Table 20--Approach 2 Implementation Costs: Small Respondents Summary (118 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................          $5,000            1.08        $440,000         $16,000
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $1,000            1.00        $400,000          $1,000
Maximum.........................................        $500,000           20.00      $8,000,000      $1,000,000
Count of Zero Responses.........................              98              96              96              97
Count of Blank Responses........................               1               0               0               1
----------------------------------------------------------------------------------------------------------------

    Tables 21 and 22 show the costs associated with the
implementation phase of Approach 2 for large respondents with
current OATS and non-OATS reporting obligations. Large OATS
respondents provided estimated average (median) hardware/software
requirements of $740,000 ($60,000), with large non-OATS respondents
providing estimated average (median) costs of $450,000 ($0).
    Large OATS reporters provided average (median) FTE requirements
of 14.81 (7.00), translating to estimated costs of $5,900,000
($2,800,000), while large non-OATS respondents provided average
(median) FTE requirements of 6.66 (0.00), translating to estimated
costs of $2,700,000 ($0).
    Finally, large OATS respondents estimated average (median) third
party/outsourcing costs of $140,000 ($0), while large non-OATS
respondents provided estimates of $10,000 ($0).

              Table 21--Approach 2 Implementation Costs: Large OATS Respondents Summary (21 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................        $740,000           14.81      $5,900,000        $140,000
Median..........................................         $60,000            7.00      $2,800,000              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $5,000            0.02          $8,000          $1,000
Maximum.........................................      $7,000,000           63.00     $25,300,000      $2,000,000
Count of Zero Responses.........................               6               5               5              15
Count of Blank Responses........................               0               0               0               0
----------------------------------------------------------------------------------------------------------------

            Table 22--Approach 2 Implementation Costs: Large Non-OATS Respondents Summary (28 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................        $450,000            6.66      $2,700,000         $10,000
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $5,000            1.00        $400,000         $35,000
Maximum.........................................     $10,000,000          116.00     $46,600,000        $250,000
Count of Zero Responses.........................              22              23              23              26
Count of Blank Responses........................               0               0               0               0
----------------------------------------------------------------------------------------------------------------

    Tables 23 and 24 show the costs associated with the
implementation of Approach 2 for small respondents with current OATS
and non-OATS reporting obligations. Small OATS respondents provided
estimated average (median) hardware/software requirements of $20,000
($1,000), with small non-OATS respondents providing estimated
average (median) costs of $100 ($0).
    Small OATS reporters provided average (median) FTE requirements
of 3.33 (2.00), translating to estimated costs of $1,300,000
($800,000), while small non-OATS respondents provided average
(median) FTE requirements of 0.32 (0.00), translating to estimated
costs of $130,000 ($0).
    Finally, small OATS respondents estimated average (median) third
party/outsourcing costs of $60,000 ($1,000), while small non-OATS
respondents provided estimates of $1,100 ($0).

              Table 23--Approach 2 Implementation Costs: Small OATS Respondents Summary (30 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................         $20,000            3.33      $1,300,000         $60,000
Median..........................................          $1,000            2.00        $800,000          $1,000
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $1,000            1.00        $400,000          $1,000
Maximum.........................................        $500,000           20.00      $8,000,000      $1,000,000
Count of Zero Responses.........................              14              13              13              13
Count of Blank Responses........................               1               0               0               1
----------------------------------------------------------------------------------------------------------------

            Table 24--Approach 2 Implementation Costs: Small Non-OATS Respondents Summary (88 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................            $100            0.32        $130,000          $1,100
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $1,000            3.00      $1,200,000          $1,000
Maximum.........................................          $5,000           15.00      $6,000,000         $72,000
Count of Zero Responses.........................              84              83              83              84
Count of Blank Responses........................               0               0               0               0
----------------------------------------------------------------------------------------------------------------

d. Maintenance Phase of Approach 2

    Tables 25 and 26 show the costs associated with the maintenance
of CAT reporting obligations for Approach 2 for the full set of
study responses. Based on the 167 study responses for the
maintenance phase of Approach 2, large firms provided average
(median) hardware/software costs of $200,000 ($0) and small firms
provided costs estimates of $1,500 ($0).
    Large firms provided average FTE count requirements of 7.27,
with the median response provided by a large firm equal to 0.00.
Multiplying these counts by the rate employed by the Commission in
SEC Rule 613 as described above, FTE costs can be estimated to be
$2,900,000, with a median FTE cost of $0. Small firms provided
average FTE count requirements of 1.06, with the median response
provided by a small respondent equal to 0.00. Participants estimate
the dollar cost for the small respondent FTE requirements to be
$430,000, with a median cost of $0.
    Large firms estimated that average (median) third party/
outsourcing costs are equal to $48,000 ($0) and small firms
estimated average (median) costs to be equal to $10,000 ($0).
    Total average (median) costs for Approach 2 Maintenance are
estimated to be $3,148,000 ($0) for large firms, and $441,500 ($0)
for small firms.

                  Table 25--Approach 2 Maintenance Costs: Large Respondents Summary (49 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................        $200,000            7.27      $2,900,000         $48,000
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $2,000            0.00              $0          $1,000
Maximum.........................................      $5,200,000          102.00     $40,900,000      $1,000,000
Count of Zero Responses.........................              28              28              28              41
Count of Blank Responses........................               1               0               0               0
----------------------------------------------------------------------------------------------------------------

                  Table 26--Approach 2 Maintenance Costs: Small Respondents Summary (118 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................          $1,500            1.06        $430,000         $10,000
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................            $500            1.00        $400,000            $500
Maximum.........................................        $100,000           18.00      $7,000,000      $1,000,000
Count of Zero Responses.........................              97              94              94              93
Count of Blank Responses........................               2               0               0               5
----------------------------------------------------------------------------------------------------------------

    Tables 27 and 28 provide the costs associated with the
maintenance of CAT reporting obligations for Approach 2 for large
respondents with current OATS and non-OATS reporting obligations.
Large OATS respondents provided estimated average (median) hardware/
software requirements of $370,000 ($14,000), with large non-OATS
respondents providing estimated average (median) costs of $79,000
($0).
    Large OATS reporters provided average (median) FTE requirements
of 9.79 (5.60), translating to estimated costs of $3,900,000
($2,200,000), while large non-OATS respondents provided average
(median) FTE requirements of 5.38 (0.00), translating to estimated
costs of $2,200,000 ($0).

    Finally, large OATS respondents estimated average (maximum)
third party/outsourcing costs of $110,000 ($0), while large non-OATS
respondents provided estimates of $1,300 ($0).

                Table 27--Approach 2 Maintenance Costs: Large OATS Respondents Summary (21 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................        $370,000            9.79      $3,900,000        $110,000
Median..........................................         $14,000            5.60      $2,200,000              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $2,000            0.02          $8,000          $1,000
Maximum.........................................      $5,200,000           50.00     $20,100,000      $1,000,000
Count of Zero Responses.........................               6               5               5              14
Count of Blank Responses........................               1               0               0               0
----------------------------------------------------------------------------------------------------------------

              Table 28--Approach 2 Maintenance Costs: Large Non-OATS Respondents Summary (28 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................         $79,000            5.38      $2,200,000          $1,300
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $3,000            1.00        $400,000         $36,000
Maximum.........................................        $900,000          102.00     $40,900,000         $36,000
Count of Zero Responses.........................              22              23              23              27
Count of Blank Responses........................               0               0               0               0
----------------------------------------------------------------------------------------------------------------

    Tables 29 and 30 show the costs associated with the maintenance
of CAT reporting obligations for Approach 2 for small respondents
with current OATS and non-OATS reporting obligations. Small OATS
respondents provided estimated average (median) hardware/software
requirements of $6,000 ($500), with small non-OATS respondents
providing estimated average (median) costs of $100 ($0).
    Small OATS reporters provided average (median) FTE requirements
of 3.28 (2.00), translating to estimated costs of $1,300,000
($800,000), while small non-OATS respondents provided average
(median) FTE requirements of 0.31 (0.00), translating to estimated
costs of $120,000 ($0).
    Finally, small OATS respondents estimated average (median) third
party/outsourcing costs of $42,000 ($1,000), while small non-OATS
respondents provided estimates of $1,100 ($0).

                Table 29--Approach 2 Maintenance Costs: Small OATS Respondents Summary (30 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................          $6,000            3.28      $1,300,000         $42,000
Median..........................................            $500            2.00        $800,000          $1,000
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................            $500            1.00        $400,000            $500
Maximum.........................................        $120,000           18.00      $7,000,000      $1,000,000
Count of Zero Responses.........................              14              11              11              12
Count of Blank Responses........................               1               0               0               2
----------------------------------------------------------------------------------------------------------------

              Table 30--Approach 2 Maintenance Costs: Small Non-OATS Respondents Summary (88 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................            $100            0.31        $120,000          $1,100
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $1,000            3.00      $1,200,000          $1,000
Maximum.........................................          $2,000           14.00      $5,600,000         $72,000
Count of Zero Responses.........................              83              83              83              81
Count of Blank Responses........................               1               0               0               3
----------------------------------------------------------------------------------------------------------------

e. Implementation and Maintenance Costs for Approach 1 vs. Approach 2

    Participants compared the estimated implementation and
maintenance costs for Approach 1 and Approach 2 to determine if one
solution would be more cost effective for the industry than the
other. In general, respondents indicated that Approach 1 would lead
to larger costs than Approach 2. Large firms estimated that it will
cost approximately $5,052,000 to implement Approach 1, versus an
estimated $4,738,000 for Approach 2, a cost difference of $314,000.
From a maintenance perspective, large firms estimated that it would
cost $3,662,000 for Approach 1 versus $3,148,000 for Approach 2, a
cost difference of $514,000. Small firms also indicated that
Approach 1 would be

more expensive to implement and maintain than Approach 2. Small
firms indicated that it would cost $551,200 to implement Approach 1
versus $475,600 for Approach 2, indicating a cost difference of
$90,200. For the maintenance phases, small firms estimated it would
cost approximately $475,600 for Approach 1 maintenance, versus
$441,500 for Approach 2 maintenance, a cost difference of $34,100
between approaches. However, the cost estimates between these two
approaches are not statistically significant and Participants
conclude that there would likely be no incremental costs associated
with either Approach.\3886\
---------------------------------------------------------------------------

    \3886\ Participants arrive at this conclusion on the basis of a
standard t-test of the hypothesis that the difference between
Approach 1 and Approach 2 costs is different from zero. The t-test
is unable to reject the null hypothesis (i.e., that the difference
in costs between the two approaches is not distinguishable from
zero) at the 0.05% level. The t-test rejects the null hypothesis for
estimates of hardware/software costs, FTE costs, vendor costs, and
total costs. The t-test also rejects any significant difference in
estimated costs under the two approaches separately for large OATS
reporters, small OATS reporters, large non-OATS reporters, and small
non-OATS reporters.
---------------------------------------------------------------------------

f. Retirement of Systems Costs

    Participants recognize that in implementing the anticipated
requirements in the CAT NMS Plan, broker-dealers would likely
replace some components of their current systems. The costs
associated with retiring current systems were considered as part of
the impacts associated with the CAT NMS Plan.
    Tables 31 and 32 describe the cost associated with retirement of
systems for the full set of study responses. Based on the 167 study
responses for the retirement of systems large firms provided average
(median) hardware/software costs of $120,000 ($0) and small firms
provided cost estimates of $31,000 ($0).
    Large firms provided average FTE count requirements of 6.80,
with the median response provided by a large firm equal to 0.00.
Multiplying these counts by the rate employed by the Commission in
SEC Rule 613 as described above, FTE costs are estimated to be
$2,700,000, with a median FTE cost of $0. Small firms provided
average FTE count requirements of 1.92, with the median response
provided by a small respondent of 0.00. Participants estimate the
dollar cost for the small respondent FTE requirements to be an
average costs of $770,000, and a median cost of $0.
    Large firms estimated that average (median) third party/
outsourcing costs to be $10,000 ($0) and small firms estimated
average (median) costs to be $63,000 ($0).
    Total average (median) costs for the Retirement of Systems are
estimated to be $2,830,000 ($0) for large firms and $864,000 ($0)
for small firms.

