[Federal Register Volume 86, Number 75 (Wednesday, April 21, 2021)]
[Notices]
[Pages 21050-21080]
[FR Doc No: 2021-08049]

Vol. 86

Wednesday,

No. 75

April 21, 2021

Part IV

Securities and Exchange Commission

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Joint Industry Plan; Notice of Filing of Amendment to the National
Market System Plan Governing the Consolidated Audit Trail by BOX
Exchange LLC; Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe
EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe C2 Exchange, Inc.
and Cboe Exchange, Inc., Financial Industry Regulatory Authority, Inc.,
Investors Exchange LLC, Long-Term Stock Exchange, Inc., Miami
International Securities Exchange LLC, MEMX, LLC, MIAX Emerald, LLC,
MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC,
Nasdaq MRX, LLC, Nasdaq PHLX LLC, The NASDAQ Stock Market LLC; and New
York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE
Chicago, Inc., and NYSE National, Inc.; Notice

Federal Register / Vol. 86, No. 75 / Wednesday, April 21, 2021 /
Notices

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91555; File No. 4-698]

Joint Industry Plan; Notice of Filing of Amendment to the
National Market System Plan Governing the Consolidated Audit Trail by
BOX Exchange LLC; Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc.,
Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe C2 Exchange,
Inc. and Cboe Exchange, Inc., Financial Industry Regulatory Authority,
Inc., Investors Exchange LLC, Long-Term Stock Exchange, Inc., Miami
International Securities Exchange LLC, MEMX, LLC, MIAX Emerald, LLC,
MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC,
Nasdaq MRX, LLC, Nasdaq PHLX LLC, The NASDAQ Stock Market LLC; and New
York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE
Chicago, Inc., and NYSE National, Inc.

April 14, 2021.

I. Introduction

    On March 31, 2021, the Operating Committee for Consolidated Audit
Trail, LLC (``CAT LLC''), on behalf of the following parties to the
National Market System Plan Governing the Consolidated Audit Trail (the
``CAT NMS Plan'' or ``Plan''): \1\ BOX Exchange LLC; Cboe BYX Exchange,
Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX
Exchange, Inc., Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Financial
Industry Regulatory Authority, Inc., Investors Exchange LLC, Long-Term
Stock Exchange, Inc., MEMX, LLC, Miami International Securities
Exchange LLC, MIAX Emerald, LLC, MIAX PEARL, LLC, Nasdaq BX, Inc.,
Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, Nasdaq PHLX LLC,
The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE American
LLC, NYSE Arca, Inc., NYSE Chicago, Inc., and NYSE National, Inc.
(collectively, the ``Participants,'' ``self-regulatory organizations,''
or ``SROs'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') pursuant to Section 11A(a)(3) of the Securities
Exchange Act of 1934 (``Exchange Act''),\2\ and Rule 608 thereunder,\3\
a proposed amendment to the CAT NMS Plan to implement a revised funding
model (``Proposed Funding Model'') for the consolidated audit trail
(``CAT'') and to establish a fee schedule for Participant CAT fees in
accordance with the Proposed Funding Model.\4\ Exhibit A, attached
hereto, contains proposed revisions to Articles I and XI of the CAT NMS
Plan as well as proposed Appendix B to the Plan containing the fee
schedule setting forth the CAT fees to be paid by the Participants. In
addition, the Operating Committee provided an example of how the
Proposed Funding Model would operate for illustrative purposes only, as
attached hereto as Exhibit B. The example is provided in three charts
setting forth illustrative CAT fees for each Participant and Industry
Member CAT Reporter. The Commission is publishing this notice to
solicit comments from interested persons on the amendment.\5\
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    \1\ The CAT NMS Plan is a national market system plan approved
by the Commission pursuant to Section 11A of the Exchange Act and
the rules and regulations thereunder. See Securities Exchange Act
Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23,
2016).
    \2\ 15 U.S.C 78k-1(a)(3).
    \3\ 17 CFR 242.608.
    \4\ See Letter from Michael Simon, CAT NMS Plan Operating
Committee Chair, to Vanessa Countryman, Secretary, Commission, dated
March 31, 2021 (``Transmittal Letter'').
    \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 the amendment, along with information required by Rule
608(a) under the Exchange Act,\6\ substantially as prepared and
submitted by the Participants to the Commission.\7\
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    \6\ See 17 CFR 242.608(a).
    \7\ See Transmittal Letter, supra note 4. Unless otherwise
defined herein, capitalized terms used herein are defined as set
forth in the CAT NMS Plan.
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A. Description of the Amendments to the CAT NMS Plan

    The Operating Committee proposes to revise certain aspects of the
funding model set forth in Article XI of the CAT NMS Plan (the
``Original Funding Model''). The Original Funding Model requires a
bifurcated funding model, where costs associated with building and
operating the CAT would be borne by (1) Industry Members (other than
alternative trading systems (``ATSs'') that execute transactions in
Eligible Securities (``Execution Venue ATSs'')) through fixed tiered
fees based on message traffic for Eligible Securities, and (2)
Participants and Industry Members that are Execution Venue ATSs for
Eligible Securities through fixed tiered fees based on market share.
The Operating Committee proposes to amend the CAT NMS Plan to adopt the
Proposed Funding Model. The Proposed Funding Model would continue to
require many of the same elements as the Original Funding Model,
including the bifurcated funding approach, and the use of market share
and message traffic for allocating costs. The Proposed Funding Model,
however, would revise the Original Funding Model in certain ways,
including (1) dividing the CAT costs between Participants and Industry
Members, rather than between Execution Venues and Industry Members
(other than Execution Venue ATSs); (2) eliminating the use of tiers in
calculating CAT fees for Participants and Industry Members; (3)
adopting certain minimum and maximum CAT fees for Industry Members and
Participants; and (4) imposing certain discounts for market making
activity when calculating Industry Member CAT fees. The Operating
Committee also proposes to adopt a fee schedule to establish the CAT
fees applicable to Participants based on the Proposed Funding Model.
The fee schedule would establish the allocation percentages and other
variables for calculating the CAT fees under the Proposed Funding
Model.
1. Executive Summary of the Proposed Funding Model
    Under the Proposed Funding Model, the CAT fees for the relevant
period would be designed to cover the total CAT costs associated with
developing, implementing and operating the CAT for the relevant period
(``Total CAT Costs'').\8\ The Proposed Funding Model would implement a
bifurcated funding model, where these costs would be borne by both
Participants and Industry Members. Industry Members as a group would
pay 75% of the Total CAT Costs (the ``Industry Member Allocation''),
and Participants as a group would pay 25% of the Total CAT Costs (the
``Participant Allocation'').\9\
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    \8\ Note that certain costs would be excluded from the
Historical CAT Assessment Costs, as discussed in more detail below.
    \9\ Each Industry Member and Participant CAT Reporter would be
required to pay CAT fees as established via the Proposed Funding
Model. CAT Reporting Agents acting in their role as such would not
have an obligation to pay CAT fees.
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    The Industry Member Allocation would be allocated to each Industry
Member based on message traffic. This is similar to the Original
Funding Model, which allocated the Industry Member Allocation among
Industry Members (other than Execution Venue ATSs) based on message
traffic. The Proposed Funding Model would differ from the Original
Funding Model because it would eliminate tiering, and it would include
certain market maker discounts and a minimum and

maximum CAT fee for Industry Members. Under the Proposed Funding Model,
each Industry Member would pay a CAT fee that is calculated by
multiplying each Industry Member's percentage of the total message
traffic of all Industry Members each quarter by the Industry Member
Allocation, subject to certain market making discounts, a minimum fee
and a maximum fee. Each Industry Member that is an Options Market Maker
\10\ would have a discount based on the options trade-to-quote ratio
applied to its options market making message traffic when calculating
that Industry Member's message traffic to prevent a potentially
disproportionate effect on options market making due to such message
traffic. Similarly, to prevent a potentially disproportionate effect on
market making in NMS Stocks, each Industry Member that is an equity
market maker in NMS Stocks (``Equity Market Maker'') would have a
discount based on the NMS Stock trade-to-quote ratio applied to its
market making message traffic in NMS Stocks when calculating that
Industry Member's message traffic.\11\ In addition, each Industry
Member CAT Reporter would pay a minimum CAT fee (``Minimum Industry
Member CAT Fee'') of $125 per quarter if its CAT fee would be less than
$125 per quarter when calculated based on message traffic. Furthermore,
an Industry Member's CAT fee would be subject to a maximum fee
(``Maximum Industry Member CAT Fee''). The Maximum Industry Member CAT
Fee would be the fee calculated based on 8% of the total message
traffic for all Industry Members. If an Industry Member's fee is
limited to the Maximum Industry Member CAT Fee, any excess amount which
the Industry Member would have paid as a fee above such Maximum
Industry Member CAT Fee will be re-allocated among all Industry Members
(including any Industry Members subject to the Maximum Industry Member
CAT Fee and any Industry Members subject to the Minimum Industry Member
CAT Fee) in accordance with each Industry Member's percentage of total
message traffic.
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    \10\ Section 1.1 of the CAT NMS Plan defines an ``Options Market
Maker'' as ``a broker-dealer registered with an exchange for the
purpose of making markets in options contracts traded on the
exchange.''
    \11\ The proposed market making discounts are consistent with a
prior CAT fee proposal filed with the SEC (``Prior Fee Proposal'').
For a description of the Prior Fee Proposal, see Securities Exchange
Act Rel. No. 82451 (Jan. 5, 2018), 83 FR 1399 (Jan. 11, 2018)
(``Prior Fee Proposal Release''). The Participants later withdrew
this proposed amendment. Securities Exchange Act Rel. No. 82892
(Mar. 16, 2018), 83 FR 12633 (Mar. 22, 2018) (``Withdrawal
Release'').
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    As for the Participant Allocation, each Participant would pay a
minimum CAT fee of 0.75% of the Participant Allocation (the ``Minimum
Participant Fee''). The Participant Allocation minus the total Minimum
Participant Fees required to be paid by all Participants (the
``Adjusted Participant Allocation'') would be divided between
Participants that execute transactions in, or 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 Eligible Securities that are NMS
Stocks (``Equities Participants'') and Participants that execute
transactions in Listed Options (``Options Participants''). Equities
Participants as a group would pay 60% of the Adjusted Participant
Allocation (``Equities Participant Allocation'') and Options
Participants as a group would pay 40% of the Adjusted Participant
Allocation (``Options Participant Allocation'').\12\
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    \12\ For the avoidance of doubt, the Equities Participant
Allocation would be divided among Equities Participants based only
on each Participant's market share in NMS Stocks. Unlike the
Original Funding Model, the allocation of the Equities Participant
Allocation among Equities Participants under the Proposed Funding
Model will not take into consideration market share associated with
OTC Equity Securities for which FINRA facilitates trade reporting.
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    The Equities Participant Allocation would be divided among Equities
Participants based on each Equities Participant's market share in NMS
Stocks. Each Equities Participant would pay a CAT fee that is
calculated by multiplying its percentage of the total market share of
NMS Stock for all Equities Participants during the relevant time period
by the Equities Participant Allocation, subject to a maximum Equities
Participant fee. Total market share in NMS Stocks would be determined
by calculating the total volume in NMS Stocks reported by all Equities
Participants during the relevant time period. A national securities
association (currently, only FINRA) would pay its respective share of
the Equities Participant Allocation calculated based on market share,
provided that the national securities association would not pay more
than a maximum Equities Participant fee, which would be the greater of
(x) 20% of the Equities Participant Allocation or (y) the highest CAT
fee required to be paid by any other Equities Participant plus 5% of
such highest CAT fee (``Maximum Equities Participant Fee''), plus any
additional fee required by the re-allocation of any excess amount which
such Participant otherwise would have paid if not subject to the
Maximum Equities Participant Fee. Specifically, if any Participant's
fee is limited to the Maximum Equities Participant Fee, any excess
amount which such Participant otherwise would have paid as a fee above
such Maximum Equities Participant Fee will be re-allocated among all
Equities Participants (including any Equities Participant subject to
the Maximum Equities Participant Fee) in accordance with their market
share.
    The Options Participant Allocation would be divided among Options
Participants based on each Options Participant's market share in Listed
Options. Each Options Participant would pay a CAT fee that is
calculated by multiplying its percentage of the total market share in
Listed Options during the relevant time period by the Options
Participant Allocation. Total market share in Listed Options would be
determined by calculating the total volume of Listed Options contracts
reported by all Options Participants during the relevant time period.
    The following chart summarizes certain similarities and differences
between the Original Funding Model \13\ (as well as certain aspects
that were proposed in the Prior Fee Proposal \14\) and the Proposed
Funding Model:
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    \13\ The Original Funding Model is set forth in the CAT NMS
Plan, which was approved in 2016. See CAT NMS Plan Approval Order at
84793-84798.
    \14\ See generally Prior Fee Proposal Release.

