[Federal Register Volume 88, Number 60 (Wednesday, March 29, 2023)]
[Notices]
[Pages 18605-18609]
[FR Doc No: 2023-06487]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97193; File No. 4-698]

Joint Industry Plan; Order Approving an Amendment to the National
Market System Plan Governing the Consolidated Audit Trail

March 24, 2023.

I. Introduction

    On September 8, 2022, the Operating Committee for Consolidated
Audit Trail, LLC (``CAT LLC''), on behalf of the following parties to
the National Market System Plan Governing the Consolidated Audit Trail
(the ``CAT NMS Plan''): \1\ BOX 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., Financial Industry
Regulatory Authority, Inc., Investors Exchange LLC, Long-Term Stock
Exchange, Inc., Miami International Securities Exchange LLC, MEMX LLC,
MIAX Emerald, LLC, MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC,
Nasdaq ISE, LLC, Nasdaq MRX, LLC, Nasdaq PHLX LLC, The NASDAQ Stock
Market LLC, New York Stock Exchange LLC, NYSE American LLC, NYSE Arca,
Inc., NYSE Chicago, Inc., and NYSE National, Inc. (collectively, the
``Participants'' or ``SROs'') filed with the Securities and Exchange
Commission (``Commission'') pursuant to Section 11A(a)(3) of the
Exchange Act,\2\ and Rule 608 thereunder,\3\ a proposed amendment
(``Proposed Amendment'') to the CAT NMS Plan that would authorize CAT
LLC to revise the Consolidated Audit Trail Reporter Agreement
(``Reporter Agreement'') and the Consolidated Audit Trail Reporter
Agent Agreement (``Reporter Agent Agreement'' and collectively with the
Reporter Agreement, the ``Reporter Agreements'') by: (1) removing the
arbitration provision from each agreement and replacing it with a forum
selection provision (the ``Forum Selection Provision'') which would
require that any dispute regarding CAT reporting be filed in a United
States District Court for the Southern District of New York (the
``SDNY''), or, in the absence of federal subject matter jurisdiction, a
New York State Supreme Court within the First Judicial Department; and
(2) revising the existing choice of law clause to provide that any
dispute will be governed by federal law (in addition to New York law)
(the ``Choice of Law Provision'').\4\ The proposed plan amendment was
published for comment in the Federal Register on September 28, 2022.\5\
On December 22, 2022, the Commission instituted proceedings to
determine whether to approve or disapprove the Proposed Amendment.\6\
This order approves the Proposed Amendment.
---------------------------------------------------------------------------

    \1\ The CAT NMS Plan is a national market system plan approved
by the Commission pursuant to Section 11A of the Securities Exchange
Act of 1934 (``Exchange Act'') and the rules and regulations
thereunder. See Securities Exchange Act Release No. 79318 (Nov. 15,
2016), 81 FR 84696 (Nov. 23, 2016). The CAT NMS Plan functions as
the limited liability company agreement of the jointly owned limited
liability company (``CAT LLC'') formed under Delaware state law
through which the Participants conduct the activities of the CAT. On
August 29, 2019, the Participants replaced the CAT NMS Plan in its
entirety with the limited liability company agreement of a new
limited liability company named Consolidated Audit Trail, LLC. The
latest version of the CAT NMS Plan is available at https://catnmsplan.com/about-cat/cat-nms-plan.
    \2\ 15 U.S.C 78k-1(a)(3).
    \3\ 17 CFR 242.608.
    \4\ See Letter from Michael Simon, Chair, CAT NMS Plan Operating
Committee, to Vanessa Countryman, Secretary, Commission, dated
September 8, 2022.
    \5\ See Notice of Filing of Amendment to the National Market
System Plan Governing the Consolidated Audit Trail, Securities
Exchange Act Release No. 95874 (Sept. 22, 2022), 87 FR 58876
(``Notice''). The Commission received no comments on the Proposed
Amendment.
    \6\ See Securities Exchange Act Release No. 96568, 87 FR 80204
(Dec. 29, 2022).
---------------------------------------------------------------------------

