[Federal Register Volume 83, Number 8 (Thursday, January 11, 2018)]
[Notices]
[Pages 1399-1428]
[FR Doc No: 2018-00314]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82451; File No. 4-698]

Joint Industry Plan; Notice of Filing and Immediate Effectiveness
of Amendment No. 4 to the National Market System Plan Governing the
Consolidated Audit Trail by Cboe BYX Exchange, Inc., Cboe BZX Exchange,
Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., BOX Options
Exchange LLC, Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Chicago
Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc.,
Investors' Exchange LLC, Miami International Securities Exchange, 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 Arca, Inc., NYSE American, LLC and NYSE
National, Inc.

January 5, 2018.

I. Introduction

    On December 11, 2017, the Operating Committee for CAT NMS, LLC (the
``Company''), on behalf of the following parties to the National Market
System Plan Governing the Consolidated Audit Trail (the ``CAT NMS
Plan'' or ``Plan''): \1\ Cboe BYX Exchange, Inc., (previously known as
Bats BYX Exchange, Inc.), Cboe BZX Exchange, Inc. (previously known as
Bats BZX Exchange), Inc., Cboe EDGA Exchange, Inc. (previously known as
Bats EDGA Exchange, Inc.), Cboe EDGX Exchange, Inc. (previously known
as Bats EDGX Exchange, Inc.), BOX Options Exchange LLC, Cboe C2
Exchange, Inc., Cboe Exchange, Inc., Chicago Stock Exchange, Inc.,
Financial Industry Regulatory Authority, Inc., Nasdaq ISE, LLC
(previously known as International Securities Exchange, Inc.),
Investors' Exchange, LLC, Nasdaq GEMX (previously known as ISE Gemini,
LLC), Nasdaq MRX (previously known as ISE Mercury, LLC), Miami
International Securities Exchange, LLC, MIAX PEARL, LLC, Nasdaq BX,
Inc. (previously known as NASDAQ BX, Inc.), Nasdaq PHLX LLC (previously
known as NASDAQ PHLX LLC), The NASDAQ Stock Market LLC, National Stock
Exchange, Inc., New York Stock Exchange LLC, NYSE Arca, Inc., and NYSE
American (previously known as NYSE MKT, LLC) (collectively, the
``Participants,'' ``self-regulatory organizations'' or ``SROs'') filed
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934
(``Exchange Act'') \2\ and Rule 608 thereunder,\3\ a proposal to amend
the Plan (``Amendment No. 4'').\4\ The proposed amendment would add a
fee schedule to a new Exhibit B of the Plan which sets forth the CAT
fees to be paid by the Participants. A copy of proposed Exhibit B to
the CAT NMS Plan is attached as Appendix A hereto. The Participants
have also included, and as attached hereto, an Appendix B containing
two charts, one listing the current Equity Execution Venues, each with
its rank and tier, and one listing the current Options Execution
Venues, each with its rank and tier. The Commission is publishing this
notice to solicit comments from interested persons on Amendment No.
4.\5\
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    \1\ On February 27, 2015, BATS-Y Exchange, Inc. (n/k/a Cboe BYX
Exchange, Inc.), BATS Exchange, Inc. (n/k/a Cboe BZX Exchange,
Inc.), BOX Options Exchange LLC, C2 Options Exchange, Incorporated
(n/k/a Cboe C2 Exchange, Inc.), Chicago Board Options Exchange,
Incorporated (n/k/a Cboe Exchange, Inc.), Chicago Stock Exchange,
Inc., EDGA Exchange, Inc. (n/k/a Cboe EDGA Exchange, Inc.), EDGX
Exchange, Inc. (n/k/a Cboe EDGX Exchange, Inc.), Financial Industry
Regulatory Authority, Inc., International Securities Exchange, LLC
(n/k/a Nasdaq ISE, LLC), ISE Gemini, LLC (n/k/a Nasdaq GEMX, LLC),
Miami International Securities Exchange LLC, NASDAQ OMX BX, Inc. (n/
k/a Nasdaq BX, Inc.), NASDAQ OMX PHLX LLC (n/k/a Nasdaq PHLX LLC),
The NASDAQ Stock Market LLC, National Stock Exchange, Inc. (n/k/a
NYSE National, Inc.), New York Stock Exchange LLC, NYSE MKT LLC (n/
k/a NYSE American LLC), and NYSE Arca, Inc. filed with the
Commission, pursuant to Section 11A of the Exchange Act and Rule 608
of Regulation NMS thereunder, the CAT NMS Plan. 15 U.S.C. 78k-1; 17
CFR 242.608. The Plan was published for comment in the Federal
Register on May 17, 2016, and approved by the Commission, as
modified, on November 15, 2016. See Securities Exchange Act Release
Nos. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016); 79318
(November 15, 2016), 81 FR 84696 (November 23, 2016). On January 30,
2017, the Commission noticed for immediate effectiveness an
amendment to the Plan to add MIAX PEARL, LLC as a Participant. See
Securities Exchange Act Release No. 79898, 82 FR 9250 (February 3,
2017).
    \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 Brent J. Fields, Secretary, Commission, dated
December 11, 2017 (``Transmittal Letter''). The Participants
previously submitted an amendment to the CAT NMS Plan to establish
Participant fees (``Amendment No. 2''). See Letter from Michael
Simon, Chair, CAT NMS Plan Operating Committee, to Brent J. Fields,
Secretary, Commission, dated May 22, 2017. See also Securities
Exchange Act Release No. 80930 (June 14, 2017), 82 FR 28180 (June
20, 2017), available at https://www.sec.gov/rules/sro/nms/2017/34-80930.pdf. The Commission issued an Order of Summary Abrogation of
Amendment No. 2 on July 21, 2017, concluding that the amendment
raised concerns and the justifications provided by the Participants
were not sufficient for the Commission to determine whether the
amendment was consistent with the Act. See Securities and Exchange
Commission Release No. 81189 (July 21, 2017), 82 FR 35005 (July 27,
2017). On October 30, 2017, the Participants filed Amendment No. 3
to the CAT NMS Plan, which has been withdrawn and replaced and
superseded in its entirety by Amendment No. 4.
    \5\ 17 CFR 242.608.
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II. Description of the Plan

    Set forth in this Section II is the statement of the purpose and
summary of Amendment No. 4, along with the information required by Rule
608(a)(4) and (5) under the Exchange Act,\6\ prepared and submitted by
the Participants to the Commission.\7\
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    \6\ See 17 CFR 242.608(a)(4) and (a)(5).
    \7\ See Transmittal Letter, supra note 4.
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A. Description of the Amendments to the CAT NMS Plan

(1) Executive Summary
    The following provides an executive summary of the CAT funding
model approved by the Operating Committee, as well as Participants'
obligations related to the payment of CAT Fees calculated pursuant to
the CAT funding model. A detailed description of the CAT funding model
and the CAT Fees follows this executive summary.
     CAT Costs. The CAT funding model is designed to establish
CAT-specific fees to collectively recover the costs of building and
operating the CAT from all CAT Reporters, including Industry Members
and Participants. The overall CAT costs used in calculating the CAT
Fees in this fee filing are comprised of Plan Processor CAT costs and
non-Plan Processor CAT costs incurred, and estimated to be incurred,
from November 21, 2016 through November 21, 2017. Although the CAT
costs from November 21, 2016 through November 21, 2017 were used in
calculating the CAT Fees, the CAT Fees set forth in this fee filing
would be in effect until the automatic sunset date, as discussed below.
(See Section A(2)(E) below)
     Bifurcated Funding Model. The CAT NMS Plan requires a
bifurcated funding model, where costs associated with building and
operating the CAT would be borne by (1) Participants and Industry
Members that are Execution Venues for Eligible Securities through fixed
tier fees based on market share, and (2) Industry Members (other than
alternative trading systems (``ATSs'') that execute transactions in
Eligible Securities (``Execution Venue ATSs'')) through fixed tier fees
based on message traffic for Eligible Securities. (See Section A(2)
below)

