[Federal Register Volume 82, Number 239 (Thursday, December 14, 2017)]
[Notices]
[Pages 59067-59094]
[FR Doc No: 2017-27008]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82286; File No. SR-GEMX-2017-17]

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
of Amendment No. 2 to a Proposed Rule Change To Adopt Rule 7004 and
Chapter XV, Section 11

December 11, 2017.
    On May 12, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to adopt a fee
schedule to establish the fees for Industry Members related to the
National Market System Plan Governing the Consolidated Audit Trail
(``CAT NMS Plan''). The proposed rule change was published in the
Federal Register for comment on May 24, 2017.\3\ The Commission
received seven comment letters on the proposed rule change,\4\ and a
response to comments from the Participants.\5\ On June 30, 2017, the
Commission temporarily suspended and initiated proceedings to determine
whether to approve or disapprove the proposed rule change.\6\ The
Commission thereafter received seven comment letters,\7\ and a response
to comments

from the Participants.\8\ On November 6, 2017, the Exchange filed
Amendment No. 1 to the proposed rule change.\9\ On November 9, 2017,
the Commission extended the time period within which to approve the
proposed rule change or disapprove the proposed rule change to January
14, 2018.\10\ On December 6, 2017, the Exchange filed Amendment No. 2
to the proposed rule change, as described in Items I and II below,
which Items have been prepared by the Exchange.\11\ The Commission is
publishing this notice to solicit comments from interested persons on
Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 80713 (May 18,
2017), 82 FR 23956 (May 24, 2017) (``Original Proposal'').
    \4\ Since the CAT NMS Plan Participants' proposed rule changes
to adopt fees to be charged to Industry Members to fund the
consolidated audit trail are substantively identical, the Commission
is considering all comments received on the proposed rule changes
regardless of the comment file to which they were submitted. See
text accompanying notes 13-16 infra, for a list of the CAT NMS Plan
Participants. See Letter from Theodore R. Lazo, Managing Director
and Associate General Counsel, Securities Industry and Financial
Markets Association, to Brent J. Fields, Secretary, Commission
(dated June 6, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1788188-153228.pdf; Letter from
Patricia L. Cerny and Steven O'Malley, Compliance Consultants, to
Brent J. Fields, Secretary, Commission (dated June 12, 2017),
available at: https://www.sec.gov/comments/sr-cboe-2017-040/cboe2017040-1799253-153675.pdf; Letter from Daniel Zinn, General
Counsel, OTC Markets Group Inc., to Eduardo A. Aleman, Assistant
Secretary, Commission (dated June 13, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-1801717-153703.pdf; Letter from Joanna Mallers, Secretary, FIA Principal
Traders Group, to Brent J. Fields, Secretary, Commission (dated June
22, 2017), available at: https://www.sec.gov/comments/sr-cboe-2017-040/cboe2017040-1819670-154195.pdf; Letter from Stuart J. Kaswell,
Executive Vice President and Managing Director, General Counsel,
Managed Funds Association, to Brent J. Fields, Secretary, Commission
(dated June 23, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-1822454-154283.pdf; and Letter from
Suzanne H. Shatto, Investor, to Commission (dated June 27, 2017),
available at: https://www.sec.gov/comments/sr-batsedgx-2017-22/batsedgx201722-154443.pdf. The Commission also received a comment
letter which is not pertinent to these proposed rule changes. See
Letter from Christina Crouch, Smart Ltd., to Brent J. Fields,
Secretary, Commission (dated June 5, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1785545-153152.htm.
    \5\ See Letter from CAT NMS Plan Participants to Brent J.
Fields, Secretary, Commission (dated June 29, 2017), available at:
https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-1832632-154584.pdf.
    \6\ See Securities Exchange Act Release No. 81067 (June 30,
2017), 82 FR 31656 (July 7, 2017).
    \7\ See Letter from W. Hardy Callcott, Partner, Sidley Austin
LLP, to Brent J. Fields, Secretary, Commission (dated July 27,
2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2148338-157737.pdf; Letter from Kevin Coleman,
General Counsel and Chief Compliance Officer, Belvedere Trading LLC,
to Brent J. Fields, Secretary, Commission (dated July 28, 2017),
available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2148360-157740.pdf; Letter from Joanna Mallers,
Secretary, FIA Principal Traders Group, to Brent J. Fields,
Secretary, Commission (dated July 28, 2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2151228-157745.pdf; Letter from Theodore R. Lazo, Managing Director and
Associate General Counsel, SIFMA, to Brent J. Fields, Secretary,
Commission (dated July 28, 2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2150977-157744.pdf; Letter
from Stuart J. Kaswell, Executive Vice President and Managing
Director, General Counsel, Managed Funds Association, to Brent J.
Fields, Secretary, Commission (dated July 28, 2017), available at:
https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2150818-157743.pdf; Letter from John Kinahan, Chief Executive
Officer, Group One Trading, L.P., to Brent J. Fields, Secretary,
Commission (dated August 10, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-2214568-160619.pdf; Letter from Joseph Molluso, Executive Vice President and
CFO, Virtu Financial, to Brent J. Fields, Commission (dated August
18, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-2238648-160830.pdf.
    \8\ See Letter from Michael Simon, Chair, CAT NMS Plan Operating
Committee, to Brent J. Fields, Commission, Secretary (dated November
2, 2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2674608-161412.pdf.
    \9\ Amendment No. 1 to the proposed rule change replaced and
superseded the Original Proposal in its entirety. Amendment No. 1 is
available on the Commission's website for GEMX at: https://www.sec.gov/comments/sr-gemx-2017-17/gemx201717-2673139-161452.pdf.
    \10\ See Securities Exchange Act Release No. 82049 (November 9,
2017), 82 FR 53549 (November 16, 2017).
    \11\ Amendment No. 2 replaces and supersedes Amendment No. 1 in
its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    On May 12, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange''), filed
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
proposed rule change SR-GEMX-2017-17 (the ``Original Proposal''),
pursuant to which the Exchange proposed 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'').\12\ On November 6, 2017, the Exchange filed an
amendment to the Original Proposal (``Amendment No. 1''), which
replaced the Original Proposal in its entirety. The Exchange is now
filing this Amendment No. 2 to replace Amendment No. 1 in its entirety.
This Amendment No. 2 describes the changes from the Original Proposal.
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    \12\ Unless otherwise specified, capitalized terms used in this
fee filing are defined as set forth herein, the CAT Compliance Rule
Series, in the CAT NMS Plan, or the Original Proposal.
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    With this Amendment, the Exchange is including Exhibit 4, which
reflects the changes to the text of the proposed rule change as set
forth in the Original Proposal, and Exhibit 5, which reflects all
proposed changes to the Exchange's current rule text.
    The text of the proposed rule change is available on the Exchange's
website at http://nasdaqgemx.cchwallstreet.com/, at the principal
office of the Exchange, 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
Statutory Basis for, the Proposed Rule Change