------------------------------------------------------------------------
 Original funding model (as proposed in
          prior fee proposal)                 Proposed funding model
------------------------------------------------------------------------
Bifurcated Cost Allocation:
    75% Industry Member Allocation.....  75% Industry Member Allocation.
    25% Execution Venue Allocation.....  25% Participant Allocation.
    Execution Venues include             All ATSs would be included as
     Participants and Execution Venue     Industry Members.
     ATSs.

    Note that the bifurcated model to
     allocate costs among Industry
     Members (other than Execution
     Venue ATSs) and Execution Venues
     is part of the Original Funding
     Model; the 75%-25% allocation had
     been proposed in the Prior Fee
     Proposal.
75% Industry Member Allocation:
    Message Traffic Approach with        Message Traffic Approach:
     Tiering:
    Count each Industry Member's         Count each Industry Member's
     messages so the Industry Member      messages so the Industry
     can be assigned to a tier and        Member can be allocated a
     allocated a proportionate share of   proportionate share of cost
     cost for that tier.                  compared to total Industry
    Note that the discounts for market    Member messages, subject to
     making had been proposed in the      certain discounts for market
     Prior Fee Proposal..                 making, a minimum fee, and a
                                          maximum fee.
25% Participant Allocation:
    Market Share Approach with Tiering:  Market Share Approach:
        No Minimum Participant Fee.      Minimum Participant Fee: 0.75%
                                          of the Participant Allocation
                                          allocated to each Participant.
        Market Group Split:              Market Group Split:
             67% of costs              60% of costs
             allocated to NMS Stock and        allocated to NMS Stock
             OTC Equities Execution            Participants.
             Venues.
             33% of costs            40% of costs
             allocated to Listed             allocated Listed Options
             Options Execution Venues.       Participants.
    Note that the split between NMS      Note OTC Equity Security market
     Stock and OTC Equities Execution     share would not be considered.
     Venues and Listed Options
     Execution Venues is part of the
     Original Funding Model; the 67%-
     33% allocation had been proposed
     in the Prior Fee Proposal.
    Market Share-Based Tier Allocation:  Market Share-Based Allocation:
         Within NMS Stock and        Within NMS Stock
         OTC Equities market group,          market group, determine
         determine each Execution            each Participant's market
         Venue's market share so the         share, subject to a FINRA-
         Execution Venue can be              related cap allocation/
         assigned to a tier and              reallocation, so the
         allocated a proportionate           Participant can be
         share of cost for that tier.        allocated a proportionate
                                             share of cost.
         Within Listed Options       Within Listed
         market group, determine each        Options market group,
         Execution Venue's market share      determine each
         so the Execution Venue can be       Participant's market share
         assigned to a tier and              so it can be allocated a
         allocated a proportionate           proportionate share of
         share of cost for that tier.        cost.
------------------------------------------------------------------------

    As discussed in detail below, the Operating Committee believes that
the Proposed Funding Model satisfies the applicable requirements of the
Exchange Act as well as the funding principles and other requirements
of the CAT NMS Plan, as proposed to be revised herein. For example, the
Operating Committee believes that the Proposed Funding Model provides
for the ``equitable allocation of reasonable dues, fees, and other
charges among its members and issuers and other persons using its
facilities necessary or appropriate in furtherance of the purposes of
this chapter.'' \15\ The Operating Committee also believes that the
Proposed Funding Model is ``not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.'' \16\
Furthermore, the Operating Committee believes that the Proposed Funding
Model does ``not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of this chapter.'' \17\
Accordingly, the Operating Committee believes that the Proposed Funding
Model satisfies the requirements of the Exchange Act. The Participants
also believe that the Proposed Funding Model satisfies the funding
principles set forth in Section 11.2 of the CAT NMS Plan, as proposed
to be modified herein, as well as the requirements in Section 11.1(c)
of the CAT NMS Plan. The Operating Committee therefore believes that
the Commission should approve the Proposed Funding Model as it ``is
necessary or appropriate in the public interest, for the protection of
investors and the maintenance of fair and orderly markets, to remove
impediments to, and perfect the mechanisms of, a national market
system, or otherwise in furtherance of the purposes of the Act.'' \18\
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    \15\ Sections 6(b)(4) and 15A(b)(5) of the Exchange Act.
    \16\ Sections 6(b)(5) and 15A(b)(6) of the Exchange Act.
    \17\ Sections 6(b)(8) and 15A(b)(9) of the Exchange Act.
    \18\ Rule 608(b)(2) of Regulation NMS under the Exchange Act.
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2. Allocation of CAT Costs Between Industry Members and Participants
a. CAT Fees for Both Industry Members and Participants
    Under the Proposed Funding Model, both Participants and Industry
Members would contribute to the funding of the CAT by paying a CAT fee.
As permitted by Rule 613, the CAT NMS Plan requires Industry Members to
pay a CAT fee. Nevertheless, the Participants have paid the full cost
of the creation, implementation and maintenance of the CAT since 2012,
pending Commission approval of a fee program. The continued funding of
the CAT solely by the Participants was and is not contemplated by the
CAT NMS Plan, nor is it a financially sustainable approach.
    Rule 613(a)(1)(vii)(D) contemplates Industry Members contributing
to the payment of CAT costs. Specifically, this provision requires the
CAT NMS Plan to address ``[h]ow the plan sponsors propose to fund the
creation, implementation, and maintenance of the consolidated audit
trail, including the proposed allocation of such estimated costs among
the plan sponsors, and between the plan sponsors and members of the
plan sponsors.''
    In addition, as approved by the SEC, the CAT NMS Plan specifically
contemplates CAT fees to be paid by both Industry Members and
Participants. Section 11.1(b) states that ``the Operating Committee
shall have discretion to establish funding for the Company,\19\
including: (i) Establishing

fees that the Participants shall pay; and (ii) establishing fees for
Industry Members that shall be implemented by the Participants.'' \20\
The Commission stated in approving the CAT NMS Plan the following:
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    \19\ As defined in the CAT NMS Plan, the Company is the
Consolidated Audit Trail, LLC.
    \20\ See also Sections 11.1(c), 11.2(c), and 11.3(a) and (b) of
the CAT NMS Plan.
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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, as noted above, 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.\21\
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    \21\ CAT NMS Plan Approval Order at 84794.
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    In its recent amendments to the CAT NMS Plan, the SEC reaffirmed
the ability for the Participants to charge Industry Members a CAT fee.
Specifically, the SEC noted that the amendments were not intended to
change the basic funding structure for the CAT, which may include fees
established by the Operating Committee, and implemented by the
Participants, to recover from Industry Members the costs and expenses
incurred by the Participants in connection with the development and
implementation of the CAT.\22\
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    \22\ Securities Exchange Act Rel. No. 88890 (May 15, 2020), 85
FR 31322, 31329 (May 22, 2020) (``Financial Accountability Milestone
Release'').
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    Finally, as noted by the SEC, the CAT ``substantially enhance[s]
the ability of the SROs and the Commission to oversee today's
securities markets,'' \23\ thereby benefitting all market participants.
As such, both Participants and Industry Members should contribute to
covering the cost of the CAT.
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    \23\ Securities Exchange Act Rel. No. 67457 (Jul. 18, 2012), 77
FR 45722, 45726 (Aug. 1, 2012) (``Rule 613 Adopting Release'').
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b. Categorization of Alternative Trading Systems
    The Original Funding Model employs a bifurcated approach in which
costs associated with building and operating the CAT would be borne by
(1) Participants and Industry Members that are Execution Venue ATSs for
Eligible Securities, and (2) Industry Members (other than Execution
Venue ATSs). Under the Proposed Funding Model, the concept of an
Execution Venue would be eliminated, and CAT costs would be divided
between Participants as a group and Industry Members as a group;
Execution Venue ATSs would be treated like other Industry Members, not
Participants. Accordingly, the Operating Committee proposes to delete
the definition of the term ``Execution Venue'' and related provisions
from the CAT NMS Plan.
    The Operating Committee believes that this change would address
prior comments regarding the inclusion of ATSs in the Execution Venue
category with Participants. First, this proposed change would simplify
the model by requiring all Industry Members to pay a fee based on
message traffic, rather than treating certain Industry Members--
Execution Venue ATSs--in the same manner as Participants, which would
pay a fee based on market share. Second, this proposed change would
address comments that treating Execution Venue ATSs like Participants
would act as a barrier to entry for smaller ATSs.\24\ Whether or not
such a potential would exist, under the Proposed Funding Model, smaller
ATSs would be treated like any other smaller Industry Member when
calculating their CAT fee, thereby rendering comments regarding
potential barriers to entry for smaller ATSs moot.
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    \24\ See, e.g., Securities Exchange Act Rel. No. 81067 (June 30,
2017), 82 FR 31656, 31664 (July 7, 2017) (``Suspension Order'').
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    Section 1.1 of the CAT NMS Plan defines the term ``Execution
Venue'' to mean ``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).'' The Operating Committee proposes to delete
this term and its definition from Section 1.1 of the CAT NMS Plan as
the concept will no longer be necessary for the Proposed Funding Model.
    The Operating Committee also proposes to amend Section 11.2(c)(i)
and (ii) of the CAT NMS Plan to reflect the new approach of the
Proposed Funding Model. Section 11.2(c)(i) of the CAT NMS Plan states
that the fees charged to ``CAT Reporters that are Execution Venues,
including ATSs, are based upon the level of market share.'' Under the
Proposed Funding Model, fees charged to Participants only would be
based on market share; fees charged to all Industry Members, including
ATSs, will be based on message traffic. Accordingly, the Operating
Committee proposes to replace the phrase ``CAT Reporters that are
Execution Venues, including ATSs'' with the term ``Participants.''
    Section 11.2(c)(ii) of the CAT NMS Plan states that the fees
charged to ``Industry Members' non-ATS activities are based upon
message traffic.'' Under the Proposed Funding Model, both the ATS and
non-ATS activity of Industry Members will be used as the basis for the
fees charged to Industry Members. Accordingly, the Operating Committee
proposes to delete the phrase ``non-ATS activities'' from Section
11.2(c)(ii) of the CAT NMS Plan.
    Section 11.3(a) describes the CAT fees to be paid by Execution
Venues. Because these fees would be limited to Participants, not to
Execution Venues more broadly, the Operating Committee proposes to
replace the references to ``Execution Venues'' with ``Participants'' in
Section 11.3(a) of the CAT NMS Plan. The Operating Committee proposes
to replace the reference to ``Execution Venues'' with ``Participants''
in Section 11.3(a) of the CAT NMS Plan, which currently states that
``[t]he Operating Committee will establish fixed fees to be payable by
Execution Venues as provided in this Section 11.3(a).''
    The Operating Committee also proposes to replace the references to
``Execution Venue'' with ``Participants'' in Section 11.3(a)(i) of the
CAT NMS Plan,\25\ which currently states:
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    \25\ Note that, as discussed below, references to tiers and OTC
Equity Securities in this provision will be deleted as well.
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    (i) Each Execution Venue that: (A) Executes transactions; or (B) 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 no 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 addition, the Operating Committee proposes to delete the final
clause in Section 11.3(a)(i), which states ``provided, however, that
the share volume reported to such national securities association by an
Execution Venue shall not be included in the calculation of the such
national security association's market share.'' This proviso was
included to clarify how the share volume of an Execution Venue ATS was
treated in the context of calculating a national security association's
market share when Execution Venue ATSs and Participants were in the
same fee category. As Execution Venue ATSs would be treated as Industry
Members under the Proposed Funding Model, the Operating Committee
proposes to delete this proviso from Section 11.3(a)(i) of the CAT NMS
Plan.
    Similarly, Section 11.3(a)(ii) of the CAT NMS Plan states that
``[e]ach Execution Venue that executes transactions in Listed Options
will pay a fixed fee depending on the Listed Options market share of
that Execution Venue.'' The Operating Committee proposes to replace
both references to ``Execution Venue'' with ``Participant.''
    Section 11.3(b) of the CAT NMS Plan provides guidance as to how the
message traffic for certain ATS activity would be included in the
Industry Member message traffic calculations. Specifically, Section
11.3(b) of the CAT NMS Plan, in part, states, the following:
    For the avoidance of doubt, the fixed fees payable by Industry
Members pursuant to this paragraph 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.
    Under the Original Funding Model, Execution Venue ATSs were treated
as Execution Venues, but other ATSs were treated as Industry Members.
Accordingly, this statement clarified how message traffic would be
counted for ATSs that were not Execution Venue ATSs and for routing to
and from ATSs. Under the Proposed Funding Model, however, all ATS
activity would be treated as Industry Member activity for purposes of
calculating the Industry Member CAT fees. Therefore, because this
clarifying statement is unnecessary under the Proposed Funding Model,
the Operating Committee proposes to delete this sentence from Section
11.3(b) of the CAT NMS Plan.
c. 75%-25% Allocation Between Industry Members and Participants
    As discussed above, the CAT NMS Plan as approved by the Commission
provides the Operating Committee with discretion to establish CAT fees
to be paid by Participants and Industry Members. The Proposed Funding
Model contemplates allocating CAT costs between Participants and
Industry Members to permit the calculation of CAT fees based on market
share for Participants and based on message traffic for Industry
Members.\26\ The Operating Committee proposes to implement this
allocation through a 75%-25% allocation between Industry Members and
Participants. Specifically, in calculating CAT fees for the relevant
period under the Proposed Funding Model, Industry Members as a group
would pay 75% of the Total CAT Costs for the relevant period
(``Industry Member Allocation''), and Participants as a group would pay
25% of the Total CAT Costs for the relevant period (``Participant
Allocation'').
---------------------------------------------------------------------------