                   Table 31--Retirement of Systems Costs: Large Respondents Summary (49 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................        $120,000            6.80      $2,700,000         $10,000
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $1,500            0.06         $24,000          $5,000
Maximum.........................................      $4,000,000          206.00     $82,700,000        $360,000
Count of Zero Responses.........................              37              32              32              44
Count of Blank Responses........................               0               0               0               0
----------------------------------------------------------------------------------------------------------------

                  Table 32--Retirement of Systems Costs: Small Respondents Summary (118 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................         $31,000            1.92        $770,000         $63,000
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $1,000            1.00        $400,000          $1,000
Maximum.........................................      $3,500,000           68.00     $27,300,000      $7,000,000
Count of Zero Responses.........................              98             100             100              97
Count of Blank Responses........................               0               0               0               0
----------------------------------------------------------------------------------------------------------------

    Tables 33 and 34 describe the costs associated with the
retirement of systems for large respondents with current OATS and
non-OATS reporting obligations. Large OATS respondents provided
estimated average (median) hardware/software requirements of
$270,000 ($0), with large non-OATS respondents providing estimated
average (median) costs of $4,300 ($0).
    Large OATS reporters provided average (median) FTE requirements
of 4.92 (3.10), translating to estimated costs of $2,000,000
($1,200,000), while large non-OATS respondents provided average
(median) FTE requirements of 8.21 (0.00), translating to estimated
costs of $3,300,000 ($0).
    Finally, large OATS respondents estimated average (median) third
party/outsourcing costs of $18,000 ($0), while large non-OATS
respondents provided estimates of $4,800 ($0).

                Table 33--Retirement of Systems Costs: Large OATS Respondents Summary (21 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................        $270,000            4.92      $2,000,000         $18,000
Median..........................................              $0            3.10      $1,200,000              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $1,500            0.06         $24,000          $5,000
Maximum.........................................      $4,000,000           33.00     $13,200,000        $360,000
Count of Zero Responses.........................              11               6               6              18
Count of Blank Responses........................               0               0               0               0
----------------------------------------------------------------------------------------------------------------

              Table 34--Retirement of Systems Costs: Large Non-OATS Respondents Summary (28 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................          $4,300            8.21      $3,300,000          $4,800
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................         $10,000           24.00      $9,600,000         $60,000
Maximum.........................................        $110,000          206.00     $82,700,000         $75,000
Count of Zero Responses.........................              26              26              26              26
Count of Blank Responses........................               0               0               0               0
----------------------------------------------------------------------------------------------------------------

    Tables 35 and 36 show the costs associated with the retirement
of systems for small respondents with current OATS and non-OATS
reporting obligations for the full set of study respondents. Small
OATS respondents provided estimated average (median) hardware/
software requirements of $3,600 ($500), with small non-OATS
respondents providing estimated average (median) costs of $40,000
($0).
    Small OATS reporters provided average (median) FTE requirements
of 4.60 (0.00), translating to estimated costs of $1,800,000 ($0),
while small non-OATS respondents provided average (median) FTE
requirements of 1.00 (0.00), translating to estimated costs of
$400,000 ($0).
    Finally, small OATS respondents estimated average (median) third
party/outsourcing costs of $240,000 ($1,500), while small non-OATS
respondents provided estimates of $3,000 ($0).

                Table 35--Retirement of Systems Costs: Small OATS Respondents Summary (30 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................          $3,600            4.60      $1,800,000        $240,000
Median..........................................            $500            0.00              $0          $1,500
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $1,000            1.00        $400,000          $1,000
Maximum.........................................         $39,000           30.00     $12,000,000      $7,000,000
Count of Zero Responses.........................              15              16              16              13
Count of Blank Responses........................               0               0               0               0
----------------------------------------------------------------------------------------------------------------

              Table 36--Retirement of Systems Costs: Small Non-OATS Respondents Summary (88 Firms)
----------------------------------------------------------------------------------------------------------------
                                                     Hardware/                                     Third party/
                                                     software       FTE counts       FTE costs      outsourcing
----------------------------------------------------------------------------------------------------------------
Average.........................................         $40,000            1.00        $400,000          $3,000
Median..........................................              $0            0.00              $0              $0
Minimum.........................................              $0            0.00              $0              $0
Minimum (non-zero)..............................          $1,000            3.00      $1,200,000          $3,000
Maximum.........................................      $3,500,000           68.00     $27,300,000        $220,000
Count of Zero Responses.........................              83              84              84              84
Count of Blank Responses........................               0               0               0               0
----------------------------------------------------------------------------------------------------------------

    In comparing the two approaches and their costs to the current
costs incurred by a broker-dealer for current regulatory reporting,
respondents have indicated that they estimate both Approach 1 and
Approach 2 to be less expensive than current regulatory reporting
requirements. Overall, firms estimated that current costs would be
$4,290,000 for large firms versus $1,210,000 for small firms, while
maintenance costs of Approach 1 for large firms would cost
$3,662,000 and $475,600 for small firms, indicating cost savings of
$628,000 for large firms and cost savings of $734,400 for small
firms. For maintenance costs related to Approach 2, large firms
indicated costs of $3,148,000 with an expected savings of $1,142,000
while small firms estimated maintenance costs of $441,500 with
expected savings of $768,500.
    Although there are differences in the current and anticipated
maintenance costs discussed above, the Participants conclude that
there would be no statistical difference in costs associated with
the maintenance of the CAT, compared to maintenance costs for
existing regulatory reporting requirements. Participants arrive at
this conclusion on the basis of a standard t-test of the hypothesis
that the difference in costs to broker-dealers between Approach 1
and Approach 2 is different from zero. The t-test is unable to
reject the null hypothesis (i.e., that the difference in costs
between the two approaches is not distinguishable from zero) at the
0.05% level separately for estimates of hardware/software costs, FTE
costs, vendor costs, and total costs across large OATS reporters,
small OATS reporters, large non-OATS reporters, and small non-OATS
reporters.

g. Industry Feedback on Costs to CAT Reporters Study

    Participants' understanding of broker-dealer costs has been
enhanced through frequent dialogue with Industry Members. The DAG
has largely provided written feedback on costs through the industry
association members. In March 2013, SIFMA provided feedback on
industry costs in its Consolidated Audit Trail White Paper.\3887\
The association group stated that the industry is likely to face
costs related to upgrading the regulatory reporting infrastructure.
SIFMA highlighted that additional costs borne will be distributed
across the front office, middle office, customer master data,
compliance and risk and data management. Additionally, in February
2012, the FIF conducted a study to assess the costs associated with
the implementation of OATS.\3888\ In a summary of the study, FIF
highlights that ``future estimates of cost should consider the FIF
cost model, most importantly the effort expended

on business analysis and testing as part of the implementation
effort.'' One key view presented by the DAG was that retiring legacy
systems will likely reduce costs to the industry, given their
redundancies with the CAT. However, the FIF highlighted that
existing timelines do not take into account costs associated with
concurrent reporting for existing regulatory reporting and new
regulatory requirements associated with the Central
Repository.\3889\ Additional detail around the plan to retire
existing regulatory reports can be found in Appendix C, Section C.9.
---------------------------------------------------------------------------

    \3887\ See SIFMA Recommendations.
    \3888\ See SEC Memorandum to File No. S7-11-10, Re: Staff
Meeting with the Financial Information Forum (Feb. 29, 2012),
available at http://www.sec.gov/comments/s7-11-10/s71110-112.pdf.
    \3889\ See FIF, Comment Letter Re: Consolidated Audit Trail
National Market System Plan Submission (Nov. 19, 2014), available at
<EMAIL_ADDRESS>---------------------------------------------------------------------------

Vendors

    The Costs to Vendors Study requested information regarding
various third party service provider and vendor costs to comply with
the requirements of SEC Rule 613.
    Based upon the responses to the Costs to Vendors Study, the
expected dollar costs for implementation and maintenance of the CAT
are largely the same for both approaches, and ranged widely between
$0 and $20,000,000 for implementation and $50,000 and $6,000,000 for
ongoing maintenance. One firm did indicate that Approach 1 would
have substantially higher maintenance costs ($400,000 for Approach 1
versus $50,000 for Approach 2). For headcount and costs associated
with implementation and maintenance of the CAT, all respondents
indicated that Approach 1 would require more FTE resources (costs)
to implement (ranging from 14 ($9,600,000) to 170 ($35,900,000) FTEs
for Approach 1 and from 4 ($2,700,000) to 45 ($24,200,000) for
Approach 2), while Approach 2 would require more FTE resources to
maintain (ranging from 4.5 ($4,100,000) to 35 ($9,300,000) for
Approach 1 and from 2 ($2,500,000) to 56 ($11,200,000) for Approach
2). As with current regulatory reporting costs, the firm with the
largest number of clients reported the highest costs, but number of
clients did not always correlate uniformly with higher expected
costs for the other firms.
    Three of the four respondents to the vendor study indicated that
they would incur costs to retire current regulatory reporting
systems, with costs ranging from $500,000 to $5,000,000, with the
firm with the highest expected retirement costs also having the
highest current reporting costs. FTE requirements ranged from 1.5
($250,000) to 23 ($7,200,000) FTEs.
    Under Approach 1, two respondents expected ongoing maintenance
to cost less than the maintenance of current regulatory reporting
requirements, with the remaining two expecting higher costs. Under
Approach 2, two respondents expected ongoing maintenance to cost
less than the maintenance of current regulatory reporting
requirements, one expected costs to be the same, and the final firm
expected costs to be greater. All firms expected headcount
associated with ongoing maintenance of the CAT to be less than under
current reporting requirements.