1. Purpose
    BOX Options Exchange LLC, Cboe BYX Exchange, Inc., Cboe BZX
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc.,
Cboe C2 Exchange, Inc., Cboe Exchange, Inc.,\13\ 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,\14\ Nasdaq PHLX LLC, The Nasdaq Stock
Market LLC, New York Stock Exchange LLC, NYSE American LLC,\15\ NYSE
Arca, Inc. and NYSE National, Inc.\16\ (collectively, the
``Participants'') filed with the Commission, pursuant to Section 11A of
the Exchange Act \17\ and Rule 608 of Regulation NMS thereunder,\18\
the CAT NMS Plan.\19\ 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,\20\ and
approved by the Commission, as modified, on November 15, 2016.\21\ 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.\22\ 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'').\23\ 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.\24\ Accordingly, the Exchange
submitted the Original Proposal to propose the Consolidated Audit Trail
Funding Fees, which would require Industry Members that are SRO members
to pay the CAT Fees determined by the Operating Committee.
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    \13\ Note that Bats BYX Exchange, Inc., Bats BZX Exchange, Inc.,
Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., LLC, C2 Options
Exchange, Incorporated, and Chicago Board Options Exchange,
Incorporated, have been renamed Cboe BYX Exchange, Inc., Cboe BZX
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc.,
Cboe C2 Exchange, Inc., Cboe Exchange, Inc., respectively.
    \14\ 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 Release No. 80248 (March 15, 2017), 82 FR 14547 (March 21,
2017); Securities Exchange Act Release No. 80326 (March 29, 2017),
82 FR 16460 (April 4, 2017); and Securities Exchange Act Release No.
80325 (March 29, 2017), 82 FR 16445 (April 4, 2017).
    \15\ NYSE MKT LLC has been renamed NYSE American LLC. See
Securities Exchange Act Release No. 80283 (March 21, 2017), 82 FR
15244 (March 27, 2017).
    \16\ National Stock Exchange, Inc. has been renamed NYSE
National, Inc. See Securities Exchange Act Release No. 79902
(January 30, 2017), 82 FR 9258 (February 3, 2017).
    \17\ 15 U.S.C. 78k-1.
    \18\ 17 CFR 242.608.
    \19\ 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.
    \20\ Securities Exchange Act Release No. 77724 (April 27, 2016),
81 FR 30614 (May 17, 2016).
    \21\ Securities Exchange Act Release No. 79318 (November 15,
2016), 81 FR 84696 (November 23, 2016) (``Approval Order'').
    \22\ The Plan also serves as the limited liability company
agreement for the Company.
    \23\ Section 11.1(b) of the CAT NMS Plan.
    \24\ Id.
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    The Commission published the Original Proposal for public comment
in the Federal Register on May 24, 2017,\25\ and received comments in
response to