II. Background

    On July 11, 2012, the Commission adopted Rule 613 of Regulation
NMS, which required the SROs to submit a

national market system (``NMS'') plan to create, implement and maintain
a consolidated audit trail (the ``CAT'' or ``CAT System'') that would
capture customer and order event information for orders in NMS
securities.\7\ On November 15, 2016, the Commission approved the CAT
NMS Plan.\8\ On August 29, 2019, the Operating Committee for CAT LLC
approved a Reporter Agreement and a Reporter Agent Agreement that would
limit the total liability of CAT LLC, the Participants and the Plan
Processor to a CAT Reporter \9\ for any calendar year to the lesser of
the total of fees paid by the CAT Reporter to CAT LLC for the calendar
year in which the claim arose or five hundred dollars. The Reporter
Agreements also included a mandatory arbitration provision. The
Participants required each Industry Member \10\ to execute a CAT
Reporter Agreement prior to reporting data to CAT. On April 22, 2020,
prior to the commencement of initial equities reporting for Industry
Members, the Securities Industry and Financial Markets Association
(``SIFMA'') filed, pursuant to Sections 19(d) and 19(f) of the Exchange
Act, an application for review of actions taken by CAT LLC and the
Participants (the ``Administrative Proceedings''). SIFMA alleged that
by requiring Industry Members to execute the Reporter Agreement as a
prerequisite to submitting data to the CAT, the Participants improperly
prohibited or limited SIFMA members with respect to access to the CAT
System in violation of the Exchange Act.\11\ On May 13, 2020, the
Participants and SIFMA reached a settlement and terminated the
Administrative Proceedings, allowing Industry Members to report data to
the CAT pursuant to Reporter Agreements that do not contain a
limitation of liability provision. Since that time, Industry Members
have been transmitting data to the CAT.\12\
---------------------------------------------------------------------------

    \7\ 17 CFR 242.613.
    \8\ See supra note 1.
    \9\ CAT Reporter means each national securities exchange,
national securities association and Industry Member that is required
to record and report information to the Central Repository pursuant
to SEC Rule 613(c). See CAT NMS Plan at Section 1.1.
    \10\ Industry Member means a member of a national securities
exchange or a member of a national securities association. See CAT
NMS Plan at Section 1.1.
    \11\ See Notice, supra note 5, at 58877.
    \12\ For a more detailed description of the background for the
Proposed Amendment, see Notice, supra note 5, at 58876-78. See also
Notice of Filing of Amendment to the National Market System Plan
Governing the Consolidated Audit Trail, Securities Exchange Act
Release No. 90826 (Dec. 30, 2020), 86 FR 591 (Jan. 6, 2021).
---------------------------------------------------------------------------

    On December 18, 2020, the Participants proposed to amend the CAT
NMS Plan to authorize CAT LLC to revise the Reporter Agreements to
insert limitation of liability provisions that would: (1) provide that
CAT Reporters and CAT reporting agents accept sole responsibility for
their access to and use of the CAT System, and that CAT LLC makes no
representations or warranties regarding the CAT System or any other
matter; (2) limit the liability of CAT LLC, the Participants, and their
respective representatives to any individual CAT Reporter or CAT
reporting agent to the lesser of the fees actually paid to CAT for the
calendar year or five hundred dollars; (3) exclude all direct and
indirect damages; and (4) provide that CAT LLC, the Participants, and
their respective representatives shall not be liable for the loss or
corruption of any data submitted by a CAT Reporter or CAT reporting
agent to the CAT System (the ``Limitation of Liability
Amendment'').\13\ On October 29, 2021, the Commission disapproved the
Limitation of Liability Amendment.\14\
---------------------------------------------------------------------------

    \13\ See Limitation of Liability Amendment, 86 FR at 593. The
Commission received comments objecting to the proposal on the
grounds that it is unfair for Industry Members to be liable for
breaches because the Participants control the CAT System, insulating
the Participants from liability would result in the Participants de-
prioritizing security, and that it would be inappropriate to
effectively prohibit Industry Members from pursuing claims against
CAT LLC and the Participants even in cases where they engage in
willful misconduct, gross negligence, bad faith, or criminal acts.
The Commission also received two response letters from the
Participants. Comments received in response to the Limitation of
Liability Amendment can be found at https://www.sec.gov/comments/4-698/4-698.htm.
    \14\ See Securities Exchange Act Release No. 93484 (Oct. 29,
2021), 86 FR 60933 (Nov. 4, 2021) (``Limitation of Liability
Disapproval Order'').
---------------------------------------------------------------------------