Issuers

    Issuers also benefit from an effective regulatory regime
supported by a reliable and complete audit trail. Specifically,
issuers may benefit from enhanced investor confidence associated
with better and more efficient oversight. The increase in investor
confidence may draw more investors into the market, relative to
other investment opportunities that do not provide the same
protections. Increasing the pool of investors willing to invest in a
primary offering may manifest itself in a lower cost of capital.
Increased investor participation in secondary trading may also
increase demand in the primary market, as the increased interest
would be associated with greater efficiency in pricing and lower
adverse selection costs. To the extent that the issuers do not have
independent reporting obligations to the Central Repository (i.e.,
they are not otherwise CAT Reporters), they are not anticipated to
incur direct costs associated with the CAT NMS Plan.

Indirect Costs

    The Participants recognize that in addition to direct costs,
there may be indirect costs borne by parties as a result of the
implementation of the CAT NMS Plan. As discussed further below, it
is not possible for the Participants to quantify these costs, and as
such, we present a qualitative discussion.
    The Participants have identified at least three distinct ways
for indirect costs to arise as a result of the implementation of the
CAT NMS Plan. First, all CAT Reporters are subject to direct fees to
pay for the creation, implementation, and maintenance of the CAT
along with other direct costs to meet CAT NMS Plan obligations. CAT
Reporters may endeavor to shift these fees and other costs to their
clients. Where CAT Reporters can do so successfully, the clients
bear an indirect cost arising from the CAT NMS Plan. Second, to the
extent that the Commission and the Participants amend their
surveillance programs in the presence of the Central Repository, the
broker-dealers may incur costs to adjust their internal compliance
programs. And third, as described more fully in Appendix C, Analysis
of the Impact on Competition, Efficiency and Capital Formation,
broker-dealer competition may be impacted if the direct and indirect
costs associated with meeting the CAT NMS Plan's requirements
materially impact the provision of their services to the public.
Such a reduction in the provision of these services may impose an
indirect cost on the public as well.
    The Participants considered the potential for CAT Reporters to
shift fees and other costs associated with the CAT NMS Plan.
Participants may charge their members to cover the CAT NMS Plan
costs either explicitly or subsume those costs in other fees or
assessments. Broker-dealers may charge their clients for their own
costs, whether incurred directly or indirectly, either through
explicit fees associated with CAT or through their existing fee
structures. This analysis does not measure either the likelihood of
costs being passed from the Participant to the broker-dealers or
from the broker-dealers to their clients, or the potential
associated dollar impacts. The extent to which these costs may be
passed on to clients is related to alternative sources of revenue
available to the CAT Reporters, the materiality of those costs, and
the ease with which clients can substitute away from any given
Participant or broker-dealer. Participants note, however, that
Participants and broker-dealers may currently have incentives and
opportunity to shift regulatory compliance costs to their customers
and that nothing in the CAT NMS Plan alters those incentives or the
likelihood of those costs being passed on.
    In addition, indirect costs to broker-dealers may arise as a
result of the implementation of the CAT NMS Plan. First, broker-
dealers may incur additional costs related to training and
professional development, to equip the staff with the necessary
knowledge necessary for compliance with the SEC Rule 613. Broker-
dealers were specifically asked to consider these costs as part of
their study response. Second, the enhanced and standardized data to
be captured by the Central Repository is anticipated to increase the
effectiveness of surveillance by regulators, which may impact
broker-dealer compliance programs.

8. Estimate of Aggregate Direct Costs and the Allocation of Costs
across CAT Reporters

Estimate of Aggregate Costs

    In order to create the regulatory data infrastructure required
by SEC Rule 613, this Plan proposes to build and maintain the CAT,
along with resources necessary to generate regulatory reports and
related analysis. CAT Reporters, including Participants and broker-
dealers engaging in trading and quoting activities in Eligible
Securities, will be jointly responsible for providing the capital to
build and maintain the CAT. Costs eligible to be allocated jointly
include any associated liabilities accrued during the planning and
building phases of the project that are directly attributable to the
CAT NMS Plan, for example, legal and consulting fees, and will be
allocated according to the funding model described in Article XI of
the CAT NMS Plan.
    In order to calculate to the implementation and annual
maintenance costs of the CAT, the Participants considered the
relevant cost factors for the following entities: Plan Processor,
Participants, broker-dealers (large and small) and vendors. All
implementation costs reflected below are in dollar costs for the
year they are expected to be incurred, while all maintenance costs
are estimated for the fifth year after the approval of the CAT NMS
Plan, when all CAT Reporters are expected to be live.

(1) Plan Processor

    Implementation Costs. For implementation costs associated with
the Plan Processor, the Participants reviewed the build costs
received from the Shortlisted Bidders and identified the high and
low costs to use as a component of the overall industry cost. The
lowest cost received was $30,000,000 and the highest estimate
received was $91,600,000.

    Maintenance Costs. For maintenance costs associated with the
Plan Processor, the Participants also reviewed the cost schedules
received from the Shortlisted Bidders to build the range. To define
the range of maintenance costs, the Participants reviewed the peak
year maintenance costs from the Shortlisted Bidders. In addition to
the costs received from the Shortlisted Bidders associated with the
maintenance of operating and running the CAT, the Participants also
included a yearly technical upgrade estimate to conservatively take
into account changes in technology that may take place during the
maintenance of the CAT. These additional costs begin at
approximately 20% in year one, and slowly decrease to 5% during year
five of operation. As such, the annual maintenance costs are
estimated to range from $35,200,000 to $134,900,000.
    Retirement of Systems Costs. The Plan Processor is not expected
to incur costs related to the retirement of systems.

(2) Participants

    Upon review of the requirements associated with Approach 1 and
Approach 2, the Participants identified that they do not favor one
approach over the other.
    Implementation Costs. To estimate implementation costs for the
Participants, the Participants used the aggregated results from the
Costs to Participants Study. Based on the responses received from
the Participants, the implementation of regulatory reporting is
expected to cost $17,900,000 and the implementation of surveillance
functions is estimated to cost $23,200,000.
    Maintenance Costs. To estimate the maintenance costs for the
Participants, the Participants reviewed the results from the Costs
to Participants Study for regulatory reporting and surveillance
costs. The Participants estimated that annual aggregate regulatory
reporting costs would be equal to $14,700,000 and that annual
aggregate surveillance maintenance costs would cost $87,700,000.
    Retirement of Systems Costs. To estimate the costs related to
the retirement of systems for the Participants, the Participants
reviewed the results from the Costs to Participants Study for
retirement of systems costs. The Participants estimated that costs
associated with retirement of systems would be equal to $310,000.

(3) Broker-Dealers

    Implementation and maintenance costs related to the CAT for
broker-dealers were extrapolated from the results of the Costs to
CAT Reporters Study. As described above, the Participants believe
there to be approximately 1,800 broker-dealers that would be CAT
Reporters. Of the 167 respondents to the Costs to CAT Reporters
Study, 49 were large firms, and 118 were small firms, indicating a
large to small firm ratio in the overall population of 29% to 71%.
Applying this ratio to the total population of 1,800 broker-dealers,
results in 522 large firms and 1,278 small firms. In comparing the
costs between the two approaches, the Participants have identified
that Approach 1 is more expensive than the Approach 2, which causes
Approach 1 to form the upper bound of the broker-dealer cost range,
and Approach 2 to form the lower bound of the broker-dealer cost
range.
    Implementation Costs. For Approach 1, large firm respondents
estimated that implementation costs would be equal to $5,052,000 per
firm, for a total estimated implementation cost of approximately
$2.6 billion. Small firm respondents estimated that implementation
costs for Approach 1 would be equal to $551,200 per firm, for a
total estimated implementation cost of $740 million.\3890\ For
Approach 2, large firm respondents estimated that implementation
costs would be equal to $4,738,000 per firm, for a total estimated
implementation cost of approximately $2.5 billion, while small firms
estimated implementation costs for Approach 2 to be equal to
$461,000 per firm, for a total cost of $619 million.\3891\ This
results in a cost range of $2.5 billion to $2.6 billion for large
firms, and a cost range of $619 million to $740 million for small
firms for the implementation of the CAT.
---------------------------------------------------------------------------

    \3890\ Small firm total estimated implementation costs include a
compound annual growth rate of 5% to account for increases in labor
and operational costs over time. The rate was applied for one year,
from the beginning of CAT reporting in year 1 through the expected
incurring of build costs by small firms in the year prior to the
start of their reporting (i.e., year 2). Because large firms report
a year earlier than small firms and would incur most implementation
costs in year 1, a similar rate has not been applied to their
implementation costs.
    \3891\ Id.
---------------------------------------------------------------------------

    Maintenance Costs. For Approach 1, large firm respondents
estimated that maintenance costs would be equal to $3,662,000 per
firm per year, for a total estimated annual maintenance cost of
approximately $2.3 billion.\3892\ Small firm respondents estimated
that maintenance costs for Approach 1 would be equal to $475,600 per
firm per year, for a total estimated annual maintenance cost of
approximately $739 million.\3893\ For Approach 2, large firm
respondents estimated that maintenance costs would be equal to
$3,148,000 per firm per year, for a total estimated annual
maintenance cost of approximately $2.0 billion,\3894\ while small
firms estimated maintenance costs for Approach 2 to be equal to
$441,500 per firm per year, for a total annual cost of approximately
$686 million.\3895\ This implies an annual cost range of
approximately $2.0 billion to $2.3 billion for large firms, and an
annual cost range of approximately $686 million to $739 million for
small firms for maintenance of reporting to the Central Repository.
These maintenance costs are discrete costs for the maintenance of
CAT reporting, and are not intended to show incremental costs
against current regulatory reporting requirements. Based on the
Costs to CAT Reporters Study, Participants estimate these
incremental costs to be negligible.
---------------------------------------------------------------------------

    \3892\ Large and small firm total estimated maintenance costs
are estimated in year 5 to account for a steady state of reporting,
and include a compound annual growth rate of 5% to account for
increases in labor and operational costs over time. The rate was
applied for four years, from the beginning of CAT reporting in year
1 through year 5.
    \3893\ Id.
    \3894\ Id.
    \3895\ Id.
---------------------------------------------------------------------------

    Retirement of Systems Costs. To estimate the costs related to
the retirement of systems for the broker dealers, the Participants
reviewed the results from the Costs to CAT Reporters Study for
retirement of systems costs. Large firm respondents estimated costs
to be equal to $2,830,000, for a total retirement of systems cost
equal to approximately $1.47 billion. Small firms estimated that
costs related to the retirement of systems would cost $864,000, for
a total retirement of systems cost of approximately $1.10 billion.

