[Federal Register Volume 87, Number 171 (Tuesday, September 6, 2022)]
[Notices]
[Pages 54558-54579]
[FR Doc No: 2022-19111]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95634; File No. 4-698]

Joint Industry Plan; Order Instituting Proceedings To Determine
Whether To Approve or Disapprove an Amendment to the National Market
System Plan Governing the Consolidated Audit Trail

August 30, 2022.

I. Introduction

    On May 13, 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'' or ``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.; MEMX, LLC; Miami International Securities
Exchange 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,'' ``self-regulatory organizations,''
or ``SROs'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') pursuant to Section 11A(a)(3) of the Securities
Exchange Act of 1934 (``Exchange Act''),\2\ and Rule 608 thereunder,\3\
a proposed amendment to the CAT NMS Plan (``Proposed Amendment'') to
implement a revised funding model (``Executed Share Model'') for the
consolidated audit trail (``CAT'') and to establish a fee schedule for
Participant CAT fees in accordance with the Executed Share Model
(``Proposed Participant Fee Schedule'').\4\ The Proposed Amendment was
published for comment in the Federal Register on June 1, 2022.\5\
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    \1\ The CAT NMS Plan is a national market system plan approved
by the Commission pursuant to Section 11A of the Exchange Act and
the rules and regulations thereunder. See Securities Exchange Act
Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23,
2016) (``CAT NMS Plan Approval Order''). The CAT NMS Plan functions
as the limited liability company agreement of the jointly owned
limited liability company formed under Delaware state law through
which the Participants conduct the activities of the CAT
(``Company''). 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 (``CAT LLC''), which became the Company. 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, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman, Secretary, Commission (May
13, 2022) (``Transmittal Letter'').
    \5\ See Securities Exchange Act Release No. 94984 (May 25,
2022), 87 FR 33226 (``Notice''). Comments received in response to
the Notice can be found on the Commission's website at https://www.sec.gov/comments/4-698/4-698-a.htm.
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    This order institutes proceedings, under Rule 608(b)(2)(i) of
Regulation NMS,\6\ to determine whether to disapprove the Proposed
Amendment or to approve the Proposed Amendment with any changes or
subject to any conditions the Commission deems necessary or
appropriate.
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    \6\ 17 CFR 242.608(b)(2)(i).
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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 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\ Under the CAT NMS Plan, the Operating
Committee of the Company, of which each Participant is a member, has
the discretion (subject to the funding principles set forth in the
Plan) to establish funding for the Company to operate the CAT,
including establishing fees to be paid by the Participants and Industry
Members.\9\
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    \7\ 17 CFR 242.613.
    \8\ See supra note 1.
    \9\ See CAT NMS Plan, supra note 1, at Section 11.1(b). The CAT
NMS Plan defines ``Industry Member'' as ``a member of a national
securities exchange or a member of a national securities
association.'' See also id., at Section 1.1.
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    The Plan specified that, in establishing the funding of the
Company, the Operating Committee shall establish ``a tiered fee
structure in which the fees charged to: (1) CAT Reporters \10\ that are
Execution Venues,\11\ including ATSs,\12\ are based upon the level of
market share; (2) Industry Members' non-ATS activities

are based upon message traffic; and (3) the CAT Reporters with the most
CAT-related activity (measured by market share and/or message traffic,
as applicable) are generally comparable (where, for these comparability
purposes, the tiered fee structure takes into consideration
affiliations between or among CAT Reporters, whether Execution Venues
and/or Industry Members).'' \13\ Under the Plan, such fees are to be
implemented in accordance with various funding principles, including an
``allocation of the Company's related costs among Participants and
Industry Members that is consistent with the Exchange Act taking into
account . . . distinctions in the securities trading operations of
Participants and Industry Members and their relative impact upon the
Company resources and operations'' and the ``avoid[ance of] any
disincentives such as placing an inappropriate burden on competition
and reduction in market quality.'' \14\
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    \10\ The CAT NMS Plan defines ``CAT Reporter'' as ``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).'' Id. at Section
1.1.
    \11\ The CAT NMS Plan defines ``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).'' Id.
    \12\ Id.
    \13\ Id. at Section 11.2(c). See Article XI of the CAT NMS Plan
for additional detail.
    \14\ See CAT NMS Plan, supra note 1, at Section 11.2(b) and (e).
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    On May 15, 2020, the Commission adopted amendments to the CAT NMS
Plan designed to increase the Participants' financial accountability
for the timely completion of the CAT (``Financial Accountability
Amendments'').\15\ The Financial Accountability Amendments added
Section 11.6 to the CAT NMS Plan to govern the recovery from Industry
Members of any fees, costs, and expenses (including legal and
consulting fees, costs and expenses) incurred by or for the Company in
connection with the development, implementation and operation of the
CAT from June 22, 2020 until such time that the Participants have
completed Full Implementation of CAT NMS Plan Requirements \16\
(``Post-Amendment Expenses''). Section 11.6 establishes target
deadlines for four critical implementation milestones (Periods 1, 2, 3
and 4) \17\ and reduces the amount of fee recovery available to the
Participants if these deadlines are missed.\18\
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    \15\ See Securities Exchange Act Release No. 88890, 85 FR 31322
(May 22, 2020).
    \16\ ``Full Implementation of CAT NMS Plan Requirements'' means
``the point at which the Participants have satisfied all of their
obligations to build and implement the CAT, such that all CAT system
functionality required by Rule 613 and the CAT NMS Plan has been
developed, successfully tested, and fully implemented at the initial
Error Rates specified by Section 6.5(d)(i) or less, including
functionality that efficiently permits the Participants and the
Commission to access all CAT Data required to be stored in the
Central Repository pursuant to Section 6.5(a), including Customer
Account Information, Customer-ID, Customer Identifying Information,
and Allocation Reports, and to analyze the full lifecycle of an
order across the national market system, from order origination
through order execution or order cancellation, including any related
allocation information provided in an Allocation Report. This
Financial Accountability Milestone shall be considered complete as
of the date identified in a Quarterly Progress Report meeting the
requirements of Section 6.6(c).'' See CAT NMS Plan, supra note 1, at
Section 1.1.
    \17\ Id. at Section 11.6(a)(i).
    \18\ Id. at Section 11.6(a)(ii) and (iii).
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III. Summary of Proposal

    The Operating Committee proposes to replace the funding model set
forth in Article XI of the CAT NMS Plan (the ``Original Funding
Model'') with the Executed Share Model. The Original Funding Model uses
a bifurcated funding approach in which costs associated with building
and operating the CAT would be borne by (1) Industry Members (other
than ATSs that execute transactions in Eligible Securities \19\
(``Execution Venue ATSs'')) through fixed tiered fees based on message
traffic for Eligible Securities, and (2) Participants and Industry
Members that are Execution Venue ATSs for Eligible Securities through
fixed tiered fees based on market share. Unlike the Original Funding
Model, the Executed Share Model would assess fees on clearing firms and
Participants based on the executed equivalent share volume of
transactions in Eligible Securities.
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    \19\ The CAT NMS Plan defines ``Eligible Securities'' as
including all NMS securities and all OTC Equity Securities. See CAT
NMS Plan, supra note 1, at Section 1.1. See also Notice, supra note
5, 87 FR at 33228.
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    The Operating Committee also proposes to adopt a fee schedule to
establish the CAT fees applicable to Participants based on the Executed
Share Model. The Participant Fee Schedule would establish the process
for calculating the CAT fees applicable to Participants under the
Executed Share Model.

A. Description of Amendments

1. Allocation of Fee Among Participants and Industry Member Clearing
Brokers
    Pursuant to the Proposed Amendment, a CAT fee would be imposed on
all transactions in Eligible Securities, whether occurring on-exchange
or over-the-counter.\20\ For each transaction, the applicable
Participant,\21\ the Industry Member clearing broker for the seller
(``CBS'') and the Industry Member clearing broker for the buyer
(``CBB'') would each pay a fee equal to the number of executed
equivalent shares in the transaction \22\ multiplied by one-third and a
specified fee rate (``Fee Rate'').\23\ According to the Operating
Committee, requiring the CBS, the CBB and the Participant in a
transaction to pay one-third of the fee recognizes their roles in the
transaction \24\ and would increase the Participants' cost
responsibility to 33% from the 25% proposed in the prior fee
proposals.\25\ The Operating Committee explains that it decided to
assess fees upon clearing firm Industry Members because this is the
current practice for fees such as the options regulatory fee (``ORF'')
and would reduce administrative burdens.\26\ The Operating Committee
acknowledges that this approach ``may impose an excessive financial
burden'' on clearing firms and suggests that they pass-through the CAT
fees to their client, who may pass-through their CAT fees until the
fees are imposed on the account that executed the transaction.\27\
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    \20\ See Notice, supra note 5, 87 FR at 33228. Specifically, CAT
fees would be charged with regard to trades reported to CAT by the
national securities exchanges and by FINRA via the Alternative
Trading Facility (``ADF''), Over-the-Counter Reporting Facility
(``ORF'') and the Trade Reporting Facilities (``TRF''). Id. at
33234.
    \21\ The applicable Participant for the transaction would be the
national securities exchange on which the transaction was executed
or FINRA for a transaction that was not executed on an exchange. Id.
at 33226, 33227.
    \22\ CAT Data would be used to calculate the CAT fees.
Specifically, CAT Data would be used to identify the clearing
brokers for each transaction. Id. at 33234. CAT Data is defined as
``data derived from Participant Data, Industry Member Data, SIP
Data, and such other data as the Operating Committee may designate
as `CAT Data' from time to time.'' See CAT NMS Plan, supra note 1,
at Section 1.1. The Participants explain that using CAT Data for CAT
fee calculations provides administrative efficiency since the data
is accessible through the CAT. See Notice, supra note 5, 87 FR at
33234.
    \23\ See Notice, supra note 5, 87 FR at 33226, 33229.
    \24\ Id. at 33232.
    \25\ Id. at 33233. See also infra note 118.
    \26\ See Notice, supra note 5, 87 FR at 33233.
    \27\ Id. The Operating Committee explains that this pass-through
process would be similar to how Industry Members handle other fees,
such as Section 31 fees and the ORF. Id.
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2. Calculation of the Fee Rate
    The Executed Share Model would apply to the recovery of certain CAT
costs that have already been paid by the Participants (``Past CAT
Costs'') through the assessment of a fee on the CBS and the CBB in a
transaction.\28\ Participants, CBSs and CBBs would be subject to fees
for the ongoing budgeted costs of the CAT, as determined by the
Operating Committee, after the implementation of