     Industry Member Fees. Each Industry Member (other than
Execution Venue ATSs) will be placed into one of seven tiers of fixed
fees, based on ``message traffic'' in Eligible Securities for a defined
period (as discussed below). Prior to the start of CAT reporting,
``message traffic'' will be comprised of historical equity and equity
options orders, cancels, quotes and executions provided by each
exchange and the Financial Industry Regulatory Authority, Inc.
(``FINRA'') over the previous three months. After an Industry Member
begins reporting to the CAT, ``message traffic'' will be calculated
based on the Industry Member's Reportable Events reported to the CAT.
Industry Members with lower levels of message traffic will pay a lower
fee and Industry Members with higher levels of message traffic will pay
a higher fee. To avoid disincentives to quoting behavior, Options
Market Maker and equity market maker quotes will be discounted when
calculating message traffic. (See Section A(2)(B) below)
     Execution Venue Fees. Each Equity Execution Venue will be
placed in one of four tiers of fixed fees based on market share, and
each Options Execution Venue will be placed in one of two tiers of
fixed fees based on market share. Equity Execution Venue market share
will be determined by calculating each Equity Execution Venue's
proportion of the total volume of NMS Stock and OTC Equity shares
reported by all Equity Execution Venues during the relevant time
period. For purposes of calculating market share, the OTC Equity
Securities market share of Execution Venue ATSs trading OTC Equity
Securities as well as the market share of the FINRA OTC reporting
facility (``ORF'') will be discounted. Similarly, market share for
Options Execution Venues will be determined by calculating each Options
Execution Venue's proportion of the total volume of Listed Options
contracts reported by all Options Execution Venues during the relevant
time period. Equity Execution Venues with a larger market share will
pay a larger CAT Fee than Equity Execution Venues with a smaller market
share. Similarly, Options Execution Venues with a larger market share
will pay a larger CAT Fee than Options Execution Venues with a smaller
market share. (See Section A(2)(C) below)
     Cost Allocation. For the reasons discussed below, in
designing the model, the Operating Committee determined that 75 percent
of total costs recovered would be allocated to Industry Members (other
than Execution Venue ATSs) and 25 percent would be allocated to
Execution Venues. In addition, the Operating Committee determined to
allocate 67 percent of Execution Venue costs recovered to Equity
Execution Venues and 33 percent to Options Execution Venues. (See
Section A(2)(D) below)
     Comparability of Fees. The CAT funding model charges CAT
Reporters with the most CAT-related activity (measured by market share
and/or message traffic, as applicable) comparable CAT Fees. (See
Section A(2)(F) below)
     Fee Schedule. The quarterly CAT Fees for each tier for
Participants are set forth in the two fee schedules in proposed Exhibit
B to the CAT NMS Plan, one for Execution Venues for NMS Stocks and OTC
Equity Securities, and one for Execution Venues for Listed Options.
(See Section A(3) below)
     Sunset Provision. The CAT Fees set forth in proposed
Exhibit B would sunset automatically two years from their operative
date. (See Section A(2)(J) below)
(2) Description of the CAT Funding Model
    Article XI of the CAT NMS Plan requires the Operating Committee to
approve the operating budget, including projected costs of developing
and operating the CAT for the upcoming year. In addition to a budget,
Article XI of the CAT NMS Plan provides that the Operating Committee
has discretion to establish funding for the Company, consistent with a
bifurcated funding model, where costs associated with building and
operating the Central Repository would be borne by (1) Participants and
Industry Members that are Execution Venues through fixed tier fees
based on market share, and (2) Industry Members (other than Execution
Venue ATSs) through fixed tier fees based on message traffic. In its
order approving the CAT NMS Plan, the Commission determined that the
proposed funding model was ``reasonable'' \8\ and ``reflects a
reasonable exercise of the Participants' funding authority to recover
the Participants' costs related to the CAT.'' \9\
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    \8\ Approval Order at 84796.
    \9\ Id. at 84794.
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    More specifically, the Commission stated in approving the CAT NMS
Plan that ``[t]he Commission believes that the proposed funding model
is reasonably designed to allocate the costs of the CAT between the
Participants and Industry Members.'' \10\ The Commission further noted
the following:
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    \10\ Id. at 84795.
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    The Commission believes that the proposed funding model reflects a
reasonable exercise of the Participants' funding authority to recover
the Participants' costs related to the CAT. The CAT is a regulatory
facility jointly owned by the Participants and . . . the Exchange Act
specifically permits the Participants to charge members fees to fund
their self-regulatory obligations. The Commission further believes that
the proposed funding model is designed to impose fees reasonably
related to the Participants' self-regulatory obligations because the
fees would be directly associated with the costs of establishing and
maintaining the CAT, and not unrelated SRO services.\11\
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    \11\ Id. at 84794.
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Accordingly, the funding model approved by the Operating Committee
imposes fees on both Participants and Industry Members.
    As discussed in Appendix C of the CAT NMS Plan, in developing and
approving the approved funding model, the Operating Committee
considered the advantages and disadvantages of a variety of alternative
funding and cost allocation models before selecting the proposed
model.\12\ After analyzing the various alternatives, the Operating
Committee determined that the proposed tiered, fixed fee funding model
provides a variety of advantages in comparison to the alternatives.
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    \12\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85006.
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    In particular, the fixed fee model, as opposed to a variable fee
model, provides transparency, ease of calculation, ease of billing and
other administrative functions, and predictability of a fixed fee. Such
factors are crucial to estimating a reliable revenue stream for the
Company and for permitting CAT Reporters to reasonably predict their
payment obligations for budgeting purposes. Additionally, a strictly
variable or metered funding model based on message volume would be far
more likely to affect market behavior and place an inappropriate burden
on competition.
    In addition, reviews from varying time periods of current broker-
dealer order and trading data submitted under existing reporting
requirements showed a wide range in activity among broker-dealers, with
a number of broker-dealers submitting fewer than 1,000 orders per month
and other broker-dealers submitting millions and even billions of
orders in the same period. Accordingly, the CAT NMS Plan includes a
tiered approach to fees. The tiered approach helps ensure that fees are
equitably allocated among similarly situated CAT

Reporters and furthers the goal of lessening the impact on smaller
firms.\13\ In addition, in choosing a tiered fee structure, the
Operating Committee concluded that the variety of benefits offered by a
tiered fee structure, discussed above, outweighed the fact that CAT
Reporters in any particular tier would pay different rates per message
traffic order event or per market share (e.g., an Industry Member with
the largest amount of message traffic in one tier would pay a smaller
amount per order event than an Industry Member in the same tier with
the least amount of message traffic). Such variation is the natural
result of a tiered fee structure.\14\ The Operating Committee
considered several approaches to developing a tiered model, including
defining fee tiers based on such factors as size of firm, message
traffic or trading dollar volume. After analyzing the alternatives, it
was concluded that the tiering should be based on message traffic which
will reflect the relative impact of CAT Reporters on the CAT System.
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    \13\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85006.
    \14\ Moreover, as the SEC noted in approving the CAT NMS Plan,
``[t]he Participants also have offered a reasonable basis for
establishing a funding model based on broad tiers, in that it may be
easier to implement.'' Approval Order at 84796.
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    Accordingly, the CAT NMS Plan contemplates that costs will be
allocated across the CAT Reporters on a tiered basis in order to
allocate higher costs to those CAT Reporters that contribute more to
the costs of creating, implementing and maintaining the CAT and lower
costs to those that contribute less.\15\ The fees to be assessed at
each tier are calculated so as to recoup a proportion of costs
appropriate to the message traffic or market share (as applicable) from
CAT Reporters in each tier. Therefore, Industry Members generating the
most message traffic will be in the higher tiers, and will be charged a
higher fee. Industry Members with lower levels of message traffic will
be in lower tiers and will be assessed a smaller fee for the CAT.\16\
Correspondingly, Execution Venues with the highest market shares will
be in the top tier, and will be charged higher fees. Execution Venues
with the lowest market shares will be in the lowest tier and will be
assessed smaller fees for the CAT.\17\
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    \15\ Approval Order at 85005.
    \16\ Id.
    \17\ Id.
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    The CAT NMS Plan states that Industry Members (other than Execution
Venue ATSs) will be charged based on message traffic, and that
Execution Venues will be charged based on market share.\18\ While there
are multiple factors that contribute to the cost of building,
maintaining and using the CAT, processing and storage of incoming
message traffic is one of the most significant cost drivers for the
CAT.\19\ Thus, the CAT NMS Plan provides that the fees payable by
Industry Members (other than Execution Venue ATSs) will be based on the
message traffic generated by such Industry Member.\20\
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    \18\ Section 11.3(a) and (b) of the CAT NMS Plan.
    \19\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85005.
    \20\ Section 11.3(b) of the CAT NMS Plan.
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    In contrast to Industry Members, which determine the degree to
which they produce message traffic that constitute CAT Reportable
Events, the CAT Reportable Events of the Execution Venues are largely
derivative of quotations and orders received from Industry Members that
they are required to display. The business model for Execution Venues
(other than FINRA), however, is focused on executions in their markets.
As a result, the Operating Committee believes that it is more equitable
to charge Execution Venues based on their market share rather than
their message traffic.
    Focusing on message traffic would make it more difficult to draw
distinctions between large and small Execution Venues and, in
particular, between large and small options exchanges. For instance,
the Operating Committee analyzed the message traffic of Execution
Venues and Industry Members for the period of April 2017 to June 2017
and placed all CAT Reporters into a nine-tier framework (i.e., a single
tier may include both Execution Venues and Industry Members). The
Operating Committee's analysis found that the majority of exchanges (15
total) were grouped in Tiers 1 and 2. Moreover, virtually all of the
options exchanges were in Tiers 1 and 2.\21\ Given the resulting
concentration of options exchanges in Tiers 1 and 2 under this
approach, the analysis shows that a funding model for Execution Venues
based on message traffic would make it more difficult to distinguish
between large and small options exchanges, as compared to the proposed
fee approach that bases fees for Execution Venues on market share.
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    \21\ The Operating Committee notes that this analysis did not
place MIAX PEARL in Tier 1 or Tier 2 since the exchange commenced
trading on February 6, 2017.
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    The CAT NMS Plan's funding model also is structured to avoid a
``reduction in market quality.'' \22\ The tiered, fixed fee funding
model is designed to limit the disincentives to providing liquidity to
the market. For example, the Operating Committee expects that a firm
that has a large volume of quotes would likely be categorized in one of
the upper tiers, and would not be assessed a fee for this traffic
directly as they would under a more directly metered model. In
contrast, strictly variable or metered funding models based on message
volume are far more likely to affect market behavior. In approving the
CAT NMS Plan, the SEC stated that ``[t]he Participants also offered a
reasonable basis for establishing a funding model based on broad tiers,
in that it may be . . . less likely to have an incremental deterrent
effect on liquidity provision.'' \23\
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    \22\ Section 11.2(e) of the CAT NMS Plan.
    \23\ Approval Order at 84796.
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    The funding model also is structured to avoid a reduction market
quality because it discounts Options Market Maker and equity market
maker quotes when calculating message traffic for Options Market Makers
and equity market makers, respectively. As discussed in more detail
below, the Operating Committee determined to discount the Options
Market Maker quotes by the trade to quote ratio for options when
calculating message traffic for Options Market Makers. Similarly, to
avoid disincentives to quoting behavior on the equities side as well,
the Operating Committee determined to discount equity market maker
quotes by the trade to quote ratio for equities when calculating
message traffic for equity market makers. The proposed discounts
recognize the value of the market makers' quoting activity to the
market as a whole.
    The CAT NMS Plan is further structured to avoid potential conflicts
raised by the Operating Committee determining fees applicable to its
own members--the Participants. First, the Company will operate on a
``break-even'' basis, with fees imposed to cover costs and an
appropriate reserve. Any surpluses will be treated as an operational
reserve to offset future fees and will not be distributed to the
Participants as profits.\24\ To ensure that the Participants' operation
of the CAT will not contribute to the funding of their other
operations, Section 11.1(c) of the CAT NMS Plan specifically states
that ``[a]ny surplus of the Company's revenues over its expenses shall
be treated as an operational reserve to offset future fees.'' In
addition, as set forth in Article VIII of the CAT NMS Plan, the Company
``intends to operate in a manner such that it qualifies as a `business
league' within the meaning of Section 501(c)(6) of the [Internal