    On May 20, 2022, the Participants proposed to amend the CAT NMS
Plan to authorize CAT LLC to revise the Reporter Agreements to insert
limitation of liability provisions that would: (1) replace the
arbitration provisions in the agreement with a forum selection
provision, which would require the parties to the Reporter Agreements
to bring any action in the SDNY, or, if there is no basis for federal
subject matter jurisdiction, in the New York State Supreme Court within
the First Judicial Department and, if it is permitted, seek assignment
to the Commercial Division; (2) revise the governing law provision to
provide that the governing law for all disputes will be United States
federal law and the laws of the state of New York; (3) include a
provision requiring the parties to the Reporter Agreements to waive
their right to a jury trial, with no exception; (4) include a provision
stating that CAT LLC and the Plan Processor disclaim any, and make no,
representations or warranties, regarding the CAT System or any other
matter pertaining to the Reporter Agreements, including any
representation or warranty relating to merchantability, quality,
fitness for a particular purpose, compliance with applicable laws, non-
infringement, title, and sequencing, timeliness, accuracy or
completeness of information.\15\ On September 6, 2022, prior to the end
of the 90-day period provided for in Exchange Act Rule
608(b)(2)(i),\16\ the Participants withdrew that proposed
amendment.\17\
---------------------------------------------------------------------------

    \15\ See Notice of Filing of Amendment to the National Market
System Plan Governing the Consolidated Audit Trail, Securities
Exchange Act Release No. 95031 (Jun. 3, 2022), 87 FR 35273. Comments
received in response to the proposal can be found at https://www.sec.gov/comments/4-698/4-698-b.htm. The Commission received
comments objecting to the disclaimer of warranties provision,
arguing, among other things, that the disclaimer of warranties
provision functions as a limitation of liability provision, would
disincentivize investment in adequate security for the CAT system,
and that Participants should not be able to disclaim warranties and
representations regarding the CAT System, which they operate and
control. One commenter also objected to the jury waiver provision
stating that every case is different, and while some cases might
present complicated legal and factual issues that are best resolved
by judges, other cases might present simpler and more
straightforward issues that are better suited for a jury trial. See
Letter from Ellen Greene, Managing Director, Equity and Options
Market Structure, and Kevin M. Carroll, Managing Director and
Associate General Counsel, Office of General Counsel, SIFMA, to
Vanessa Countryman, Secretary, dated June 30, 2022, available at
https://www.sec.gov/comments/4-698/4698-20133896-303830.pdf, at 3.
The Commission received one comment letter on the proposal that did
not relate to the substance of the proposal.
    \16\ 17 CFR 242.608(b)(2)(i).
    \17\ See Securities Exchange Act Release No. 96102 (Oct. 19,
2022), 87 FR 64294 (Oct. 24, 2022).
---------------------------------------------------------------------------

III. Description of the Proposal

    The Participants now propose to amend the CAT NMS Plan to authorize
CAT LLC to revise the Reporter Agreements by: (1) removing the
arbitration provision from each agreement and replacing it with the
Forum Selection Provision, which would require that any dispute
regarding CAT reporting be filed in the SDNY, or, in the absence of
federal subject matter jurisdiction, a New York State Supreme Court
within the First Judicial Department; and (2) revising the existing
choice of law clause to provide that any dispute will be governed by
federal law (in addition to New York law).\18\
---------------------------------------------------------------------------

    \18\ See Notice, supra note 5, at 58876.
---------------------------------------------------------------------------

    In support of the Forum Selection Provision, the Participants
believe that a

court is the proper forum to resolve claims concerning CAT reporting,
including claims relating to potential technical issues, system
failures, and data breaches.\19\ The Participants state that litigating
in court is appropriate to address claims, which likely will involve
regulatory issues, including the doctrine of regulatory immunity,\20\
and complex legal and factual issues involved in cyber litigation.\21\
The Participants state that litigating in court would allow parties to
rely on precedent that has been developed to address those issues when
resolving disputes that could potentially involve parties seeking
substantial damages.\22\
---------------------------------------------------------------------------

