission to consider,
in determining whether to approve an amendment to the CAT NMS Plan, the
impact of the amendment on efficiency, competition and capital
formation; therefore, this Order contains an analysis of the Proposed
Amendment's impact on efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \920\ See Securities Exchange Act Release No. 89387 (July 24,
2020), 85 FR 45941 (July 30, 2020); Financial Accountability
Amendments, supra note 18.
    \921\ See SIFMA June 2023 Letter at 6, 7, supra notes 881-885
and accompanying text; Citadel July Letter at 33-35; FIF and SIFMA
Letter at 8-23. The issues raised by those commenters are either
being adjudicated in a separate forum or addressed through a request
for exemptive relief. See Petition for Review, USCA Case No. 22-
1234; Request for Exemption from Certain Provisions of the CAT NMS
Plan Related to Reporting of Certain Verbal Activity, Floor and
Upstairs Activity, available at https://catnmsplan.com/sites/default/files/2023-03/03.31.23-CAT-Exemption-Request-Verbal-Floor-and-Upstairs-Activity.pdf. 22-1234; Request for Exemption from
Certain Provisions of the CAT NMS Plan Related to Reporting of
Certain Verbal Activity, Floor and Upstairs Activity, available at