the CAT fees (``Prospective CAT Costs'').\29\
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    \28\ Id. at 33227.
    \29\ Id. at 33226.
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    For Prospective CAT Costs, under the Proposed Amendment, at the
beginning of each year, the Operating Committee would set the Fee Rate
to be used to determine CAT fees \30\ and would announce the applicable
Fee Rate via a CAT alert.\31\ Specifically, the Operating Committee
would calculate the Fee Rate applicable to Participants and clearing
brokers by dividing the CAT costs budgeted for the upcoming year by the
projected total executed equivalent share volume of all transactions in
Eligible Securities for that year.\32\ In addition to setting the Fee
Rate at the beginning of a year, the Operating Committee may, but is
not required to, adjust the Fee Rate once during the year either to
coordinate the CAT fees with adjustments to budgeted or actual CAT
costs or volume projections during the year.\33\ The Operating
Committee explains that this would avoid too frequent Fee Rate changes
for CAT Reporters.\34\ Once set, a Fee Rate would remain in effect
until a new Fee Rate is adopted.\35\ The Operating Committee asserts
that this would prevent periods without the collection of CAT fees,
which would ``adversely affect the ability of the CAT to fund its
operations and, therefore, would have a significant negative effect on
the CAT's ability to fulfill its regulatory purpose.'' \36\ The
Operating Committee will not file an amendment to the CAT NMS Plan
every time it adopts or adjusts the Fee Rate.\37\ However, the
Participants would each submit fee filings under Section 19(b) to
implement any new Fee Rates or adjustments to the Fee Rate applicable
to Industry Members.\38\
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    \30\ The Fee Rate would be established through a majority vote
of the Operating Committee. See Notice, supra note 5, 87 FR at
33227.
    \31\ Id.
    \32\ Id. at 33226-27.
    \33\ Id. at 33227.
    \34\ Id.
    \35\ Id. The Operating Committee states that that the Fee Rate
would not automatically terminate. See Notice, supra note 5, 87 FR
at 33227.
    \36\ Id. The Operating Committee also states that this would
ensure that it would have the CAT budget and CAT Data to collect CAT
fees. Id.
    \37\ Id.
    \38\ Id. at 33227, n.12; id. at 33229. The Participants expect
to provide advance notice of Fee Rate changes before implementing
such changes. See Notice, supra note 5, 87 FR at 33229, n.23.
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a. Executed Equivalent Share Volume
    Under the Proposed Amendment, executed equivalent share volume
would be used both to determine the CAT fee for a transaction in
Eligible Securities and to calculate the applicable Fee Rate. The
Operating Committee states that ``trading activity provides a
reasonable proxy for cost burden on the CAT, and therefore is an
appropriate metric for allocating CAT costs among CAT Reporters.'' \39\
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    \39\ Id. at 33232.
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    The Operating Committee explains that the Executed Share Model
would use the concept of executed equivalent share volume because NMS
Stocks, Listed Options and OTC Equity Securities, which comprise
Eligible Securities, each have different trading characteristics.\40\
For NMS Stocks, each executed share for a transaction would be counted
as one executed equivalent share.\41\ For Listed Options, each executed
contract for a transaction would be counted using the contract
multiplier applicable to the specific Listed Option in the transaction
(one Listed Option typically represents 100 shares, but it may
represent a different number of shares).\42\ Each executed share for a
transaction in OTC Equity Securities would be counted as 0.01 executed
equivalent shares.\43\ The Operating Committee states that a
``disproportionately large number of shares are involved in
transactions involving OTC Equity Securities versus NMS Stocks''
because many OTC Equity Securities are priced below one-dollar per
share and lower priced shares trade in larger quantities.\44\
Therefore, the Operating Committee proposes to apply a discount to
executed shares for transactions in OTC Equity Securities as otherwise,
CAT Reporters transacting in OTC Equity Securities would incur higher
CAT fees under the Executed Share Model.\45\ The Operating Committee
explains that the discount was based on an analysis of different
metrics comparing the markets for OTC Equity Securities and NMS
Stocks.\46\
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    \40\ Id. at 33228.
    \41\ Id.
    \42\ Id.
    \43\ Id.
    \44\ See Notice, supra note 5, 87 FR at 33228.
    \45\ Id. at 33228-29.
    \46\ Id. at 33229.
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    As discussed above, the Operating Committee would calculate the Fee
Rate applicable to Participants and clearing brokers by dividing the
CAT costs budgeted for the upcoming year by the projected total
executed equivalent share volume of all transactions in Eligible
Securities for that year.\47\ To determine the projected total executed
equivalent share volume of transactions in Eligible Securities for a
year, the Operating Committee would double the total executed
equivalent share volume from the prior six months.\48\ The Operating
Committee explains that data from the prior six months ``provides an
appropriate balance between using data from a period that is
sufficiently long to avoid short term fluctuations while providing data
close in time to the upcoming year.'' \49\ The Operating Committee
represents that it would regularly monitor the actual total executed
equivalent share volume for deviations from the projected volume.\50\
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    \47\ Id. at 33226-27.
    \48\ Id. at 33228. The Participants state that CAT Data would be
used in the calculation of the projected total executed equivalent
share volume for the Fee Rate. Id. at 33234.
    \49\ See Notice, supra note 5, 87 FR at 33228.
    \50\ Id.
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    The Operating Committee would be permitted to adjust the projected
volume as it reasonably deems appropriate for the prudent operation of
the Company, basing the adjusted projection on the total executed
equivalent share volume of transactions from six months prior to the
date of the determination of the new projection.\51\ If the Operating
Committee adjusts the projection during the year and decides to adjust
the Fee Rate, the adjusted projection would be used to calculate the
new Fee Rate for the remaining months in the year.\52\ The Operating
Committee would provide the projected total executed equivalent share
volume for transactions in Eligible Securities and any adjustments to
the projections on the CAT NMS Plan website.\53\
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    \51\ Id. The projected volume would be adjusted to address
potential deviations of the projections from actual transactions
during the year. Id.
    \52\ Id.
    \53\ Id.
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    The Operating Committee asserts that the use of executed equivalent
share volume would be an improvement to the Original Funding Model's
use of message traffic.\54\ First, the Operating Committee states that
a study of CAT cost drivers demonstrated that, while message traffic is
a factor in CAT costs, technology costs, such as data processing and
storage costs, are the primary factors in CAT costs.\55\ Second, the
Operating Committee explains that fees based on message traffic could
adversely impact certain Industry

Member because such fees ``may not correlate with common revenue or fee
models.'' \56\ Third, the Operating Committee asserts that fees based
on message traffic could increase complexity and adversely impact
``competition, liquidity, or other aspects of market structure.'' \57\
One example would be market makers who typically generate high levels
of message traffic, and would likely have ``outsized fees'' with
message traffic-based fees.\58\ Further, the Operating Committee
explains that because the number of messages vary per order, the use of
message traffic to determine CAT fees could result in unpredictable
fees for Industry Members.\59\ The Operating Committee also states that
the Commission has recognized the use of transaction volume in setting
fees, providing FINRA's Trading Activity Fee (``TAF'') as an
example.\60\
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    \54\ The Original Funding Model uses message traffic as the
basis of Industry Member CAT fees. See Section 11.3(b) of the CAT
NMS Plan, supra note 1. In a response to comments on the CAT NMS
Plan Approval Order, the Participants stated that, ``because there
is a strong correlation between message traffic and the size of a
broker-dealer and because message traffic is a key component of the
costs of operating the CAT, message traffic is an appropriate
criteria for placing broker-dealers in a particular fee tier.'' See
Letter from the Participants to Brent J. Fields, Secretary,
Commission, at 23 (Sept. 23, 2016), available at https://www.sec.gov/comments/4-698/4-698.shtml.
    \55\ See Notice, supra note 5, 87 FR at 33232.
    \56\ Id.
    \57\ Id.
    \58\ Id. The Operating Committee states that it had proposed a
discount on market maker fees in prior models, but such a discount
would add complexity. Id.
    \59\ Id.
    \60\ See Notice, supra note 5, 87 FR at 33232.
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    In addition, the Operating Committee asserts that the Executed
Share Model would not unfairly burden or favor a product or product
type \61\ because the model recognizes the different types of
securities by counting executed equivalent share volume differently for
NMS Stocks, Listed Options and OTC Equity Securities.\62\
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    \61\ Id. at 33233-34.
    \62\ Id.
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b. Budgeted Costs
    Section 11.1(a) of the CAT NMS Plan requires the Operating
Committee to annually approve an operating budget for the Company which
would include projected costs to develop and operate the CAT for the
year, the sources of revenue to cover the costs, and the funding of any
reserve the Operating Committee reasonably deems appropriate for the
prudent operation of the Company.\63\ The Operating Committee proposes
that the budgeted costs set forth in the annual operating budget would
be used to determine the Fee Rate.\64\ The budgeted costs would
comprise estimated fees, costs and expenses to be incurred by the
Company for the development, implementation and operation of the CAT
during the year, which would include costs for the Plan Processor,
insurance, and third-party support, as well as an operational
reserve.\65\ The Operating Committee states that using budgeted CAT
costs to determine the Fee Rate would allow the Company to collect fees
before bills become payable.\66\
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    \63\ See CAT NMS Plan, supra note 1, at Section 11.1(a).
    \64\ See Notice, supra note 5, 87 FR at 33227.
    \65\ Id. Any surpluses collected will be treated as an
operational reserve to offset future fees and will not be
distributed to the Participants as profits, in accordance with
Section 11.1(c) of the CAT NMS Plan. Id. at 33228.
    \66\ Id. at 33227.
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    Under the Proposed Amendment, the budgeted CAT costs for the year
could be adjusted to address potential changes related to the CAT as
the Operating Committee reasonably deems appropriate for the prudent
operation of the Company.\67\ If the Operating Committee adjusts
budgeted CAT costs during the year, the adjusted budgeted CAT costs
would be used to calculate a new Fee Rate for the remaining months of
the year.\68\
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    \67\ Id. at 33228. The Operating Committee explains that an
adjustment to the budget may be necessary if actual costs are more
or less than the budget or if there are unanticipated expenditures.
Id.
    \68\ See Notice, supra note 5, 87 FR at 33228.
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3. Past CAT Costs
    The Operating Committee proposes that CBBs and CBSs would be
required to pay CAT fees related to Past CAT Costs, which are certain
costs that the Participants have already paid prior to the
effectiveness of the CAT fees pursuant to the Executed Share Model.\69\
The Operating Committee states that Past CAT Costs incurred prior to
January 1, 2022 are $337,688,610, which does not include $48,874,937 of
excluded costs that the Participants do not intend to collect from
Industry Members (``Excluded Costs'').\70\ Under the Executed Share
Model, $225,125,740 of the $337,688,610 in Past CAT Costs would be paid
by CBBs and CBSs. Specifically, CBBs would pay one-third of
$337,688,610 ($112,562,870), and CBSs would pay one-third of
$337,688,610 ($112,562,870).\71\ The Operating Committee states that
the Participants would not pay the remaining one-third because they
have already paid this amount,\72\ explaining that they have paid all
CAT costs to date.\73\ The Participants would not be reimbursed for the
remaining one-third \74\ and they would be responsible for 100% of the
Excluded Costs as well as certain costs related to the conclusion of
the relationship with the Initial Plan Processor.\75\ CBBs and CBSs
would also be required to pay CAT fees for CAT costs incurred between
January 1, 2022 and the implementation of the CAT fee.\76\ The actual
CAT costs for 2022 will be available in audited financial statements
after the end of the year.\77\
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    \69\ Id. at 33230.
    \70\ Id. The Proposed Amendment states that the Excluded Costs
were incurred from November 15, 2017 through November 15, 2018 and
are related to the delay in the start of reporting to the CAT.
    \71\ Id.
    \72\ Id.
    \73\ Id. at 33227.
    \74\ See Notice, supra note 5, 87 FR at 33230.
    \75\ Id.
    \76\ Id.
    \77\ Id.
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    The CAT fee for Past CAT Costs would be calculated by multiplying
the number of executed equivalent shares in the transaction by one-
third and by the Fee Rate approved by the Operating Committee.\78\
Current CBSs and CBBs would pay a CAT fee for Past CAT Costs calculated
by multiplying the executed equivalent share volume of the transactions
they cleared in the past month by the applicable Fee Rate (calculated
based on Past CAT Costs and current projected total equivalent share
volume) and by one-third.\79\ The Operating Committee explains that it
is appropriate to impose fees for Past CAT Costs on current Industry
Members, and not on Industry Members active when the Past CAT Costs
were incurred, using their current activity since they would be
benefiting from the CAT.\80\ The Operating Committee further explains
that it would be difficult to impose fees on Industry Members for their
activity in the past because some Industry Members may no longer be in
business and it might be difficult to establish transactions from years
past.\81\ The Operating Committee adds that Industry Members would not
have taken into consideration retroactive fees when entering into the
past transactions.\82\
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    \78\ Id.
    \79\ Id.
    \80\ See Notice, supra note 5, 87 FR at 33230.
    \81\ Id.
    \82\ Id.
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    The Fee Rate for Past CAT Costs would be calculated by dividing the
Past CAT Costs for a period determined by the Operating Committee
(``relevant period'') by the projected total executed equivalent share
volume of all transactions in Eligible Securities for the relevant
period.\83\ The Fee Rate for CAT fees related to Past CAT Costs would
be calculated using the actual past costs and not budgeted costs.\84\
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    \83\ Id.
    \84\ Id.
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    The Proposed Amendment states that ``[t]he CAT fees related to past
CAT Costs would be calculated based on current transactions, not
transactions that occurred in the past when the costs were incurred,
and collected from current Industry Members, not Industry

Members active in the past when the costs were incurred.'' \85\ The
Proposed Amendment provides the following example of the calculation of
CAT fees for Past CAT Costs: ``if the CAT fee were in place for June
2022, each CBB and CBS with transactions in Eligible Securities in May
2022 would pay a CAT fee related to Past CAT Costs calculated by
multiplying the executed equivalent share volume of the transactions
they cleared in May 2022 by the applicable Fee Rate (calculated based
on Past CAT Costs and current projected total equivalent share volume)
and by one-third.'' \86\
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    \85\ Id.
    \86\ See Notice, supra note 5, 87 FR at 33230.
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    The one-third of Past CAT Costs that are not allocated to Industry
Members would not be allocated to the Participants under the Executed
Share Model.\87\ The Operating Committee instead proposes that CAT fees
for such Past CAT Costs that are collected from Industry Members would
be allocated to the Participants on a pro rata basis to repay
outstanding loan notes of the Participants to the Company.\88\
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    \87\ Id.
    \88\ Id.
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4. Assessment and Collection of Fees
    The Operating Committee proposes to establish a system for the
collection of CAT fees from Participants and Industry Members in
compliance with Section 11.4 and Section 3.7(b) of the CAT NMS Plan.
Participants would be required to pay monthly fees based on
transactions in Eligible Securities from the prior month.\89\ The Plan
Processor would calculate the CAT fees for each Participant using
transaction data based on CAT Data for the Participant.\90\
Participants would be required to begin paying CAT fees in the first
month after the conclusion of the period covered by the Financial
Accountability Milestones, subject to Commission approval of the
Proposed Amendment and the CAT fees becoming effective for Participants
and Industry Members.\91\ Unless a longer period is indicated, within
thirty days of receiving an invoice or other notice requesting payment,
each Participant would be required to pay all fees or other amounts
required to be paid, and interest on an outstanding balance until such
fee or amount is paid at a per annum rate the lesser of (i) the Prime
Rate plus 300 basis points, or (ii) the maximum rate permitted by
applicable law.\92\
---------------------------------------------------------------------------

