[Federal Register Volume 82, Number 96 (Friday, May 19, 2017)]
[Notices]
[Pages 23083-23100]
[FR Doc No: 2017-10131]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80676; File No. SR-PEARL-2017-20]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee
Schedule

May 15, 2017.
    Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act''),\1\ and Rule 19b-4
thereunder,\2\ notice is hereby given that on May 1, 2017, MIAX PEARL,
LLC (``MIAX PEARL'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'') a proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX PEARL Fee
Schedule (the ``Fee Schedule'') to adopt a fee schedule to establish
the fees for Industry Members related to the National Market System
Plan Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or
``Plan'').\3\
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    \3\ Unless otherwise specified, capitalized terms used in this
fee filing are defined as set forth herein, the CAT Compliance Rule
Series or in the CAT NMS Plan.
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    The text of the proposed rule change is available on the Exchange's
Web site at http://www.miaxoptions.com/rule-filings/pearl, at MIAX's
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA
Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2
Options Exchange, Incorporated, Chicago Board Options Exchange,
Incorporated, Chicago Stock Exchange, Inc., Financial Industry
Regulatory Authority, Inc. (``FINRA''), Investors' Exchange LLC, Miami
International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX,
Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC,\4\ NASDAQ
PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC,
NYSE MKT LLC, NYSE Arca, Inc. and NYSE National, Inc.\5\ (collectively,
the ``Participants'') filed with the Commission, pursuant to Section
11A of the Exchange Act \6\ and Rule 608 of Regulation NMS
thereunder,\7\ the CAT NMS Plan.\8\ The Participants filed the Plan to
comply with Rule 613 of Regulation NMS under the Exchange Act. The Plan
was published for comment in the Federal Register on May 17, 2016,\9\
and approved by the Commission, as modified, on November 15, 2016.\10\
The Plan is designed to create, implement and maintain a consolidated
audit trail (``CAT'') that would capture customer and order event
information for orders in NMS Securities and OTC Equity Securities,
across all markets, from the time of order inception through routing,
cancellation, modification, or execution in a single consolidated data
source. The Plan accomplishes this by creating CAT NMS, LLC (the
``Company''), of which each Participant is a member, to operate the
CAT.\11\ Under the CAT NMS Plan, the Operating Committee of the Company
(``Operating Committee'') has discretion to establish funding for the
Company to operate the CAT, including establishing fees that the
Participants will pay, and establishing fees for Industry Members that
will be implemented by the Participants (``CAT Fees'').\12\ The
Participants are required to file with the SEC under Section 19(b) of
the Exchange Act any such CAT Fees applicable to Industry Members that
the Operating Committee approves.\13\ Accordingly, the Exchange submits
this fee filing to propose the Consolidated Audit Trail Funding Fees,
which will require Industry Members that are

Exchange members to pay the CAT Fees determined by the Operating
Committee.
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    \4\ ISE Gemini, LLC, ISE Mercury, LLC and International
Securities Exchange, LLC have been renamed Nasdaq GEMX, LLC, Nasdaq
MRX, LLC, and Nasdaq ISE, LLC, respectively. See Securities Exchange
Act Rel. No. 80248 (Mar. 15, 2017), 82 FR 14547 (Mar. 21, 2017);
Securities Exchange Act Rel. No. 80326 (Mar. 29, 2017), 82 FR 16460
(Apr. 4, 2017); and Securities Exchange Act Rel. No. 80325 (Mar. 29,
2017), 82 FR 16445 (Apr. 4, 2017).
    \5\ National Stock Exchange, Inc. has been renamed NYSE
National, Inc. See Securities Exchange Act Rel. No. 79902 (Jan. 30,
2017), 82 FR 9258 (Feb. 3, 2017).
    \6\ 15 U.S.C. 78k-1.
    \7\ 17 CFR 242.608.
    \8\ See Letter from the Participants to Brent J. Fields,
Secretary, Commission, dated September 30, 2014; and Letter from
Participants to Brent J. Fields, Secretary, Commission, dated
February 27, 2015. On December 24, 2015, the Participants submitted
an amendment to the CAT NMS Plan. See Letter from Participants to
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
    \9\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81
FR 30614 (May 17, 2016).
    \10\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81
FR 84696 (Nov. 23, 2016) (``Approval Order'').
    \11\ The Plan also serves as the limited liability company
agreement for the Company.
    \12\ Section 11.1(b) of the CAT NMS Plan.
    \13\ Id.
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(1) Executive Summary
    The following provides an executive summary of the CAT funding
model approved by the Operating Committee, as well as Industry Members'
rights and obligations related to the payment of CAT Fees calculated
pursuant to the CAT funding model. A detailed description of the CAT
funding model and the CAT Fees follows this executive summary.
(A) CAT Funding Model
     CAT Costs. The CAT funding model is designed to establish
CAT-specific fees to collectively recover the costs of building and
operating the CAT from all CAT Reporters, including Industry Members
and Participants. The overall CAT costs for the calculation of the CAT
Fees in this fee filing are comprised of Plan Processor CAT costs and
non-Plan Processor CAT costs incurred, and estimated to be incurred,
from November 21, 2016 through November 21, 2017. (See Section
3(a)(2)(E) [sic] below) \14\
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    \14\ The Commission notes that references to Sections 3(a)(2)
and 3(a)(3) in this Executive Summary should be instead to Sections
II.A.1.(2) and II.A.1.(3), respectively.
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     Bifurcated Funding Model. The CAT NMS Plan requires a
bifurcated funding model, where costs associated with building and
operating the CAT would be borne by (1) Participants and Industry
Members that are Execution Venues for Eligible Securities through fixed
tier fees based on market share, and (2) Industry Members (other than
alternative trading systems (``ATSs'') that execute transactions in
Eligible Securities (``Execution Venue ATSs'')) through fixed tier fees
based on message traffic for Eligible Securities. (See Section 3(a)(2)
[sic] below)
     Industry Member Fees. Each Industry Member (other than
Execution Venue ATSs) will be placed into one of nine tiers of fixed
fees, based on ``message traffic'' in Eligible Securities for a defined
period (as discussed below). Prior to the start of CAT reporting,
``message traffic'' will be comprised of historical equity and equity
options orders, cancels and quotes provided by each exchange and FINRA
over the previous three months. After an Industry Member begins
reporting to the CAT, ``message traffic'' will be calculated based on
the Industry Member's Reportable Events reported to the CAT. Industry
Members with lower levels of message traffic will pay a lower fee and
Industry Members with higher levels of message traffic will pay a
higher fee. (See Section 3(a)(2)(B) [sic] below)
     Execution Venue Fees. Each Equity Execution Venue will be
placed in one of two tiers of fixed fees based on market share, and
each Options Execution Venue will be placed in one of two tiers of
fixed fees based on market share. Equity Execution Venue market share
will be determined by calculating each Equity Execution Venue's
proportion of the total volume of NMS Stock and OTC Equity shares
reported by all Equity Execution Venues during the relevant time
period. Similarly, market share for Options Execution Venues will be
determined by calculating each Options Execution Venue's proportion of
the total volume of Listed Options contracts reported by all Options
Execution Venues during the relevant time period. Equity Execution
Venues with a larger market share will pay a larger CAT Fee than Equity
Execution Venues with a smaller market share. Similarly, Options
Execution Venues with a larger market share will pay a larger CAT Fee
than Options Execution Venues with a smaller market share. (See Section
3(a)(2)(C) [sic] below)
     Cost Allocation. For the reasons discussed below, in
designing the model, the Operating Committee determined that 75 percent
of total costs recovered would be allocated to Industry Members (other
than Execution Venue ATSs) and 25 percent would be allocated to
Execution Venues. In addition, the Operating Committee determined to
allocate 75 percent of Execution Venue costs recovered to Equity
Execution Venues and 25 percent to Options Execution Venues. (See
Section 3(a)(2)(D) [sic] below)
     Comparability of Fees. The CAT funding model requires that
the CAT Fees charged to the CAT Reporters with the most CAT-related
activity (measured by market share and/or message traffic, as
applicable) are generally comparable (where, for these comparability
purposes, the tiered fee structure takes into consideration
affiliations between or among CAT Reporters, whether Execution Venues
and/or Industry Members). (See Section 3(a)(2)(F) [sic] below)
(B) CAT Fees for Industry Members
     Fee Schedule. The quarterly CAT Fees for each tier for
Industry Members are set forth in the two fee schedules in the
Consolidated Audit Trail Funding Fees, one for Equity ATSs and one for
Industry Members other than Equity ATSs. (See Section 3(a)(3)(B) [sic]
below)
     Quarterly Invoices. Industry Members will be billed
quarterly for CAT Fees, with the invoices payable within 30 days. The
quarterly invoices will identify within which tier the Industry Member
falls. (See Section 3(a)(3)(C) [sic] below)
     Centralized Payment. Each Industry Member will receive
from the Company one invoice for its applicable CAT Fees, not separate
invoices from each Participant of which it is a member. The Industry
Members will pay its CAT Fees to the Company via the centralized system
for the collection of CAT Fees established by the Operating Committee.
(See Section 3(a)(3)(C) [sic] below)
     Billing Commencement. Industry Members will begin to
receive invoices for CAT Fees as promptly as possible following the
establishment of a billing mechanism. The Exchange will issue a
Regulatory Circular to its members when the billing mechanism is
established, specifying the date when such invoicing of Industry
Members will commence. (See Section 3(a)(2)(G) [sic] below)
(2) Description of the CAT Funding Model
    Article XI of the CAT NMS Plan requires the Operating Committee to
approve the operating budget, including projected costs of developing
and operating the CAT for the upcoming year. As set forth in Article XI
of the CAT NMS Plan, the CAT NMS Plan requires a bifurcated funding
model, where costs associated with building and operating the Central
Repository would be borne by (1) Participants and Industry Members that
are Execution Venues through fixed tier fees based on market share, and
(2) Industry Members (other than Execution Venue ATSs) through fixed
tier fees based on message traffic. In its order approving the CAT NMS
Plan, the Commission determined that the proposed funding model was
``reasonable'' \15\ and ``reflects a reasonable exercise of the
Participants' funding authority to recover the Participants' costs
related to the CAT.'' \16\
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    \15\ Approval Order at 84796.
    \16\ Id. at 84794.
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    More specifically, the Commission stated in approving the CAT NMS
Plan that ``[t]he Commission believes that the proposed funding model
is reasonably designed to allocate the costs of the CAT between the
Participants and Industry Members.'' \17\ The Commission further noted
the following:
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    \17\ Id. at 84795.
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    The Commission believes that the proposed funding model reflects a