    \19\ Id. at 58878. The Participants note that in the aftermath
of high-profile data breaches, plaintiffs have brought common law
claims of breach of contract and negligence as well as claims based
on various federal statutes including the Stored Communications Act,
the Federal Wiretap Act, and the Computer Fraud and Abuse Act. Id.
    \20\ Id. at 58879. The Participants note that comments letters
in connection with the limitation of liability amendment
``demonstrated an assumption and understanding that'' assessments of
immunity would be decided by the courts. Id.
    \21\ See id. at 58879. The Participants state that assessing
potential defenses will likely require a tribunal to resolve complex
issues that implicate the Participants' status as self-regulatory
organizations and the Commission's oversight of the CAT. Id. at
58878.
    \22\ Id. at 58879. The Participants also state that litigating
disputes in court would promote the development of precedent to
guide Industry Members' and Participants' conduct. Id.
---------------------------------------------------------------------------

    The Participants state that courts offer important procedural
mechanisms that would help resolve claims related to CAT reporting
fairly and efficiently.\23\ The Participants state that adjudicating
disputes in the courts would permit consolidation and joinder of
claims, as federal and New York State rules of civil procedure provide
mechanisms for consolidation and joinder, as well as permit the use of
class actions for certain disputes.\24\ The Participants state that in
arbitration, in contrast, the ultimate decision on consolidation is
made by the arbitrator.\25\ Further, the Participants state that the
AAA Commercial Arbitration rules are silent on joinder, and parties
have faced complications in joining parties to an arbitration claim
when they are non-signatories, which could be significant since claims
arising out of CAT reporting might be related incidents that impact
Industry Members and other market participants (e.g., retail
investors).\26\ The Participants state that for those reasons, if the
arbitration provisions remain in the Reporter Agreements, cases arising
out of the same facts or involving the same legal issues might result
in different outcomes and damage awards, and potentially create
inconsistent rules.\27\
---------------------------------------------------------------------------

    \23\ See id. at 58876.
    \24\ Id. at 58878-79.
    \25\ Id. at 58879.
    \26\ Id.
    \27\ Id.
---------------------------------------------------------------------------

    The Participants further state that adjudicating claims related to
CAT in court provides parties with appellate rights and rules governing
the discovery process and admissibility of evidence.\28\ They state
that direct appellate review is largely absent in arbitration and that
the rules relating to discovery and evidence are more limited.\29\
---------------------------------------------------------------------------

    \28\ Id. at 58879-80.
    \29\ Id.
---------------------------------------------------------------------------

    As for the forum itself, the Participants state that the SDNY and
the New York State Supreme Court are venues with extensive experience
adjudicating matters involving federal securities laws, market
structure, and cybersecurity.\30\ The Participants state that the
Second Circuit, and the SDNY, have experience with securities and
financial regulation matters, data breaches and cybersecurity
incidents, and have authored opinions regarding the scope of regulatory
immunity.\31\ The Participants also state that New York State courts
also focus on complex cases and have addressed the scope of regulatory
immunity.\32\ They state that New York is a convenient venue for the
parties since the two largest securities exchanges, several
Participants, and the most prominent Industry Members by trading volume
are located in New York.\33\
---------------------------------------------------------------------------

    \30\ Id. at 58880-81.
    \31\ Id.
    \32\ Id.
    \33\ Id. The Participants note that the existing Reporter
Agreements are governed by New York law and provide that any claim
must be commenced in New York (i.e., in the current arbitration
provision). They also note that all dates and times referenced in
the Reporter Agreements are set to New York time. Id.
---------------------------------------------------------------------------

    The Participants state that they are modifying the governing law
provision, which currently states that disputes arising out of the
Reporter Agreements will be governed by New York State law, to clarify
that they will be governed by both federal law and New York State
law.\34\ The Participants state that the reason for this change is that
such claims could involve issues of federal law because CAT LLC was
created pursuant to federal law and is subject to a federal regulatory
regime.\35\
---------------------------------------------------------------------------

    \34\ Id. at 58881.
    \35\ Id. The Participants proposed that ``[t]he Operating
Committee shall have authority in its sole discretion to make non-
substantive amendments to the forum selection provision and
governing law provision in the Consolidated Audit Trail Reporter
Agreement and the Consolidated Audit Trail Reporting Agent
Agreement.'' Id. at 58882.
---------------------------------------------------------------------------