    \26\ See, e.g., Sections 11.2(b)-(c) and 11.3(a)-(b) of the CAT
NMS Plan. In the Original Funding Model, costs were allocated
between Execution Venues and certain Industry Members, whereas the
Proposed Funding Model proposes to allocate costs between
Participants and Industry Members.
---------------------------------------------------------------------------

    In proposing a 75%-25% allocation between Industry Members and
Participants, Participants considered a variety of different potential
allocations between Industry Members and Participants. After analyzing
the various alternatives, the Participants determined that the 75%-25%
allocation continues to be an equitable allocation of reasonable CAT
fees between Industry Members and Participants that balances the costs
paid by each CAT Reporter and the regulatory benefits each receives.
    The Operating Committee notes that the 75%-25% allocation would
have the effect of increasing the cost allocation to Participants by
approximately 8% of the total CAT costs in comparison to the Prior Fee
Proposal.\27\ The Prior Fee Proposal also relied upon a 75%-25%
allocation between CAT Reporters, but the allocation was structured
differently than in the Proposed Funding Model. In the Prior Fee
Proposal, Industry Members (other than Execution Venue ATSs) would have
paid 75% of the total CAT costs, and Participants and Execution Venue
ATSs would have paid 25% of the total CAT costs.\28\ Most ATSs were
included in the 25% allocation for Execution Venues. ATSs accounted for
approximately 8% of the total CAT costs in the Prior Fee Proposal, and
approximately 32% of the Execution Venue allocation. By moving ATSs to
the Industry Member Allocation, Participants would pay the full 25% of
the total CAT costs allocated to Participants rather than approximately
68% of the 25% of Total CAT costs allocated to Execution Venues under
the Prior Fee Proposal. Using total CAT cost data for 2020, 8% of total
CAT costs would be approximately $6.8 million for 2020. The Operating
Committee believes that this substantial increase in the Participant
share of the total CAT costs addresses comments suggesting that
Execution Venue ATSs should be treated like other Industry Members
(rather than as Execution Venues) and indicating that the size of the
percentage of total CAT costs to be paid by Industry Members as a group
was too large.\29\ Correspondingly, the 75% Industry Member Allocation
would be shared among more Industry Members under the Proposed Funding
Model as all ATSs will be Industry Members for purposes of CAT fees,
not just ATSs other than Execution Venue ATSs.
---------------------------------------------------------------------------

    \27\ For a description of the Prior Fee Proposal, see generally
Prior Fee Proposal Release. The Participants later withdrew this
amendment. See Withdrawal Release.
    \28\ Prior Fee Proposal Release at 1408.
    \29\ See Suspension Order at 31662-3.
---------------------------------------------------------------------------

    The Operating Committee also considered alternatives to the
Participant contribution besides the proposed 25% in which Participants
paid larger contributions than 25% of the total CAT costs (e.g., a 50%-
50% allocation between Industry Members and Participants) and
Participants paid smaller contributions than 25% of the total CAT
costs.\30\ In considering these alternative allocations with
percentages greater than 25% of total CAT costs allocated to
Participants, the Participants noted that there are far more Industry
Members than Participants. There are only 25 Participants and
approximately 1237 Industry Members, as of December 2020. Moreover,
based upon an analysis of available CAT Reporter revenue, Participants
only represented

approximately 4% of the total CAT Reporter revenue; Industry Members
represented 96% of the total CAT Reporter revenue.\31\ In addition,
various Industry Members have revenue in excess of some or all of the
Participants. Accordingly, the Operating Committee determined that
allocating more than 25% of the total CAT costs to the Participants was
not a fair and equitable approach. Furthermore, with this allocation,
the Industry Members with the most message traffic and the Participant
complexes with the most market share would pay comparable CAT fees. For
example, based on the data from the fourth quarter of 2020, the three
Industry Members with the most message traffic would be subject to an
annual CAT fee in the range of $5 to $6 million, and the Participant
complexes with the highest CAT fees would pay an annual CAT fee in a
similar range.
---------------------------------------------------------------------------

    \30\ In the development of the Prior Fee Proposal and the
Proposed Funding Model, the Participants explored a variety of other
possible allocations. For example, in determining the cost
allocation between Industry Members (other than Execution Venue
ATSs) and Execution Venues for the Prior Fee Proposal, the
Participants 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 between Industry
Members and Execution Venues. See, e.g., Prior Fee Proposal Release
at 1408.
    \31\ Industry Member revenue was calculated based on the total
revenue reported in the Industry Member's FOCUS reports. Participant
revenue was calculated based on revenue information provided in Form
1 amendments and/or publicly reported figures. Participants are not
required to file uniform FOCUS-type reports regarding revenue like
Industry Members. Accordingly, the revenue calculation for
Participants is not as straightforward as for Industry Members.
---------------------------------------------------------------------------

    The Operating Committee also analyzed the possibility of allocating
CAT costs among CAT Reporters--both Participants and Industry Members--
based on revenue. Such a revenue-based allocation would impose a more
significant portion of the CAT costs on Industry Members. Industry
Members would pay approximately 96% of the CAT costs and Participants
would pay approximately 4% of the CAT costs. Because the revenue-based
allocation would impose such a significant percentage of CAT costs on
Industry Members, the Operating Committee determined not to pursue that
approach. The Operating Committee also recognized the practical
difficulties with determining the appropriate revenue figures for all
CAT Reporters.
    The Industry Member Allocation of 75% of Total CAT Costs and the
Participant Allocation of 25% of Total CAT Costs would be included in
the fee schedule for the Consolidated Audit Trail Funding Fees in the
CAT NMS Plan. Because the Participant CAT fees would be charged on a
quarterly basis, this provision would indicate that the Industry Member
Allocation and the Participant Allocation would be calculated based on
1/4th of the Total CAT Costs for the relevant year. Specifically,
proposed paragraph (b)(1) of Appendix B of the CAT NMS Plan would state
that ``The Industry Member Allocation for each quarter shall be 75% of
1/4th of the Total CAT Costs for the relevant year. The Participant
Allocation for each quarter shall be 25% of 1/4th of the Total CAT
Costs for the relevant year.''
3. Industry Member CAT Fee
    Under the Proposed Funding Model, each Industry Member will pay a
CAT fee that is calculated by multiplying each Industry Member's
message traffic percentage of the total message traffic of all Industry
Members during the relevant time period by the Industry Member
Allocation, subject to certain market maker message traffic discounts,
a Minimum Industry Member CAT Fee and a Maximum Industry Member CAT
Fee. Each Industry Member that is an Options Market Maker will have a
discount based on the options trade-to-quote ratio applied to its
Options Market Maker message traffic when calculating that Industry
Member's message traffic, and each Industry Member that is an Equity
Market Maker will have a discount based on the NMS Stock trade-to-quote
ratio applied to its Equity Market Maker message traffic when
calculating that Industry Member's message traffic. In addition, each
Industry Member CAT Reporter will pay a Minimum Industry Member CAT Fee
of $125 per quarter if its CAT fee would be less than $125 per quarter
when calculated based on message traffic. Furthermore, an Industry
Member's CAT fee would be subject to the Maximum Industry Member CAT
Fee. The Maximum Industry Member CAT Fee would be the fee calculated
based on 8% of the total message traffic for all Industry Members. If
an Industry Member's CAT fee is limited to the Maximum Industry Member
CAT Fee, any excess amount which the Industry Member would have paid as
a fee above such Maximum Industry Member CAT Fee will be re-allocated
among all Industry Members (including any Industry Members subject to
the Maximum Industry Member CAT Fee and any Industry Members subject to
the Minimum Industry Member CAT Fee) in accordance with each Industry
Member's percentage of total message traffic. Each of these aspects of
the Industry Member CAT fee are discussed in more detail below.
a. Use of Message Traffic
    Consistent with the Original Funding Model, the Industry Member
Allocation would be allocated among Industry Members based on message
traffic. The CAT NMS Plan, as approved by the SEC, contemplates the use
of message traffic to apportion the Industry Member Allocation among
Industry Members.\32\ Although the Operating Committee analyzed various
alternative methods for allocating costs among Industry Members, the
Operating Committee continued to conclude that using message traffic
would equitably allocate CAT fees among Industry Members. This approach
is consistent with the approach set forth in Section 11.3(b) of the CAT
NMS Plan, which states that ``[t]he Operating Committee will establish
fixed fees to be payable by Industry Members, based on the message
traffic generated by such Industry Member.'' \33\ Accordingly, the use
of message traffic for allocating CAT costs among Industry Members is
consistent with the CAT NMS Plan as approved by the Commission.
---------------------------------------------------------------------------

    \32\ See, e.g., Sections 11.2(c) and 11.3(b) of the CAT NMS
Plan.
    \33\ See also Section 11.2(c) of the CAT NMS Plan.
---------------------------------------------------------------------------

    The Operating Committee also analyzed the possibility of allocating
the Industry Member Allocation among Industry Members based on revenue
related to activities in Eligible Securities, which would have been
derived from Industry Member revenue reported on FOCUS reports.\34\ The
Operating Committee concluded that it may be difficult to determine
which types of Industry Member revenue should be included in the
calculation for a CAT fee under such an approach.
---------------------------------------------------------------------------

    \34\ This approach would have been similar to FINRA's imposition
of the Gross Income Assessment, which is based on FOCUS report
revenue. See Section 1(c) and (d) of Schedule A of FINRA By-Laws.
---------------------------------------------------------------------------

b. Calculating Industry Member CAT Fees
i. No Tiered Fees for Industry Members
    While continuing to utilize a message traffic-based model for
Industry Members, the Operating Committee proposes to eliminate the use
of tiered fees for Industry Members in the Proposed Funding Model.
Instead, under the Proposed Funding Model, each Industry Member would
pay a fee based solely on its percentage of total Industry Member
message traffic (subject to the market maker message traffic discounts,
the Minimum Industry Member CAT Fee and the Maximum Industry Member CAT
Fee).\35\ The Operating Committee therefore proposes to amend Sections
11.1(d), 11.2(c), 11.3(a) and 11.3(b) to eliminate the

concept of tiered fees from the CAT NMS Plan.
---------------------------------------------------------------------------

    \35\ Similarly, as discussed further below, the Operating
Committee proposes to allocate the Participant Allocation among
Participants based on the Participant's market share, consistent
with the Original Funding Model, except it too would be calculated
without relying on tiered fees.
---------------------------------------------------------------------------