(4) Vendors

    Implementation Costs. For implementation costs associated with
Vendors, the Participants reviewed the aggregate build costs
received from the Costs to Vendors Study and identified that
Approach 1 would cost $118,200,000 to implement, while it would cost
$51,600,000 to implement Approach 2.\3896\
---------------------------------------------------------------------------

    \3896\ Vendor cost estimates assume an annual cost per FTE of
$401,440, consistent with the rate applied by the Commission in the
Adopting Release.
---------------------------------------------------------------------------

    Maintenance Costs. For maintenance costs associated with
Vendors, the Participants also reviewed the cost schedules received
from the Costs to Vendors Study. Vendors indicated an aggregate
estimated annual cost of $38,600,000 for maintenance of Approach 1,
and annual estimated maintenance costs of $48,700,000 for Approach
2.\3897\
---------------------------------------------------------------------------

    \3897\ The total estimated vendor maintenance costs include a
compound annual growth rate of 5% to account for increases in labor
and operational costs over time. The rate was applied for four
years, from the beginning of broker-dealer CAT reporting in year one
through year five.
---------------------------------------------------------------------------

    Retirement of Systems Costs. Vendors indicated an aggregate cost
of $21,300,000 for the retirement of existing regulatory reporting
systems.

(5) Total Aggregate Costs

    Based on the analysis of responses to the studies described
above, and cost estimates provided by the Shortlisted Bidders, the
Participants estimate the initial aggregate cost to the industry
related to building and implementing the CAT would range from $3.2
billion to $3.6 billion. Estimated annual aggregate costs for the
maintenance and enhancement of the CAT would range from $2.8 billion
and $3.4 billion. Additionally, costs to retire existing systems
would be approximately $2.6 billion.

Impacts of Not Receiving Requested Exemptions

    On January 30, 2015, the Participants submitted a letter to
request that the Commission grant exemptions, pursuant to its
authority under Section 36 of the Exchange Act, from the requirement
to submit a national market system plan that meets certain reporting
requirements specified in SEC Rule 613(c) and (d). Specifically, the
Participants requested exemptive relief related to: (1) options
market maker quotes; (2) Customer-IDs; (3) CAT-Reporter-IDs; (4)
linking executions to specific subaccount allocations on Allocation

Reports; and (5) time stamp granularity. On September 2, 2015, the
Participants supplemented their request with a supplemental request,
clarifying its original requested exemption from the requirement in
Rule 613(c)(7)(viii)(B) (including, in some instances, requesting an
exemption from the requirement to provide an account number, account
type and date account opened under Rule 613(c)(7)(viii)(B)).
    First, SEC Rule 613(c)(7) requires both options market makers
and the options exchanges to record and report the details of
options market maker quotes received by the options exchanges to the
Central Repository. The Participants requested that the Commission
provide the Participants with an exemption so that only options
exchanges would record and report details for each options market
maker quote and related Reportable Event to the Central Repository,
while options market makers would be relieved of their obligation to
record and report their quotes and related Reportable Events to the
Central Repository. The Participants estimated that having both
parties report options market maker quotes to the CAT would impose
significant costs on the Plan Processor due to increased data
storage and technical infrastructure, and on the options market
makers due to a higher volume of reporting obligations. The
Participants estimated that having both parties report options
market maker quotes to the CAT would increase the size of data
submitted to the CAT by approximately 18 billion records each day.
Bidders estimated that requiring dual reporting of options market
maker quotes would, over a five year period, lead to additional
costs of between $2 million and $16 million for data storage and
technical infrastructure for the Plan Processor. In addition,
according to the results of a cost study conducted by three industry
associations,\3898\ the cost to options market makers to meet their
quote reporting obligations ranges from $307 million to $382 million
over a five year period.
---------------------------------------------------------------------------

    \3898\ Cost Survey Report on CAT Reporting of Options Quotes by
Market Makers, conducted by the Financial Information Forum,
Securities Industry and Financial Markets Association and Securities
Traders Association (Nov. 5, 2013); available at<EMAIL_ADDRESS>---------------------------------------------------------------------------

    Second, Rule 613(c)(7) requires each CAT Reporter to record and
report ``Customer-ID(s) for each customer'' when reporting order
receipt or origination information to the Central Repository. The
Commission noted that including a unique customer identifier could
enhance the efficiency of surveillance and regulatory oversight. The
Participants, however, favor the Customer Information Approach, that
would require broker-dealers to provide detailed account and
Customer information to the CAT, and have the Plan Processor
correlate the Customer information across broker-dealers, assign a
unique Customer identifier to each Customer and use that unique
Customer identifier consistently across all CAT Data. The
Participants believe that the Customer-ID approach imposes a
significant cost burden on market participants and on the Plan
Processor. According to cost estimates provided by the DAG,\3899\
the cost for the top 250 CAT reporters to implement the Customer-ID
as required in SEC Rule 613 would be at least $195 million. The
Participants believe that this cost estimate is conservative, since
it only represents the cost estimate for 11% of the total broker-
dealers that are expected to be CAT Reporters.
---------------------------------------------------------------------------

    \3899\ Cost estimates provided by the DAG on topics where the
Participants have requested exemptive relief can be found at<EMAIL_ADDRESS>---------------------------------------------------------------------------

    Third, SEC Rule 613(c)(7) requires that a CAT-Reporter-ID be
reported to the Central Repository for each order and Reportable
Event, so that regulators can determine which market participant
took action with respect to an order at each Reportable Event. The
Participants, however, have proposed to leverage existing business
practices and identifiers (``Existing Identifier Approach''), rather
than requiring new identifiers be established, as the former is
deemed more efficient and cost-effective in implementing the CAT-
Reporter-ID. The Participants believe that the CAT-Reporter-ID
approach would impose a material cost burden on broker-dealers and
Participants, as compared to the Existing Identifier Approach, since
it would require major changes to broker-dealer systems. According
to cost estimates provided by the DAG, the cost for the 250 largest
CAT Reporters to implement the CAT-Reporter-ID as required by SEC
Rule 613 would be $78 million.
    Fourth, Rule 613(c)(7) requires each CAT Reporter to record and
report the ``the account number for any subaccounts to which the
execution is allocated (in whole or part)'' if an order is executed.
The Participants acknowledge that this information is useful to
regulators to fulfill their obligations to protect investors.
However, the Participants estimate that meeting the obligations of
the Rule would be unduly burdensome and costly to achieve given the
existing allocation practices. As an alternative, the Participants
proposed that allocations will be reported by CAT Reporters via a
tool described as an Allocation Report. To create linkages from the
order execution to the allocation process by means of an order
identifier, the broker-dealers would be required to perform
extensive re-engineering of their front, middle, and back office
systems, and thus incur significant costs. According to cost
estimates provided by the DAG, the cost for the 250 largest CAT
Reporters to link allocations to executions would be $525 million.
    Finally, Rule 613(d) requires the recording and reporting of the
time of certain Reportable Events to the Central Repository with
time stamps at least to the millisecond. The Participants understand
that time stamp granularity to the millisecond reflects current
industry standards with respect to electronically-processed events
in the order lifecycle. However, due to the lack of precision, the
industry practice with respect to manual orders is to capture manual
time stamps with granularity at the level of one second. The
Participants believe that compliance with the time stamp granularity
requirements of the Plan for Manual Order Events would result in
added costs to the industry as there may be a need to upgrade
databases, internal messaging applications/protocols, data
warehouses, and reporting applications to enable the reporting of
such time stamps to the Central Repository. The Participants
estimate that the total minimum cost to the industry to comply with
a singular time stamp requirement for all CAT reporting would be
approximately $10.5 million. This estimate is based on a current
cost of $1,050 per manual timestamp clock which stamps to the
second, with approximately 10,000 clocks requiring replacement
across the industry. Upgrading this to millisecond granularity would
likely add to the cost to the industry.

Allocation of Costs Across CAT Reporters

    Article XI of the CAT NMS Plan provides the process for
determining the funding of the Company. In general, the
Participants' approach to funding of the Company is: (A) to operate
the Company on a break-even basis, which means having fees imposed
and collected that cover the Company's costs and an appropriate
reserve; and (B) to establish a fee structure that is equitable
based on funding principles.\3900\ Such equitable funding principles
include: (1) to create transparent, predictable revenue streams
aligned with anticipated costs; (2) to allocate costs among
Participants and Industry Members taking into account the timeline
for implementation of the CAT and the distinctions in the securities
trading operations of Participants and Industry Members and their
impact on the Company's resources and operations; (3) to establish a
tiered fee structure in which there is general comparability in the
level of fees charged to CAT Reporters with the most CAT-related
activity as measured by market share for Execution Venues, including
ATSs, and by message traffic for non-ATS activities of Industry
Members, where, for these comparability purposes, the tiered fee
structure takes into consideration affiliations between or among CAT
Reporters, whether Execution Venues and/or Industry Members; (4) to
provide ease of administrative functions; (5) to avoid disincentives
such as burdens on competition and reduction in market quality; and
(6) to build financial stability for the Company as a going
concern.\3901\
---------------------------------------------------------------------------

    \3900\ See Section 11.2 of the CAT NMS Plan.
    \3901\ See id.
---------------------------------------------------------------------------

    Based on these principles, the Operating Committee will
establish the Company's funding, which is expected to arise
primarily from fees charged to Participants and Industry Members.
The Participants have sought input from the DAG as to the specific
types of fees. Accordingly, the Participants propose to include the
following fee types: (i) fixed fees payable by each Execution Venue
that trades NMS Securities and OTC Equity Securities based on its
market share (establishing two to five tiers of fixed fees); (ii)
fixed fees payable by each Execution Venue that trades Listed
Options (as defined in Rule 600(b)(35) of Regulation NMS) based

on its market share (establishing two to five tiers of fixed fees);
(iii) fixed fees payable by each Industry Member based on message
traffic generated by such Industry Member (for the avoidance of
doubt, the fixed fees payable by Industry Members pursuant to this
paragraph shall, in addition to any other applicable message
traffic, include message traffic generated by: (i) an ATS that does
not execute orders that is sponsored by such Industry Member; (ii)
routing orders to and from any ATS sponsored by such Industry
Member); and (iii) ancillary fees (e.g., fees for late or inaccurate
reporting, corrections, and access and use of the CAT for regulatory
and oversight purposes).\3902\
---------------------------------------------------------------------------

    \3902\ See Section 11.3 (a)-(c) of the CAT NMS Plan.
---------------------------------------------------------------------------