reasonable exercise of the Participants' funding authority to recover
the Participants' costs related to the CAT. The CAT is a regulatory
facility jointly owned by the Participants and . . . the Exchange Act
specifically permits the Participants to charge their members fees to
fund their self-regulatory obligations. The Commission further believes
that the proposed funding model is designed to impose fees reasonably
related to the Participants' self-regulatory obligations because the
fees would be directly associated with the costs of establishing and
maintaining the CAT, and not unrelated SRO services.\18\
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    \18\ Id. at 84794.
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    Accordingly, the funding model imposes fees on both Participants
and Industry Members.
    In addition, as discussed in Appendix C of the CAT NMS Plan, the
Operating Committee considered the advantages and disadvantages of a
variety of alternative funding and cost allocation models before
selecting the proposed model.\19\ After analyzing the various
alternatives, the Operating Committee determined that the proposed
tiered, fixed fee funding model provides a variety of advantages in
comparison to the alternatives. First, the fixed fee model, as opposed
to a variable fee model, provides transparency, ease of calculation,
ease of billing and other administrative functions, and predictability
of a fixed fee. Such factors are crucial to estimating a reliable
revenue stream for the Company and for permitting CAT Reporters to
reasonably predict their payment obligations for budgeting
purposes.\20\ Additionally, a strictly variable or metered funding
model based on message volume would be far more likely to affect market
behavior and place an inappropriate burden on competition. Moreover, as
the SEC noted in approving the CAT NMS Plan, ``[t]he Participants also
have offered a reasonable basis for establishing a funding model based
on broad tiers, in that it be may be easier to implement.'' \21\
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    \19\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85006.
    \20\ In choosing a tiered fee structure, the Participants
concluded that the variety of benefits offered by a tiered fee
structure, discussed above, outweighed the fact that Industry
Members in any particular tier would pay different rates per message
traffic order event (e.g., an Industry Member with the largest
amount of message traffic in one tier would pay a smaller amount per
order event than an Industry Member in the same tier with the least
amount of message traffic). Such variation is the natural result of
a tiered fee structure.
    \21\ Approval Order at 84796.
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    In addition, multiple reviews of current broker-dealer order and
trading data submitted under existing reporting requirements showed a
wide range in activity among broker-dealers, with a number of broker-
dealers submitting fewer than 1,000 orders per month and other broker-
dealers submitting millions and even billions of orders in the same
period. Accordingly, the CAT NMS Plan includes a tiered approach to
fees. The tiered approach helps ensure that fees are equitably
allocated among similarly situated CAT Reporters and furthers the goal
of lessening the impact on smaller firms.\22\ The self-regulatory
organizations considered 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. After analyzing the
alternatives, it was concluded that the tiering should be based on the
relative impact of CAT Reporters on the CAT System.
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    \22\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85006.
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    Accordingly, the CAT NMS Plan contemplates that costs will be
allocated across the CAT Reporters on a tiered basis to allocate costs
to those CAT Reporters that contribute more to the costs of creating,
implementing and maintaining the CAT.\23\ The fees to be assessed at
each tier are calculated so as to recoup a proportion of costs
appropriate to the message traffic or market share (as applicable) from
CAT Reporters in each tier. Therefore, Industry Members generating the
most message traffic will be in the higher tiers, and therefore be
charged a higher fee. Industry Members with lower levels of message
traffic will be in lower tiers and will be assessed a smaller fee for
the CAT.\24\ Correspondingly, Execution Venues with the highest market
share will be in the top tier, and therefore will be charged a higher
fee. Execution Venues with a lower market share will be in the lower
tier and will be assessed a smaller fee for the CAT.\25\
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    \23\ Approval Order at 85005.
    \24\ Id.
    \25\ Id.
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    The Commission also noted in approving the CAT NMS Plan that
``[t]he Participants have offered a credible justification for using
different criteria to charge Execution Venues (market share) and
Industry Members (message traffic)'' \26\ in the CAT funding model.
While there are multiple factors that contribute to the cost of
building, maintaining and using the CAT, processing and storage of
incoming message traffic is one of the most significant cost drivers
for the CAT.\27\ Thus, the CAT NMS Plan provides that the fees payable
by Industry Members (other than Execution Venue ATSs) will be based on
the message traffic generated by such Industry Member.\28\
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    \26\ Id. at 84796.
    \27\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85005.
    \28\ Section 11.3(b) of the CAT NMS Plan.
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    The CAT NMS Plan provides that the Operating Committee will use
different criteria to establish fees for Execution Venues and non-
Execution Venues due to the fundamental differences between the two
types of entities. In particular, the CAT NMS Plan provides that fees
charged to CAT Reporters that are Execution Venues will be based on the
level of market share and that costs charged to Industry Members (other
than Execution Venue ATSs) will be based upon message traffic.\29\
Because most Participant message traffic 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.
Accordingly, basing fees for Execution Venues on message traffic would
not provide the same degree of differentiation among Execution Venues
that it does among Industry Members (other than Execution Venue ATSs).
In contrast, execution volume more accurately delineates the different
levels of trading activity of Execution Venues.\30\
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    \29\ Section 11.2(c) of the CAT NMS Plan.
    \30\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85005.
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    The CAT NMS Plan's funding model also is structured to avoid a
``reduction in market quality.'' \31\ The tiered, fixed fee funding
model is designed to limit the disincentives to providing liquidity to
the market. For example, the Participants expect that a firm that had a
large volume of quotes would likely be categorized in one of the upper
tiers, and would not be assessed a fee for this traffic directly as
they would under a more directly metered model. In contrast, strictly
variable or metered funding models based on message volume were far
more likely to affect market behavior. In approving the CAT NMS Plan,
the SEC stated that ``[t]he Participants also offered a reasonable
basis for establishing a funding model based on broad tiers, in that it
may be . . . less likely to have an incremental deterrent effect on
liquidity provision.'' \32\
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    \31\ Section 11.2(e) of the CAT NMS Plan.
    \32\ Approval Order at 84796.
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    The CAT NMS Plan is structured to avoid potential conflicts raised
by the Operating Committee determining fees applicable to its own
members--the

Participants. First, the Company will be operated on a ``break-even''
basis, with fees imposed to cover costs and an appropriate reserve. Any
surpluses will be treated as an operational reserve to offset future
fees and will not be distributed to the Participants as profits.\33\ To
ensure that the Participants' operation of the CAT will not contribute
to the funding of their other operations, Section 11.1(c) of the CAT
NMS Plan specifically states that ``[a]ny surplus of the Company's
revenues over its expenses shall be treated as an operational reserve
to offset future fees.'' In addition, as set forth in Article VIII of
the CAT NMS Plan, the Company ``intends to operate in a manner such
that it qualifies as a `business league' within the meaning of Section
501(c)(6) of the [Internal Revenue] Code.'' To qualify as a business
league, an organization must ``not [be] organized for profit and no
part of the net earnings of [the organization can] inure[ ] to the
benefit of any private shareholder or individual.'' \34\ As the SEC
stated when approving the CAT NMS Plan, ``the Commission believes that
the Company's application for Section 501(c)(6) business league status
addresses issues raised by commenters about the Plan's proposed
allocation of profit and loss by mitigating concerns that the Company's
earnings could be used to benefit individual Participants.'' \35\
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    \33\ Id. at 84792.
    \34\ 26 U.S.C. 501(c)(6).
    \35\ Approval Order at 84793.
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    Finally, by adopting a CAT-specific fee, the Participants will be
fully transparent regarding the costs of the CAT. Charging a general
regulatory fee, which would be used to cover CAT costs as well as other
regulatory costs, would be less transparent than the selected approach
of charging a fee designated to cover CAT costs only.
    A full description of the funding model is set forth below. This
description includes the framework for the funding model as set forth
in the CAT NMS Plan, as well as the details as to how the funding model
will be applied in practice, including the number of fee tiers and the
applicable fees for each tier. The Exchange notes that the complete
funding model is described below, including those fees that are to be
paid by the Participants. The proposed Consolidated Audit Trail Funding
Fees, however, do not apply to the Participants; the proposed
Consolidated Audit Trail Funding Fees only apply to Industry Members.
The CAT fees for Participants will be imposed separately by the
Operating Committee pursuant to the CAT NMS Plan.
(A) Funding Principles
    Section 11.2 of the CAT NMS Plan sets forth the principles that the
Operating Committee applied in establishing the funding for the
Company. The Operating Committee has considered these funding
principles as well as the other funding requirements set forth in the
CAT NMS Plan and in Rule 613 in developing the proposed funding model.
The following are the funding principles in Section 11.2 of the CAT NMS
Plan:
     To create transparent, predictable revenue streams for the
Company that are aligned with the anticipated costs to build, operate
and administer the CAT and other costs of the Company;
     To establish an allocation of the Company's related costs
among Participants and Industry Members that is consistent with the
Exchange Act, taking into account the timeline for implementation of
the CAT and distinctions in the securities trading operations of
Participants and Industry Members and their relative impact upon the
Company's resources and operations;
     To establish a tiered fee structure in which the fees
charged to: (i) CAT Reporters that are Execution Venues, including
ATSs, are based upon the level of market share; (ii) Industry Members'
non-ATS activities are based upon message traffic; (iii) the CAT
Reporters with the most CAT-related activity (measured by market share
and/or message traffic, as applicable) are generally comparable (where,
for these comparability purposes, the tiered fee structure takes into
consideration affiliations between or among CAT Reporters, whether
Execution Venue and/or Industry Members);
     To provide for ease of billing and other administrative
functions;
     To avoid any disincentives such as placing an
inappropriate burden on competition and a reduction in market quality;
and
     To build financial stability to support the Company as a
going concern.
(B) Industry Member Tiering
    Under Section 11.3(b) of the CAT NMS Plan, the Operating Committee
is required to establish fixed fees to be payable by Industry Members,
based on message traffic generated by such Industry Member, with the
Operating Committee establishing at least five and no more than nine
tiers.
    The CAT NMS Plan clarifies that the fixed fees payable by Industry
Members pursuant to Section 11.3(b) shall, in addition to any other
applicable message traffic, include message traffic generated by: (i)
An ATS that does not execute orders that is sponsored by such Industry
Member; and (ii) routing orders to and from any ATS sponsored by such
Industry Member. In addition, the Industry Member fees will apply to
Industry Members that act as routing broker-dealers for exchanges. The
Industry Member fees will not be applicable, however, to an ATS that
qualifies as an Execution Venue, as discussed in more detail in the
section on Execution Venue tiering.
    In accordance with Section 11.3(b), the Operating Committee
approved a tiered fee structure for Industry Members (other than
Execution Venue ATSs) as described in this section. In determining the
tiers, the Operating Committee considered the funding principles set
forth in Section 11.2 of the CAT NMS Plan, seeking to create funding
tiers that take into account the relative impact on CAT System
resources of different Industry Members, and that establish comparable
fees among the CAT Reporters with the most Reportable Events. The
Operating Committee has determined that establishing nine tiers results
in the fairest allocation of fees, best distinguishing between Industry
Members with differing levels of message traffic. Thus, each such
Industry Member will be placed into one of nine tiers of fixed fees,
based on ``message traffic'' for a defined period (as discussed below).
A nine tier structure was selected to provide the widest range of
levels for tiering Industry Members such that Industry Members
submitting significantly less message traffic to the CAT would be
adequately differentiated from Industry Members submitting
substantially more message traffic. The Operating Committee considered
historical message traffic generated by Industry Members across all
exchanges and as submitted to FINRA's Order Audit Trail System
(``OATS''), and considered the distribution of firms with similar
levels of message traffic, grouping together firms with similar levels
of message traffic. Based on this, the Operating Committee determined
that nine tiers would best group firms with similar levels of message
traffic, charging those firms with higher impact on the CAT more, while
lowering the burden of Industry Members that have less CAT-related
activity.
    Each Industry Member (other than Execution Venue ATSs) will be
ranked