(a) Advantages of No Tiered Fees
    By removing the concept of fee tiering for both Industry Members
and Participant Allocations, the Proposed Funding Model addresses
various comments regarding the use of tiering.\36\ Utilizing a tiered
fee structure, by its nature, would create certain inequities among the
CAT fees paid by Industry Members. For example, two Industry Members
with similar levels of message traffic may pay notably different fees
if one falls in a higher tier and the other falls within a lower tier.
Correspondingly, a tiered fee structure generally reduces fees for
Industry Members with higher message traffic in one tier, while
increasing fees for Industry Members with lower levels of message
traffic in the same tier, as compared to a non-tiered fee. Furthermore,
Industry Members in lower tiers potentially pay more than they would
without the use of tiers. While tiering exists in various other fee
programs and generally itself may not be an unfairly discriminatory
practice, in response to feedback on the Prior Fee Proposal, the
Participants are proposing to eliminate the tiering concept, rendering
past comments about potential inequities that may exist using a tiering
model moot.
---------------------------------------------------------------------------

    \36\ See, e.g., Suspension Order at 31667.
---------------------------------------------------------------------------

    By charging each Industry Member a CAT fee directly based on its
own message traffic, rather than charging a tiered fee, the Proposed
Funding Model will result in an Industry Member's CAT fee being tied
more directly to the Industry Member's message traffic in the CAT. In
contrast, with a tiered fee, Industry Members with different levels of
message traffic that are placed in the same tier would all pay the same
CAT fee, thereby limiting the correlation between an Industry Member's
message traffic in the CAT and its CAT fee.
    The proposed non-tiering approach is, arguably, more simplistic and
objective to administer than the tiering approach. With a tiering
approach, the number of tiers for Industry Members, the boundaries for
each tier and the fees assigned to each tier must be established. In
the absence of clear groupings of Industry Members by message traffic,
selecting the number of, boundaries, and the fees associated with each
tier would be subject to some level of subjectivity. Furthermore, the
establishment of tiers would need to be continually reassessed based on
changes in message traffic, thereby requiring regular subjective
assessments. Accordingly, the removal of tiering from the funding model
eliminates a variety of subjective analyses and judgments from the
model, and simplifies the determination of Industry Member CAT fees.
(2) Proposed Amendments to the CAT NMS Plan
    The Operating Committee proposes to amend Sections 11.1(d),
11.2(c), 11.3(a) and 11.3(b) of the CAT NMS Plan to eliminate
references to the use of tiered fees and related concepts.
    Section 11.1(d) of the CAT NMS Plan states that ``[c]onsistent with
this Article XI, the Operating Committee shall adopt policies,
procedures, and practices regarding the budget and budgeting process,
assignment of tiers, resolution of disputes, billing and collection of
fees, and other related matters.'' With the elimination of tiered fees,
the reference to the ``assignment of tiers'' would no longer be
applicable for the Proposed Funding Model. Therefore, the Operating
Committee proposes to delete the reference to ``assignment of tiers''
from Section 11.1(d).
    Section 11.1(d) of the CAT NMS Plan also states that:

    For the avoidance of doubt, as part of its regular review of
fees for the CAT, the Operating Committee shall have the right to
change the tier assigned to any particular Person in accordance with
fee schedules previously filed with the Commission that are
reasonable, equitable and not unfairly discriminatory and subject to
public notice and comment, pursuant to this Article XI. Any such
changes will be effective upon reasonable notice to such Person.

    As noted above, unlike the Original Funding Model, the Proposed
Funding Model would not utilize tiered fees. Accordingly, these two
sentences would no longer be applicable to the Proposed Funding Model.
Therefore, the Operating Committee proposes to delete these two
sentences from Section 11.1(d) of the CAT NMS Plan.
    The Operating Committee proposes to delete the reference to
``tiered'' fees from Section 11.2(c) of the CAT NMS Plan. Section
11.2(c) of the CAT NMS Plan states that ``[i]n establishing the funding
of the Company, the Operating Committee shall seek: . . . (c) to
establish a tiered fee structure . . .'' The Participants propose to
delete the word ``tiered'' from this provision as the CAT fees would
not be tiered under the Proposed Funding Model.
    The Operating Committee also proposes to delete paragraph (iii) of
Section 11.2(c) of the CAT NMS Plan. Paragraph (iii) of Section 11.2(c)
of the CAT NMS Plan states that the Operating Committee shall seek to
establish a tiered fee structure in which fees charged to:

the CAT Reporters with the most CAT-related activity (measured by
market share and/or message traffic, as applicable) be generally
comparable (where for these comparability purposes, the tiered fee
structures takes into consideration affiliations between or among
CAT Reporters, whether Execution Venues and/or Industry Members).

    Under the Original Funding Model, the comparability provision was
an important factor in determining the tiers for Industry Members and
Execution Venues. Under the Proposed Funding Model, however, the
comparability provision is no longer relevant, as a tiered fee
structure would not be used for Industry Members or Participants.\37\
---------------------------------------------------------------------------

    \37\ This change also would address the comments regarding the
use of comparability in the Original Funding Model. See Suspension
Order at 31662-3.
---------------------------------------------------------------------------

    The Operating Committee further proposes to delete the references
to tiers in Sections 11.3(a)(i) and (ii) and 11.3(b) of the CAT NMS
Plan. Specifically, Section 11.3(a)(i) of the CAT NMS Plan states that
the Operating Committee, when establishing fees for Execution Venues
for NMS Stocks and OTC Equity Securities, will establish ``at least two
and no more than five tiers of fixed fees, based on an Execution
Venue's NMS Stocks and OTC Equity Securities market share.'' \38\
Similarly, Section 11.3(a)(ii) of the CAT NMS Plan states that the
Operating Committee, when establishing fees for Execution Venues that
execute transactions in Listed Options, will establish ``at least two
and no more than five tiers of fixed fees, based on an Execution
Venue's Listed Options market share.'' Section 11.3(b) of the CAT NMS
Plan states that the Operating Committee, when establishing fees to be
payable by Industry Members, will establish ``at least five and no more
than nine tiers of fixed fees, based on message traffic.'' The
Operating Committee proposes to delete each of these references to
tiers from the CAT NMS Plan.
---------------------------------------------------------------------------

    \38\ Note that, as discussed below, the Operating Committee also
proposes to delete the reference to OTC Equity Securities.
---------------------------------------------------------------------------

ii Definition of Message Traffic
    Message traffic will be calculated based on Industry Members'
Reportable Events reported to the CAT as defined in the CAT Reporting
Technical Specifications for Industry Members (``IM Reporting Tech
Specs'') as amended from time to time.\39\ The Reportable Events may
vary over time if the IM Reporting Tech Specs are

amended.\40\ However, Reportable Events in the current IM Reporting
Tech Specs that will be counted as message traffic include, but are not
limited to, such events as the New Order Event, the Order Route Event
and Trade Event. In addition, under the Proposed Funding Model, message
traffic will not include reporting activity related to Customer
information as set forth in the CAT Reporting Customer and Account
Technical Specifications for Industry Members.\41\
---------------------------------------------------------------------------

    \39\ The CAT Reporting Technical Specifications for Industry
Members are available at www.catnmsplan.com.
    \40\ The Operating Committee recognizes that, due to the Phased
Reporting approach, all Reportable Events will not be reported until
all Industry Members are reporting all Reportable Events to the CAT.
For example, Phase 2d CAT reporting is scheduled for December 2021,
and Small Industry Non-OATS Reporters are not required to report
until December 2021. In addition, certain Reportable Events, such as
simple options manual orders and OTC link messages, are not required
to be reported until later in the Phased Reporting. For a detailed
description of such Reportable Events, see CAT Reporting Technical
Specifications for Industry Members (available at
www.catnmsplan.com). For the Industry Member CAT reporting timeline,
see, e.g., FINRA Rule 6895(c). The Operating Committee proposes to
allocate costs based on the Reportable Events reported to the CAT in
any relevant quarter, regardless of whether all Industry Members are
reporting to the CAT or all Reportable Events are required to be
reported to the CAT for the relevant quarter.
    \41\ The CAT Reporting Customer and Account Technical
Specifications for Industry Members are available at
www.catnmsplan.com.
---------------------------------------------------------------------------

iii. Market Maker Discounts
    In the Original Funding Model, Options Market Maker message traffic
and Equity Market Maker message traffic would have been treated the
same as other message traffic for purposes of calculating Industry
Member CAT fees.\42\ The Commission and commenters raised questions as
to whether this treatment of market maker quotes may result in an undue
or inappropriate burden on competition or may lead to a reduction in
market quality.\43\ For example, commenters noted that charging
Industry Members on the basis of message traffic would 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.\44\ To address these issues, the Operating Committee
proposes to discount Options Market Maker message traffic by the trade-
to-quote ratio for Listed Options when calculating message traffic for
Options Market Makers, and to discount Equity Market Maker message
traffic by the trade-to-quote ratio for NMS Stocks when calculating
message traffic for Equity Market Makers. The message traffic of
Options Market Makers and Equity Market Makers, as discounted, would be
counted as part of the total message traffic for all Industry Members.
The practical effect of applying such discounts for market making
activity would be to lower the CAT fees for Options Market Makers and
Equity Market Makers.
---------------------------------------------------------------------------

    \42\ Note, however, that market maker discounts were included in
the Prior Fee Proposal. See Prior Fee Proposal Release at 1418-9.
    \43\ See Suspension Order at 31663-4.
    \44\ Id. at 31664.
---------------------------------------------------------------------------

    By imposing a discount on Options Market Makers and Equity Market
Makers' message traffic for the calculation of message traffic, the
Operating Committee believes that the proposed CAT fees for market
makers would satisfy the requirements of the funding principles set
forth in Section 11.2 of the CAT NMS Plan as well as the requirements
of the Exchange Act. First, the proposed market maker discounts are
designed to address comments that the Original Funding Model could
disproportionately affect market makers, thereby leading to a reduction
in liquidity and market quality. Commenters noted that charging
Industry Members on the basis of message traffic will impact market
makers disproportionately because of their continuous quoting
obligations. With their continuous quoting obligations, market makers
would have higher levels of message traffic, and the type of message
traffic (bids and offers rather than transactions) are not necessarily
related to higher revenue. The SEC repeatedly has recognized the value
of protecting the provision of market liquidity, and afforded market
makers favorable regulatory treatment by virtue of their role as
liquidity providers. For example, market makers receive favorable
treatment under short sale rules,\45\ margin rules,\46\ pursuant to
exchange fee schedules,\47\ and under the Volcker Rule.\48\ The
proposed discounts are designed to put market makers and other market
participants on a level playing field in the Proposed Funding Model,
thereby preserving and incentivizing the ability of market makers to
provide liquidity to the market, which liquidity ultimately benefits
all market participants. Market makers' primary role is to provide the
markets with competitive prices and quotes against which others may
execute their orders. Market makers update their quotes continuously
throughout each trading day to reflect changes in the market, and each
update is additional message traffic that will be reported to CAT. If
CAT fees made it unduly costly for market makers to provide this
competitive liquidity, it could reduce the available liquidity against
which customers could execute orders and create worse pricing for
customers that do receive executions.
---------------------------------------------------------------------------

    \45\ See, e.g., Rule 203(b)(2)(iii) of Regulation SHO under the
Exchange Act (market maker exception for short sale locate
requirement).
    \46\ See, e.g., Section 7(c)(3) of the Exchange Act (market
maker exception regarding margin requirements).
    \47\ See, e.g., NYSE Arca Rule 8.800-E and Market Maker Fees and
Credits, NYSE Arca Fees and Charges (incentive programs for market
makers).
    \48\ See Section __.4(b) (market making exemption from the
proprietary trading prohibition).
---------------------------------------------------------------------------

    Second, although the proposed discounts would provide market makers
with a benefit not provided to other market participants, such
discounts would not amount to unfair discrimination or an unnecessary
or inappropriate burden on competition. As discussed above, the SEC has
recognized repeatedly that such favorable treatment for market makers
in other contexts was not unfairly discriminatory or a burden on
competition in light of its positive effects on market quality, nor was
it considered to involve an inequitable allocation of fees among
members.
    Third, 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.\49\ The proposed discounts
recognize the different types of trading operations presented by
Options Market Makers and Equity Market Makers, as well as the value of
the market makers' quoting activity to the markets as a whole.
Accordingly, the Operating Committee believes that the proposed
discounts will not impact the ability of Options Market Makers or
Equity Market Makers to provide liquidity.
---------------------------------------------------------------------------