    The Participants propose to implement the Proposed Amendment by
making the revised CAT Reporter Agreements effective upon Commission
approval of the Proposed Amendment, without requiring CAT Reporters and
CAT reporting agents to re-sign the agreements.\36\ The Commission
understands that the Participants will require future CAT Reporters to
sign revised CAT Reporter Agreements that include the Forum Selection
Provision and the Choice of Law Provision prior to reporting to the
CAT.
---------------------------------------------------------------------------

    \36\ Id. No commenters disputed the proposal's assertion that
the amendments would be effective without re-signing.
---------------------------------------------------------------------------

IV. Discussion

A. The Applicable Standard of Review

    Under Rule 608(b)(2) of Regulation NMS, the Commission shall
approve a national market system plan or proposed amendment to an
effective national market system plan, with such changes or subject to
such conditions as the Commission may deem necessary or appropriate, if
it finds that such plan or amendment is necessary or appropriate in the
public interest, for the protection of investors and the maintenance of
fair and orderly markets, to remove impediments to, and perfect the
mechanisms of, a national market system, or otherwise in furtherance of
the purposes of the Exchange Act.\37\ Under Rule 700(b)(3)(ii) of the
Commission's Rules of Practice, the ``burden to demonstrate that a NMS
plan filing is consistent with the Exchange Act and the rules and
regulations issued thereunder that are applicable to NMS plans is on
the plan participants that filed the NMS plan filing.'' \38\ The
Commission shall disapprove a national market system plan or proposed
amendment if it does not make such a finding.\39\
---------------------------------------------------------------------------

    \37\ 17 CFR 242.608(b)(2).
    \38\ 17 CFR 201.700(b)(3)(ii). ``Any failure of the plan
participants that filed the NMS plan filing to provide such detail
and specificity may result in the Commission not having a sufficient
basis to make an affirmative finding that a NMS plan filing is
consistent with the Exchange Act and the rules and regulations
issued thereunder that are applicable to NMS plans.'' Id.
    \39\ 17 CFR 242.608(b)(2). ``Approval or disapproval of a
national market system plan, or an amendment to an effective
national market system plan (other than an amendment initiated by
the Commission), shall be by order.'' Id.
---------------------------------------------------------------------------

    For the reasons described below, the Commission believes that the
Proposed Amendment is consistent with Rule 608 of Regulation NMS, and
is necessary or appropriate in the public interest, for the protection
of investors and the maintenance of fair and orderly markets, to remove
impediments to, and perfect

the mechanisms of, a national market system, or otherwise in
furtherance of the purposes of the Exchange Act.\40\
---------------------------------------------------------------------------

    \40\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

B. Forum Selection Provision

    The Commission believes it is appropriate for the Participants to
amend the CAT NMS Plan to require the CAT Reporter Agreements to
provide that the courts, instead of arbitration, be the forum to
resolve claims regarding the CAT Reporter Agreements. In the Proposed
Amendments, the Participants reasonably identified several potential
benefits of litigation. As the Participants note, certain potential
claims arising out of CAT reporting, including technical issues, system
failures, and data breaches, are likely to impact multiple parties, and
requiring arbitration may result in actions involving the same common
questions of law or fact or arising out of the same occurrence being
brought piecemeal and lead to inconsistent outcomes.\41\ Resolving such
claims through litigation may allow for the consolidation and/or
joinder of claims, and class actions depending on the nature of any
claims that arise, which could lead to more efficient and fair
resolution of potential disputes.\42\ In addition, issues of regulatory
immunity may arise in some disputes and resolving those disputes
through litigation would also allow for resolution of those issues
through the application of precedent that has been developed by the
courts.\43\ At the same time, the Commission recognizes that there are
advantages to arbitration, which is used throughout the securities
industry and in some circumstances may offer a quicker and less costly
way to resolve disputes. Nonetheless, in the context of the Proposed
Amendment before us for consideration, the Commission believes that
there are reasonable grounds for choosing to resolve potential claims
arising out of CAT reporting through litigation in court rather than
arbitration, and particularly in light of the lack of any commenter
objection to the Proposed Amendment, the Participants' choice to
mandate that such disputes be resolved through court litigation rather
than mandate that they be resolved through arbitration is
appropriate.\44\
---------------------------------------------------------------------------