by message traffic and tiered by predefined Industry Member percentages
(the ``Industry Member Percentages''). The Operating Committee
determined to use predefined percentages rather than fixed volume
thresholds to allow the funding model to ensure that the total CAT fees
collected recover the intended CAT costs regardless of changes in the
total level of message traffic. To determine the fixed percentage of
Industry Members in each tier, the Operating Committee analyzed
historical message traffic generated by Industry Members across all
exchanges and as submitted to OATS, and considered the distribution of
firms with similar levels of message traffic, grouping together firms
with similar levels of message traffic. Based on this, the Operating
Committee identified tiers that would group firms with similar levels
of message traffic, charging those firms with higher impact on the CAT
more, while lowering the burden on Industry Members that have less CAT-
related activity.
    The percentage of costs recovered by each Industry Member tier will
be determined by predefined percentage allocations (the ``Industry
Member Recovery Allocation''). In determining the fixed percentage
allocation of costs recovered for each tier, the Operating Committee
considered the impact of CAT Reporter message traffic on the CAT System
as well as the distribution of total message volume across Industry
Members while seeking to maintain comparable fees among the largest CAT
Reporters. Accordingly, following the determination of the percentage
of Industry Members in each tier, the Operating Committee identified
the percentage of total market volume for each tier based on the
historical message traffic upon which Industry Members had been
initially ranked. Taking this into account along with the resulting
percentage of total recovery, the percentage allocation of costs
recovered for each tier were assigned, allocating higher percentages of
recovery to tiers with higher levels of message traffic while avoiding
any inappropriate burden on competition. Furthermore, by using
percentages of Industry Members and costs recovered per tier, the
Operating Committee sought to include stability and elasticity within
the funding model, allowing the funding model to respond to changes in
either the total number of Industry Members or the total level of
message traffic.
    The following chart illustrates the breakdown of nine Industry
Member tiers across the monthly average of total equity and equity
options orders, cancels and quotes in Q1 2016 and identifies relative
gaps across varying levels of Industry Member message traffic as well
as message traffic thresholds between the largest of Industry Member
message traffic gaps. The Operating Committee referenced similar
distribution illustrations to determine the appropriate division of
Industry Member percentages in each tier by considering the grouping of
firms with similar levels of message traffic and seeking to identify
relative breakpoints in the message traffic between such groupings. In
reviewing the chart and its corresponding table, note that while these
distribution illustrations were referenced to help differentiate
between Industry Member tiers, the proposed funding model is directly
driven, not by fixed message traffic thresholds, but rather by fixed
percentages of Industry Members across tiers to account for fluctuating
levels of message traffic across time and to provide for the financial
stability of the CAT by ensuring that the funding model will recover
the required amounts regardless of changes in the number of Industry
Members or the amount of message traffic. Actual messages in any tier
will vary based on the actual traffic in a given measurement period, as
well as the number of firms included in the measurement period. The
Industry Member Percentages and Industry Member Recovery Allocation for
each tier will remain fixed with each Industry Member's tier to be
reassigned periodically, as described below in Section 3(a)(1)(H)
[sic].
[GRAPHIC] [TIFF OMITTED] TN19MY17.004

------------------------------------------------------------------------
                                               Monthly average message
           Industry member tier              traffic per industry member
                                            (orders, quotes and cancels)
------------------------------------------------------------------------
Tier 1....................................               >10,000,000,000
Tier 2....................................                >1,000,000,000
Tier 3....................................                  >100,000,000
Tier 4....................................                    >2,500,000
Tier 5....................................                      >200,000
Tier 6....................................                       >50,000
Tier 7....................................                        >5,000
Tier 8....................................                        >1,000
Tier 9....................................                       <=1,000
------------------------------------------------------------------------

    Based on the above analysis, the Operating Committee approved the
following Industry Member Percentages and Recovery Allocations:

----------------------------------------------------------------------------------------------------------------
                                                                              Percentage  of
                  Industry member tier                     Percentage  of    industry  member    Percentage of
                                                         industry  members       recovery        total recovery
----------------------------------------------------------------------------------------------------------------
Tier 1.................................................              0.500               8.50               6.38
Tier 2.................................................              2.500              35.00              26.25
Tier 3.................................................              2.125              21.25              15.94
Tier 4.................................................              4.625              15.75              11.81
Tier 5.................................................              3.625               7.75               5.81
Tier 6.................................................              4.000               5.25               3.94
Tier 7.................................................             17.500               4.50               3.38
Tier 8.................................................             20.125               1.50               1.13
Tier 9.................................................             45.000               0.50               0.38
                                                        --------------------------------------------------------
    Total..............................................                100                100                 75
----------------------------------------------------------------------------------------------------------------

    For the purposes of creating these tiers based on message traffic,
the Operating Committee determined to define the term ``message
traffic'' separately for the period before the commencement of CAT
reporting and for the period after the start of CAT reporting. The
different definition for message traffic is necessary as there will be
no Reportable Events as defined in the Plan, prior to the commencement
of CAT reporting. Accordingly, prior to the start of CAT reporting,
``message traffic'' will be comprised of historical equity and equity
options orders, cancels and quotes provided by each exchange and FINRA
over the previous three months.\36\ Prior to the start of CAT
reporting, orders would be comprised of the total number of equity and
equity options orders received and originated by a member of an
exchange or FINRA over the previous three-month period, including
principal orders, cancel/replace orders, market maker orders originated
by a member of an exchange, and reserve (iceberg) orders as well as
order routes and executions originated by a member of FINRA, and
excluding order rejects and implied orders.\37\ In addition, prior to
the start of CAT reporting, cancels would be comprised of the total
number of equity and equity option cancels received and originated by a
member of an exchange or FINRA over a three-month period, excluding
order modifications (e.g., order updates, order splits, partial
cancels). Furthermore, prior to the start of CAT reporting, quotes
would be comprised of information readily available to the exchanges
and FINRA, such as the total number of historical equity and equity
options quotes received and originated by a member of an exchange or
FINRA over the prior three-month period.
---------------------------------------------------------------------------

    \36\ The SEC approved exemptive relief permitting Options Market
Maker quotes to be reported to the Central Repository by the
relevant Options Exchange in lieu of requiring that such reporting
be done by both the Options Exchange and the Options Market Maker,
as required by Rule 613 of Regulation NMS. See Securities Exchange
Act Release No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856 (Mar. 7,
2016). This exemption applies to Options Market Maker quotes for CAT
reporting purposes only. Therefore, notwithstanding the reporting
exemption provided for Options Market Maker quotes, Options Market
Maker quotes will be included in the calculation of total message
traffic for Options Market Makers for purposes of tiering under the
CAT funding model both prior to CAT reporting and once CAT reporting
commences
    \37\ Consequently, firms that do not have ``message traffic''
reported to an exchange or OATS before they are reporting to the CAT
would not be subject to a fee until they begin to report information
to CAT.
---------------------------------------------------------------------------

    After an Industry Member begins reporting to the CAT, ``message
traffic'' will be calculated based on the Industry Member's Reportable
Events reported to the CAT as will be defined in the Technical
Specifications.\38\
---------------------------------------------------------------------------

    \38\ If an Industry Member (other than an Execution Venue ATS)
has no orders, cancels or quotes prior to the commencement of CAT
Reporting, or no Reportable Events after CAT reporting commences,
then the Industry Member would not have a CAT fee obligation.
---------------------------------------------------------------------------

    The Operating Committee has determined to calculate fee tiers every
three months, on a calendar quarter basis, based on message traffic
from the prior three months. Based on its analysis of historical data,
the Operating Committee believes that calculating tiers based on three
months of data will provide the best balance between reflecting changes
in activity by Industry Members while still providing predictability in
the tiering for Industry Members. Because fee tiers will be calculated
based on message traffic from the prior three months, the Operating
Committee will begin calculating message traffic based on an Industry
Member's Reportable Events reported to the CAT once the Industry Member
has been reporting to the CAT for three months. Prior to that, fee
tiers will be calculated as discussed above with regard to the period
prior to CAT reporting.
(C) Execution Venue Tiering
    Under Section 11.3(a) of the CAT NMS Plan, the Operating Committee
is

required to establish fixed fees payable by Execution Venues. Section
1.1 of the CAT NMS Plan defines an Execution Venue as ``a Participant
or an alternative trading system (``ATS'') (as defined in Rule 300 of
Regulation ATS) that operates pursuant to Rule 301 of Regulation ATS
(excluding any such ATS that does not execute orders).'' \39\
---------------------------------------------------------------------------