    \49\ Section 11.2(b) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Finally, the Operating Committee believes that the trade-to-quote
ratio is an appropriate method for discounting market maker message
traffic, including because of the relatively few quotes that ultimately
execute. As discussed above, the vast majority of quotes market makers
submit are intended to price the market and provide liquidity against
which orders may execute. The Operating Committee proposes to use the
trade-to-quote ratio for calculating the discount because it directly
relates to the issue regarding the quoting requirement (i.e., fewer
trades per quote

for market makers due to their quoting activity) and it is an objective
discounting method.
(a) Options Market Maker Discount
    To address issues regarding the potential burdens on competition
and market quality of including Options Market Maker message traffic in
the calculation of message traffic, the Operating Committee proposes to
discount Options Market Maker message traffic based on the trade-to-
quote ratio for options when calculating the message traffic for
Options Market Makers.\50\ Specifically, for each Options Market Maker,
a discount would be applied to (1) all message traffic reported to the
CAT by the Options Market Maker related to an order originated by a
market maker in its market making account for a security in which it is
registered, regardless of where the order is ultimately routed or
executed; \51\ and (2) all message traffic for which a ``quote sent
time'' is reported by an Options Exchange on behalf of the given
Options Market Maker.
---------------------------------------------------------------------------

    \50\ The SEC approved exemptive relief permitting Options Market
Maker quotes to be reported to the Central Repository by the
relevant Options Exchange in lieu of requiring that such reporting
be done by both the Options Exchange and the Options Market Maker,
as required by Rule 613 of Regulation NMS. See Securities Exchange
Act Rel. No. 77265 (Mar. 1, 2016), 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 quote
messages that are reported to the CAT by Options Exchanges will be
included in the calculation of total message traffic and for the
calculation of individual Options Market Makers message traffic,
subject to the proposed discounts.
    \51\ Under the current version of the IM Reporting Tech Specs,
the discount would apply to new order messages and all related
messages reported to the CAT by an Options Market Maker with an
accountHolderType = O. See CAT FAQ C5 (available at
www.catnmsplan.com). The discount would not apply to messages by an
Industry Member that are associated with any other
accountHolderType. The IM Reporting Tech Specs may be amended from
time to time and this designation could be changed.
---------------------------------------------------------------------------

    The relevant trade-to-quote ratio for the Options Market Maker
discount would be calculated each quarter based on the prior quarter's
CAT data. The discount is calculated by dividing the adjusted trade
count (that is, the total number of trades for the quarter minus the
total number of trade busts) by the total number of quotes received by
the securities information processors (``SIP'') from an exchange. As an
example, the trade-to-quote ratio for Listed Options for the fourth
quarter of 2020 was 0.01%.
    Accordingly, each Options Market Maker's discounted message traffic
count would be calculated by multiplying its message traffic by the
options trade-to-quote ratio. The Options Market Maker's CAT fee then
would be calculated by multiplying its discounted percentage of the
total message traffic of all Industry Members during the relevant time
\52\ period by the Industry Member Allocation, subject to the Minimum
Industry Member CAT Fee and the Maximum Industry Member CAT Fee.
---------------------------------------------------------------------------

    \52\ Note that the total message traffic of all Industry Members
during the relevant time period will be calculated using the
discounted total for all Options Market Makers.
---------------------------------------------------------------------------

(b) Equity Market Maker Discount
    Similar to the treatment of Options Market Maker message traffic,
the Operating Committee proposes to discount Equity Market Maker
message traffic based on the trade-to-quote ratio for NMS Stocks when
calculating the message traffic for Equity Market Makers. Specifically,
for each Equities Market Maker, a discount would be applied to all
message traffic reported to the CAT by the Equities Market Maker
related to an order originated by a market maker in its market making
account for a security in which it is registered,\53\ regardless of
where the order is ultimately routed or executed.\54\
---------------------------------------------------------------------------

    \53\ Note that Equity Market Makers do not have a quote sent
time exemption comparable to the Options Market Maker quote sent
time exemption, as discussed above.
    \54\ Under the current version of the IM Reporting Tech Specs,
the discount would apply to new order messages and all related
messages reported to the CAT by an Equities Market Maker with an
accountHolderType = O. See CAT FAQ C5 (available at
www.catnmsplan.com). The discount would not apply to messages by the
Industry Member that are associated with any other
accountHolderType. The IM Reporting Tech Specs may be amended from
time to time and this designation could be changed.
---------------------------------------------------------------------------

    The relevant trade-to-quote ratio for the Equity Market Maker
discount would be calculated each quarter based on the prior quarter's
CAT data. The discount is calculated by dividing the adjusted trade
count (that is, the total number of trades for the quarter minus the
total number of trade busts) by the total number of quotes received by
the SIP from an exchange. As an example, the trade-to-quote ratio for
NMS Stocks for the fourth quarter of 2020 was 4.77%.
    The Equity Market Maker CAT fee would be calculated in the same
manner as the Options Market Maker CAT fee. Each Equity Market Maker's
discounted message traffic count would be calculated by multiplying its
message traffic by the NMS Stock trade-to-quote ratio. The Equity
Market Maker CAT fee then would be calculated by multiplying its
discounted percentage of the total message traffic of all Industry
Members during the relevant time period \55\ by the Industry Member
Allocation, subject to the Minimum Industry Member CAT Fee and the
Maximum Industry Member CAT Fee.
---------------------------------------------------------------------------

    \55\ Note that the total message traffic of all Industry Members
during the relevant time period will be calculated using the
discounted total for all Equity Market Makers.
---------------------------------------------------------------------------

(c) Proposed Amendments
    To implement the proposed market maker discounts, the Operating
Committee proposes to revise Section 11.3(b) of the CAT NMS Plan to
reflect the application of such discounts. Specifically, the Operating
Committee proposes to amend the statement in Section 11.3(b) that
``[t]he Operating Committee will establish fixed fees to be payable by
Industry Members, based on the message traffic generated by such
Industry Members'' to add the concept of the market maker discounts.
Specifically, the Operating Committee proposes to qualify this
statement by the phrase ``subject to . . . discounts for market maker
message traffic.''
iv. Minimum Industry Member CAT Fee
    The Operating Committee proposes to require all Industry Members to
pay at least a minimum fee for each relevant period. Specifically, the
Operating Committee proposes to impose a Minimum Industry Member CAT
Fee of $125 per quarter on an Industry Member if its CAT fee would be
less than $125 per quarter when calculated based on message traffic.
All Industry Members required to report to the CAT, including those
that have not yet begun to report to the CAT due to the phased
implementation schedule for the CAT, would be subject to the Minimum
Industry Member CAT Fee. If any Industry Member is required to pay the
Minimum Industry Member CAT Fee, the total additional amount paid by
all such Industry Members over the amount they otherwise would have
paid as a result of their message traffic calculation would be
discounted from all Industry Members other than those that were subject
to a Minimum Industry Member CAT Fee in accordance with their message
traffic percentage.\56\ Such a minimum fee satisfies the purposes of
the CAT as well as the funding principles of the CAT NMS Plan.
---------------------------------------------------------------------------

    \56\ Options Market Makers and Equity Market Makers will be
required to pay the Minimum Industry CAT Member Fee if their
quarterly CAT fee calculated with the market maker discounts is less
than $125 per quarter.
---------------------------------------------------------------------------

    A minimum fee of $125 per quarter ensures that all Industry Members

provide a meaningful contribution to the funding of the CAT, as the CAT
is intended to assist all market participants by creating enhanced
oversight of the markets, and thus benefits all Industry Members,
including those with small levels of message traffic.\57\ Because some
Industry Members may have very small levels of message traffic, their
proposed CAT fee may be commensurately very small (e.g., they could pay
a CAT fee of pennies). However, the size of the $125 minimum quarterly
fee is not so large as to be overly burdensome to Industry Members with
small levels of message traffic. Accordingly, the minimum fee would be
in keeping with the funding principle requiring the funding model to
``avoid disincentives such as placing an inappropriate burden on
competition and a reduction in market quality.'' \58\
---------------------------------------------------------------------------

    \57\ See, e.g., CAT NMS Plan Approval Order at 84698.
    \58\ Section 11.2(e) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Such a minimum fee also would contribute to the ease of billing and
other administrative functions, in accordance with the funding
principle set forth in Section 11.2(d) of the CAT NMS Plan.\59\ Without
such a minimum fee, the Participants would be required to oversee the
payment of fees as little as pennies for certain Industry Members given
their limited message traffic.
---------------------------------------------------------------------------

    \59\ Section 11.2(d) of the CAT NMS Plan.
---------------------------------------------------------------------------

    To implement the Minimum Industry Member CAT Fee, the Operating
Committee proposes to revise Section 11.3(b) of the CAT NMS Plan to
reflect the imposition of a minimum fee. Specifically, the Operating
Committee proposes to amend the statement in Section 11.3(b) that
``[t]he Operating Committee will establish fixed fees \60\ to be
payable by Industry Members, based on the message traffic generated by
such Industry Members'' to add the concept of the minimum fee.
Specifically, the Operating Committee proposes to qualify this
statement with the phrase ``subject to a base minimum fee.''
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    \60\ As noted below, the Operating Committee also proposes to
delete the term ``fixed'' from this provision.
---------------------------------------------------------------------------

v. Maximum Industry Member CAT Fee
    The Operating Committee proposes to establish a maximum fee to be
paid by Industry Members. Under the Proposed Funding Model, Industry
Members would pay a CAT fee based on their proportionate message
traffic in NMS Stocks, subject to a maximum fee. The maximum fee for
Industry Members would be the fee calculated based on 8% of the total
message traffic for Industry Members. If an Industry Member's fee is
limited to the Maximum Industry Member CAT Fee, any excess amount which
the Industry Member otherwise would have paid as a fee above such
Maximum Industry Member CAT Fee would be re-allocated among all
Industry Members including any Industry Members subject to the Maximum
Industry Member CAT Fee and any Industry Members subject to the Minimum
Industry Member CAT Fee in accordance with its message traffic.
    The imposition of the Maximum Industry Member CAT Fee serves as a
method to institute a cap on fees in order to fairly allocate costs to
Industry Members as using message traffic alone potentially may result
in certain Industry Members paying a significant allocation of Total
CAT Costs. In this way, the proposed Maximum Industry Member CAT Fee
would address the potential for outsized fees that were previously
addressed via the tiering and comparability provisions set forth in the
Original Funding Model and the Prior Fee Proposal. These provisions
sought to impose similar levels of fees on comparable CAT
Reporters.\61\ Specifically, the Operating Committee proposes to limit
the Industry Member CAT fee to 8% of the total message traffic as 8%
would limit Industry Members to paying a fee comparable to the highest
fee for Participant complexes. For example, using the CAT Data from the
fourth quarter of 2020, the top three Industry Members would be subject
to the Maximum Industry Member CAT Fee, as their message traffic
exceeds 8% of the total Industry Member message traffic. These three
Industry Members would be subject to annual CAT fees in the range of $5
to 6 million. Similarly, the Participant complexes with the highest CAT
fees would pay an annual CAT fee in a similar range. Without the
imposition of the Maximum Industry Member CAT Fee, the Industry Member
with the highest CAT fee would pay almost $10 million for its annual
CAT fee.
---------------------------------------------------------------------------

    \61\ The proposed deletion of the tiering and comparability
provisions are discussed above.
---------------------------------------------------------------------------