the Original Proposal or similar fee filings by other Participants.\26\
On June 30, 2017, the Commission suspended, and instituted proceedings
to determine whether to approve or disapprove, the Original
Proposal.\27\ The Commission received seven comment letters in response
to those proceedings.\28\
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    \25\ See Securities Exchange Act Release No. 80713 (May 18,
2017), 82 FR 23956 (May 24, 2017) (SR-GEMX-2017-17).
    \26\ For a summary of comments, see generally Securities
Exchange Act Release No. 81067 (June 30, 2017), 82 FR 31656 (July 7,
2017) (``Suspension Order'').
    \27\ Suspension Order.
    \28\ See Letter from Stuart J. Kaswell, Executive Vice
President, Managing Director and General Counsel, Managed Funds
Association, to Brent J. Fields, Secretary, SEC (July 28, 2017)
(``MFA Letter''); Letter from Theodore R. Lazo, Managing Director
and Associate General Counsel, SIFMA, to Brent J. Fields, Secretary,
SEC (July 28, 2017) (``SIFMA Letter''); Joanna Mallers, Secretary,
FIA Principal Traders Group, to Brent J. Fields, Secretary, SEC
(July 28, 2017) (``FIA Principal Traders Group Letter''); Letter
from Kevin Coleman, General Counsel & Chief Compliance Officer,
Belvedere Trading LLC, to Brent J. Fields, Secretary, SEC (July 28,
2017) (``Belvedere Letter''); Letter from W. Hardy Callcott, Sidley
Austin LLP, to Brent J. Fields, Secretary, SEC (July 27, 2017)
(``Sidley Letter''); Letter from John Kinahan, Chief Executive
Officer, Group One Trading, L.P., to Brent J. Fields, Secretary, SEC
(Aug. 10, 2017) (``Group One Letter''); and Letter from Joseph
Molluso, Executive Vice President, Virtu Financial, to Brent J.
Fields, Secretary, SEC (Aug. 18, 2017) (``Virtu Financial Letter'').
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    In response to the comments on the Original Proposal, the Operating
Committee determined to make the following changes to the funding
model: (1) Adds two additional CAT Fee tiers for Equity Execution
Venues; (2) discounts the OTC Equity Securities market share of
Execution Venue ATSs trading OTC Equity Securities as well as the
market share of the FINRA over-the-counter reporting facility (``ORF'')
by the average shares per trade ratio between NMS Stocks and OTC Equity
Securities (calculated as 0.17% based on available data from the second
quarter of 2017) when calculating the market share of Execution Venue
ATS trading OTC Equity Securities and FINRA; (3) discounts the Options
Market Maker quotes by the trade to quote ratio for options (calculated
as 0.01% based on available data for June 2016 through June 2017) when
calculating message traffic for Options Market Makers; (4) discounts
equity market maker quotes by the trade to quote ratio for equities
(calculated as 5.43% based on available data for June 2016 through June
2017) when calculating message traffic for equity market makers; (5)
decreases the number of tiers for Industry Members (other than the
Execution Venue ATSs) from nine to seven; (6) changes the allocation of
CAT costs between Equity Execution Venues and Options Execution Venues
from 75%/25% to 67%/33%; (7) adjusts tier percentages and recovery
allocations for Equity Execution Venues, Options Execution Venues and
Industry Members (other than Execution Venue ATSs); (8) focuses the
comparability of CAT Fees on the individual entity level, rather than
primarily on the comparability of affiliated entities; (9) commences
invoicing of CAT Reporters as promptly as possible following the latest
of the operative date of the Consolidated Audit Trail Funding Fees for
each of the Participants and the operative date of the CAT NMS Plan
amendment adopting CAT Fees for Participants; and (10) requires the
proposed fees to automatically expire two years from the operative date
of the CAT NMS Plan amendment adopting CAT Fees for Participants. As
discussed in detail below, the Exchange proposes to amend the Original
Proposal to reflect these changes.
(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, as amended by this Amendment. A
detailed description of the CAT funding model and the CAT Fees, as
amended by this Amendment, as well as the changes made to the Original
Proposal 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 used in calculating 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. Although the CAT
costs from November 21, 2016 through November 21, 2017 were used in
calculating the CAT Fees, the CAT Fees set forth in this fee filing
would be in effect until the automatic sunset date, as discussed below.
(See Section 3(a)(2)(E) below)
     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)
below)
     Industry Member Fees. Each Industry Member (other than
Execution Venue ATSs) will be placed into one of seven 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, quotes and executions 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. To avoid disincentives to quoting behavior,
Options Market Maker and equity market maker quotes will be discounted
when calculating message traffic. (See Section 3(a)(2)(B) below)
     Execution Venue Fees. Each Equity Execution Venue will be
placed in one of four 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. For purposes of calculating market share, the OTC Equity
Securities market share of Execution Venue ATSs trading OTC Equity
Securities as well as the market share of the FINRA ORF will be
discounted. 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) 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 67 percent of
Execution Venue costs recovered to Equity Execution Venues and 33
percent to Options Execution Venues. (See Section 3(a)(2)(D) below)
     Comparability of Fees. The CAT funding model charges CAT
Reporters with the most CAT-related activity (measured by market share
and/or message traffic, as applicable) comparable CAT Fees. (See
Section 3(a)(2)(F) 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) 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) 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. Each Industry
Member 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) below)
     Billing Commencement. Industry Members will begin to
receive invoices for CAT Fees as promptly as possible following the
latest of the operative date of the Consolidated Audit Trail Funding
Fees for each of the Participants and the operative date of the Plan
amendment adopting CAT Fees for Participants. (See Section 3(a)(2)(G)
below)
     Sunset Provision. The Consolidated Audit Trail Funding
Fees will sunset automatically two years from the operative date of the
CAT NMS Plan amendment adopting CAT Fees for Participants. (See Section
3(a)(2)(J) 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. In addition to a budget,
Article XI of the CAT NMS Plan provides that the Operating Committee
has discretion to establish funding for the Company, consistent with 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'' \29\ and ``reflects a
reasonable exercise of the Participants' funding authority to recover
the Participants' costs related to the CAT.'' \30\
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    \29\ Approval Order at 84796.
    \30\ 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.'' \31\ The Commission further noted
the following:
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    \31\ Id. at 84795.

    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.\32\
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    \32\ Id. at 84794.

Accordingly, the funding model approved by the Operating Committee
imposes fees on both Participants and Industry Members.
    As discussed in Appendix C of the CAT NMS Plan, in developing and
approving the approved funding model, the Operating Committee
considered the advantages and disadvantages of a variety of alternative
funding and cost allocation models before selecting the proposed
model.\33\ 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.
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    \33\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85006.
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    In particular, 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. 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.
    In addition, reviews from varying time periods 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.\34\ In addition, in
choosing a tiered fee structure, the Operating Committee concluded that
the variety of benefits offered by a tiered fee structure, discussed
above, outweighed the fact that CAT Reporters in any particular tier
would pay different rates per message traffic order event or per market
share (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.\35\ The Operating Committee 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 message traffic which will reflect the relative
impact of CAT Reporters on the CAT System.
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    \34\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85006.
    \35\ 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 may be
easier to implement.'' Approval Order at 84796.
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    Accordingly, the CAT NMS Plan contemplates that costs will be
allocated across the CAT Reporters on a tiered basis in order to
allocate higher costs to those CAT Reporters that contribute more to
the costs of creating, implementing and maintaining the CAT

and lower costs to those that contribute less.\36\ 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 will 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.\37\ Correspondingly, Execution Venues with the
highest market shares will be in the top tier, and will be charged
higher fees. Execution Venues with the lowest market shares will be in
the lowest tier and will be assessed smaller fees for the CAT.\38\
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    \36\ Approval Order at 85005.
    \37\ Id.
    \38\ Id.
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    The CAT NMS Plan states that Industry Members (other than Execution
Venue ATSs) will be charged based on message traffic, and that
Execution Venues will be charged based on market share.\39\ 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.\40\ 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.\41\
---------------------------------------------------------------------------

    \39\ Section 11.3(a) and (b) of the CAT NMS Plan.
    \40\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85005.
    \41\ Section 11.3(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    In contrast to Industry Members, which determine the degree to
which they produce message traffic that constitute CAT Reportable
Events, the CAT Reportable Events of the Execution Venues are largely
derivative of quotations and orders received from Industry Members that
they are required to display. The business model for Execution Venues
(other than FINRA), however, is focused on executions in their markets.
As a result, the Operating Committee believes that it is more equitable
to charge Execution Venues based on their market share rather than
their message traffic.
    Focusing on message traffic would make it more difficult to draw
distinctions between large and small Execution Venues and, in
particular, between large and small options exchanges. For instance,
the Operating Committee analyzed the message traffic of Execution
Venues and Industry Members for the period of April 2017 to June 2017
and placed all CAT Reporters into a nine-tier framework (i.e., a single
tier may include both Execution Venues and Industry Members). The
Operating Committee's analysis found that the majority of exchanges (15
total) were grouped in Tiers 1 and 2. Moreover, virtually all of the
options exchanges were in Tiers 1 and 2.\42\ Given the resulting
concentration of options exchanges in Tiers 1 and 2 under this
approach, the analysis shows that a funding model for Execution Venues
based on message traffic would make it more difficult to distinguish
between large and small options exchanges, as compared to the proposed
fee approach that bases fees for Execution Venues on market share.
---------------------------------------------------------------------------