    The Operating Committee will use two different criteria to
establish fees--market share \3903\ for Execution Venues, including
ATSs, and message traffic for Industry Members' non-ATS activities--
due to the fundamental differences between the two types of
entities. While there are multiple factors that contribute to the
cost of building, maintaining and using the CAT, Bidders stated
during workshops and in response to specific questions posed by the
Participants that processing and storage of incoming message traffic
is one of the most significant cost drivers for the CAT. Thus, the
Participants believe that basing fees on message traffic for non-
Execution Venue Industry Members is consistent with an equitable
allocation of the costs of the CAT. On the other hand, message
traffic would not provide the same degree of differentiation between
Participants that it does for Industry Members. Because the majority
of message traffic at the Participants consists of quotations, and
Participants usually disseminate quotations in all instruments they
trade, regardless of execution volume, Execution Venues that are
Participants generally disseminate similar amounts of message
traffic. In contrast, execution volume more accurately delineates
the different levels of trading activity of the Participants. For
these reasons, the Participants believe that market share is the
appropriate metric to use in establishing fees for Participants.
Moreover, given the similarity between the activity of exchange
Participants and ATSs, both of which meet the definition of an
``exchange'' as set forth in the Exchange Act, the Participants
believe that ATSs should be treated in the same manner as the
exchange Participants for the purposes of determining the level of
fees associated with the CAT.
---------------------------------------------------------------------------

    \3903\ Market share for Execution Venues is defined as the total
trade volume executed on an individual Execution Venue as a
percentage of total trades executed across all Venues.
---------------------------------------------------------------------------

    Costs are allocated across the different types of CAT Reporters
(broker-dealers, Execution Venues) on a tiered basis, in order to
equitably allocate costs to those CAT Reporters that contribute more
to the costs of creating, implementing and maintaining the CAT. The
fees to be assessed at each tier are calculated so as to recoup a
proportion of costs appropriate to the message traffic from firms in
each tier. Therefore, larger broker-dealers, generating the majority
of message traffic, will be in the higher tiers, and therefore be
charged a higher fee. Smaller broker-dealers with low levels of
message traffic will be in lower tiers and will be assessed a
minimal fee for the CAT. The Participants estimate that up to 75% of
broker-dealers will be in the lower tiers of the Funding Model.
    All fees under Article XI charged directly to Participants and
indirectly to Industry Members will be reviewed by the Operating
Committee at least annually.\3904\ All proposed fees to be charged
to Industry Members by Participants will be filed with the
Commission pursuant to Section 19(b) of the Exchange Act.\3905\ In
addition, all disputes with respect to the fees the Company charges
Participants will be resolved by the Operating Committee or a
Subcommittee designated by the Operating Committee, subject to the
right of Participants to seek redress from the Commission pursuant
to SEC Rule 608 or in any other appropriate forum.\3906\ The
Participants will adopt rules requiring that disputes with respect
to fees charged to Industry Members will be resolved by the
Operating Committee or a Subcommittee, subject to the right of any
Industry Member to seek redress from the SEC pursuant to SEC Rule
608 or in any other appropriate forum.\3907\
---------------------------------------------------------------------------

    \3904\ See Section 11.3(d) of the CAT NMS Plan.
    \3905\ See Section 11.1(b) of the CAT NMS Plan.
    \3906\ See Section 4.1 and Section 11.5 of the CAT NMS Plan.
    \3907\ See id.
---------------------------------------------------------------------------

    [Section 8.5 of the CAT NMS Plan addresses the very limited
situations in which the Company may need to make distributions of
cash and property of the Company to the Participants. Any
distribution to the Participants requires approval by a
Supermajority Vote of the Operating Committee.\3908\ The
Participants do not expect any distributions to be made to them
except in two possible situations. One situation is if the
Participants incur tax liabilities due to their ownership of the
Company. An example of tax liabilities being incurred would be if
the Company generates profits. Those profits could be taxable to the
Participants even if the profits are not distributed to the
Participants. In such situation, the Participants could be taxed on
amounts they have not received, in which case the Company would make
distributions to the Participants, but only to the extent to permit
each Participant to pay its incurred tax liability. As discussed,
the Participants do not expect the Company to generate profits and
rather expect the Company to operate on a break-even basis. The
other situation that may require distributions to the Participants
would be if the Company dissolves. In that situation, the Company's
assets would be distributed first to the Company's creditors such as
the Plan Processor or other third parties, second to a reserve for
contingent or future liabilities (such as taxes), and third
(assuming there are any amounts remaining) to the Participants in
proportion to their Capital Accounts. Each Participant is expected
to make a nominal contribution of cash or services to its Capital
Account at the beginning of the operation of the CAT System.
Therefore, any distribution to the Participant of an amount equal to
its Capital Account would be limited to the nominal amount
contributed. Other than these two limited situations, the
Participants do not expect the Company to make any distributions.]
---------------------------------------------------------------------------

    \3908\ See Section 8.5(a) of the CAT NMS Plan.
---------------------------------------------------------------------------

    The CAT NMS Plan contemplates that the Plan Processor will be
responsible for developing and executing administrative processes
and procedures to effectuate the smooth functioning of the CAT,
consistent with the principles articulated in Article XI. These
processes and procedures would include, but are not limited to,
establishing budget, notice, billing and collection cycles that
provide transparency, predictability and ease of administrative
functions to CAT reporters. Criteria and schedules for ancillary
fees that might be collected pursuant to Article XI are also
anticipated to be published by the Operating Committee.
    In articulating the funding principles of the CAT NMS Plan,
Participants have established the need for the CAT NMS Plan to,
among other things: (1) create transparent, predictable revenue
streams for the Company that are aligned with the anticipated costs
to build, operate, and administer the CAT and the other costs of the
Company; and (2) provide for ease of billing and other
administrative functions. The funding principles articulated in
Article XI should also inform the policies and procedures adopted by
the Operating Committee in executing the associated functions. To
that end, to promote fairness and transparency with respect to fees,
the Participants expect that the Operating Committee will adopt
policies, procedures, and practices around budgeting, assignment of
tiers, adjudicating disputes, billing, and collection of fees that
provide appropriate transparency to all CAT Reporters. Participants
expect that policies or procedures adopted to implement the
administration of fee allocation and collection among CAT Reporters
would be subject to comment by impacted parties before adoption.

9. Alternatives Considered

Technical Solution

    SEC Rule 613(a)(1)(xii) directs Participants to discuss
reasonable alternative approaches to creating, implementing and
maintaining the CAT. As part of the development of the CAT NMS Plan,
the Participants considered a variety of alternatives with respect
to technical and user support considerations. The technical
considerations include: primary storage, data ingestion format,
development process, quality assurance staffing and user support
staffing. The analysis presented in Appendix C, D.12, below,
describes alternative approaches considered for each technical
consideration and the ultimate choice of the CAT NMS Plan based on
factors that consider feasibility, cost and efficiency.
    In addition, the questions included in the Costs to CAT
Reporters Study described above permitted the Participants to
evaluate cost considerations to Industry Members associated with two
different technical formats for reporting audit trail data to the

Central Repository. One approach might permit broker-dealers to
submit information data to the Central Repository using their choice
among existing industry protocols, such as FIX. The second approach
provided a scenario where CAT Reporters would submit relevant data
to the Central Repository using a defined or specified format, such
as an augmented version of OATS.

Funding Model

    As discussed above, Article XI of the CAT NMS Plan sets forth
the provisions for establishing the funding of the Company and
recovering the costs of operating the CAT. The Participants
recognize that there are a number of different approaches to funding
the CAT and have considered a variety of different funding and cost
allocation models. Each model has its potential advantages and
disadvantages. For example, a structure in which all CAT Reporters
are charged a fixed fee regardless of reportable activity would
provide CAT Reporters greater certainty regarding their fee
obligations, but may place undue burden on small CAT Reporters. A
variable fee structure focused on specific reportable information
may make it easier for Industry Members to pass fees to their
customers. However, such fees would be more complex and difficult to
administer. Participants were particularly sensitive to the
possibility that the fee structure might create distortions to the
economic activities of CAT Reporters if not set appropriately.
    The Participants considered alternatives to cost allocation
ranging from a strict pro-rata distribution, regardless of the type
or size of the CAT Reporters, to a distribution based purely on CAT
Reporter activity. Participants also considered a variety of ways to
measure activity, including notional value of trading (as currently
used for purposes of Section 31 fees), number of trades or
quotations, and all message traffic sent. Further, Participants
considered the comparability of audit trail activity across
different Eligible Securities. The Participants discussed the
potential approaches to funding, including the principles
articulated in Article XI and an illustrative funding model, with
the DAG multiple times, beginning on September 3, 2014.
    After extensive analysis and taking into consideration feedback
from the DAG, the Participants determined that a tiered fixed fee
structure would be fair and relatively uncomplicated. The
Participants discussed several approaches to developing a tiered
model, including defining fee tiers based on such factors as size of
firm, message traffic or trading dollar volume. For example, a
review of OATS data for a recent month shows the wide range in
activity among broker-dealers, with a number of broker-dealers
submitting fewer than 1,000 orders for the month and other broker-
dealers submitting millions and even billions of orders in the same
period. The Participants also considered a tiered model where CAT
Reporters would be charged different variable fees based on tier
assignment. However, the Participants believe a tiered fixed fee
model is preferable to a variable model because a variable model
would lack the transparency, predictability, and ease of calculation
afforded by fixed fees. Such factors are crucial to estimating a
reliable revenue stream for the Company and to permitting CAT
Reporters to reasonably predict their obligations. Moreover, the
Participants believe that the tiered approach would help ensure that
fees are equitably allocated among similarly situated CAT Reporters
and would further the goal of the Participants to lessen the impact
on smaller firms. Irrespective of the approach taken with fees, the
Participants believe that revenues generated should be aligned to
the costs of building, implementing and maintaining the CAT, and if
revenues collected are in excess of costs for any given year, such
excess should be considered in setting fees for the following year.
    Finally, the Participants believe that it is important to
establish a simple fee structure that is easy to understand and
administer. The Participants are committed to establishing and
billing fees so that Industry Members will have certainty and the
ability to budget for them. In that regard, the CAT NMS Plan
expressly provides that the Operating Committee shall not make any
changes to any fees on more than a semi-annual basis unless,
pursuant to a Supermajority Vote, the Operating Committee concludes
that such change is necessary for the adequate funding of the
Company.\3909\
---------------------------------------------------------------------------

    \3909\ See Section 11.3(d) of the CAT NMS Plan.
---------------------------------------------------------------------------

An Analysis of the Impact on Competition, Efficiency, and Capital
Formation (SEC Rule 613(a)(1)(viii))

    As required by SEC Rule 613(a)(1)(viii), this section provides
an analysis of the impact on competition, efficiency and capital
formation of creating, implementing, and maintaining the CAT NMS
Plan. In recognition of the complexity of this analysis, the
Participants have evaluated a variety of sources of information to
assist in the analysis of the impact of the CAT NMS Plan on
competition, efficiency and capital formation. Specifically, the
Participants have evaluated the many comments related to
competition, efficiency and capital formation received in response
to the Commission's proposal of SEC Rule 613 and during the CAT NMS
Plan development process. In addition, the Participants considered
the input of the DAG. Finally, the Participants used information
derived from three cost studies described in the prior section on
costs. Based on a review and analysis of these materials, the
Participants believe that the CAT NMS Plan, as submitted, is
justified given its estimated impacts on competition, efficiency and
capital formation.