    The Operating Committee proposes to revise Section 11.3(b) of the
CAT NMS Plan to implement the proposed Maximum Industry Member CAT Fee.
Specifically, the Operating Committee proposes to amend Section 11.3(b)
of the CAT NMS Plan to state that

any Industry Member shall pay a maximum fee established by the
Operating Committee instead of the higher fee calculated based on
such Industry Member's message traffic. If an Industry Member's fee
is limited to such maximum fee, any excess amount which the Industry
Member otherwise would have paid as a fee above such maximum fee
will be re-allocated among all Industry Members, including any
Industry Member that is subject to the maximum fee or subject to the
base minimum fee, in accordance with their message traffic.
vi. No Fixed Fees
    The Operating Committee proposes to eliminate references in the CAT
NMS Plan to ``fixed fees'' used with regard to the CAT fees to be paid
by Industry Members. The CAT fees to be paid by Industry Members may
vary from time to time in accordance with their message traffic.
Accordingly, the Operating Committee proposes to replace the reference
to ``fixed fees'' for Industry Members in Section 11.3(b) with
references to ``fees.''
4. Participant CAT Fee
    Like Industry Members, Participants would also be required to pay a
CAT fee. The total CAT fees to be paid by Participants as a group would
be designed to cover the Participant Allocation. Each Participant would
pay a minimum CAT fee of 0.75% of the Participant Allocation, referred
to as the ``Minimum Participant Fee.'' The Participant Allocation minus
the total Minimum Participant Fees required to be paid by each
Participant (the ``Adjusted Participant Allocation'') would be divided
between Equities Participants and Options Participants. Equities
Participants as a group would pay 60% of the Adjusted Participant
Allocation (``Equities Participant Allocation'') and Options
Participants as a group would pay 40% of the Adjusted Participant
Allocation (the ``Options Participant Allocation''). The Equities
Participant Allocation would be divided among Equities Participants
based on market share of NMS Stocks, although FINRA would not pay more
than the Maximum Equities Participant Fee (plus any additional re-
allocation of costs above the fee cap). The Options Participant
Allocation would be divided among Options Participants based on market
share in Listed Options.
    The Operating Committee notes that allocating the Participant
Allocation among the Participants is different from allocating the
Industry Member Allocation among Industry Members. Unlike Industry
Members, the Participants are each parties to the CAT NMS Plan and,
therefore, have been engaged in negotiations among themselves regarding
the allocation of CAT costs among Participants and the amendment of the
CAT NMS Plan to address the CAT funding model. Accordingly, the
Participants believe that the proposed method for allocating

the costs among Participants should be afforded some deference,
provided the proposed fees satisfy the requirements of the Exchange Act
and the CAT NMS Plan, which are discussed in detail in Section A.8
below.
a. Minimum Participant Fee
    The Operating Committee proposes to require each Participant to pay
at least a minimum CAT fee, regardless of its market share.
Specifically, the Operating Committee proposes to require each
Participant to pay a minimum CAT fee of 0.75% of the Participant
Allocation, referred to as the Minimum Participant Fee. The Minimum
Participant Fee will be paid by each registered national securities
exchange that is a Participant and each registered national securities
association that is a Participant, not by each market operated by the
Participants. This Minimum Participant Fee is intended to ensure that
all Participants provide a meaningful contribution to the funding of
the CAT, as the CAT is intended to assist all market participants by
creating enhanced oversight of the markets.\62\ All Participants,
regardless of their market share, are required to regulate their
markets and members, and they may do so using the CAT. Therefore, all
Participants receive benefits from the CAT and should pay a meaningful
portion of the CAT costs. However, the size of the minimum fee is not
so large as to be overly burdensome to Participants with a smaller
market share.
---------------------------------------------------------------------------

    \62\ CAT NMS Plan Approval Order at 84698.
---------------------------------------------------------------------------

    The Operating Committee proposes to revise Section 11.3(a) of the
CAT NMS Plan to reflect the imposition of the Minimum Participant Fee.
Specifically, the Operating Committee proposes to amend Section 11.3(a)
of the CAT NMS Plan to state that ``[t]he Operating Committee will
establish a minimum fee to be payable by each Participant'' in addition
to fees based on market share.
    In addition, as discussed below, the Minimum Participant Fee would
be included in the fee schedule for the Consolidated Audit Trail
Funding Fees set forth in Appendix B of the CAT NMS Plan. Proposed
paragraph (a)(1)(A) of Appendix B of the CAT NMS Plan would state that
each Participant would pay a CAT fee that includes the Minimum
Participant Fee. Paragraph (b)(2) of Appendix B would state that
``[t]he Minimum Participant Fee is 0.75% of the Participant
Allocation.'' Paragraph (b)(2) of Appendix B would further clarify how
the Minimum Participant Fee would be imposed by stating that ``[f]or
avoidance of doubt, the Minimum Participant Fee will be paid by each
registered national securities exchange that is a Participant and each
registered national securities association that is a Participant.''
b. Allocation of Adjusted Participant Allocation Among Participants
    The Participant Allocation minus the total Minimum Participant Fees
required to be paid by each Participant, referred to as the ``Adjusted
Participant Allocation,'' will be divided among the Participants as
described below. The Operating Committee proposes to include this
definition of ``Adjusted Participant Allocation'' in proposed paragraph
(b)(3) of the Appendix B. Specifically, proposed paragraph (b)(3) of
Appendix B would state that ``[t]he Adjusted Participant Allocation is
the Participant Allocation minus the sum of all Minimum Participant
Fees required to be paid by each Participant.''
i. Use of Market Share
    Under the Proposed Funding Model, the Adjusted Participant
Allocation would be allocated among Participants based on market share.
The use of market share for this purpose is in accordance with the CAT
NMS Plan as adopted by the SEC. Specifically, the CAT NMS Plan
contemplates Participants paying a CAT fee based upon market share.\63\
The Operating Committee analyzed various alternative methods for
allocating costs among Participants other than market share and
continued to determine that using market share would equitably allocate
CAT fees among Participants. In contrast to Industry Members, which
determine the degree to which they produce message traffic that
constitutes Reportable Events, the Reportable Events of Participants
are largely derivative of quotations and orders received from Industry
Members that they are required to display. The business models for
Participants, however, generally are focused on executions and/or trade
reporting in their marketplaces. As a result, the Operating Committee
believes that it is more equitable to charge Participants based on
their market share rather than their message traffic. Moreover, relying
on market share would provide the Participants with a straightforward
calculation using readily available market data. Such a basic
calculation would be consistent with the CAT funding principle, which
requires the model to ``provide for ease of billing and other
administrative functions.'' \64\ Finally, the Participants have been
voluntarily allocating CAT costs based on market share for the past
eight years and are comfortable that allocating CAT cost based on
market share is an appropriate way to allocate CAT costs, as it is
consistent with the CAT NMS Plan.
---------------------------------------------------------------------------

    \63\ See Sections 11.2(c), 11.3(a)(i) and 11.3(a)(ii) of the CAT
NMS Plan.
    \64\ Section 11.2(d) of the CAT NMS Plan.
---------------------------------------------------------------------------

    The Operating Committee proposes to amend Section 11.3(a) of the
CAT NMS Plan to clarify that the Participants will pay a fee based on
market share. Specifically, the Operating Committee proposes to add the
phrase ``based on market share'' to Section 11.3(a) of the CAT NMS
Plan. With this change and the changes discussed above, Section 11.3(a)
of the CAT NMS Plan would state that ``[t]he Operating Committee will
establish a minimum fee to be payable by each Participant in addition
to fees based on market share to be payable by Participants as provided
in this Section 11.3(a).''
ii. No Tiered Fees for Participants
    The Operating Committee proposes to eliminate the use of tiered
fees for Participants in the Proposed Funding Model. The Operating
Committee proposes to allocate the Adjusted Participant Allocation
among Participants based on the Participant's market share without
relying on tiered fees for the reasons discussed above with regard to
Industry Members. As discussed above, the Operating Committee proposes
to amend Sections 11.1(d), 11.2(c), 11.3(a) and 11.3(b) to eliminate
the concept of tiered fees from the CAT NMS Plan.
iii. 60%-40% Allocation Between Equities Participants and Options
Participants
    The Operating Committee proposes to divide the Adjusted Participant
Allocation between Equities Participants and Options Participants
because it is difficult to compare market share between asset classes
(i.e., equity shares versus options contracts). This bifurcated
approach to allocating costs among Equities Participants and Options
Participants is consistent with the CAT NMS Plan, which specifically
contemplates allocating Participant CAT fees based on options and
equity activity.\65\ Note that, unlike the Original Funding Model, the
Operating Committee has determined not to allocate any portion of the
Adjusted Participant Allocation based on OTC Equity Securities market
share.
---------------------------------------------------------------------------

    \65\ See Section 11.3(a) of the CAT NMS Plan.

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

    Under the Proposed Funding Model, the Equities Participant
Allocation would be 60% of the Adjusted Participant Allocation and,
correspondingly, the Options Participants Allocation would be 40% of
the Adjusted Participant Allocation. If a Participant has both options
and equities market share, then such Participant will be treated as
both an Equities Participant and an Options Participant.\66\
---------------------------------------------------------------------------

    \66\ The Operating Committee proposes to clarify this point in
the CAT NMS Plan by including the following statement in proposed
paragraph (a)(1) of Appendix B of the CAT NMS Plan: ``For the
avoidance of doubt, Participants with both options and equities
market share shall be considered both Equities Participants and
Options Participants.''
---------------------------------------------------------------------------

    The Operating Committee believes that the proposed 60%-40%
allocation between Equities Participants and Options Participants is an
appropriate allocation among Participants. The allocation among the
Equities and Options Participants has been the subject of negotiations
among the Participants. In addition, in the Prior Fee Proposal, the
Operating Committee proposed a 67%/33% allocation between Equity
Execution Venues and Options Execution Venues based on the
comparability concept.\67\
---------------------------------------------------------------------------

    \67\ See Prior Fee Proposal at 1408.
---------------------------------------------------------------------------

    As discussed below, the 60%-40% allocation of the Adjusted
Participant Allocation between Equities Participants and Options
Participants would be included in the fee schedule for the Consolidated
Audit Trail Funding Fees in the CAT NMS Plan. Proposed paragraph (b)(4)
of Appendix B of the CAT NMS Plan would state that ``[t]he Equities
Participant Allocation is 60% of the Adjusted Participant Allocation,''
and proposed paragraph (b)(5) of Appendix B of the CAT NMS Plan would
state that ``[t]he Options Participant Allocation is 40% of the
Adjusted Participant Allocation.''
iv. Equities Participant Allocation
    The Equities Participant Allocation would be divided among Equities
Participants based on market share of NMS Stocks in accordance with
Section 11.3(a)(i) of the CAT NMS Plan. An Equities Participant's
market share in NMS Stocks would be determined by calculating each
Equities Participant's proportion of the total volume of NMS Stock
shares reported by all Equities Participants during the relevant time
period. Accordingly, in addition to the Minimum Participant Fee, each
Equities Participant will pay a CAT fee that is calculated by
multiplying (x) each Equities Participant's percentage of the total
volume of NMS Stock shares during the relevant time period by (y) the
Equities Participant Allocation, subject to the Maximum Equities
Participant Fee.
    As discussed below, the Operating Committee proposes to include the
allocation of the Equities Participant Allocation in the fee schedule
for the Consolidated Audit Trail Funding Fees in the CAT NMS Plan.
Proposed paragraph (a)(1)(B) of Appendix B of the CAT NMS Plan would
state that Equities Participants would pay a CAT fee calculated by
adding the sum of the Minimum Participant Fee and the lesser of ``the
product of multiplying the Equities Participant's percentage of total
market share of NMS Stocks for all Equities Participants against the
Equities Participant Allocation; or (ii) the Maximum Equities
Participant Fee, if applicable.''
(a) Treatment of OTC Equity Securities
    Under the Original Funding Model, market share for a national
securities association was calculated based on the share volume of
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. Under the Proposed
Funding Model, the Operating Committee proposes to calculate market
share for national securities associations solely based on share volume
of trades reported in NMS Stocks. Correspondingly. [sic] the
calculation of total market share and market share for each Equities
Participant would not include reported share volume in OTC Equity
Securities.
    The Operating Committee proposes to calculate market share for
national securities associations without reference to trades reported
in OTC Equity Securities. 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 large number of shares are involved in transactions
involving OTC Equity Securities versus NMS Stocks. Because the proposed
CAT fees for Equities Participants are based on market share calculated
by share volume, FINRA would likely be subject to higher fees if OTC
Equity Securities were included in the calculation of market share.
    The Operating Committee proposes to exclude OTC Equity Securities
share volume in the calculation of market share, rather than to use a
discounting approach proposed in the Prior Fee Proposal. In the Prior
Fee Proposal, the Operating Committee proposed to discount the share
volume of trades reported in OTC Equity Securities when calculating the
market share for national securities associations and Execution Venue
ATSs.\68\ At this time, the Operating Committee has determined that
excluding OTC Equity Share volume entirely would be a more simple and
straightforward approach from an administrative perspective. The
Operating Committee believes that this approach to OTC Equity Share
volume addresses comments about prior fee proposals regarding the
different trading characteristics of NMS Stocks and OTC Equity
Securities.\69\
---------------------------------------------------------------------------

    \68\ Prior Fee Proposal at 1406.
    \69\ Suspension Order at 31664-5.
---------------------------------------------------------------------------