    \42\ The Operating Committee notes that this analysis did not
place MIAX PEARL in Tier 1 or Tier 2 since the exchange commenced
trading on February 6, 2017.
---------------------------------------------------------------------------

    The CAT NMS Plan's funding model also is structured to avoid a
``reduction in market quality.'' \43\ The tiered, fixed fee funding
model is designed to limit the disincentives to providing liquidity to
the market. For example, the Operating Committee expects that a firm
that has 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 are 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.'' \44\
---------------------------------------------------------------------------

    \43\ Section 11.2(e) of the CAT NMS Plan.
    \44\ Approval Order at 84796.
---------------------------------------------------------------------------

    The funding model also is structured to avoid a reduction market
quality because it discounts Options Market Maker and equity market
maker quotes when calculating message traffic for Options Market Makers
and equity market makers, respectively. As discussed in more detail
below, the Operating Committee determined to discount the Options
Market Maker quotes by the trade to quote ratio for options when
calculating message traffic for Options Market Makers. Similarly, to
avoid disincentives to quoting behavior on the equities side as well,
the Operating Committee determined to discount equity market maker
quotes by the trade to quote ratio for equities when calculating
message traffic for equity market makers. The proposed discounts
recognize the value of the market makers' quoting activity to the
market as a whole.
    The CAT NMS Plan is further structured to avoid potential conflicts
raised by the Operating Committee determining fees applicable to its
own members--the Participants. First, the Company will operate 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.\45\ 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.'' \46\ 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.'' \47\ The Internal Revenue Service recently
has determined that the Company is exempt from federal income tax under
Section 501(c)(6) of the Internal Revenue Code.
---------------------------------------------------------------------------

    \45\ Id. at 84792.
    \46\ 26 U.S.C. 501(c)(6).
    \47\ Approval Order at 84793.
---------------------------------------------------------------------------

    The funding model also is structured to take into account
distinctions in the securities trading operations of Participants and
Industry Members. For example, the Operating Committee designed the
model to address the different trading characteristics in the OTC
Equity Securities market. Specifically, the Operating Committee
proposes to discount the OTC Equity Securities market share of
Execution Venue ATSs trading OTC Equity Securities as well as the
market share of the FINRA ORF by the average shares per trade ratio
between NMS Stocks and OTC Equity Securities to adjust for the greater
number of shares being traded in

the OTC Equity Securities market, which is generally a function of a
lower per share price for OTC Equity Securities when compared to NMS
Stocks. In addition, the Operating Committee also proposes to discount
Options Market Maker and equity market maker message traffic in
recognition of their role in the securities markets. Furthermore, the
funding model creates separate tiers for Equity and Options Execution
Venues due to the different trading characteristics of those markets.
    Finally, by adopting a CAT-specific fee, the Operating Committee
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 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 seven tiers
results in an allocation of fees that distinguishes between Industry
Members with differing levels of message traffic. Thus, each such
Industry Member will be placed into one of seven tiers of fixed fees,
based on ``message traffic'' for a defined period (as discussed below).
    A seven tier structure was selected to provide a wide 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 from multiple time periods, 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 seven tiers 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. Furthermore, the selection of seven tiers
establishes comparable fees among the largest CAT Reporters.
    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 ensure that the total CAT Fees collected recover
the expected 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 seven tiers that would group firms with similar levels of
message traffic.
    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
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 seven Industry
Member tiers across the monthly average of total equity and equity
options orders, cancels, quotes and executions in the second quarter of
2017 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 driven by fixed percentages of Industry
Members across tiers to account for fluctuating levels of message
traffic over time. This approach also provides financial stability for
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)(2)(I).
[GRAPHIC] [TIFF OMITTED] TN14DE17.015

------------------------------------------------------------------------
                                        Approximate message traffic per
        Industry Member tier          Industry Member (Q2 2017) (orders,
                                        quotes, cancels and executions)
------------------------------------------------------------------------
Tier 1..............................                     >10,000,000,000
Tier 2..............................        1,000,000,000-10,000,000,000
Tier 3..............................           100,000,000-1,000,000,000
Tier 4..............................               1,000,000-100,000,000
Tier 5..............................                   100,000-1,000,000
Tier 6..............................                      10,000-100,000
Tier 7..............................                             <10,000
------------------------------------------------------------------------

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

----------------------------------------------------------------------------------------------------------------
                                                                                Percentage of
                                                                   Percentage of     Industry      Percentage of
                      Industry Member tier                           Industry         Member      total recovery
                                                                      Members        Recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.900           12.00            9.00
Tier 2..........................................................           2.150           20.50           15.38
Tier 3..........................................................           2.800           18.50           13.88
Tier 4..........................................................           7.750           32.00           24.00
Tier 5..........................................................           8.300           10.00            7.50
Tier 6..........................................................          18.800            6.00            4.50
Tier 7..........................................................          59.300            1.00            0.75
                                                                 -----------------------------------------------
    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, quotes and executions provided by each
exchange and FINRA over the previous three months. 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
executions originated by a member of FINRA, and excluding order
rejects, system-modified orders, order routes and implied orders.\48\
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) and multiple cancels of a complex order.
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. Additionally, prior to the start of CAT
reporting, executions would be comprised of the total number of equity
and equity option executions received or originated by a member of an
exchange or FINRA over a three-month period.
---------------------------------------------------------------------------

    \48\ 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.\49\
---------------------------------------------------------------------------

    \49\ If an Industry Member (other than an Execution Venue ATS)
has no orders, cancels, quotes and executions 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.
---------------------------------------------------------------------------

    Quotes of Options Market Makers and equity market makers will be
included in the calculation of total message traffic for those market
makers for purposes of tiering under the CAT funding model both prior
to CAT reporting and once CAT reporting commences.\50\ To address
potential concerns regarding burdens on competition or market quality
of including quotes in the calculation of message traffic, however, the
Operating Committee determined to discount the Options Market Maker
quotes by the trade to quote ratio for options when calculating message
traffic for Options Market Makers. Based on available data for June
2016 through June 2017, the trade to quote ratio for options is 0.01%.
Similarly, to avoid disincentives to quoting behavior on the equities
side, the Operating Committee determined to discount equity market
maker quotes by the trade to quote ratio for equities. Based on
available data for June 2016 through June 2017, the trade to quote
ratio for equities is 5.43%.\51\ The trade to quote ratio for options
and the trade to quote ratio for equities will be calculated every
three months when tiers are recalculated (as discussed below).
---------------------------------------------------------------------------