    \41\ Notice, supra note 5, at 58878-79.
    \42\ Id.
    \43\ Id. at 58879.
    \44\ The Participants proposed that ``[t]he Operating Committee
shall have authority in its sole discretion to make non-substantive
amendments to the forum selection provision and governing law
provision in the Consolidated Audit Trail Reporter Agreement and the
Consolidated Audit Trail Reporting Agent Agreement.'' Id. at 58882.
It is the Commission's understanding that a non-substantive
amendment is one that does not affect the rights or obligations of
any parties, including a CAT Reporter or the Commission.
Accordingly, the Commission does not believe this provision is
inconsistent with the Exchange Act.
---------------------------------------------------------------------------

    The Commission also believes that the Participants' proposal to
amend the CAT NMS Plan to designate the SDNY and, in the absence of
federal subject matter jurisdiction, New York state courts, in the
Forum Selection Provision is appropriate. The Participants identify
reasonable grounds for those choices. As the Participants observe, both
the SDNY and New York state courts provide for robust rules and
procedures relating to consolidation, joinder, class actions,
discovery, and direct appellate review. As stated by the Participants
``the SDNY routinely handles complicated securities matters with broad
implications for the national financial markets,'' and the Second
Circuit in particular has significant experience determining the rights
and remedies of parties following data breaches. Further, both the
Second Circuit and New York state courts have addressed the scope of
regulatory immunity, an issue that could arise in any disputes in light
of the Participants' status as self-regulatory organizations.\45\ The
Commission also notes that no commenters objected to the Participants'
choice.
---------------------------------------------------------------------------

    \45\ Id. at 58880-81.
---------------------------------------------------------------------------

    For the reasons noted above, the Commission believes that the
Participants' proposal to amend the CAT NMS Plan to authorize CAT LLC
to modify the CAT Reporter Agreements to include the Forum Selection
Provision is appropriate in the public interest, for the protection of
investors and the maintenance of fair and orderly markets, and to
remove impediments to, and perfect the mechanisms of, a national market
system or otherwise in furtherance of the purposes of the Exchange
Act.\46\
---------------------------------------------------------------------------

    \46\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

C. Governing Law Provision

    The Commission believes it is reasonable for the Reporter
Agreements to provide that any matters between CAT LLC and either a CAT
Reporter or a CAT Reporting Agent, will be governed by federal law and
the laws of the State of New York, instead of just by the laws of the
State of New York. The Commission agrees with the Participants'
assertion that because CAT LLC was created pursuant to federal law,
claims between Participants and other parties, including CAT Reporters
and Industry Members, could involve issues of federal and not just
state law.\47\ The Proposed Amendment thus reasonably specifies that
both sources of law would apply. For that reason, the Commission
believes that this aspect of the proposal is appropriate in the public
interest, for the protection of investors and the maintenance of fair
and orderly markets, to remove impediments to, and perfect the
mechanisms of, a national market system or otherwise in furtherance of
the purposes of the Exchange Act.\48\
---------------------------------------------------------------------------

    \47\ Notice, supra note 5, at 58881.
    \48\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

V. Impact on Efficiency, Competition, and Capital Formation

    In determining whether to approve a proposed amendment, and whether
such amendment is in the public interest, Rule 613 requires the
Commission to consider the potential effects of the proposed amendment
on efficiency, competition and capital formation.\49\ The Commission
has reviewed the arguments about such effects put forth by the
Participants and independently analyzed the likely effects of the
Proposed Amendment on efficiency, competition, and capital formation.
The Commission received no comment letters addressing the economic
impact of the Proposed Amendment. The Commission believes that the
Forum Selection Provision could modestly improve efficiency and
competition, and that the Proposed Amendment will otherwise have no
material impact on efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \49\ 17 CFR 242.613(a)(5).
---------------------------------------------------------------------------