Revenue] Code.'' To qualify as a business league, an organization must
``not [be] organized for profit and no part of the net earnings of [the
organization can] inure[] to the benefit of any private shareholder or
individual.'' \25\ As the SEC stated when approving the CAT NMS Plan,
``the Commission believes that the Company's application for Section
501(c)(6) business league status addresses issues raised by commenters
about the Plan's proposed allocation of profit and loss by mitigating
concerns that the Company's earnings could be used to benefit
individual Participants.'' \26\ The Internal Revenue Service recently
has determined that the Company is exempt from federal income tax under
Section 501(c)(6) of the Internal Revenue Code.
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    \24\ Id. at 84792.
    \25\ 26 U.S.C. 501(c)(6).
    \26\ Approval Order at 84793.
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    The funding model also is structured to take into account
distinctions in the securities trading operations of Participants and
Industry Members. For example, the Operating Committee designed the
model to address the different trading characteristics in the OTC
Equity Securities market. Specifically, the Operating Committee
proposes to discount the OTC Equity Securities market share of
Execution Venue ATSs trading OTC Equity Securities as well as the
market share of the FINRA ORF by the average shares per trade ratio
between NMS Stocks and OTC Equity Securities to adjust for the greater
number of shares being traded in the OTC Equity Securities market,
which is generally a function of a lower per share price for OTC Equity
Securities when compared to NMS Stocks. In addition, the Operating
Committee also proposes to discount Options Market Maker and equity
market maker message traffic in recognition of their role in the
securities markets. Furthermore, the funding model creates separate
tiers for Equity and Options Execution Venues due to the different
trading characteristics of those markets.
    Finally, by adopting a CAT-specific fee, the Operating Committee
will be fully transparent regarding the costs of the CAT. Charging a
general regulatory fee, which would be used to cover CAT costs as well
as other regulatory costs, would be less transparent than the selected
approach of charging a fee designated to cover CAT costs only.
    A full description of the funding model is set forth below. This
description includes the framework for the funding model as set forth
in the CAT NMS Plan, as well as the details as to how the funding model
will be applied in practice, including the number of fee tiers and the
applicable fees for each tier. The complete funding model is described
below, including those fees that are to be paid by Industry Members.
Proposed Exhibit B, however, does not apply to Industry Members;
proposed Exhibit B only applies to Participants. The CAT Fees for
Industry Members will be imposed separately pursuant to rules adopted
by the individual self-regulatory organizations (``SROs[sic]).
(A) Funding Principles
    Section 11.2 of the CAT NMS Plan sets forth the principles that the
Operating Committee applied in establishing the funding for the
Company. The Operating Committee has considered these funding
principles as well as the other funding requirements set forth in the
CAT NMS Plan and in Rule 613 in developing the proposed funding model.
The following are the funding principles in Section 11.2 of the CAT NMS
Plan:
     To create transparent, predictable revenue streams for the
Company that are aligned with the anticipated costs to build, operate
and administer the CAT and other costs of the Company;
     To establish an allocation of the Company's related costs
among Participants and Industry Members that is consistent with the
Exchange Act, taking into account the timeline for implementation of
the CAT and distinctions in the securities trading operations of
Participants and Industry Members and their relative impact upon the
Company's resources and operations;
     To establish a tiered fee structure in which the fees
charged to: (i) CAT Reporters that are Execution Venues, including
ATSs, are based upon the level of market share; (ii) Industry Members'
non-ATS activities are based upon message traffic; (iii) the CAT
Reporters with the most CAT-related activity (measured by market share
and/or message traffic, as applicable) are generally comparable (where,
for these comparability purposes, the tiered fee structure takes into
consideration affiliations between or among CAT Reporters, whether
Execution Venue and/or Industry Members);
     To provide for ease of billing and other administrative
functions;
     To avoid any disincentives such as placing an
inappropriate burden on competition and a reduction in market quality;
and
     To build financial stability to support the Company as a
going concern.
(B) Industry Member Tiering
    Under Section 11.3(b) of the CAT NMS Plan, the Operating Committee
is required to establish fixed fees to be payable by Industry Members,
based on message traffic generated by such Industry Member, with the
Operating Committee establishing at least five and no more than nine
tiers.
    The CAT NMS Plan clarifies that the fixed fees payable by Industry
Members pursuant to Section 11.3(b) shall, in addition to any other
applicable message traffic, include message traffic generated by: (i)
An ATS that does not execute orders that is sponsored by such Industry
Member; and (ii) routing orders to and from any ATS sponsored by such
Industry Member. In addition, the Industry Member fees will apply to
Industry Members that act as routing broker-dealers for exchanges. The
Industry Member fees will not be applicable, however, to an ATS that
qualifies as an Execution Venue, as discussed in more detail in the
section on Execution Venue tiering.
    In accordance with Section 11.3(b), the Operating Committee
approved a tiered fee structure for Industry Members (other than
Execution Venue ATSs) as described in this section. In determining the
tiers, the Operating Committee considered the funding principles set
forth in Section 11.2 of the CAT NMS Plan, seeking to create funding
tiers that take into account the relative impact on CAT System
resources of different Industry Members, and that establish comparable
fees among the CAT Reporters with the most Reportable Events. The
Operating Committee has determined that establishing seven tiers
results in an allocation of fees that distinguishes between Industry
Members with differing levels of message traffic. Thus, each such
Industry Member will be placed into one of seven tiers of fixed fees,
based on ``message traffic'' for a defined period (as discussed below).
    A seven tier structure was selected to provide a wide range of
levels for tiering Industry Members such that Industry Members
submitting significantly less message traffic to the CAT would be
adequately differentiated from Industry Members submitting
substantially more message traffic. The Operating Committee considered
historical message traffic from multiple time periods, generated by
Industry Members across all exchanges and as submitted to FINRA's Order
Audit Trail System (``OATS''), and considered the distribution of firms
with similar levels of message traffic, grouping together firms with
similar levels of message

traffic. Based on this, the Operating Committee determined that seven
tiers would group firms with similar levels of message traffic,
charging those firms with higher impact on the CAT more, while lowering
the burden on Industry Members that have less CAT-related activity.
Furthermore, the selection of seven tiers establishes comparable fees
among the largest CAT Reporters.
    Each Industry Member (other than Execution Venue ATSs) will be
ranked by message traffic and tiered by predefined Industry Member
percentages (the ``Industry Member Percentages''). The Operating
Committee determined to use predefined percentages rather than fixed
volume thresholds to ensure that the total CAT Fees collected recover
the expected CAT costs regardless of changes in the total level of
message traffic. To determine the fixed percentage of Industry Members
in each tier, the Operating Committee analyzed historical message
traffic generated by Industry Members across all exchanges and as
submitted to OATS, and considered the distribution of firms with
similar levels of message traffic, grouping together firms with similar
levels of message traffic. Based on this, the Operating Committee
identified seven tiers that would group firms with similar levels of
message traffic.
    The percentage of costs recovered by each Industry Member tier will
be determined by predefined percentage allocations (the ``Industry
Member Recovery Allocation''). In determining the fixed percentage
allocation of costs recovered for each tier, the Operating Committee
considered the impact of CAT Reporter message traffic on the CAT System
as well as the distribution of total message volume across Industry
Members while seeking to maintain comparable fees among the largest CAT
Reporters. Accordingly, following the determination of the percentage
of Industry Members in each tier, the Operating Committee identified
the percentage of total market volume for each tier based on the
historical message traffic upon which Industry Members had been
initially ranked. Taking this into account along with the resulting
percentage of total recovery, the percentage allocation of costs
recovered for each tier were assigned, allocating higher percentages of
recovery to tiers with higher levels of message traffic while avoiding
any inappropriate burden on competition. Furthermore, by using
percentages of Industry Members and costs recovered per tier, the
Operating Committee sought to include elasticity within the funding
model, allowing the funding model to respond to changes in either the
total number of Industry Members or the total level of message traffic.
    The following chart illustrates the breakdown of seven Industry
Member tiers across the monthly average of total equity and equity
options orders, cancels, quotes and executions in the second quarter of
2017 as well as message traffic thresholds between the largest of
Industry Member message traffic gaps. The Operating Committee
referenced similar distribution illustrations to determine the
appropriate division of Industry Member percentages in each tier by
considering the grouping of firms with similar levels of message
traffic and seeking to identify relative breakpoints in the message
traffic between such groupings. In reviewing the chart and its
corresponding table, note that while these distribution illustrations
were referenced to help differentiate between Industry Member tiers,
the proposed funding model is driven by fixed percentages of Industry
Members across tiers to account for fluctuating levels of message
traffic over time. This approach also provides financial stability for
the CAT by ensuring that the funding model will recover the required
amounts regardless of changes in the number of Industry Members or the
amount of message traffic. Actual messages in any tier will vary based
on the actual traffic in a given measurement period, as well as the
number of firms included in the measurement period. The Industry Member
Percentages and Industry Member Recovery Allocation for each tier will
remain fixed with each Industry Member's tier to be reassigned
periodically, as described below in Section A(2)(I).

[GRAPHIC] [TIFF OMITTED] TN11JA18.000

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

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

----------------------------------------------------------------------------------------------------------------
                                                                                Percentage of
                                                                  Percentage  of     Industry     Percentage  of
                      Industry Member tier                            Industry        Member           total
                                                                      Members        recovery        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.900           12.00            9.00
Tier 2..........................................................           2.150           20.50           15.38
Tier 3..........................................................           2.800           18.50           13.88
Tier 4..........................................................           7.750           32.00           24.00
Tier 5..........................................................           8.300           10.00            7.50
Tier 6..........................................................          18.800            6.00            4.50
Tier 7..........................................................          59.300            1.00            0.75
                                                                 -----------------------------------------------
    Total.......................................................             100             100              75
----------------------------------------------------------------------------------------------------------------

    For the purposes of creating these tiers based on message traffic,
the Operating Committee determined to define the term ``message
traffic'' separately for the period before the commencement of CAT
reporting and for the period after the start of CAT reporting. The
different definition for message traffic is necessary as there will be
no Reportable Events as defined in the Plan, prior to the commencement
of CAT reporting. Accordingly, prior to the start of CAT reporting,
``message traffic'' will be comprised of historical equity and equity
options orders, cancels, quotes and executions provided by each
exchange and FINRA over the previous three months. Prior to the start
of CAT reporting, orders would be comprised of the total number of
equity and equity options orders received and originated

by a member of an exchange or FINRA over the previous three-month
period, including principal orders, cancel/replace orders, market maker
orders originated by a member of an exchange, and reserve (iceberg)
orders as well as executions originated by a member of FINRA, and
excluding order rejects, system-modified orders, order routes and
implied orders.\27\ In addition, prior to the start of CAT reporting,
cancels would be comprised of the total number of equity and equity
option cancels received and originated by a member of an exchange or
FINRA over a three-month period, excluding order modifications (e.g.,
order updates, order splits, partial cancels) and multiple cancels of a
complex order. Furthermore, prior to the start of CAT reporting, quotes
would be comprised of information readily available to the exchanges
and FINRA, such as the total number of historical equity and equity
options quotes received and originated by a member of an exchange or
FINRA over the prior three-month period. Additionally, prior to the
start of CAT reporting, executions would be comprised of the total
number of equity and equity option executions received or originated by
a member of an exchange or FINRA over a three-month period.
---------------------------------------------------------------------------