    \50\ 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 (March 1, 2017), 81 FR 11856 (March 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.
    \51\ The trade to quote ratios were calculated based on the
inverse of the average of the monthly equity SIP and OPRA quote to
trade ratios from June 2016-June 2017 that were compiled by the
Financial Information Forum using data from Nasdaq and SIAC.
---------------------------------------------------------------------------

    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).'' \52\
---------------------------------------------------------------------------

    \52\ 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 Operating Committee determined that ATSs should be included
within the definition of Execution Venue. The Operating Committee
believes that it is appropriate to treat ATSs as Execution Venues under
the proposed funding model since ATSs have business models that are
similar to those of exchanges, and ATSs also compete with exchanges.
    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 such 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 four tiers of fixed fees, based on the Execution Venue's NMS Stocks
and OTC Equity Securities market share. In choosing four 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 four tiers for Equity
Execution Venues, rather than a larger number of tiers as established
for non-Execution Venue Industry Members, because the four tiers were
sufficient to distinguish between the smaller number of Equity
Execution Venues based on market share. Furthermore, the selection of
four tiers serves to help establish comparability among the largest CAT
Reporters.
    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 reviewed
historical market share of share volume for Execution Venues. Equity
Execution Venue market shares of share volume were sourced from market
statistics made publicly-available by Bats Global Markets, Inc.
(``Bats''). ATS market shares of share volume was sourced from market
statistics made publicly-available by FINRA. FINRA trade reporting
facility (``TRF'') and ORF market share of share volume was sourced
from market statistics made publicly available by FINRA. Based on data
from FINRA and otcmarkets.com, ATSs accounted for 39.12% of the share
volume across the TRFs and ORFs during the recent tiering period. A
39.12/60.88 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 market share of share volume.
    The Operating Committee determined to discount the OTC Equity
Securities market share of Execution Venue ATSs trading OTC Equity
Securities as well as the market share of the FINRA ORF in recognition
of the different trading characteristics of the OTC Equity Securities
market as compared to the market in NMS Stocks. Many OTC Equity
Securities are priced at less than one dollar--and a significant number
at less than one penny--per share and low-priced shares tend to trade
in larger quantities. Accordingly, a disproportionately large number of
shares are involved in transactions involving OTC Equity Securities
versus NMS Stocks. Because the proposed fee tiers are based on market
share calculated by share volume, Execution Venue ATSs trading OTC
Equity Securities and FINRA would likely be subject to higher tiers
than their operations may warrant. To address this potential concern,
the Operating Committee determined to discount the OTC Equity
Securities market share of Execution Venue ATSs trading OTC Equity
Securities and the market share of the FINRA ORF by multiplying such
market share by the average shares per trade ratio between NMS Stocks
and OTC Equity Securities in order to adjust for the greater number of
shares being traded in the OTC Equity Securities market. Based on
available data for the second quarter of 2017, the average shares per
trade ratio between NMS Stocks and OTC Equity Securities is 0.17%.\53\
The average shares per trade ratio between NMS Stocks and OTC Equity
Securities will be recalculated every three months when tiers are
recalculated.
---------------------------------------------------------------------------

    \53\ The average shares per trade ratio for both NMS Stocks and
OTC Equity Securities from the second quarter of 2017 was calculated
using publicly available market volume data from Bats and OTC
Markets Group, and the totals were divided to determine the average
number of shares per trade between NMS Stocks and OTC Equity
Securities.
---------------------------------------------------------------------------

    Based on this, the Operating Committee considered the distribution
of Execution Venues, and grouped together Execution Venues with similar
levels of market share. 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 to be recovered
from 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 cost recovery 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, by using percentages
of Equity Execution Venues and cost recovery per tier, the Operating
Committee sought to include 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
               Equity Execution Venue tier                    Equity       Percentage of   Percentage of
                                                                     Execution       Execution    total recovery
                                                                      Venues      Venue Recovery
----------------------------------------------------------------------------------------------------------------
 Tier 1.................................................   25.00   33.25    8.31
 Tier 2.................................................   42.00   25.73    6.43
 Tier 3.................................................   23.00    8.00    2.00
 Tier 4.................................................   10.00    0.02    0.01
                                                                 -----------------------------------------------
     Total..............................................     100      67   16.75
----------------------------------------------------------------------------------------------------------------

(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, 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. Furthermore, the selection of
two tiers served to establish comparable fees among the largest CAT
Reporters.
    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 to be recovered from 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 cost recovery 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 cost recovery per tier, the
Operating Committee sought to include 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
               Options Execution Venue tier                   Options      Percentage of   Percentage of
                                                                     Execution       Execution    total recovery
                                                                      Venues      Venue Recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           28.25            7.06

Tier 2..........................................................           25.00            4.75            1.19
                                                                 -----------------------------------------------
    Total.......................................................             100              33            8.25
----------------------------------------------------------------------------------------------------------------

(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 and OTC Markets. 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 (with the discounting of OTC Equity Securities
market share of Execution Venue ATSs trading OTC Equity Securities as
well as the market share of the FINRA ORF, as described above).
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 recovery from
such Industry Members and Execution Venues, including 80%/20%, 75%/25%,
70%/30% and 65%/35% allocations. 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. For example, the cost
allocation establishes fees for the largest Industry Members (i.e.,
those Industry Members in Tiers 1) that are comparable to the largest
Equity Execution Venues and Options Execution Venues (i.e., those
Execution Venues in Tier 1).
    Furthermore, the allocation of total CAT cost recovery 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 23
times more Industry Members expected to report to the CAT than
Execution Venues (e.g., an estimated 1541 Industry Members versus 67
Execution Venues as of June 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 67 percent of Execution Venue costs recovered to
Equity Execution Venues and 33 percent to Options Execution Venues. The
Operating Committee determined that a 67%/33% allocation between Equity
and Options Execution Venues maintained 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. Specifically, Tier 1 Equity Execution
Venues would pay a quarterly fee of $81,047 and Tier 1 Options
Execution Venues would pay a quarterly fee of $81,379. 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.\54\
---------------------------------------------------------------------------