A. Efficiency

    The Commission believes the Forum Selection Provision could
modestly reduce potential inefficiencies in dispute resolution
regarding the CAT Reporter Agreements. As discussed above,\50\ the
Forum Selection Provision requires that any dispute regarding CAT
reporting be filed in the SDNY, or, in the absence of federal subject
matter jurisdiction, a New York State Supreme Court within the First
Judicial Department. Court mechanisms for consolidating claims, joinder
of claims, and class actions may facilitate coordination among the
possibly large number of parties impacted by technical issues, system
failures, and data breaches and reduce some legal costs involved in
dispute resolution. The precedent generated by disputes resolved
through courts may also slightly reduce aggregate legal costs by
minimizing the need for the adjudicator and litigants to completely
reevaluate recurring legal issues every time that

they arise. However, these potential reductions in aggregate legal
costs and information technology costs may be partially offset by
increases in legal costs for disputes that involve individual CAT
Reporters and CAT LLC. Legal costs for these bilateral disputes may
increase because resolution via arbitration can incur fewer legal costs
than resolution via courts.\51\
---------------------------------------------------------------------------

    \50\ See Section IV.A, supra.
    \51\ See Section IV.A, supra.
---------------------------------------------------------------------------

    The Commission believes the Governing Law would not affect
efficiency because it does not produce a substantive change in the
application of the federal laws of the United States and the laws of
the state of New York to legal matters involving CAT LLC and CAT
Reporters.

B. Competition

    The Commission believes the Forum Selection Provision will have
small positive effects on competition within markets with businesses
subject to CAT Reporter Agreements. The Forum Selection Provision, via
courts' mechanisms for dispute consolidation, may reduce individual
firms' legal expenses during disputes with CAT LLC because dispute
related legal costs may then be shared by multiple parties. If these
legal expenses are shared approximately equally among involved firms,
then small firms may benefit slightly more from courts' mechanisms for
dispute consolidation than large firms because legal costs will
decrease more as a fraction of revenue for small firms than large
firms. But, the benefits of dispute consolidation for small firms may
be partially reduced by greater legal costs for bilateral disputes with
CAT LLC where legal costs cannot be shared by several CAT Reporters and
resolution via arbitration may require lower legal costs.\52\ The Forum
Selection Provision may also make the outcomes of disputes between CAT
Reporters and CAT LLC slightly more predictable because legal precedent
and previous court cases may provide information regarding disputes
possible outcomes. Less uncertainty about the outcomes of disputes
involving CAT LLC and CAT Reporters may slightly reduce financing costs
for firms by reducing uncertainty about the effect of dispute
resolution outcomes on small firms' profitability. The reduction in
financing costs may be greater for smaller firms where the effects of
disputes' outcomes may have relatively large effects on these firms'
profitability.
---------------------------------------------------------------------------

    \52\ See id.
---------------------------------------------------------------------------

    The Commission believes the Governing Law Provision will not
materially affect competition because requiring federal law and the
laws of the state of New York to govern all matters between the CAT LLC
and the CAT Reporters will not have an economically significant effect
on the legal costs, or legal outcomes, or other factors that might
affect competition among businesses subject to CAT Reporter Agreements.

C. Capital Formation

    The Commission believes the Forum Selection Provision and Governing
Law Provision will not materially affect capital formation. The
proposed amendment relates to dispute resolution between Industry
Members and Participants and is thus unlikely to materially impact
capital formation because the proposed amendment does not generally
affect publicly traded firms' cost of capital, does not affect factors
influencing investors' investments in publicly traded companies, and
the previously discussed potential efficiency and competition benefits
of the proposed amendment are too small in magnitude to affect the
prices at which CAT Reporters offer trading services and products to
investors.

VI. Conclusion

    For the reasons set forth above, the Commission finds that the
Proposed Amendment is consistent with the requirements of the Exchange
Act and the rules and regulations thereunder, and in particular,
Section 11A of the Exchange Act,\53\ and Rule 608(b)(2) \54\ thereunder
in that the Proposed Amendment is appropriate in the public interest,
for the protection of investors and the maintenance of fair and orderly
markets, to remove impediments to, and perfect the mechanisms of a
national market system, or otherwise in furtherance of the purposes of
the Exchange Act.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78k-1.
    \54\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 11A of the Exchange
Act,\55\ and Rule 608(b)(2) thereunder,\56\ that the Proposed Amendment
(File No. 4-698) be, and hereby is, approved.
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78k-1.
    \56\ 17 CFR 242.608.

    By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06487 Filed 3-28-23; 8:45 am]
BILLING CODE 8011-01-P