    \39\ Although FINRA does not operate an execution venue, because
it is a Participant, it is considered an ``Execution Venue'' under
the Plan for purposes of determining fees.
---------------------------------------------------------------------------

    The Participants determined that ATSs should be included within the
definition of Execution Venue. Given the similarity between the
activity of exchanges and ATSs, both of which meet the definition of an
``exchange'' as set forth in the Exchange Act and the fact that the
similar trading models would have similar anticipated burdens on the
CAT, the Participants determined that ATSs should be treated in the
same manner as the exchanges for the purposes of determining the level
of fees associated with the CAT.\40\
---------------------------------------------------------------------------

    \40\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85005.
---------------------------------------------------------------------------

    Given the differences between Execution Venues that trade NMS
Stocks and/or OTC Equity Securities and Execution Venues that trade
Listed Options, Section 11.3(a) addresses Execution Venues that trade
NMS Stocks and/or OTC Equity Securities separately from Execution
Venues that trade Listed Options. Equity and Options Execution Venues
are treated separately for two reasons. First, the differing quoting
behavior of Equity and Options Execution Venues makes comparison of
activity between Execution Venues difficult. Second, Execution Venue
tiers are calculated based on market share of share volume, and it is
therefore difficult to compare market share between asset classes
(i.e., equity shares versus options contracts). Discussed below is how
the funding model treats the two types of Execution Venues.
(I) NMS Stocks and OTC Equity Securities
    Section 11.3(a)(i) of the CAT NMS Plan states that each Execution
Venue that (i) executes transactions or, (ii) in the case of a national
securities association, has trades reported by its members to its trade
reporting facility or facilities for reporting transactions effected
otherwise than on an exchange, in NMS Stocks or OTC Equity Securities
will pay a fixed fee depending on the market share of that Execution
Venue in NMS Stocks and OTC Equity Securities, with the Operating
Committee establishing at least two and not more than five tiers of
fixed fees, based on an Execution Venue's NMS Stocks and OTC Equity
Securities market share. For these purposes, market share for Execution
Venues that execute transactions will be calculated by share volume,
and market share for a national securities association that has trades
reported by its members to its trade reporting facility or facilities
for reporting transactions effected otherwise than on an exchange in
NMS Stocks or OTC Equity Securities will be calculated based on share
volume of trades reported, provided, however, that the share volume
reported to such national securities association by an Execution Venue
shall not be included in the calculation of such national security
association's market share.
    In accordance with Section 11.3(a)(i) of the CAT NMS Plan, the
Operating Committee approved a tiered fee structure for Equity
Execution Venues and Option Execution Venues. In determining the Equity
Execution Venue Tiers, the Operating Committee considered the funding
principles set forth in Section 11.2 of the CAT NMS Plan, seeking to
create funding tiers that take into account the relative impact on
system resources of different Equity Execution Venues, and that
establish comparable fees among the CAT Reporters with the most
Reportable Events. Each Equity Execution Venue will be placed into one
of two tiers of fixed fees, based on the Execution Venue's NMS Stocks
and OTC Equity Securities market share. In choosing two tiers, the
Operating Committee performed an analysis similar to that discussed
above with regard to the non-Execution Venue Industry Members to
determine the number of tiers for Equity Execution Venues. The
Operating Committee determined to establish two tiers for Equity
Execution Venues, rather than a larger number of tiers as established
for non-Execution Venue Industry Members, because the two tiers were
sufficient to distinguish between the smaller number of Equity
Execution Venues based on market share. Furthermore, the incorporation
of additional Equity Execution Venue tiers would result in
significantly higher fees for Tier 1 Equity Execution Venues and
diminish comparability between Execution Venues and Industry Members.
    Each Equity Execution Venue will be ranked by market share and
tiered by predefined Execution Venue percentages, (the ``Equity
Execution Venue Percentages''). In determining the fixed percentage of
Equity Execution Venues in each tier, the Operating Committee looked at
historical market share of share volume for execution venues. Equities
Execution Venue market share of share volume were sourced from market
statistics made publicly-available by Bats Global Markets, Inc.
(``Bats''). ATS market share of share volume was sourced from market
statistics made publicly-available by FINRA. FINRA trading [sic]
reporting facility (``TRF'') market share of share volume was sourced
from market statistics made publicly available by Bats. As indicated by
FINRA, ATSs accounted for 37.80% of the share volume across the TRFs
during the recent tiering period. A 37.80/62.20 split was applied to
the ATS and non-ATS breakdown of FINRA market share, with FINRA tiered
based only on the non-ATS portion of its TRF market share of share
volume.
    Based on this, the Operating Committee considered the distribution
of Execution Venues, and grouped together Execution Venues with similar
levels of market share of share volume. In doing so, the Participants
considered that, as previously noted, Execution Venues in many cases
have similar levels of message traffic due to quoting activity, and
determined that it was simpler and more appropriate to have fewer,
rather than more, Execution Venue tiers to distinguish between
Execution Venues.
    The percentage of costs recovered by each Equity Execution Venue
tier will be determined by predefined percentage allocations (the
``Equity Execution Venue Recovery Allocation''). In determining the
fixed percentage allocation of costs recovered for each tier, the
Operating Committee considered the impact of CAT Reporter market share
activity on the CAT System as well as the distribution of total market
volume across Equity Execution Venues while seeking to maintain
comparable fees among the largest CAT Reporters. Accordingly, following
the determination of the percentage of Execution Venues in each tier,
the Operating Committee identified the percentage of total market
volume for each tier based on the historical market share upon which
Execution Venues had been initially ranked. Taking this into account
along with the resulting percentage of total recovery, the percentage
allocation of costs recovered for each tier were assigned, allocating
higher percentages of recovery to the tier with a higher level of
market share while avoiding any inappropriate burden on competition.
Furthermore, due to the similar levels of impact on the CAT System
across Execution Venues, there is less variation in CAT Fees between
the highest and

lowest of tiers for Execution Venues. Furthermore, by using percentages
of Equity Execution Venues and costs recovered per tier, the Operating
Committee sought to include stability and elasticity within the funding
model, allowing the funding model to respond to changes in either the
total number of Equity Execution Venues or changes in market share.
    Based on this analysis, the Operating Committee approved the
following Equity Execution Venue Percentages and Recovery Allocations:

----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of   Percentage of
                                                                      equity         execution     Percentage of
                  Equity  execution  venue tier                      execution         venue           total
                                                                      venues         recovery        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           26.00            6.50
Tier 2..........................................................           75.00           49.00           12.25
                                                                 -----------------------------------------------
    Total.......................................................             100              75           18.75
----------------------------------------------------------------------------------------------------------------

    The following table exhibits the relative separation of market
share of share volume between Tier 1 and Tier 2 Equity Execution
Venues. In reviewing the table, note that while this division was
referenced as a data point to help differentiate between Equity
Execution Venue tiers, the proposed funding model is directly driven
not by market share thresholds, but rather by fixed percentages of
Equity Execution Venues across tiers to account for fluctuating levels
of market share across time. Actual market share in any tier will vary
based on the actual market activity in a given measurement period, as
well as the number of Equity Execution Venues included in the
measurement period. The Equity Execution Venue Percentages and Equity
Execution Venue Recovery Allocation for each tier will remain fixed
with each Equity Execution Venue tier to be reassigned periodically, as
described below in Section 3(a)(1)(I) [sic].

------------------------------------------------------------------------
                                                           Equity market
                                                             share of
              Equity execution  venue tier                 share volume
                                                                (%)
------------------------------------------------------------------------
Tier 1..................................................             >=1
Tier 2..................................................              <1
------------------------------------------------------------------------

(II) Listed Options
    Section 11.3(a)(ii) of the CAT NMS Plan states that each Execution
Venue that executes transactions in Listed Options will pay a fixed fee
depending on the Listed Options market share of that Execution Venue,
with the Operating Committee establishing at least two and no more than
five tiers of fixed fees, based on an Execution Venue's Listed Options
market share. For these purposes, market share will be calculated by
contract volume.
    In accordance with Section 11.3(a)(ii) of the CAT NMS Plan, the
Operating Committee approved a tiered fee structure for Options
Execution Venues. In determining the tiers, the Operating Committee
considered the funding principles set forth in Section 11.2 of the CAT
NMS Plan, seeking to create funding tiers that take into account the
relative impact on system resources of different Options Execution
Venues, and that establish comparable fees among the CAT Reporters with
the most Reportable Events. Each Options Execution Venue will be placed
into one of two tiers of fixed fees, based on the Execution Venue's
Listed Options market share. In choosing two tiers, the Operating
Committee performed an analysis similar to that discussed above with
regard to Industry Members (other than Execution Venue ATSs) to
determine the number of tiers for Options Execution Venues. The
Operating Committee determined to establish two tiers for Options
Execution Venues, rather than a larger number of tiers as established
for Industry Members (other than Execution Venue ATSs), because the two
tiers were sufficient to distinguish between the smaller number of
Options Execution Venues based on market share. Furthermore, due to the
smaller number of Options Execution Venues, the incorporation of
additional Options Execution Venue tiers would result in significantly
higher fees for Tier 1 Options Execution Venues and reduce
comparability between Execution Venues and Industry Members.
    Each Options Execution Venue will be ranked by market share and
tiered by predefined Execution Venue percentages, (the ``Options
Execution Venue Percentages''). To determine the fixed percentage of
Options Execution Venues in each tier, the Operating Committee analyzed
the historical and publicly available market share of Options Execution
Venues to group Options Execution Venues with similar market shares
across the tiers. Options Execution Venue market share of share volume
were sourced from market statistics made publicly-available by Bats.
The process for developing the Options Execution Venue Percentages was
the same as discussed above with regard to Equity Execution Venues.
    The percentage of costs recovered by each Options Execution Venue
tier will be determined by predefined percentage allocations (the
``Options Execution Venue Recovery Allocation''). In determining the
fixed percentage allocation of costs recovered for each tier, the
Operating Committee considered the impact of CAT Reporter market share
activity on the CAT System as well as the distribution of total market
volume across Options Execution Venues while seeking to maintain
comparable fees among the largest CAT Reporters. Furthermore, by using
percentages of Options Execution Venues and costs recovered per tier,
the Operating Committee sought to include stability and elasticity
within the funding model, allowing the funding model to respond to
changes in either the total number of Options Execution Venues or
changes in market share. The process for developing the Options
Execution Venue Recovery Allocation was the same as discussed above
with regard to Equity Execution Venues.
    Based on this analysis, the Operating Committee approved the
following Options Execution Venue Percentages and Recovery Allocations:

----------------------------------------------------------------------------------------------------------------
                                                                  Percentage  of  Percentage  of
                                                                      options        execution    Percentage  of
                 Options  execution  venue tier                      execution         venue           total
                                                                      venues         recovery        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           20.00            5.00
Tier 2..........................................................           25.00            5.00            1.25
                                                                 -----------------------------------------------
    Total.......................................................             100              25            6.25
----------------------------------------------------------------------------------------------------------------

    The following table exhibits the relative separation of market
share of share volume between Tier 1 and Tier 2 Options Execution
Venues. In reviewing the table, note that while this division was
referenced as a data point to help differentiate between Options
Execution Venue tiers, the proposed funding model is directly driven,
not by market share thresholds, but rather by fixed percentages of
Options Execution Venues across tiers to account for fluctuating levels
of market share across time. Actual market share in any tier will vary
based on the actual market activity in a given measurement period, as
well as the number of Options Execution Venues included in the
measurement period. The Options Execution Venue Percentages and Equity
Execution Venue Recovery Allocation for each tier will remain fixed
with each Options Execution Venue tier to be reassigned periodically,
as described below in Section 3(a)(1)(I) [sic].

------------------------------------------------------------------------
                                                              Options
                                                           market  share
             Options  execution  venue tier                  of  share
                                                            volume  (%)
------------------------------------------------------------------------
Tier 1..................................................             >=1
Tier 2..................................................              <1
------------------------------------------------------------------------

(III) Market Share/Tier Assignments
    The Operating Committee determined that, prior to the start of CAT
reporting, market share for Execution Venues would be sourced from
publicly-available market data. Options and equity volumes for
Participants will be sourced from market data made publicly available
by Bats while Execution Venue ATS volumes will be sourced from market
data made publicly available by FINRA. Set forth in the Appendix are
two charts, one listing the current Equity Execution Venues, each with
its rank and tier, and one listing the current Options Execution
Venues, each with its rank and tier.
    After the commencement of CAT reporting, market share for Execution
Venues will be sourced from data reported to the CAT. Equity Execution
Venue market share will be determined by calculating each Equity
Execution Venue's proportion of the total volume of NMS Stock and OTC
Equity shares reported by all Equity Execution Venues during the
relevant time period. Similarly, market share for Options Execution
Venues will be determined by calculating each Options Execution Venue's
proportion of the total volume of Listed Options contracts reported by
all Options Execution Venues during the relevant time period.
    The Operating Committee has determined to calculate fee tiers for
Execution Venues every three months based on market share from the
prior three months. Based on its analysis of historical data, the
Operating Committee believes calculating tiers based on three months of
data will provide the best balance between reflecting changes in
activity by Execution Venues while still providing predictability in
the tiering for Execution Venues.
(D) Allocation of Costs
    In addition to the funding principles discussed above, including
comparability of fees, Section 11.1(c) of the CAT NMS Plan also
requires expenses to be fairly and reasonably shared among the
Participants and Industry Members. Accordingly, in developing the
proposed fee schedules pursuant to the funding model, the Operating
Committee calculated how the CAT costs would be allocated between
Industry Members and Execution Venues, and how the portion of CAT costs
allocated to Execution Venues would be allocated between Equity
Execution Venues and Options Execution Venues. These determinations are
described below.
(I) Allocation Between Industry Members and Execution Venues
    In determining the cost allocation between Industry Members (other
than Execution Venue ATSs) and Execution Venues, the Operating
Committee analyzed a range of possible splits for revenue recovered
from such Industry Members and Execution Venues. Based on this
analysis, the Operating Committee determined that 75 percent of total
costs recovered would be allocated to Industry Members (other than
Execution Venue ATSs) and 25 percent would be allocated to Execution
Venues. The Operating Committee determined that this 75/25 division
maintained the greatest level of comparability across the funding
model, keeping in view that comparability should consider affiliations
among or between CAT Reporters (e.g., firms with multiple Industry
Members and/or exchange licenses). For example, the cost allocation
establishes fees for the largest Industry Members (i.e., those Industry
Members in Tiers 1, 2 and 3) that are comparable to the largest Equity
Execution Venues and Options Execution Venues (i.e., those Execution
Venues in Tier 1). In addition, the cost allocation establishes fees
for Execution Venue complexes that are comparable to those of Industry
Member complexes. For example, when analyzing alternative allocations,
other possible allocations led to much higher fees for larger Industry
Members than for larger Execution Venues or vice versa, and/or led to
much higher fees for Industry Member complexes than Execution Venue
complexes or vice versa.
    Furthermore, the allocation of total CAT costs recovered recognizes
the difference in the number of CAT Reporters that are Industry Members
versus CAT Reporters that are Execution Venues. Specifically, the cost
allocation takes into consideration that there are approximately 25
times more Industry Members expected to report to the CAT than
Execution Venues (e.g., an estimated 1,630 Industry Members versus 70
Execution Venues as of January 2017).
(II) Allocation Between Equity Execution Venues and Options Execution
Venues
    The Operating Committee also analyzed how the portion of CAT costs
allocated to Execution Venues would be allocated between Equity
Execution Venues and Options Execution Venues. In considering this
allocation of costs, the Operating Committee analyzed a range of
alternative splits for revenue recovered between Equity and Options
Execution Venues, including a 70/30,

67/33, 65/35, 50/50 and 25/75 split. Based on this analysis, the
Operating Committee determined to allocate 75 percent of Execution
Venue costs recovered to Equity Execution Venues and 25 percent to
Options Execution Venues. The Operating Committee determined that a 75/
25 division between Equity and Options Execution Venues maintained
elasticity across the funding model as well the greatest level of fee
equitability and comparability based on the current number of Equity
and Options Execution Venues. For example, the allocation establishes
fees for the larger Equity Execution Venues that are comparable to the
larger Options Execution Venues, and fees for the smaller Equity
Execution Venues that are comparable to the smaller Options Execution
Venues. In addition to fee comparability between Equity Execution
Venues and Options Execution Venues, the allocation also establishes
equitability between larger (Tier 1) and smaller (Tier 2) Execution
Venues based upon the level of market share. Furthermore, the
allocation is intended to reflect the relative levels of current equity
and options order events.
(E) Fee Levels
    The Operating Committee determined to establish a CAT-specific fee
to collectively recover the costs of building and operating the CAT.
Accordingly, under the funding model, the sum of the CAT Fees is
designed to recover the total cost of the CAT. The Operating Committee
has determined overall CAT costs to be comprised of Plan Processor
costs and non-Plan Processor costs, which are estimated to be
$50,700,000 in total for the year beginning November 21, 2016.\41\
---------------------------------------------------------------------------

    \41\ It is anticipated that CAT-related costs incurred prior to
November 21, 2016 will be addressed via a separate fee filing.
---------------------------------------------------------------------------

    The Plan Processor costs relate to costs incurred by the Plan
Processor and consist of the Plan Processor's current estimates of
average yearly ongoing costs, including development cost, which total
$37,500,000. This amount is based upon the fees due to the Plan
Processor pursuant to the agreement with the Plan Processor.
    The non-Plan Processor estimated costs incurred and to be incurred
by the Company through November 21, 2017 consist of three categories of
costs. The first category of such costs are third party support costs,
which include historic legal fees, consulting fees and audit fees from
November 21, 2016 until the date of filing as well as estimated third
party support costs for the rest of the year. These amount to an
estimated $5,200,000. The second category of non-Plan Processor costs
are estimated insurance costs for the year. Based on discussions with
potential insurance providers, assuming $2-5 million insurance premium
on $100 million in coverage, the Company has received an estimate of
$3,000,000 for the annual cost. The final cost figures will be
determined following receipt of final underwriter quotes. The third
category of non-Plan Processor costs is the operational reserve, which
is comprised of three months of ongoing Plan Processor costs
($9,375,000), third party support costs ($1,300,000) and insurance
costs ($750,000). The Operating Committee aims to accumulate the
necessary funds for the establishment of the three-month operating
reserve for the Company through the CAT Fees charged to CAT Reporters
for the year. On an ongoing basis, the Operating Committee will account
for any potential need for the replenishment of the operating reserve
or other changes to total cost during its annual budgeting process. The
following table summarizes the Plan Processor and non-Plan Processor
cost components which comprise the total CAT costs of $50,700,000.