    \89\ Id. at 33229.
    \90\ Id.
    \91\ Id.
    \92\ See Notice, supra note 5, 87 FR at 33229.
---------------------------------------------------------------------------

5. Industry Member CAT Fees
    As proposed, the Participants would each submit fee filings under
Section 19(b) to adopt CAT fees for their Industry Members and would
also submit a fee filings under Section 19(b) to implement any new Fee
Rates or adjustments to the Fee Rate.\93\ The Participants would submit
Section 19(b) fee filings for Industry Member CAT fees related to
Prospective CAT Costs \94\ and Section 19(b) fee filings for Industry
Member CAT fees related to Past CAT Costs.\95\ For Prospective CAT
Costs, the fee filings would require CBBs and CBSs to pay a monthly fee
for each transaction they clear from the prior month.\96\
---------------------------------------------------------------------------

    \93\ Id. at 33226-29. The Participants expect to provide advance
notice of Fee Rate changes before implementing such changes. Id. at
33229, n.23.
    \94\ Id. at 33229.
    \95\ Id. at 33230.
    \96\ Id. at 33229. The CAT fees would be calculated by the Plan
Processor using transaction data in CAT Data. See Notice, supra note
5, 87 FR at 33229-30.
---------------------------------------------------------------------------

6. Cost Discipline Mechanisms
    The Operating Committee states that CAT cost discipline
mechanisms--specifically, a cost-based funding structure, cost
transparency, cost management efforts, and oversight--help ensure the
ongoing reasonableness of CAT costs and fees.\97\ With respect to the
funding structure, the Operating Committee states that, pursuant to the
CAT NMS Plan, the Company operates on a break-even basis and as a
business league under Section 501(c)(6) of the Internal Revenue
Code.\98\ On transparency, the Operating Committee states that the
Company makes detailed financial information about the CAT publicly
available, including maintaining a web page that makes publicly
available consolidated annual financial statements.\99\ The Company
also publishes on the web page the Company's annual operating budget
and updates to the budget.\100\ In addition, the Operating Committee
states that it has held webinars for the industry that covered CAT
costs and potential alternative funding models and that they intend to
hold additional webinars on cost and funding in the future.
---------------------------------------------------------------------------

    \97\ Id. at 33234.
    \98\ Id. at 33234-35.
    \99\ Id. at 33235.
    \100\ Id.
---------------------------------------------------------------------------

    With respect to cost management efforts, the Operating Committee
maintains that it regularly undertakes efforts to reduce CAT costs and
oversees the CAT's annual budget with input from several CAT working
groups, including a Cost Management Working Group. The Operating
Committee also states that the Plan Processor engages in efforts to
provide its services cost-effectively, such as by ``review[ing] options
to lower computer and storage needs.'' \101\ Finally, the Operating
Committee explains that the Commission has oversight over the CAT's
funding and operations and that proposed amendments to the Plan to
implement fees and cost management efforts are subject to review by the
Commission and the public.\102\
---------------------------------------------------------------------------

    \101\ Id.
    \102\ See Notice, supra note 5, 87 FR at 33235.
---------------------------------------------------------------------------

7. Conforming Changes to CAT NMS Plan
    In order for the Executed Share Model to be consistent with the
terms of the CAT NMS Plan, the Operating Commission proposes to amend
certain sections to the CAT NMS Plan, as described below.
a. Definition of Execution Venue
    The Operating Committee proposes to delete the term ``Execution
Venue'' from Section 1.1 of the CAT NMS Plan.\103\ The Operating
Committee explains that the concept of an Execution Venue was relevant
to the Original Funding Model which would have charged fees to
Execution Venues fees based on market share, but is not relevant for
the Executed Share Model because CAT fees would be allocated based on
executed equivalent shares in transactions by Participants, CBBs and
CBSs.\104\
---------------------------------------------------------------------------

    \103\ Id. at 33237.
    \104\ Id.
---------------------------------------------------------------------------

b. Use of Executed Equivalent Shares for CAT Fees
    The Operating Committee also proposes to amend Sections 11.2(b) and
(c) and Sections 11.3(a) and (b) of the CAT NMS Plan to incorporate the
use of executed equivalent shares in transactions in Eligible
Securities to calculate CAT fees.\105\ The proposed amendments to
Section 11.2 of the CAT NMS Plan would revise the CAT NMS Plan's
funding principles which were intended to be used to establish a fee
structure that is equitable.\106\ The Operating Committee proposes to
amend Section 11.2(b) to remove the requirement that in establishing
funding for the Company, the Operating Committee would seek to take
into account distinctions in the securities trading operations of
Participants and Industry Members.\107\ The Operating Committee
explains that this provision was related to the use of message traffic

and market share to calculate CAT fees because these related to the
impact of CAT Reporters on the Company's resources and operations.\108\
The Operating Committee states that this provision is not relevant
under the Executed Share Model, which would not use message traffic or
market share to calculate CAT fees.\109\
---------------------------------------------------------------------------

    \105\ Id. at 33237-38.
    \106\ See CAT NMS Plan, supra note 1, at Appendix C-85.
    \107\ See Notice, supra note 5, 87 FR at 33238.
    \108\ Id.
    \109\ Id.
---------------------------------------------------------------------------

    The Operating Committee further proposes to amend Section 11.2(c)
to remove statements that fees charged to Industry Members and
Execution Venues would be based on message traffic and level of market
share, respectively.\110\ The statements would be replaced with the
requirement that fees charged to Industry Members and Participants
would be based on executed equivalent share volume of transactions in
Eligible Securities.\111\
---------------------------------------------------------------------------

    \110\ Id.
    \111\ Id.
---------------------------------------------------------------------------

    Section 11.3(a) of the CAT NMS Plan describes how fees will be
assessed and calculated for Execution Venues and Section 11.3(b)
describes how fees will be assessed and calculated for Industry
Members.\112\ The Operating Committee proposes to delete the text of
Section 11.3(a) and (b) and replace it with a description of how fees
would be assessed and calculated for Participants and clearing brokers
under the Executed Share Model.\113\ The Operating Committee also
proposes to add to Section 11.3(a) new Sections 11.3(a)(ii), (a)(iii)
and (a)(iv) to require the Participants to pay Prospective CAT Costs,
to describe how the Fee Rate will be calculated for Prospective CAT
Costs, and to state that the Participants are not required to pay a CAT
fee related to Past CAT Costs and that the two-thirds of the Past CAT
Costs collected from Industry Members would be allocated on a pro rata
basis to the Participants for repayment of outstanding loan notes to
the Company.\114\ In addition, the Operating Committee proposes to add
to Section 11.3(b) new Sections 11.3(b)(iii) and (b)(iv) to require
clearing brokers to pay CAT fees related to Past CAT Costs, to describe
how the Fee Rate will be calculated for Past CAT Costs, and to describe
the clearing brokers' obligation to pay a CAT fee for Prospective CAT
Costs.\115\
---------------------------------------------------------------------------

    \112\ See CAT NMS Plan, supra note 1, at Sections 11.3(a) and
11.3(b).
    \113\ See Notice, supra note 5, 87 FR at 33238, 33239.
    \114\ Id. at 33238.
    \115\ Id. at 33239.
---------------------------------------------------------------------------

c. Elimination of Tiered Fees
    The Operating Committee proposes to remove references to tiered
fees and related concepts from Sections 11.1(d), 11.2(c), 11.3(a) and
11.3(b) of the CAT NMS Plan.\116\ The Operating Committee explains that
the Executed Share Model would not charge a tiered fee and would
instead charge Participants, CBBs and CBSs a CAT fee that is based on
their executed equivalent share volume.\117\ The Operating Committee
asserts that this would address commenters' concerns about the use of
tiering in the Participants' proposed 2018 and 2021 funding
models.\118\
---------------------------------------------------------------------------

    \116\ Id.
    \117\ Id.
    \118\ Id. See also Securities Exchange Act Release Nos. 82451
(Jan. 5, 2018), 83 FR 1399 (Jan. 11, 2018) (notice of filing of the
2018 proposed CAT funding model); 91555 (Apr. 14, 2021), 86 FR 21050
(Apr. 21, 2021) (notice of filing of the 2021 proposed CAT funding
model). Both prior funding model proposals were withdrawn by the
Participants. See Securities Exchange Act Release Nos. 82892 (Mar.
16, 2018), 83 FR 12633 (Mar. 22, 2018) (withdrawal of the 2018
proposed CAT funding model); 93817 (Dec. 17, 2021), 86 FR 72656
(Dec. 22, 2021) (withdrawal of the 2021 proposed CAT funding model).
---------------------------------------------------------------------------

d. No Fixed Fees
    The Operating Committee proposes to replace references to ``fixed
fees'' in Section 11.3(a) of the CAT NMS Plan with ``fees.'' \119\ The
Operating Committee explains that the concept of a fixed fee is not
relevant under the Executed Share Model, under which fees for
Participants, CBBs and CBSs would vary in accordance with the executed
equivalent share volume of transactions.\120\
---------------------------------------------------------------------------

    \119\ See Notice, supra note 5, 87 FR at 33240.
    \120\ Id.
---------------------------------------------------------------------------

8. Alternative Models Considered
    The Operating Committee describes several other potential funding
models that it considered but dismissed and explains why the Executed
Share Model was the best choice. The alternative models discussed are
the Participants' proposed 2018 and 2021 funding models,\121\ a model
in which Industry Members and Participants would pay fees solely based
on revenue,\122\ a model in which both Industry Members and
Participants would pay fees based on message traffic in the CAT,\123\
and a model that would calculate a CAT fee similar to the proposed
Executed Share Model except only the CBS would be assessed a fee and
not the CBB or Participant in a transaction.\124\ The Operating
Committee also briefly describes other possible funding models it
considered but concluded that the Executed Share Model was the most
advantageous model and that it provides an equitable allocation of
reasonable fees among CAT Reporters.\125\
---------------------------------------------------------------------------

    \121\ Id. at 33235-36.
    \122\ Id. at 33236.
    \123\ Id. at 33237.
    \124\ Id.
    \125\ See Notice, supra note 5, 87 FR at 33237.
---------------------------------------------------------------------------

9. Consistency With the CAT NMS Plan and the Exchange Act
    The Operating Committee attests that the Executed Share Model
satisfies the CAT NMS Plan funding principles and other requirements,
as proposed to be amended by the Proposed Amendment, as well as
requirements of the Exchange Act.\126\ Specifically, the Operating
Committee explains that the Executed Share Model satisfies the funding
principles in Section 11.2(a)-(f) of the CAT NMS Plan, as proposed to
be amended by the Proposed Amendment,\127\ and that the Executed Share
Model would satisfy Section 11.1(c) of the CAT NMS Plan, which requires
the Company to time the imposition and collection of fees in a manner
reasonably related to the timing when the Company expects to incur
development and implementation costs, and which requires that any
surplus of Company resources over its expenses be treated as an
operational reserve to offset future fees.\128\ The Operating Committee
adds that the Company intends to operate as a business league within
the meaning of Section 501(c)(6) of the Internal Revenue Code, as
stated in Article VIII. of the CAT NMS Plan, which requires the Company
to not be organized for profit and that no part of its net earnings can
inure to the benefit of any private shareholder or individual.\129\
---------------------------------------------------------------------------

    \126\ Id. at 33241.
    \127\ Id. at 33241-42.
    \128\ Id. at 33242.
    \129\ Id.
---------------------------------------------------------------------------

    The Operating Committee also argues that the Executed Share Model
is consistent with Exchange Act requirements. Specifically, the
Operating Committee explains that the proposed CAT fees would provide
for the equitable allocation of reasonable dues, fees and other
charges,\130\ that the Executed Share Model would provide for
reasonable fees,\131\ and that it is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.\132\
Further, the Operating Committee attests that the Executed Share Model
would not impose any burden on competition that

is not necessary or appropriate,\133\ and that the proposed fee
schedule fairly and equitably allocates costs among CAT Reporters.\134\
---------------------------------------------------------------------------

    \130\ Id. See also 15 U.S.C. 78f(b)(4), 15 U.S.C. 78o-3(b)(5).
    \131\ See Notice, supra note 5, 87 FR at 33242.
    \132\ Id. at 33243. See also 15 U.S.C. 78f(b)(5), 15 U.S.C. 78o-
3(b)(6).
    \133\ See Notice, supra note 5, 87 FR at 33243. See also 15
U.S.C. 78f(b)(8), 15 U.S.C. 78o-3(b)(9).
    \134\ See Notice, supra note 5, 87 FR at 33243.
---------------------------------------------------------------------------