    To implement this proposed change, the Operating Committee proposes
to delete the references to OTC Equity Securities from Section
11.3(a)(i) of the CAT NMS Plan. Specifically, the Operating Committee
proposes to delete the phrase ``or OTC Equity Securities'' from Section
11.3(a)(i)(B) of the CAT NMS Plan, which states in relevant part ``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.'' Similarly, the Operating Committee proposes to
delete the phrase to ``or OTC Equity Securities'' in the statement in
Section 11.3(a)(i) of the CAT NMS Plan that ``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.''
(b) Maximum Equities Participant Fee
    The Operating Committee proposes to establish a maximum fee to be
paid by a national securities association that is a Participant.
Currently, FINRA is the only national securities association that is a
Participant in the CAT NMS Plan. Under the Proposed Funding Model,
FINRA would pay a CAT fee based on its proportionate market share in
NMS Stocks, subject to a maximum fee. The maximum fee allocated to
FINRA would be the greater of (x) 20% of the Equities Participant
Allocation or (y) the highest CAT fee required to be paid by any other
Equities Participant plus 5% of such highest CAT fee (the ``Maximum
Equities Participant Fee''). If FINRA's fee is limited to the Maximum
Equities Participant Fee, any excess amount which FINRA otherwise would
have

paid as a fee above such Maximum Equities Participant Fee would be re-
allocated among all Equities Participants including FINRA in accordance
with their market share.
    The imposition of the Maximum Equities Participant Fee serves as a
method to institute a cap on fees in order to fairly allocate costs to
FINRA given that a market share approach potentially may result in
FINRA having a significant allocation given the large volume of NMS
Stock activity that is subject to trading reporting on FINRA
facilities, and potentially may not accurately reflect a fair
allocation of costs to FINRA. In this way, the proposed Maximum
Equities Participant Fee would address the potential for outsized fees
that were previously addressed via the tiering and comparability
provisions set forth in the Original Funding Model and the Prior Fee
Proposal. These provisions sought to impose similar levels of fees on
comparable CAT Reporters.\70\ Finally, along with the other components
of the calculation of the Participant CAT fee, the Operating Committee
believes the use of market share is a fair and reasonable basis for
assessing regulatory usage, expense and burden among the Participants.
FINRA is expected to be one of the largest regulatory users of the CAT
and it would be fair and reasonable for the FINRA to pay a
proportionate percentage of the CAT fees commensurate with FINRA's
comparable market share, which is subject to the Maximum Equities
Participant Fee and also not subject to any fee for OTC Equity Security
market share.
---------------------------------------------------------------------------

    \70\ The proposed deletion of the tiering and comparability
provisions are discussed above.
---------------------------------------------------------------------------

    The Operating Committee proposes to revise Section 11.3(a)(i) of
the CAT NMS Plan to implement the proposed Maximum Equities Participant
Fee. Specifically, the Operating Committee proposes to amend Section
11.3(a)(i) of the CAT NMS Plan to state that

any Participant that is a national securities association shall pay
a maximum fee established by the Operating Committee instead of the
higher fee calculated based on such Participant's market share. If a
Participant's fee is limited to such maximum fee, any excess amount
which the Participant otherwise would have paid as a fee above such
maximum fee will be re-allocated among all Equities Participants
(including any Equities Participant subject to the maximum fee) in
accordance with their market share.

    In addition, as discussed below, the Operating Committee proposes
to include the Maximum Equities Participant Fee in the fee schedule for
the Consolidated Audit Trail Funding Fees in the CAT NMS Plan. Proposed
paragraph (a)(1)(B)(ii) of Appendix B of the CAT NMS Plan would
describe the application of the Maximum Equities Participant Fee.
Specifically, proposed paragraph (a)(1)(B) would state that Equities
Participants would pay a CAT fee calculated by adding the sum of the
Minimum Participant Fee and the following:

    (B) For Equities Participants, the lesser of:
    (i) the product of multiplying the Equities Participant's
percentage of total market share of NMS Stocks for all Equities
Participants against the Equities Participant Allocation; or
    (ii) the Maximum Equities Participant Fee, if applicable; and
    If any Participant's fee is limited to the Maximum Equities
Participant Fee, any excess amount which such Participant otherwise
would have paid as a fee above such Maximum Equities Participant Fee
will be re-allocated among all Equities Participants (including any
Equities Participant subject to the Maximum Equities Participant
Fee) in accordance with their market share.

    Furthermore, proposed paragraph (b)(6) of Appendix B of the CAT NMS
Plan would state:

    The Maximum Equities Participant Fee is the greater of (x) 20%
of the Equities Participant Allocation or (y) the highest CAT fee
required to be paid by any other Equities Participant plus 5% of
such highest CAT fee. The Maximum Equities Participant Fee only
applies to a Participant that is a national securities association.
v. Options Participant Allocation
    The Options Participant Allocation would be divided among Options
Participants based on market share in Listed Options in accordance with
Section 11.3(a)(ii) of the CAT NMS Plan. An Options Participant's
market share in Listed Options would be determined by calculating the
total volume of Listed Options contracts reported by all Options
Participants during the relevant time period. Accordingly, each Options
Participant would pay a CAT fee that is calculated by multiplying (x)
each Options Participant's percentage of the total market share in
Listed Options during the relevant time period by (y) the Options
Participant Allocation.
    As discussed below, the Operating Committee proposes to include the
allocation of the Options Participant Allocation in the fee schedule
for the Consolidated Audit Trail Funding Fees in the CAT NMS Plan.
Proposed paragraph (a)(1)(C) of Appendix B of the CAT NMS Plan would
state that Options Participants would pay a CAT fee calculated by
adding the sum of the Minimum Participant Fee and ``the product of
multiplying the Participant's percentage of total market share of
Listed Options contracts for all Options Participants against the
Options Participant Allocation.''
vi. No Fixed Fees
    The Operating Committee proposes to eliminate references to ``fixed
fees'' used with regard to the CAT fees to be paid by Participants. As
discussed above with regard to Industry Member CAT fees, the CAT fees
to be paid by Participants may vary from time to time in accordance
with their market share. Accordingly, the Operating Committee proposes
to replace the references to ``fixed fees'' for Participants in
Sections 11.3(a), 11.3(a)(i) and 11.3(a)(ii) with references to
``fees.''
5. Proposed CAT Fees
a. Participant CAT Fee
    To recover the costs of the CAT going forward, the Operating
Committee proposes to charge Participants a quarterly CAT fee
calculated based on the allocation of Total CAT Costs pursuant to the
Proposed Funding Model. The Operating Committee will use the costs set
forth in the annual operating budget as the Total CAT Costs in the
calculation of the Participant CAT Fee.\71\ Specifically, the Total CAT
Costs budgeted for the upcoming year will be the costs set forth in the
annual operating budget for the Company required pursuant to Section
11.1(a) of the CAT NMS Plan. Section 11.1(a) states that ``[o]n an
annual basis the Operating Committee shall approve an operating budget
for the Company. The budget shall include the projected costs of the
Company, including the costs of developing and operating the CAT for
the upcoming year, and the sources of all revenue to cover such costs,
as well as the funding of any reserve that the Operating Committee
reasonably deems appropriate for prudent operation of the Company.'' In
addition, to address potential changes in the budget during the year,
the total budgeted costs for the CAT for the relevant year may be
adjusted on a quarterly basis as the Operating Committee reasonably
deems appropriate for the prudent operation of the Company. To the
extent that the Operating Committee adjusts the total

budgeted costs for the CAT for the relevant year during its quarterly
budget review, the adjusted total budgeted costs for the CAT will be
used in calculating the remaining quarterly CAT fees for that year.
Using budgeted CAT costs, rather than CAT costs already incurred,
allows the Consolidated Audit Trail, LLC to collect fees prior to when
bills become payable.
---------------------------------------------------------------------------

    \71\ Note that all Participant CAT fees would be paid
prospectively based on budgeted Total CAT Costs. This contrasts with
the Historical CAT Assessment, the Period 3 CAT Fee and the Period 4
CAT Fee for the Industry Members which would be paid based on actual
past costs incurred due to the application of the Financial
Accountability Milestones. The Quarterly CAT Fee for Industry
Members also would be paid prospectively based on budgeted Total CAT
Costs.
---------------------------------------------------------------------------

    The Total CAT Costs budgeted for the year would be comprised of all
fees, costs and expenses estimated to be incurred by or for the Company
in connection with the development, implementation and operation of the
CAT during this period. These CAT costs would include, but not be
limited to, Plan Processor costs, insurance costs, third-party support
costs and an operational reserve. The Plan Processor costs would
consist of the Plan Processor's ongoing costs, including development
costs. This amount would be based upon the fees due to the Plan
Processor pursuant to the Company's agreement with the Plan Processor.
Insurance costs would include cyber insurance and director liability
insurance. The third-party support costs would include legal fees,
consulting fees, vendor fees and audit fees. In addition, the Operating
Committee aims to accumulate the necessary funds to establish an
operating reserve for the Company through the CAT fees charged to CAT
Reporters. As set forth in Section 11.1(a) of the CAT NMS Plan, the
Operating Committee may include in the budget ``funding of any reserve
that the Operating Committee reasonably deems appropriate for prudent
operation of the Company.'' \72\ As required by Section 11.1(c) of the
CAT NMS Plan, any surpluses collected will be treated as an operational
reserve to offset future fees and will not be distributed to the
Participants as profits.\73\ Using these budgeted Total CAT Costs, the
Operating Committee will calculate the quarterly CAT fee owed by each
Participant in accordance with the Proposed Funding Model.
---------------------------------------------------------------------------

    \72\ Although the Operating Committee may determine at its
discretion that a different level of reserves is appropriate in the
future, the Operating Committee proposes to include in the budget an
operational reserve comprised of three months of ongoing CAT costs,
such as Plan Processor costs, third party support costs and
insurance costs.
    \73\ CAT NMS Plan Approval Order at 84792.
---------------------------------------------------------------------------

    To implement the Participant CAT fees, the Exchange proposes to add
a fee schedule, entitled ``Consolidated Audit Trail Funding Fees,'' to
Exhibit [sic] B of the CAT NMS Plan. As discussed above, proposed
paragraph (a) states the following:

    Each Participant shall pay to Consolidated Audit Trail, LLC in
the manner prescribed by the Consolidated Audit Trail, LLC a CAT fee
calculated as follows:
    (1) Commencing upon SEC approval of the CAT fee, each
Participant shall pay a quarterly CAT fee based on market share from
the prior quarter calculated by adding the sum of the following:
    (A) For all Participants, the Minimum Participant Fee;
    (B) For Equities Participants, the lesser of:
    (i) the product of multiplying the Equities Participant's
percentage of total market share of NMS Stocks for all Equities
Participants against the Equities Participant Allocation; or
    (ii) the Maximum Equities Participant Fee, if applicable; and
    If any Participant's fee is limited to the Maximum Equities
Participant Fee, any excess amount which such Participant otherwise
would have paid as a fee above such Maximum Equities Participant Fee
will be re-allocated among all Equities Participants (including any
Equities Participant that is subject to the Maximum Equities
Participant Fee) in accordance with their market share.
    (C) For Options Participants, the product of multiplying the
Participant's percentage of total market share of Listed Options
contracts for all Options Participants against the Options
Participant Allocation;
    For the avoidance of doubt, Participants with both options and
equities market share shall be considered both Equities Participants
and Options Participants.