    \27\ Consequently, firms that do not have ``message traffic''
reported to an exchange or OATS before they are reporting to the CAT
would not be subject to a fee until they begin to report information
to CAT.
---------------------------------------------------------------------------

    After an Industry Member begins reporting to the CAT, ``message
traffic'' will be calculated based on the Industry Member's Reportable
Events reported to the CAT as will be defined in the Technical
Specifications.\28\
---------------------------------------------------------------------------

    \28\ If an Industry Member (other than an Execution Venue ATS)
has no orders, cancels, quotes and executions prior to the
commencement of CAT Reporting, or no Reportable Events after CAT
reporting commences, then the Industry Member would not have a CAT
Fee obligation.
---------------------------------------------------------------------------

    Quotes of Options Market Makers and equity market makers will be
included in the calculation of total message traffic for those market
makers for purposes of tiering under the CAT funding model both prior
to CAT reporting and once CAT reporting commences.\29\ To address
potential concerns regarding burdens on competition or market quality
of including quotes in the calculation of message traffic, however, the
Operating Committee determined to discount the Options Market Maker
quotes by the trade to quote ratio for options when calculating message
traffic for Options Market Makers. Based on available data for June
2016 through June 2017, the trade to quote ratio for options is 0.01%.
Similarly, to avoid disincentives to quoting behavior on the equities
side, the Operating Committee determined to discount equity market
maker quotes by the trade to quote ratio for equities. Based on
available data for June 2016 through June 2017, the trade to quote
ratio for equities is 5.43%.\30\ The trade to quote ratio for options
and the trade to quote ratio for equities will be calculated every
three months when tiers are recalculated (as discussed below).
---------------------------------------------------------------------------

    \29\ The SEC approved exemptive relief permitting Options Market
Maker quotes to be reported to the Central Repository by the
relevant Options Exchange in lieu of requiring that such reporting
be done by both the Options Exchange and the Options Market Maker,
as required by Rule 613 of Regulation NMS. See Securities Exchange
Act Rel. No. 77265 (Mar. 1, 2017 [sic], 81 FR 11856 (Mar. 7, 2016).
This exemption applies to Options Market Maker quotes for CAT
reporting purposes only. Therefore, notwithstanding the reporting
exemption provided for Options Market Maker quotes, Options Market
Maker quotes will be included in the calculation of total message
traffic for Options Market Makers for purposes of tiering under the
CAT funding model both prior to CAT reporting and once CAT reporting
commences.
    \30\ The trade to quote ratios were calculated based on the
inverse of the average of the monthly equity SIP and OPRA quote to
trade ratios from June 2016-June 2017 that were compiled by the
Financial Information Forum using data from NASDAQ and SIAC.
---------------------------------------------------------------------------

    The Operating Committee has determined to calculate fee tiers every
three months, on a calendar quarter basis, based on message traffic
from the prior three months. Based on its analysis of historical data,
the Operating Committee believes that calculating tiers based on three
months of data will provide the best balance between reflecting changes
in activity by Industry Members while still providing predictability in
the tiering for Industry Members. Because fee tiers will be calculated
based on message traffic from the prior three months, the Operating
Committee will begin calculating message traffic based on an Industry
Member's Reportable Events reported to the CAT once the Industry Member
has been reporting to the CAT for three months. Prior to that, fee
tiers will be calculated as discussed above with regard to the period
prior to CAT reporting.
(C) Execution Venue Tiering
    Under Section 11.3(a) of the CAT NMS Plan, the Operating Committee
is required to establish fixed fees payable by Execution Venues.
Section 1.1 of the CAT NMS Plan defines an Execution Venue as ``a
Participant or an alternative trading system (``ATS'') (as defined in
Rule 300 of Regulation ATS) that operates pursuant to Rule 301 of
Regulation ATS (excluding any such ATS that does not execute orders).''
\31\
---------------------------------------------------------------------------

    \31\ Although FINRA does not operate an execution venue, because
it is a Participant, it is considered an ``Execution Venue'' under
the Plan for purposes of determining fees.
---------------------------------------------------------------------------

    The Operating Committee determined that ATSs should be included
within the definition of Execution Venue. The Operating Committee
believes that it is appropriate to treat ATSs as Execution Venues under
the proposed funding model since ATSs have business models that are
similar to those of exchanges, and ATSs also compete with exchanges.
    Given the differences between Execution Venues that trade NMS
Stocks and/or OTC Equity Securities and Execution Venues that trade
Listed Options, Section 11.3(a) addresses Execution Venues that trade
NMS Stocks and/or OTC Equity Securities separately from Execution
Venues that trade Listed Options. Equity and Options Execution Venues
are treated separately for two reasons. First, the differing quoting
behavior of Equity and Options Execution Venues makes comparison of
activity between such Execution Venues difficult. Second, Execution
Venue tiers are calculated based on market share of share volume, and
it is therefore difficult to compare market share between asset classes
(i.e., equity shares versus options contracts). Discussed below is how
the funding model treats the two types of Execution Venues.
(I) NMS Stocks and OTC Equity Securities
    Section 11.3(a)(i) of the CAT NMS Plan states that each Execution
Venue that (i) executes transactions or, (ii) in the case of a national
securities association, has trades reported by its members to its trade
reporting facility or facilities for reporting transactions effected
otherwise than on an exchange, in NMS Stocks or OTC Equity Securities
will pay a fixed fee depending on the market share of that Execution
Venue in NMS Stocks and OTC Equity Securities, with the Operating
Committee establishing at least two and not more than five tiers of
fixed fees, based on an Execution Venue's NMS Stocks and OTC Equity
Securities market share. For these purposes, market share for Execution
Venues that execute transactions will be calculated by share volume,
and market share for a national securities association that has trades
reported by its members to its trade reporting facility or facilities
for reporting transactions effected otherwise than on an exchange in
NMS Stocks or OTC Equity Securities will be

calculated based on share volume of trades reported, provided, however,
that the share volume reported to such national securities association
by an Execution Venue shall not be included in the calculation of such
national security association's market share.
    In accordance with Section 11.3(a)(i) of the CAT NMS Plan, the
Operating Committee approved a tiered fee structure for Equity
Execution Venues and Option Execution Venues. In determining the Equity
Execution Venue Tiers, the Operating Committee considered the funding
principles set forth in Section 11.2 of the CAT NMS Plan, seeking to
create funding tiers that take into account the relative impact on
system resources of different Equity Execution Venues, and that
establish comparable fees among the CAT Reporters with the most
Reportable Events. Each Equity Execution Venue will be placed into one
of four tiers of fixed fees, based on the Execution Venue's NMS Stocks
and OTC Equity Securities market share. In choosing four tiers, the
Operating Committee performed an analysis similar to that discussed
above with regard to the non-Execution Venue Industry Members to
determine the number of tiers for Equity Execution Venues. The
Operating Committee determined to establish four tiers for Equity
Execution Venues, rather than a larger number of tiers as established
for non-Execution Venue Industry Members, because the four tiers were
sufficient to distinguish between the smaller number of Equity
Execution Venues based on market share. Furthermore, the selection of
four tiers serves to help establish comparability among the largest CAT
Reporters.
    Each Equity Execution Venue will be ranked by market share and
tiered by predefined Execution Venue percentages, (the ``Equity
Execution Venue Percentages''). In determining the fixed percentage of
Equity Execution Venues in each tier, the Operating Committee reviewed
historical market share of share volume for Execution Venues. Equity
Execution Venue market shares of share volume were sourced from market
statistics made publicly-available by Bats Global Markets, Inc.
(``Bats''). ATS market shares of share volume was sourced from market
statistics made publicly-available by FINRA. FINRA trade reporting
facility (``TRF'') and ORF market share of share volume was sourced
from market statistics made publicly available by FINRA. Based on data
from FINRA and otcmarkets.com, ATSs accounted for 39.12% of the share
volume across the TRFs and ORFs during the recent tiering period. A
39.12/60.88 split was applied to the ATS and non-ATS breakdown of FINRA
market share, with FINRA tiered based only on the non-ATS portion of
its market share of share volume.
    The Operating Committee determined to discount the OTC Equity
Securities market share of Execution Venue ATSs trading OTC Equity
Securities as well as the market share of the FINRA ORF in recognition
of the different trading characteristics of the OTC Equity Securities
market as compared to the market in NMS Stocks. Many OTC Equity
Securities are priced at less than one dollar--and a significant number
at less than one penny--per share and low-priced shares tend to trade
in larger quantities. Accordingly, a disproportionately large number of
shares are involved in transactions involving OTC Equity Securities
versus NMS Stocks. Because the proposed fee tiers are based on market
share calculated by share volume, Execution Venue ATSs trading OTC
Equity Securities and FINRA would likely be subject to higher tiers
than their operations may warrant. To address this potential concern,
the Operating Committee determined to discount the OTC Equity
Securities market share of Execution Venue ATSs trading OTC Equity
Securities and the market share of the FINRA ORF by multiplying such
market share by the average shares per trade ratio between NMS Stocks
and OTC Equity Securities in order to adjust for the greater number of
shares being traded in the OTC Equity Securities market. Based on
available data for the second quarter of 2017, the average shares per
trade ratio between NMS Stocks and OTC Equity Securities is 0.17%.\32\
The average shares per trade ratio between NMS Stocks and OTC Equity
Securities will be recalculated every three months when tiers are
recalculated.
---------------------------------------------------------------------------

    \32\ The average shares per trade ratio for both NMS Stocks and
OTC Equity Securities from the second quarter of 2017 was calculated
using publicly available market volume data from Bats and OTC
Markets Group, and the totals were divided to determine the average
number of shares per trade between NMS Stocks and OTC Equity
Securities.
---------------------------------------------------------------------------