------------------------------------------------------------------------
           Cost category               Cost  component        Amount
------------------------------------------------------------------------
Plan Processor....................  Operational Costs...     $37,500,000
Non-Plan Processor................  Third Party Support        5,200,000
                                     Costs.
                                    Operational Reserve.  \42\ 5,000,000
                                    Insurance Costs.....       3,000,000
    Estimated Total...............  ....................      50,700,000
------------------------------------------------------------------------

    Based on the estimated costs and the calculations for the funding
model described above, the Operating Committee determined to impose the
following fees: \43\
---------------------------------------------------------------------------

    \42\ This $5,000,000 represents the gradual accumulation of the
funds for a target operating reserve of $11,425,000.
    \43\ Note that all monthly, quarterly and annual CAT Fees have
been rounded to the nearest dollar.
---------------------------------------------------------------------------

    For Industry Members (other than Execution Venue ATSs):

----------------------------------------------------------------------------------------------------------------
                                                                    Monthly CAT    Quarterly CAT   CAT fees paid
                              Tier                                      fee             fee        annually \44\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $33,668        $101,004        $404,016
2...............................................................          27,051          81,153         324,612
3...............................................................          19,239          57,717         230,868
4...............................................................           6,655          19,965          79,860
5...............................................................           4,163          12,489          49,956
6...............................................................           2,560           7,680          30,720
7...............................................................             501           1,503           6,012
8...............................................................             145             435           1,740
9...............................................................              22              66             264
----------------------------------------------------------------------------------------------------------------

    This column represents the approximate total CAT Fees paid each
year by each Industry Member (other than Execution Venue ATSs) (i.e.,
``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 months).
    For Execution Venues for NMS Stocks and OTC Equity Securities:

----------------------------------------------------------------------------------------------------------------
                                                                    Monthly CAT    Quarterly CAT   CAT fees paid
                              Tier                                      fee             fee        annually \45\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $21,125         $63,375        $253,500
2...............................................................          12,940          38,820         155,280
----------------------------------------------------------------------------------------------------------------

    This column represents the approximate total CAT Fees paid each
year by each Execution Venue for NMS Stocks and OTC Equity Securities
(i.e., ``CAT Fees Paid Annually'' = ``Monthly CAT Fee'' x 12 months).
    For Execution Venues for Listed Options:

----------------------------------------------------------------------------------------------------------------
                                                                    Monthly CAT    Quarterly CAT   CAT fees paid
                              Tier                                      fee             fee        annually \46\
----------------------------------------------------------------------------------------------------------------
1...............................................................         $19,205         $57,615        $230,460
2...............................................................          13,204          39,612         158,448
----------------------------------------------------------------------------------------------------------------

    This column represents the approximate total CAT Fees paid each
year by each Execution Venue for Listed Options (i.e., ``CAT Fees Paid
Annually'' = ``Monthly CAT Fee'' x 12 months).
    As noted above, the fees set forth in the tables reflect the
Operating Committee's decision to ensure comparable fees between
Execution Venues and Industry Members. The fees of the top tiers for
Industry Members (other than Execution Venue ATSs) are not identical to
the top tier for Execution Venues, however, because the Operating
Committee also determined that the fees for Execution Venue complexes
should be comparable to those of Industry Member complexes. The
difference in the fees reflects this decision to recognize
affiliations.
    The Operating Committee has calculated the schedule of effective
fees for Industry Members (other than Execution Venue ATSs) and
Execution Venues in the following manner. Note that the calculation of
CAT Reporter fees assumes 53 Equity Execution Venues, 15 Options
Execution Venues and 1,631 Industry Members (other than Execution Venue
ATSs) as of January 2017.

                              Calculation of Annual Tier Fees for Industry Members
                                                    [``IM'']
----------------------------------------------------------------------------------------------------------------
                                                                                Percentage of
                                                                   Percentage of     industry      Percentage of
                      Industry member tier                           industry         member      total recovery
                                                                      members        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.500            8.50            6.38
Tier 2..........................................................           2.500           35.00           26.25
Tier 3..........................................................           2.125           21.25           15.94
Tier 4..........................................................           4.625           15.75           11.81
Tier 5..........................................................           3.625            7.75            5.81
Tier 6..........................................................           4.000            5.25            3.94
Tier 7..........................................................          17.500            4.50            3.38
Tier 8..........................................................          20.125            1.50            1.13
Tier 9..........................................................          45.000            0.50            0.38
                                                                 -----------------------------------------------
    Total.......................................................             100             100              75
----------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------
                                                        Estimated number
                 Industry member tier                     of industry
                                                            members
------------------------------------------------------------------------
Tier 1...............................................                  8
Tier 2...............................................                 41
Tier 3...............................................                 35
Tier 4...............................................                 75
Tier 5...............................................                 59
Tier 6...............................................                 65
Tier 7...............................................                285
Tier 8...............................................                328
Tier 9...............................................                735
                                                      ------------------
    Total............................................              1,631
------------------------------------------------------------------------

[GRAPHIC] [TIFF OMITTED] TN19MY17.005

                           Calculation of Annual Tier Fees for Equity Execution Venues
                                                    [``EV'']
----------------------------------------------------------------------------------------------------------------
                                                           Percentage of      Percentage of
              Equity execution venue tier                equity  execution   execution venue     Percentage of
                                                               venues            recovery        total recovery
----------------------------------------------------------------------------------------------------------------
Tier 1.................................................              25.00              26.00               6.50
Tier 2.................................................              75.00              49.00              12.25
                                                        --------------------------------------------------------
    Total..............................................                100                 75              18.75
----------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------
                                                        Estimated number
             Equity execution venue tier                   of  equity
                                                        execution venues
------------------------------------------------------------------------
Tier 1...............................................                 13
Tier 2...............................................                 40
                                                      ------------------
    Total............................................                 53
------------------------------------------------------------------------

                                                       [GRAPHIC] [TIFF OMITTED] TN19MY17.006

                          Calculation of Annual Tier Fees for Options Execution Venues
                                                    [``EV'']
----------------------------------------------------------------------------------------------------------------
                                                           Percentage of      Percentage of
              Options execution venue tier                    options        execution venue     Percentage of
                                                          execution venues       recovery        total recovery
----------------------------------------------------------------------------------------------------------------
Tier 1.................................................              75.00              20.00               5.00
Tier 2.................................................              25.00               5.00               1.25
                                                        --------------------------------------------------------
    Total..............................................                100                 25               6.25
----------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------
                                                        Estimated number
             Options execution venue tier                  of options
                                                        execution venues
------------------------------------------------------------------------
Tier 1...............................................                 11
Tier 2...............................................                  4
                                                      ------------------
    Total............................................                 15
------------------------------------------------------------------------

                                                       [GRAPHIC] [TIFF OMITTED] TN19MY17.007

                                         Traceability of Total CAT Fees
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated
                 Type                     Industry member tier       number of     CAT fees paid  Total recovery
                                                                      members        annually
----------------------------------------------------------------------------------------------------------------
Industry Members......................  Tier 1..................               8        $404,016      $3,232,128
                                        Tier 2..................              41         324,612      13,309,092
                                        Tier 3..................              35         230,868       8,080,380
                                        Tier 4..................              75          79,860       5,989,500
                                        Tier 5..................              59          49,956       2,947,404
                                        Tier 6..................              65          30,720       1,996,800
                                        Tier 7..................             285           6,012       1,713,420
                                        Tier 8..................             328           1,740         570,720
                                        Tier 9..................             735             264         194,040
                                                                 -----------------------------------------------
    Total.............................  ........................           1,631  ..............      38,033,484
Equity Execution Venues...............  Tier 1..................              13         253,500       3,295,500

                                        Tier 2..................              40         155,280       6,211,200
                                                                 -----------------------------------------------
    Total.............................  ........................              53  ..............       9,506,700
Options Execution Venues..............  Tier 1..................              11         230,460       2,535,060
                                        Tier 2..................               4         158,448         633,792
                                                                 -----------------------------------------------
    Total.............................  ........................              15  ..............       3,168,852
                                                                                ---------------
        Total.........................  ........................  ..............  ..............      50,709,036
                                                                                ---------------
        Excess \47\...................  ........................  ..............  ..............           9,036
----------------------------------------------------------------------------------------------------------------

    \47\ The amount in excess of the total CAT costs will contribute to
the gradual accumulation of the target operating reserve of $11.425
million.
(F) Comparability of Fees
    The funding principles require a funding model in which the fees
charged to the CAT Reporters with the most CAT-related activity
(measured by market share and/or message traffic, as applicable) are
generally comparable (where, for these comparability purposes, the
tiered fee structure takes into consideration affiliations between or
among CAT Reporters, whether Execution Venue and/or Industry Members).
Accordingly, in creating the model, the Operating Committee sought to
take account of the affiliations between or among CAT Reporters--that
is, where affiliated entities may have multiple Industry Member and/or
Execution Venue licenses, by maintaining relative comparability of fees
among such affiliations with the most expected CAT-related activity. To
do this, the Participants identified representative affiliations in the
largest tier of both Execution Venues and Industry Members and compared
the aggregate fees that would be paid by such firms.
    While the proposed fees for Tier 1 and Tier 2 Industry Members are
relatively higher than those of Tier 1 and Tier 2 Execution Venues,
Execution Venue complex fees are relatively higher than those of
Industry Member complexes largely due to affiliations between Execution
Venues. The tables set forth below describe the largest Execution Venue
and Industry Member complexes and their associated fees: \48\
---------------------------------------------------------------------------

    \48\ Note that the analysis of the complexes was performed on a
best efforts basis, as all affiliations between the 1631 Industry
Members may not be included.

                                            Execution Venue Complexes
----------------------------------------------------------------------------------------------------------------
                                               Listing of equity          Listing of options       Total fees by
         Execution venue complex             execution venue tiers       execution venue tier       EV complex
----------------------------------------------------------------------------------------------------------------
Execution Venue Complex 1...............   Tier 1 (x2)......   Tier 1 (x4)......      $1,900,962
                                           Tier 2 (x1)......   Tier 2 (x2)......
Execution Venue Complex 2...............   Tier 1 (x2)......   Tier 1 (x2)......       1,863,801
                                                                       Tier 2 (x1)......
Execution Venue Complex 3...............   Tier 1 (x2)......   Tier 1 (x2)......       1,278,447
                                           Tier 2 (x2)......
----------------------------------------------------------------------------------------------------------------

                                            Industry Member Complexes
----------------------------------------------------------------------------------------------------------------
                                          Listing of industry member                               Total fees by
         Industry member complex                     tiers               Listing of ATS tiers       IM complex
----------------------------------------------------------------------------------------------------------------
Industry Member Complex 1...............   Tier 1 (x2)......   Tier 2 (x1)......        $963,300
Industry Member Complex 2...............   Tier 1 (x1)......   Tier 2 (x3)......         949,674
                                           Tier 4 (x1)......
Industry Member Complex 3...............   Tier 1 (x1)......   Tier 2 (x1)......         883,888
                                           Tier 2 (x1)......
Industry Member Complex 4...............   Tier 1 (x1)......  N/A.......................         808,472
                                           Tier 2 (x1)......
                                           Tier 4 (x1)......
Industry Member Complex 5...............   Tier 2 (x1)......   Tier 2 (x1)......         796,595
                                           Tier 3 (x1)......
                                           Tier 4 (x1)......
                                           Tier 7 (x1)......
----------------------------------------------------------------------------------------------------------------