    In further support of the Proposed Amendment, the Operating
Committee asserts that the Executed Share Model is similar to existing
fees,\135\ is a straightforward approach,\136\ results in predictable
fees,\137\ is easy to administer,\138\ and treats different trading
products and venues equally.\139\ The Operating Committee explains that
the Executed Share Model would operate similarly to sales value fees
that the Commission previously determined were consistent with the
Exchange Act: specifically, Section 31 fees, FINRA's TAF, and the
ORF.\140\ The Operating Committee represents that the number of
executed equivalent shares in a transaction and the Fee Rate would be
made readily available and the adjustments for Listed Options and for
OTC Equity Securities would be straightforward calculations.\141\ The
Operating Committee further asserts that the fees would be predictable
because the Fee Rate would be established in advance so CAT Reporters
could calculate for themselves the applicable fees and can estimate and
validate their fees using their trading data,\142\ and that customers
who would be the recipient of pass-through CAT fees could also
calculate their own fees.\143\ Additionally, the Operating Committee
represents that administration of CAT fees would be simple because the
Executed Share Model relies on a basic calculation and a predetermined
Fee Rate, and fees would be collected in a manner similar to the
collection of other Industry Member fees.\144\ The Operating Committee
also attests that the Executed Share Model would treat transactions
equally regardless of the venue on which they are executed by applying
the same Fee Rate to securities executed on-exchange or over-the-
counter and regardless of how the trade occurred.\145\ Further, the
Operating Committee explains that the Executed Share Model would
recognize the different trading characteristics of different securities
by counting executed equivalent share volume differently for NMS
Stocks, Listed Options and OTC Equity Securities.\146\
---------------------------------------------------------------------------

    \135\ Id. at 33231-32.
    \136\ Id. at 33233.
    \137\ Id.
    \138\ Id.
    \139\ Id. at 33233-34.
    \140\ See Notice, supra note 5, 87 FR at 33231-32.
    \141\ Id. at 33233.
    \142\ Id.
    \143\ Id.
    \144\ Id.
    \145\ The Operating Committee states that the Fee Rate would be
the same even if a trade was completed in a manner that generates
more message traffic. Id.
    \146\ See Notice, supra note 5, 87 FR at 33233-34.
---------------------------------------------------------------------------

B. Proposed Participant Fee Schedule

    The Operating Committee proposes to adopt a fee schedule that would
describe how fees for Participants would be calculated and collected.
1. Participant CAT Fee
    Proposed provision (a) of the Proposed Participant Fee Schedule
describes how the CAT fee for national securities exchange and national
securities association Participants would be calculated. Specifically,
provision (a)(1) states that national securities exchange Participants
would pay a fee for each transaction in Eligible Securities executed on
the exchange based on CAT Data, where the fee for each transaction
would be calculated by multiplying the number of executed equivalent
shares in the transaction by one-third and by the Fee Rate.\147\
---------------------------------------------------------------------------

    \147\ Id. at 33246.
---------------------------------------------------------------------------

    Proposed provision (a)(2) states that national securities
association Participants would pay a fee for each transaction in
Eligible Securities executed otherwise than on exchange based on CAT
Data and, as for national securities exchange Participants, the fee
would be calculated by multiplying the number of executed equivalent
shares in the transaction by one-third and by the Fee Rate.\148\
---------------------------------------------------------------------------

    \148\ Id.
---------------------------------------------------------------------------

2. Fee Rate
    Proposed provision (b) of the Proposed Participant Fee Schedule
would describe how the Fee Rate would be calculated. Proposed provision
(b)(1) states that the Fee Rate will be calculated by the Operating
Committee at the start of the year by dividing the budgeted CAT costs
for the year by the projected total executed equivalent share volume of
all transactions in Eligible Securities for the year.\149\ The
provision also states that, if necessary, the Fee Rate may be adjusted
once in the year due to changes in the budgeted or actual costs or
projected or actual total executed equivalent share volume during the
year.\150\
---------------------------------------------------------------------------

    \149\ Id.
    \150\ Id.
---------------------------------------------------------------------------

    Proposed provision (b)(2) explains how executed equivalent shares
would be counted for transactions in NMS Stocks, Listed Options, and
OTC Equity Securities. For NMS Stocks, each executed share in a
transaction would be counted as one executed equivalent share.\151\ For
Listed Options, each executed contract for a transaction would be
counted based on the multiplier applicable to the specific Listed
Option.\152\ For OTC Equity Securities, each executed share for a
transaction would be counted as 0.01 executed equivalent share.\153\
---------------------------------------------------------------------------

    \151\ Id.
    \152\ See Notice, supra note 5, 87 FR at 33246.
    \153\ Id.
---------------------------------------------------------------------------

    Proposed provision (b)(3) explains the composition of the budgeted
CAT costs for the year. These would be comprised of all fees, costs and
expenses budgeted to be incurred by or for the Company in connection
with the development, implementation and operation of the CAT as set
for in the annual operating budget approved by the Operating Committee
pursuant to Section 11.1(a) of the CAT NMS Plan, or as adjusted during
the year by the Operating Committee.\154\
---------------------------------------------------------------------------

    \154\ Id.
---------------------------------------------------------------------------

    Proposed provision (b)(4) states that the projected total executed
equivalent share volume of all transactions in Eligible Securities for
each relevant period would be determined by the Operating Committee
based on the executed equivalent share volume of all transactions in
Eligible Securities for the prior six months.\155\
---------------------------------------------------------------------------

    \155\ Id.
---------------------------------------------------------------------------

3. Fee Payments/Collection
    Proposed provision (c) of the Proposed Participant Fee Schedule
requires that each Participant pay the CAT fee described in proposed
provision (a) to Consolidated Audit Trail, LLC on a monthly basis based
on the transactions in the prior month.\156\
---------------------------------------------------------------------------

    \156\ Id.
---------------------------------------------------------------------------

IV. Summary of Comments

A. Consistency With the Exchange Act

    Commenters object to the Proposed Amendment.\157\ Several
commenters

argue the Proposed Amendment is generally inconsistent with the
Exchange Act.\158\ One commenter states that the Proposed Amendment
lacks sufficient information for the Commission to determine whether
the Executed Share Model is consistent with the Exchange Act.\159\
Another commenter states that the Executed Share Model is arbitrary and
``largely unfounded on principles upon which the Commission could
reasonably conclude that CAT NMS would be fairly funded.'' \160\ Two
commenters disagree with the Participants' assertion that the Executed
Share Model is similar to other transaction-based fees approved by the
Commission is adequate justification for consistency with the Exchange
Act.\161\ One of these commenters states that, although the Proposed
Amendment asserts that the Executed Share Model is fair because it
operates in a manner that is similar to other fee rules that the
Commission found consistent with the Exchange Act, like the TAF,
Section 31 fee and the ORF, the Proposed Amendment fails to provide
``insight as to why these other fee frameworks, which apply to
completely different contexts, should serve as a model here.'' \162\
Two commenters state that the Proposed Amendment lacks sufficient
detail for the Commission to articulate a satisfactory explanation for
approval, as required by Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d
442, 443 (D.C. Cir. 2017).\163\
---------------------------------------------------------------------------

    \157\ See Letters to Vanessa Countryman, Secretary, Commission
from Larry Harris, Fred V. Keenan Chair in Finance, U.S.C. Marshall
School of Business (June 21, 2022) (``Harris Letter''); Kirsten
Wegner, Chief Executive Officer, Modern Markets Initiative (June 21,
2022) (``MMI Letter''); Marcia E. Asquith, Corporate Secretary,
Executive Vice President, Board and External Relations, FINRA (June
22, 2022) (``FINRA Letter''); Ellen Greene, Managing Director,
Equities & Options Market Structure, and Joseph Corcoran, Managing
Director, Associated General Counsel, Securities Industry and
Financial Markets Association (June 22, 2022) (``SIFMA Letter'');
and Thomas M. Merritt, Deputy General Counsel, Virtu Financial, Inc.
(June 22, 2022) (``Virtu Letter''). All comments received in
response to the Notice can be found on the Commission's website at
https://www.sec.gov/comments/4-698/4-698-a.htm.
    \158\ See Harris Letter at 1; FINRA Letter at 4; SIFMA Letter at
1-2, 3, 4; Virtu Letter at 7.
    \159\ See SIFMA Letter at 1-2, 3.
    \160\ See Harris Letter at 1.
    \161\ See FINRA Letter at 4; SIFMA Letter at 4.
    \162\ See FINRA Letter at 4.
    \163\ See SIFMA Letter at 3; Virtu Letter at 7.
---------------------------------------------------------------------------

    In its response to comments.\164\ CAT LLC maintains that the
Executed Share Model satisfies the requirements of the Exchange Act and
should be approved by the Commission.\165\ CAT LLC states, ``[t]he
Executed Share Model would provide reasonable fees that are equitably
allocated, not unfairly discriminatory, and do not impose an undue
burden on competition, in that the model reflects a reasonable effort
to allocate costs based on the extent to which different CAT Reporters
participate in and benefit from the equities and options markets.''
\166\ CAT LLC reiterates that the Executed Share Model would be
consistent with past fee structures that have been approved by the
Commission and argues that the Executed Share Model is ``transparent,
would be relatively easy to calculate and administer, and is designed
not to have an impact on market activity because it is neutral as to
the location and manner of execution.'' \167\ CAT LLC states that its
obligation is to demonstrate that the proposed model is consistent with
the Exchange Act and the rules and regulations thereunder, not to prove
that the proposed model is superior to other proposals.\168\
---------------------------------------------------------------------------

    \164\ See Letter from Michael Simon, Chair, CAT NMS Plan
Operating Committee, to Vanessa Countryman, Secretary, Commission
(Aug. 16, 2022) (``Response Letter''). The Response Letter states,
``CAT LLC notes that these responses represent the consensus of the
Participants, but that all Participants may not fully agree with
each response set forth in this letter.'' Id. at 2.
    \165\ Id.
    \166\ Id.
    \167\ Id.
    \168\ Id.
---------------------------------------------------------------------------

    Commenters also argue that the Proposed Amendment generally does
not result in an equitable allocation of reasonable dues, fees and
other charges.\169\ One commenter states that the Proposed Amendment
fails to meet the requirements under the Exchange Act that CAT funding
provides ``for the equitable allocation of reasonable dues, fees and
other charges.'' \170\ Another commenter argues that the Proposed
Amendment provides no support for why using executed share volume as
the basis for the cost allocation methodology, instead of message
traffic, is equitable.\171\ The commenter adds that the argument that
executed share volume is related to cost generation is not enough to
demonstrate that use of it is reasonable and equitable.\172\ This
commenter further states that the Executed Share Model is inconsistent
with the Exchange Act because it abandons cost alignment principles and
lacks transparency about its impact.\173\
---------------------------------------------------------------------------

    \169\ See FINRA Letter at 2, 3-4; Virtu Letter at 2.
    \170\ See Virtu Letter at 2.
    \171\ See FINRA Letter at 3.
    \172\ Id. at 3-4.
    \173\ Id. at 2.
---------------------------------------------------------------------------

    Several commenters question the proposed cost allocation between
Industry Members and Participants.\174\ One commenter states that the
Proposed Amendment offers no justification why allocating costs by
thirds to the Participant, the buy-side, and the sell-side is equitable
in the context of the CAT NMS Plan.\175\ The commenter argues that
``the Proposal also does not provide adequate support for the overall
allocation between Participants and industry members or the allocation
of costs between equity and options.'' \176\ Another commenter argues
that the fee structure disproportionately shifts CAT costs to Industry
Members and investors.\177\ The commenter states that the proposed
allocation is arbitrary, lacks justification and does not account for
the fees the Participants already collect from the industry.\178\ The
commenter believes the two-thirds allocation was only chosen because it
appears somewhat better for Industry Members than the 75%/25% (Industry
Member/Participant) cost allocation proposed in the prior model, and
that none of the arguments used by the Participants provide a
reasonable basis why a two-thirds/one-third split is appropriate.\179\
---------------------------------------------------------------------------

    \174\ See FINRA Letter at 3, 4; Virtu Letter at 1-4; SIFMA
Letter at 1-5.
    \175\ See FINRA Letter at 3.
    \176\ Id. at 4.
    \177\ See Virtu Letter at 1.
    \178\ Id. at 2.
    \179\ Id. at 3-4.
---------------------------------------------------------------------------