    Based on this, the Operating Committee considered the distribution
of Execution Venues, and grouped together Execution Venues with similar
levels of market share. The percentage of costs recovered by each
Equity Execution Venue tier will be determined by predefined percentage
allocations (the ``Equity Execution Venue Recovery Allocation''). In
determining the fixed percentage allocation of costs to be recovered
from each tier, the Operating Committee considered the impact of CAT
Reporter market share activity on the CAT System as well as the
distribution of total market volume across Equity Execution Venues
while seeking to maintain comparable fees among the largest CAT
Reporters. Accordingly, following the determination of the percentage
of Execution Venues in each tier, the Operating Committee identified
the percentage of total market volume for each tier based on the
historical market share upon which Execution Venues had been initially
ranked. Taking this into account along with the resulting percentage of
total recovery, the percentage allocation of cost recovery for each
tier were assigned, allocating higher percentages of recovery to the
tier with a higher level of market share while avoiding any
inappropriate burden on competition. Furthermore, by using percentages
of Equity Execution Venues and cost recovery per tier, the Operating
Committee sought to include elasticity within the funding model,
allowing the funding model to respond to changes in either the total
number of Equity Execution Venues or changes in market share.
    Based on this analysis, the Operating Committee approved the
following Equity Execution Venue Percentages and Recovery Allocations:

----------------------------------------------------------------------------------------------------------------
                                                                  Percentage  of  Percentage  of
                                                                      Equity         Execution    Percentage  of
                   Equity Execution Venue tier                       Execution         Venue           total
                                                                      Venues         recovery        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           33.25            8.31
Tier 2..........................................................           42.00           25.73            6.43
Tier 3..........................................................           23.00            8.00            2.00

Tier 4..........................................................           10.00            0.02            0.01
                                                                 -----------------------------------------------
    Total.......................................................             100              67           16.75
----------------------------------------------------------------------------------------------------------------

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

----------------------------------------------------------------------------------------------------------------
                                                                  Percentage  of  Percentage  of
                                                                      Options        Execution    Percentage  of
                  Options Execution Venue tier                       Execution         Venue           total
                                                                      Venues         recovery        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           28.25            7.06
Tier 2..........................................................           25.00            4.75            1.19
                                                                 -----------------------------------------------
    Total.......................................................             100              33            8.25
----------------------------------------------------------------------------------------------------------------

(III) Market Share/Tier Assignments
    The Operating Committee determined that, prior to the start of CAT
reporting, market share for Execution Venues would be sourced from
publicly-available market data. Options and equity volumes for
Participants will be sourced from market data made publicly available
by Bats while Execution Venue ATS volumes will be sourced from market
data made publicly available by FINRA and OTC Markets. Set forth in
Appendix B to this letter are two charts, one listing the current
Equity Execution Venues, each with its rank and tier, and one listing
the current Options Execution Venues, each with its rank and tier.
    After the commencement of CAT reporting, market share for Execution
Venues will be sourced from data reported to the CAT. Equity Execution
Venue market share will be determined by calculating each Equity
Execution Venue's proportion of the total volume of NMS Stock and OTC
Equity shares reported by all Equity Execution Venues during the
relevant time period (with the discounting of OTC Equity Securities
market share of Execution Venue ATSs trading OTC Equity Securities as
well as the market share of

the FINRA ORF, as described above). Similarly, market share for Options
Execution Venues will be determined by calculating each Options
Execution Venue's proportion of the total volume of Listed Options
contracts reported by all Options Execution Venues during the relevant
time period.
    The Operating Committee has determined to calculate fee tiers for
Execution Venues every three months based on market share from the
prior three months. Based on its analysis of historical data, the
Operating Committee believes calculating tiers based on three months of
data will provide the best balance between reflecting changes in
activity by Execution Venues while still providing predictability in
the tiering for Execution Venues.
(D) Allocation of Costs
    In addition to the funding principles discussed above, including
comparability of fees, Section 11.1(c) of the CAT NMS Plan also
requires expenses to be fairly and reasonably shared among the
Participants and Industry Members. Accordingly, in developing the
proposed fee schedules pursuant to the funding model, the Operating
Committee calculated how the CAT costs would be allocated between
Industry Members and Execution Venues, and how the portion of CAT costs
allocated to Execution Venues would be allocated between Equity
Execution Venues and Options Execution Venues. These determinations are
described below.
(I) Allocation Between Industry Members and Execution Venues
    In determining the cost allocation between Industry Members (other
than Execution Venue ATSs) and Execution Venues, the Operating
Committee analyzed a range of possible splits for revenue recovery from
such Industry Members and Execution Venues, including 80%/20%, 75%/25%,
70%/30% and 65%/35% allocations. Based on this analysis, the Operating
Committee determined that 75 percent of total costs recovered would be
allocated to Industry Members (other than Execution Venue ATSs) and 25
percent would be allocated to Execution Venues. The Operating Committee
determined that this 75%/25% division maintained the greatest level of
comparability across the funding model. For example, the cost
allocation establishes fees for the largest Industry Members (i.e.,
those Industry Members in Tiers 1) that are comparable to the largest
Equity Execution Venues and Options Execution Venues (i.e., those
Execution Venues in Tier 1).
    Furthermore, the allocation of total CAT cost recovery recognizes
the difference in the number of CAT Reporters that are Industry Members
versus CAT Reporters that are Execution Venues. Specifically, the cost
allocation takes into consideration that there are approximately 23
times more Industry Members expected to report to the CAT than
Execution Venues (e.g., an estimated 1541 Industry Members versus 67
Execution Venues as of June 2017).
(II) Allocation Between Equity Execution Venues and Options Execution
Venues
    The Operating Committee also analyzed how the portion of CAT costs
allocated to Execution Venues would be allocated between Equity
Execution Venues and Options Execution Venues. In considering this
allocation of costs, the Operating Committee analyzed a range of
alternative splits for revenue recovered between Equity and Options
Execution Venues, including a 70%/30%, 67%/33%, 65%/35%, 50%/50% and
25%/75% split. Based on this analysis, the Operating Committee
determined to allocate 67 percent of Execution Venue costs recovered to
Equity Execution Venues and 33 percent to Options Execution Venues. The
Operating Committee determined that a 67%/33% allocation between Equity
and Options Execution Venues maintained the greatest level of fee
equitability and comparability based on the current number of Equity
and Options Execution Venues. For example, the allocation establishes
fees for the larger Equity Execution Venues that are comparable to the
larger Options Execution Venues. Specifically, Tier 1 Equity Execution
Venues would pay a quarterly fee of $81,047 and Tier 1 Options
Execution Venues would pay a quarterly fee of $81,379. In addition to
fee comparability between Equity Execution Venues and Options Execution
Venues, the allocation also establishes equitability between larger
(Tier 1) and smaller (Tier 2) Execution Venues based upon the level of
market share. Furthermore, the allocation is intended to reflect the
relative levels of current equity and options order events.
(E) Fee Levels
    The Operating Committee determined to establish a CAT-specific fee
to collectively recover the costs of building and operating the CAT.
Accordingly, under the funding model, the sum of the CAT Fees is
designed to recover the total cost of the CAT. The Operating Committee
has determined overall CAT costs to be comprised of Plan Processor
costs and non-Plan Processor costs, which are estimated to be
$50,700,000 in total for the year beginning November 21, 2016.\33\
---------------------------------------------------------------------------

    \33\ It is anticipated that CAT-related costs incurred prior to
November 21, 2016 will be addressed via a separate filing.
---------------------------------------------------------------------------

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

Plan Processor cost components which comprise the total estimated CAT
costs of $50,700,000 for the covered period.

------------------------------------------------------------------------
         Cost category                Cost component          Amount
------------------------------------------------------------------------
Plan Processor.................  Operational Costs......     $37,500,000
Non-Plan Processor.............  Third Party Support           5,200,000
                                  Costs.
                                 Operational Reserve....  5,000,000 \34\
                                 Cyber-insurance Costs..       3,000,000
                                ----------------------------------------
    Estimated Total............  .......................     $50,700,000
------------------------------------------------------------------------

    Based on these estimated costs and the calculations for the funding
model described above, the Operating Committee determined to impose the
following fees: \35\
---------------------------------------------------------------------------

    \34\ This $5,000,000 represents the gradual accumulation of the
funds for a target operating reserve of $11,425,000.
    \35\ Note that all monthly, quarterly and annual CAT Fees have
been rounded to the nearest dollar.
---------------------------------------------------------------------------

    For Industry Members (other than Execution Venue ATSs):

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

    For Execution Venues for NMS Stocks and OTC Equity Securities:

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

    For Execution Venues for Listed Options:

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

    The Operating Committee has calculated the schedule of effective
fees for Industry Members (other than Execution Venue ATSs) and
Execution Venues in the following manner. Note that the calculation of
CAT Fees assumes 52 Equity Execution Venues, 15 Options Execution
Venues and 1,541 Industry Members (other than Execution Venue ATSs) as
of June 2017.

                          Calculation of Annual Tier Fees for Industry Members (``IM'')
----------------------------------------------------------------------------------------------------------------
                                                                                Percentage of
                                                                   Percentage of     Industry      Percentage of
                      Industry Member tier                           Industry         Member      total recovery
                                                                      Members        recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           0.900           12.00            9.00
Tier 2..........................................................           2.150           20.50           15.38
Tier 3..........................................................           2.800           18.50           13.88
Tier 4..........................................................           7.750           32.00           24.00
Tier 5..........................................................           8.300           10.00            7.50
Tier 6..........................................................          18.800            6.00            4.50
Tier 7..........................................................          59.300            1.00            0.75
                                                                 -----------------------------------------------
    Total.......................................................             100             100              75
----------------------------------------------------------------------------------------------------------------

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

BILLING CODE 8001-01-P

[GRAPHIC] [TIFF OMITTED] TN11JA18.001

BILLING CODE 8001-01-C

                      Calculation of Annual Tier Fees for Equity Execution Venues (``EV'')
----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of
                                                                      Equity       Percentage of   Percentage of
                   Equity Execution Venue tier                       Execution       Execution    total recovery
                                                                      Venues      Venue recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           25.00           33.25            8.31

Tier 2..........................................................           42.00           25.73            6.43
Tier 3..........................................................           23.00            8.00            2.00
Tier 4..........................................................           10.00           49.00            0.01
                                                                 -----------------------------------------------
    Total.......................................................             100              67           16.75
----------------------------------------------------------------------------------------------------------------

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

BILLING CODE 8001-01-P

[GRAPHIC] [TIFF OMITTED] TN11JA18.002

BILLING CODE 8001-01-C

                      Calculation of Annual Tier Fees for Options Execution Venues (``EV'')
----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of   Percentage of
                                                                      Options        Execution     Percentage of
                  Options Execution Venue tier                       Execution         Venue      total recovery
                                                                      Venues         recovery
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................           75.00           28.25            7.06
Tier 2..........................................................           25.00            4.75            1.19
                                                                 -----------------------------------------------
    Total.......................................................             100              33            8.25
----------------------------------------------------------------------------------------------------------------