    \54\ It is anticipated that CAT-related costs incurred prior to
November 21, 2016 will be addressed via a separate filing.
---------------------------------------------------------------------------

    The Plan Processor costs relate to costs incurred and to be
incurred through November 21, 2017 by the Plan Processor and consist of
the Plan Processor's current estimates of average yearly ongoing costs,
including development costs, which total $37,500,000. This amount is
based upon the fees due to the Plan Processor pursuant to the Company's
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 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 cyber-insurance costs for the year. Based on discussions with
potential cyber-insurance providers, assuming $2-5 million cyber-
insurance premium on $100 million coverage, the Company has estimated
$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 CAT operational reserve,
which is comprised of three months of ongoing Plan Processor costs
($9,375,000), third party support costs ($1,300,000) and cyber-
insurance costs ($750,000). The Operating Committee aims to accumulate
the necessary funds to establish 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 to replenish 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 estimated CAT costs of $50,700,000 for the
covered period.

------------------------------------------------------------------------
         Cost category                Cost component          Amount
------------------------------------------------------------------------
Plan Processor.................  Operational Costs......     $37,500,000
                                 Third Party Support           5,200,000
                                  Costs.
Non-Plan Processor.............  Operational Reserve....  \55\ 5,000,000
                                 Cyber-insurance Costs..       3,000,000
                                                         ---------------
                                 Estimated Total........      50,700,000
------------------------------------------------------------------------

    Based on these estimated costs and the calculations for the funding
model described above, the Operating Committee determined to impose the
following fees: \56\
---------------------------------------------------------------------------

    \55\ This $5,000,000 represents the gradual accumulation of the
funds for a target operating reserve of $11,425,000.
    \56\ Note that all monthly, quarterly and annual CAT Fees have
been rounded to the nearest dollar.
---------------------------------------------------------------------------

    For Industry Members (other than Execution Venue ATSs):

------------------------------------------------------------------------
                                                 Percentage
                     Tier                       of Industry   Quarterly
                                                  Members      CAT fee
------------------------------------------------------------------------
1.............................................        0.900      $81,483
2.............................................        2.150       59,055
3.............................................        2.800       40,899
4.............................................        7.750       25,566
5.............................................        8.300        7,428
6.............................................       18.800        1,968
7.............................................       59.300          105
------------------------------------------------------------------------

    For Execution Venues for NMS Stocks and OTC Equity Securities:

------------------------------------------------------------------------
                                           Percentage of
                                              Equity       Quarterly CAT
                  Tier                       Execution          fee
                                              Venues
------------------------------------------------------------------------
1.......................................           25.00         $81,048
2.......................................           42.00          37,062
3.......................................           23.00          21,126
4.......................................           10.00             129
------------------------------------------------------------------------

    For Execution Venues for Listed Options:

------------------------------------------------------------------------
                                           Percentage of
                                              Options      Quarterly CAT
                  Tier                       Execution          fee
                                              Venues
------------------------------------------------------------------------
1.......................................           75.00         $81,381
2.......................................           25.00          37,629
------------------------------------------------------------------------

    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 Fees assumes 52 Equity Execution Venues, 15 Options Execution
Venues and 1,541 Industry Members (other than Execution Venue ATSs) as
of June 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............................................           0.900           12.00            9.00
Tier 2............................................           2.150           20.50           15.38
Tier 3............................................           2.800           18.50           13.88
Tier 4............................................           7.750           32.00           24.00
Tier 5............................................           8.300           10.00            7.50
Tier 6............................................          18.800            6.00            4.50
Tier 7............................................          59.300            1.00            0.75
                                                   -------------------------------------------------------------
    Total.........................................             100             100              75
----------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------
                                                             Estimated
                                                             number of
                  Industry Member tier                       Industry
                                                              Members
------------------------------------------------------------------------
Tier 1..................................................              14
Tier 2..................................................              33
Tier 3..................................................              43
Tier 4..................................................             119
Tier 5..................................................             128
Tier 6..................................................             290
Tier 7..................................................             914
                                                         ---------------
    Total...............................................           1,541
------------------------------------------------------------------------

[GRAPHIC] [TIFF OMITTED] TN14DE17.016

                           Calculation of Annual Tier Fees for Equity Execution Venues
                                                    [``EV'']
----------------------------------------------------------------------------------------------------------------

                                                                   Percentage of
               Equity Execution Venue tier                    Equity       Percentage of   Percentage of
                                                                     Execution       Execution    total recovery
                                                                      Venues      Venue Recovery
----------------------------------------------------------------------------------------------------------------
 Tier 1.................................................   25.00   33.25    8.31
 Tier 2.................................................   42.00   25.73    6.43
 Tier 3.................................................   23.00    8.00    2.00
 Tier 4.................................................   10.00   49.00    0.01
                                                                 -----------------------------------------------
     Total..............................................     100      67   16.75
----------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------
                                                             Estimated
                                                             number of
               Equity Execution Venue tier                    Equity
                                                             Execution
                                                              Venues
------------------------------------------------------------------------
Tier 1..................................................              13
Tier 2..................................................              22
Tier 3..................................................              12
Tier 4..................................................               5
                                                         ---------------
    Total...............................................              52
------------------------------------------------------------------------

                                                          [GRAPHIC] [TIFF OMITTED] TN14DE17.017

                          Calculation of Annual Tier Fees for Options Execution Venues
                                                    [``EV'']
----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      Options      Percentage of   Percentage of
                  Options Execution Venue tier                       Execution       Execution    total recovery
                                                                      Venues      Venue Recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           28.25            7.06
Tier 2..........................................................           25.00            4.75            1.19
                                                                 -----------------------------------------------

    Total.......................................................             100              33            8.25
----------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------
                                                             Estimated
                                                             number of
              Options Execution Venue tier                    Options
                                                             Execution
                                                              Venues
------------------------------------------------------------------------
Tier 1..................................................              11
Tier 2..................................................               4
                                                         ---------------
    Total...............................................              15
------------------------------------------------------------------------