(G) Billing Onset
    Under Section 11.1(c) of the CAT NMS Plan, to fund the development
and implementation of the CAT, the Company shall time the imposition
and collection of all fees on Participants and Industry Members in a
manner reasonably related to the timing when the Company expects to
incur such development and implementation costs. The Company is
currently incurring such development and implementation costs and will
continue to do so prior to the commencement of CAT reporting and
thereafter. For example, the Plan Processor has required up-front
payments to begin building the CAT. In addition, the Company continues
to incur consultant and legal expenses on an on-going basis to
implement the CAT. Accordingly, the Operating Committee determined that
all CAT Reporters, including both Industry Members and Execution Venues
(including Participants), would begin to be invoiced as promptly as
possible following the establishment of a billing mechanism. The
Exchange will issue a Regulatory Circular to its members when the
billing mechanism is established, specifying the date when such
invoicing of Industry Members will commence.
(H) Changes to Fee Levels and Tiers
    Section 11.3(d) of the CAT NMS Plan states that ``[t]he Operating
Committee shall review such fee schedule on at least an annual basis
and shall make any changes to such fee schedule that it deems
appropriate. The Operating Committee is authorized to review such fee
schedule on a more regular basis, but shall not make any changes 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.'' With such reviews, the Operating
Committee will review the distribution of Industry Members and
Execution Venues across tiers, and make any updates to the percentage
of CAT Reporters allocated to each tier as may be necessary. In
addition, the reviews will evaluate the estimated ongoing CAT costs and
the level of the operating reserve. To the extent that the total CAT
costs decrease, the fees would be adjusted downward, and, to the extent
that the total CAT costs increase, the fees would be adjusted
upward.\49\ Furthermore, any surplus of the Company's revenues over its
expenses is to be included within the operational reserve to offset
future fees. The limitations on more frequent changes to the fee,
however, are intended to provide budgeting certainty for the CAT
Reporters and the Company.\50\ To the extent that the Operating
Committee approves changes to the number of tiers in the funding model
or the fees assigned to each tier, then the Exchange will file such
changes with the SEC pursuant to Section 19(b) of the Exchange Act, and
any such changes will become effective in accordance with the
requirements of Section 19(b).
---------------------------------------------------------------------------

    \49\ The CAT Fees are designed to recover the costs associated
with the CAT. Accordingly, CAT Fees would not be affected by
increases or decreases in other non-CAT expenses incurred by the
Participants, such as any changes in costs related to the retirement
of existing regulatory systems, such as OATS.
    \50\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85006.
---------------------------------------------------------------------------

(I) Initial and Periodic Tier Reassignments
    The Operating Committee has determined to calculate fee tiers every
three months based on market share or message traffic, as applicable,
from the prior three months. For the initial tier assignments, the
Company will calculate the relevant tier for each CAT Reporter using
the three months of data prior to the commencement date. As with the
initial tier assignment, for the tri-monthly reassignments, the Company
will calculate the relevant tier using the three months of data prior
to the relevant tri-monthly date. The Exchange notes that any movement
of CAT Reporters between tiers will not change the criteria for each
tier or the fee amount corresponding to each tier.
    In performing the tri-monthly reassignments, the Exchange notes
that the percentage of CAT Reporters in each assigned tier is relative.
Therefore, a CAT Reporter's assigned tier will depend, not only on its
own message traffic or market share, but it also will depend on the
message traffic/market share across all CAT Reporters. For example, the
percentage of Industry Members (other than Execution Venue ATSs) in
each tier is relative such that such Industry Member's assigned tier
will depend on message traffic generated across all CAT Reporters as
well as the total number of CAT Reporters. The Operating Committee will
inform CAT Reporters of their assigned tier every three months
following the periodic tiering process, as the funding model will
compare an individual CAT Reporter's activity to that of other CAT
Reporters in the marketplace.
    The following demonstrates a tier reassignment. In accordance with
the funding model, the top 75% of Options Execution Venues in market
share are categorized as Tier 1 while the bottom 25% of Options
Execution Venues in market share are categorized as Tier 2. In the
sample scenario below, Options Execution Venue L is initially
categorized as a Tier 2 Options Execution Venue in Period A due to its
market share. When market share is recalculated for Period B, the
market share of Execution Venue L increases, and it is therefore
subsequently reranked and reassigned to Tier 1 in Period B.
Correspondingly, Options Execution Venue K, initially a Tier 1 Options
Execution Venue in Period A, is reassigned to Tier 2 in Period B due to
decreases in its market share of share volume.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Period A                                                                     Period B
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Market share                                                             Market  share
            Options execution venue                   rank            Tier               Options execution venue               rank            Tier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Options Execution Venue A......................               1               1  Options Execution Venue A..............               1               1
Options Execution Venue B......................               2               1  Options Execution Venue B..............               2               1
Options Execution Venue C......................               3               1  Options Execution Venue C..............               3               1
Options Execution Venue D......................               4               1  Options Execution Venue D..............               4               1
Options Execution Venue E......................               5               1  Options Execution Venue E..............               5               1
Options Execution Venue F......................               6               1  Options Execution Venue F..............               6               1
Options Execution Venue G......................               7               1  Options Execution Venue I..............               7               1
Options Execution Venue H......................               8               1  Options Execution Venue H..............               8               1
Options Execution Venue I......................               9               1  Options Execution Venue G..............               9               1
Options Execution Venue J......................              10               1  Options Execution Venue J..............              10               1
Options Execution Venue K......................              11               1  Options Execution Venue L..............              11               1

Options Execution Venue L......................              12               2  Options Execution Venue K..............              12               2
Options Execution Venue M......................              13               2  Options Execution Venue N..............              13               2
Options Execution Venue N......................              14               2  Options Execution Venue M..............              14               2
Options Execution Venue O......................              15               2  Options Execution Venue O..............              15               2
--------------------------------------------------------------------------------------------------------------------------------------------------------

(3) Proposed CAT Fee Schedule
    The Exchange proposes the Consolidated Audit Trail Funding Fees to
implement the CAT Fees determined by the Operating Committee on MIAX
PEARL's Industry Members. The proposed fee schedule has three sections,
covering definitions, the fee schedule for CAT Fees, and the timing and
manner of payments. Each of these sections is discussed in detail
below.
(A) Definitions
    Paragraph (a) of the proposed fee schedule sets forth the
definitions for the proposed fee schedule. Paragraph (a)(1) states
that, for purposes of the Consolidated Audit Trail Funding Fees, the
terms ``CAT NMS Plan,'' ``Industry Member,'' ``NMS Stock,'' ``OTC
Equity Security'', and ``Participant'' are defined as set forth in Rule
1701 (Consolidated Audit Trail Compliance Rule--Definitions).\51\
---------------------------------------------------------------------------

    \51\ The rules contained in Miami International Securities
Exchange, LLC Rule Book Chapter XVII, as such rules may be in effect
from time to time (the ``Chapter XVII Rules''), have been
incorporated by reference into MIAX PEARL Chapter XVII, and are thus
MIAX PEARL Rules and thereby applicable to MIAX PEARL members. MIAX
PEARL members shall comply with the Chapter XVII Rules as though
such rules were fully-set forth in the MIAX PEARL Rule Book. All
defined terms, including any variations thereof, contained in
Chapter XVII Rules shall be read to refer to the MIAX PEARL related
meaning of such term. See Securities Exchange Act Release No. 80256
(March 15, 2017), 82 FR 14,526 (March 21, 2017) (SR-PEARL-2017-004)
and Securities Exchange Act Release No. 80338 (March 29, 2017), 82
FR 16,464 (April 4, 2017).
---------------------------------------------------------------------------

    The proposed fee schedule imposes different fees on Equity ATSs and
Industry Members that are not Equity ATSs. Accordingly, the proposed
fee schedule defines the term ``Equity ATS.'' First, paragraph (a)(2)
defines an ``ATS'' to mean an alternative trading system as defined in
Rule 300(a) of Regulation ATS under the Securities Exchange Act of
1934, as amended, that operates pursuant to Rule 301 of Regulation ATS.
This is the same definition of an ATS as set forth in Section 1.1 of
the CAT NMS Plan in the definition of an ``Execution Venue.'' Then,
paragraph (a)(4) defines an ``Equity ATS'' as an ATS that executes
transactions in NMS Stocks and/or OTC Equity Securities.
    Paragraph (a)(3) of the proposed fee schedule defines the term
``CAT Fee'' to mean the Consolidated Audit Trail Funding Fee(s) to be
paid by Industry Members as set forth in paragraph (b) in the proposed
fee schedule.
    Finally, Paragraph (a)(6) defines an ``Execution Venue'' as a
Participant or an ATS (excluding any such ATS that does not execute
orders). This definition is the same substantive definition as set
forth in Section 1.1 of the CAT NMS Plan. Paragraph (a)(5) defines an
``Equity Execution Venue'' as an Execution Venue that trades NMS Stocks
and/or OTC Equity Securities.
(B) Fee Schedule
    The Exchange proposes to impose the CAT Fees applicable to its
Industry Members through paragraph (b) of the proposed fee schedule.
Paragraph (b)(1) of the proposed fee schedule sets forth the CAT Fees
applicable to Industry Members other than Equity ATSs. Specifically,
paragraph (b)(1) states that the Company will assign each Industry
Member (other than an Equity ATS) to a fee tier once every quarter,
where such tier assignment is calculated by ranking each Industry
Member based on its total message traffic for the three months prior to
the quarterly tier calculation day and assigning each Industry Member
to a tier based on that ranking and predefined Industry Member
percentages. The Industry Members with the highest total quarterly
message traffic will be ranked in Tier 1, and the Industry Members with
lowest quarterly message traffic will be ranked in Tier 9. Each
quarter, each Industry Member (other than an Equity ATS) shall pay the
following CAT Fee corresponding to the tier assigned by the Company for
such Industry Member for that quarter:

------------------------------------------------------------------------
                                           Percentage of
                  Tier                       industry      Quarterly CAT
                                              members           fee
------------------------------------------------------------------------
1.......................................           0.500        $101,004
2.......................................           2.500          81,153
3.......................................           2.125          57,717
4.......................................           4.625          19,965
5.......................................           3.625          12,489
6.......................................           4.000           7,680
7.......................................          17.500           1,503
8.......................................          20.125             435
9.......................................          45.000              66
------------------------------------------------------------------------

    Paragraph (b)(2) of the proposed fee schedule sets forth the CAT
Fees applicable to Equity ATSs.\52\ These are the same fees that
Participants that trade NMS Stocks and/or OTC Equity Securities will
pay. Specifically, paragraph (b)(2) states that the Company will assign
each Equity ATS to a fee tier once every quarter, where such tier
assignment is calculated by ranking each Equity Execution Venue based
on its total market share of NMS Stocks and OTC Equity Securities for
the three months prior to the quarterly tier calculation day and
assigning each Equity Execution Venue to a tier based on that ranking
and predefined Equity Execution Venue percentages. The Equity Execution
Venues with the higher total quarterly market share will be ranked in
Tier 1, and the Equity Execution Venues with the lower quarterly market
share will be ranked in Tier 2. Specifically, paragraph (b)(2) states
that, each quarter, each Equity ATS shall pay the following CAT Fee
corresponding to the tier assigned by the Company for such Equity ATS
for that quarter:
---------------------------------------------------------------------------

    \52\ Note that no fee schedule is provided for Execution Venue
ATSs that execute transactions in Listed Options, as no such
Execution Venue ATSs currently exist due trading restrictions
related to Listed Options.