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

[GRAPHIC] [TIFF OMITTED] TN11JA18.003

                                         Traceability of Total CAT Fees
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated
                Type                     Industry  Member tier       number of    CAT  fees paid       Total
                                                                      members         annually       recovery
----------------------------------------------------------------------------------------------------------------
Industry Members....................  Tier 1....................              14        $325,932      $4,563,048
                                      Tier 2....................              33         236,220       7,795,260
                                      Tier 3....................              43         163,596       7,034,628
                                      Tier 4....................             119         102,264      12,169,416
                                      Tier 5....................             128          29,712       3,803,136
                                      Tier 6....................             290           7,872       2,282,880
                                      Tier 7....................             914             420         383,880
                                                                 -----------------------------------------------
    Total...........................  ..........................           1,541  ..............      38,032,248
----------------------------------------------------------------------------------------------------------------
Equity Execution Venues.............  Tier 1....................              13         324,192       4,214,496
                                      Tier 2....................              22         148,248       3,261,456
                                      Tier 3....................              12          84,504       1,014,048
                                      Tier 4....................               5             516           2,580
                                                                 -----------------------------------------------
    Total...........................  ..........................              52  ..............       8,492,580
----------------------------------------------------------------------------------------------------------------
Options Execution Venues............  Tier 1....................              11         325,524       3,580,764
                                      Tier 2....................               4         150,516         602,064
                                                                 -----------------------------------------------
    Total...........................  ..........................              15  ..............       4,182,828
                                                                                -------------------------------
        Total.......................  ..........................  ..............  ..............      50,700,000
                                                                                -------------------------------
        Excess \36\.................  ..........................  ..............  ..............           7,656
----------------------------------------------------------------------------------------------------------------

    (F) Comparability of Fees
---------------------------------------------------------------------------

    \36\ The amount in excess of the total CAT costs will contribute
to the gradual accumulation of the target operating reserve of
$11.425 million.
---------------------------------------------------------------------------

    The funding principles require a funding model in which the fees
charged to the CAT Reporters with the most CAT-related activity
(measured by market share and/or message traffic, as applicable) are
generally comparable (where, for these comparability purposes, the
tiered fee structure takes into consideration affiliations between or
among CAT Reporters, whether Execution Venue and/or Industry Members).
Accordingly, in creating the model, the Operating Committee sought to
establish comparable fees for the top tier of Industry Members (other
than Execution Venue ATSs), Equity Execution Venues and Options
Execution Venues. Specifically, each Tier 1 CAT Reporter would be
required to pay a quarterly fee of approximately $81,000.
(G) Billing Onset
    Under Section 11.1(c) of the CAT NMS Plan, to fund the development
and implementation of the CAT, the Company shall time the imposition
and collection of all fees on Participants and Industry Members in a
manner reasonably related to the timing when the Company expects to
incur such development and implementation costs. The Company is
currently incurring such development and implementation costs and will
continue to do so prior to the commencement of CAT reporting and
thereafter. In accordance with the CAT NMS Plan, all CAT Reporters,
including both Industry Members and Execution Venues (including
Participants), will be invoiced as promptly as possible following the
latest

of the operative date of this Plan amendment, and the related fee
filings for the Industry Member CAT Fees.
(H) Changes to Fee Levels and Tiers
    Section 11.3(d) of the CAT NMS Plan states that ``[t]he Operating
Committee shall review such fee schedule on at least an annual basis
and shall make any changes to such fee schedule that it deems
appropriate. The Operating Committee is authorized to review such fee
schedule on a more regular basis, but shall not make any changes on
more than a semi-annual basis unless, pursuant to a Supermajority Vote,
the Operating Committee concludes that such change is necessary for the
adequate funding of the Company.'' With such reviews, the Operating
Committee will review the distribution of Industry Members and
Execution Venues across tiers, and make any updates to the percentage
of CAT Reporters allocated to each tier as may be necessary. In
addition, the reviews will evaluate the estimated ongoing CAT costs and
the level of the operating reserve. To the extent that the total CAT
costs decrease, the fees would be adjusted downward, and to the extent
that the total CAT costs increase, the fees would be adjusted
upward.\37\ Furthermore, any surplus of the Company's revenues over its
expenses is to be included within the operational reserve to offset
future fees. The limitations on more frequent changes to the fee,
however, are intended to provide budgeting certainty for the CAT
Reporters and the Company.\38\ To the extent that the Operating
Committee approves changes to the number of tiers in the funding model
or the fees assigned to each tier, then the Operating Committee will
file such changes with the SEC pursuant to Rule 608 of the Exchange
Act, and the Participants will file such changes with the SEC pursuant
to Section 19(b) of the Exchange Act and Rule 19b-4 thereunder, and any
such changes will become effective in accordance with the requirements
of those provisions.
---------------------------------------------------------------------------

    \37\ The CAT Fees are designed to recover the costs associated
with the CAT. Accordingly, CAT Fees would not be affected by
increases or decreases in other non-CAT expenses incurred by the
Participants, such as any changes in costs related to the retirement
of existing regulatory systems, such as OATS.
    \38\ Section B.7, Appendix C of the CAT NMS Plan, Approval Order
at 85006.
---------------------------------------------------------------------------

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

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Period A                                                                     Period B
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Market share                                                             Market  share
            Options Execution Venue                   rank             Tier               Options Execution Venue              rank            Tier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Options Execution Venue A......................               1               1   Options Execution Venue A.............               1               1
Options Execution Venue B......................               2               1   Options Execution Venue B.............               2               1
Options Execution Venue C......................               3               1   Options Execution Venue C.............               3               1
Options Execution Venue D......................               4               1   Options Execution Venue D.............               4               1
Options Execution Venue E......................               5               1   Options Execution Venue E.............               5               1
Options Execution Venue F......................               6               1   Options Execution Venue F.............               6               1
Options Execution Venue G......................               7               1   Options Execution Venue I.............               7               1
Options Execution Venue H......................               8               1   Options Execution Venue H.............               8               1
Options Execution Venue I......................               9               1   Options Execution Venue G.............               9               1
Options Execution Venue J......................              10               1   Options Execution Venue J.............              10               1
Options Execution Venue K......................              11               1   Options Execution Venue L.............              11               1
Options Execution Venue L......................              12               2   Options Execution Venue K.............              12               2
Options Execution Venue M......................              13               2   Options Execution Venue N.............              13               2
Options Execution Venue N......................              14               2   Options Execution Venue M.............              14               2
Options Execution Venue O......................              15               2   Options Execution Venue O.............              15               2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For each periodic tier reassignment, the Operating Committee will
review the new tier assignments, particularly those assignments for CAT
Reporters that shift from the lowest tier to a higher tier. This review
is intended to evaluate whether potential changes to the market or CAT
Reporters (e.g., dissolution of a

large CAT Reporter) adversely affect the tier reassignments.
(J) Sunset Provision
    The Operating Committee developed the proposed funding model by
analyzing currently available historical data. Such historical data,
however, is not as comprehensive as data that will be submitted to the
CAT. Accordingly, the Operating Committee believes that it will be
appropriate to revisit the funding model once CAT Reporters have actual
experience with the funding model. Accordingly, the Operating Committee
determined to include an automatic sunsetting provision for the
proposed fees. Specifically, the Operating Committee determined to
include a provision in the proposed fee schedule which states that
``[t]hese Participant CAT Fees will automatically expire two years
after their operative date.'' The Operating Committee intends to
monitor the operation of the funding model during this two year period
and to evaluate its effectiveness during that period. Such a process
will inform the Operating Committee's approach to funding the CAT after
the two year period.
(3) Proposed CAT Fee Schedule
    The Operating Committee proposes to add Exhibit B to the CAT NMS
Plan to add a fee schedule setting forth the CAT Fees applicable to
Participants. Proposed Exhibit B is set forth in Appendix A to this
letter. Paragraph (a)(1) of proposed Exhibit B sets forth the CAT Fees
applicable to Execution Venues for NMS Stocks and OTC Equity
Securities. Specifically, paragraph (a)(1) states that the Company will
assign each Execution Venue for NMS Stocks and/or OTC Equity Securities
to a fee tier once every quarter, where such tier assignment is
calculated by ranking each such Execution Venue based on its total
market share (with a discount for the OTC Equity Securities market
share of Execution Venue ATSs trading OTC Equity Securities as well as
the market share of the FINRA OTC reporting facility based on the
average shares per trade ratio between NMS Stocks and OTC Equity
Securities) for the three months prior to the quarterly tier
calculation day and assigning each such Execution Venue to a tier based
on that ranking and predefined percentages for such Execution Venues.
The Execution Venues for NMS Stocks and/or OTC Equity Securities with
the higher total quarterly market share will be ranked in Tier 1, and
such Execution Venues with the lowest quarterly market share will be
ranked in Tier 4. Specifically, paragraph (a)(1) states that, each
quarter, each Execution Venue for NMS Stocks and/or OTC Equity
Securities shall pay in the manner prescribed by the Company the
following CAT Fee corresponding to the tier assigned by the CAT NMS,
LLC for such Execution Venue for that quarter:

------------------------------------------------------------------------
                                          Percentage  of
                                             Execution
                                            Venues for
                  Tier                      NMS Stocks     Quarterly CAT
                                            and/or OTC          fee
                                              Equity
                                            Securities
------------------------------------------------------------------------
1.......................................           25.00         $81,048
2.......................................           42.00          37,062
3.......................................           23.00          21,126
4.......................................           10.00             129
------------------------------------------------------------------------

    In addition, paragraph (a)(2) of the proposed Exhibit B states that
the Company will assign each Execution Venue for Listed Options to a
fee tier once every quarter, where such tier assignment is calculated
by ranking each such Execution Venue based on its total market share
for the three months prior to the quarterly tier calculation day and
assigning each such Execution Venue to a tier based on that ranking and
predefined percentages for such Execution Venues. The Execution Venues
for Listed Options with the higher total quarterly market share will be
ranked in Tier 1, and such Execution Venues with the lower quarterly
market share will be ranked in Tier 2. Specifically, paragraph (b)(1)
states that, each quarter, each Execution Venue for Listed Options
shall pay in the manner prescribed by the Company the following CAT Fee
corresponding to the tier assigned by the CAT NMS, LLC for such
Execution Venue for that quarter:

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

(4) Changes to Prior CAT Fee Plan Amendment
    The proposed funding model set forth in this amendment is a revised
version of the Plan amendment filed with the Commission on May 9, 2017
(``Original Proposal'').\39\ The Commission abrogated the Original
Proposal on July 21, 2017.\40\ Although the Original Proposal did not
receive any comments, the Commission received a number of comment
letters in response to the Participants' proposed rule changes to adopt
CAT Fees to be charged to Industry Members, including Industry Members
that are Execution Venue ATSs (``Industry Member Fee Filings'').\41\
Because the text of the Industry Member Fee Filings is substantially
similar to the Original Proposal, the SEC believed that the comments
were relevant to the Original Proposal and summarized them in the
Abrogation Order. In addition, the SEC suspended the Industry Member
Fee Filings and instituted proceedings to determine whether to approve
or disapprove the Industry Member Fee Filings.\42\ Pursuant to those
proceedings, additional comment letters were submitted regarding the
proposed funding model.\43\ In developing this Amendment No. 4, the
Operating Committee carefully considered these comments and made a
number of changes to the Original Proposal to address these comments
where appropriate.
---------------------------------------------------------------------------

    \39\ Securities Exchange Act Rel. No. 80930 (June 14, 2017), 82
FR 28180 (June 20, 2017).
    \40\ Securities Exchange Act Rel. No. 81189 (July 21, 2017), 82
FR 35005 (July 27, 2017) (``Abrogation Order'').
    \41\ For a description of the Industry Member Fee Filings and
the comments submitted in response to those Filings, see Securities
Exchange Act Rel. No. 81067 (June 30, 2017), 82 FR 31656 (July 7,
2017) (``Suspension Order'').
    \42\ Suspension Order.
    \43\ See Letter from Stuart J. Kaswell, Executive Vice
President, Managing Director and General Counsel, Managed Funds
Association, to Brent J. Fields, Secretary, SEC (July 28, 2017)
(``MFA Letter''); Letter from Theodore R. Lazo, Managing Director
and Associate General Counsel, SIFMA, to Brent J. Fields, Secretary,
SEC (July 28, 2017) (``SIFMA Letter''); Joanna Mallers, Secretary,
FIA Principal Traders Group, to Brent J. Fields, Secretary, SEC
(July 28, 2017) (``FIA Principal Traders Group Letter''); Letter
from Kevin Coleman, General Counsel & Chief Compliance Officer,
Belvedere Trading LLC, to Brent J. Fields, Secretary, SEC (July 28,
2017) (``Belvedere Letter''); Letter from W. Hardy Callcott, Sidley
Austin LLP, to Brent J. Fields, Secretary, SEC (July 27, 2017)
(``Sidley Letter''); Letter from John Kinahan, Chief Executive
Officer, Group One Trading, L.P., to Brent J. Fields, Secretary, SEC
(Aug. 10, 2017) (``Group One Letter''); and Letter from Joseph
Molluso, Executive Vice President, Virtu Financial, to Brent J.
Fields, Secretary, SEC (Aug. 18, 2017) (``Virtu Financial Letter'').
---------------------------------------------------------------------------

    This Amendment No. 4 makes the following changes to the Original
Proposal: (1) Adds two additional CAT Fee tiers for Equity Execution
Venues; (2) discounts the OTC Equity Securities market share of
Execution Venue ATSs trading OTC Equity Securities as well as the
market share of the FINRA ORF by the average shares per trade ratio
between NMS Stocks and OTC Equity Securities (calculated as 0.17% based
on available data from the second quarter of 2017) when calculating the
market share of Execution Venue ATSs trading OTC Equity Securities and
FINRA; (3) discounts the Options Market Maker

quotes by the trade to quote ratio for options (calculated as 0.01%
based on available data for June 2016 through June 2017) when
calculating message traffic for Options Market Makers; (4) discounts
equity market maker quotes by the trade to quote ratio for equities
(calculated as 5.43% based on available data for June 2016 through June
2017) when calculating message traffic for equity market makers; (5)
decreases the number of tiers for Industry Members (other than the
Equity ATSs) from nine to seven; (6) changes the allocation of CAT
costs between Equity Execution Venues and Options Execution Venues from
75%/25% to 67%/33%; (7) adjusts tier percentages and recovery
allocations for Equity Execution Venues, Options Execution Venues and
Industry Members (other than Execution Venue ATSs); (8) focuses the
comparability of CAT Fees on the individual entity level, rather than
primarily on the comparability of affiliated entities; (9) commences
invoicing of CAT Reporters as promptly as possible following the latest
of the operative date of the Consolidated Audit Trail Funding Fees for
each of the Participants as set forth in the Industry Member Fee
Filings and the operative date of the CAT NMS Plan amendment adopting
CAT Fees for Participants; and (10) requires the proposed fees to
automatically expire two years from their operative date.
(A) Equity Execution Venues
(i) Small Equity Execution Venues
    In the Original Proposal, the Operating Committee proposed to
establish two fee tiers for Equity Execution Venues. The Commission and
commenters raised the concern that, by establishing only two tiers,
smaller Equity Execution Venues (e.g., those Equity ATSs representing
less than 1% of NMS market share) would be placed in the same fee tier
as larger Equity Execution Venues, thereby imposing an undue or
inappropriate burden on competition.\44\ To address this concern, the
Operating Committee proposes to add two additional tiers for Equity
Execution Venues, a third tier for smaller Equity Execution Venues and
a fourth tier for the smallest Equity Execution Venues.
---------------------------------------------------------------------------

    \44\ See Abrogation Order at 35012; SIFMA Letter at 3.
---------------------------------------------------------------------------

    Specifically, the Original Proposal had two tiers of Equity
Execution Venues. Tier 1 required the largest Equity Execution Venues
to pay a quarterly fee of $63,375. Based on available data, these
largest Equity Execution Venues were those that had equity market share
of share volume greater than or equal to 1%.\45\ Tier 2 required the
remaining smaller Equity Execution Venues to pay a quarterly fee of
$38,820.
---------------------------------------------------------------------------

    \45\ Note that while these equity market share thresholds were
referenced as data points to help differentiate between Equity
Execution Venue tiers, the proposed funding model is directly driven
not by market share thresholds, but rather by fixed percentages of
Equity Execution Venues across tiers to account for fluctuating
levels of market share across time. Actual market share in any tier
will vary based on the actual market activity in a given measurement
period, as well as the number of Equity Execution Venues included in
the measurement period.
---------------------------------------------------------------------------

    To address concerns about the potential for the $38,820 quarterly
fee to impose an undue burden on smaller Equity Execution Venues, the
Operating Committee determined to move to a four tier structure for
Equity Execution Venues. Tier 1 would continue to include the largest
Equity Execution Venues by share volume (that is, based on currently
available data, those with market share of equity share volume greater
than or equal to one percent), and these Equity Execution Venues would
be required to pay a quarterly fee of $81,048. The Operating Committee
determined to divide the original Tier 2 into three tiers. The new Tier
2 Equity Execution Venues, which would include the next largest Equity
Execution Venues by equity share volume, would be required to pay a
quarterly fee of $37,062. The new Tier 3 Equity Execution Venues would
be required to pay a quarterly fee of $21,126. The new Tier 4 Equity
Execution Venues, which would include the smallest Equity Execution
Venues by share volume, would be required to pay a quarterly fee of
$129.
    In developing the proposed four tier structure, the Operating
Committee considered keeping the existing two tiers, as well as
shifting to three, four or five Equity Execution Venue tiers (the
maximum number of tiers permitted under the Plan), to address the
concerns regarding small Equity Execution Venues. For each of the two,
three, four and five tier alternatives, the Operating Committee
considered the assignment of various percentages of Equity Execution
Venues to each tier as well as various percentage of Equity Execution
Venue recovery allocations for each alternative. As discussed below in
more detail, each of these options was considered in the context of the
full model, as changes in each variable in the model affect other
variables in the model when allocating the total CAT costs among CAT
Reporters. The Operating Committee determined that the four tier
alternative addressed the spectrum of different Equity Execution
Venues. The Operating Committee determined that neither a two tier
structure nor a three tier structure sufficiently accounted for the
range of market shares of smaller Equity Execution Venues. The
Operating Committee also determined that, given the limited number of
Equity Execution Venues, that a fifth tier was unnecessary to address
the range of market shares of the Equity Execution Venues.
    By increasing the number of tiers for Equity Execution Venues and
reducing the proposed CAT Fees for the smaller Equity Execution Venues,
the Operating Committee believes that the proposed fees for Equity
Execution Venues would not impose an undue or inappropriate burden on
competition under Section 6 or Section 15A of the Exchange Act.
Moreover, the Operating Committee believes that the proposed fees
appropriately take into account the distinctions in the securities
trading operations of different Equity Execution Venues, as required
under the funding principles of the CAT NMS Plan.\46\ The larger number
of tiers more closely tracks the variety of sizes of equity share
volume of Equity Execution Venues. In addition, the reduction in the
fees for the smaller Equity Execution Venues recognizes the potential
burden of larger fees on smaller entities. In particular, the very
small quarterly fee of $129 for Tier 4 Equity Execution Venues reflects
the fact that certain Equity Execution Venues have a very small share
volume due to their typically more focused business models.
---------------------------------------------------------------------------

    \46\ Section 11.2(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Accordingly, Amendment No. 4 proposes to amend paragraph (a)(1) of
the proposed fee schedule as set forth in the Original Proposal to add
the two additional tiers for Equity Execution Venues, to establish the
percentages and fees for Tiers 3 and 4 as described, and to revise the
percentages and fees for Tiers 1 and 2 as described.
(ii) Execution Venues for OTC Equity Securities
    In the Original Proposal, the Operating Committee proposed to group
Execution Venues for OTC Equity Securities and Execution Venues for NMS
Stocks in the same tier structure. The Commission and commenters raised
concerns as to whether this determination to place Execution Venues for
OTC Equity Securities in the same tier structure as Execution Venues
for NMS Stocks would result in an undue or inappropriate burden on
competition, recognizing that the application of share volume may lead
to different outcomes as applied to OTC

Equity Securities and NMS Stocks.\47\ To address this concern, the
Operating Committee proposes to discount the OTC Equity Securities
market share of Execution Venue ATSs trading OTC Equity Securities as
well as the market share of the FINRA ORF by the average shares per
trade ratio between NMS Stocks and OTC Equity Securities (0.17% for the
second quarter of 2017) in order to adjust for the greater number of
shares being traded in the OTC Equity Securities market, which is
generally a function of a lower per share price for OTC Equity
Securities when compared to NMS Stocks.
---------------------------------------------------------------------------

    \47\ See Abrogation Order at 35012-3.
---------------------------------------------------------------------------