                                                          [GRAPHIC] [TIFF OMITTED] TN14DE17.018

                                         Traceability of Total CAT Fees
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated
                Type                     Industry Member tier        number of     CAT fees paid  Total recovery
                                                                      Members        annually
----------------------------------------------------------------------------------------------------------------
Industry Members....................  Tier 1....................              14        $325,932      $4,563,048
                                      Tier 2....................              33         236,220       7,795,260
                                      Tier 3....................              43         163,596       7,034,628
                                      Tier 4....................             119         102,264      12,169,416
                                      Tier 5....................             128          29,712       3,803,136
                                      Tier 6....................             290           7,872       2,282,880
                                      Tier 7....................             914             420         383,880
                                                                 -----------------------------------------------
    Total...........................  ..........................           1,541  ..............      38,032,248
----------------------------------------------------------------------------------------------------------------
Equity Execution Venues.............  Tier 1....................              13         324,192       4,214,496
                                      Tier 2....................              22         148,248       3,261,456
                                      Tier 3....................              12          84,504       1,014,048
                                      Tier 4....................               5             516           2,580
                                                                 -----------------------------------------------
    Total...........................  ..........................              52  ..............       8,492,580
----------------------------------------------------------------------------------------------------------------
Options Execution Venues............  Tier 1....................              11         325,524       3,580,764
                                      Tier 2....................               4         150,516         602,064
                                                                 -----------------------------------------------
    Total...........................  ..........................              15  ..............       4,182,828
----------------------------------------------------------------------------------------------------------------
        Total.......................  ..........................  ..............  ..............      50,700,000
----------------------------------------------------------------------------------------------------------------
        Excess \57\.................  ..........................  ..............  ..............           7,656
----------------------------------------------------------------------------------------------------------------

(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
establish comparable fees for the top tier of Industry Members (other
than Execution Venue ATSs), Equity Execution Venues and Options
Execution Venues. Specifically, each Tier 1 CAT Reporter would be
required to pay a quarterly fee of approximately $81,000.
---------------------------------------------------------------------------

    \57\ The amount in excess of the total CAT costs will contribute
to the gradual accumulation of the target operating reserve of
$11.425 million.
---------------------------------------------------------------------------

(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. In accordance with the CAT NMS Plan, all CAT Reporters,
including both Industry Members and Execution Venues (including
Participants), will be invoiced as promptly as possible following the
latest of the operative date of the Consolidated Audit Trail Funding
Fees for each of the Participants and the operative date of the Plan
amendment adopting CAT Fees for Participants.
(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.\58\ 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.\59\ 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 Operating Committee will
file such changes with the SEC pursuant to Rule 608 of the Exchange
Act, and the Participants will file such changes with the SEC pursuant
to Section 19(b) of the Exchange Act and Rule 19b-4 thereunder, and any
such changes will become effective in accordance with the requirements
of those provisions.
---------------------------------------------------------------------------

    \58\ 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.
    \59\ 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. 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 assignment 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 also 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.

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

    For each periodic tier reassignment, the Operating Committee will
review the new tier assignments, particularly those assignments for CAT
Reporters that shift from the lowest tier to a higher tier. This review
is intended to evaluate whether potential changes to the market or CAT
Reporters (e.g., dissolution of a large CAT Reporter) adversely affect
the tier reassignments.
(J) Sunset Provision
    The Operating Committee developed the proposed funding model by
analyzing currently available historical data. Such historical data,
however, is not as comprehensive as data that will be submitted to the
CAT. Accordingly, the Operating Committee believes that it will be
appropriate to revisit the funding model once CAT Reporters have actual
experience with the funding model. Accordingly, the Operating Committee
determined to include an automatic sunsetting provision for the
proposed fees. Specifically, the Operating Committee determined that
the CAT Fees should automatically expire two years after the operative
date of the CAT NMS Plan amendment adopting CAT Fees for Participants.
The Operating Committee intends to monitor the operation of the funding
model during this two year period and to evaluate its effectiveness
during that period. Such a process will inform the Operating
Committee's approach to funding the CAT after the two year period.
(3) Proposed CAT Fee Schedule
    The Exchange proposes the Consolidated Audit Trail Funding Fees to
impose the CAT Fees determined by the Operating Committee on the
Exchange's members. The proposed fee schedule has four sections,
covering definitions, the fee schedule for CAT Fees, the timing and
manner of payments, and the automatic sunsetting of the CAT Fees. 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'', ``CAT NMS Plan,'' ``Industry Member,'' ``NMS Stock,''
``OTC Equity Security'', ``Options Market Maker'', and ``Participant''
are defined as set forth in Rule 900 (Consolidated Audit Trail--
Definitions).
    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 (with discounts for equity
market maker quotes and Options Market Maker quotes based on the trade
to quote ratio for equities and options, respectively) 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 7.
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
                     Tier                       of Industry   Quarterly
                                                  Members      CAT fee
------------------------------------------------------------------------
1.............................................        0.900      $81,483
2.............................................        2.150       59,055
3.............................................        2.800       40,899
4.............................................        7.750       25,566
5.............................................        8.300        7,428
6.............................................       18.800        1,968
7.............................................       59.300          105
------------------------------------------------------------------------

    Paragraph (b)(2) of the proposed fee schedule sets forth the CAT
Fees applicable to Equity ATSs.\60\ 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 (with a discount for the OTC Equity Securities market
share of Equity ATSs trading OTC Equity Securities based on the average
shares per trade ratio between NMS Stocks and OTC Equity Securities)
for the three months prior to the quarterly tier calculation day and
assigning each Equity ATS to a tier based on that ranking and
predefined Equity Execution Venue percentages. The Equity ATSs with the
higher total quarterly market share will be ranked in Tier 1, and the
Equity ATSs with the lowest quarterly market share will be ranked in
Tier 4. 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:
---------------------------------------------------------------------------

    \60\ 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 to trading restrictions
related to Listed Options.