------------------------------------------------------------------------
                                           Percentage of
                                              equity       Quarterly CAT
                  Tier                       execution          fee
                                              venues
------------------------------------------------------------------------
1.......................................           25.00         $63,375
2.......................................           75.00          38,820
------------------------------------------------------------------------

(C) Timing and Manner of Payment
    Section 11.4 of the CAT NMS Plan states that the Operating
Committee shall establish a system for the collection of fees
authorized under the CAT NMS Plan. The Operating Committee may include
such collection responsibility as a function of the Plan Processor or
another administrator. To implement the payment process to be adopted
by the Operating Committee,

paragraph (c)(1) of the proposed fee schedule states that the Company
will provide each Industry Member with one invoice each quarter for its
CAT Fees as determined pursuant to paragraph (b) of the proposed fee
schedule, regardless of whether the Industry Member is a member of
multiple self-regulatory organizations. Paragraph (c)(1) further states
that each Industry Member will pay its CAT Fees to the Company via the
centralized system for the collection of CAT Fees established by the
Company in the manner prescribed by the Company. MIAX PEARL will
provide Industry Members with details regarding the manner of payment
of CAT Fees by Regulatory Circular.
    Although the exact fee collection system and processes for CAT fees
has not yet been established, all CAT fees will be billed and collected
centrally through the Company, via the Plan Processor or otherwise.
Although each Participant will adopt its own fee schedule regarding CAT
Fees, no CAT Fees or portion thereof will be collected by the
individual Participants. Each Industry Member will receive from the
Company one invoice for its applicable CAT fees, not separate invoices
from each Participant of which it is a member. The Industry Members
will pay the CAT Fees to the Company via the centralized system for the
collection of CAT fees established by the Company.\53\
---------------------------------------------------------------------------

    \53\ Section 11.4 of the CAT NMS Plan.
---------------------------------------------------------------------------

    Section 11.4 of the CAT NMS Plan also states that Participants
shall require each Industry Member to pay all applicable authorized CAT
Fees within thirty days after receipt of an invoice or other notice
indicating payment is due (unless a longer payment period is otherwise
indicated). Section 11.4 further states that, if an Industry Member
fails to pay any such fee when due, such Industry Member shall pay
interest on the outstanding balance from such due date until such fee
is paid at a per annum rate equal to the lesser of: (i) The Prime Rate
plus 300 basis points; or (ii) the maximum rate permitted by applicable
law. Therefore, in accordance with Section 11.4 of the CAT NMS Plan,
the Exchange proposes to adopt paragraph (c)(2) of the proposed fee
schedule. Paragraph (c)(2) of the proposed fee schedule states that
each Industry Member shall pay CAT Fees within thirty days after
receipt of an invoice or other notice indicating payment is due (unless
a longer payment period is otherwise indicated). If an Industry Member
fails to pay any such fee when due, such Industry Member shall pay
interest on the outstanding balance from such due date until such fee
is paid at a per annum rate equal to the lesser of: (i) The Prime Rate
plus 300 basis points; or (ii) the maximum rate permitted by applicable
law.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule
is consistent with the provisions of Section 6(b)(5) of the Act,\54\
which require, among other things, that the Exchange rules must be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, and, in general, to
protect investors and the public interest, and not designed to permit
unfair discrimination between customers, issuers, brokers and dealers,
and Section 6(b)(4) of the Act,\55\ which requires that Exchange rules
provide for equitable allocation of reasonable dues, fees and other
charges among its members and issuers and other persons using its
facilities. As discussed above, the SEC approved the bifurcated,
tiered, fixed fee funding model in the CAT NMS Plan, finding it was
reasonable and that it equitably allocated fees among Participants and
Industry Members. The Exchange believes that the proposed tiered fees
adopted pursuant to the funding model approved by the SEC in the CAT
NMS Plan are reasonable, equitably allocated and not unfairly
discriminatory.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78f(b).
    \55\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that this proposal is consistent with the Act
because it implements, interprets or clarifies the provisions of the
Plan, and is designed to assist the Exchange and its Industry Members
in meeting regulatory obligations pursuant to the Plan. In approving
the Plan, the SEC noted that the Plan ``is necessary and appropriate in
the public interest, for the protection of investors and the
maintenance of fair and orderly markets, to remove impediments to, and
perfect the mechanism of a national market system, or is otherwise in
furtherance of the purposes of the Act.'' \56\ To the extent that this
proposal implements, interprets or clarifies the Plan and applies
specific requirements to Industry Members, the Exchange believes that
this proposal furthers the objectives of the Plan, as identified by the
SEC, and is therefore consistent with the Act.
---------------------------------------------------------------------------

    \56\ Approval Order at 84697.
---------------------------------------------------------------------------

    The Exchange believes that the proposed tiered fees are reasonable.
First, the total CAT Fees to be collected would be directly associated
with the costs of establishing and maintaining the CAT, where such
costs include Plan Processor costs and costs related to insurance,
third party services and the operational reserve. The CAT Fees would
not cover Participant services unrelated to the CAT. In addition, any
surplus CAT Fees cannot be distributed to the individual Participants;
such surpluses must be used as a reserve to offset future fees. Given
the direct relationship between the fees and the CAT costs, the
Exchange believes that the total level of the CAT Fees is reasonable.
    In addition, the Exchange believes that the proposed CAT Fees are
reasonably designed to allocate the total costs of the CAT equitably
between and among the Participants and Industry Members, and are
therefore not unfairly discriminatory. As discussed in detail above,
the proposed tiered fees impose comparable fees on similarly situated
CAT Reporters. For example, those with a larger impact on the CAT
(measured via message traffic or market share) pay higher fees, whereas
CAT Reporters with a smaller impact pay lower fees. Correspondingly,
the tiered structure lessens the impact on smaller CAT Reporters by
imposing smaller fees on those CAT Reporters with less market share or
message traffic. In addition, the funding model takes into
consideration affiliations between CAT Reporters, imposing comparable
fees on such affiliated entities.
    Moreover, the Exchange believes that the division of the total CAT
costs between Industry Members and Execution Venues, and the division
of the Execution Venue portion of total costs between Equity and
Options Execution Venues, is reasonably designed to allocate CAT costs
among CAT Reporters. The 75/25 division between Industry Members and
Execution Venues maintains the greatest level of comparability across
the funding model, keeping in view that comparability should consider
affiliations among or between CAT Reporters (e.g., firms with multiple
Industry Members or exchange licenses). Similarly, the 75/25 division
between Equity and Options Execution Venues maintains elasticity across
the funding model as well as the greatest level of fee equitability and
comparability based on the current number of Equity and Options
Execution Venues.
    Finally, the Exchange believes that the proposed fees are
reasonable because they would provide ease of calculation, ease of
billing and other administrative functions, and

predictability of a fixed fee. Such factors are crucial to estimating a
reliable revenue stream for the Company and for permitting CAT
Reporters to reasonably predict their payment obligations for budgeting
purposes.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 6(b)(8) of the Act \57\ requires that Exchange rules not
impose any burden on competition that is not necessary or appropriate.
The Exchange does not believe that the proposed amendments to its Fee
Schedule will result in any burden on competition that is not necessary
or appropriate in furtherance of the purposes of the Act. The Exchange
notes that the proposed rule change implements provisions of the CAT
NMS Plan approved by the Commission, and is designed to assist the
Exchange in meeting its regulatory obligations pursuant to the Plan.
Similarly, all national securities exchanges and FINRA are proposing
this proposed fee schedule to implement the requirements of the CAT NMS
Plan. Therefore, this is not a competitive fee filing and, therefore,
it does not raise competition issues between and among the exchanges
and FINRA.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Moreover, as previously described, the Exchange believes that the
proposed rule change fairly and equitably allocates costs among CAT
Reporters. In particular, the proposed fee schedule is structured to
impose comparable fees on similarly situated CAT Reporters, and lessen
the impact on smaller CAT Reporters. CAT Reporters with similar levels
of CAT activity will pay similar fees. For example, Industry Members
(other than Execution Venue ATSs) with higher levels of message traffic
will pay higher fees, and those with lower levels of message traffic
will pay lower fees. Similarly, Execution Venue ATSs and other
Execution Venues with larger market share will pay higher fees, and
those with lower levels of market share will pay lower fees. Therefore,
given that there is generally a relationship between message traffic
and market share to the CAT Reporter's size, smaller CAT Reporters
generally pay less than larger CAT Reporters. Accordingly, the Exchange
does not believe that the CAT Fees would have a disproportionate effect
on smaller or larger CAT Reporters. In addition, ATSs and exchanges
will pay the same fees based on market share. Therefore, the Exchange
does not believe that the fees will impose any burden on the
competition between ATSs and exchanges. Accordingly, the Exchange
believes that the proposed fees will minimize the potential for adverse
effects on competition between CAT Reporters in the market.
    Furthermore, the tiered, fixed fee funding model limits the
disincentives to providing liquidity to the market. Therefore, the
proposed fees are structured to limit burdens on competitive quoting
and other liquidity provision in the market.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\58\ and Rule 19b-4(f)(2) \59\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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    \58\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \59\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-PEARL-2017-20 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2017-20. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-PEARL-2017-20, and should be
submitted on or before June 9, 2017.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
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    \60\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10131 Filed 5-18-17; 8:45 am]
 BILLING CODE 8011-01-P