    As commenters noted, many OTC Equity Securities are priced at less
than one dollar--and a significant number at less than one penny--and
low-priced shares tend to trade in larger quantities. Accordingly, a
disproportionately large number of shares are involved in transactions
involving OTC Equity Securities versus NMS Stocks, which has the effect
of overstating an Execution Venue's true market share when the
Execution Venue is involved in the trading of OTC Equity Securities.
Because the proposed fee tiers are based on market share calculated by
share volume, Execution Venue ATSs trading OTC Equity Securities and
FINRA may be subject to higher tiers than their operations may
warrant.\48\ The Operating Committee proposes to address this concern
in two ways. First, the Operating Committee proposes to increase the
number of Equity Execution Venue tiers, as discussed above. Second, the
Operating Committee determined to discount the OTC Equity Securities
market share of Execution Venue ATSs trading OTC Equity Securities as
well as the market share of the FINRA ORF when calculating their tier
placement. Because the disparity in share volume between Execution
Venues trading in OTC Equity Securities and NMS Stocks is based on the
different number of shares per trade for OTC Equity Securities and NMS
Stocks, the Operating Committee believes that discounting the OTC
Equity Securities share volume of such Execution Venue ATSs as well as
the market share of the FINRA ORF would address the difference in
shares per trade for OTC Equity Securities and NMS Stocks.
Specifically, the Operating Committee proposes to impose a discount
based on the objective measure of the average shares per trade ratio
between NMS Stocks and OTC Equity Securities. Based on available data
from the second quarter of 2017, the average shares per trade ratio
between NMS Stocks and OTC Equity Securities is 0.17%.
---------------------------------------------------------------------------

    \48\ Abrogation Order at 35012.
---------------------------------------------------------------------------

    The practical effect of applying such a discount for trading in OTC
Equity Securities is to shift Execution Venue ATSs trading OTC Equity
Securities to tiers for smaller Execution Venues and with lower fees.
For example, under the Original Proposal, one Execution Venue ATS
trading OTC Equity Securities was placed in the first CAT Fee tier,
which had a quarterly fee of $63,375. With the imposition of the
proposed tier changes and the discount, this ATS would be ranked in
Tier 3 and would owe a quarterly fee of $21,126.
    In developing the proposed discount for Equity Execution Venue ATSs
trading OTC Equity Securities and FINRA, the Operating Committee
evaluated different alternatives to address the concerns related to OTC
Equity Securities, including creating a separate tier structure for
Execution Venues trading OTC Equity Securities (like the separate tier
for Options Execution Venues) as well as the proposed discounting
method for Execution Venue ATSs trading OTC Equity Securities and
FINRA. For these alternatives, the Operating Committee considered how
each alternative would affect the recovery allocations. In addition,
each of these options was considered in the context of the full model,
as changes in each variable in the model affect other variables in the
model when allocating the total CAT costs among CAT Reporters. The
Operating Committee did not adopt a separate tier structure for Equity
Execution Venues trading OTC Equity Securities as they determined that
the proposed discount approach appropriately addresses the concern. The
Operating Committee determined to adopt the proposed discount because
it directly relates to the concern regarding the trading patterns and
operations in the OTC Equity Securities markets, and is an objective
discounting method.
    By increasing the number of tiers for Equity Execution Venues and
imposing a discount on the market share of share volume calculation for
trading in OTC Equity Securities, the Operating Committee believes that
the proposed fees for Equity Execution Venues would not impose an undue
or inappropriate burden on competition under Section 6 or Section 15A
of the Exchange Act. Moreover, the Operating Committee believes that
the proposed fees appropriately take into account the distinctions in
the securities trading operations of different Equity Execution Venues,
as required under the funding principles of the CAT NMS Plan.\49\ As
discussed above, the larger number of tiers more closely tracks the
variety of sizes of equity share volume of Equity Execution Venues. In
addition, the proposed discount recognizes the different types of
trading operations at Equity Execution Venues trading OTC Equity
Securities versus those trading NMS Stocks, thereby more closing
matching the relative revenue generation by Equity Execution Venues
trading OTC Equity Securities to their CAT Fees.
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    \49\ Section 11.2(b) of the CAT NMS Plan.
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    Accordingly, Amendment No. 4 proposes to amend paragraph (a)(1) of
the proposed fee schedule as set forth in the Original Proposal to
indicate that the OTC Equity Securities market share for Execution
Venue ATSs trading OTC Equity Securities as well as the market share of
the FINRA ORF would be discounted. In addition, as discussed above, to
address concerns related to smaller ATSs, including those that trade
OTC Equity Securities, the Operating Committee proposes to amend
paragraph (a)(1) of the proposed fee schedule to add two additional
tiers for Equity Execution Venues, to establish the percentages and
fees for Tiers 3 and 4 as described, and to revise the percentages and
fees for Tiers 1 and 2 as described.
(B) Market Makers
    In the Original Proposal, the Operating Committee proposed to
include both Options Market Maker quotes and equities market maker
quotes in the calculation of total message traffic for such market
makers for purposes of tiering for Industry Members (other than
Execution Venue ATSs). The Commission and commenters raised questions
as to whether the proposed treatment of Options Market Maker quotes may
result in an undue or inappropriate burden on competition or may lead
to a reduction in market quality.\50\ To address this concern, the
Operating Committee determined to discount the Options Market Maker
quotes by the trade to quote ratio for options when calculating message
traffic for Options Market Makers. Similarly, to avoid disincentives to
quoting behavior on the equities side as well, the Operating Committee
determined to discount equity market maker quotes by the trade to quote
ratio for equities when

calculating message traffic for equities market makers.
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    \50\ See Abrogation Order at 35011; SIFMA Letter at 4-6; FIA
Principal Traders Group Letter at 3; Sidley Letter at 2-6; Group One
Letter at 2-6; and Belvedere Letter at 2.
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    In the Original Proposal, market maker quotes were treated the same
as other message traffic for purposes of tiering for Industry Members
(other than Execution Venue ATSs). Commenters noted, however, that
charging Industry Members on the basis of message traffic will impact
market makers disproportionately because of their continuous quoting
obligations. Moreover, in the context of options market makers, message
traffic would include bids and offers for every listed options strikes
and series, which are not an issue for equities.\51\ The Operating
Committee proposes to address this concern in two ways. First, the
Operating Committee proposes to discount Options Market Maker quotes
when calculating the Options Market Makers' tier placement.
Specifically, the Operating Committee proposes to impose a discount
based on the objective measure of the trade to quote ratio for options.
Based on available data from June 2016 through June 2017, the trade to
quote ratio for options is 0.01%. Second, the Operating Committee
proposes to discount equities market maker quotes when calculating the
equities market makers' tier placement. Specifically, the Operating
Committee proposes to impose a discount based on the objective measure
of the trade to quote ratio for equities. Based on available data for
June 2016 through June 2017, this trade to quote ratio for equities is
5.43%.
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    \51\ Abrogation Order at 35012.
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    The practical effect of applying such discounts for quoting
activity is to shift market makers' calculated message traffic lower,
leading to the potential shift to tiers for lower message traffic and
reduced fees. Such an approach would move sixteen Industry Member CAT
Reporters that are market makers to a lower tier than in the Original
Proposal. For example, under the Original Proposal, Broker-Dealer Firm
ABC was placed in the first CAT Fee tier, which had a quarterly fee of
$101,004. With the imposition of the proposed tier changes and the
discount, Broker-Dealer Firm ABC, an options market maker, would be
ranked in Tier 3 and would owe a quarterly fee of $40,899.
    In developing the proposed market maker discounts, the Operating
Committee considered various discounts for Options Market Makers and
equity market makers, including discounts of 50%, 25%, 0.00002%, as
well as the 5.43% for option market makers and 0.01% for equity market
makers. Each of these options were considered in the context of the
full model, as changes in each variable in the model affect other
variables in the model when allocating the total CAT costs among CAT
Reporters. The Operating Committee determined to adopt the proposed
discount because it directly relates to the concern regarding the
quoting requirement, is an objective discounting method, and has the
desired potential to shift market makers to lower fee tiers.
    By imposing a discount on Options Market Makers and equities market
makers' quoting traffic for the calculation of message traffic, the
Operating Committee believes that the proposed fees for market makers
would not impose an undue or inappropriate burden on competition under
Section 6 or Section 15A of the Exchange Act. Moreover, the Operating
Committee believes that the proposed fees appropriately take into
account the distinctions in the securities trading operations of
different Industry Members, and avoid disincentives, such as a
reduction in market quality, as required under the funding principles
of the CAT NMS Plan.\52\ The proposed discounts recognize the different
types of trading operations presented by Options Market Makers and
equities market makers, as well as the value of the market makers'
quoting activity to the market as a whole. Accordingly, the Operating
Committee believes that the proposed discounts will not impact the
ability of small Options Market Makers or equities market makers to
provide liquidity.
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    \52\ Section 11.2(b) of the CAT NMS Plan.
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(C) Comparability/Allocation of Costs
    Under the Original Proposal, 75% of CAT costs were allocated to
Industry Members (other than Execution Venue ATSs) and 25% of CAT costs
were allocated to Execution Venues. This cost allocation sought to
maintain the greatest level of comparability across the funding model,
where comparability considered affiliations among or between CAT
Reporters. The Commission and commenters expressed concerns regarding
whether the proposed 75%/25% allocation of CAT costs is consistent with
the Plan's funding principles and the Exchange Act, including whether
the allocation places a burden on competition or reduces market
quality. The Commission and commenters also questioned whether the
approach of accounting for affiliations among CAT Reporters in setting
CAT Fees disadvantages non-affiliated CAT Reporters or otherwise
burdens competition in the market for trading services.\53\
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    \53\ See Abrogation Order at 35010-13; SIFMA Letter at 3; Sidley
Letter at 6-7; Group One Letter at 2; and Belvedere Letter at 2.
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    In response to these concerns, the Operating Committee determined
to revise the proposed funding model to focus the comparability of CAT
Fees on the individual entity level, rather than primarily on the
comparability of affiliated entities. In light of the interconnected
nature of the various aspects of the funding model, the Operating
Committee determined to revise various aspects of the model to enhance
comparability at the individual entity level. Specifically, to achieve
such comparability, the Operating Committee determined to (1) decrease
the number of tiers for Industry Members (other than Execution Venue
ATSs) from nine to seven; (2) change the allocation of CAT costs
between Equity Execution Venues and Options Execution Venues from 75%/
25% to 67%/33%; and (3) adjust tier percentages and recovery