    One commenter argues that the proposed cost allocation methodology
is inconsistent with Exchange Act fee standards because most costs
would be imposed on Industry Members.\180\ The commenter states that
the Participants do not account for ``the time and expense Industry
Members have devoted to developing and maintaining internal systems to
be able to report the CAT, as well as the time and expense Industry
Members have devoted to assisting the Operating Committee with its job
of developing reporting specifications that allow the CAT to achieve
its regulatory purpose.'' \181\ The commenter states that the
Participants have not taken Industry Members' time and expenses into
account when deciding to allocate two-thirds of the CAT costs to
Industry Members and that ``this omission is a flaw with the
Participants' decision to allocate two-thirds of the CAT costs to
Industry Members and its inclusion would demonstrate that the
Participants' Executed Share Model does not provide for the equitable
allocation of reasonable fees.'' \182\
---------------------------------------------------------------------------

    \180\ See SIFMA Letter at 1-2.
    \181\ Id. at 4.
    \182\ Id. at 4-5.
---------------------------------------------------------------------------

    In response to comments requesting further justification for the
proposed allocation of one-third of the CAT fee to the CBB, CBS and
Participant in a transaction, and for allocating two-thirds of the
costs to Industry Members,\183\ CAT LLC states that the proposed
allocation satisfies the Exchange Act and that the proposed allocation
recognizes the three primary roles in a transaction and assesses an
equal fee to each role, taking a similar approach to the TAF, ORF and
Section 31 fees, but also assigning a fee to the

Participant and the buyer.\184\ CAT LLC adds that the proposed two-
thirds allocation to Industry Members reflects the greater level of CAT
costs that are created by Industry Members as compared to
Participants.\185\ CAT LLC explains that Industry Members originate
trading activity, which necessitates message traffic, and that CAT
costs are dominated by data processing and storage costs, which are
related to message traffic.\186\ CAT LLC also states that the
complexity of Industry Member business models impacts the complexity of
CAT reporting requirements, and that the processing and storage of
complex reporting scenarios requires the use of complex algorithms,
which result in substantial CAT data processing and storage costs.\187\
In comparison, CAT LLC represents that Participant activity is not as
complex.\188\ Accordingly, CAT LLC believes that because the complexity
of Industry Members' business models contribute significantly to the
costs of the CAT, it is ``reasonable and equitable to require that
Industry Members pay a substantial portion of those costs.'' \189\
---------------------------------------------------------------------------

    \183\ See FINRA Letter at 3, 4; SIFMA Letter at 4; Virtu Letter
at 3-4.
    \184\ See Response Letter at 5.
    \185\ Id.
    \186\ Id.
    \187\ Id. at 6.
    \188\ Id.
    \189\ Id.
---------------------------------------------------------------------------

    CAT LLC further adds that allocating to Participants a greater
percentage of CAT costs would be inequitable because: (1) there are 25
Participants and 1,100 Industry Members; (2) Participants only
represent 4% of total CAT Reporter revenue while Industry Members
represent 96%; and (3) certain individual Industry Members ``have
revenue in excess of some or all of the Participants.'' \190\
---------------------------------------------------------------------------

    \190\ See Response Letter at 6.
---------------------------------------------------------------------------

    In response to the comment that the Proposed Amendment does not
take into account internal costs incurred by Industry Members to comply
with CAT reporting requirements,\191\ CAT LLC states that ``there is no
precedent for regulatory fees to be determined based on the cost of
compliance of the regulated entity'' \192\ and that it disagrees with
the approach.\193\ CAT LLC states that the CAT funding model is
designed to assess fees to recover direct CAT costs and not Industry
Members' costs to comply with CAT.\194\ Additionally, CAT LLC argues
that it is infeasible to accurate determine each Industry Member's
compliance costs ``without recordkeeping requirements and appropriate
standards to determine expenses accurately.'' \195\ CAT LLC adds that
the Participants' own ``substantial internal compliance costs'' are not
accounted for by the proposed Executed Share Model.\196\
---------------------------------------------------------------------------

    \191\ See SIFMA Letter at 4-5.
    \192\ See Response Letter at 9.
    \193\ Id.
    \194\ Id.
    \195\ Id.
    \196\ Id. at n.46, at 10.
---------------------------------------------------------------------------

    One commenter objects to the proposed allocation of costs among the
Participants.\197\ The commenter argues that the Proposed Amendment
disproportionately allocates the increase in the Participants'
allocation to FINRA instead of equitably among the Participants.\198\
The commenter states that, compared to the prior proposal, FINRA's
share would increase from 4.1% of total costs to 10.8%, whereas the
share for options exchanges would decrease from 10.4% to 8.9% and the
share for equities exchanges would increase modestly from 10.5% to
13.6%.\199\ The commenter argues that the Proposed Amendment only
addresses this increase in FINRA's allocation through a footnote
stating that ``FINRA's contribution would likely increase in comparison
to prior models.'' \200\ The commenter adds that FINRA would have to
fund any costs that are not recovered through TRF contractual
arrangements through increases to FINRA member fees, and that the
downstream impact of FINRA's allocation is not acknowledged in the
Proposed Amendment.\201\ The commenter also questions the rationale in
the Proposed Amendment that FINRA's allocation is appropriate because
of its ``responsibility for securities traded in the over-the-counter
market,'' stating that the proposed funding model is supposed to
recover the costs of CAT's operation as a system and not the costs of
using CAT data for regulatory purposes.\202\
---------------------------------------------------------------------------

    \197\ See FINRA Letter at 5-8.
    \198\ Id.
    \199\ Id. at 5.
    \200\ Id. at 5-6.
    \201\ Id. at 7.
    \202\ Id. at 6.
---------------------------------------------------------------------------

    In response to the comment objecting to the rationale provided for
FINRA's allocation in the Proposed Amendment,\203\ CAT LLC states that
FINRA's allocation is appropriate because it reflects FINRA's role in
transactions taking place on the over-the-counter market as allocations
to exchanges under the Executed Share Model reflect their role in
transactions taking place on their markets.\204\ CAT LLC also responds
to the criticism that the increase in FINRA's allocation was not made
readily apparent by stating that the Proposed Amendment explained that
each Participant's contributions would change under the Executed Share
Model, based on types and amounts of securities trading on-exchange or
over-the-counter, and that the Proposed Amendment contained a chart
listing illustrative fees for the Participants.\205\ CAT LLC also
states that it could not definitively represent in the Proposed
Amendment that FINRA's contribution would always be increased over
prior models in any given time period.\206\
---------------------------------------------------------------------------

    \203\ See FINRA Letter at 6.
    \204\ See Response Letter at 11.
    \205\ Id.
    \206\ Id.
---------------------------------------------------------------------------

    Commenters also express concerns about the allocation of
Prospective and Past CAT Costs.\207\ Two commenters question whether
the allocation of Prospective CAT Costs is consistent with the Exchange
Act.\208\ One commenter argues that the Participants have not provided
a reasonable basis to conclude that the proposed two-thirds allocation
to Industry Members and one-third allocation to Participants is
appropriate in light of the statement in the Proposed Amendment \209\
that prospective operational costs are estimated to be $110 million in
a year and that certain Industry Members would pay almost $12 million
per year.\210\
---------------------------------------------------------------------------

    \207\ See SIFMA Letter at 4-6, 7; Virtu Letter at 3-5.
    \208\ Id.
    \209\ See Virtu Letter at 3.
    \210\ Id.
---------------------------------------------------------------------------

    Another commenter states that the Participants are unable to show
that the proposed methodology for Prospective CAT Costs is an equitable
allocation of reasonable fees \211\ and therefore ``do not address the
fact that the Executed Share Model for Prospective CAT Costs allocates
two-thirds of CAT costs to Industry Members for exchange transactions
and more for off-exchange transactions.'' \212\ The commenter states
that Industry Members, who would be subject to two-thirds of
Prospective CAT Costs under the Executed Share Model, already pay
FINRA's operating costs through regulatory fines and fees; therefore,
Industry Members would additionally be indirectly assessed FINRA's one-
third CAT fee for off-exchange transactions.\213\ Similarly, another
commenter notes that the proposed allocation would result in two-thirds
of CAT costs for exchange transactions being imposed on Industry
Members, and that this amount would be higher for off-exchange
transactions

as FINRA would be assessed one-third as the venue fee and Industry
Members would be indirectly assessed FINRA's portion of CAT costs as
they pay the entire costs of operating FINRA.\214\
---------------------------------------------------------------------------

    \211\ See SIFMA Letter at 4.
    \212\ Id.
    \213\ Id.
    \214\ See FINRA Letter at 4.
---------------------------------------------------------------------------

    In response to the comment stating that Industry Members will be
allocated more than two-thirds of Prospective CAT Costs since they pay
FINRA's operating costs through regulatory fees and fines,\215\ CAT LLC
states that ``this argument inappropriately looks to how any fee is
ultimately paid for, rather than the fee at issue.'' \216\ CAT LLC
explains that under the proposed Executed Share Model, CAT fees would
be the same whether a transaction took place over-the-counter or on an
exchange and all Participants would be subject to the same fee
treatment to avoid CAT fees becoming a competitive issue among the
Participants.\217\ CAT LLC states that each Participant, not just
FINRA, will have to determine how it will pay its CAT fees and may
pass-through to its members its own CAT fees through regulatory,
trading or other fees.\218\ CAT LLC asserts that ``[a]ny review of how
the Participants obtain their funds to pay CAT fees is beyond the scope
of the CAT fee filing.'' \219\ CAT LLC adds that Industry Members may
determine themselves to pass their CAT fees to their customers, as they
do with Section 31 fees; therefore, the Industry Member allocation of
CAT costs could be passed entirely through to investors.\220\
---------------------------------------------------------------------------

    \215\ See SIFMA Letter at 4.
    \216\ See Response Letter at 7.
    \217\ Id.
    \218\ Id. at 7-8.
    \219\ Id. at 8.
    \220\ Id.
---------------------------------------------------------------------------

    Commenters also question whether the allocation of Past CAT Costs
is consistent with the Exchange Act.\221\ One commenter argues that
Industry Members should not be assessed any fees related to the
decision to employ Thesys Technologies, LLC as the Plan Processor or
legal or consulting fees incurred by the Participants in the creation
of the CAT NMS Plan.\222\ The commenter states that the Proposed
Amendment fails to provide how of much of the allocation to Industry
Members is related to Thesys Technologies, LLC, and, therefore, the
Participants have not demonstrated how the Executed Share Model is
consistent with the Exchange Act.\223\ The commenter also argues that
Industry Members were not subject to CAT obligations before the CAT NMS
Plan's approval, had no input into the selection of the service
providers, and that ``it is difficult to envision how the Participants
could demonstrate that such an allocation provides for the equitable
allocation of reasonable fees due to the fact that the CAT NMS Plan did
not exist during the period prior to its approval.'' \224\
---------------------------------------------------------------------------

    \221\ See SIFMA Letter at 6, 7; Virtu Letter at 4.
    \222\ See SIFMA Letter at 7.
    \223\ Id.
    \224\ Id.
---------------------------------------------------------------------------

    In response to this comment,\225\ CAT LLC states that the
Participants would be fully responsible for all CAT costs incurred from
November 15, 2017 through November 15, 2018 due to the one-year delay
in the start of reporting to the CAT, as well as costs related to the
conclusion of the relationship with the initial plan processor, which
were $14,749,362.\226\ CAT LLC adds that Section 11.1(c) of the CAT NMS
Plan authorizes the imposition of fees on Industry Members for costs
incurred prior to the data of approval of the CAT NMS Plan, including
legal and consulting costs.\227\ CAT LLC states that it is therefore
appropriate to recover these costs from Industry Members.\228\
---------------------------------------------------------------------------

    \225\ See SIFMA Letter at 7.
    \226\ See Response Letter at 28-29. CAT LLC explains that these
costs could be reasonably identified and are more appropriately
borne by the Participants. Id. at 29.
    \227\ Id.
    \228\ Id.
---------------------------------------------------------------------------

    Two commenters argue that the Proposed Amendment is deficient in
justifying why Industry Members should have to pay two-thirds of Past
CAT Costs because the Participants were solely responsible for the
decision-making that created the costs.\229\ One commenter states that
the Participants have mismanaged the CAT project ``with cost overruns
and problematic spending decisions'' \230\ and that Industry Members
``had absolutely no decision-making authority.'' \231\
---------------------------------------------------------------------------

    \229\ See SIFMA Letter at 6-7; Virtu Letter at 4.
    \230\ See Virtu Letter at 4.
    \231\ Id.
---------------------------------------------------------------------------

    In response to the comment arguing that Industry Members should not
be responsible for Past CAT Costs for which they had no decision-making
authority,\232\ CAT LLC states that Industry Members are expected to
contribute to the costs of CAT, including historical costs.\233\
---------------------------------------------------------------------------

    \232\ Id.
    \233\ See Response Letter at 22.
---------------------------------------------------------------------------