    As described above, proposed paragraph (b) of Appendix B of the CAT
NMS Plan would provide the variables necessary to calculate Participant
CAT fees in accordance with paragraph (a). Specifically, paragraph (b)
would state that ``[t]he CAT fees set forth in paragraph (a) will be
calculated based on the following.'' Proposed paragraph (b)(1) of the
fee schedule would state that ``[t]he Industry Member Allocation for
each quarter shall be 75% of 1/4th of the Total CAT Costs for the
relevant year. The Participant Allocation for each quarter shall be 25%
of 1/4th of the Total CAT Costs for the relevant year.'' Proposed
paragraph (b)(2) of the fee schedule would state that ``[t]he Minimum
Participant Fee is 0.75% of the Participant Allocation. For avoidance
of doubt, the Minimum Participant Fee will be paid by each registered
national securities exchange that is a Participant and each registered
national securities association that is a Participant.'' Proposed
paragraph (b)(3) of the fee schedule would state that ``[t]he Adjusted
Participant Allocation is the Participant Allocation minus the sum of
all Minimum Participant Fees required to be paid by each Participant.''
Proposed paragraph (b)(4) of the fee schedule would state that ``[t]he
Equities Participant Allocation is 60% of the Adjusted Participant
Allocation.'' Proposed paragraph (b)(5) of the fee schedule would state
that ``[t]he Options Participant Allocation is 40% of the Adjusted
Participant Allocation.'' Proposed paragraph (b)(6) of the fee schedule
would state that the ``[t]he Maximum Equities Participant Fee is the
greater of (x) 20% of the Equities Participant Allocation or (y) the
highest CAT fee required to be paid by any other Equities Participant
plus 5% of such second highest CAT fee. The Maximum Equities
Participant Fee only applies to a Participant that is a national
securities association.''
    Finally, proposed paragraph (b)(7) of the fee schedule would state
that ``[t]he Total CAT Costs shall be the total annual budgeted costs
for the CAT for the relevant year.'' Proposed paragraph (b)(7) of the
fee schedule would further state that ``[t]he total budgeted costs for
the CAT for the relevant year may be adjusted on a quarterly basis as
the Operating Committee reasonably deems appropriate for the prudent
operation of the Company. To the extent that the Operating Committee
adjusts the total budgeted costs for the CAT for the relevant year
during its quarterly budget review, the adjusted total budgeted costs
for the CAT will be used in calculating the remaining quarterly CAT
fees for that year.''
    The following chart summarizes the imposition of the Quarterly CAT
Fee for Participants each year commencing upon approval by the SEC and
continuing each year thereafter.

----------------------------------------------------------------------------------------------------------------
                                                                     CAT data used for
            Quarterly CAT fee              Quarterly participant       market share             Payment due
                                                allocation              calculation
----------------------------------------------------------------------------------------------------------------
Quarterly CAT Fee #1....................  1/4th of 25% of the     CAT Data from first     2nd quarter of the
                                           budgeted annual CAT     quarter of the          relevant year.
                                           costs for the           relevant year.
                                           relevant year.
Quarterly CAT Fee #2....................  1/4th of 25% of the     CAT Data from second    3rd quarter of the
                                           budgeted annual CAT     quarter of the          relevant year.
                                           costs for the           relevant year.
                                           relevant year.
Quarterly CAT Fee #3....................  1/4th of 25% of the     CAT Data from third     4th quarter of the
                                           budgeted annual CAT     quarter of the          relevant year.
                                           costs for the           relevant year.
                                           relevant year.

Quarterly CAT Fee #4....................  1/4th of 25% of the     CAT Data from fourth    1st quarter of year
                                           budgeted annual CAT     quarter of the          following the
                                           costs for the           relevant year.          relevant year.
                                           relevant year.
----------------------------------------------------------------------------------------------------------------

    Note that, if the SEC approves the proposed CAT fees mid-year, the
Operating Committee proposes to require Participants to commence
payment of the Participant CAT Fee in the first quarter after the
quarter in which the SEC approves the fee. Participants will be
required to pay a quarterly fee for the remaining quarter(s) of the
year based on CAT Data from the prior quarter, using the portion of the
annual budget for those remaining quarter(s) of the year. For example,
if the SEC approves the CAT fees in the third quarter of 2021, then the
Participants would be required to pay their first quarterly CAT fee
during the fourth quarter of 2021 based on the market share calculation
using CAT Data from the third quarter of 2021 and one quarter of the
budgeted annual CAT costs for 2021.
b. Industry Member CAT Fees
    The Operating Committee has determined to charge Industry Members
fees related to CAT costs in accordance with the Proposed Funding
Model. To implement these CAT fees, each Participant would submit a fee
filing pursuant to Section 19(b) of the Exchange Act to propose to add
a section entitled ``Consolidated Audit Trail Funding Fees'' to its fee
schedule, and to describe the following CAT fees in that section.
Because the Participants have funded the CAT to date and CAT fees
imposed on Industry Members are guided by the Financial Accountability
Milestones, the Operating Committee proposes four categories of CAT
fees: the Historical CAT Assessment (for pre-Period 1, Period 1 and
Period 2), Period 3 CAT Fee, Period 4 CAT Fee, and the Quarterly CAT
Fee.
i. Historical CAT Assessment (for Pre-Period 1, Period 1 and Period 2)
    The Operating Committee determined to charge Industry Members a
historical assessment (``Historical CAT Assessment'') to recover
certain CAT costs incurred prior to January 1, 2021 (``Historical CAT
Assessment Costs''). Specifically, the Historical CAT Assessment is
intended to collect from Industry Members 75% of certain costs incurred
through June 22, 2020, the effective date for the Financial
Accountability Milestones,\74\ certain costs from Period 1 of the
Financial Accountability Milestones (which covered the period from June
22, 2020-July 31, 2020) and certain costs from Period 2 of the
Financial Accountability Milestones (which covered the period from
August 1, 2020-December 31, 2020). The Total CAT Costs for these
periods, excluding Excluded Costs (as defined below) and certain costs
related to the conclusion of the relationship with Thesys CAT, LLC is
$193,273,342. The Historical CAT Assessment is designed to recover 75%
of these CAT costs. Accordingly, the Historical CAT Assessment Costs
would be $144,955,006.
---------------------------------------------------------------------------

    \74\ See generally Financial Accountability Milestone Release.
---------------------------------------------------------------------------

    The Participants have already funded all CAT costs incurred prior
to January 1, 2021. Accordingly, only Industry Members would be
required to pay the Historical CAT Assessment. To implement the
Historical CAT Assessment, each Participant would submit a fee filing
pursuant to Section 19(b) of the Exchange Act describing the Historical
CAT Assessment.
    The following describes the Historical CAT Assessment Costs for the
period prior to June 22, 2020 and the period from June 22, 2020 through
December 31, 2020 in more detail. The Total CAT Costs incurred prior to
June 22, 2020 (other than Excluded Costs and certain costs related to
the conclusion of the relationship with Thesys CAT, LLC) is
$153,268,597. The Historical CAT Assessment to be paid by Industry
Members would be designed to recover 75% of these total costs, which is
$114,951,448. These cost figures are further described below.
     In accordance with Section 11.1(c) of the CAT NMS Plan,
the Historical CAT Assessment Costs would include ``fees, costs and
expenses (including legal and consulting fees and expenses) incurred by
the Participants on behalf of the Company prior to the Effective Date
in connection with the creation and implementation of the CAT.''
Specifically, the Historical CAT Assessment Costs include costs
incurred from 2012 through November 20, 2016 related to the development
of the National Market System Plan Governing the Process of Selecting a
Plan Processor and Developing a Plan for the Consolidated Audit Trail
\75\ (``Selection Plan'') and the CAT NMS Plan as well as the Plan
Processor selection process pursuant to the Selection Plan. The Total
CAT Costs incurred during this period are $13,842,881. The Historical
CAT Assessment would be designed to recover 75% of these total costs,
which is $10,382,161.
---------------------------------------------------------------------------

    \75\ See, e.g., Securities Exchange Act Rel. No. 71596, 79 FR
11152 (Feb. 27, 2014).
---------------------------------------------------------------------------

     The Historical CAT Assessment Costs would include costs
incurred after the formation of the CAT NMS Plan and prior to the
selection of Thesys CAT, LLC as the Plan Processor for the CAT, which
covers the period from November 21, 2016 through April 5, 2017. The
total cost for this period is $2,933,869. The Historical CAT Assessment
would be designed to recover 75% of these total costs, which is
$2,200,402.
     The Historical CAT Assessment Costs would include costs
incurred during the period in which Thesys CAT, LLC was the Plan
Processor for the CAT, which was April 6, 2017 through March 28, 2019.
The total costs for this period are $106,256,258. The Participants,
however, have determined to exclude from the Historical CAT Assessment
Costs all costs incurred from November 15, 2017 through November 15,
2018 (``Excluded Costs'') due to the delay in the reporting to the CAT.
The Excluded Costs are $48,874,937. Accordingly, the total costs for
this period are $57,381,321. The Historical CAT Assessment would be
designed to recover 75% of these total costs, which is $43,035,991.
     The Historical CAT Assessment Costs would include the
Total CAT Costs from the date of FINRA CAT's selection as the Plan
Processor on March 29, 2019 through June 21, 2020. The total costs for
this period are $79,110,525.\76\ The Historical CAT Assessment would be
designed to recover 75% of these total costs, which is $59,332,894.
---------------------------------------------------------------------------

    \76\ These costs do not include costs incurred in relation to
the conclusion of the relationship with Thesys CAT, LLC.
---------------------------------------------------------------------------

    The Historical CAT Assessment Costs also would include the certain
CAT costs incurred from June 22, 2020 through July 31, 2020, which is
Period 1 of the Financial Accountability Milestones, as well as the
Total CAT Costs incurred from August 1, 2020 through December 31, 2020,
which is Period 2 of the Financial Accountability Milestones, subject
to certain

exceptions.\77\ The total costs incurred from June 22, 2020 through
December 31, 2020 are $40,004,745. The Historical CAT Assessment to be
paid by the Industry Members would be designed to recover 75% of these
total costs, which is $30,003,559.
---------------------------------------------------------------------------

    \77\ These costs do not include costs incurred in relation to
the conclusion of the relationship with Thesys CAT, LLC.
---------------------------------------------------------------------------

    Using the Historical CAT Assessment Costs, the Operating Committee
would calculate the Historical CAT Assessment owed by each Industry
Member in accordance with the Proposed Funding Model. The Operating
Committee proposes to seek to recover the Historical CAT Assessment
Costs over a period of four calendar quarters, commencing upon the
SEC's approval of the Historical CAT Assessment. Each quarter, each
Industry Member would pay the greater of the minimum fee of $125 or the
Industry Member's fee calculated based on message traffic (subject to
the market making discounts and the maximum fee). The message traffic
fee would be calculated by multiplying the percentage of the Industry
Member's message traffic of the total Industry Member message traffic
(subject to applicable discounts for Options and Equity Market Maker
message traffic and the Maximum Industry Member CAT Fee) by
$36,238,752, which is 1/4th of the Historical CAT Assessment Costs.
Each Industry Member's message traffic would be calculated using CAT
Data from the prior quarter. The Operating Committee proposes to
commence charging the Historical CAT Assessment in the first quarter
after SEC approval of the Historical CAT Assessment, based on CAT Data
from the quarter in which the SEC approved the CAT fees. The following
chart summarizes the imposition of the Historical CAT Assessment:

----------------------------------------------------------------------------------------------------------------
                                                Quarterly         CAT data used for
             Quarterly CAT fee               industry member       message traffic             Payment due
                                               allocation            calculation
----------------------------------------------------------------------------------------------------------------
Quarterly CAT Fee #1......................       $36,238,752  Quarter of SEC approval   1st quarter after SEC
                                                               of Historical CAT         approval of Industry
                                                               Assessment.               Member CAT Fees set
                                                                                forth in this Proposed
                                                                                Plan Amendment.
Quarterly CAT Fee #2......................        36,238,752  1st quarter after SEC     2nd quarter after SEC
                                                               approval of Historical    approval of Industry
                                                               CAT Assessment.           Member CAT Fees set
                                                                                forth in this Proposed
                                                                                Plan Amendment.
Quarterly CAT Fee #3......................        36,238,752  2nd quarter after SEC     3rd quarter after SEC
                                                               approval of Historical    approval of Industry
                                                               CAT Assessment.           Member CAT Fees set
                                                                                forth in this Proposed
                                                                                Plan Amendment.
Quarterly CAT Fee #4......................        36,238,752  3rd quarter after SEC     4th quarter after SEC
                                                               approval of Historical    approval of Industry
                                                               CAT Assessment.           Member CAT Fees set
                                                                                forth in this Proposed
                                                                                Plan Amendment.
----------------------------------------------------------------------------------------------------------------

    In accordance with Section 11.6(b) of the CAT NMS Plan, the
Operating Committee indicates that the proposed Historical CAT
Assessment seeks to recover costs that are related to Post-Amendment
Expenses incurred during Period 1. Period 1 began on June 22, 2020, the
effective date of Section 11.6 of the CAT NMS Plan, and concluded on
July 31, 2020, the date of Initial Industry Member Core Equity and
Options Reporting. As indicated by the Participants' Quarterly Progress
Report,\78\ Initial Industry Member Core Equity and Option Reporting
was completed on schedule by July 31, 2020. As discussed above, the
Historical CAT Assessment Costs to be recovered via the Historical CAT
Assessment would include fees, costs and expenses incurred by or for