[ssquf] Impact on Competition

    Through an analysis of the data and information described above,
the Participants have evaluated the potential impact of the CAT NMS
Plan on competition, including the competitive impact on the market
generally and the competitive impact on each type of Person playing
a role in the market (e.g., Participants, broker-dealers, vendors,
investors). Potential negative impacts on competition could arise if
the CAT NMS Plan were to burden a group or class of CAT Reporters in
a way that would harm the public's ability to access their services,
either through increasing costs or decreased provision of those
services. These impacts may be direct, as in the provision of
brokerage services to individual investors, or indirect, as in the
aggregate costs of managing, trading and maintaining a securities
holding. These impacts should be measured relative to the economic
baseline, described above.
    The Participants have identified a series of potential impacts
on competition that may arise as a result of the terms and
conditions of the CAT NMS Plan. These potential impacts may be
related to: (1) the technology ultimately used by the CAT and
differences across CAT Reporters in their efforts necessary to meet
the CAT NMS Plan's requirements; (2) the method of cost allocation
across CAT Reporters; and (3) changes in regulatory reporting
requirements, and their attendant costs, particularly to smaller
entities, who may previously have benefited from regulatory
exemptions.
    In general, the Participants believe that the CAT NMS Plan will
avoid disincentives such as placing an inappropriate burden on
competition in the U.S. securities markets. The discussion below
focuses on competition in the Participant and broker-dealer
communities, where the Participants believe there is the greatest
potential for impact on competition.

10. Participants

    The Participants already incur significant costs to maintain and
surveil an audit trail of activity for which they are responsible.
Each Participant bears these costs whether it expends internal
resources to monitor relevant activity itself, or whether it
contracts with others to perform these services on its behalf. The
CAT NMS Plan, through the funding principles it sets forth in
Section 11.2, seeks to distribute the regulatory costs associated
with the development and maintenance of a meaningful and
comprehensive audit trail in a principled manner. By calibrating the
CAT NMS Plan's funding according to these principles, the
Participants sought to avoid placing undue burden on exchanges
relative to their core characteristics, including market share and
volume of message traffic. Thus, the Participants do not believe
that any particular exchange in either the equities or options
markets would be placed at a competitive disadvantage in a way that
would materially impact the respective Execution Venue marketplaces
for either type of security.
    In addition, because the CAT NMS Plan seeks to allocate costs in
a manner consistent with the Participants' activities, the
Participants do not believe that it would discourage potential new
entrants. For instance, an equity ATS--which would already incur
costs under the CAT NMS Plan as a reporting broker-dealer--should
not be discouraged from becoming a national securities exchanges
because of the costs it would incur as a Participant based on its
business model or pricing structure. As proposed here, the entity
would be assessed

exactly the same amount for a given level of activity whether it
acted as an ATS or as an exchange. Accordingly, the Participants do
not believe that adoption of the CAT NMS Plan would favor existing
exchanges or types of exchanges vis-[agrave]-vis potential new
competitors in a way that would degrade available Execution Venue
services or pricing. For similar reasons, the Participants also do
not believe that the costs of the CAT NMS Plan would distort the
marketplace for existing or potential registered securities
associations.

11. Broker-Dealers

    Broker-dealer competition may be impacted if the direct and
indirect costs associated with meeting the CAT NMS Plan's
requirements materially impact the provision of their services to
the public. Further, competition may be harmed if a particular class
or group of broker-dealers bears the costs disproportionately, and
as a result, investors have more limited choices or increased costs
for certain types of broker-dealer services.
    For larger broker-dealers, the Participants rely on the
information obtained from the Costs to CAT Reporters Study and
discussions with the industry to preliminarily conclude that the CAT
NMS Plan will not likely have an adverse impact on competition.
Under the CAT NMS Plan, broker-dealers would be assessed charges, as
determined by the Operating Committee, for the build and maintenance
of the CAT. They would also incur costs to build and maintain
systems and processes necessary to submit and retain their own
information to the Central Repository. The Participants' efforts to
align costs with market activity leads to an outcome where dollar
costs are borne significantly more by larger entities.
    Additionally, large broker-dealers may view themselves as direct
competitors to large Participants, in that they may provide similar
execution services. The CAT NMS Plan seeks to mitigate competitive
impacts by aligning the cost allocation in a manner that seeks
comparability among the largest CAT Reporters regardless of their
regulatory status.\3910\
---------------------------------------------------------------------------

    \3910\ There is empirical evidence that firms' order routing
decisions respond to changes in trading fees. Such evidence finds
that an increase in the level of an exchange's net fee is associated
with a decrease in trading volume and market share relative to other
exchanges. This evidence suggests that there is sufficient
competition among Execution Venues such that where the Participant's
costs for the CAT are material it may be difficult for Execution
Venues to fully pass those costs to broker-dealers. This argument
holds as long as broker-dealers are not able to pass such costs on
to their customers. See Cardella et al., Make and Take Fees in the
U.S. Equity Market (working paper, Apr. 29, 2013), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2149302.
---------------------------------------------------------------------------

    According to the Costs to CAT Reporters Study, for large broker-
dealers, the average decrease in maintenance costs associated with
the CAT (i.e., the cost that CAT would impose on firms beyond the
current economic baseline) would be $651,924, and the average
decrease in maintenance costs for small firms would be $726,216
using Approach 1. For Approach 2, large broker-dealers would see a
decrease in maintenance costs associated with the CAT of $1,170,548,
and small firms would see a decrease in the same costs of $763,371.
These averages could suggest that the decreased costs imposed by the
CAT would represent a benefit to both large and small broker-
dealers' regulatory budgets. The Participants believe that the CAT
NMS Plan would not materially disadvantage small broker-dealers
versus large broker-dealers.
    For small broker-dealers, the Participants considered their
contribution to market activity as an important determinant of the
amount of the cost of the CAT that they should bear. While this
allocation of costs may be significant for some small firms, and may
even impact their business models materially, SEC Rule 613 requires
these entities to report. The Participants have not identified a way
to further minimize the costs to these firms within the context of
the funding principles established as part of the CAT NMS Plan.
    The Participants were particularly sensitive during the
development of the CAT NMS Plan to the potential burdens it could
place on small broker-dealers. These broker-dealers may incur
minimal costs under existing audit trail requirements because they
are OATS-exempt or excluded broker-dealers or limited purpose
broker-dealers. The Participants note that the CAT NMS Plan
contemplates steps to diffuse the potential cost differential
between large and small firms. For instance, small broker-dealers
generally will have an additional year before they are required to
start reporting data under the CAT NMS Plan to the Central
Repository. This will permit these firms greater time to implement
the changes to their own systems necessary to comply with the Plan.
Furthermore, the Participants have sought exemptive relief
concerning time stamps for recording the time of Manual Order
Events.
    The Participants are cognizant that the method by which costs
are allocated to broker-dealers may have implications for their
business models that might ultimately impact competition. For
instance, if the method of cost allocation created disincentives to
quoting activity, certain broker-dealer's business models might be
affected more greatly than others. The Participants are unable to
determine whether and how changing these incentives may impact
competition. Participants intend to monitor changes to overall
market activity and market quality and consider appropriate changes
to the cost allocation model where merited.
    The Participants note that if the exemption requests that have
been submitted to the Commission are not granted, the requirements
of SEC Rule 613 may impose significantly greater costs that could
potentially cause small broker-dealers to exit the marketplace,
discourage new entrants to the small broker-dealer marketplace, or
impact the broker-dealer landscape in other ways that may dampen
competitive pressures.

[ssquf] Impact on Efficiency

    Through an analysis of the data and information described above,
the Participants have evaluated the impact of the CAT NMS Plan on
efficiency, including the impact on the time, resources and effort
needed to perform various regulatory and other functions. In
general, the Participants believe that the CAT NMS Plan should have
a net positive effect on efficiency.
    Overall, the Participants believe that the CAT NMS Plan could
improve market efficiency by reducing monitoring costs and
increasing efficiency in the enforcement of Participant and
Commission rules. Additionally, the Participants believe that the
CAT will enable the Participants and the Commission to detect more
quickly wrongdoing on a cross-market basis, which may deter some
market participants from taking such actions. For example, FINRA's
equity cross-market surveillance patterns have already demonstrated
the value of integrating data from multiple markets. FINRA has found
that approximately 44 percent of the manipulation-based alerts it
generated involved conduct on two or more equity markets and 43
percent of the alerts involved conduct by two or more market
participants.\3911\ A reduction in prohibited activity, as well as
faster identification of such activity by regulators, would lead to
a reduction in losses to investors and increased efficiency.
---------------------------------------------------------------------------

    \3911\ Remarks of Robert Ketchum, Chairman and Chief Executive
Officer, FINRA (Sept. 17. 2014), available athttp://www.finra.org/Newsroom/Speeches/Ketchum/P600785.
---------------------------------------------------------------------------

    The CAT could also create more focused efficiencies for broker-
dealers and Participants by reducing the redundant and overlapping
systems and requirements identified above. For all CAT Reporters,
the standardization of various technology systems will provide, over
time, improved process efficiencies, including efficiencies gained
through the replacement of outdated processes and technology with
cost saving and related staffing reductions. Standardization of
systems will improve efficiency, for both Participants and broker-
dealers, in the form of resource consolidation, sun-setting of
systems, consolidated legacy systems and processes and consolidated
data processing. In addition, more sophisticated monitoring may
reduce the number of ad hoc information requests, thereby reducing
the overall burden and increasing the operational efficiency of CAT
Reporters.
    CAT Reporters may also experience various long term efficiencies
from the increase in surveillance capabilities, such as greater
efficiencies related to administrative functions provided by
enhanced regulatory access, superior system speed and reduced system
downtime. Moreover, the Commission and the Participants expect to
have more fulsome access to unprocessed regulatory data and timely
and accurate information on market activity, thus providing the
opportunity for improved market surveillance and monitoring.
    Note, however, that uniform reporting of data to the Central
Repository may require the development of data mapping and data
dictionaries that will impose burdens in the short term. CAT
Reporters also may incur

additional time and direct costs to comply with new encryption
mechanisms in connection with the transmission of PII data (although
the quality of the process will improve).
    The Participants are cognizant that the method by which costs
are allocated to broker-dealers may have implications for their
business models that might ultimately impact efficiency. For
instance, if the method of cost allocation created disincentives to
the provision of liquidity, there may be an impact on the quality of
the markets and an increase in the costs to investors to transact.
As a result, the Participants set forth the funding principles that
will guide the selection of the cost allocation model. The
Participants have also sought out evidence available to best
understand how cost allocation models may impact market
participation, and more importantly, ultimately market
outcomes.\3912\
---------------------------------------------------------------------------

    \3912\ See, e.g., IIROC's analysis of its market regulation fee
model, available at http://www.iiroc.ca/Documents/2011/5f95e549-10d1-473e-93cf-3250e026a476_en.pdf[iiroc.ca] and http://www.iiroc.ca/Documents/2012/bf393b26-7bdf-49ff-a1fc-3904d1de3983_en.pdf[iiroc.ca].
---------------------------------------------------------------------------

    The Participants intend to monitor changes to overall market
activity and market quality and will consider appropriate changes to
the cost allocation model where merited.