    Several commenters list additional concerns about the proposed cost
allocation.\234\ One commenter states that fees should only be assessed
on the sell-side, not the buy-side as Section 31 fees are assessed only
on sellers.\235\ The commenter states that charging the buy-side would
require expensive modifications to existing systems, and recommends
either the inclusion of a cost-benefit analysis on charging both the
buy-side and sell-side, or amending the Proposed Amendment to exclude
the buy-side.\236\ Another commenter contrasts the Executed Share Model
against existing transaction-based fee models, stating that the
proposed model requires clearing firms to assess fees on buyers and
sellers in transactions, unlike fees such as the Section 31 fee, which
is only assessed on the seller in the transaction.\237\
---------------------------------------------------------------------------

    \234\ See FINRA Letter at 4; Harris Letter at 11-13; Virtu
Letter at 2-4; MMI Letter at 3, 4; SIFMA Letter at 9-10.
    \235\ See MMI Letter at 4.
    \236\ Id. at 3.
    \237\ See SIFMA Letter at 9-10.
---------------------------------------------------------------------------

    In response to the comments questioning the assessment of CAT fees
on the buy-side instead of solely on the sell-side,\238\ CAT LLC states
that transaction-based fees that are charged to both sides of the
transaction, such as the ORF and Participant-imposed trading fees, are
regularly used in the industry.\239\
---------------------------------------------------------------------------

    \238\ See MMI Letter at 3; SIFMA Letter at 9-10.
    \239\ See Response Letter at 12.
---------------------------------------------------------------------------

    One commenter states that it is impossible to determine whether the
allocation to Industry Members and investors is fair and equitable
because the Proposed Amendment fails to include details about CAT
operating costs.\240\ This commenter also states that the Proposed
Amendment fails to address that costs on Industry Members may be passed
on to investors, which would make it more expensive for investors to
access the markets.\241\ This commenter additionally questions why
Industry Members and investors should be responsible for a CAT fee when
the Participants are already funded by market participants through
membership fees, registration and licensing fees, regulatory fees, and
proprietary market data and market access fees.\242\
---------------------------------------------------------------------------

    \240\ See Virtu Letter at 4.
    \241\ Id.
    \242\ Id. at 2-3.
---------------------------------------------------------------------------

    In response to the comment objecting to the imposition of a CAT fee
on Industry Members because they are already subject to other
Participant fees,\243\ CAT LLC states that Rule 613 and the CAT NMS
Plan permit the assessment of a CAT-specific fee on Industry Members to
contribute to the funding of the CAT.\244\ CAT LLC adds that ``existing
regulatory fees are not designed to address the substantial

additional costs related to CAT.'' \245\ CAT LLC also states that
adopting a CAT-specific fee would be more transparent than a general
regulatory fee designed to cover a variety of regulatory costs because
CAT LLC would be fully transparent about the costs of the CAT.\246\
---------------------------------------------------------------------------

    \243\ See Virtu Letter at 2-3.
    \244\ See Response Letter at 13-14.
    \245\ Id. at 13.
    \246\ Id. at 14.
---------------------------------------------------------------------------

    One commenter argues that the Proposed Amendment lacks adequate
support for the cost allocation between equities and options.\247\
Another commenter expresses concerns about the Proposed Amendment's
treatment of options transactions and the proposed discount for OTC
Equity Securities.\248\ For example, the commenter states that the
proposed assignment of equivalent shares to options trades based on
their nominal multiplier is arbitrary and that options trades would be
unfairly burdened as fees collected for options would be twice the fees
for equities.\249\ The commenter also states that the proposed 0.01
equivalent share factor for OTC Equity Securities is arbitrary \250\
and argues that a discount for OTC equities for identical-sized
transactions in OTC and NMS stocks trading at the same price would
unfairly subsidize the OTC market.\251\
---------------------------------------------------------------------------

    \247\ See FINRA Letter at 4.
    \248\ See Harris Letter at 11-13.
    \249\ Id. at 12.
    \250\ Id. at 13.
    \251\ Id. at 12.
---------------------------------------------------------------------------

    In response to the comment stating that the Proposed Amendment does
not provide adequate support for the allocation of costs between
equities and options,\252\ CAT LLC states that the Executed Share Model
would use equivalent executed share volume to ``normalize options and
equities in the calculation of fees.'' \253\ Further, CAT LLC explains
that the equivalent executed share volume approach recognizes the
different trading characteristics of options, equities and OTC Equity
Securities by counting transactions in each of these types of
securities differently for purposes of calculating CAT fees.\254\
---------------------------------------------------------------------------

    \252\ See FINRA Letter at 4.
    \253\ See Response Letter at 10.
    \254\ Id.
---------------------------------------------------------------------------

    Commenters also question whether other aspects of the Proposed
Amendment are consistent with the Exchange Act.\255\ One commenter
states that the Proposed Amendment subjects market participants to
unfair discrimination because it fails to meet the requirements under
the Exchange Act that CAT funding not be designed to permit unfair
discrimination between customers, issuers, brokers or dealers.\256\
---------------------------------------------------------------------------

    \255\ See Virtu Letter at 2; FINRA Letter at 6-8; SIFMA Letter
at 9-10; Harris Letter at 12.
    \256\ See Virtu Letter at 2.
---------------------------------------------------------------------------

    Several commenters suggest the Proposed Amendment imposes a burden
on competition.\257\ One commenter states generally that the Proposed
Amendment fails to meet the requirements under the Exchange Act that
CAT funding does not ``impose any burden on competition not necessary
or appropriate in furtherance of the purposes'' of the Exchange
Act.\258\ One commenter believes the Proposed Amendment would impose an
undue burden on FINRA by shifting nearly all of the Participants'
increased share of the costs to FINRA.\259\ The commenter states that
FINRA will need to fund the costs through increases to its member fees,
and that the potential impacts on the industry arising from FINRA's
allocation are not addressed in the Proposed Amendment.\260\ Another
commenter states that the Proposed Amendment imposes an undue burden on
clearing firms by not sufficiently addressing the impact of the
Executed Share Model on clearing firms, which would have to pay their
share of costs as well as act as fee collectors, requiring them to
develop new systems and processes to implement the model.\261\ Finally,
one commenter argues that the Proposed Amendment imposes an undue
burden on the options markets, stating that proposed fees for options
trades under the Executed Share Model would always be greater on a
risk-transferred basis than fees for equities trades because options
trades transfer less risk than equity trades of the same number of
shares in the underlying security.\262\ The commenter states that fees
collected for options would average twice the fees for equities and
options trades would be unfairly burdened.\263\
---------------------------------------------------------------------------

    \257\ See Virtu Letter at 2; FINRA Letter at 6-8; SIFMA Letter
at 9-10; Harris Letter at 12.
    \258\ See Virtu Letter at 2.
    \259\ See FINRA Letter at 6-8.
    \260\ Id.
    \261\ See SIFMA Letter at 9-10.
    \262\ See Harris Letter at 12.
    \263\ Id.
---------------------------------------------------------------------------

    In response to the comment stating that the Executed Share Model
would impose an undue burden on FINRA,\264\ CAT LLC states that the
Executed Share Model assesses CAT fees in the same manner regardless of
whether a transaction is executed over-the-counter or on an
exchange,\265\ and treats each Participant in the same manner as all
have the same regulatory obligations under the Exchange Act and use CAT
Data for the same regulatory purposes,\266\ and that the same treatment
would avoid making CAT fees a competitive issue among the
Participants.\267\ CAT LLC states that FINRA's fee is calculated based
on substantial activity in the over-the-counter market, explaining that
34% of executed equivalent share volume in Eligible Securities took
place in the over-the-counter market in 2021.\268\
---------------------------------------------------------------------------

    \264\ See FINRA Letter at 6.
    \265\ See Response Letter at 10.
    \266\ Id.
    \267\ Id. at 11.
    \268\ Id.
---------------------------------------------------------------------------

    In response to the comment arguing that the Proposed Amendment does
not sufficiently address the impact of the Executed Share Model on
clearing firms, which would have to act as fee collectors under the
model and develop new systems and processes accordingly,\269\ CAT LLC
states that ``CAT LLC proposes to make use of clearing firms for fee
collection as this proposal would make use of existing industry
collection systems for efficiency and cost purposes.'' \270\
---------------------------------------------------------------------------

    \269\ See SIFMA Letter at 9.
    \270\ See Response Letter at 12.
---------------------------------------------------------------------------

B. Transparency

    Several commenters discuss a lack of transparency in the Proposed
Amendment into actual costs and anticipated costs.\271\ Three
commenters state that the Proposed Amendment is lacking detail about
the makeup of the actual and anticipated costs that will be incurred in
operating the CAT.\272\ One commenter states that this lack of detail
makes it impossible for Industry Members and the Commission to
determine whether the proposed allocation to the Industry Members is
fair and equitable.\273\ Another commenter argues that the level of CAT
cost transparency is insufficient to allow Industry Members and the
Commission to determine whether the costs incurred and fees imposed by
the CAT are fair and reasonable.\274\
---------------------------------------------------------------------------

    \271\ See Harris Letter at 14; MMI Letter at 3-5; Virtu Letter
at 3-6, 7; SIFMA Letter at 8-9.
    \272\ See MMI Letter at 4-5; Virtu Letter at 4; SIFMA Letter at
8.
    \273\ See Virtu Letter at 4.
    \274\ See SIFMA Letter at 8.
---------------------------------------------------------------------------

    In response to comments arguing that a lack of transparency into
CAT costs prevents Industry Members and the Commission from determining
whether the proposed allocation, costs incurred and CAT fees satisfy
the requirements of the Exchange Act,\275\ CAT LLC attests that ``CAT
LLC provides substantial cost transparency for CAT costs, including
transparency above and beyond what is required, and more than other
national

market system plans.'' \276\ CAT LLC states that the Commission does
not need additional public cost transparency, such as the detailed cost
information requested by the commenters, to evaluate the Proposed
Amendment under the Exchange Act,\277\ arguing that ``[k]nowledge of
every minute detail about the inner operation of CAT LLC is not
necessary to evaluate the proposed fee.'' \278\ CAT LLC states that it
makes publicly available, in accordance with Section 9.2(a) of the CAT
NMS Plan, an audited balance sheet, income statement, statement of cash
flows and statement of changes in equity, and has published on the CAT
NMS Plan website consolidated annual financial statements from 2017
through 2021.\279\ Additionally, CAT LLC states that it voluntarily
provides its annual operating budget and periodical updates to the
budget on the CAT NMS Plan website.\280\ CAT LLC also states that the
Commission and the Advisory Committee attend Operating Committee
meetings, which discuss financial matters,\281\ and adds that it has
held webinars detailing CAT costs and alternative funding models.\282\
---------------------------------------------------------------------------

    \275\ See SIFMA Letter at 8, Virtu Letter at 4-7.
    \276\ See Response Letter at 18.
    \277\ Id.
    \278\ Id.
    \279\ Id. at 19.
    \280\ Id.
    \281\ Id.
    \282\ See Response Letter at 19-20.
---------------------------------------------------------------------------

    One commenter specifically states that the Proposed Amendment
``lacks adequate information about the anticipated annual fees and
costs to run the CAT for Industry Members and investors (i) to project
with any degree of confidence what they will be obligated to pay each
year or (ii) to assess the reasonableness of the projected costs . . .
Furthermore, our understanding is that the budget for 2022 is not a
fixed amount and could in fact result in significantly higher costs to
the Industry Members and investors than projected. Without reasonable
transparency into the costs and drivers of the costs, how will Market
Participants and investors know how much expense to expect in 2023 or
beyond?'' \283\ Another commenter suggests that rate-setting be done on
a rolling 12-month (or longer) basis rather than every year, to ensure
that fees are more stable while producing financing costs and
investment returns that the CAT can accommodate.\284\
---------------------------------------------------------------------------

    \283\ See Virtu Letter at 4-5.
    \284\ See Harris Letter at 14.
---------------------------------------------------------------------------

    In response to the comment questioning how market participants
could budget for costs that significantly exceed projections,\285\ CAT
LLC states that it provides budget updates on the CAT NMS Plan website
to inform CAT reporters and investors of any budget changes.\286\
---------------------------------------------------------------------------

    \285\ See Virtu Letter at 5.
    \286\ See Response Letter at 20.
---------------------------------------------------------------------------

    Another commenter states that ``the level of CAT cost transparency
continues to be insufficient . . . for example, the CAT operating
budget provides only the following, high-level categories of technology
costs related to actual and Prospective CAT Costs: (i) cloud hosting
services; (ii) operating fees; (iii); CAIS operating fees; and (iv)
change request fees . . . In addition, under general and administrative
expenses, there is a category for public relations costs. Yet nowhere
in the budget are these categories further defined or explained.''
\287\ In addition, the commenter recommends that the CAT operating
budget be subject to an annual public review process overseen by the
Commission.\288\ The commenter suggests that the review process
includes annual Commission approval of the CAT operating budget,
similar to how the Commission's annual budget is subject to
Congressional review.\289\
---------------------------------------------------------------------------