------------------------------------------------------------------------
                                           Percentage of
                                              Equity       Quarterly CAT
                  Tier                       Execution          fee
                                              Venues
------------------------------------------------------------------------
1.......................................           25.00          81,048
2.......................................           42.00          37,062
3.......................................           23.00          21,126
4.......................................           10.00             129
------------------------------------------------------------------------

(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. The Exchange will provide Industry Members with details
regarding the manner of payment of CAT Fees by Regulatory Notice.
    All CAT fees will be billed and collected centrally through the
Company via the Plan Processor. 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.\61\
---------------------------------------------------------------------------

    \61\ 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 proposed 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.
(D) Sunset Provision
    The Operating Committee has determined to require that the CAT Fees
automatically sunset two years from the operative date of the CAT NMS
Plan amendment adopting CAT Fees for Participants. Accordingly, the
Exchange proposes paragraph (d) of the fee schedule, which states that
``[t]hese Consolidated Audit Trailing Funding Fees will automatically
expire two years after the operative date of the amendment of the CAT
NMS Plan that adopts CAT fees for the Participants.''
(4) Changes to Prior CAT Fee Plan Amendment
    The proposed funding model set forth in this Amendment is a revised
version of the Original Proposal. The Commission received a number of
comment letters in response to the Original Proposal.\62\ The SEC
suspended the Original Proposal and instituted proceedings to determine
whether to approve or disapprove it.\63\ Pursuant to those proceedings,
additional comment letters were submitted regarding the proposed
funding model.\64\ In developing this Amendment, the Operating
Committee carefully considered these comments and made a number of
changes to the Original Proposal to address these comments where
appropriate.
---------------------------------------------------------------------------

    \62\ For a description of the comments submitted in response to
the Original Proposal, see Suspension Order.
    \63\ Suspension Order.
    \64\ See MFA Letter; SIFMA Letter; FIA Principal Traders Group
Letter; Belvedere Letter; Sidley Letter; Group One Letter; and Virtu
Financial Letter.
---------------------------------------------------------------------------

    This Amendment makes the following changes to the Original
Proposal: (1) Adds two additional CAT Fee tiers for Equity Execution
Venues; (2) discounts the OTC Equity Securities market share of
Execution Venue ATSs trading OTC Equity Securities as well as the
market share of the FINRA ORF by the average shares per trade ratio
between NMS Stocks and OTC Equity Securities (calculated as 0.17% based
on available data from the second quarter of 2017) when calculating the
market share of Execution Venue ATSs trading OTC Equity Securities and
FINRA; (3) discounts the Options Market Maker quotes by the trade to
quote ratio for options (calculated as 0.01% based on available data
for June 2016 through June 2017) when calculating message traffic for
Options Market Makers; (4) discounts equity market maker quotes by the
trade to quote ratio for equities (calculated as 5.43% based on
available data for June 2016 through June 2017) when calculating
message traffic for equity market makers; (5) decreases the number of
tiers for Industry Members (other than the Execution Venue ATSs) from
nine to seven; (6) changes the allocation of CAT costs between Equity
Execution Venues and Options Execution Venues from 75%/25% to 67%/33%;
(7) adjusts tier percentages and recovery allocations for Equity
Execution Venues, Options Execution Venues and Industry Members (other

than Execution Venue ATSs); (8) focuses the comparability of CAT Fees
on the individual entity level, rather than primarily on the
comparability of affiliated entities; (9) commences invoicing of CAT
Reporters as promptly as possible following the latest of the operative
date of the Consolidated Audit Trail Funding Fees for each of the
Participants and the operative date of the CAT NMS Plan amendment
adopting CAT Fees for Participants; and (10) requires the proposed fees
to automatically expire two years from the operative date of the CAT
NMS Plan amendment adopting CAT Fees for the Participants.
(A) Equity Execution Venues
(i) Small Equity Execution Venues
    In the Original Proposal, the Operating Committee proposed to
establish two fee tiers for Equity Execution Venues. The Commission and
commenters raised the concern that, by establishing only two tiers,
smaller Equity Execution Venues (e.g., those Equity ATSs representing
less than 1% of NMS market share) would be placed in the same fee tier
as larger Equity Execution Venues, thereby imposing an undue or
inappropriate burden on competition.\65\ To address this concern, the
Operating Committee proposes to add two additional tiers for Equity
Execution Venues, a third tier for smaller Equity Execution Venues and
a fourth tier for the smallest Equity Execution Venues.
---------------------------------------------------------------------------

    \65\ See Suspension Order at 31664; SIFMA Letter at 3.
---------------------------------------------------------------------------

    Specifically, the Original Proposal had two tiers of Equity
Execution Venues. Tier 1 required the largest Equity Execution Venues
to pay a quarterly fee of $63,375. Based on available data, these
largest Equity Execution Venues were those that had equity market share
of share volume greater than or equal to 1%.\66\ Tier 2 required the
remaining smaller Equity Execution Venues to pay a quarterly fee of
$38,820.
---------------------------------------------------------------------------

    \66\ Note that while these equity market share thresholds were
referenced as data points 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.
---------------------------------------------------------------------------

    To address concerns about the potential for the $38,820 quarterly
fee to impose an undue burden on smaller Equity Execution Venues, the
Operating Committee determined to move to a four tier structure for
Equity Execution Venues. Tier 1 would continue to include the largest
Equity Execution Venues by share volume (that is, based on currently
available data, those with market share of equity share volume greater
than or equal to one percent), and these Equity Execution Venues would
be required to pay a quarterly fee of $81,048. The Operating Committee
determined to divide the original Tier 2 into three tiers. The new Tier
2 Equity Execution Venues, which would include the next largest Equity
Execution Venues by equity share volume, would be required to pay a
quarterly fee of $37,062. The new Tier 3 Equity Execution Venues would
be required to pay a quarterly fee of $21,126. The new Tier 4 Equity
Execution Venues, which would include the smallest Equity Execution
Venues by share volume, would be required to pay a quarterly fee of
$129.
    In developing the proposed four tier structure, the Operating
Committee considered keeping the existing two tiers, as well as
shifting to three, four or five Equity Execution Venue tiers (the
maximum number of tiers permitted under the Plan), to address the
concerns regarding small Equity Execution Venues. For each of the two,
three, four and five tier alternatives, the Operating Committee
considered the assignment of various percentages of Equity Execution
Venues to each tier as well as various percentage of Equity Execution
Venue recovery allocations for each alternative. As discussed below in
more detail, each of these options was considered in the context of the
full model, as changes in each variable in the model affect other
variables in the model when allocating the total CAT costs among CAT
Reporters. The Operating Committee determined that the four tier
alternative addressed the spectrum of different Equity Execution
Venues. The Operating Committee determined that neither a two tier
structure nor a three tier structure sufficiently accounted for the
range of market shares of smaller Equity Execution Venues. The
Operating Committee also determined that, given the limited number of