[ssquf] Impact on Capital Formation

    Through an analysis of the data and information described above,
the Participants also have assessed the impact of the CAT NMS Plan
on capital formation, including the impact on both investments and
the formation of additional capital. In general, the Participants
believe that the CAT NMS Plan will have no deleterious effect on
capital formation.
    In general the Participants believe that the enhanced
surveillance of the markets may instill greater investor confidence
in the markets, which, in turn, may prompt greater participation in
the markets. It is possible that greater investor participation in
the markets could bolster capital formation by supporting the
environment in which companies raise capital.
    Moreover, the Participants believe that the CAT NMS Plan would
not discourage capital formation. As discussed in greater detail
above, the Participants have analyzed the degree to which the CAT
NMS Plan should cover Primary Market Transactions. Based on this
analysis, the Participants believe that the CAT NMS Plan has been
appropriately tailored so it does not create an undue burden on the
primary issuances that companies may use to raise capital.
    In addition, the Participants do not believe that the costs of
the CAT NMS Plan would come to bear on investors in a way that would
materially limit their access to or participation in the capital
markets.
    Finally, the Participants believe that, given the CAT NMS Plan's
provisions to secure the data collected and stored by the Central
Repository, the CAT NMS Plan should not discourage participation by
market participants who are worried about data security and data
breaches. As described more fully in the CAT NMS Plan and Appendix
C, The Security and Confidentiality of the Information Reported to
the Central Repository, and Appendix D, Data Security, the Plan
Processor will be responsible for ensuring the security and
confidentiality of data during transmission and processing, as well
as at rest, and for ensuring that the data is used only for
permitted purposes. The Plan Processor will be required to provide
physical security for facilities where data is transmitted or
stored, and must provide for the security of electronic access to
data by outside parties, including Participants and the Commission,
CAT Reporters, or Data Submitters. The Plan Processor must include
in these measures heightened security for populating, storing, and
retrieving particularly sensitive data such as PII. Moreover, the
Plan Processor must develop and maintain this security program with
a dedicated staff including, among others, a Chief Information
Security Officer dedicated to monitoring and addressing data
security issues for the Plan Processor and Central Repository,
subject to regular review by the Chief Compliance Officer. The Plan
Processor also will be required to provide regular reports to the
Operating Committee on a number of items, including any data
security issues for the Plan Processor and Central Repository.

[ssquf] Impacts of the CAT NMS Plan Governance on Efficiency,
Competition, and Capital Formation

    Participants considered the impacts of the CAT NMS Plan
governance on efficiency, competition, and capital formation.
Participants recognize that without effective governance, it will
become harder for the CAT NMS Plan to achieve its intended outcome,
namely, enhanced investor protection, in an efficient manner.
Participants specifically considered two areas where ineffective
governance might lead to economic distortions or inefficiencies: (i)
the voting protocols defined in the CAT NMS Plan both for
Participants in developing the CAT, and for the Operating Committee
after the adoption of the CAT NMS Plan; and (ii) the role of
industry advisors within the context of CAT NMS Plan governance.
    Participants understand that there may be detrimental impacts to
adopting voting protocols that might impede the effective
administration of the CAT System. For instance, too high a threshold
for decision making may limit the ability of the body to adopt
broadly agreed upon provisions. The extreme form of this would have
been for the CAT NMS Plan to require unanimity on all matters. In
such case, one dissenting opinion could effectively derail the
entire decision-making apparatus. The inability to act in a timely
way may create consequences for efficiency, competition, and
capital. Conversely, if Participants set a voting threshold that is
too low, it might have the impact of not giving sufficient
opportunity to be heard or value to dissenting opinions and
alternative approaches. As an example, if Participants were to set
voting thresholds too low, it might be possible for a set of
Participants to adopt provisions that might provide them a
competitive advantage over other Participants. Either forms (a too
high or too low threshold) could result in negative impacts to
efficiency, competition, and capital formation. These issues apply
in the context of efforts of the Participants to develop the CAT NMS
Plan submitted here or in the context of the Operating Committee's
responsibilities after approval of the CAT NMS Plan.
    To address these concerns, Participants carefully considered
which matters should require a Supermajority Vote and which matters
should require a Majority Vote.\3913\ The decision required
Participants to balance the protection of rights of all parties with
the interest of avoiding unnecessary deadlock in the decision making
process. As a result, Participants have determined that use of a
Supermajority Vote should be for instances considered by the
Participants to have a direct and significant impact on the
functioning, management, and financing of the CAT System. This
formulation, relying on Majority Vote for routine decisions and
Supermajority Vote for significant matters, is intended to meet the
Commission's direction for ``efficient and fair operation of the NMS
plan governing the consolidated audit trail.'' \3914\
---------------------------------------------------------------------------

    \3913\ Further discussion of the Participants' consideration of
the use of the Majority Vote and Supermajority Vote is contained in
Appendix C, 11, Process by Which Participants Solicited Views of
Members and Other Appropriate Parties Regarding Creation,
Implementation, and Maintenance of CAT; Summary of Views; and How
Sponsors Took Views Into Account in Preparing NMS Plan (SEC Rule
613(a)(1)(xi)).
    \3914\ Adopting Release at 45787.
---------------------------------------------------------------------------

    Participants also considered the role of industry representation
as part of the governance structure. Participants recognize the
importance of including industry representation in order to assure
that all affected parties have a representative in discussing the
building, implementation, and maintenance of the CAT System.
Participants actively sought insight and information from the DAG
and other industry representatives in developing the CAT NMS Plan.
The CAT NMS Plan also contemplates continued industry representation
through an Advisory Committee, intended to support the Operating
Committee and to promote continuing efficiency in meeting the
objective of the CAT.

Implementation and Milestones of the CAT

9. A Plan to Eliminate Existing Rules and Systems (SEC Rule
613(a)(1)(ix))

    As required by SEC Rule 613(a)(1)(ix), this section sets forth a
plan to eliminate rules and systems (or components thereof) that
will be rendered duplicative by the consolidated audit trail,
including identification of such rules and systems (or components
thereof); to the extent that any existing rules or systems related
to monitoring quotes, orders and executions provide information that
is not rendered duplicative by the consolidated audit trail, an
analysis of, among other things, whether the collection of such
information remains appropriate; if still appropriate whether such
information should continue to be separately collected or should
instead be incorporated into the CAT; or if no longer appropriate,

how the collection of such information could be efficiently
terminated.

------------------------------------------------------------------------
               Milestone                   [Projected] Completion Date
------------------------------------------------------------------------
             Identification of Duplicative Rules and Systems
------------------------------------------------------------------------
Each Participant will initiate an        [Each Participant has begun
 analysis of its rules and systems to     reviewing its existing
 determine which require information      rulebooks and is waiting for
 that is duplicative of the information   the publication of the final
 available to the Participants through    reporting requirements to the
 the Central Repository. Examples of      Central Repository. Each
 Participants' rules to be reviewed       Participant should complete
 include:                                 its analysis within twelve
 The Participants' rules that     (12) months after Industry
 implement the exchange-wide              Members (other than Small
 Consolidated Options Audit Trail         Industry Members) are required
 System (e.g., CBOE Rule 6.24, etc.)      to begin reporting data to the
 FINRA rules that implement the   Central Repository or, if such
 Order Audit Trail System (OATS)          Participant determines
 including the relevant rules of the      sufficient data is not
 NASDAQ Stock Market, NASDAQ OMX BX,      available to complete such
 NASDAQ OMX PHLX, New York Stock          analysis by such date, a
 Exchange, NYSE MKT, and NYSE ARCA        subsequent date needs to be
 Option exchange rules that       determined by such Participant
 require the reporting of transactions    based on the availability of
 in the equity underlier for options      such data.] The Participants
 products listed on the options           with duplicative systems have
 exchange (e.g., PHLX Rule 1022,          completed gap analyses for
 portions of CBOE Rule 8.9, etc.)         systems and rules identified
                                          for retirement in full,\3915\
                                          and have confirmed that data
                                          that would need to be captured
                                          by the CAT to support
                                          retirement of these systems
                                          will be included in the CAT.
------------------------------------------------------------------------
        Identification of Partially Duplicative Rules and Systems
------------------------------------------------------------------------
Each Participant will initiate an        [Each Participant has begun
 analysis of its rules and systems to     reviewing its existing
 determine which rules and/or systems     rulebooks and is waiting for
 require information that is partially    publication of the final
 duplicative of the information           reporting requirements to the
 available to the Participants through    Central Repository. Upon
 the Central Repository. The analysis     publication of the Technical
 should include a determination as to     Specifications, each
 (1) whether the duplicative              Participant should complete
 information available in the Central     its analysis within eighteen
 Repository should continue to be         (18) months after Industry
 collected by the Participant; (2)        Members (other than Small
 whether the duplicative information      Industry Members) are required
 made available in the Central            to begin reporting data to the
 Repository can be used by the            Central Repository or, if such
 Participant without degrading the        Participant determines
 effectiveness of the Participant's       sufficient data is not
 rules or systems; and (3) whether the    available to complete such
 non-duplicative information should       analysis by such date, a
 continue to be collected by the          subsequent date needs to be
 Participant or, alternatively, should    determined by such Participant
 be added to information collected by     based on the availability of
 the Central Repository.                  such data.]
Examples of Participants' rules to be    The Participants with
 reviewed include:.                       duplicative systems have
                                          completed gap analyses for
                                          systems and rules identified
                                          for retirement in part, and
                                          have confirmed that data that
                                          would need to be captured by
                                          the CAT to support retirement
                                          of these systems will be
                                          included in the CAT.
     Options exchange rules
     that require the reporting of
     large options positions (e.g.,
     CBOE Rule 4.13, etc.)
     NYSE Rule 410B which
     requires the reporting of
     transactions effected in NYSE
     listed securities by NYSE members
     which are not reported to the
     consolidated reporting systems
     Portions of CBOE Rule 8.9
     concerning position reporting
     details.
------------------------------------------------------------------------
 Identification of Non-Duplicative Rules or System related to Monitoring
                      Quotes, Orders and Executions
------------------------------------------------------------------------
Each Participant will initiate an        [Each Participant should
 analysis of its rules and systems to     complete its analysis within
 determine which of the Participant's     eighteen (18) months after
 rules and systems related to             Industry Members (other than
 monitoring quotes, orders, and           Small Industry Members) are
 executions provide information that is   required to begin reporting
 not rendered duplicative by the          data to the Central Repository
 consolidated audit trail. Each           or, if such Participant
 Participant must analyze (1) whether     determines sufficient data is
 collection of such information should    not available to complete such
 continue to be separately collected or   analysis by such date, a
 should instead be incorporated into      subsequent date needs to be
 the consolidated audit trail; (2) if     determined by such Participant
 still appropriate, whether such          based on the availability of
 information should continue to be        such data.]
 separately collected or should instead  The Participants with
 be incorporated into the consolidated    duplicative systems have
 audit trail.; and (3) if no longer       completed gap analyses for
 appropriate, how the collection of       systems and rules identified
 such information could be efficiently    for retirement in full or in
 terminated, the steps the Participants   part, and have confirmed that
 propose to take to seek Commission       data that would need to be
 approval for the elimination of such     captured by the CAT to support
 rules and systems (or components         retirement of these systems
 thereof), and a timetable for such       will be included in the CAT.
 elimination, including a description
 of the phasing-in of the consolidated
 audit trail and phasing-out of such
 existing rules and systems (or
 components thereof).
------------------------------------------------------------------------
Identification of Participant Rule and System Changes Due to Elimination
                      or Modification of SEC Rules
------------------------------------------------------------------------
To the extent the SEC eliminates SEC
 rules that require information that is
 duplicative of information available
 through the Central Repository, each
 Participant will analyze its rules and
 systems to determine whether any
 modifications are necessary (e.g.,
 delete references to outdated SEC
 rules, etc.) to support data requests
 made pursuant to such SEC rules.
 Examples of rules the SEC might
 eliminate or modify as a result of the
 implementation of CAT include:
     SEC Rule 17a-25 which
     requires brokers and dealers to
     submit electronically to the SEC
     information on Customers and firms
     securities trading