    \287\ See SIFMA Letter at 8.
    \288\ Id. at 8-9.
    \289\ Id. at 9.
---------------------------------------------------------------------------

    In response to the comment recommending that the Commission oversee
an annual public review process of the CAT operating budget,\290\ CAT
LLC states that: (1) the suggested budget review process is not
necessary or appropriate as CAT is a private entity subject to the
requirements of the Exchange Act, not a governmental entity responsible
to the taxpaying public; (2) CAT fees are already subject to review and
public comment under Rule 608 of Regulation NMS and Section 19(b) of
the Exchange Act and Rule 19b-4 thereunder; and (3) the Commission can
request budget and financial information if it believes it is necessary
for the Commission to review any CAT fee proposals.\291\
---------------------------------------------------------------------------

    \290\ See SIFMA Letter at 8-9.
    \291\ See Response Letter at 21.
---------------------------------------------------------------------------

    One commenter states that they asked FINRA for more detailed
information surrounding both historical and future operational costs,
but were only provided high-level budget information.\292\ The
commenter states that the lack of detail on costs that the Industry
Members are projected to bear causes the commenter to feel that they
``are being asked to hand over a blank check with the amount to be
filled in later.'' \293\ The commenter argues that due to the lack of
detail on the historical and projected costs, ``the Executed Share
Model lacks sufficient detail to allow the Commission to articulate a
satisfactory explanation for its approval as required by the D.C.
Circuit's opinion in Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d 442,
443 (D.C. Cir. 2017).'' \294\
---------------------------------------------------------------------------

    \292\ See Virtu Letter at 7.
    \293\ Id.
    \294\ Id.
---------------------------------------------------------------------------

    Another commenter addresses the refund mechanism for excess
collections, stating that the Proposed Amendment does not offer detail
regarding the reconciliation of fees if actual CAT costs exceed or are
less than the budgeted CAT costs.\295\ The commenter states that
because CAT LLC operates as a tax-exempt organization under Section
501(c)(6) of the Internal Revenue Code, it should not have the ability
to keep profits by building up excessive reserves for fees paid in
excess of actual expenses.\296\ The commenter asserts that when
excessive fees are collected, there should be a refund mechanism,\297\
and without such a refund mechanism, the CAT may be able to collect
excessive reserves from the fees paid by Industry Members that ``would
allow it, for example, to adopt some form of self-insurance to the
extent it experienced a data breach.'' \298\ The commenter believes
that the Participants should provide greater transparency into what
happens when excess fees are collected so that the Commission can
understand the fee reconciliation process and determine whether the
inclusion of a refund mechanism is necessary for the Proposed Amendment
to meet the Exchange Act fee standards.\299\
---------------------------------------------------------------------------

    \295\ See SIFMA Letter at 9.
    \296\ Id.
    \297\ Id.
    \298\ Id.
    \299\ Id.
---------------------------------------------------------------------------

    In response to the comment,\300\ CAT LLC states that CAT fees
collected in excess of costs would not be refunded to any CAT
Reporters.\301\ CAT LLC explains that it operates on a break-even
process with fees to cover costs and an appropriate reserve.\302\
According to CAT LLC, surpluses would not be distributed to the
Participants as profits \303\ and would be treated as an operational
reserve to offset future

fees.\304\ CAT LLC further states that it would be required to
recalculate the fee rate each year based on the budget for the upcoming
year, and the budget would include excess fees collected the prior
year.\305\ CAT LLC also notes that the fee rate would be subject to a
mid-year review to determine whether an adjustment would be necessary
and such reviews would take any excess fees collected from the prior
period into consideration.\306\ With respect to a shortfall in CAT
fees, CAT LLC explains that the operational reserve may be used in a
shortfall, and that, in addition to recalculating the Fee Rate every
year based on the upcoming year's budget (reflecting any shortfall in
fees collected in the prior year), it may adjust the Fee Rate once per
year to coordinate the fees with changes to the budget, actual CAT
costs, or volume projections.\307\
---------------------------------------------------------------------------

    \300\ Id.
    \301\ See Response Letter at 21. CAT LLC also states that, with
other fees, such as Section 31-related fees, there are no refunds
for over or under-collection of fees; the fee rate would be adjusted
going forward. Id. at 22.
    \302\ Id.
    \303\ CAT LLC states that it is organized as a business league
to mitigate concerns that its earnings could be used to benefit the
Participants. Id. at 20, 21.
    \304\ Id.
    \305\ Id. at 22.
    \306\ See Response Letter at 22.
    \307\ Id.
---------------------------------------------------------------------------

    Two commenters express concerns about a lack of transparency in the
Proposed Amendment with respect to Past CAT Costs.\308\ One commenter
states that the Participants did not provide a detailed breakdown of
historical costs that would allow one to examine the reasonableness of
costs incurred.\309\ Rather, according to the commenter, the financial
statements made available by the Participants ``only include top-line,
categorical expense information--not a detailed breakdown of costs and
expenditures that would allow a third-party to make an objective
determination about the reasonableness and appropriateness of costs
incurred,'' and lack customary related-party transaction disclosures
and ``disclosure of how much revenue and profit is generated by Plan
Participants from services they provide to the CAT.'' \310\
---------------------------------------------------------------------------

    \308\ See SIFMA Letter at 6-7; Virtu Letter at 6, 7.
    \309\ See Virtu Letter at 6.
    \310\ Id.
---------------------------------------------------------------------------

    In response to the comment stating that the Proposed Amendment does
not provide customary related-party transaction disclosures,\311\ CAT
LLC states that it has provided ``substantial disclosures about CAT
costs,'' that it is organized as a business league, which prevents
earnings from being used to benefit the Participants, and that FINRA
CAT expenses are disclosed within the public financial statements and
budget disclosed for the CAT.\312\
---------------------------------------------------------------------------

    \311\ Id. at 6, 7.
    \312\ See Response Letter at 20.
---------------------------------------------------------------------------

    With respect to Past CAT Costs, one commenter argues that the
Participants are treating Industry Members unfairly by not providing
them enough detail and transparency to understand the costs they are
being asked to pay.\313\ The commenter states that the proposed
allocation of Past CAT Costs cannot be supported under the Exchange Act
due to the lack of detail provided on such costs.\314\ The commenter
states that the Participants have not provided any detail or discussion
of how they concluded that Excluded Costs are $48,874,937 or how CAT
costs prior to January 1, 2022 are $337,688,610 (two-thirds of which
Industry Members would be allocated under the Proposed Amendment).\315\
The commenter adds, ``in fact, the proposal contains no discussion of
these cost amounts at all, or even a definition for the term `Excluded
Costs.''' \316\ According to this commenter, the Proposed Amendment's
``lack of discussion and information does not afford the Commission or
the public the ability to evaluate whether the allocation of Past CAT
Costs meets the Exchange Act fee standards.'' \317\
---------------------------------------------------------------------------

    \313\ See SIFMA Letter at 6-7.
    \314\ Id. at 6.
    \315\ Id.
    \316\ Id.
    \317\ Id.
---------------------------------------------------------------------------

    This commenter states that the Proposed Amendment lacks
transparency into how much of the Industry Member cost allocation is
related to ``the Participant's failed decision to initially designate
Thesys Technologies, LLC as the CAT Plan Processor.'' \318\ The
commenter states that, given this lack of transparency, the
Participants have not demonstrated that the Executed Share Model is
consistent with Exchange Act fee standards.\319\ The commenter also
argues that the Proposed Amendment lacks a discussion of how quickly
the Participants plan to recoup Past CAT Costs, stating that if the
Participants want to recoup the costs over a short period of time, the
result will be higher fees on Industry Members.\320\ The commenter
believes that without this discussion, the Commission cannot evaluate
whether the Executed Share Model meets Exchange Act fee standards.\321\
---------------------------------------------------------------------------

    \318\ Id. at 7.
    \319\ See SIFMA Letter at 7.
    \320\ Id.
    \321\ Id.
---------------------------------------------------------------------------

    In response to the comment about the lack of transparency into the
amount of costs proposed to be allocated to Industry Members attributed
to the selection of the initial plan processor,\322\ CAT LLC states
that the Participants would be fully responsible for all CAT costs
incurred from November 15, 2017 through November 15, 2018 due to the
one-year delay in the start of reporting to the CAT, which were
$48,874,937, as well as costs related to the conclusion of the
relationship with Thesys Technologies, LLC, which were
$14,749,362.\323\
---------------------------------------------------------------------------

    \322\ Id.
    \323\ See Response Letter at 28-29. CAT LLC explains that these
costs could be reasonably identified and are more appropriately
borne by the Participants. Id. at 29.
---------------------------------------------------------------------------

    In response to the comment noting a lack of detail in the Proposed
Amendment about how quickly the Participants intend to recoup Past CAT
Costs,\324\ CAT LLC states that only Industry Members would be subject
to fees to recover Past CAT Costs and details of those fees, including
the periods over which the fees would be recovered, would be contained
in the Participants' fee filings pursuant to Section 19 of the Exchange
Act and Rule 19b-4 thereunder.\325\ CAT LLC adds that Past CAT Costs
will be broken out into six periods and provides proposed
allocations.\326\ CAT LLC also explains how the Fee Rate for Past CAT
Costs would be calculated.\327\
---------------------------------------------------------------------------

    \324\ See SIFMA Letter at 6, 7 and 9.
    \325\ See Response Letter at 23. CAT LLC explains that it would
be required to establish any Fee Rate, which would have to be
approved by a majority of the Operating Committee. Id. at 33. Each
of the Participants would file fee filings pursuant to Section 19(b)
and Rule 19b-4 thereunder to establish the initial Fee Rate (for
fees related to Past CAT Costs or going forward costs) for Industry
Member CAT fees and for any changes to those initial rates. Id. at
33-34. CAT LLC states that it does not plan to submit an amendment
to the CAT NMS Plan each time the Fee Rate is established or changed
as the Participants are signatories to the Plan and would be
required to comply with the Fee Rate pursuant to the process set
forth in the Plan. Id. at 33.
    \326\ Id. at 23-28. See also infra Section IV.H. for detail on
the Past CAT Costs provided by CAT LLC.
    \327\ See Response Letter at 23.
---------------------------------------------------------------------------

    CAT LLC explains that CAT fees would be designed to collect certain
costs paid by the Participants prior to the effectiveness of the CAT
fees pursuant to the Executed Share Model.\328\ CAT LLC states, ``[t]he
Past CAT Costs would include a portion of certain costs incurred prior
to January 1, 2022 as well as costs incurred after January 1, 2022 but
prior to the effectiveness of the CAT fees pursuant to the Executed
Share Model. With regard to costs incurred prior to January 1, 2022,
the Participants would remain responsible for 100% of $48,874,937 of
Excluded Costs and $14,749,362 of costs related to the conclusion of
the relationship with the Initial Plan Processor.'' \329\ CAT LLC
states that the actual costs prior to 2022 are detailed in

audited financial statements provided on the CAT NMS Plan website.\330\
---------------------------------------------------------------------------

    \328\ Id.
    \329\ Id.
    \330\ Id.
---------------------------------------------------------------------------

C. Input From Industry Members

    Four commenters state that the Proposed Amendment lacks Industry
Member input.\331\ The commenters believe that the Participants and the
industry should work together to develop a funding model.\332\ Two
commenters state that the Participants did not allow Industry Member
involvement in the Proposed Amendment.\333\ Two commenters urge the
Commission to encourage the Participants to work with the Industry
Members on developing a funding model.\334\
---------------------------------------------------------------------------

    \331\ See FINRA Letter at 8-9; Virtu Letter at 7; MMI Letter at
2, 5; SIFMA Letter at 2.
    \332\ Id.
    \333\ See Virtu Letter at 7; SIFMA Letter at 2.
    \334\ See MMI Letter at 2, 5; Virtu Letter at 7.
---------------------------------------------------------------------------

    In response to comments stating that Industry Members were not
permitted to provide substantive input on the Executed Share
Model,\335\ CAT LLC states that Industry Members and other market
participants have been able to provide meaningful input into the
funding model through participation on the Advisory Committee, which
has had the opportunity to participate in Operating Committee meetings
where funding proposals were discussed,\336\ webinars held by CAT LLC
on CAT costs and potential alternative funding models, and through the
notice and comment processes afforded by Rule 608 of Regulation NMS and
Section 19 of the Exchange Act for the CAT NMS Plan, the current and
prior proposed funding models and the related Participant fee
filings.\337\
---------------------------------------------------------------------------

    \335\ See FINRA Letter at 8-9; MMI Letter at 2.
    \336\ The Response Letter states ``CAT LLC notes that the
Advisory Committee has not indicated support for the Executed Share
Model or any other funding model.'' See Response Letter at 32,
n.115.
    \337\ Id. at 31-32.
---------------------------------------------------------------------------

D. Comments Regarding Conflict of Interest

    Several commenters assert that the Participants have a conflict of
interest in assessing fees to fund the CAT.\338\ One commenter states
that the Participants are ``seeking to advance their own commercial
interests at the expense of the Industry Members and the investors by
proposing a fee structure that disproportionately shifts the costs for
the CAT onto the Industry Members and the investors they serve.'' \339\
Two commenters state that the Participants, with the exception of
FINRA, are for-profit entities.\340\ One commenter states that certain
Participants, voting as a bloc on the Proposed Amendment, in affiliated
exchange groups, have substantially greater influence over the funding
model and how fees will be charged.\341\ The commenter also states that
Industry Members cannot vote on CAT NMS Plan matters and that pursuant
to this voting structure, the Operating Committee approved a funding
model that allocates to FINRA a disproportionate share of CAT
costs.\342\ Similarly, another commenter argues that the Industry
Members are not voting members of the Operating Committee, and thus
have no way to direct the cost control efforts of the Participants or
change their course if the cost control efforts prove to be
unsuccessful.\343\
---------------------------------------------------------------------------

    \338\ See FINRA Letter at 8; MMI Letter at 2; SIFMA Letter at 8;
Virtu Letter at 1, 4.
    \339\ See Virtu Letter at 1.
    \340\ See FINRA Letter at 8, Virtu Letter at 1.
    \341\ See FINRA Letter at 8.
    \342\ Id.
    \343\ See SIFMA Letter at 8.
---------------------------------------------------------------------------

    In response to the comment criticizing the voting structure of the
Operating Committee and Industry Member representation on the Operating
Committee,\344\ CAT LLC states that the voting structure and
composition of the Operating Committee are outside of the scope of the
Proposed Amendment.\345\ CAT LLC asserts that the composition of the
Operating Committee is consistent with the Exchange Act.\346\
---------------------------------------------------------------------------

    \344\ See FINRA Letter at 8.
    \345\ See Response Letter at 33.
    \346\ Id. at 32-33.
---------------------------------------------------------------------------

    One commenter states that, while the Proposed Amendment addresses
the fact that a clearing firm is free to pass its CAT fees through to
its broker-clients, and the broker-clients are then free to pass them
through to the end account, it is silent about whether the SROs may do
the same.\347\ This commenter ``supports the inclusion of clear
language that SROs may not pass through CAT fees, either directly or as
an increase to Section 31 fee recapture.'' \348\ The commenter explains
that if the Participants are permitted to pass through their fees, they
may bear none of the costs or responsibilities for CAT.\349\ The
commenter argues proposed funding model will be ``more robust'' if key
participants have ``skin in the game.'' \350\ Another commenter argues
that the Proposed Amendment fails to state that the costs imposed on
Industry Members may ultimately be passed on to the investing
public.\351\ The commenter states that these would be substantial costs
that will make it more expensive for investors to access capital
markets.\352\
---------------------------------------------------------------------------

    \347\ See MMI Letter at 2.
    \348\ Id.
    \349\ Id.
    \350\ Id.
    \351\ See Virtu Letter at 4.
    \352\ Id.
---------------------------------------------------------------------------

    In response to comments expressing concern about passing through
CAT fees, CAT LLC states that it supports the concept of pass-through
fees because: (1) in adopting Rule 613, the Commission contemplated
that the Participants would be able to recover the costs of funding the
central repository from their members; \353\ (2) the Commission stated
in the CAT NMS Plan adopting release that Industry Members may seek to
pass on to investors their costs of building and maintaining the CAT,
which may include their costs as well as costs passed on to them by the
Participants; \354\ (3) pass-through fees are commonly used, with
Section 31 fees and the TAF and ORF fees being current examples of
other fees that are regularly passed-through; \355\ (4) commenters on
prior proposals suggested a model similar to the Section 31 fees that
would allow the fee to be passed through to Industry Members and their
customers; \356\ and (5) regulatory costs increase costs for all market
participants and ``[e]ven if such pass throughs were limited or
prohibited, CAT costs would be distributed in other ways.'' \357\
---------------------------------------------------------------------------

    \353\ See Response Letter at 15.
    \354\ Id.
    \355\ Id. at 15-16.
    \356\ Id. at 17.
    \357\ Id.
---------------------------------------------------------------------------

E. Alternative Models

    Commenters also recommend that the Proposed Amendment pursue
alternative funding models to the Executed Share Model.\358\ Two
commenters suggest funding models using message traffic as the basis of
fees.\359\ One commenter states that it had presented a message traffic
alternative that would provide for more predictable fees than prior
message traffic models and was based on prospective rates.\360\
However, the commenter states that some Industry Members believe that
message-traffic models are too complex so the commenter is open to
alternative models that use ``workable cost proxy metrics'' that are
consistent with the Exchange Act.\361\
---------------------------------------------------------------------------

    \358\ See FINRA Letter at 4, 8; Harris Letter at 4, 5, 8, 13;
SIFMA Letter at 5-6.
    \359\ See FINRA Letter at 8; Harris Letter at 4, 5, 8, 13.
    \360\ See FINRA Letter at 8.
    \361\ Id.
---------------------------------------------------------------------------

    In response to the comment presenting a message traffic model, CAT
LLC states that executed share volume

is an improvement on the message traffic model suggested by the
commenter.\362\ CAT LLC states that technology costs, such as data
processing and storage, comprise the majority of CAT costs, not message
traffic, and are driven by the CAT NMS Plan requirements, data
complexity, and timelines.\363\ CAT LLC explains that, due to these
costs and requirements and ``other issues with the message traffic
model and other considerations'' \364\ it is focusing instead on the
Executed Share Model instead of the message traffic and market share
metrics used in the Original Funding Model.\365\
---------------------------------------------------------------------------

    \362\ See Response Letter at 3.
    \363\ Id. at 4.
    \364\ Id. at 3.
    \365\ Id. at 3-4.
---------------------------------------------------------------------------

    The other commenter states that a model that uses message traffic
would result in more predictable fees than the Executed Share Model by
producing less variable cash flow.\366\ The commenter further states
that the Proposed Amendment dismisses the use of message traffic fees
because they would require discounting certain activity to avoid fees
that would adversely impact market making activity.\367\ However, the
commenter states that not using the Message Traffic Model would result
in an unfair and inefficient outcome.\368\ The commenter states that if
options market participants do not pay all of the costs they impose on
CAT NMS, entities in the equity markets would subsidize options market
trading and options market entities would have little incentive to
control their costs.\369\ The commenter recommends that the CAT collect
a fixed fee per message from all entities creating messages, and
collect a fee from traders that is proportional to the value of the
underlying equity risk exchanged under the commenter's suggested Risk
Transfer Model (in which users would be assigned funding in proportion
to usage and the fees would be proportional to the dollar value of the
risk transferred in each transaction).\370\ The commenter states that
the funding model should allocate 75% of CAT funding to cost recovery
fees based on message count, putting a substantial fraction of funding
costs on equity options markets because they generate a
disproportionate share of messages.\371\ The commenter states that if
message traffic is not used as a basis for fees, the funding model
should instead use the commenter's suggested Risk Transfer Model.\372\
---------------------------------------------------------------------------

    \366\ See Harris Letter at 4.
    \367\ Id. at 5.
    \368\ Id.
    \369\ Id.
    \370\ Id. at 13.
    \371\ Id.
    \372\ See Harris Letter at 8, 13.
---------------------------------------------------------------------------

    One commenter suggests an alternative allocation where the
Participants and Industry Members would be allocated 50% of Prospective
CAT Costs.\373\ The Industry Member allocation would take into account
Industry Member funding of FINRA.\374\ The commenter states that this
alternative would provide for an equal sharing of such CAT costs
between Participants and Industry Members and would also appear to be
justifiable under the Exchange Act fee standards because it treats
Participants and Industry Members the same from a cost allocation
perspective.\375\
---------------------------------------------------------------------------

    \373\ See SIFMA Letter at 5.
    \374\ Id.
    \375\ Id.
---------------------------------------------------------------------------

    In response to the comment, CAT LLC states that the suggested
allocation would not equitably allocate costs between and among
Industry Members and Participants because ``Industry Members have far
greater financial resources than the Participants, and the complexity
of Industry Members' chosen business models contribute substantially to
the costs of the CAT.'' \376\ CAT LLC adds that the commenter did not
justify why the suggested allocation would satisfy Exchange Act
standards.\377\
---------------------------------------------------------------------------

    \376\ See Response Letter at 7.
    \377\ Id.
---------------------------------------------------------------------------

    A commenter suggests another alternative allocation where costs
would be allocated to those Participants and Industry Members most
directly responsible for the costs.\378\ The commenter states that,
because Industry Members and their customers are directly responsible
for creating the order and transactional data that is initially
ingested into the CAT system, Industry Members should be responsible
for the cost associated with this initial ingestion of the data into
the CAT system.\379\ The commenter states that the Participants should
be responsible for the costs associated with the stages after the data
is initially ingested into the CAT system because the regulators
directly control and benefit from these stages of the CAT system after
ingestion.\380\ The commenter adds that the Participants and the
Commission designed and imposed on the Industry Members a multitude of
reports, fields, and data types spelled out in hundreds of pages of
technical specifications and answers to Frequently Asked Questions for
the sole benefit of the Participants and Commission, and as Industry
Members bear the burden of producing the data in this format, the
Participants should bear the costs of processing the complex data they
required.\381\ The commenter believes that this allocation would be
consistent with the Exchange Act fee standard and the CAT NMS Plan
funding principle that the allocation should ``tak[e] 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 Company resources and operations.'' \382\
---------------------------------------------------------------------------

    \378\ See SIFMA Letter at 5-6.
    \379\ Id.
    \380\ Id.
    \381\ Id.
    \382\ Id.
---------------------------------------------------------------------------

    In response to the comment,\383\ CAT LLC states that the suggested
allocation method is impractical and would not result in an equitable
allocation of reasonable fees.\384\ CAT LLC argues that the suggested
allocation inaccurately limits Industry Members' responsibility for CAT
costs to ingestion costs when the complexity of Industry Members'
business models also results in significant data processing and storage
costs.\385\ Further, CAT LLC disagrees with the commenter's statement
that Industry Members will not benefit from the CAT, explaining that
the CAT is designed to benefit all market participants, with direct
benefits to Industry Members.\386\
---------------------------------------------------------------------------

    \383\ Id.
    \384\ See Response Letter at 8.
    \385\ Id.
    \386\ Id. at 9.
---------------------------------------------------------------------------

F. Executed Share Model and the Cost Alignment Funding Principle

    One commenter argues that the Executed Share Model is inconsistent
with the cost alignment funding principle of the CAT NMS Plan.\387\ The
commenter explains that the Participants are proposing to delete
language in the CAT NMS Plan funding principles that requires the
Participants to take into account ``distinctions in the securities
trading operations of Participants and Industry Members and their
relative impact upon Company resources and operations.'' \388\ The
commenter states that the Participants have concluded that the
principle ``is no longer relevant'' and that it is not feasible to
determine cost burden imposed by individual CAT Reporters due to the
inter-related nature of CAT's cost drivers.\389\ The commenter states
that the Participants merely state that that executed share volume is
``related to, but not precisely linked to'' CAT

cost-generation,\390\ and the commenter believes that this is
inadequate to demonstrate that use of executed share volume is
reasonable and equitable.\391\ The commenter states that ``the Proposal
fails to establish a sufficient nexus between executed share volume and
the technology burdens that generate CAT costs and fails to relate each
reporter group's allocation to the burden that each reporter group
imposes on CAT.'' \392\ This commenter states that the Proposed
Amendment ``seeks to amend the core funding principles to align with an
unjustified allocation methodology.'' \393\ While the commenter is
receptive to modifications to the funding principles, it believes that
changes to the core principles must be ``well-reasoned and transparent
and must continue to support the achievement of a fair and equitable
outcome.'' \394\
---------------------------------------------------------------------------

    \387\ See FINRA Letter at 4.
    \388\ Id.
    \389\ Id.
    \390\ Id.
    \391\ Id.
    \392\ Id.
    \393\ See FINRA Letter at 5. The commenter states that the
Executed Share Model instead places the greatest emphasis on the
funding principle relating to the ``ease of billing and other
administrative functions,'' favoring that principle over cost
alignment.
    \394\ Id.
---------------------------------------------------------------------------

    In response to the comment arguing that the Proposed Amendment
fails to adequately link executed share volume to the technology
burdens that create CAT costs,\395\ CAT LLC states that, although the
Exchange Act does not require a CAT Reporter's fees to be a proxy for
its cost burden on the CAT,\396\ executed share volume is related to a
CAT Reporter's cost burden because ``trading activity provides a
reasonable proxy for cost burden on the CAT'' \397\ as increased
trading activity is correlated with increased cost burden because it