     SEC Rule 17h-1 concerning   Each Participant should
     the identification of large          complete its analysis within
     traders and the required reporting   three (3) months after the SEC
     obligations of large traders         approves the deletion or
                                          modification of an SEC rule
                                          related to the information
                                          available through the Central
                                          Repository.
                                         The Participants will
                                          coordinate with the SEC
                                          regarding modification of the
                                          CAT NMS Plan to include
                                          information sufficient to
                                          eliminate or modify those
                                          Exchange Act rules or systems
                                          that the SEC deems
                                          appropriate.
                                         With respect to SEC Rule 17a-
                                          25, such coordination will
                                          include, among other things,
                                          consideration of EBS data
                                          elements and asset classes
                                          that would need to be included
                                          in the Plan, as well as the
                                          timing of when all Industry
                                          Members will be subject to the
                                          Plan.\3916\
                                         Based on preliminary industry
                                          analyses, broker-dealer large
                                          trader reporting requirements
                                          under SEC Rule [17h-1] 13h-1
                                          could be eliminated via the
                                          CAT. The same appears true
                                          with respect to broker-dealer
                                          large trader recordkeeping.
                                          Large trader reporting
                                          responsibilities on Form 13H
                                          and self-identification would
                                          not appear to be covered by
                                          the CAT. \3917\
------------------------------------------------------------------------
    Participant Rule Changes to Modify or Eliminate Participant Rules
------------------------------------------------------------------------
Each Participant will prepare            Each Participant will file [to]
 appropriate rule change filings to       with the SEC the relevant rule
 implement the rule modifications or      change filing to eliminate or
 deletions that can be made based on      modify its duplicative rules
 the Participant's analysis of            within six (6) months of the
 duplicative or partially duplicative     [Participant's determination
 rules. The rule change filing should     that such modification or
 describe the process for phasing out     deletion is appropriate] SEC's
 the requirements under the relevant      approval of the CAT NMS Plan,
 rule.                                    the elimination of such rules
                                          and the retirement of the
                                          related systems to be
                                          effective at such time as CAT
                                          Data meets minimum standards
                                          of accuracy and reliability.
                                          In this filing, each
                                          Participant shall discuss:
                                            (i) specific accuracy and
                                             reliability standards that
                                             will determine when
                                             duplicative systems will be
                                             retired, including, but not
                                             limited to, whether the
                                             attainment of a certain
                                             Error Rate should determine
                                             when a system duplicative
                                             of the CAT can be retired;
                                            (ii) whether the
                                             availability of certain
                                             data from Small Industry
                                             Members two years after the
                                             Effective Date would
                                             facilitate a more
                                             expeditious retirement of
                                             duplicative systems; and
                                            (iii) whether individual
                                             Industry Members can be
                                             exempted from reporting to
                                             duplicative systems once
                                             their CAT reporting meets
                                             specified accuracy and
                                             reliability standards,
                                             including, but not limited
                                             to, ways in which
                                             establishing cross-system
                                             regulatory functionality or
                                             integrating data from
                                             existing systems and the
                                             CAT would facilitate such
                                             Individual Industry Member
                                             exemptions.
                                            Between the Effective Date
                                             and the retirement of the
                                             Participants' duplicative
                                             systems, each Participant,
                                             to the extent practicable,
                                             will attempt to minimize
                                             changes to those
                                             duplicative systems.
------------------------------------------------------------------------
  Elimination (including any Phase-Out) of Relevant Existing Rules and
                                 Systems
------------------------------------------------------------------------
After each Participant completes the     Upon the SEC's approval of
 above analysis of its rules and          relevant rule changes, each
 systems, each Participant will analyze   Participant will implement
 the most appropriate and expeditious     such timeline. One
 timeline and manner for eliminating      consideration in the
 such rules and systems.                  development of these timelines
                                          will be when the quality of
                                          CAT Data will be sufficient to
                                          meet the surveillance needs of
                                          the Participant (i.e., to
                                          sufficiently replace current
                                          reporting data) before
                                          existing rules and systems can
                                          be eliminated.
------------------------------------------------------------------------

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    \3915\ The systems and rules identified for retirement (in full
or in part) include: FINRA's OATS Rules (7400 Series), the rules of
other Participants that incorporate FINRA's OATS requirements (e.g.
NASDAQ Rule 7000A Series, BX Rule 6950 Series, PHLX Rule 3400
Series, NYSE Rule 7400 Series, NYSE Arca Equities Rule 7400 Series,
and NYSE MKT Rule 7400 Series), COATS and associated rules, NYSE
Rule 410(b), PHLX Rule 1022, CBOE Rule 8.9, EBS and associated
rules, C2 Rule 8.7, and CHX BrokerPlex reporting (Rule 5).
    \3916\ See SEC Rule 613--Consolidated Audit Trail (CAT)
Preliminary EBS-CAT Gap Analysis, available at<EMAIL_ADDRESS>    \3917\ See FIF CAT WG: Preliminary Large Trader Rule (Rule 13h-
1)--CAT (Rule 613) Gap Analysis (Feb. 11, 2014), available at
https://fif.com/fif-working-groups/consolidated-audit-trail/member-resources/current-documents?download=1221:february-11-2014-fif-cat-wg-preliminary-large-trader-rule-rule-13h-1-cat-rule-613-gap-analysis&start=35.
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Order Audit Trail System (``OATS'')

    The OATS Rules impose obligations on FINRA members to record in
electronic form and report to FINRA, on a daily basis, certain
information with respect to orders originated, received,
transmitted, modified, canceled, or executed by members relating to
OTC equity securities \3918\ and NMS Securities.\3919\ OATS captures
this order information and integrates it with quote and transaction
information to create a time-sequenced record of orders, quotes, and
transactions. This information is then used by FINRA staff to
conduct surveillance and investigations of member firms for
potential violations of FINRA rules and federal securities laws. In
general, the OATS Rules apply to any FINRA member that is a
``Reporting Member,'' which is defined in Rule 7410 as ``a member
that receives or originates an order and has an obligation to record
and report information under Rules 7440 and 7450.''
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    \3918\ See FINRA Rule 7410(l).
    \3919\ Other SROs have rules requiring their members to report
information pursuant to the OATS Rules. See, e.g., NYSE Rule 7400
Series; NASDAQ Rule 7400 Series.

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    Although FINRA is committed to retiring OATS in as efficient and
timely a manner as practicable, its ability to retire OATS is
dependent on a number of events. Most importantly, before OATS can
be retired, the Central Repository must contain CAT Data sufficient
to ensure that FINRA can effectively conduct surveillance and
investigations of its members for potential violations of FINRA
rules and federal laws and regulations, which includes ensuring that
the CAT Data is complete and accurate. Consequently, one of the
first steps taken by the Participants to address the elimination of
OATS was an analysis of gaps between the informational requirements
of SEC Rule 613 and current OATS recording and reporting rules. In
particular, SEC Rule 613(c)(5) and (6) require reporting of data
only for each NMS Security that is (a) registered or listed for
trading on a national securities exchange; (b) or admitted to
unlisted trading privileges on such exchange; or (c) for which
reports are required to be submitted to the national securities
association. SEC Rule 613(i) requires the Participants to provide to
the Commission within six months after the Effective Date a document
outlining how the Participants could incorporate into the
consolidated audit trail information with respect to equity
securities that are not NMS Securities (``OTC Equity Securities'')
and debt securities (and Primary Market Transactions in such
securities). Even though SEC Rule 613 does not require reporting of
OTC Equity Securities, the Participants have agreed to expand the
reporting requirements to include OTC Equity Securities to
facilitate the elimination of OATS.\3920\
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    \3920\ This expansion of the CAT reporting requirements to OTC
Equity Securities was generally supported by members of the broker-
dealer industry and was discussed with the DAG on July 24, 2013.
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    Next, the Participants performed a detailed analysis of the
current OATS requirements and the specific reporting obligations
under SEC Rule 613 and concluded that there are 42 data elements
found in both OATS and SEC Rule 613; however, there are 33 data
elements currently captured in OATS that are not specified in SEC
Rule 613.\3921\ The Participants believe it is appropriate to
incorporate data elements into the Central Repository that are
necessary to retire OATS and the OATS Rules. The Participants
believe that these additional data elements will increase the
likelihood that the Central Repository will include sufficient order